The Economic Consequences of the Peace

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Title: The Economic Consequences of the Peace
Author: John Maynard Keynes
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THE ECONOMIC CONSEQUENCES OF THE PEACE
by
JOHN MAYNARD KEYNES, C.B.
Fellow of King's College, Cambridge
New York
Harcourt, Brace and Howe
1920
PREFACE
The writer of this book was temporarily attached to the British
Treasury during the war and was their official representative at the
Paris Peace Conference up to June 7, 1919; he also sat as deputy for
the Chancellor of the Exchequer on the Supreme Economic Council. He
resigned from these positions when it became evident that hope could
no longer be entertained of substantial modification in the draft
Terms of Peace. The grounds of his objection to the Treaty, or rather
to the whole policy of the Conference towards the economic problems of
Europe, will appear in the following chapters. They are entirely of a
public character, and are based on facts known to the whole world.
J.M. Keynes.
King's College, Cambridge,
November, 1919.
CONTENTS
I. INTRODUCTORY
II. EUROPE BEFORE THE WAR
III. THE CONFERENCE
IV. THE TREATY
V. REPARATION
VI. EUROPE AFTER THE TREATY
VII. REMEDIES
THE ECONOMIC CONSEQUENCES OF THE PEACE
CHAPTER I
INTRODUCTORY
The power to become habituated to his surroundings is a marked
characteristic of mankind. Very few of us realize with conviction the
intensely unusual, unstable, complicated, unreliable, temporary nature
of the economic organization by which Western Europe has lived for the
last half century. We assume some of the most peculiar and temporary of
our late advantages as natural, permanent, and to be depended on, and we
lay our plans accordingly. On this sandy and false foundation we scheme
for social improvement and dress our political platforms, pursue our
animosities and particular ambitions, and feel ourselves with enough
margin in hand to foster, not assuage, civil conflict in the European
family. Moved by insane delusion and reckless self-regard, the German
people overturned the foundations on which we all lived and built. But
the spokesmen of the French and British peoples have run the risk of
completing the ruin, which Germany began, by a Peace which, if it is
carried into effect, must impair yet further, when it might have
restored, the delicate, complicated organization, already shaken and
broken by war, through which alone the European peoples can employ
themselves and live.
In England the outward aspect of life does not yet teach us to feel or
realize in the least that an age is over. We are busy picking up the
threads of our life where we dropped them, with this difference only,
that many of us seem a good deal richer than we were before. Where we
spent millions before the war, we have now learnt that we can spend
hundreds of millions and apparently not suffer for it. Evidently we did
not exploit to the utmost the possibilities of our economic life. We
look, therefore, not only to a return to the comforts of 1914, but to an
immense broadening and intensification of them. All classes alike thus
build their plans, the rich to spend more and save less, the poor to
spend more and work less.
But perhaps it is only in England (and America) that it is possible to
be so unconscious. In continental Europe the earth heaves and no one but
is aware of the rumblings. There it is not just a matter of extravagance
or "labor troubles"; but of life and death, of starvation and existence,
and of the fearful convulsions of a dying civilization.
* * * * *
For one who spent in Paris the greater part of the six months which
succeeded the Armistice an occasional visit to London was a strange
experience. England still stands outside Europe. Europe's voiceless
tremors do not reach her. Europe is apart and England is not of her
flesh and body. But Europe is solid with herself. France, Germany,
Italy, Austria and Holland, Russia and Roumania and Poland, throb
together, and their structure and civilization are essentially one. They
flourished together, they have rocked together in a war, which we, in
spite of our enormous contributions and sacrifices (like though in a
less degree than America), economically stood outside, and they may fall
together. In this lies the destructive significance of the Peace of
Paris. If the European Civil War is to end with France and Italy abusing
their momentary victorious power to destroy Germany and Austria-Hungary
now prostrate, they invite their own destruction also, being so deeply
and inextricably intertwined with their victims by hidden psychic and
economic bonds. At any rate an Englishman who took part in the
Conference of Paris and was during those months a member of the Supreme
Economic Council of the Allied Powers, was bound to become, for him a
new experience, a European in his cares and outlook. There, at the nerve
center of the European system, his British preoccupations must largely
fall away and he must be haunted by other and more dreadful specters.
Paris was a nightmare, and every one there was morbid. A sense of
impending catastrophe overhung the frivolous scene; the futility and
smallness of man before the great events confronting him; the mingled
significance and unreality of the decisions; levity, blindness,
insolence, confused cries from without,--all the elements of ancient
tragedy were there. Seated indeed amid the theatrical trappings of the
French Saloons of State, one could wonder if the extraordinary visages
of Wilson and of Clemenceau, with their fixed hue and unchanging
characterization, were really faces at all and not the tragi-comic masks
of some strange drama or puppet-show.
The proceedings of Paris all had this air of extraordinary importance
and unimportance at the same time. The decisions seemed charged with
consequences to the future of human society; yet the air whispered that
the word was not flesh, that it was futile, insignificant, of no effect,
dissociated from events; and one felt most strongly the impression,
described by Tolstoy in _War and Peace_ or by Hardy in _The Dynasts_, of
events marching on to their fated conclusion uninfluenced and unaffected
by the cerebrations of Statesmen in Council:
_Spirit of the Years_
Observe that all wide sight and self-command
Deserts these throngs now driven to demonry
By the Immanent Unrecking. Nought remains
But vindictiveness here amid the strong,
And there amid the weak an impotent rage.
_Spirit of the Pities_
Why prompts the Will so senseless-shaped a doing?
_Spirit of the Years_
I have told thee that It works unwittingly,
As one possessed not judging.
In Paris, where those connected with the Supreme Economic Council,
received almost hourly the reports of the misery, disorder, and decaying
organization of all Central and Eastern Europe, allied and enemy alike,
and learnt from the lips of the financial representatives of Germany and
Austria unanswerable evidence, of the terrible exhaustion of their
countries, an occasional visit to the hot, dry room in the President's
house, where the Four fulfilled their destinies in empty and arid
intrigue, only added to the sense of nightmare. Yet there in Paris the
problems of Europe were terrible and clamant, and an occasional return
to the vast unconcern of London a little disconcerting. For in London
these questions were very far away, and our own lesser problems alone
troubling. London believed that Paris was making a great confusion of
its business, but remained uninterested. In this spirit the British
people received the Treaty without reading it. But it is under the
influence of Paris, not London, that this book has been written by one
who, though an Englishman, feels himself a European also, and, because
of too vivid recent experience, cannot disinterest himself from the
further unfolding of the great historic drama of these days which will
destroy great institutions, but may also create a new world.
CHAPTER II
EUROPE BEFORE THE WAR
Before 1870 different parts of the small continent of Europe had
specialized in their own products; but, taken as a whole, it was
substantially self-subsistent. And its population was adjusted to this
state of affairs.
After 1870 there was developed on a large scale an unprecedented
situation, and the economic condition of Europe became during the next
fifty years unstable and peculiar. The pressure of population on food,
which had already been balanced by the accessibility of supplies from
America, became for the first time in recorded history definitely
reversed. As numbers increased, food was actually easier to secure.
Larger proportional returns from an increasing scale of production
became true of agriculture as well as industry. With the growth of the
European population there were more emigrants on the one hand to till
the soil of the new countries, and, on the other, more workmen were
available in Europe to prepare the industrial products and capital goods
which were to maintain the emigrant populations in their new homes, and
to build the railways and ships which were to make accessible to Europe
food and raw products from distant sources. Up to about 1900 a unit of
labor applied to industry yielded year by year a purchasing power over
an increasing quantity of food. It is possible that about the year 1900
this process began to be reversed, and a diminishing yield of Nature to
man's effort was beginning to reassert itself. But the tendency of
cereals to rise in real cost was balanced by other improvements;
and--one of many novelties--the resources of tropical Africa then for
the first time came into large employ, and a great traffic in oil-seeds
began to bring to the table of Europe in a new and cheaper form one of
the essential foodstuffs of mankind. In this economic Eldorado, in this
economic Utopia, as the earlier economists would have deemed it, most of
us were brought up.
That happy age lost sight of a view of the world which filled with
deep-seated melancholy the founders of our Political Economy. Before the
eighteenth century mankind entertained no false hopes. To lay the
illusions which grew popular at that age's latter end, Malthus disclosed
a Devil. For half a century all serious economical writings held that
Devil in clear prospect. For the next half century he was chained up and
out of sight. Now perhaps we have loosed him again.
What an extraordinary episode in the economic progress of man that age
was which came to an end in August, 1914! The greater part of the
population, it is true, worked hard and lived at a low standard of
comfort, yet were, to all appearances, reasonably contented with this
lot. But escape was possible, for any man of capacity or character at
all exceeding the average, into the middle and upper classes, for whom
life offered, at a low cost and with the least trouble, conveniences,
comforts, and amenities beyond the compass of the richest and most
powerful monarchs of other ages. The inhabitant of London could order by
telephone, sipping his morning tea in bed, the various products of the
whole earth, in such quantity as he might see fit, and reasonably expect
their early delivery upon his doorstep; he could at the same moment and
by the same means adventure his wealth in the natural resources and new
enterprises of any quarter of the world, and share, without exertion or
even trouble, in their prospective fruits and advantages; or he could
decide to couple the security of his fortunes with the good faith of the
townspeople of any substantial municipality in any continent that fancy
or information might recommend. He could secure forthwith, if he wished
it, cheap and comfortable means of transit to any country or climate
without passport or other formality, could despatch his servant to the
neighboring office of a bank for such supply of the precious metals as
might seem convenient, and could then proceed abroad to foreign
quarters, without knowledge of their religion, language, or customs,
bearing coined wealth upon his person, and would consider himself
greatly aggrieved and much surprised at the least interference. But,
most important of all, he regarded this state of affairs as normal,
certain, and permanent, except in the direction of further improvement,
and any deviation from it as aberrant, scandalous, and avoidable. The
projects and politics of militarism and imperialism, of racial and
cultural rivalries, of monopolies, restrictions, and exclusion, which
were to play the serpent to this paradise, were little more than the
amusements of his daily newspaper, and appeared to exercise almost no
influence at all on the ordinary course of social and economic life, the
internationalization of which was nearly complete in practice.
It will assist us to appreciate the character and consequences of the
Peace which we have imposed on our enemies, if I elucidate a little
further some of the chief unstable elements already present when war
broke out, in the economic life of Europe.
I. _Population_
In 1870 Germany had a population of about 40,000,000. By 1892 this
figure had risen to 50,000,000, and by June 30, 1914, to about
68,000,000. In the years immediately preceding the war the annual
increase was about 850,000, of whom an insignificant proportion
emigrated.[1] This great increase was only rendered possible by a
far-reaching transformation of the economic structure of the country.
From being agricultural and mainly self-supporting, Germany transformed
herself into a vast and complicated industrial machine, dependent for
its working on the equipoise of many factors outside Germany as well as
within. Only by operating this machine, continuously and at full blast,
could she find occupation at home for her increasing population and the
means of purchasing their subsistence from abroad. The German machine
was like a top which to maintain its equilibrium must spin ever faster
and faster.
In the Austro-Hungarian Empire, which grew from about 40,000,000 in 1890
to at least 50,000,000 at the outbreak of war, the same tendency was
present in a less degree, the annual excess of births over deaths being
about half a million, out of which, however, there was an annual
emigration of some quarter of a million persons.
To understand the present situation, we must apprehend with vividness
what an extraordinary center of population the development of the
Germanic system had enabled Central Europe to become. Before the war the
population of Germany and Austria-Hungary together not only
substantially exceeded that of the United States, but was about equal to
that of the whole of North America. In these numbers, situated within a
compact territory, lay the military strength of the Central Powers. But
these same numbers--for even the war has not appreciably diminished
them[2]--if deprived of the means of life, remain a hardly less danger
to European order.
European Russia increased her population in a degree even greater than
Germany--from less than 100,000,000 in 1890 to about 150,000,000 at the
outbreak of war;[3] and in the year immediately preceding 1914 the
excess of births over deaths in Russia as a whole was at the prodigious
rate of two millions per annum. This inordinate growth in the population
of Russia, which has not been widely noticed in England, has been
nevertheless one of the most significant facts of recent years.
The great events of history are often due to secular changes in the
growth of population and other fundamental economic causes, which,
escaping by their gradual character the notice of contemporary
observers, are attributed to the follies of statesmen or the fanaticism
of atheists. Thus the extraordinary occurrences of the past two years in
Russia, that vast upheaval of Society, which has overturned what seemed
most stable--religion, the basis of property, the ownership of land, as
well as forms of government and the hierarchy of classes--may owe more
to the deep influences of expanding numbers than to Lenin or to
Nicholas; and the disruptive powers of excessive national fecundity may
have played a greater part in bursting the bonds of convention than
either the power of ideas or the errors of autocracy.
II. _Organization_
The delicate organization by which these peoples lived depended partly
on factors internal to the system.
The interference of frontiers and of tariffs was reduced to a minimum,
and not far short of three hundred millions of people lived within the
three Empires of Russia, Germany, and Austria-Hungary. The various
currencies, which were all maintained on a stable basis in relation to
gold and to one another, facilitated the easy flow of capital and of
trade to an extent the full value of which we only realize now, when we
are deprived of its advantages. Over this great area there was an almost
absolute security of property and of person.
These factors of order, security, and uniformity, which Europe had never
before enjoyed over so wide and populous a territory or for so long a
period, prepared the way for the organization of that vast mechanism of
transport, coal distribution, and foreign trade which made possible an
industrial order of life in the dense urban centers of new population.
This is too well known to require detailed substantiation with figures.
But it may be illustrated by the figures for coal, which has been the
key to the industrial growth of Central Europe hardly less than of
England; the output of German coal grew from 30,000,000 tons in 1871 to
70,000,000 tons in 1890, 110,000,000 tons in 1900, and 190,000,000 tons
in 1913.
Round Germany as a central support the rest of the European economic
system grouped itself, and on the prosperity and enterprise of Germany
the prosperity of the rest of the Continent mainly depended. The
increasing pace of Germany gave her neighbors an outlet for their
products, in exchange for which the enterprise of the German merchant
supplied them with their chief requirements at a low price.
The statistics of the economic interdependence of Germany and her
neighbors are overwhelming. Germany was the best customer of Russia,
Norway, Holland, Belgium, Switzerland, Italy, and Austria-Hungary; she
was the second best customer of Great Britain, Sweden, and Denmark; and
the third best customer of France. She was the largest source of supply
to Russia, Norway, Sweden, Denmark, Holland, Switzerland, Italy,
Austria-Hungary, Roumania, and Bulgaria; and the second largest source
of supply to Great Britain, Belgium, and France.
In our own case we sent more exports to Germany than to any other
country in the world except India, and we bought more from her than from
any other country in the world except the United States.
There was no European country except those west of Germany which did not
do more than a quarter of their total trade with her; and in the case of
Russia, Austria-Hungary, and Holland the proportion was far greater.
Germany not only furnished these countries with trade, but, in the case
of some of them, supplied a great part of the capital needed for their
own development. Of Germany's pre-war foreign investments, amounting in
all to about $6,250,000,000, not far short of $2,500,000,000 was
invested in Russia, Austria-Hungary, Bulgaria, Roumania, and Turkey.[4]
And by the system of "peaceful penetration" she gave these countries not
only capital, but, what they needed hardly less, organization. The whole
of Europe east of the Rhine thus fell into the German industrial orbit,
and its economic life was adjusted accordingly.
But these internal factors would not have been sufficient to enable the
population to support itself without the co-operation of external
factors also and of certain general dispositions common to the whole of
Europe. Many of the circumstances already treated were true of Europe as
a whole, and were not peculiar to the Central Empires. But all of what
follows was common to the whole European system.
III. _The Psychology of Society_
Europe was so organized socially and economically as to secure the
maximum accumulation of capital. While there was some continuous
improvement in the daily conditions of life of the mass of the
population, Society was so framed as to throw a great part of the
increased income into the control of the class least likely to consume
it. The new rich of the nineteenth century were not brought up to large
expenditures, and preferred the power which investment gave them to the
pleasures of immediate consumption. In fact, it was precisely the
_inequality_ of the distribution of wealth which made possible those
vast accumulations of fixed wealth and of capital improvements which
distinguished that age from all others. Herein lay, in fact, the main
justification of the Capitalist System. If the rich had spent their new
wealth on their own enjoyments, the world would long ago have found such
a régime intolerable. But like bees they saved and accumulated, not less
to the advantage of the whole community because they themselves held
narrower ends in prospect.
The immense accumulations of fixed capital which, to the great benefit
of mankind, were built up during the half century before the war, could
never have come about in a Society where wealth was divided equitably.
The railways of the world, which that age built as a monument to
posterity, were, not less than the Pyramids of Egypt, the work of labor
which was not free to consume in immediate enjoyment the full equivalent
of its efforts.
Thus this remarkable system depended for its growth on a double bluff or
deception. On the one hand the laboring classes accepted from ignorance
or powerlessness, or were compelled, persuaded, or cajoled by custom,
convention, authority, and the well-established order of Society into
accepting, a situation in which they could call their own very little of
the cake that they and Nature and the capitalists were co-operating to
produce. And on the other hand the capitalist classes were allowed to
call the best part of the cake theirs and were theoretically free to
consume it, on the tacit underlying condition that they consumed very
little of it in practice. The duty of "saving" became nine-tenths of
virtue and the growth of the cake the object of true religion. There
grew round the non-consumption of the cake all those instincts of
puritanism which in other ages has withdrawn itself from the world and
has neglected the arts of production as well as those of enjoyment. And
so the cake increased; but to what end was not clearly contemplated.
Individuals would be exhorted not so much to abstain as to defer, and to
cultivate the pleasures of security and anticipation. Saving was for old
age or for your children; but this was only in theory,--the virtue of
the cake was that it was never to be consumed, neither by you nor by
your children after you.
In writing thus I do not necessarily disparage the practices of that
generation. In the unconscious recesses of its being Society knew what
it was about. The cake was really very small in proportion to the
appetites of consumption, and no one, if it were shared all round, would
be much the better off by the cutting of it. Society was working not
for the small pleasures of to-day but for the future security and
improvement of the race,--in fact for "progress." If only the cake were
not cut but was allowed to grow in the geometrical proportion predicted
by Malthus of population, but not less true of compound interest,
perhaps a day might come when there would at last be enough to go round,
and when posterity could enter into the enjoyment of _our_ labors. In
that day overwork, overcrowding, and underfeeding would have come to an
end, and men, secure of the comforts and necessities of the body, could
proceed to the nobler exercises of their faculties. One geometrical
ratio might cancel another, and the nineteenth century was able to
forget the fertility of the species in a contemplation of the dizzy
virtues of compound interest.
There were two pitfalls in this prospect: lest, population still
outstripping accumulation, our self-denials promote not happiness but
numbers; and lest the cake be after all consumed, prematurely, in war,
the consumer of all such hopes.
But these thoughts lead too far from my present purpose. I seek only to
point out that the principle of accumulation based on inequality was a
vital part of the pre-war order of Society and of progress as we then
understood it, and to emphasize that this principle depended on unstable
psychological conditions, which it may be impossible to recreate. It
was not natural for a population, of whom so few enjoyed the comforts of
life, to accumulate so hugely. The war has disclosed the possibility of
consumption to all and the vanity of abstinence to many. Thus the bluff
is discovered; the laboring classes may be no longer willing to forego
so largely, and the capitalist classes, no longer confident of the
future, may seek to enjoy more fully their liberties of consumption so
long as they last, and thus precipitate the hour of their confiscation.
IV. _The Relation of the Old World to the New_
The accumulative habits of Europe before the war were the necessary
condition of the greatest of the external factors which maintained the
European equipoise.
Of the surplus capital goods accumulated by Europe a substantial part
was exported abroad, where its investment made possible the development
of the new resources of food, materials, and transport, and at the same
time enabled the Old World to stake out a claim in the natural wealth
and virgin potentialities of the New. This last factor came to be of the
vastest importance. The Old World employed with an immense prudence the
annual tribute it was thus entitled to draw. The benefit of cheap and
abundant supplies resulting from the new developments which its surplus
capital had made possible, was, it is true, enjoyed and not postponed.
But the greater part of the money interest accruing on these foreign
investments was reinvested and allowed to accumulate, as a reserve (it
was then hoped) against the less happy day when the industrial labor of
Europe could no longer purchase on such easy terms the produce of other
continents, and when the due balance would be threatened between its
historical civilizations and the multiplying races of other climates and
environments. Thus the whole of the European races tended to benefit
alike from the development of new resources whether they pursued their
culture at home or adventured it abroad.
Even before the war, however, the equilibrium thus established between
old civilizations and new resources was being threatened. The prosperity
of Europe was based on the facts that, owing to the large exportable
surplus of foodstuffs in America, she was able to purchase food at a
cheap rate measured in terms of the labor required to produce her own
exports, and that, as a result of her previous investments of capital,
she was entitled to a substantial amount annually without any payment in
return at all. The second of these factors then seemed out of danger,
but, as a result of the growth of population overseas, chiefly in the
United States, the first was not so secure.
When first the virgin soils of America came into bearing, the
proportions of the population of those continents themselves, and
consequently of their own local requirements, to those of Europe were
very small. As lately as 1890 Europe had a population three times that
of North and South America added together. But by 1914 the domestic
requirements of the United States for wheat were approaching their
production, and the date was evidently near when there would be an
exportable surplus only in years of exceptionally favorable harvest.
Indeed, the present domestic requirements of the United States are
estimated at more than ninety per cent of the average yield of the five
years 1909-1913.[5] At that time, however, the tendency towards
stringency was showing itself, not so much in a lack of abundance as in
a steady increase of real cost. That is to say, taking the world as a
whole, there was no deficiency of wheat, but in order to call forth an
adequate supply it was necessary to offer a higher real price. The most
favorable factor in the situation was to be found in the extent to which
Central and Western Europe was being fed from the exportable surplus of
Russia and Roumania.
In short, Europe's claim on the resources of the New World was becoming
precarious; the law of diminishing returns was at last reasserting
itself and was making it necessary year by year for Europe to offer a
greater quantity of other commodities to obtain the same amount of
bread; and Europe, therefore, could by no means afford the
disorganization of any of her principal sources of supply.
Much else might be said in an attempt to portray the economic
peculiarities of the Europe of 1914. I have selected for emphasis the
three or four greatest factors of instability,--the instability of an
excessive population dependent for its livelihood on a complicated and
artificial organization, the psychological instability of the laboring
and capitalist classes, and the instability of Europe's claim, coupled
with the completeness of her dependence, on the food supplies of the New
World.
The war had so shaken this system as to endanger the life of Europe
altogether. A great part of the Continent was sick and dying; its
population was greatly in excess of the numbers for which a livelihood
was available; its organization was destroyed, its transport system
ruptured, and its food supplies terribly impaired.
It was the task of the Peace Conference to honor engagements and to
satisfy justice; but not less to re-establish life and to heal wounds.
These tasks were dictated as much by prudence as by the magnanimity
which the wisdom of antiquity approved in victors. We will examine in
the following chapters the actual character of the Peace.
FOOTNOTES:
[1] In 1913 there were 25,843 emigrants from Germany, of whom
19,124 went to the United States.
[2] The net decrease of the German population at the end of
1918 by decline of births and excess of deaths as compared with the
beginning of 1914, is estimated at about 2,700,000.
[3] Including Poland and Finland, but excluding Siberia,
Central Asia, and the Caucasus.
[4] Sums of money mentioned in this book in terms of dollars
have been converted from pounds sterling at the rate of $5 to £1.
[5] Even since 1914 the population of the United States has
increased by seven or eight millions. As their annual consumption of
wheat per head is not less than 6 bushels, the pre-war scale of
production in the United States would only show a substantial surplus
over present domestic requirements in about one year out of five. We
have been saved for the moment by the great harvests of 1918 and 1919,
which have been called forth by Mr. Hoover's guaranteed price. But the
United States can hardly be expected to continue indefinitely to raise
by a substantial figure the cost of living in its own country, in order
to provide wheat for a Europe which cannot pay for it.
CHAPTER III
THE CONFERENCE
In Chapters IV. and V. I shall study in some detail the economic and
financial provisions of the Treaty of Peace with Germany. But it will be
easier to appreciate the true origin of many of these terms if we
examine here some of the personal factors which influenced their
preparation. In attempting this task, I touch, inevitably, questions of
motive, on which spectators are liable to error and are not entitled to
take on themselves the responsibilities of final judgment. Yet, if I
seem in this chapter to assume sometimes the liberties which are
habitual to historians, but which, in spite of the greater knowledge
with which we speak, we generally hesitate to assume towards
contemporaries, let the reader excuse me when he remembers how greatly,
if it is to understand its destiny, the world needs light, even if it is
partial and uncertain, on the complex struggle of human will and
purpose, not yet finished, which, concentrated in the persons of four
individuals in a manner never paralleled, made them, in the first months
of 1919, the microcosm of mankind.
In those parts of the Treaty with which I am here concerned, the lead
was taken by the French, in the sense that it was generally they who
made in the first instance the most definite and the most extreme
proposals. This was partly a matter of tactics. When the final result is
expected to be a compromise, it is often prudent to start from an
extreme position; and the French anticipated at the outset--like most
other persons--a double process of compromise, first of all to suit the
ideas of their allies and associates, and secondly in the course of the
Peace Conference proper with the Germans themselves. These tactics were
justified by the event. Clemenceau gained a reputation for moderation
with his colleagues in Council by sometimes throwing over with an air of
intellectual impartiality the more extreme proposals of his ministers;
and much went through where the American and British critics were
naturally a little ignorant of the true point at issue, or where too
persistent criticism by France's allies put them in a position which
they felt as invidious, of always appearing to take the enemy's part and
to argue his case. Where, therefore, British and American interests were
not seriously involved their criticism grew slack, and some provisions
were thus passed which the French themselves did not take very
seriously, and for which the eleventh-hour decision to allow no
discussion with the Germans removed the opportunity of remedy.
But, apart from tactics, the French had a policy. Although Clemenceau
might curtly abandon the claims of a Klotz or a Loucheur, or close his
eyes with an air of fatigue when French interests were no longer
involved in the discussion, he knew which points were vital, and these
he abated little. In so far as the main economic lines of the Treaty
represent an intellectual idea, it is the idea of France and of
Clemenceau.
Clemenceau was by far the most eminent member of the Council of Four,
and he had taken the measure of his colleagues. He alone both had an
idea and had considered it in all its consequences. His age, his
character, his wit, and his appearance joined to give him objectivity
and a, defined outline in an environment of confusion. One could not
despise Clemenceau or dislike him, but only take a different view as to
the nature of civilized man, or indulge, at least, a different hope.
The figure and bearing of Clemenceau are universally familiar. At the
Council of Four he wore a square-tailed coat of very good, thick black
broadcloth, and on his hands, which were never uncovered, gray suede
gloves; his boots were of thick black leather, very good, but of a
country style, and sometimes fastened in front, curiously, by a buckle
instead of laces. His seat in the room in the President's house, where
the regular meetings of the Council of Four were held (as distinguished
from their private and unattended conferences in a smaller chamber
below), was on a square brocaded chair in the middle of the semicircle
facing the fireplace, with Signor Orlando on his left, the President
next by the fireplace, and the Prime Minister opposite on the other side
of the fireplace on his right. He carried no papers and no portfolio,
and was unattended by any personal secretary, though several French
ministers and officials appropriate to the particular matter in hand
would be present round him. His walk, his hand, and his voice were not
lacking in vigor, but he bore nevertheless, especially after the attempt
upon him, the aspect of a very old man conserving his strength for
important occasions. He spoke seldom, leaving the initial statement of
the French case to his ministers or officials; he closed his eyes often
and sat back in his chair with an impassive face of parchment, his gray
gloved hands clasped in front of him. A short sentence, decisive or
cynical, was generally sufficient, a question, an unqualified
abandonment of his ministers, whose face would not be saved, or a
display of obstinacy reinforced by a few words in a piquantly delivered
English.[6] But speech and passion were not lacking when they were
wanted, and the sudden outburst of words, often followed by a fit of
deep coughing from the chest, produced their impression rather by force
and surprise than by persuasion.
Not infrequently Mr. Lloyd George, after delivering a speech in English,
would, during the period of its interpretation into French, cross the
hearthrug to the President to reinforce his case by some _ad hominem_
argument in private conversation, or to sound the ground for a
compromise,--and this would sometimes be the signal for a general
upheaval and disorder. The President's advisers would press round him, a
moment later the British experts would dribble across to learn the
result or see that all was well, and next the French would be there, a
little suspicious lest the others were arranging something behind them,
until all the room were on their feet and conversation was general in
both languages. My last and most vivid impression is of such a
scene--the President and the Prime Minister as the center of a surging
mob and a babel of sound, a welter of eager, impromptu compromises and
counter-compromises, all sound and fury signifying nothing, on what was
an unreal question anyhow, the great issues of the morning's meeting
forgotten and neglected; and Clemenceau silent and aloof on the
outskirts--for nothing which touched the security of France was
forward--throned, in his gray gloves, on the brocade chair, dry in soul
and empty of hope, very old and tired, but surveying the scene with a
cynical and almost impish air; and when at last silence was restored and
the company had returned to their places, it was to discover that he had
disappeared.
He felt about France what Pericles felt of Athens--unique value in her,
nothing else mattering; but his theory of politics was Bismarck's. He
had one illusion--France; and one disillusion--mankind, including
Frenchmen, and his colleagues not least. His principles for the peace
can be expressed simply. In the first place, he was a foremost believer
in the view of German psychology that the German understands and can
understand nothing but intimidation, that he is without generosity or
remorse in negotiation, that there is no advantage he will not take of
you, and no extent to which he will not demean himself for profit, that
he is without honor, pride, or mercy. Therefore you must never negotiate
with a German or conciliate him; you must dictate to him. On no other
terms will he respect you, or will you prevent him from cheating you.
But it is doubtful how far he thought these characteristics peculiar to
Germany, or whether his candid view of some other nations was
fundamentally different. His philosophy had, therefore, no place for
"sentimentality" in international relations. Nations are real things, of
whom you love one and feel for the rest indifference--or hatred. The
glory of the nation you love is a desirable end,--but generally to be
obtained at your neighbor's expense. The politics of power are
inevitable, and there is nothing very new to learn about this war or the
end it was fought for; England had destroyed, as in each preceding
century, a trade rival; a mighty chapter had been closed in the secular
struggle between the glories of Germany and of France. Prudence required
some measure of lip service to the "ideals" of foolish Americans and
hypocritical Englishmen; but it would be stupid to believe that there is
much room in the world, as it really is, for such affairs as the League
of Nations, or any sense in the principle of self-determination except
as an ingenious formula for rearranging the balance of power in one's
own interests.
These, however, are generalities. In tracing the practical details of
the Peace which he thought necessary for the power and the security of
France, we must go back to the historical causes which had operated
during his lifetime. Before the Franco-German war the populations of
France and Germany were approximately equal; but the coal and iron and
shipping of Germany were in their infancy, and the wealth of France was
greatly superior. Even after the loss of Alsace-Lorraine there was no
great discrepancy between the real resources of the two countries. But
in the intervening period the relative position had changed completely.
By 1914 the population of Germany was nearly seventy per cent in excess
of that of France; she had become one of the first manufacturing and
trading nations of the world; her technical skill and her means for the
production of future wealth were unequaled. France on the other hand had
a stationary or declining population, and, relatively to others, had
fallen seriously behind in wealth and in the power to produce it.
In spite, therefore, of France's victorious issue from the present
struggle (with the aid, this time, of England and America), her future
position remained precarious in the eyes of one who took the view that
European civil war is to be regarded as a normal, or at least a
recurrent, state of affairs for the future, and that the sort of
conflicts between organized great powers which have occupied the past
hundred years will also engage the next. According to this vision of the
future, European history is to be a perpetual prize-fight, of which
France has won this round, but of which this round is certainly not the
last. From the belief that essentially the old order does not change,
being based on human nature which is always the same, and from a
consequent skepticism of all that class of doctrine which the League of
Nations stands for, the policy of France and of Clemenceau followed
logically. For a Peace of magnanimity or of fair and equal treatment,
based on such "ideology" as the Fourteen Points of the President, could
only have the effect of shortening the interval of Germany's recovery
and hastening the day when she will once again hurl at France her
greater numbers and her superior resources and technical skill. Hence
the necessity of "guarantees"; and each guarantee that was taken, by
increasing irritation and thus the probability of a subsequent
_Revanche_ by Germany, made necessary yet further provisions to crush.
Thus, as soon as this view of the world is adopted and the other
discarded, a demand for a Carthaginian Peace is inevitable, to the full
extent of the momentary power to impose it. For Clemenceau made no
pretense of considering himself bound by the Fourteen Points and left
chiefly to others such concoctions as were necessary from time to time
to save the scruples or the face of the President.
So far as possible, therefore, it was the policy of France to set the
clock back and to undo what, since 1870, the progress of Germany had
accomplished. By loss of territory and other measures her population was
to be curtailed; but chiefly the economic system, upon which she
depended for her new strength, the vast fabric built upon iron, coal,
and transport must be destroyed. If France could seize, even in part,
what Germany was compelled to drop, the inequality of strength between
the two rivals for European hegemony might be remedied for many
generations.
Hence sprang those cumulative provisions for the destruction of highly
organized economic life which we shall examine in the next chapter.
This is the policy of an old man, whose most vivid impressions and most
lively imagination are of the past and not of the future. He sees the
issue in terms, of France and Germany not of humanity and of European
civilization struggling forwards to a new order. The war has bitten into
his consciousness somewhat differently from ours, and he neither expects
nor hopes that we are at the threshold of a new age.
It happens, however, that it is not only an ideal question that is at
issue. My purpose in this book is to show that the Carthaginian Peace is
not _practically_ right or possible. Although the school of thought from
which it springs is aware of the economic factor, it overlooks,
nevertheless, the deeper economic tendencies which are to govern the
future. The clock cannot be set back. You cannot restore Central Europe
to 1870 without setting up such strains in the European structure and
letting loose such human and spiritual forces as, pushing beyond
frontiers and races, will overwhelm not only you and your "guarantees,"
but your institutions, and the existing order of your Society.
By what legerdemain was this policy substituted for the Fourteen Points,
and how did the President come to accept it? The answer to these
questions is difficult and depends on elements of character and
psychology and on the subtle influence of surroundings, which are hard
to detect and harder still to describe. But, if ever the action of a
single individual matters, the collapse of The President has been one of
the decisive moral events of history; and I must make an attempt to
explain it. What a place the President held in the hearts and hopes of
the world when he sailed to us in the _George Washington!_ What a great
man came to Europe in those early days of our victory!
In November, 1918, the armies of Foch and the words of Wilson had
brought us sudden escape from what was swallowing up all we cared for.
The conditions seemed favorable beyond any expectation. The victory was
so complete that fear need play no part in the settlement. The enemy
had laid down his arms in reliance on a solemn compact as to the general
character of the Peace, the terms of which seemed to assure a settlement
of justice and magnanimity and a fair hope for a restoration of the
broken current of life. To make assurance certain the President was
coming himself to set the seal on his work.
When President Wilson left Washington he enjoyed a prestige and a moral
influence throughout the world unequaled in history. His bold and
measured words carried to the peoples of Europe above and beyond the
voices of their own politicians. The enemy peoples trusted him to carry
out the compact he had made with them; and the Allied peoples
acknowledged him not as a victor only but almost as a prophet. In
addition to this moral influence the realities of power were in his
hands. The American armies were at the height of their numbers,
discipline, and equipment. Europe was in complete dependence on the food
supplies of the United States; and financially she was even more
absolutely at their mercy. Europe not only already owed the United
States more than she could pay; but only a large measure of further
assistance could save her from starvation and bankruptcy. Never had a
philosopher held such weapons wherewith to bind the princes of this
world. How the crowds of the European capitals pressed about the
carriage of the President! With what curiosity, anxiety, and hope we
sought a glimpse of the features and bearing of the man of destiny who,
coming from the West, was to bring healing to the wounds of the ancient
parent of his civilization and lay for us the foundations of the future.
The disillusion was so complete, that some of those who had trusted most
hardly dared speak of it. Could it be true? they asked of those who
returned from Paris. Was the Treaty really as bad as it seemed? What had
happened to the President? What weakness or what misfortune had led to
so extraordinary, so unlooked-for a betrayal?
Yet the causes were very ordinary and human. The President was not a
hero or a prophet; he was not even a philosopher; but a generously
intentioned man, with many of the weaknesses of other human beings, and
lacking that dominating intellectual equipment which would have been
necessary to cope with the subtle and dangerous spellbinders whom a
tremendous clash of forces and personalities had brought to the top as
triumphant masters in the swift game of give and take, face to face in
Council,--a game of which he had no experience at all.
We had indeed quite a wrong idea of the President. We knew him to be
solitary and aloof, and believed him very strong-willed and obstinate.
We did not figure him as a man of detail, but the clearness with which
he had taken hold of certain main ideas would, we thought, in
combination with his tenacity, enable him to sweep through cobwebs.
Besides these qualities he would have the objectivity, the cultivation,
and the wide knowledge of the student. The great distinction of language
which had marked his famous Notes seemed to indicate a man of lofty and
powerful imagination. His portraits indicated a fine presence and a
commanding delivery. With all this he had attained and held with
increasing authority the first position in a country where the arts of
the politician are not neglected. All of which, without expecting the
impossible, seemed a fine combination of qualities for the matter in
hand.
The first impression of Mr. Wilson at close quarters was to impair some
but not all of these illusions. His head and features were finely cut
and exactly like his photographs, and the muscles of his neck and the
carriage of his head were distinguished. But, like Odysseus, the
President looked wiser when he was seated; and his hands, though capable
and fairly strong, were wanting in sensitiveness and finesse. The first
glance at the President suggested not only that, whatever else he might
be, his temperament was not primarily that of the student or the
scholar, but that he had not much even of that culture of the world
which marks M. Clemenceau and Mr. Balfour as exquisitely cultivated
gentlemen of their class and generation. But more serious than this, he
was not only insensitive to his surroundings in the external sense, he
was not sensitive to his environment at all. What chance could such a
man have against Mr. Lloyd George's unerring, almost medium-like,
sensibility to every one immediately round him? To see the British Prime
Minister watching the company, with six or seven senses not available to
ordinary men, judging character, motive, and subconscious impulse,
perceiving what each was thinking and even what each was going to say
next, and compounding with telepathic instinct the argument or appeal
best suited to the vanity, weakness, or self-interest of his immediate
auditor, was to realize that the poor President would be playing blind
man's buff in that party. Never could a man have stepped into the parlor
a more perfect and predestined victim to the finished accomplishments of
the Prime Minister. The Old World was tough in wickedness anyhow; the
Old World's heart of stone might blunt the sharpest blade of the bravest
knight-errant. But this blind and deaf Don Quixote was entering a cavern
where the swift and glittering blade was in the hands of the adversary.
But if the President was not the philosopher-king, what was he? After
all he was a man who had spent much of his life at a University. He was
by no means a business man or an ordinary party politician, but a man of
force, personality, and importance. What, then, was his temperament?
The clue once found was illuminating. The President was like a
Nonconformist minister, perhaps a Presbyterian. His thought and his
temperament wore essentially theological not intellectual, with all the
strength and the weakness of that manner of thought, feeling, and
expression. It is a type of which there are not now in England and
Scotland such magnificent specimens as formerly; but this description,
nevertheless, will give the ordinary Englishman the distinctest
impression of the President.
With this picture of him in mind, we can return to the actual course of
events. The President's program for the World, as set forth in his
speeches and his Notes, had displayed a spirit and a purpose so
admirable that the last desire of his sympathizers was to criticize
details,--the details, they felt, were quite rightly not filled in at
present, but would be in due course. It was commonly believed at the
commencement of the Paris Conference that the President had thought out,
with the aid of a large body of advisers, a comprehensive scheme not
only for the League of Nations, but for the embodiment of the Fourteen
Points in an actual Treaty of Peace. But in fact the President had
thought out nothing; when it came to practice his ideas were nebulous
and incomplete. He had no plan, no scheme, no constructive ideas
whatever for clothing with the flesh of life the commandments which he
had thundered from the White House. He could have preached a sermon on
any of them or have addressed a stately prayer to the Almighty for their
fulfilment; but he could not frame their concrete application to the
actual state of Europe.
He not only had no proposals in detail, but he was in many respects,
perhaps inevitably, ill-informed as to European conditions. And not only
was he ill-informed--that was true of Mr. Lloyd George also--but his
mind was slow and unadaptable. The President's slowness amongst the
Europeans was noteworthy. He could not, all in a minute, take in what
the rest were saying, size up the situation with a glance, frame a
reply, and meet the case by a slight change of ground; and he was
liable, therefore, to defeat by the mere swiftness, apprehension, and
agility of a Lloyd George. There can seldom have been a statesman of the
first rank more incompetent than the President in the agilities of the
council chamber. A moment often arrives when substantial victory is
yours if by some slight appearance of a concession you can save the face
of the opposition or conciliate them by a restatement of your proposal
helpful to them and not injurious to anything essential to yourself. The
President was not equipped with this simple and usual artfulness. His
mind was too slow and unresourceful to be ready with _any_ alternatives.
The President was capable of digging his toes in and refusing to budge,
as he did over Fiume. But he had no other mode of defense, and it needed
as a rule but little manoeuvering by his opponents to prevent matters
from coming to such a head until it was too late. By pleasantness and an
appearance of conciliation, the President would be manoeuvered off his
ground, would miss the moment for digging his toes in, and, before he
knew where he had been got to, it was too late. Besides, it is
impossible month after month in intimate and ostensibly friendly
converse between close associates, to be digging the toes in all the
time. Victory would only have been possible to one who had always a
sufficiently lively apprehension of the position as a whole to reserve
his fire and know for certain the rare exact moments for decisive
action. And for that the President was far too slow-minded and
bewildered.
He did not remedy these defects by seeking aid from the collective
wisdom of his lieutenants. He had gathered round him for the economic
chapters of the Treaty a very able group of business men; but they were
inexperienced in public affairs, and knew (with one or two exceptions)
as little of Europe as he did, and they were only called in irregularly
as he might need them for a particular purpose. Thus the aloofness which
had been found effective in Washington was maintained, and the abnormal
reserve of his nature did not allow near him any one who aspired to
moral equality or the continuous exercise of influence. His
fellow-plenipotentiaries were dummies; and even the trusted Colonel
House, with vastly more knowledge of men and of Europe than the
President, from whose sensitiveness the President's dullness had gained
so much, fell into the background as time went on. All this was
encouraged by his colleagues on the Council of Four, who, by the
break-up of the Council of Ten, completed the isolation which the
President's own temperament had initiated. Thus day after day and week
after week, he allowed himself to be closeted, unsupported, unadvised,
and alone, with men much sharper than himself, in situations of supreme
difficulty, where he needed for success every description of resource,
fertility, and knowledge. He allowed himself to be drugged by their
atmosphere, to discuss on the basis of their plans and of their data,
and to be led along their paths.
These and other various causes combined to produce the following
situation. The reader must remember that the processes which are here
compressed into a few pages took place slowly, gradually, insidiously,
over a period of about five months.
As the President had thought nothing out, the Council was generally
working on the basis of a French or British draft. He had to take up,
therefore, a persistent attitude of obstruction, criticism, and
negation, if the draft was to become at all in line with his own ideas
and purpose. If he was met on some points with apparent generosity (for
there was always a safe margin of quite preposterous suggestions which
no one took seriously), it was difficult for him not to yield on others.
Compromise was inevitable, and never to compromise on the essential,
very difficult. Besides, he was soon made to appear to be taking the
German part and laid himself open to the suggestion (to which he was
foolishly and unfortunately sensitive) of being "pro-German."
After a display of much principle and dignity in the early days of the
Council of Ten, he discovered that there were certain very important
points in the program of his French, British, or Italian colleague, as
the case might be, of which he was incapable of securing the surrender
by the methods of secret diplomacy. What then was he to do in the last
resort? He could let the Conference drag on an endless length by the
exercise of sheer obstinacy. He could break it up and return to America
in a rage with nothing settled. Or he could attempt an appeal to the
world over the heads of the Conference. These were wretched
alternatives, against each of which a great deal could be said. They
were also very risky,--especially for a politician. The President's
mistaken policy over the Congressional election had weakened his
personal position in his own country, and it was by no means certain
that the American public would support him in a position of
intransigeancy. It would mean a campaign in which the issues would be
clouded by every sort of personal and party consideration, and who could
say if right would triumph in a struggle which would certainly not be
decided on its merits? Besides, any open rupture with his colleagues
would certainly bring upon his head the blind passions of "anti-German"
resentment with which the public of all allied countries were still
inspired. They would not listen to his arguments. They would not be cool
enough to treat the issue as one of international morality or of the
right governance of Europe. The cry would simply be that, for various
sinister and selfish reasons, the President wished "to let the Hun off."
The almost unanimous voice of the French and British Press could be
anticipated. Thus, if he threw down the gage publicly he might be
defeated. And if he were defeated, would not the final Peace be far
worse than if he were to retain his prestige and endeavor to make it as
good as the limiting conditions of European politics would allow, him?
But above all, if he were defeated, would he not lose the League of
Nations? And was not this, after all, by far the most important issue
for the future happiness of the world? The Treaty would be altered and
softened by time. Much in it which now seemed so vital would become
trifling, and much which was impracticable would for that very reason
never happen. But the League, even in an imperfect form, was permanent;
it was the first commencement of a new principle in the government of
the world; Truth and Justice in international relations could not be
established in a few months,--they must be born in due course by the
slow gestation of the League. Clemenceau had been clever enough to let
it be seen that he would swallow the League at a price.
At the crisis of his fortunes the President was a lonely man. Caught up
in the toils of the Old World, he stood in great need of sympathy, of
moral support, of the enthusiasm of masses. But buried in the
Conference, stifled in the hot and poisoned atmosphere of Paris, no echo
reached him from the outer world, and no throb of passion, sympathy, or
encouragement from his silent constituents in all countries. He felt
that the blaze of popularity which had greeted his arrival in Europe
was already dimmed; the Paris Press jeered at him openly; his political
opponents at home were taking advantage of his absence to create an
atmosphere against him; England was cold, critical, and unresponsive. He
had so formed his _entourage_ that he did not receive through private
channels the current of faith and enthusiasm of which the public sources
seemed dammed up. He needed, but lacked, the added strength of
collective faith. The German terror still overhung us, and even the
sympathetic public was very cautious; the enemy must not be encouraged,
our friends must be supported, this was not the time for discord or
agitations, the President must be trusted to do his best. And in this
drought the flower of the President's faith withered and dried up.
Thus it came to pass that the President countermanded the _George
Washington_, which, in a moment of well-founded rage, he had ordered to
be in readiness to carry him from the treacherous halls of Paris back to
the seat of his authority, where he could have felt himself again. But
as soon, alas, as he had taken the road of compromise, the defects,
already indicated, of his temperament and of his equipment, were fatally
apparent. He could take the high line; he could practise obstinacy; he
could write Notes from Sinai or Olympus; he could remain unapproachable
in the White House or even in the Council of Ten and be safe. But if he
once stepped down to the intimate equality of the Four, the game was
evidently up.
Now it was that what I have called his theological or Presbyterian
temperament became dangerous. Having decided that some concessions were
unavoidable, he might have sought by firmness and address and the use of
the financial power of the United States to secure as much as he could
of the substance, even at some sacrifice of the letter. But the
President was not capable of so clear an understanding with himself as
this implied. He was too conscientious. Although compromises were now
necessary, he remained a man of principle and the Fourteen Points a
contract absolutely binding upon him. He would do nothing that was not
honorable; he would do nothing that was not just and right; he would do
nothing that was contrary to his great profession of faith. Thus,
without any abatement of the verbal inspiration of the Fourteen Points,
they became a document for gloss and interpretation and for all the
intellectual apparatus of self-deception, by which, I daresay, the
President's forefathers had persuaded themselves that the course they
thought it necessary to take was consistent with every syllable of the
Pentateuch.
The President's attitude to his colleagues had now become: I want to
meet you so far as I can; I see your difficulties and I should like to
be able to agree to what you propose; but I can do nothing that is not
just and right, and you must first of all show me that what you want
does really fall within the words of the pronouncements which are
binding on me. Then began the weaving of that web of sophistry and
Jesuitical exegesis that was finally to clothe with insincerity the
language and substance of the whole Treaty. The word was issued to the
witches of all Paris:
Fair is foul, and foul is fair,
Hover through the fog and filthy air.
The subtlest sophisters and most hypocritical draftsmen were set to
work, and produced many ingenious exercises which might have deceived
for more than an hour a cleverer man than the President.
Thus instead of saying that German-Austria is prohibited from uniting
with Germany except by leave of France (which would be inconsistent with
the principle of self-determination), the Treaty, with delicate
draftsmanship, states that "Germany acknowledges and will respect
strictly the independence of Austria, within the frontiers which may be
fixed in a Treaty between that State and the Principal Allied and
Associated Powers; she agrees that this independence shall be
inalienable, except with the consent of the Council of the League of
Nations," which sounds, but is not, quite different. And who knows but
that the President forgot that another part of the Treaty provides that
for this purpose the Council of the League must be _unanimous_.
Instead of giving Danzig to Poland, the Treaty establishes Danzig as a
"Free" City, but includes this "Free" City within the Polish Customs
frontier, entrusts to Poland the control of the river and railway
system, and provides that "the Polish Government shall undertake the
conduct of the foreign relations of the Free City of Danzig as well as
the diplomatic protection of citizens of that city when abroad."
In placing the river system of Germany under foreign control, the Treaty
speaks of declaring international those "river systems which naturally
provide more than one State with access to the sea, with or without
transhipment from one vessel to another."
Such instances could be multiplied. The honest and intelligible purpose
of French policy, to limit the population of Germany and weaken her
economic system, is clothed, for the President's sake, in the august
language of freedom and international equality.
But perhaps the most decisive moment, in the disintegration of the
President's moral position and the clouding of his mind, was when at
last, to the dismay of his advisers, he allowed himself to be persuaded
that the expenditure of the Allied Governments on pensions and
separation allowances could be fairly regarded as "damage done to the
civilian population of the Allied and Associated Powers by German
aggression by land, by sea, and from the air," in a sense in which the
other expenses of the war could not be so regarded. It was a long
theological struggle in which, after the rejection of many different
arguments, the President finally capitulated before a masterpiece of the
sophist's art.
At last the work was finished; and the President's conscience was still
intact. In spite of everything, I believe that his temperament allowed
him to leave Paris a really sincere man; and it is probable that to this
day he is genuinely convinced that the Treaty contains practically
nothing inconsistent with his former professions.
But the work was too complete, and to this was due the last tragic
episode of the drama. The reply of Brockdorff-Rantzau inevitably took
the line that Germany had laid down her arms on the basis of certain
assurances, and that the Treaty in many particulars was not consistent
with these assurances. But this was exactly what the President could not
admit; in the sweat of solitary contemplation and with prayers to God
he had done _nothing_ that was not just and right; for the President to
admit that the German reply had force in it was to destroy his
self-respect and to disrupt the inner equipoise of his soul; and every
instinct of his stubborn nature rose in self-protection. In the language
of medical psychology, to suggest to the President that the Treaty was
an abandonment of his professions was to touch on the raw a Freudian
complex. It was a subject intolerable to discuss, and every subconscious
instinct plotted to defeat its further exploration.
Thus it was that Clemenceau brought to success, what had seemed to be, a
few months before, the extraordinary and impossible proposal that the
Germans should not be heard. If only the President had not been so
conscientious, if only he had not concealed from himself what he had
been doing, even at the last moment he was in, a position to have
recovered lost ground and to have achieved some very considerable
successes. But the President was set. His arms and legs had been spliced
by the surgeons to a certain posture, and they must be broken again
before they could be altered. To his horror, Mr. Lloyd George, desiring
at the last moment all the moderation he dared, discovered that he could
not in five days persuade the President of error in what it had taken
five months to prove to him to be just and right. After all, it was
harder to de-bamboozle this old Presbyterian than it had been to
bamboozle him; for the former involved his belief in and respect for
himself.
Thus in the last act the President stood for stubbornness and a refusal
of conciliations.
FOOTNOTES:
[6] He alone amongst the Four could speak and understand both
languages, Orlando knowing only French and the Prime Minister and
President only English; and it is of historical importance that Orlando
and the President had no direct means of communication.
CHAPTER IV
THE TREATY
The thoughts which I have expressed in the second chapter were not
present to the mind of Paris. The future life of Europe was not their
concern; its means of livelihood was not their anxiety. Their
preoccupations, good and bad alike, related to frontiers and
nationalities, to the balance of power, to imperial aggrandizements, to
the future enfeeblement of a strong and dangerous enemy, to revenge, and
to the shifting by the victors of their unbearable financial burdens on
to the shoulders of the defeated.
Two rival schemes for the future polity of the world took the
field,--the Fourteen Points of the President, and the Carthaginian Peace
of M. Clemenceau. Yet only one of these was entitled to take the field;
for the enemy had not surrendered unconditionally, but on agreed terms
as to the general character of the Peace.
This aspect of what happened cannot, unfortunately, be passed over with
a word, for in the minds of many Englishmen at least it has been a
subject of very great misapprehension. Many persons believe that the
Armistice Terms constituted the first Contract concluded between the
Allied and Associated Powers and the German Government, and that we
entered the Conference with our hands, free, except so far as these
Armistice Terms might bind us. This was not the case. To make the
position plain, it is necessary briefly to review the history, of the
negotiations which began with the German Note of October 5, 1918, and
concluded with President Wilson's Note of November 5, 1918.
On October 5, 1918, the German Government addressed a brief Note to the
President accepting the Fourteen Points and asking for Peace
negotiations. The President's reply of October 8 asked if he was to
understand definitely that the German Government accepted "the terms
laid down" in Fourteen Points and in his subsequent Addresses and "that
its object in entering into discussion would be only to agree upon the
practical details of their application." He added that the evacuation of
invaded territory must be a prior condition of an Armistice. On October
12 the German Government returned an unconditional affirmative to these
questions;-"its object in entering into discussions would be only to
agree upon practical details of the application of these terms." On
October 14, having received this affirmative answer, the President made
a further communication to make clear the points: (1) that the details
of the Armistice would have to be left to the military advisers of the
United States and the Allies, and must provide absolutely against the
possibility of Germany's resuming hostilities; (2) that submarine
warfare must cease if these conversations were to continue; and (3) that
he required further guarantees of the representative character of the
Government with which he was dealing. On October 20 Germany accepted
points (1) and (2), and pointed out, as regards (3), that she now had a
Constitution and a Government dependent for its authority on the
Reichstag. On October 23 the President announced that, "having received
the solemn and explicit assurance of the German Government that it
unreservedly accepts the terms of peace laid down in his Address to the
Congress of the United States on January 8, 1918 (the Fourteen Points),
and the principles of settlement enunciated in his subsequent Addresses,
particularly the Address of September 27, and that it is ready to
discuss the details of their application," he has communicated the above
correspondence to the Governments of the Allied Powers "with the
suggestion that, if these Governments are disposed to effect peace upon
the terms and principles indicated," they will ask their military
advisers to draw up Armistice Terms of such a character as to "ensure to
the Associated Governments the unrestricted power to safeguard and
enforce the details of the peace to which the German Government has
agreed." At the end of this Note the President hinted more openly than
in that of October 14 at the abdication of the Kaiser. This completes
the preliminary negotiations to which the President alone was a party,
adding without the Governments of the Allied Powers.
On November 5, 1918, the President transmitted to Germany the reply he
had received from the Governments associated with him, and added that
Marshal Foch had been authorized to communicate the terms of an
armistice to properly accredited representatives. In this reply the
Allied Governments, "subject to the qualifications which follow, declare
their willingness to make peace with the Government of Germany on the
terms of peace laid down in the President's Address to Congress of
January 8, 1918, and the principles of settlement enunciated in his
subsequent Addresses." The qualifications in question were two in
number. The first related to the Freedom of the Seas, as to which they
"reserved to themselves complete freedom." The second related to
Reparation and ran as follows:--"Further, in the conditions of peace
laid down in his Address to Congress on the 8th January, 1918 the
President declared that invaded territories must be restored as well as
evacuated and made free. The Allied Governments feel that no doubt
ought to be allowed to exist as to what this provision implies. By it
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."[7]
The nature of the Contract between Germany and the Allies resulting from
this exchange of documents is plain and unequivocal. The terms of the
peace are to be in accordance with the Addresses of the President, and
the purpose of the Peace Conference is "to discuss the details of their
application." The circumstances of the Contract were of an unusually
solemn and binding character; for one of the conditions of it was that
Germany should agree to Armistice Terms which were to be such as would
leave her helpless. Germany having rendered herself helpless in reliance
on the Contract, the honor of the Allies was peculiarly involved in
fulfilling their part and, if there were ambiguities, in not using their
position to take advantage of them.
What, then, was the substance of this Contract to which the Allies had
bound themselves? An examination of the documents shows that, although a
large part of the Addresses is concerned with spirit, purpose, and
intention, and not with concrete solutions, and that many questions
requiring a settlement in the Peace Treaty are not touched on,
nevertheless, there are certain questions which they settle definitely.
It is true that within somewhat wide limits the Allies still had a free
hand. Further, it is difficult to apply on a contractual basis those
passages which deal with spirit, purpose, and intention;--every man must
judge for himself whether, in view of them, deception or hypocrisy has
been practised. But there remain, as will be seen below, certain
important issues on which the Contract is unequivocal.
In addition to the Fourteen Points of January 18, 1918, the Addresses of
the President which form part of the material of the Contract are four
in number,--before the Congress on February 11; at Baltimore on April 6;
at Mount Vernon on July 4; and at New York on September 27, the last of
these being specially referred to in the Contract. I venture to select
from these Addresses those engagements of substance, avoiding
repetitions, which are most relevant to the German Treaty. The parts I
omit add to, rather than detract from, those I quote; but they chiefly
relate to intention, and are perhaps too vague and general to be
interpreted contractually.[8]
_The Fourteen Points_.--(3). "The removal, so far as possible, of all
economic barriers and the establishment of an equality of trade
conditions among _all_ the nations consenting to the Peace and
associating themselves for its maintenance." (4). "Adequate guarantees
_given and taken_ that national armaments will be reduced to the lowest
point consistent with domestic safety." (5). "A free, open-minded, and
absolutely impartial adjustment of all colonial claims," regard being
had to the interests of the populations concerned. (6), (7), (8), and
(11). The evacuation and "restoration" of all invaded territory,
especially of Belgium. To this must be added the rider of the Allies,
claiming compensation for all damage done to civilians and their
property by land, by sea, and from the air (quoted in full above). (8).
The righting of "the wrong done to France by Prussia in 1871 in the
matter of Alsace-Lorraine." (13). An independent Poland, including "the
territories inhabited by indisputably Polish populations" and "assured a
free and secure access to the sea." (14). The League of Nations.
_Before the Congress, February 11_.--"There shall be no annexations, _no
contributions, no punitive damages_.... Self-determination is not a
mere phrase. It is an imperative principle of action which statesmen
will henceforth ignore at their peril.... Every territorial settlement
involved in this war must be made in the interest and for the benefit of
the populations concerned, and not as a part of any mere adjustment or
compromise of claims amongst rival States."
_New York, September 27_.--(1) "The impartial justice meted out must
involve no discrimination between those to whom we wish to be just and
those to whom we do not wish to be just." (2) "No special or separate
interest of any single nation or any group of nations can be made the
basis of any part of the settlement which is not consistent with the
common interest of all." (3) "There can be no leagues or alliances or
special covenants and understandings within the general and common
family of the League of Nations." (4) "There can be no special selfish
economic combinations within the League and no employment of any form of
economic boycott or exclusion, except as the power of economic penalty
by exclusion from the markets of the world may be vested in the League
of Nations itself as a means of discipline and control." (5) "All
international agreements and treaties of every kind must be made known
in their entirety to the rest of the world."
This wise and magnanimous program for the world had passed on November
5, 1918 beyond the region of idealism and aspiration, and had become
part of a solemn contract to which all the Great Powers of the world had
put their signature. But it was lost, nevertheless, in the morass of
Paris;--the spirit of it altogether, the letter in parts ignored and in
other parts distorted.
The German observations on the draft Treaty of Peace were largely a
comparison between the terms of this understanding, on the basis of
which the German nation had agreed to lay down its arms, and the actual
provisions of the document offered them for signature thereafter. The
German commentators had little difficulty in showing that the draft
Treaty constituted a breach of engagements and of international morality
comparable with their own offense in the invasion of Belgium.
Nevertheless, the German reply was not in all its parts a document fully
worthy of the occasion, because in spite of the justice and importance
of much of its contents, a truly broad treatment and high dignity of
outlook were a little wanting, and the general effect lacks the simple
treatment, with the dispassionate objectivity of despair which the deep
passions of the occasion might have evoked. The Allied governments gave
it, in any case, no serious consideration, and I doubt if anything which
the German delegation could have said at that stage of the proceedings
would have much influenced the result.
The commonest virtues of the individual are often lacking in the
spokesmen of nations; a statesman representing not himself but his
country may prove, without incurring excessive blame--as history often
records--vindictive, perfidious, and egotistic. These qualities are
familiar in treaties imposed by victors. But the German delegation did
not succeed in exposing in burning and prophetic words the quality which
chiefly distinguishes this transaction from all its historical
predecessors--its insincerity.
This theme, however, must be for another pen than mine. I am mainly
concerned in what follows, not with the justice of the Treaty,--neither
with the demand for penal justice against the enemy, nor with the
obligation of contractual justice on the victor,--but with its wisdom
and with its consequences.
I propose, therefore, in this chapter to set forth baldly the principal
economic provisions of the Treaty, reserving, however, for the next my
comments on the Reparation Chapter and on Germany's capacity to meet the
payments there demanded from her.
The German economic system as it existed before the war depended on
three main factors: I. Overseas commerce as represented by her
mercantile marine, her colonies, her foreign investments, her exports,
and the overseas connections of her merchants; II. The exploitation of
her coal and iron and the industries built upon them; III. Her transport
and tariff system. Of these the first, while not the least important,
was certainly the most vulnerable. The Treaty aims at the systematic
destruction of all three, but principally of the first two.
I
(1) Germany has ceded to the Allies _all_ the vessels of her mercantile
marine exceeding 1600 tons gross, half the vessels between 1000 tons and
1600 tons, and one quarter of her trawlers and other fishing boats.[9]
The cession is comprehensive, including not only vessels flying the
German flag, but also all vessels owned by Germans but flying other
flags, and all vessels under construction as well as those afloat.[10]
Further, Germany undertakes, if required, to build for the Allies such
types of ships as they may specify up to 200,000 tons[11] annually for
five years, the value of these ships being credited to Germany against
what is due from her for Reparation.[12]
Thus the German mercantile marine is swept from the seas and cannot be
restored for many years to come on a scale adequate to meet the
requirements of her own commerce. For the present, no lines will run
from Hamburg, except such as foreign nations may find it worth while to
establish out of their surplus tonnage. Germany will have to pay to
foreigners for the carriage of her trade such charges as they may be
able to exact, and will receive only such conveniences as it may suit
them to give her. The prosperity of German ports and commerce can only
revive, it would seem, in proportion as she succeeds in bringing under
her effective influence the merchant marines of Scandinavia and of
Holland.
(2) Germany has ceded to the Allies "all her rights and titles over her
oversea possessions."[13] This cession not only applies to sovereignty
but extends on unfavorable terms to Government property, all of which,
including railways, must be surrendered without payment, while, on the
other hand, the German Government remains liable for any debt which may
have been incurred for the purchase or construction of this property, or
for the development of the colonies generally.[14]
In distinction from the practice ruling in the case of most similar
cessions in recent history, the property and persons of private German
nationals, as distinct from their Government, are also injuriously
affected. The Allied Government exercising authority in any former
German colony "may make such provisions as it thinks fit with reference
to the repatriation from them of German nationals and to the conditions
upon which German subjects of European origin shall, or shall not, be
allowed to reside, hold property, trade or exercise a profession in
them."[15] All contracts and agreements in favor of German nationals for
the construction or exploitation of public works lapse to the Allied
Governments as part of the payment due for Reparation.
But these terms are unimportant compared with the more comprehensive
provision by which "the Allied and Associated Powers reserve the right
to retain and liquidate _all_ property, rights, and interests belonging
at the date of the coming into force of the present Treaty to German
nationals, or companies controlled by them," within the former German
colonies.[16] This wholesale expropriation of private property is to
take place without the Allies affording any compensation to the
individuals expropriated, and the proceeds will be employed, first, to
meet private debts due to Allied nationals from any German nationals,
and second, to meet claims due from Austrian, Hungarian, Bulgarian, or
Turkish nationals. Any balance may either be returned by the liquidating
Power direct to Germany, or retained by them. If retained, the proceeds
must be transferred to the Reparation Commission for Germany's credit in
the Reparation account.[17]
In short, not only are German sovereignty and German influence
extirpated from the whole of her former oversea possessions, but the
persons and property of her nationals resident or owning property in
those parts are deprived of legal status and legal security.
(3) The provisions just outlined in regard to the private property of
Germans in the ex-German colonies apply equally to private German
property in Alsace-Lorraine, except in so far as the French Government
may choose to grant exceptions.[18] This is of much greater practical
importance than the similar expropriation overseas because of the far
higher value of the property involved and the closer interconnection,
resulting from the great development of the mineral wealth of these
provinces since 1871, of German economic interests there with those in
Germany itself. Alsace-Lorraine has been part of the German Empire for
nearly fifty years--a considerable majority of its population is German
speaking--and it has been the scene of some of Germany's most important
economic enterprises. Nevertheless, the property of those Germans who
reside there, or who have invested in its industries, is now entirely at
the disposal of the French Government without compensation, except in so
far as the German Government itself may choose to afford it. The French
Government is entitled to expropriate without compensation the personal
property of private German citizens and German companies resident or
situated within Alsace-Lorraine, the proceeds being credited in part
satisfaction of various French claims. The severity of this provision is
only mitigated to the extent that the French Government may expressly
permit German nationals to continue to reside, in which case the above
provision is not applicable. Government, State, and Municipal property,
on the other hand, is to be ceded to France without any credit being
given for it. This includes the railway system of the two provinces,
together with its rolling-stock.[19] But while the property is taken
over, liabilities contracted in respect of it in the form of public
debts of any kind remain the liability of Germany.[20] The provinces
also return to French sovereignty free and quit of their share of German
war or pre-war dead-weight debt; nor does Germany receive a credit on
this account in respect of Reparation.
(4) The expropriation of German private property is not limited,
however, to the ex-German colonies and Alsace-Lorraine. The treatment of
such property forms, indeed, a very significant and material section of
the Treaty, which has not received as much attention as it merits,
although it was the subject of exceptionally violent objection on the
part of the German delegates at Versailles. So far as I know, there is
no precedent in any peace treaty of recent history for the treatment of
private property set forth below, and the German representatives urged
that the precedent now established strikes a dangerous and immoral blow
at the security of private property everywhere. This is an exaggeration,
and the sharp distinction, approved by custom and convention during the
past two centuries, between the property and rights of a State and the
property and rights of its nationals is an artificial one, which is
being rapidly put out of date by many other influences than the Peace
Treaty, and is inappropriate to modern socialistic conceptions of the
relations between the State and its citizens. It is true, however, that
the Treaty strikes a destructive blow at a conception which lies at the
root of much of so-called international law, as this has been expounded
hitherto.
The principal provisions relating to the expropriation of German private
property situated outside the frontiers of Germany, as these are now
determined, are overlapping in their incidence, and the more drastic
would seem in some cases to render the others unnecessary. Generally
speaking, however, the more drastic and extensive provisions are not so
precisely framed as those of more particular and limited application.
They are as follows:--
(_a_) The Allies "reserve the right to retain and liquidate all
property, rights and interests belonging at the date of the coming into
force of the present Treaty to German nationals, or companies controlled
by them, within their territories, colonies, possessions and
protectorates, including territories ceded to them by the present
Treaty."[21]
This is the extended version of the provision which has been discussed
already in the case of the colonies and of Alsace-Lorraine. The value of
the property so expropriated will be applied, in the first instance, to
the satisfaction of private debts due from Germany to the nationals of
the Allied Government within whose jurisdiction the liquidation takes
place, and, second, to the satisfaction of claims arising out of the
acts of Germany's former allies. Any balance, if the liquidating
Government elects to retain it, must be credited in the Reparation
account.[22] It is, however, a point of considerable importance that the
liquidating Government is not compelled to transfer the balance to the
Reparation Commission, but can, if it so decides, return the proceeds
direct to Germany. For this will enable the United States, if they so
wish, to utilize the very large balances, in the hands of their
enemy-property custodian, to pay for the provisioning of Germany,
without regard to the views of the Reparation Commission.
These provisions had their origin in the scheme for the mutual
settlement of enemy debts by means of a Clearing House. Under this
proposal it was hoped to avoid much trouble and litigation by making
each of the Governments lately at war responsible for the collection of
private _debts_ due from its nationals to the nationals of any of the
other Governments (the normal process of collection having been
suspended by reason of the war), and for the distribution of the funds
so collected to those of its nationals who had _claims_ against the
nationals of the other Governments, any final balance either way being
settled in cash. Such a scheme could have been completely bilateral and
reciprocal. And so in part it is, the scheme being mainly reciprocal as
regards the collection of commercial debts. But the completeness of
their victory permitted the Allied Governments to introduce in their own
favor many divergencies from reciprocity, of which the following are the
chief: Whereas the property of Allied nationals within German
jurisdiction reverts under the Treaty to Allied ownership on the
conclusion of Peace, the property of Germans within Allied jurisdiction
is to be retained and liquidated as described above, with the result
that the whole of German property over a large part of the world can be
expropriated, and the large properties now within the custody of Public
Trustees and similar officials in the Allied countries may be retained
permanently. In the second place, such German assets are chargeable, not
only with the liabilities of Germans, but also, if they run to it, with
"payment of the amounts due in respect of claims by the nationals of
such Allied or Associated Power with regard to their property, rights,
and interests in the territory of other Enemy Powers," as, for example,
Turkey, Bulgaria, and Austria.[23] This is a remarkable provision,
which is naturally non-reciprocal. In the third place, any final balance
due to Germany on private account need not be paid over, but can be held
against the various liabilities of the German Government.[24] The
effective operation of these Articles is guaranteed by the delivery of
deeds, titles, and information.[25] In the fourth place, pre-war
contracts between Allied and German nationals may be canceled or revived
at the option of the former, so that all such contracts which are in
Germany's favor will be canceled, while, on the other hand, she will be
compelled to fulfil those which are to her disadvantage.
(_b_) So far we have been concerned with German property within Allied
jurisdiction. The next provision is aimed at the elimination of German
interests in the territory of her neighbors and former allies, and of
certain other countries. Under Article 260 of the Financial Clauses it
is provided that the Reparation Commission may, within one year of the
coming into force of the Treaty, demand that the German Government
expropriate its nationals and deliver to the Reparation Commission "any
rights and interests of German nationals in any public utility
undertaking or in any concession[26] operating in Russia, China, Turkey,
Austria, Hungary, and Bulgaria, or in the possessions or dependencies of
these States, or in any territory formerly belonging to Germany or her
allies, to be ceded by Germany or her allies to any Power or to be
administered by a Mandatory under the present Treaty." This is a
comprehensive description, overlapping in part the provisions dealt with
under (_a_) above, but including, it should be noted, the new States and
territories carved out of the former Russian, Austro-Hungarian, and
Turkish Empires. Thus Germany's influence is eliminated and her capital
confiscated in all those neighboring countries to which she might
naturally look for her future livelihood, and for an outlet for her
energy, enterprise, and technical skill.
The execution of this program in detail will throw on the Reparation
Commission a peculiar task, as it will become possessor of a great
number of rights and interests over a vast territory owing dubious
obedience, disordered by war, disruption, and Bolshevism. The division
of the spoils between the victors will also provide employment for a
powerful office, whose doorsteps the greedy adventurers and jealous
concession-hunters of twenty or thirty nations will crowd and defile.
Lest the Reparation Commission fail by ignorance to exercise its rights
to the full, it is further provided that the German Government shall
communicate to it within six months of the Treaty's coming into force a
list of all the rights and interests in question, "whether already
granted, contingent or not yet exercised," and any which are not so
communicated within this period will automatically lapse in favor of the
Allied Governments.[27] How far an edict of this character can be made
binding on a German national, whose person and property lie outside the
jurisdiction of his own Government, is an unsettled question; but all
the countries specified in the above list are open to pressure by the
Allied authorities, whether by the imposition of an appropriate Treaty
clause or otherwise.
(_c_) There remains a third provision more sweeping than either of the
above, neither of which affects German interests in _neutral_
countries. The Reparation Commission is empowered up to May 1, 1921, to
demand payment up to $5,000,000,000 _in such manner as they may fix_,
"whether in gold, commodities, ships, securities or otherwise."[28] This
provision has the effect of intrusting to the Reparation Commission for
the period in question dictatorial powers over all German property of
every description whatever. They can, under this Article, point to any
specific business, enterprise, or property, whether within or outside
Germany, and demand its surrender; and their authority would appear to
extend not only to property existing at the date of the Peace, but also
to any which may be created or acquired at any time in the course of the
next eighteen months. For example, they could pick out--as presumably
they will as soon as they are established--the fine and powerful German
enterprise in South America known as the _Deutsche Ueberseeische
Elektrizitätsgesellschaft_ (the D.U.E.G.), and dispose of it to Allied
interests. The clause is unequivocal and all-embracing. It is worth
while to note in passing that it introduces a quite novel principle in
the collection of indemnities. Hitherto, a sum has been fixed, and the
nation mulcted has been left free to devise and select for itself the
means of payment. But in this case the payees can (for a certain
period) not only demand a certain sum but specify the particular kind of
property in which payment is to be effected. Thus the powers of the
Reparation Commission, with which I deal more particularly in the next
chapter, can be employed to destroy Germany's commercial and economic
organization as well as to exact payment.
The cumulative effect of (_a_), (_b_), and (_c_) (as well as of certain
other minor provisions on which I have not thought it necessary to
enlarge) is to deprive Germany (or rather to empower the Allies so to
deprive her at their will--it is not yet accomplished) of everything she
possesses outside her own frontiers as laid down in the Treaty. Not only
are her oversea investments taken and her connections destroyed, but the
same process of extirpation is applied in the territories of her former
allies and of her immediate neighbors by land.
(5) Lest by some oversight the above provisions should overlook any
possible contingencies, certain other Articles appear in the Treaty,
which probably do not add very much in practical effect to those already
described, but which deserve brief mention as showing the spirit of
completeness in which the victorious Powers entered upon the economic
subjection of their defeated enemy.
First of all there is a general clause of barrer and renunciation: "In
territory outside her European frontiers as fixed by the present Treaty,
Germany renounces all rights, titles and privileges whatever in or over
territory which belonged to her or to her allies, and all rights, titles
and privileges whatever their origin which she held as against the
Allied and Associated Powers...."[29]
There follow certain more particular provisions. Germany renounces all
rights and privileges she may have acquired in China.[30] There are
similar provisions for Siam,[31] for Liberia,[32] for Morocco,[33] and
for Egypt.[34] In the case of Egypt not only are special privileges
renounced, but by Article 150 ordinary liberties are withdrawn, the
Egyptian Government being accorded "complete liberty of action in
regulating the status of German nationals and the conditions under which
they may establish themselves in Egypt."
By Article 258 Germany renounces her right to any participation in any
financial or economic organizations of an international character
"operating in any of the Allied or Associated States, or in Austria,
Hungary, Bulgaria or Turkey, or in the dependencies of these States, or
in the former Russian Empire."
Generally speaking, only those pre-war treaties and conventions are
revived which it suits the Allied Governments to revive, and those in
Germany's favor may be allowed to lapse.[35]
It is evident, however, that none of these provisions are of any real
importance, as compared with those described previously. They represent
the logical completion of Germany's outlawry and economic subjection to
the convenience of the Allies; but they do not add substantially to her
effective disabilities.
II
The provisions relating to coal and iron are more important in respect
of their ultimate consequences on Germany's internal industrial economy
than for the money value immediately involved. The German Empire has
been built more truly on coal and iron than on blood and iron. The
skilled exploitation of the great coalfields of the Ruhr, Upper Silesia,
and the Saar, alone made possible the development of the steel,
chemical, and electrical industries which established her as the first
industrial nation of continental Europe. One-third of Germany's
population lives in towns of more than 20,000 inhabitants, an industrial
concentration which is only possible on a foundation of coal and iron.
In striking, therefore, at her coal supply, the French politicians were
not mistaking their target. It is only the extreme immoderation, and
indeed technical impossibility, of the Treaty's demands which may save
the situation in the long-run.
(1) The Treaty strikes at Germany's coal supply in four ways:--
(i.) "As compensation for the destruction of the coal-mines in the north
of France, and as part payment towards the total reparation due from
Germany for the damage resulting from the war, Germany cedes to France
in full and absolute possession, with exclusive rights of exploitation,
unencumbered, and free from all debts and charges of any kind, the
coal-mines situated in the Saar Basin."[36] While the administration of
this district is vested for fifteen years in the League of Nations, it
is to be observed that the mines are ceded to France absolutely. Fifteen
years hence the population of the district will be called upon to
indicate by plebiscite their desires as to the future sovereignty of the
territory; and, in the event of their electing for union with Germany,
Germany is to be entitled to repurchase the mines at a price payable in
gold.[37]
The judgment of the world has already recognized the transaction of the
Saar as an act of spoliation and insincerity. So far as compensation for
the destruction of French coal-mines is concerned, this is provided for,
as we shall see in a moment, elsewhere in the Treaty. "There is no
industrial region in Germany," the German representatives have said
without contradiction, "the population of which is so permanent, so
homogeneous, and so little complex as that of the Saar district. Among
more than 650,000 inhabitants, there were in 1918 less than 100 French.
The Saar district has been German for more than 1,000 years. Temporary
occupation as a result of warlike operations on the part of the French
always terminated in a short time in the restoration of the country upon
the conclusion of peace. During a period of 1048 years France has
possessed the country for not quite 68 years in all. When, on the
occasion of the first Treaty of Paris in 1814, a small portion of the
territory now coveted was retained for France, the population raised the
most energetic opposition and demanded 'reunion with their German
fatherland,' to which they were 'related by language, customs, and
religion.' After an occupation of one year and a quarter, this desire
was taken into account in the second Treaty of Paris in 1815. Since then
the country has remained uninterruptedly attached to Germany, and owes
its economic development to that connection."
The French wanted the coal for the purpose of working the ironfields of
Lorraine, and in the spirit of Bismarck they have taken it. Not
precedent, but the verbal professions of the Allies, have rendered it
indefensible.[38]
(ii.) Upper Silesia, a district without large towns, in which, however,
lies one of the major coalfields of Germany with a production of about
23 per cent of the total German output of hard coal, is, subject to a
plebiscite,[39] to be ceded to Poland. Upper Silesia was never part of
historic Poland; but its population is mixed Polish, German, and
Czecho-Slovakian, the precise proportions of which are disputed.[40]
Economically it is intensely German; the industries of Eastern Germany
depend upon it for their coal; and its loss would be a destructive blow
at the economic structure of the German State.[41]
With the loss of the fields of Upper Silesia and the Saar, the coal
supplies of Germany are diminished by not far short of one-third.
(iii.) Out of the coal that remains to her, Germany is obliged to make
good year by year the estimated loss which France has incurred by the
destruction and damage of war in the coalfields of her northern
Provinces. In para. 2 of Annex V. to the Reparation Chapter, "Germany
undertakes to deliver to France annually, for a period not exceeding ten
years, an amount of coal equal to the difference between the annual
production before the war of the coal-mines of the Nord and Pas de
Calais, destroyed as a result of the war, and the production of the
mines of the same area during the year in question: such delivery not to
exceed 20,000,000 tons in any one year of the first five years, and
8,000,000 tons in any one year of the succeeding five years."
This is a reasonable provision if it stood by itself, and one which
Germany should be able to fulfil if she were left her other resources to
do it with.
(iv.) The final provision relating to coal is part of the general scheme
of the Reparation Chapter by which the sums due for Reparation are to be
partly paid in kind instead of in cash. As a part of the payment due for
Reparation, Germany is to make the following deliveries of coal or
equivalent in coke (the deliveries to France being wholly additional to
the amounts available by the cession of the Saar or in compensation for
destruction in Northern France):--
(i.) To France 7,000,000 tons annually for ten years;[42]
(ii.) To Belgium 8,000,000 tons annually for ten years;
(iii.) To Italy an annual quantity, rising by annual increments from
4,500,000 tons in 1919-1920 to 8,500,000 tons in each of the six years,
1923-1924 to 1928-1929;
(iv.) To Luxemburg, if required, a quantity of coal equal to the
pre-war annual consumption of German coal in Luxemburg.
This amounts in all to an annual average of about 25,000,000 tons.
* * * * *
These figures have to be examined in relation to Germany's probable
output. The maximum pre-war figure was reached in 1913 with a total of
191,500,000 tons. Of this, 19,000,000 tons were consumed at the mines,
and on balance (_i.e._ exports less imports) 33,500,000 tons were
exported, leaving 139,000,000 tons for domestic consumption. It is
estimated that this total was employed as follows:--
Railways 18,000,000 tons.
Gas, water, and electricity 12,500,000 "
Bunkers 6,500,000 "
House-fuel, small industry
and agriculture 24,000,000 "
Industry 78,000,000 "
-----------
139,000,000 "
The diminution of production due to loss of territory is:--
Alsace-Lorraine 3,800,000 tons.
Saar Basin 13,200,000 "
Upper Silesia 43,800,000 "
-----------
60,800,000 "
There would remain, therefore, on the basis of the 1913 output,
130,700,000 tons, or, deducting consumption at the mines themselves,
(say) 118,000,000 tons. For some years there must be sent out of this
supply upwards of 20,000,000 tons to France as compensation for damage
done to French mines, and 25,000,000 tons to France, Belgium, Italy, and
Luxemburg;[43] as the former figure is a maximum, and the latter figure
is to be slightly less in the earliest years, we may take the total
export to Allied countries which Germany has undertaken to provide as
40,000,000 tons, leaving, on the above basis, 78,000,000 tons for her
own use as against a pre-war consumption of 139,000,000 tons.
This comparison, however, requires substantial modification to make it
accurate. On the one hand, it is certain that the figures of pre-war
output cannot be relied on as a basis of present output. During 1918 the
production was 161,500,000 tons as compared with 191,500,000 tons in
1913; and during the first half of 1919 it was less than 50,000,000
tons, exclusive of Alsace-Lorraine and the Saar but including Upper
Silesia, corresponding to an annual production of about 100,000,000
tons.[44] The causes of so low an output were in part temporary and
exceptional but the German authorities agree, and have not been
confuted, that some of them are bound to persist for some time to come.
In part they are the same as elsewhere; the daily shift has been
shortened from 8-1/2 to 7 hours, and it is improbable that the powers of
the Central Government will be adequate to restore them to their former
figure. But in addition, the mining plant is in bad condition (due to
the lack of certain essential materials during the blockade), the
physical efficiency of the men is greatly impaired by malnutrition
(which cannot be cured if a tithe of the reparation demands are to be
satisfied,--the standard of life will have rather to be lowered), and
the casualties of the war have diminished the numbers of efficient
miners. The analogy of English conditions is sufficient by itself to
tell us that a pre-war level of output cannot be expected in Germany.
German authorities put the loss of output at somewhat above 30 per
cent, divided about equally between the shortening of the shift and the
other economic influences. This figure appears on general grounds to be
plausible, but I have not the knowledge to endorse or to criticize it.
The pre-war figure of 118,000,000 tons net (_i.e._ after allowing for
loss of territory and consumption at the mines) is likely to fall,
therefore, at least as low as to 100,000,000[45] tons, having regard to
the above factors. If 40,000,000 tons of this are to be exported to the
Allies, there remain 60,000,000 tons for Germany herself to meet her own
domestic consumption. Demand as well as supply will be diminished by
loss of territory, but at the most extravagant estimate this could not
be put above 29,000,000 tons.[46] Our hypothetical calculations,
therefore, leave us with post-war German domestic requirements, on the
basis of a pre-war efficiency of railways and industry, of 110,000,000
tons against an output not exceeding 100,000,000 tons, of which
40,000,000 tons are mortgaged to the Allies.
The importance of the subject has led me into a somewhat lengthy
statistical analysis. It is evident that too much significance must not
be attached to the precise figures arrived at, which are hypothetical
and dubious.[47] But the general character of the facts presents itself
irresistibly. Allowing for the loss of territory and the loss of
efficiency, Germany cannot export coal in the near future (and will even
be dependent on her Treaty rights to purchase in Upper Silesia), if she
is to continue as an industrial nation. Every million tons she is forced
to export must be at the expense of closing down an industry. With
results to be considered later this within certain limits is _possible_.
But it is evident that Germany cannot and will not furnish the Allies
with a contribution of 40,000,000 tons annually. Those Allied Ministers,
who have told their peoples that she can, have certainly deceived them
for the sake of allaying for the moment the misgivings of the European
peoples as to the path along which they are being led.
The presence of these illusory provisions (amongst others) in the
clauses of the Treaty of Peace is especially charged with danger for
the future. The more extravagant expectations as to Reparation
receipts, by which Finance Ministers have deceived their publics, will
be heard of no more when they have served their immediate purpose of
postponing the hour of taxation and retrenchment. But the coal clauses
will not be lost sight of so easily,--for the reason that it will be
absolutely vital in the interests of France and Italy that these
countries should do everything in their power to exact their bond. As a
result of the diminished output due to German destruction in France, of
the diminished output of mines in the United Kingdom and elsewhere, and
of many secondary causes, such as the breakdown of transport and of
organization and the inefficiency of new governments, the coal position
of all Europe is nearly desperate;[48] and France and Italy, entering
the scramble with certain Treaty rights, will not lightly surrender
them.
As is generally the case in real dilemmas, the French and Italian case
will possess great force, indeed unanswerable force from a certain point
of view. The position will be truly represented as a question between
German industry on the one hand and French and Italian industry on the
other. It may be admitted that the surrender of the coal will destroy
German industry, but it may be equally true that its non-surrender will
jeopardize French and Italian industry. In such a case must not the
victors with their Treaty rights prevail, especially when much of the
damage has been ultimately due to the wicked acts of those who are now
defeated? Yet if these feelings and these rights are allowed to prevail
beyond what wisdom would recommend, the reactions on the social and
economic life of Central Europe will be far too strong to be confined
within their original limits.
But this is not yet the whole problem. If France and Italy are to make
good their own deficiencies in coal from the output of Germany, then
Northern Europe, Switzerland, and Austria, which previously drew their
coal in large part from Germany's exportable surplus, must be starved of
their supplies. Before the war 13,600,000 tons of Germany's coal exports
went to Austria-Hungary. Inasmuch as nearly all the coalfields of the
former Empire lie outside what is now German-Austria, the industrial
ruin of this latter state, if she cannot obtain coal from Germany, will
be complete. The case of Germany's neutral neighbors, who were formerly
supplied in part from Great Britain but in large part from Germany,
will be hardly less serious. They will go to great lengths in the
direction of making their own supplies to Germany of materials which are
essential to her, conditional on these being paid for in coal. Indeed
they are already doing so.[49] With the breakdown of money economy the
practice of international barter is becoming prevalent. Nowadays money
in Central and South-Eastern Europe is seldom a true measure of value in
exchange, and will not necessarily buy anything, with the consequence
that one country, possessing a commodity essential to the needs of
another, sells it not for cash but only against a reciprocal engagement
on the part of the latter country to furnish in return some article not
less necessary to the former. This is an extraordinary complication as
compared with the former almost perfect simplicity of international
trade. But in the no less extraordinary conditions of to-day's industry
it is not without advantages as a means of stimulating production. The
butter-shifts of the Ruhr[50] show how far modern Europe has
retrograded in the direction of barter, and afford a picturesque
illustration of the low economic organization to which the breakdown of
currency and free exchange between individuals and nations is quickly
leading us. But they may produce the coal where other devices would
fail.[51]
Yet if Germany can find coal for the neighboring neutrals, France and
Italy may loudly claim that in this case she can and must keep her
treaty obligations. In this there will be a great show of justice, and
it will be difficult to weigh against such claims the possible facts
that, while German miners will work for butter, there is no available
means of compelling them to get coal, the sale of which will bring in
nothing, and that if Germany has no coal to send to her neighbors she
may fail to secure imports essential to her economic existence.
If the distribution of the European coal supplies is to be a scramble in
which France is satisfied first, Italy next, and every one else takes
their chance, the industrial future of Europe is black and the prospects
of revolution very good. It is a case where particular interests and
particular claims, however well founded in sentiment or in justice,
must yield to sovereign expediency. If there is any approximate truth in
Mr. Hoover's calculation that the coal output of Europe has fallen by
one-third, a situation confronts us where distribution must be effected
with even-handed impartiality in accordance with need, and no incentive
can be neglected towards increased production and economical methods of
transport. The establishment by the Supreme Council of the Allies in
August, 1919, of a European Coal Commission, consisting of delegates
from Great Britain, France, Italy, Belgium, Poland, and Czecho-Slovakia
was a wise measure which, properly employed and extended, may prove of
great assistance. But I reserve constructive proposals for Chapter VII.
Here I am only concerned with tracing the consequences, _per
impossibile_, of carrying out the Treaty _au pied de lettre_.[52]
(2) The provisions relating to iron-ore require less detailed attention,
though their effects are destructive. They require less attention,
because they are in large measure inevitable. Almost exactly 75 per cent
of the iron-ore raised in Germany in 1913 came from Alsace-Lorraine.[53]
In this the chief importance of the stolen provinces lay.
There is no question but that Germany must lose these ore-fields. The
only question is how far she is to be allowed facilities for purchasing
their produce. The German Delegation made strong efforts to secure the
inclusion of a provision by which coal and coke to be furnished by them
to France should be given in exchange for _minette_ from Lorraine. But
they secured no such stipulation, and the matter remains at France's
option.
The motives which will govern France's eventual policy are not entirely
concordant. While Lorraine comprised 75 per cent of Germany's iron-ore,
only 25 per cent of the blast furnaces lay within Lorraine and the Saar
basin together, a large proportion of the ore being carried into Germany
proper. Approximately the same proportion of Germany's iron and steel
foundries, namely 25 per cent, were situated in Alsace-Lorraine. For
the moment, therefore, the most economical and profitable course would
certainly be to export to Germany, as hitherto, a considerable part of
the output of the mines.
On the other hand, France, having recovered the deposits of Lorraine,
may be expected to aim at replacing as far as possible the industries,
which Germany had based on them, by industries situated within her own
frontiers. Much time must elapse before the plant and the skilled labor
could be developed within France, and even so she could hardly deal with
the ore unless she could rely on receiving the coal from Germany. The
uncertainty, too, as to the ultimate fate of the Saar will be disturbing
to the calculations of capitalists who contemplate the establishment of
new industries in France.
In fact, here, as elsewhere, political considerations cut disastrously
across economic. In a régime of Free Trade and free economic intercourse
it would be of little consequence that iron lay on one side of a
political frontier, and labor, coal, and blast furnaces on the other.
But as it is, men have devised ways to impoverish themselves and one
another; and prefer collective animosities to individual happiness. It
seems certain, calculating on the present passions and impulses of
European capitalistic society, that the effective iron output of Europe
will be diminished by a new political frontier (which sentiment and
historic justice require), because nationalism and private interest are
thus allowed to impose a new economic frontier along the same lines.
These latter considerations are allowed, in the present governance of
Europe, to prevail over the intense need of the Continent for the most
sustained and efficient production to repair the destructions of war,
and to satisfy the insistence of labor for a larger reward.[54]
The same influences are likely to be seen, though on a lesser scale, in
the event of the transference of Upper Silesia to Poland. While Upper
Silesia contains but little iron, the presence of coal has led to the
establishment of numerous blast furnaces. What is to be the fate of
these? If Germany is cut off from her supplies of ore on the west, will
she export beyond her frontiers on the east any part of the little which
remains to her? The efficiency and output of the industry seem certain
to diminish.
Thus the Treaty strikes at organization, and by the destruction of
organization impairs yet further the reduced wealth of the whole
community. The economic frontiers which are to be established between
the coal and the iron, upon which modern industrialism is founded, will
not only diminish the production of useful commodities, but may possibly
occupy an immense quantity of human labor in dragging iron or coal, as
the case may be, over many useless miles to satisfy the dictates of a
political treaty or because obstructions have been established to the
proper localization of industry.
III
There remain those Treaty provisions which relate to the transport and
the tariff systems of Germany. These parts of the Treaty have not nearly
the importance and the significance of those discussed hitherto. They
are pin-pricks, interferences and vexations, not so much objectionable
for their solid consequences, as dishonorable to the Allies in the light
of their professions. Let the reader consider what follows in the light
of the assurances already quoted, in reliance on which Germany laid down
her arms.
(i.) The miscellaneous Economic Clauses commence with a number of
provisions which would be in accordance with the spirit of the third of
the Fourteen Points,--if they were reciprocal. Both for imports and
exports, and as regards tariffs, regulations, and prohibitions, Germany
binds herself for five years to accord most-favored-nation treatment to
the Allied and Associated States.[55] But she is not entitled herself to
receive such treatment.
For five years Alsace-Lorraine shall be free to export into Germany,
without payment of customs duty, up to the average amount sent annually
into Germany from 1911 to 1913.[56] But there is no similar provision
for German exports into Alsace-Lorraine.
For three years Polish exports to Germany, and for five years
Luxemburg's exports to Germany, are to have a similar privilege,[57]--
but not German exports to Poland or to Luxemburg. Luxemburg also, which
for many years has enjoyed the benefits of inclusion within the German
Customs Union, is permanently excluded from it henceforward.[58]
For six months after the Treaty has come into force Germany may not
impose duties on imports from the Allied and Associated States higher
than the most favorable duties prevalent before the war and for a
further two years and a half (making three years in all) this
prohibition continues to apply to certain commodities, notably to some
of those as to which special agreements existed before the war, and also
to wine, to vegetable oils, to artificial silk, and to washed or scoured
wool.[59] This is a ridiculous and injurious provision, by which Germany
is prevented from taking those steps necessary to conserve her limited
resources for the purchase of necessaries and the discharge of
Reparation. As a result of the existing distribution of wealth in
Germany, and of financial wantonness amongst individuals, the offspring
of uncertainty, Germany is threatened with a deluge of luxuries and
semi-luxuries from abroad, of which she has been starved for years,
which would exhaust or diminish her small supplies of foreign exchange.
These provisions strike at the authority of the German Government to
ensure economy in such consumption, or to raise taxation during a
critical period. What an example of senseless greed overreaching itself,
to introduce, after taking from Germany what liquid wealth she has and
demanding impossible payments for the future, a special and
particularized injunction that she must allow as readily as in the days
of her prosperity the import of champagne and of silk!
One other Article affects the Customs Régime of Germany which, if it was
applied, would be serious and extensive in its consequences. The Allies
have reserved the right to apply a special customs régime to the
occupied area on the bank of the Rhine, "in the event of such a measure
being necessary in their opinion in order to safeguard the economic
interests of the population of these territories."[60] This provision
was probably introduced as a possibly useful adjunct to the French
policy of somehow detaching the left bank provinces from Germany during
the years of their occupation. The project of establishing an
independent Republic under French clerical auspices, which would act as
a buffer state and realize the French ambition of driving Germany proper
beyond the Rhine, has not yet been abandoned. Some believe that much may
be accomplished by a régime of threats, bribes, and cajolery extended
over a period of fifteen years or longer.[61] If this Article is acted
upon, and the economic system of the left bank of the Rhine is
effectively severed from the rest of Germany, the effect would be
far-reaching. But the dreams of designing diplomats do not always
prosper, and we must trust the future.
(ii.) The clauses relating to Railways, as originally presented to
Germany, were substantially modified in the final Treaty, and are now
limited to a provision by which goods, coming from Allied territory to
Germany, or in transit through Germany, shall receive the most favored
treatment as regards rail freight rates, etc., applied to goods of the
same kind carried on _any_ German lines "under similar conditions of
transport, for example, as regards length of route."[62] As a
non-reciprocal provision this is an act of interference in internal
arrangements which it is difficult to justify, but the practical effect
of this,[63] and of an analogous provision relating to passenger
traffic,[64] will much depend on the interpretation of the phrase,
"similar conditions of transport."[65]
For the time being Germany's transport system will be much more
seriously disordered by the provisions relating to the cession of
rolling-stock. Under paragraph 7 of the Armistice conditions Germany was
called on to surrender 5000 locomotives and 150,000 wagons, "in good
working order, with all necessary spare parts and fittings." Under the
Treaty Germany is required to confirm this surrender and to recognize
the title of the Allies to the material.[66] She is further required, in
the case of railway systems in ceded territory, to hand over these
systems complete with their full complement of rolling-stock "in a
normal state of upkeep" as shown in the last inventory before November
11, 1918.[67] That is to say, ceded railway systems are not to bear any
share in the general depletion and deterioration of the German
rolling-stock as a whole.
This is a loss which in course of time can doubtless be made good. But
lack of lubricating oils and the prodigious wear and tear of the war,
not compensated by normal repairs, had already reduced the German
railway system to a low state of efficiency. The further heavy losses
under the Treaty will confirm this state of affairs for some time to
come, and are a substantial aggravation of the difficulties of the coal
problem and of export industry generally.
(iii.) There remain the clauses relating to the river system of Germany.
These are largely unnecessary and are so little related to the supposed
aims of the Allies that their purport is generally unknown. Yet they
constitute an unprecedented interference with a country's domestic
arrangements and are capable of being so operated as to take from
Germany all effective control over her own transport system. In their
present form they are incapable of justification; but some simple
changes might transform them into a reasonable instrument.
Most of the principal rivers of Germany have their source or their
outlet in non-German territory. The Rhine, rising in Switzerland, is now
a frontier river for a part of its course, and finds the sea in Holland;
the Danube rises in Germany but flows over its greater length elsewhere;
the Elbe rises in the mountains of Bohemia, now called Czecho-Slovakia;
the Oder traverses Lower Silesia; and the Niemen now bounds the frontier
of East Prussia and has its source in Russia. Of these, the Rhine and
the Niemen are frontier rivers, the Elbe is primarily German but in its
upper reaches has much importance for Bohemia, the Danube in its German
parts appears to have little concern for any country but Germany, and
the Oder is an almost purely German river unless the result of the
plebiscite is to detach all Upper Silesia.
Rivers which, in the words of the Treaty, "naturally provide more than
one State with access to the sea," properly require some measure of
international regulation and adequate guarantees against discrimination.
This principle has long been recognized in the International Commissions
which regulate the Rhine and the Danube. But on such Commissions the
States concerned should be represented more or less in proportion to
their interests. The Treaty, however, has made the international
character of these rivers a pretext for taking the river system of
Germany out of German control.
After certain Articles which provide suitably against discrimination and
interference with freedom of transit,[68] the Treaty proceeds to hand
over the administration of the Elbe, the Oder, the Danube, and the Rhine
to International Commissions.[69] The ultimate powers of these
Commissions are to be determined by "a General Convention drawn up by
the Allied and Associated Powers, and approved by the League of
Nations."[70] In the meantime the Commissions are to draw up their own
constitutions and are apparently to enjoy powers of the most extensive
description, "particularly in regard to the execution of works of
maintenance, control, and improvement on the river system, the financial
régime, the fixing and collection of charges, and regulations for
navigation."[71]
So far there is much to be said for the Treaty. Freedom of through
transit is a not unimportant part of good international practice and
should be established everywhere. The objectionable feature of the
Commissions lies in their membership. In each case the voting is so
weighted as to place Germany in a clear minority. On the Elbe Commission
Germany has four votes out of ten; on the Oder Commission three out of
nine; on the Rhine Commission four out of nineteen; on the Danube
Commission, which is not yet definitely constituted, she will be
apparently in a small minority. On the government of all these rivers
France and Great Britain are represented; and on the Elbe for some
undiscoverable reason there are also representatives of Italy and
Belgium.
Thus the great waterways of Germany are handed over to foreign bodies
with the widest powers; and much of the local and domestic business of
Hamburg, Magdeburg, Dresden, Stettin, Frankfurt, Breslan, and Ulm will
be subject to a foreign jurisdiction. It is almost as though the Powers
of Continental Europe were to be placed in a majority on the Thames
Conservancy or the Port of London.
Certain minor provisions follow lines which in our survey of the Treaty
are now familiar. Under Annex III. of the Reparation Chapter Germany is
to cede up to 20 per cent of her inland navigation tonnage. Over and
above this she must cede such proportion of her river craft upon the
Elbe, the Oder, the Niemen, and the Danube as an American arbitrator may
determine, "due regard being had to the legitimate needs of the parties
concerned, and particularly to the shipping traffic during the five
years preceding the war," the craft so ceded to be selected from those
most recently built.[72] The same course is to be followed with German
vessels and tugs on the Rhine and with German property in the port of
Rotterdam.[73] Where the Rhine flows between France and Germany, France
is to have all the rights of utilizing the water for irrigation or for
power and Germany is to have none;[74] and all the bridges are to be
French property as to their whole length.[75] Finally the administration
of the purely German Rhine port of Kehl lying on the eastern bank of the
river is to be united to that of Strassburg for seven years and managed
by a Frenchman to be nominated by the new Rhine Commission.
Thus the Economic Clauses of the Treaty are comprehensive, and little
has been overlooked which might impoverish Germany now or obstruct her
development in future. So situated, Germany is to make payments of
money, on a scale and in a manner to be examined in the next chapter.
FOOTNOTES:
[7] The precise force of this reservation is discussed in
detail in Chapter V.
[8] I also omit those which have no special relevance to the
German Settlement. The second of the Fourteen Points, which relates to
the Freedom of the Seas, is omitted because the Allies did not accept
it. Any italics are mine.
[9] Part VIII. Annex III. (1).
[10] Part VIII. Annex III. (3).
[11] In the years before the war the average shipbuilding
output of Germany was about 350,000 tons annually, exclusive of
warships.
[12] Part VIII. Annex III. (5).
[13] Art. 119.
[14] Arts. 120 and 257.
[15] Art. 122.
[16] Arts. 121 and 297(b). The exercise or non-exercise of this
option of expropriation appears to lie, not with the Reparation
Commission, but with the particular Power in whose territory the
property has become situated by cession or mandation.
[17] Art. 297 (h) and para. 4 of Annex to Part X. Section IV.
[18] Arts. 53 and 74.
[19] In 1871 Germany granted France credit for the railways of
Alsace-Lorraine but not for State property. At that time, however, the
railways were private property. As they afterwards became the property
of the German Government, the French Government have held, in spite of
the large additional capital which Germany has sunk in them, that their
treatment must follow the precedent of State property generally.
[20] Arts. 55 and 255. This follows the precedent of 1871.
[21] Art. 297 (_b_).
[22] Part X. Sections III. and IV. and Art. 243.
[23] The interpretation of the words between inverted commas is
a little dubious. The phrase is so wide as to seem to include private
debts. But in the final draft of the Treaty private debts are not
explicitly referred to.
[24] This provision is mitigated in the case of German property
in Poland and the other new States, the proceeds of liquidation in these
areas being payable direct to the owner (Art. 92.)
[25] Part X. Section IV. Annex, para. 10: "Germany will, within
six months from the coming into force of the present Treaty, deliver to
each Allied or Associated Power all securities, certificates, deeds, or
other documents of title held by its nationals and relating to property,
rights, or interests situated in the territory of that Allied or
Associated Power.... Germany will at any time on demand of any Allied or
Associated Power furnish such information as may be required with regard
to the territory, rights, and interests of German nationals within the
territory of such Allied or Associated Power, or with regard to any
transactions concerning such property, rights, or interests effected
since July 1, 1914."
[26] "Any public utility undertaking or concession" is a vague
phrase, the precise interpretation of which is not provided for.
[27] Art. 260.
[28] Art. 235.
[29] Art. 118.
[30] Arts. 129 and 132.
[31] Arts. 135-137.
[32] Arts. 135-140.
[33] Art. 141: "Germany renounces all rights, titles and
privileges conferred on her by the General Act of Algeciras of April 7,
1906, and by the Franco-German Agreements, of Feb. 9, 1909, and Nov. 4,
1911...."
[34] Art. 148: "All treaties, agreements, arrangements and
contracts concluded by Germany with Egypt are regarded as abrogated from
Aug. 4, 1914." Art. 153: "All property and possessions in Egypt of the
German Empire and the German States pass to the Egyptian Government
without payment."
[35] Art. 289.
[36] Art. 45.
[37] Part IV. Section IV. Annex, Chap. III.
[38] "We take over the ownership of the Sarre mines, and in
order not to be inconvenienced in the exploitation of these coal
deposits, we constitute a distinct little estate for the 600,000 Germans
who inhabit this coal basin, and in fifteen years we shall endeavor by a
plebiscite to bring them to declare that they want to be French. We know
what that means. During fifteen years we are going to work on them, to
attack them from every point, till we obtain from them a declaration of
love. It is evidently a less brutal proceeding than the _coup de force_
which detached from us our Alsatians and Lorrainers. But if less brutal,
it is more hypocritical. We know quite well between ourselves that it is
an attempt to annex these 600,000 Germans. One can understand very well
the reasons of an economic nature which have led Clemenceau to wish to
give us these Sarre coal deposits, but in order to acquire them must we
give ourselves the appearance of wanting to juggle with 600,000 Germans
in order to make Frenchmen of them in fifteen years?" (M. Hervé in _La
Victorie_, May 31, 1919).
[39] This plebiscite is the most important of the concessions
accorded to Germany in the Allies' Final Note, and one for which Mr.
Lloyd George, who never approved the Allies' policy on the Eastern
frontiers of Germany, can claim the chief credit. The vote cannot take
place before the spring of 1920, and may be postponed until 1921. In the
meantime the province will be governed by an Allied Commission. The vote
will be taken by communes, and the final frontiers will be determined by
the Allies, who shall have regard, partly to the results of the vote in
each commune, and partly "to the geographical and economic conditions of
the locality." It would require great local knowledge to predict the
result. By voting Polish, a locality can escape liability for the
indemnity, and for the crushing taxation consequent on voting German, a
factor not to be neglected. On the other hand, the bankruptcy and
incompetence of the new Polish State might deter those who were disposed
to vote on economic rather than on racial grounds. It has also been
stated that the conditions of life in such matters as sanitation and
social legislation are incomparably better in Upper Silesia than in the
adjacent districts of Poland, where similar legislation is in its
infancy. The argument in the text assumes that Upper Silesia will cease
to be German. But much may happen in a year, and the assumption is not
certain. To the extent that it proves erroneous the conclusions must be
modified.
[40] 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.
[41] It must not be overlooked, however, that, amongst the
other concessions relating to Silesia accorded in the Allies' Final
Note, there has been included Article 90, by which "Poland undertakes to
permit for a period of fifteen years the exportation to Germany of the
products of the mines in any part of Upper Silesia transferred to Poland
in accordance with the present Treaty. Such products shall be free from
all export duties or other charges or restrictions on exportation.
Poland agrees to take such steps as may be necessary to secure that any
such products shall be available for sale to purchasers in Germany on
terms as favorable as are applicable to like products sold under similar
conditions to purchasers in Poland or in any other country." This does
not apparently amount to a right of preemption, and it is not easy to
estimate its effective practical consequences. It is evident, however,
that in so far as the mines are maintained at their former efficiency,
and in so far as Germany is in a position to purchase substantially her
former supplies from that source, the loss is limited to the effect on
her balance of trade, and is without the more serious repercussions on
her economic life which are contemplated in the text. Here is an
opportunity for the Allies to render more tolerable the actual operation
of the settlement. The Germans, it should be added, have pointed out
that the same economic argument which adds the Saar fields to France
allots Upper Silesia to Germany. For whereas the Silesian mines are
essential to the economic life of Germany, Poland does not need them. Of
Poland's pre-war annual demand of 10,500,000 tons, 6,800,000 tons were
supplied by the indisputably Polish districts adjacent to Upper Silesia.
1,500,000 tons from Upper Silesia (out of a total Upper Silesian output
of 43,500,000 tons), and the balance from what is now Czecho-Slovakia.
Even without any supply from Upper Silesia and Czecho-Slovakia, Poland
could probably meet her requirements by the fuller exploitation of her
own coalfields which are not yet scientifically developed, or from the
deposits of Western Galicia which are now to be annexed to her.
[42] France is also to receive annually for three years 35,000
tons of benzol, 60,000 tons of coal tar, and 30,000 tons of sulphate of
ammonia.
[43] The Reparation Commission is authorized under the Treaty
(Part VIII Annex V. para. 10) "to postpone or to cancel deliveries" if
they consider "that the full exercise of the foregoing options would
interfere unduly with the industrial requirements of Germany." In the
event of such postponements or cancellations "the coal to replace coal
from destroyed mines shall receive priority over other deliveries." This
concluding clause is of the greatest importance, if, as will be seen, it
is physically impossible for Germany to furnish the full 45,000,000; for
it means that France will receive 20,000,000 tons before Italy receives
anything. The Reparation Commission has no discretion to modify this.
The Italian Press has not failed to notice the significance of the
provision, and alleges that this clause was inserted during the absence
of the Italian representatives from Paris (_Corriere della Sera_, July
19, 1919).
[44] It follows that the current rate of production in Germany
has sunk to about 60 per cent of that of 1913. The effect on reserves
has naturally been disastrous, and the prospects for the coming winter
are dangerous.
[45] This assumes a loss of output of 15 per cent as compared
with the estimate of 30 per cent quoted above.
[46] This supposes a loss of 23 per cent of Germany's
industrial undertaking and a diminution of 13 per cent in her other
requirements.
[47] The reader must be reminded in particular that the above
calculations take no account of the German production of lignite, which
yielded in 1913 13,000,000 tons of rough lignite in addition to an
amount converted into 21,000,000 tons of briquette. This amount of
lignite, however, was required in Germany before the war _in addition
to_ the quantities of coal assumed above. 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.
[48] Mr. Hoover, in July, 1919, estimated that the coal output
of Europe, excluding Russia and the Balkans, had dropped from
679,500,000 tons to 443,000,000 tons,--as a result in a minor degree of
loss of material and labor, but owing chiefly to a relaxation of
physical effort after the privations and sufferings of the war, a lack
of rolling-stock and transport, and the unsettled political fate of some
of the mining districts.
[49] Numerous commercial agreements during the war ware
arranged on these lines. But in the month of June, 1919, alone, minor
agreements providing for payment in coal were made by Germany with
Denmark, Norway, and Switzerland. The amounts involved were not large,
but without them Germany could not have obtained butter from Denmark,
fats and herrings from Norway, or milk and cattle from Switzerland.
[50] "Some 60,000 Ruhr miners have agreed to work extra
shifts--so-called butter-shifts--for the purpose of furnishing coal for
export to Denmark hence butter will be exported in return. The butter
will benefit the miners in the first place, as they have worked
specially to obtain it" (_Kölnische Zeitung_, June 11, 1919).
[51] What of the prospects of whisky-shifts in England?
[52] As early as September, 1919, the Coal Commission had to
face the physical impracticability of enforcing the demands of the
Treaty, and agreed to modify them as follows:--"Germany shall in the
next six months make deliveries corresponding to an annual delivery of
20 million tons as compared with 43 millions as provided in the Peace
Treaty. If Germany's total production exceeds the present level of about
108 millions a year, 60 per cent of extra production, up to 128
millions, shall be delivered to the Entente and 50 per cent of any extra
beyond that, until the figure provided in the Peace Treaty is reached.
If the total production falls below 108 millions the Entente will
examine the situation, after hearing Germany, and take account of it."
[53] 21,136,265 tons out of a total of 28,607,903 tons. The
loss of iron-ore in respect of Upper Silesia is insignificant. The
exclusion of the iron and steel of Luxemburg from the German Customs
Union is, however, important, especially when this loss is added to that
of Alsace-Lorraine. It may be added in passing that Upper Silesia
includes 75 per cent of the zinc production of Germany.
[54] In April, 1919, the British Ministry of Munitions
despatched an expert Commission to examine the conditions of the iron
and steel works in Lorraine and the occupied areas of Germany. The
Report states that the iron and steel works in Lorraine, and to a lesser
extent in the Saar Valley, are dependent on supplies of coal and coke
from Westphalia. It is necessary to mix Westphalian coal with Saar coal
to obtain a good furnace coke. The entire dependence of all the Lorraine
iron and steel works upon Germany for fuel supplies "places them," says
the Report, "in a very unenviable position."
[55] Arts. 264, 265, 266, and 267. These provisions can only be
extended beyond five years by the Council of the League of Nations.
[56] Art. 268 (_a_).
[57] Art. 268 (_b_) and (_c_).
[58] The Grand Duchy is also deneutralized and Germany binds
herself to "accept in advance all international arrangements which may
be concluded by the Allied and Associated Powers relating to the Grand
Duchy" (Art. 40). At the end of September, 1919, a plebiscite was held
to determine whether Luxemburg should join the French or the Belgian
Customs Union, which decided by a substantial majority in favour of the
former. The third alternative of the maintenance of the union with
Germany was not left open to the electorate.
[59] Art. 269.
[60] Art. 270.
[61] The occupation provisions may be conveniently summarized
at this point. German territory situated west of the Rhine, together
with the bridge-heads, is subject to occupation for a period of fifteen
years (Art. 428). If, however, "the conditions of the present Treaty are
faithfully carried out by Germany," the Cologne district will be
evacuated after five years, and the Coblenz district after ten years
(Art. 429). It is, however, further provided that if at the expiration
of fifteen years "the guarantees against unprovoked aggression by
Germany are not considered sufficient by the Allied and Associated
Governments, the evacuation of the occupying troops may be delayed to
the extent regarded as necessary for the purpose of obtaining the
required guarantees" (Art. 429); and also that "in case either during
the occupation or after the expiration of the fifteen years, the
Reparation Commission finds that Germany refuses to observe the whole or
part of her obligations under the present Treaty with regard to
Reparation, the whole or part of the areas specified in Article 429 will
be re-occupied immediately by the Allied and Associated Powers" (Art.
430). Since it will be impossible for Germany to fulfil the whole of her
Reparation obligations, the effect of the above provisions will be in
practice that the Allies will occupy the left bank of the Rhine just so
long as they choose. They will also govern it in such manner as they may
determine (_e.g._ not only as regards customs, but such matters as the
respective authority of the local German representatives and the Allied
Governing Commission), since "all matters relating to the occupation and
not provided for by the present Treaty shall be regulated by subsequent
agreements, which Germany hereby undertakes to observe" (Art. 432). The
actual Agreement under which the occupied areas are to be administered
for the present has been published as a White Paper [Cd. 222]. The
supreme authority is to be in the hands of an Inter-Allied Rhineland
Commission, consisting of a Belgian, a French, a British, and an
American member. The articles of this Agreement are very fairly and
reasonably drawn.
[62] Art. 365. After five years this Article is subject to
revision by the Council of the League of Nations.
[63] The German Government withdrew, as from September 1, 1919,
all preferential railway tariffs for the export of iron and steel goods,
on the ground that these privileges would have been more than
counterbalanced by the corresponding privileges which, under this
Article of the Treaty, they would have been forced to give to Allied
traders.
[64] Art. 367.
[65] Questions of interpretation and application are to be
referred to the League of Nations (Art. 376).
[66] Art. 250.
[67] Art 371. This provision is even applied "to the lines of
former Russian Poland converted by Germany to the German gage, such
lines being regarded as detached from the Prussian State System."
[68] Arts. 332-337. Exception may be taken, however, to the
second paragraph of Art. 332, which allows the vessels of other nations
to trade between German towns but forbids German vessels to trade
between non-German towns except with special permission; and Art. 333,
which prohibits Germany from making use of her river system as a source
of revenue, may be injudicious.
[69] The Niemen and the Moselle are to be similarly treated at
a later date if required.
[70] Art. 338.
[71] Art. 344. This is with particular reference to the Elbe
and the Oder; the Danube and the Rhine are dealt with in relation to the
existing Commissions.
[72] Art. 339.
[73] Art. 357.
[74] Art. 358. Germany is, however, to be allowed some payment
or credit in respect of power so taken by France.
[75] Art. 66.
CHAPTER V
REPARATION
I. _Undertakings given prior to the Peace Negotiations_
The categories of damage in respect of which the Allies were entitled to
ask for Reparation are governed by the relevant passages in President
Wilson's Fourteen Points of January 8, 1918, as modified by the Allied
Governments in their qualifying Note, the text of which the President
formally communicated to the German Government as the basis of peace on
November 5, 1918. These passages have been quoted in full at the
beginning of Chapter IV. That is to say, "compensation will be made by
Germany for all damage done to the civilian population of the Allies and
to their property by the aggression of Germany by land, by sea, and from
the air." The limiting quality of this sentence is reinforced by the
passage in the President's speech before Congress on February 11, 1918
(the terms of this speech being an express part of the contract with the
enemy), that there shall be "no contributions" and "no punitive
damages."
It has sometimes been argued that the preamble to paragraph 19[76] of
the Armistice Terms, to the effect "that any future claims and demands
of the Allies and the United States of America remain unaffected," wiped
out all precedent conditions, and left the Allies free to make whatever
demands they chose. But it is not possible to maintain that this casual
protective phrase, to which no one at the time attached any particular
importance, did away with all the formal communications which passed
between the President and the German Government as to the basis of the
Terms of Peace during the days preceding the Armistice, abolished the
Fourteen Points, and converted the German acceptance of the Armistice
Terms into unconditional surrender, so far as it affects the Financial
Clauses. It is merely the usual phrase of the draftsman, who, about to
rehearse a list of certain claims, wishes to guard himself from the
implication that such list is exhaustive. In any case, this contention
is disposed of by the Allied reply to the German observations on the
first draft of the Treaty, where it is admitted that the terms of the
Reparation Chapter must be governed by the President's Note of November
5.
Assuming then that the terms of this Note are binding, we are left to
elucidate the precise force of the phrase--"all damage done to the
civilian population of the Allies and to their property by the
aggression of Germany by land, by sea, and from the air." Few sentences
in history have given so much work to the sophists and the lawyers, as
we shall see in the next section of this chapter, as this apparently
simple and unambiguous statement. Some have not scrupled to argue that
it covers the entire cost of the war; for, they point out, the entire
cost of the war has to be met by taxation, and such taxation is
"damaging to the civilian population." They admit that the phrase is
cumbrous, and that it would have been simpler to have said "all loss and
expenditure of whatever description"; and they allow that the apparent
emphasis of damage to the persons and property of _civilians_ is
unfortunate; but errors of draftsmanship should not, in their opinion,
shut off the Allies from the rights inherent in victors.
But there are not only the limitations of the phrase in its natural
meaning and the emphasis on civilian damages as distinct from military
expenditure generally; it must also be remembered that the context of
the term is in elucidation of the meaning of the term "restoration" in
the President's Fourteen Points. The Fourteen Points provide for damage
in invaded territory--Belgium, France, Roumania, Serbia, and Montenegro
(Italy being unaccountably omitted)--but they do not cover losses at sea
by submarine, bombardments from the sea (as at Scarborough), or damage
done by air raids. It was to repair these omissions, which involved
losses to the life and property of civilians not really distinguishable
in kind from those effected in occupied territory, that the Supreme
Council of the Allies in Paris proposed to President Wilson their
qualifications. At that time--the last days of October, 1918--I do not
believe that any responsible statesman had in mind the exaction from
Germany of an indemnity for the general costs of the war. They sought
only to make it clear (a point of considerable importance to Great
Britain) that reparation for damage done to non-combatants and their
property was not limited to invaded territory (as it would have been by
the Fourteen Points unqualified), but applied equally to _all_ such
damage, whether "by land, by sea, or from the air" It was only at a
later stage that a general popular demand for an indemnity, covering
the full costs of the war, made it politically desirable to practise
dishonesty and to try to discover in the written word what was not
there.
What damages, then, can be claimed from the enemy on a strict
interpretation of our engagements?[77] In the case of the United Kingdom
the bill would cover the following items:--
(a) Damage to civilian life and property by the acts of an enemy
Government including damage by air raids, naval bombardments, submarine
warfare, and mines.
(b) Compensation for improper treatment of interned civilians.
It would not include the general costs of the war, or (_e.g._) indirect
damage due to loss of trade.
The French claim would include, as well as items corresponding to the
above:--
(c) Damage done to the property and persons of civilians in the war
area, and by aerial warfare behind the enemy lines.
(d) Compensation for loot of food, raw materials, live-stock, machinery,
household effects, timber, and the like by the enemy Governments or
their nationals in territory occupied by them.
(e) Repayment of fines and requisitions levied by the enemy Governments
or their officers on French municipalities or nationals.
(f) Compensation to French nationals deported or compelled to do forced
labor.
In addition to the above there is a further item of more doubtful
character, namely--
(g) The expenses of the Relief Commission in providing necessary food
and clothing to maintain the civilian French population in the
enemy-occupied districts.
The Belgian claim would include similar items.[78] If it were argued
that in the case of Belgium something more nearly resembling an
indemnity for general war costs can be justified, this could only be on
the ground of the breach of International Law involved in the invasion
of Belgium, whereas, as we have seen, the Fourteen Points include no
special demands on this ground.[79] As the cost of Belgian Belief under
(g), as well as her general war costs, has been met already by advances
from the British, French, and United States Governments, Belgium would
presumably employ any repayment of them by Germany in part discharge of
her debt to these Governments, so that any such demands are, in effect,
an addition to the claims of the three lending Governments.
The claims of the other Allies would be compiled on similar lines. But
in their case the question arises more acutely how far Germany can be
made contingently liable for damage done, not by herself, but by her
co-belligerents, Austria-Hungary, Bulgaria, and Turkey. This is one of
the many questions to which the Fourteen Points give no clear answer; on
the one hand, they cover explicitly in Point 11 damage done to Roumania,
Serbia, and Montenegro, without qualification as to the nationality of
the troops inflicting the damage; on the other hand, the Note of the
Allies speaks of "German" aggression when it might have spoken of the
aggression of "Germany and her allies." On a strict and literal
interpretation, I doubt if claims lie against Germany for damage
done,--_e.g._ by the Turks to the Suez Canal, or by Austrian submarines
in the Adriatic. But it is a case where, if the Allies wished to strain
a point, they could impose contingent liability on Germany without
running seriously contrary to the general intention of their
engagements.
As between the Allies themselves the case is quite different. It would
be an act of gross unfairness and infidelity if France and Great Britain
were to take what Germany could pay and leave Italy and Serbia to get
what they could out of the remains of Austria-Hungary. As amongst the
Allies themselves it is clear that assets should be pooled and shared
out in proportion to aggregate claims.
In this event, and if my estimate is accepted, as given below, that
Germany's capacity to pay will be exhausted by the direct and legitimate
claims which the Allies hold against her, the question of her contingent
liability for her allies becomes academic. Prudent and honorable
statesmanship would therefore have given her the benefit of the doubt,
and claimed against her nothing but the damage she had herself caused.
What, on the above basis of claims, would the aggregate demand amount
to? No figures exist on which to base any scientific or exact estimate,
and I give my own guess for what it is worth, prefacing it with the
following observations.
The amount of the material damage done in the invaded districts has been
the subject of enormous, if natural, exaggeration. A journey through the
devastated areas of France is impressive to the eye and the imagination
beyond description. During the winter of 1918-19, before Nature had
cast over the scene her ameliorating mantle, the horror and desolation
of war was made visible to sight on an extraordinary scale of blasted
grandeur. The completeness of the destruction was evident. For mile
after mile nothing was left. No building was habitable and no field fit
for the plow. The sameness was also striking. One devastated area was
exactly like another--a heap of rubble, a morass of shell-holes, and a
tangle of wire.[80] The amount of human labor which would be required to
restore such a countryside seemed incalculable; and to the returned
traveler any number of milliards of dollars was inadequate to express in
matter the destruction thus impressed upon his spirit. Some Governments
for a variety of intelligible reasons have not been ashamed to exploit
these feelings a little.
Popular sentiment is most at fault, I think, in the case of Belgium. In
any event Belgium is a small country, and in its case the actual area of
devastation is a small proportion of the whole. The first onrush of the
Germans in 1914 did some damage locally; after that the battle-line in
Belgium did not sway backwards and forwards, as in France, over a deep
belt of country. It was practically stationary, and hostilities were
confined to a small corner of the country, much of which in recent times
was backward, poor, and sleepy, and did not include the active industry
of the country. There remains some injury in the small flooded area, the
deliberate damage done by the retreating Germans to buildings, plant,
and transport, and the loot of machinery, cattle, and other movable
property. But Brussels, Antwerp, and even Ostend are substantially
intact, and the great bulk of the land, which is Belgium's chief wealth,
is nearly as well cultivated as before. The traveler by motor can pass
through and from end to end of the devastated area of Belgium almost
before he knows it; whereas the destruction in France is on a different
kind of scale altogether. Industrially, the loot has been serious and
for the moment paralyzing; but the actual money cost of replacing
machinery mounts up slowly, and a few tens of millions would have
covered the value of every machine of every possible description that
Belgium ever possessed. Besides, the cold statistician must not overlook
the fact that the Belgian people possess the instinct of individual
self-protection unusually well developed; and the great mass of German
bank-notes[81] held in the country at the date of the Armistice, shows
that certain classes of them at least found a way, in spite of all the
severities and barbarities of German rule, to profit at the expense of
the invader. Belgian claims against Germany such as I have seen,
amounting to a sum in excess of the total estimated pre-war wealth of
the whole country, are simply irresponsible.[82]
It will help to guide our ideas to quote the official survey of Belgian
wealth, published in 1913 by the Finance Ministry of Belgium, which was
as follows:
Land $1,320,000,000
Buildings 1,175,000,000
Personal wealth 2,725,000,000
Cash 85,000,000
Furniture, etc 600,000,000
--------------
$5,905,000,000
This total yields an average of $780 per inhabitant, which Dr. Stamp,
the highest authority on the subject, is disposed to consider as _prima
facie_ too low (though he does not accept certain much higher estimates
lately current), the corresponding wealth per head (to take Belgium's
immediate neighbors) being $835 for Holland, $1,220 for Germany, and
$1,515 for France.[83] A total of $7,500,000,000, giving an average of
about $1,000 per head, would, however, be fairly liberal. The official
estimate of land and buildings is likely to be more accurate than the
rest. On the other hand, allowance has to be made for the increased
costs of construction.
Having regard to all these considerations, I do not put the money value
of the actual _physical_ loss of Belgian property by destruction and
loot above $750,000,000 _as a maximum_, and while I hesitate to put yet
lower an estimate which differs so widely from those generally current,
I shall be surprised if it proves possible to substantiate claims even
to this amount. Claims in respect of levies, fines, requisitions, and so
forth might possibly amount to a further $500,000,000. If the sums
advanced to Belgium by her allies for the general costs of the war are
to be included, a sum of about $1,250,000,000 has to be added (which
includes the cost of relief), bringing the total to $2,500,000,000.
The destruction in France was on an altogether more significant scale,
not only as regards the length of the battle line, but also on account
of the immensely deeper area of country over which the battle swayed
from time to time. It is a popular delusion to think of Belgium as the
principal victim of the war; it will turn out, I believe, that taking
account of casualties, loss of property and burden of future debt,
Belgium has made the least relative sacrifice of all the belligerents
except the United States. Of the Allies, Serbia's sufferings and loss
have been proportionately the greatest, and after Serbia, France. France
in all essentials was just as much the victim of German ambition as was
Belgium, and France's entry into the war was just as unavoidable.
France, in my judgment, in spite of her policy at the Peace Conference,
a policy largely traceable to her sufferings, has the greatest claims on
our generosity.
The special position occupied by Belgium in the popular mind is due, of
course, to the fact that in 1914 her sacrifice was by far the greatest
of any of the Allies. But after 1914 she played a minor rôle.
Consequently, by the end of 1918, her relative sacrifices, apart from
those sufferings from invasion which cannot be measured in money, had
fallen behind, and in some respects they were not even as great, for
example, as Australia's. I say this with no wish to evade the
obligations towards Belgium under which the pronouncements of our
responsible statesmen at many different dates have certainly laid us.
Great Britain ought not to seek any payment at all from Germany for
herself until the just claims of Belgium have been fully satisfied. But
this is no reason why we or they should not tell the truth about the
amount.
While the French claims are immensely greater, here too there has been
excessive exaggeration, as responsible French statisticians have
themselves pointed out. Not above 10 per cent of the area of France was
effectively occupied by the enemy, and not above 4 per cent lay within
the area of substantial devastation. Of the sixty French towns having a
population exceeding 35,000, only two were destroyed--Reims (115,178)
and St. Quentin (55,571); three others were occupied--Lille, Roubaix,
and Douai--and suffered from loot of machinery and other property, but
were not substantially injured otherwise. Amiens, Calais, Dunkerque, and
Boulogne suffered secondary damage by bombardment and from the air; but
the value of Calais and Boulogne must have been increased by the new
works of various kinds erected for the use of the British Army.
The _Annuaire Statistique de la France, 1917_, values the entire house
property of France at $11,900,000,000 (59.5 milliard francs).[84] An
estimate current in France of $4,000,000,000 (20 milliard francs) for
the destruction of house property alone is, therefore, obviously wide of
the mark.[85] $600,000,000 at pre-war prices, or say $1,250,000,000 at
the present time, is much nearer the right figure. Estimates of the
value of the land of France (apart from buildings) vary from
$12,400,000,000 to $15,580,000,000, so that it would be extravagant to
put the damage on this head as high as $500,000,000. Farm Capital for
the whole of France has not been put by responsible authorities above
$2,100,000,000.[86] There remain the loss of furniture and machinery,
the damage to the coal-mines and the transport system, and many other
minor items. But these losses, however serious, cannot be reckoned in
value by hundreds of millions of dollars in respect of so small a part
of France. In short, it will be difficult to establish a bill exceeding
$2,500,000,000 for _physical and material_ damage in the occupied and
devastated areas of Northern France.[87] I am confirmed in this estimate
by the opinion of M. René Pupin, the author of the most comprehensive
and scientific estimate of the pre-war wealth of France,[88] which I did
not come across until after my own figure had been arrived at. This
authority estimates the material losses of the invaded regions at from
$2,000,000,000 to $3,000,000,000 (10 to 15 milliards),[89] between which
my own figure falls half-way.
Nevertheless, M. Dubois, speaking on behalf of the Budget Commission of
the Chamber, has given the figure of $13,000,000,000 (65 milliard
francs) "as a minimum" without counting "war levies, losses at sea, the
roads, or the loss of public monuments." And M. Loucheur, the Minister
of Industrial Reconstruction, stated before the Senate on the 17th
February, 1919, that the reconstitution of the devastated regions would
involve an expenditure of $15,000,000,000 (75 milliard francs),--more
than double M. Pupin's estimate of the entire wealth of their
inhabitants. But then at that time M. Loucheur was taking a prominent
part in advocating the claims of France before the Peace Conference,
and, like others, may have found strict veracity inconsistent with the
demands of patriotism.[90]
The figure discussed so far is not, however, the totality of the French
claims. There remain, in particular, levies and requisitions on the
occupied areas and the losses of the French mercantile marine at sea
from the attacks of German cruisers and submarines. Probably
$1,000,000,000 would be ample to cover all such claims; but to be on the
safe side, we will, somewhat arbitrarily, make an addition to the French
claim of $1,500,000,000 on all heads, bringing it to $4,000,000,000 in
all.
The statements of M. Dubois and M. Loucheur were made in the early
spring of 1919. A speech delivered by M. Klotz before the French Chamber
six months later (Sept. 5, 1919) was less excusable. In this speech the
French Minister of Finance estimated the total French claims for damage
to property (presumably inclusive of losses at sea, etc., but apart from
pensions and allowances) at $26,800,000,000 (134 milliard francs), or
more than six times my estimate. Even if my figure prove erroneous, M.
Klotz's can never have been justified. So grave has been the deception
practised on the French people by their Ministers that when the
inevitable enlightenment comes, as it soon must (both as to their own
claims and as to Germany's capacity to meet them), the repercussions
will strike at more than M. Klotz, and may even involve the order of
Government and Society for which he stands.
British claims on the present basis would be practically limited to
losses by sea--losses of hulls and losses of cargoes. Claims would lie,
of course, for damage to civilian property in air raids and by
bombardment from the sea, but in relation to such figures as we are now
dealing with, the money value involved is insignificant,--$25,000,000
might cover them all, and $50,000,000 would certainly do so.
The British mercantile vessels lost by enemy action, excluding fishing
vessels, numbered 2479, with an aggregate of 7,759,090 tons gross.[91]
There is room for considerable divergence of opinion as to the proper
rate to take for replacement cost; at the figure of $150 per gross ton,
which with the rapid growth of shipbuilding may soon be too high but can
be replaced by any other which better authorities[92] may prefer, the
aggregate claim is $1,150,000,000. To this must be added the loss of
cargoes, the value of which is almost entirely a matter of guesswork. An
estimate of $200 per ton of shipping lost may be as good an
approximation as is possible, that is to say $1,550,000,000, making
$2,700,000,000 altogether.
An addition to this of $150,000,000, to cover air raids, bombardments,
claims of interned civilians, and miscellaneous items of every
description, should be more than sufficient,--making a total claim for
Great Britain of $2,850,000,000. It is surprising, perhaps, that the
money value of Great Britain's claim should be so little short of that
of France and actually in excess of that of Belgium. But, measured
either by pecuniary loss or real loss to the economic power of the
country, the injury to her mercantile marine was enormous.
There remain the claims of Italy, Serbia, and Roumania for damage by
invasion and of these and other countries, as for example Greece,[93]
for losses at sea. I will assume for the present argument that these
claims rank against Germany, even when they were directly caused not by
her but by her allies; but that it is not proposed to enter any such
claims on behalf of Russia.[94] Italy's losses by invasion and at sea
cannot be very heavy, and a figure of from $250,000,000 to $500,000,000
would be fully adequate to cover them. The losses of Serbia, although
from a human point of view her sufferings were the greatest of all,[95]
are not measured _pecuniarily_ by very great figures, on account of her
low economic development. Dr. Stamp (_loc. cit._) quotes an estimate by
the Italian statistician Maroi, which puts the national wealth of Serbia
at $2,400,000,000 or $525 per head,[96] and the greater part of this
would be represented by land which has sustained no permanent
damage.[97] In view of the very inadequate data for guessing at more
than the _general magnitude_ of the legitimate claims of this group of
countries, I prefer to make one guess rather than several and to put the
figure for the whole group at the round sum of $1,250,000,000.
We are finally left with the following--
Belgium $ 2,500,000,000[98]
France 4,000,000,000
Great Britain 2,850,000,000
Other Allies 1,250,000,000
---------------
Total $10,600,000,000
I need not impress on the reader that there is much guesswork in the
above, and the figure for France in particular is likely to be
criticized. But I feel some confidence that the _general magnitude_, as
distinct from the precise figures, is not hopelessly erroneous; and this
may be expressed by the statement that a claim against Germany, based on
the interpretation of the pre-Armistice engagements of the Allied
Powers which is adopted above, would assuredly be found to exceed
$8,000,000,000 and to fall short of $15,000,000,000.
This is the amount of the claim which we were entitled to present to the
enemy. For reasons which will appear more fully later on, I believe that
it would have been a wise and just act to have asked the German
Government at the Peace Negotiations to agree to a sum of
$10,000,000,000 in final settlement, without further examination of
particulars. This would have provided an immediate and certain solution,
and would have required from Germany a sum which, if she were granted
certain indulgences, it might not have proved entirely impossible for
her to pay. This sum should have been divided up amongst the Allies
themselves on a basis of need and general equity.
But the question was not settled on its merits.
II. _The Conference and the Terms of the Treaty_
I do not believe that, at the date of the Armistice, responsible
authorities in the Allied countries expected any indemnity from Germany
beyond the cost of reparation for the direct material damage which had
resulted from the invasion of Allied territory and from the submarine
campaign. At that time there were serious doubts as to whether Germany
intended to accept our terms, which in other respects were inevitably
very severe, and it would have been thought an unstatesmanlike act to
risk a continuance of the war by demanding a money payment which Allied
opinion was not then anticipating and which probably could not be
secured in any case. The French, I think, never quite accepted this
point of view; but it was certainly the British attitude; and in this
atmosphere the pre-Armistice conditions were framed.
A month later the atmosphere had changed completely. We had discovered
how hopeless the German position really was, a discovery which some,
though not all, had anticipated, but which no one had dared reckon on as
a certainty. It was evident that we could have secured unconditional
surrender if we had determined to get it.
But there was another new factor in the situation which was of greater
local importance. The British Prime Minister had perceived that the
conclusion of hostilities might soon bring with it the break-up of the
political _bloc_ upon which he was depending for his personal
ascendency, and that the domestic difficulties which would be attendant
on demobilization, the turn-over of industry from war to peace
conditions, the financial situation, and the general psychological
reactions of men's minds, would provide his enemies with powerful
weapons, if he were to leave them time to mature. The best chance,
therefore, of consolidating his power, which was personal and exercised,
as such, independently of party or principle, to an extent unusual in
British politics, evidently lay in active hostilities before the
prestige of victory had abated, and in an attempt to found on the
emotions of the moment a new basis of power which might outlast the
inevitable reactions of the near future. Within a brief period,
therefore, after the Armistice, the popular victor, at the height of his
influence and his authority, decreed a General Election. It was widely
recognized at the time as an act of political immorality. There were no
grounds of public interest which did not call for a short delay until
the issues of the new age had a little defined themselves and until the
country had something more specific before it on which to declare its
mind and to instruct its new representatives. But the claims of private
ambition determined otherwise.
For a time all went well. But before the campaign was far advanced
Government candidates were finding themselves handicapped by the lack of
an effective cry. The War Cabinet was demanding a further lease of
authority on the ground of having won the war. But partly because the
new issues had not yet defined themselves, partly out of regard for the
delicate balance of a Coalition Party, the Prime Minister's future
policy was the subject of silence or generalities. The campaign seemed,
therefore, to fall a little flat. In the light of subsequent events it
seems improbable that the Coalition Party was ever in real danger. But
party managers are easily "rattled." The Prime Minister's more neurotic
advisers told him that he was not safe from dangerous surprises, and the
Prime Minister lent an ear to them. The party managers demanded more
"ginger." The Prime Minister looked about for some.
On the assumption that the return of the Prime Minister to power was the
primary consideration, the rest followed naturally. At that juncture
there was a clamor from certain quarters that the Government had given
by no means sufficiently clear undertakings that they were not going "to
let the Hun off." Mr. Hughes was evoking a good deal of attention by his
demands for a very large indemnity,[99] and Lord Northcliffe was lending
his powerful aid to the same cause. This pointed the Prime Minister to
a stone for two birds. By himself adopting the policy of Mr. Hughes and
Lord Northcliffe, he could at the same time silence those powerful
critics and provide his party managers with an effective platform cry to
drown the increasing voices of criticism from other quarters.
The progress of the General Election of 1918 affords a sad, dramatic
history of the essential weakness of one who draws his chief inspiration
not from his own true impulses, but from the grosser effluxions of the
atmosphere which momentarily surrounds him. The Prime Minister's natural
instincts, as they so often are, were right and reasonable. He himself
did not believe in hanging the Kaiser or in the wisdom or the
possibility of a great indemnity. On the 22nd of November he and Mr.
Bonar Law issued their Election Manifesto. It contains no allusion of
any kind either to the one or to the other but, speaking, rather, of
Disarmament and the League of Nations, concludes that "our first task
must be to conclude a just and lasting peace, and so to establish the
foundations of a new Europe that occasion for further wars may be for
ever averted." In his speech at Wolverhampton on the eve of the
Dissolution (November 24), there is no word of Reparation or Indemnity.
On the following day at Glasgow, Mr. Bonar Law would promise nothing.
"We are going to the Conference," he said, "as one of a number of
allies, and you cannot expect a member of the Government, whatever he
may think, to state in public before he goes into that Conference, what
line he is going to take in regard to any particular question." But a
few days later at Newcastle (November 29) the Prime Minister was warming
to his work: "When Germany defeated France she made France pay. That is
the principle which she herself has established. There is absolutely no
doubt about the principle, and that is the principle we should proceed
upon--that Germany must pay the costs of the war up to the limit of her
capacity to do so." But he accompanied this statement of principle with
many "words of warning" as to the practical difficulties of the case:
"We have appointed a strong Committee of experts, representing every
shade of opinion, to consider this question very carefully and to advise
us. There is no doubt as to the justice of the demand. She ought to pay,
she must pay as far as she can, but we are not going to allow her to pay
in such a way as to wreck our industries." At this stage the Prime
Minister sought to indicate that he intended great severity, without
raising excessive hopes of actually getting the money, or committing
himself to a particular line of action at the Conference. It was
rumored that a high city authority had committed himself to the opinion
that Germany could certainly pay $100,000,000,000 and that this
authority for his part would not care to discredit a figure of twice
that sum. The Treasury officials, as Mr. Lloyd George indicated, took a
different view. He could, therefore, shelter himself behind the wide
discrepancy between the opinions of his different advisers, and regard
the precise figure of Germany's capacity to pay as an open question in
the treatment of which he must do his best for his country's interests.
As to our engagements under the Fourteen Points he was always silent.
On November 30, Mr. Barnes, a member of the War Cabinet, in which he was
supposed to represent Labor, shouted from a platform, "I am for hanging
the Kaiser."
On December 6, the Prime Minister issued a statement of policy and aims
in which he stated, with significant emphasis on the word _European_,
that "All the European Allies have accepted the principle that the
Central Powers must pay the cost of the war up to the limit of their
capacity."
But it was now little more than a week to Polling Day, and still he had
not said enough to satisfy the appetites of the moment. On December 8,
the _Times_, providing as usual a cloak of ostensible decorum for the
lesser restraint of its associates, declared in a leader entitled
"Making Germany Pay," that "The public mind was still bewildered by the
Prime Minister's various statements." "There is too much suspicion,"
they added, "of influences concerned to let the Germans off lightly,
whereas the only possible motive in determining their capacity to pay
must be the interests of the Allies." "It is the candidate who deals
with the issues of to-day," wrote their Political Correspondent, "who
adopts Mr. Barnes's phrase about 'hanging the Kaiser' and plumps for the
payment of the cost of the war by Germany, who rouses his audience and
strikes the notes to which they are most responsive."
On December 9, at the Queen's Hall, the Prime Minister avoided the
subject. But from now on, the debauchery of thought and speech
progressed hour by hour. The grossest spectacle was provided by Sir Eric
Geddes in the Guildhall at Cambridge. An earlier speech in which, in a
moment of injudicious candor, he had cast doubts on the possibility of
extracting from Germany the whole cost of the war had been the object of
serious suspicion, and he had therefore a reputation to regain. "We will
get out of her all you can squeeze out of a lemon and a bit more," the
penitent shouted, "I will squeeze her until you can hear the pips
squeak"; his policy was to take every bit of property belonging to
Germans in neutral and Allied countries, and all her gold and silver and
her jewels, and the contents of her picture-galleries and libraries, to
sell the proceeds for the Allies' benefit. "I would strip Germany," he
cried, "as she has stripped Belgium."
By December 11 the Prime Minister had capitulated. His Final Manifesto
of Six Points issued on that day to the electorate furnishes a
melancholy comparison with his program of three weeks earlier. I quote
it in full:
"1. Trial of the Kaiser.
2. Punishment of those responsible for atrocities.
3. Fullest Indemnities from Germany.
4. Britain for the British, socially and industrially.
5. Rehabilitation of those broken in the war.
6. A happier country for all."
Here is food for the cynic. To this concoction of greed and sentiment,
prejudice and deception, three weeks of the platform had reduced the
powerful governors of England, who but a little while before had spoken
not ignobly of Disarmament and a League of Nations and of a just and
lasting peace which should establish the foundations of a new Europe.
On the same evening the Prime Minister at Bristol withdrew in effect his
previous reservations and laid down four principles to govern his
Indemnity Policy, of which the chief were: First, we have an absolute
right to demand the whole cost of the war; second, we propose to demand
the whole cost of the war; and third, a Committee appointed by direction
of the Cabinet believe that it can be done.[100] Four days later he went
to the polls.
The Prime Minister never said that he himself believed that Germany
could pay the whole cost of the war. But the program became in the
mouths of his supporters on the hustings a great deal more than
concrete. The ordinary voter was led to believe that Germany could
certainly be made to pay the greater part, if not the whole cost of the
war. Those whose practical and selfish fears for the future the expenses
of the war had aroused, and those whose emotions its horrors had
disordered, were both provided for. A vote for a Coalition candidate
meant the Crucifixion of Anti-Christ and the assumption by Germany of
the British National Debt.
It proved an irresistible combination, and once more Mr. George's
political instinct was not at fault. No candidate could safely denounce
this program, and none did so. The old Liberal Party, having nothing
comparable to offer to the electorate, was swept out of existence.[101]
A new House of Commons came into being, a majority of whose members had
pledged themselves to a great deal more than the Prime Minister's
guarded promises. Shortly after their arrival at Westminster I asked a
Conservative friend, who had known previous Houses, what he thought of
them. "They are a lot of hard-faced men," he said, "who look as if they
had done very well out of the war."
This was the atmosphere in which the Prime Minister left for Paris, and
these the entanglements he had made for himself. He had pledged himself
and his Government to make demands of a helpless enemy inconsistent with
solemn engagements on our part, on the faith of which this enemy had
laid down his arms. There are few episodes in history which posterity
will have less reason to condone,--a war ostensibly waged in defense of
the sanctity of international engagements ending in a definite breach of
one of the most sacred possible of such engagements on the part of
victorious champions of these ideals.[102]
Apart from other aspects of the transaction, I believe that the
campaign for securing out of Germany the general costs of the war was
one of the most serious acts of political unwisdom for which our
statesmen have ever been responsible. To what a different future Europe
might have looked forward if either Mr. Lloyd George or Mr. Wilson had
apprehended that the most serious of the problems which claimed their
attention were not political or territorial but financial and economic,
and that the perils of the future lay not in frontiers or sovereignties
but in food, coal, and transport. Neither of them paid adequate
attention to these problems at any stage of the Conference. But in any
event the atmosphere for the wise and reasonable consideration of them
was hopelessly befogged by the commitments of the British delegation on
the question of Indemnities. The hopes to which the Prime Minister had
given rise not only compelled him to advocate an unjust and unworkable
economic basis to the Treaty with Germany, but set him at variance with
the President, and on the other hand with competing interests to those
of France and Belgium. The clearer it became that but little could be
expected from Germany, the more necessary it was to exercise patriotic
greed and "sacred egotism" and snatch the bone from the juster claims
and greater need of France or the well-founded expectations of Belgium.
Yet the financial problems which were about to exercise Europe could not
be solved by greed. The possibility of _their_ cure lay in magnanimity.
Europe, if she is to survive her troubles, will need so much magnanimity
from America, that she must herself practice it. It is useless for the
Allies, hot from stripping Germany and one another, to turn for help to
the United States to put the States of Europe, including Germany, on to
their feet again. If the General Election of December, 1918, had been
fought on lines of prudent generosity instead of imbecile greed, how
much better the financial prospect of Europe might now be. I still
believe that before the main Conference, or very early in its
proceedings, the representatives of Great Britain should have entered
deeply, with those of the United States, into the economic and financial
situation as a whole, and that the former should have been authorized to
make concrete proposals on the general lines (1) that all inter-allied
indebtedness be canceled outright; (2) that the sum to be paid by
Germany be fixed at $10,000,000,000; (3) that Great Britain renounce all
claim to participation in this sum and that any share to which she
proves entitled be placed at the disposal of the Conference for the
purpose of aiding the finances of the New States about to be
established; (4) that in order to make some basis of credit immediately
available an appropriate proportion of the German obligations
representing the sum to be paid by her should be guaranteed by all
parties to the Treaty; and (5) that the ex-enemy Powers should also be
allowed, with a view to their economic restoration, to issue a moderate
amount of bonds carrying a similar guarantee. Such proposals involved an
appeal to the generosity of the United States. But that was inevitable;
and, in view of her far less financial sacrifices, it was an appeal
which could fairly have been made to her. Such proposals would have been
practicable. There is nothing in them quixotic or Utopian. And they
would have opened up for Europe some prospect of financial stability and
reconstruction.
The further elaboration of these ideas, however, must be left to Chapter
VII., and we must return to Paris. I have described the entanglements
which Mr. Lloyd George took with him. The position of the Finance
Ministers of the other Allies was even worse. We in Great Britain had
not based our financial arrangements on any expectations of an
indemnity. Receipts from such a source would have been more or less in
the nature of a windfall; and, in spite of subsequent developments,
there was an expectation at that time of balancing our budget by normal
methods. But this was not the case with France or Italy. Their peace
budgets made no pretense of balancing and had no prospects of doing so,
without some far-reaching revision of the existing policy. Indeed, the
position was and remains nearly hopeless. These countries were heading
for national bankruptcy. This fact could only be concealed by holding
out the expectation of vast receipts from the enemy. As soon as it was
admitted that it was in fact impossible to make Germany pay the expenses
of both sides, and that the unloading of their liabilities upon the
enemy was not practicable, the position of the Ministers of Finance of
France and Italy became untenable.
Thus a scientific consideration of Germany's capacity to pay was from
the outset out of court. The expectations which the exigencies of
politics had made it necessary to raise were so very remote from the
truth that a slight distortion of figures was no use, and it was
necessary to ignore the facts entirely. The resulting unveracity was
fundamental. On a basis of so much falsehood it became impossible to
erect any constructive financial policy which was workable. For this
reason amongst others, a magnanimous financial policy was essential. The
financial position of France and Italy was so bad that it was impossible
to make them listen to reason on the subject of the German Indemnity,
unless one could at the same time point out to them some alternative
mode of escape from their troubles.[103] The representatives of the
United States were greatly at fault, in my judgment, for having no
constructive proposals whatever to offer to a suffering and distracted
Europe.
It is worth while to point out in passing a further element in the
situation, namely, the opposition which existed between the "crushing"
policy of M. Clemenceau and the financial necessities of M. Klotz.
Clemenceau's aim was to weaken and destroy Germany in every possible
way, and I fancy that he was always a little contemptuous about the
Indemnity; he had no intention of leaving Germany in a position to
practise a vast commercial activity. But he did not trouble his head to
understand either the indemnity or poor M. Klotz's overwhelming
financial difficulties. If it amused the financiers to put into the
Treaty some very large demands, well there was no harm in that; but the
satisfaction of these demands must not be allowed to interfere with the
essential requirements of a Carthaginian Peace. The combination of the
"real" policy of M. Clemenceau on unreal issues, with M. Klotz's policy
of pretense on what were very real issues indeed, introduced into the
Treaty a whole set of incompatible provisions, over and above the
inherent impracticabilities of the Reparation proposals.
I cannot here describe the endless controversy and intrigue between the
Allies themselves, which at last after some months culminated in the
presentation to Germany of the Reparation Chapter in its final form.
There can have been few negotiations in history so contorted, so
miserable, so utterly unsatisfactory to all parties. I doubt if any one
who took much part in that debate can look back on it without shame. I
must be content with an analysis of the elements of the final compromise
which is known to all the world.
The main point to be settled was, of course, that of the items for which
Germany could fairly be asked to make payment. Mr. Lloyd George's
election pledge to the effect that the Allies were _entitled_ to demand
from Germany the entire costs of the war was from the outset clearly
untenable; or rather, to put it more impartially, it was clear that to
persuade the President of the conformity of this demand with our
pro-Armistice engagements was beyond the powers of the most plausible.
The actual compromise finally reached is to be read as follows in the
paragraphs of the Treaty as it has been published to the world.
Article 231 reads: "The Allied and Associated Governments affirm and
Germany accepts the responsibility of Germany and her allies for causing
all the loss and damage to which the Allied and Associated Governments
and their nationals have been subjected as a consequence of the war
imposed upon them by the aggression of Germany and her allies." This is
a well and carefully drafted Article; for the President could read it as
statement of admission on Germany's part of _moral_ responsibility for
bringing about the war, while the Prime Minister could explain it as an
admission of _financial_ liability for the general costs of the war.
Article 232 continues: "The Allied and Associated Governments recognize
that the resources of Germany are not adequate, after taking into
account permanent diminutions of such resources which will result from
other provisions of the present Treaty, to make complete reparation for
all such loss and damage." The President could comfort himself that this
was no more than a statement of undoubted fact, and that to recognize
that Germany _cannot_ pay a certain claim does not imply that she is
_liable_ to pay the claim; but the Prime Minister could point out that
in the context it emphasizes to the reader the assumption of Germany's
theoretic liability asserted in the preceding Article. Article 232
proceeds: "The Allied and Associated Governments, however, require, and
Germany undertakes, that _she will make compensation for all damage done
to the civilian population of the Allied and Associated Powers and to
their property_ during the period of the belligerency of each as an
Allied or Associated Power against Germany _by such aggression by land,
by sea, and from the air_, and in general all damage as defined in Annex
I. hereto."[104] The words italicized being practically a quotation from
the pre-Armistice conditions, satisfied the scruples of the President,
while the addition of the words "and in general all damage as defined in
Annex I. hereto" gave the Prime Minister a chance in Annex I.
So far, however, all this is only a matter of words, of virtuosity in
draftsmanship, which does no one any harm, and which probably seemed
much more important at the time than it ever will again between now and
Judgment Day. For substance we must turn to Annex I.
A great part of Annex I. is in strict conformity with the pre-Armistice
conditions, or, at any rate, does not strain them beyond what is fairly
arguable. Paragraph 1 claims damage done for injury to the persons of
civilians, or, in the case of death, to their dependents, as a direct
consequence of acts of war; Paragraph 2, for acts of cruelty, violence,
or maltreatment on the part of the enemy towards civilian victims;
Paragraph 3, for enemy acts injurious to health or capacity to work or
to honor towards civilians in occupied or invaded territory; Paragraph
8, for forced labor exacted by the enemy from civilians; Paragraph 9,
for damage done to property "with the exception of naval and military
works or materials" as a direct consequence of hostilities; and
Paragraph 10, for fines and levies imposed by the enemy upon the
civilian population. All these demands are just and in conformity with
the Allies' rights.
Paragraph 4, which claims for "damage caused by any kind of maltreatment
of prisoners of war," is more doubtful on the strict letter, but may be
justifiable under the Hague Convention and involves a very small sum.
In Paragraphs 5, 6, and 7, however, an issue of immensely greater
significance is involved. These paragraphs assert a claim for the amount
of the Separation and similar Allowances granted during the war by the
Allied Governments to the families of mobilized persons, and for the
amount of the pensions and compensations in respect of the injury or
death of combatants payable by these Governments now and hereafter.
Financially this adds to the Bill, as we shall see below, a very large
amount, indeed about twice as much again as all the other claims added
together.
The reader will readily apprehend what a plausible case can be made out
for the inclusion of these items of damage, if only on sentimental
grounds. It can be pointed out, first of all, that from the point of
view of general fairness it is monstrous that a woman whose house is
destroyed should be entitled to claim from the enemy whilst a woman
whose husband is killed on the field of battle should not be so
entitled; or that a farmer deprived of his farm should claim but that a
woman deprived of the earning power of her husband should not claim. In
fact the case for including Pensions and Separation Allowances largely
depends on exploiting the rather _arbitrary_ character of the criterion
laid down in the pre-Armistice conditions. Of all the losses caused by
war some bear more heavily on individuals and some are more evenly
distributed over the community as a whole; but by means of compensations
granted by the Government many of the former are in fact converted into
the latter. The most logical criterion for a limited claim, falling
short of the entire costs of the war, would have been in respect of
enemy acts contrary to International engagements or the recognized
practices of warfare. But this also would have been very difficult to
apply and unduly unfavorable to French interests as compared with
Belgium (whose neutrality Germany had guaranteed) and Great Britain (the
chief sufferer from illicit acts of submarines).
In any case the appeals to sentiment and fairness outlined above are
hollow; for it makes no difference to the recipient of a separation
allowance or a pension whether the State which pays them receives
compensation on this or on another head, and a recovery by the State out
of indemnity receipts is just as much in relief of the general taxpayer
as a contribution towards the general costs of the war would have been.
But the main consideration is that it was too late to consider whether
the pre-Armistice conditions were perfectly judicious and logical or to
amend them; the only question at issue was whether these conditions were
not in fact limited to such classes of direct damage to civilians and
their property as are set forth in Paragraphs 1, 2, 3, 8, 9, and 10 of
Annex I. If words have any meaning, or engagements any force, we had no
more right to claim for those war expenses of the State, which arose out
of Pensions and Separation Allowances, than for any other of the general
costs of the war. And who is prepared to argue in detail that we were
entitled to demand the latter?
What had really happened was a compromise between the Prime Minister's
pledge to the British electorate to claim the entire costs of the war
and the pledge to the contrary which the Allies had given to Germany at
the Armistice. The Prime Minister could claim that although he had not
secured the entire costs of the war, he had nevertheless secured an
important contribution towards them, that he had always qualified his
promises by the limiting condition of Germany's capacity to pay, and
that the bill as now presented more than exhausted this capacity as
estimated by the more sober authorities. The President, on the other
hand, had secured a formula, which was not too obvious a breach of
faith, and had avoided a quarrel with his Associates on an issue where
the appeals to sentiment and passion would all have been against him, in
the event of its being made a matter of open popular controversy. In
view of the Prime Minister's election pledges, the President could
hardly hope to get him to abandon them in their entirety without a
struggle in public; and the cry of pensions would have had an
overwhelming popular appeal in all countries. Once more the Prime
Minister had shown himself a political tactician of a high order.
A further point of great difficulty may be readily perceived between the
lines of the Treaty. It fixes no definite sum as representing Germany's
liability. This feature has been the subject of very general
criticism,--that it is equally inconvenient to Germany and to the Allies
themselves that she should not know what she has to pay or they what
they are to receive. The method, apparently contemplated by the Treaty,
of arriving at the final result over a period of many months by an
addition of hundreds of thousands of individual claims for damage to
land, farm buildings, and chickens, is evidently impracticable; and the
reasonable course would have been for both parties to compound for a
round sum without examination of details. If this round sum had been
named in the Treaty, the settlement would have been placed on a more
business-like basis.
But this was impossible for two reasons. Two different kinds of false
statements had been widely promulgated, one as to Germany's capacity to
pay, the other as to the amount of the Allies' just claims in respect of
the devastated areas. The fixing of either of these figures presented a
dilemma. A figure for Germany's prospective capacity to pay, not too
much in excess of the estimates of most candid and well-informed
authorities, would have fallen hopelessly far short of popular
expectations both in England and in France. On the other hand, a
definitive figure for damage done which would not disastrously
disappoint the expectations which had been raised in France and Belgium
might have been incapable of substantiation under challenge,[105] and
open to damaging criticism on the part of the Germans, who were believed
to have been prudent enough to accumulate considerable evidence as to
the extent of their own misdoings.
By far the safest course for the politicians was, therefore, to mention
no figure at all; and from this necessity a great deal of the
complication of the Reparation Chapter essentially springs.
The reader may be interested, however, to have my estimate of the claim
which can in fact be substantiated under Annex I. of the Reparation
Chapter. In the first section of this chapter I have already guessed the
claims other than those for Pensions and Separation Allowances at
$15,000,000,000 (to take the extreme upper limit of my estimate). The
claim for Pensions and Separation Allowances under Annex I. is not to be
based on the _actual_ cost of these compensations to the Governments
concerned, but is to be a computed figure calculated on the basis of the
scales in force in France at the date of the Treaty's coming into
operation. This method avoids the invidious course of valuing an
American or a British life at a higher figure than a French or an
Italian. The French rate for Pensions and Allowances is at an
intermediate rate, not so high as the American or British, but above the
Italian, the Belgian, or the Serbian. The only data required for the
calculation are the actual French rates and the numbers of men mobilized
and of the casualties in each class of the various Allied Armies. None
of these figures are available in detail, but enough is known of the
general level of allowances, of the numbers involved, and of the
casualties suffered to allow of an estimate which may not be _very wide_
of the mark. My guess as to the amount to be added in respect of
Pensions and Allowances is as follows:
British Empire $ 7,000,000,000[106]
France 12,000,000,000[106]
Italy 2,500,000,000
Others (including United States) 3,500,000,000
---------------
Total $ 25,000,000,000
I feel much more confidence in the approximate accuracy of the total
figure[107] than in its division between the different claimants. The
reader will observe that in any case the addition of Pensions and
Allowances enormously increases the aggregate claim, raising it indeed
by nearly double. Adding this figure to the estimate under other heads,
we have a total claim against Germany of $40,000,000,000.[108] I believe
that this figure is fully high enough, and that the actual result may
fall somewhat short of it.[109] In the next section of this chapter the
relation of this figure to Germany's capacity to pay will be examined.
It is only necessary here to remind the reader of certain other
particulars of the Treaty which speak for themselves:
1. Out of the total amount of the claim, whatever it eventually turns
out to be, a sum of $5,000,000,000 must be paid before May 1, 1921. The
possibility of this will be discussed below. But the Treaty itself
provides certain abatements. In the first place, this sum is to include
the expenses of the Armies of Occupation since the Armistice (a large
charge of the order of magnitude of $1,000,000,000 which under another
Article of the Treaty--No. 249--is laid upon Germany).[110] But further,
"such supplies of food and raw materials as may be judged by the
Governments of the Principal Allied and Associated Powers to be
essential to enable Germany to meet her obligations for Reparation may
also, with the approval of the said Governments, be paid for out of the
above sum."[111] This is a qualification of high importance. The clause,
as it is drafted, allows the Finance Ministers of the Allied countries
to hold out to their electorates the hope of substantial payments at an
early date, while at the same time it gives to the Reparation Commission
a discretion, which the force of facts will compel them to exercise, to
give back to Germany what is required for the maintenance of her
economic existence. This discretionary power renders the demand for an
immediate payment of $5,000,000,000 less injurious than it would
otherwise be, but nevertheless it does not render it innocuous. In the
first place, my conclusions in the next section of this chapter indicate
that this sum cannot be found within the period indicated, even if a
large proportion is in practice returned to Germany for the purpose of
enabling her to pay for imports. In the second place, the Reparation
Commission can only exercise its discretionary power effectively by
taking charge of the entire foreign trade of Germany, together with the
foreign exchange arising out of it, which will be quite beyond the
capacity of any such body. If the Reparation Commission makes any
serious attempt to administer the collection of this sum of
$5,000,000,000 and to authorize the return to Germany of a part it, the
trade of Central Europe will be strangled by bureaucratic regulation in
its most inefficient form.
2. In addition to the early payment in cash or kind of a sum of
$5,000,000,000, Germany is required to deliver bearer bonds to a further
amount of $10,000,000,000, or, in the event of the payments in cash or
kind before May 1, 1921, available for Reparation, falling short of
$5,000,000,000 by reason of the permitted deductions, to such further
amount as shall bring the total payments by Germany in cash, kind, and
bearer bonds up to May 1, 1921, to a figure of $15,000,000,000
altogether.[112] These bearer bonds carry interest at 2-1/2 per cent per
annum from 1921 to 1925, and at 5 per cent _plus_ 1 per cent for
amortization thereafter. Assuming, therefore, that Germany is not able
to provide any appreciable surplus towards Reparation before 1921, she
will have to find a sum of $375,000,000 annually from 1921 to 1925, and
$900,000,000 annually thereafter.[113]
3. As soon as the Reparation Commission is satisfied that Germany can do
better than this, 5 per cent bearer bonds are to be issued for a further
$10,000,000,000, the rate of amortization being determined by the
Commission hereafter. This would bring the annual payment to
$1,400,000,000 without allowing anything for the discharge of the
capital of the last $10,000,000,000.
4. Germany's liability, however, is not limited to $25,000,000,000, and
the Reparation Commission is to demand further instalments of bearer
bonds until the total enemy liability under Annex I. has been provided
for. On the basis of my estimate of $40,000,000,000 for the total
liability, which is more likely to be criticized as being too low than
as being too high, the amount of this balance will be $15,000,000,000.
Assuming interest at 5 per cent, this will raise the annual payment to
$2,150,000,000 without allowance for amortization.
5. But even this is not all. There is a further provision of devastating
significance. Bonds representing payments in excess of $15,000,000,000
are not to be issued until the Commission is satisfied that Germany can
meet the interest on them. But this does not mean that interest is
remitted in the meantime. As from May 1, 1921, interest is to be debited
to Germany on such part of her outstanding debt as has not been covered
by payment in cash or kind or by the issue of bonds as above,[114] and
"the rate of interest shall be 5 per cent unless the Commission shall
determine at some future time that circumstances justify a variation of
this rate." That is to say, the capital sum of indebtedness is rolling
up all the time at compound interest. The effect of this provision
towards increasing the burden is, on the assumption that Germany cannot
pay very large sums at first, enormous. At 5 per cent compound interest
a capital sum doubles itself in fifteen years. On the assumption that
Germany cannot pay more than $750,000,000 annually until 1936 (_i.e._ 5
per cent interest on $15,000,000,000) the $25,000,000,000 on which
interest is deferred will have risen to $50,000,000,000, carrying an
annual interest charge of $2,500,000,000. That is to say, even if
Germany pays $750,000,000 annually up to 1936, she will nevertheless owe
us at that date more than half as much again as she does now
($65,000,000,000 as compared with $40,000,000,000). From 1936 onwards
she will have to pay to us $3,250,000,000 annually in order to keep pace
with the interest alone. At the end of any year in which she pays less
than this sum she will owe more than she did at the beginning of it. And
if she is to discharge the capital sum in thirty years from 1930, _i.e._
in forty-eight years from the Armistice, she must pay an additional
$650,000,000 annually, making $3,900,000,000 in all.[115]
It is, in my judgment, as certain as anything can be, for reasons which
I will elaborate in a moment, that Germany cannot pay anything
approaching this sum. Until the Treaty is altered, therefore, Germany
has in effect engaged herself to hand over to the Allies the whole of
her surplus production in perpetuity.
6. This is not less the case because the Reparation Commission has been
given discretionary powers to vary the rate of interest, and to postpone
and even to cancel the capital indebtedness. In the first place, some of
these powers can only be exercised if the Commission or the Governments
represented on it are _unanimous_.[116] But also, which is perhaps more
important, it will be the _duty_ of the Reparation Commission, until
there has been a unanimous and far-reaching change of the policy which
the Treaty represents, to extract from Germany year after year the
maximum sum obtainable. There is a great difference between fixing a
definite sum, which though large is within Germany's capacity to pay and
yet to retain a little for herself, and fixing a sum far beyond her
capacity, which is then to be reduced at the discretion of a foreign
Commission acting with the object of obtaining each year the maximum
which the circumstances of that year permit. The first still leaves her
with some slight incentive for enterprise, energy, and hope. The latter
skins her alive year by year in perpetuity, and however skilfully and
discreetly the operation is performed, with whatever regard for not
killing the patient in the process, it would represent a policy which,
if it were really entertained and deliberately practised, the judgment
of men would soon pronounce to be one of the most outrageous acts of a
cruel victor in civilized history.
There are other functions and powers of high significance which the
Treaty accords to the Reparation Commission. But these will be most
conveniently dealt with in a separate section.
III. _Germany's Capacity to pay_
The forms in which Germany can discharge the sum which she has engaged
herself to pay are three in number--
1. Immediately transferable wealth in the form of gold, ships, and
foreign securities;
2. The value of property in ceded territory, or surrendered under the
Armistice;
3. Annual payments spread over a term of years, partly in cash and
partly in materials such as coal products, potash, and dyes.
There is excluded from the above the actual restitution of property
removed from territory occupied by the enemy, as, for example, Russian
gold, Belgian and French securities, cattle, machinery, and works of
art. In so far as the actual goods taken can be identified and restored,
they must clearly be returned to their rightful owners, and cannot be
brought into the general reparation pool. This is expressly provided for
in Article 238 of the Treaty.
1. _Immediately Transferable Wealth_
(_a_) _Gold_.--After deduction of the gold to be returned to Russia, the
official holding of gold as shown in the Reichsbank's return of the 30th
November, 1918, amounted to $577,089,500. This was a very much larger
amount than had appeared in the Reichsbank's return prior to the
war,[117] and was the result of the vigorous campaign carried on in
Germany during the war for the surrender to the Reichsbank not only of
gold coin but of gold ornaments of every kind. Private hoards doubtless
still exist, but, in view of the great efforts already made, it is
unlikely that either the German Government or the Allies will be able to
unearth them. The return can therefore be taken as probably representing
the maximum amount which the German Government are able to extract from
their people. In addition to gold there was in the Reichsbank a sum of
about $5,000,000 in silver. There must be, however, a further
substantial amount in circulation, for the holdings of the Reichsbank
were as high as $45,500,000 on the 31st December, 1917, and stood at
about $30,000,000 up to the latter part of October, 1918, when the
internal run began on currency of every kind.[118] We may, therefore,
take a total of (say) $625,000,000 for gold and silver together at the
date of the Armistice.
These reserves, however, are no longer intact. During the long period
which elapsed between the Armistice and the Peace it became necessary
for the Allies to facilitate the provisioning of Germany from abroad.
The political condition of Germany at that time and the serious menace
of Spartacism rendered this step necessary in the interests of the
Allies themselves if they desired the continuance in Germany of a stable
Government to treat with. The question of how such provisions were to be
paid for presented, however, the gravest difficulties. A series of
Conferences was held at Trèves, at Spa, at Brussels, and subsequently at
Château Villette and Versailles, between representatives of the Allies
and of Germany, with the object of finding some method of payment as
little injurious as possible to the future prospects of Reparation
payments. The German representatives maintained from the outset that the
financial exhaustion of their country was for the time being so complete
that a temporary loan from the Allies was the only possible expedient.
This the Allies could hardly admit at a time when they were preparing
demands for the immediate payment by Germany of immeasurably larger
sums. But, apart from this, the German claim could not be accepted as
strictly accurate so long as their gold was still untapped and their
remaining foreign securities unmarketed. In any case, it was out of the
question to suppose that in the spring of 1919 public opinion in the
Allied countries or in America would have allowed the grant of a
substantial loan to Germany. On the other hand, the Allies were
naturally reluctant to exhaust on the provisioning of Germany the gold
which seemed to afford one of the few obvious and certain sources for
Reparation. Much time was expended in the exploration of all possible
alternatives; but it was evident at last that, even if German exports
and saleable foreign securities had been available to a sufficient
value, they could not be liquidated in time, and that the financial
exhaustion of Germany was so complete that nothing whatever was
immediately available in substantial amounts except the gold in the
Reichsbank. Accordingly a sum exceeding $250,000,000 in all out of the
Reichsbank gold was transferred by Germany to the Allies (chiefly to the
United States, Great Britain, however, also receiving a substantial sum)
during the first six months of 1919 in payment for foodstuffs.
But this was not all. Although Germany agreed, under the first extension
of the Armistice, not to export gold without Allied permission, this
permission could not be always withheld. There were liabilities of the
Reichsbank accruing in the neighboring neutral countries, which could
not be met otherwise than in gold. The failure of the Reichsbank to meet
its liabilities would have caused a depreciation of the exchange so
injurious to Germany's credit as to react on the future prospects of
Reparation. In some cases, therefore, permission to export gold was
accorded to the Reichsbank by the Supreme Economic Council of the
Allies.
The net result of these various measures was to reduce the gold reserve
of the Reichsbank by more than half, the figures falling from
$575,000,000 to $275,000,000 in September, 1919.
It would be _possible_ under the Treaty to take the whole of this latter
sum for Reparation purposes. It amounts, however, as it is, to less
than 4 per cent of the Reichsbank's Note Issue, and the psychological
effect of its total confiscation might be expected (having regard to the
very large volume of mark notes held abroad) to destroy the exchange
value of the mark almost entirely. A sum of $25,000,000, $50,000,000, or
even $100,000,000 might be taken for a special purpose. But we may
assume that the Reparation Commission will judge it imprudent, having
regard to the reaction on their future prospects of securing payment, to
ruin the German currency system altogether, more particularly because
the French and Belgian Governments, being holders of a very large volume
of mark notes formerly circulating in the occupied or ceded territory,
have a great interest in maintaining some exchange value for the mark,
quite apart from Reparation prospects.
It follows, therefore, that no sum worth speaking of can be expected in
the form of gold or silver towards the initial payment of $5,000,000,000
due by 1921.
(_b_) _Shipping_.--Germany has engaged, as we have seen above, to
surrender to the Allies virtually the whole of her merchant shipping. A
considerable part of it, indeed, was already in the hands of the Allies
prior to the conclusion of Peace, either by detention in their ports or
by the provisional transfer of tonnage under the Brussels Agreement in
connection with the supply of foodstuffs.[119] Estimating the tonnage of
German shipping to be taken over under the Treaty at 4,000,000 gross
tons, and the average value per ton at $150 per ton, the total money
value involved is $600,000,000.[120]
(_c_) _Foreign Securities_.--Prior to the census of foreign securities
carried out by the German Government in September, 1916,[121] of which
the exact results have not been made public, no official return of such
investments was ever called for in Germany, and the various unofficial
estimates are confessedly based on insufficient data, such as the
admission of foreign securities to the German Stock Exchanges, the
receipts of the stamp duties, consular reports, etc. The principal
German estimates current before the war are given in the appended
footnote.[122] This shows a general consensus of opinion among German
authorities that their net foreign investments were upwards of
$6,250,000,000. I take this figure as the basis of my calculations,
although I believe it to be an exaggeration; $5,000,000,000 would
probably be a safer figure.
Deductions from this aggregate total have to be made under four heads.
(i.) Investments in Allied countries and in the United States, which
between them constitute a considerable part of the world, have been
sequestrated by Public Trustees, Custodians of Enemy Property, and
similar officials, and are not available for Reparation except in so far
as they show a surplus over various private claims. Under the scheme for
dealing with enemy debts outlined in Chapter IV., the first charge on
these assets is the private claims of Allied against German nationals.
It is unlikely, except in the United States, that there will be any
appreciable surplus for any other purpose.
(ii.) Germany's most important fields of foreign investment before the
war were not, like ours, oversea, but in Russia, Austria-Hungary,
Turkey, Roumania, and Bulgaria. A great part of these has now become
almost valueless, at any rate for the time being; especially those in
Russia and Austria-Hungary. If present market value is to be taken as
the test, none of these investments are now saleable above a nominal
figure. Unless the Allies are prepared to take over these securities
much above their nominal market valuation, and hold them for future
realization, there is no substantial source of funds for immediate
payment in the form of investments in these countries.
(iii.) While Germany was not in a position to realize her foreign
investments during the war to the degree that we were, she did so
nevertheless in the case of certain countries and to the extent that
she was able. Before the United States came into the war, she is
believed to have resold a large part of the pick of her investments in
American securities, although some current estimates of these sales (a
figure of $300,000,000 has been mentioned) are probably exaggerated. But
throughout the war and particularly in its later stages, when her
exchanges were weak and her credit in the neighboring neutral countries
was becoming very low, she was disposing of such securities as Holland,
Switzerland, and Scandinavia would buy or would accept as collateral. It
is reasonably certain that by June, 1919, her investments in these
countries had been reduced to a negligible figure and were far exceeded
by her liabilities in them. Germany has also sold certain overseas
securities, such as Argentine cedulas, for which a market could be
found.
(iv.) It is certain that since the Armistice there has been a great
flight abroad of the foreign securities still remaining in private
hands. This is exceedingly difficult to prevent. German foreign
investments are as a rule in the form of bearer securities and are not
registered. They are easily smuggled abroad across Germany's extensive
land frontiers, and for some months before the conclusion of peace it
was certain that their owners would not be allowed to retain them if the
Allied Governments could discover any method of getting hold of them.
These factors combined to stimulate human ingenuity, and the efforts
both of the Allied and of the German Governments to interfere
effectively with the outflow are believed to have been largely futile.
In face of all these considerations, it will be a miracle if much
remains for Reparation. The countries of the Allies and of the United
States, the countries of Germany's own allies, and the neutral countries
adjacent to Germany exhaust between them almost the whole of the
civilized world; and, as we have seen, we cannot expect much to be
available for Reparation from investments in any of these quarters.
Indeed there remain no countries of importance for investments except
those of South America.
To convert the significance of these deductions into figures involves
much guesswork. I give the reader the best personal estimate I can form
after pondering the matter in the light of the available figures and
other relevant data.
I put the deduction under (i.) at $1,500,000,000, of which $500,000,000
may be ultimately available after meeting private debts, etc.
As regards (ii.)--according to a census taken by the Austrian Ministry
of Finance on the 31st December, 1912, the nominal value of the
Austro-Hungarian securities held by Germans was $986,500,000. Germany's
pre-war investments in Russia outside Government securities have been
estimated at $475,000,000, which is much lower than would be expected,
and in 1906 Sartorius v. Waltershausen estimated her investments in
Russian Government securities at $750,000,000. This gives a total of
$1,225,000,000, which is to some extent borne out by the figure of
$1,000,000,000 given in 1911 by Dr. Ischchanian as a deliberately modest
estimate. A Roumanian estimate, published at the time of that country's
entry in the war, gave the value of Germany's investments in Roumania at
$20,000,000 to $22,000,000, of which $14,000,000 to $16,000,000 were in
Government securities. An association for the defense of French
interests in Turkey, as reported in the _Temps_ (Sept. 8, 1919), has
estimated the total amount of German capital invested in Turkey at about
$295,000,000, of which, according to the latest Report of the Council of
Foreign Bondholders, $162,500,000 was held by German nationals in the
Turkish External Debt. No estimates are available to me of Germany's
investments in Bulgaria. Altogether I venture a deduction of
$2,500,000,000 in respect of this group of countries as a whole.
Resales and the pledging as collateral of securities during the war
under (iii.) I put at $500,000,000 to $750,000,000, comprising
practically all Germany's holding of Scandinavian, Dutch, and Swiss
securities, a part of her South American securities, and a substantial
proportion of her North American securities sold prior to the entry of
the United States into the war.
As to the proper deduction under (iv.) there are naturally no available
figures. For months past the European press has been full of sensational
stories of the expedients adopted. But if we put the value of securities
which have already left Germany or have been safely secreted within
Germany itself beyond discovery by the most inquisitorial and powerful
methods at $500,000,000, we are not likely to overstate it.
These various items lead, therefore, in all to a deduction of a round
figure of about $5,000,000,000, and leave us with an amount of
$1,250,000,000 theoretically still available.[123]
To some readers this figure may seem low, but let them remember that it
purports to represent the remnant of _saleable_ securities upon which
the German Government might be able to lay hands for public purposes. In
my own opinion it is much too high, and considering the problem by a
different method of attack I arrive at a lower figure. For leaving out
of account sequestered Allied securities and investments in Austria,
Russia, etc., what blocks of securities, specified by countries and
enterprises, can Germany possibly still have which could amount to as
much as $1,250,000,000? I cannot answer the question. She has some
Chinese Government securities which have not been sequestered, a few
Japanese perhaps, and a more substantial value of first-class South
American properties. But there are very few enterprises of this class
still in German hands, and even _their_ value is measured by one or two
tens of millions, not by fifties or hundreds. He would be a rash man, in
my judgment, who joined a syndicate to pay $500,000,000 in cash for the
unsequestered remnant of Germany's overseas investments. If the
Reparation Commission is to realize even this lower figure, it is
probable that they will have to nurse, for some years, the assets which
they take over, not attempting their disposal at the present time.
We have, therefore, a figure of from $500,000,000 to $1,250,000,000 as
the maximum contribution from Germany's foreign securities.
Her immediately transferable wealth is composed, then, of--
(_a_) Gold and silver--say $300,000,000.
(_b_) Ships--$600,000,000.
(_c_) Foreign securities--$500,000,000 to $1,250,000,000.
Of the gold and silver, it is not, in fact, practicable to take any
substantial part without consequences to the German currency system
injurious to the interests of the Allies themselves. The contribution
from all these sources together which the Reparation Commission can hope
to secure by May, 1921, may be put, therefore, at from $1,250,000,000 to
$1,750,000,000 _as a maximum_.[124]
2. _Property in ceded Territory or surrendered under the Armistice_
As the Treaty has been drafted Germany will not receive important
credits available towards meeting reparation in respect of her property
in ceded territory.
_Private_ property in most of the ceded territory is utilized towards
discharging private German debts to Allied nationals, and only the
surplus, if any, is available towards Reparation. The value of such
property in Poland and the other new States is payable direct to the
owners.
_Government_ property in Alsace-Lorraine, in territory ceded to Belgium,
and in Germany's former colonies transferred to a Mandatory, is to be
forfeited without credit given. Buildings, forests, and other State
property which belonged to the former Kingdom of Poland are also to be
surrendered without credit. There remain, therefore, Government
properties, other than the above, surrendered to Poland, Government
properties in Schleswig surrendered to Denmark,[125] the value of the
Saar coalfields, the value of certain river craft, etc., to be
surrendered under the Ports, Waterways, and Railways Chapter, and the
value of the German submarine cables transferred under Annex VII. of the
Reparation Chapter.
Whatever the Treaty may say, the Reparation Commission will not secure
any cash payments from Poland. I believe that the Saar coalfields have
been valued at from $75,000,000 to $100,000,000. A round figure of
$150,000,000 for all the above items, excluding any surplus available in
respect of private property, is probably a liberal estimate.
Then remains the value of material surrendered under the Armistice.
Article 250 provides that a credit shall be assessed by the Reparation
Commission for rolling-stock surrendered under the Armistice as well as
for certain other specified items, and generally for any material so
surrendered for which the Reparation Commission think that credit should
be given, "as having non-military value." The rolling-stock (150,000
wagons and 5,000 locomotives) is the only very valuable item. A round
figure of $250,000,000, for all the Armistice surrenders, is probably
again a liberal estimate.
We have, therefore, $400,000,000 to add in respect of this heading to
our figure of $1,250,000,000 to $1,750,000,000 under the previous
heading. This figure differs from the preceding in that it does not
represent cash capable of benefiting the financial situation of the
Allies, but is only a book credit between themselves or between them and
Germany.
The total of $1,650,000,000 to $2,150,000,000 now reached is not,
however, available for Reparation. The _first_ charge upon it, under
Article 251 of the Treaty, is the cost of the Armies of Occupation both
during the Armistice and after the conclusion of Peace. The aggregate of
this figure up to May, 1921, cannot be calculated until the rate of
withdrawal is known which is to reduce the _monthly_ cost from the
figure exceeding $100,000,000, which prevailed during the first part of
1919, to that of $5,000,000, which is to be the normal figure
eventually. I estimate, however, that this aggregate may be about
$1,000,000,000. This leaves us with from $500,000,000 to $1,000,000,000
still in hand.
Out of this, and out of exports of goods, and payments in kind under the
Treaty prior to May, 1921 (for which I have not as yet made any
allowance), the Allies have held out the hope that they will allow
Germany to receive back such sums for the purchase of necessary food and
raw materials as the former deem it essential for her to have. It is not
possible at the present time to form an accurate judgment either as to
the money-value of the goods which Germany will require to purchase from
abroad in order to re-establish her economic life, or as to the degree
of liberality with which the Allies will exercise their discretion. If
her stocks of raw materials and food were to be restored to anything
approaching their normal level by May, 1921, Germany would probably
require foreign purchasing power of from $500,000,000 to $1,000,000,000
at least, in addition to the value of her current exports. While this is
not likely to be permitted, I venture to assert as a matter beyond
reasonable dispute that the social and economic condition of Germany
cannot possibly permit a surplus of exports over imports during the
period prior to May, 1921, and that the value of any payments in kind
with which she may be able to furnish the Allies under the Treaty in the
form of coal, dyes, timber, or other materials will have to be returned
to her to enable her to pay for imports essential to her existence.[126]
The Reparation Commission can, therefore, expect no addition from other
sources to the sum of from $500,000,000 to $1,000,000,000 with which we
have hypothetically credited it after the realization of Germany's
immediately transferable wealth, the calculation of the credits due to
Germany under the Treaty, and the discharge of the cost of the Armies of
Occupation. As Belgium has secured a private agreement with France, the
United States, and Great Britain, outside the Treaty, by which she is to
receive, towards satisfaction of her claims, the _first_ $500,000,000
available for Reparation, the upshot of the whole matter is that Belgium
may _possibly_ get her $500,000,000 by May, 1921, but none of the other
Allies are likely to secure by that date any contribution worth speaking
of. At any rate, it would be very imprudent for Finance Ministers to lay
their plans on any other hypothesis.
3. _Annual Payments spread over a Term of Years_
It is evident that Germany's pre-war capacity to pay an annual foreign
tribute has not been unaffected by the almost total loss of her
colonies, her overseas connections, her mercantile marine, and her
foreign properties, by the cession of ten per cent of her territory and
population, of one-third of her coal and of three-quarters of her iron
ore, by two million casualties amongst men in the prime of life, by the
starvation of her people for four years, by the burden of a vast war
debt, by the depreciation of her currency to less than one-seventh its
former value, by the disruption of her allies and their territories, by
Revolution at home and Bolshevism on her borders, and by all the
unmeasured ruin in strength and hope of four years of all-swallowing war
and final defeat.
All this, one would have supposed, is evident. Yet most estimates of a
great indemnity from Germany depend on the assumption that she is in a
position to conduct in the future a vastly greater trade than ever she
has had in the past.
For the purpose of arriving at a figure it is of no great consequence
whether payment takes the form of cash (or rather of foreign exchange)
or is partly effected in kind (coal, dyes, timber, etc.), as
contemplated by the Treaty. In any event, it is only by the export of
specific commodities that Germany can pay, and the method of turning the
value of these exports to account for Reparation purposes is,
comparatively, a matter of detail.
We shall lose ourselves in mere hypothesis unless we return in some
degree to first principles, and, whenever we can, to such statistics as
there are. It is certain that an annual payment can only be made by
Germany over a series of years by diminishing her imports and increasing
her exports, thus enlarging the balance in her favor which is available
for effecting payments abroad. Germany can pay in the long-run in goods,
and in goods only, whether these goods are furnished direct to the
Allies, or whether they are sold to neutrals and the neutral credits so
arising are then made over to the Allies. The most solid basis for
estimating the extent to which this process can be carried is to be
found, therefore, in an analysis of her trade returns before the war.
Only on the basis of such an analysis, supplemented by some general data
as to the aggregate wealth-producing capacity of the country, can a
rational guess be made as to the maximum degree to which the exports of
Germany could be brought to exceed her imports.
In the year 1913 Germany's imports amounted to $2,690,000,000, and her
exports to $2,525,000,000, exclusive of transit trade and bullion. That
is to say, imports exceeded exports by about $165,000,000. On the
average of the five years ending 1913, however, her imports exceeded her
exports by a substantially larger amount, namely, $370,000,000. It
follows, therefore, that more than the whole of Germany's pre-war
balance for new foreign investment was derived from the interest on her
existing foreign securities, and from the profits of her shipping,
foreign banking, etc. As her foreign properties and her mercantile
marine are now to be taken from her, and as her foreign banking and
other miscellaneous sources of revenue from abroad have been largely
destroyed, it appears that, on the pre-war basis of exports and imports,
Germany, so far from having a surplus wherewith to make a foreign
payment, would be not nearly self-supporting. Her first task, therefore,
must be to effect a readjustment of consumption and production to cover
this deficit. Any further economy she can effect in the use of imported
commodities, and any further stimulation of exports will then be
available for Reparation.
Two-thirds of Germany's import and export trade is enumerated under
separate headings in the following tables. The considerations applying
to the enumerated portions may be assumed to apply more or less to the
remaining one-third, which is composed of commodities of minor
importance individually.
-----------------------------------------+---------+---------------
| Amount: | Percentage of
German Exports, 1913 | Million | Total Exports
| Dollars |
-----------------------------------------+---------+---------------
Iron goods (including tin plates, etc.) | 330.65 | 13.2
Machinery and parts (including | |
motor-cars) | 187.75 | 7.5
Coal, coke, and briquettes | 176.70 | 7.0
Woolen goods (including raw and | |
combed wool and clothing) | 147.00 | 5.9
Cotton goods (including raw cotton, | |
yarn, and thread) | 140.75 | 5.6
+---------+---------------
| 982.85 | 39.2
+---------+---------------
Cereals, etc. (including rye, oats, | |
wheat, hops) | 105.90 | 4.1
Leather and leather goods | 77.35 | 3.0
Sugar | 66.00 | 2.6
Paper, etc. | 65.50 | 2.6
Furs | 58.75 | 2.2
Electrical goods (installations, | |
machinery, lamps, cables) | 54.40 | 2.2
Silk goods | 50.50 | 2.0
Dyes | 48.80 | 1.9
Copper goods | 32.50 | 1.3
Toys | 25.75 | 1.0
Rubber and rubber goods | 21.35 | 0.9
Books, maps, and music | 18.55 | 0.8
Potash | 15.90 | 0.6
Glass | 15.70 | 0.6
Potassium chloride | 14.55 | 0.6
Pianos, organs, and parts | 13.85 | 0.6
Raw zinc | 13.70 | 0.5
Porcelain | 12.65 | 0.5
+---------+---------------
| 711.70 | 67.2
+---------+---------------
Other goods, unenumerated | 829.60 | 32.8
+---------+---------------
Total |2,524.15 | 100.0
-----------------------------------------+---------+---------------
-----------------------------------------+---------+---------------
| Amount: | Percentage of
German Imports, 1913 | Million | Total Imports
| Dollars |
-----------------------------------------+---------+---------------
I. Raw materials:-- | |
Cotton | 151.75 | 5.6
Hides and skins | 124.30 | 4.6
Wool | 118.35 | 4.4
Copper | 83.75 | 3.1
Coal | 68.30 | 2.5
Timber | 58.00 | 2.2
Iron ore | 56.75 | 2.1
Furs | 46.75 | 1.7
Flax and flaxseed | 46.65 | 1.7
Saltpetre | 42.75 | 1.6
Silk | 39.50 | 1.5
Rubber | 36.50 | 1.4
Jute | 23.50 | 0.9
Petroleum | 17.45 | 0.7
Tin | 14.55 | 0.5
Phosphorus chalk | 11.60 | 0.4
Lubricating oil | 11.45 | 0.4
+---------+---------------
| 951.90 | 35.3
+---------+---------------
II. Food, tobacco, etc.:-- | |
Cereals, etc. (wheat, barley, | |
bran, rice, maize, oats, rye, | |
clover) | 327.55 | 12.2
Oil seeds and cake, etc. | |
(including palm kernels, copra,| |
cocoa, beans) | 102.65 | 3.8
Cattle, lamb fat, bladders | 73.10 | 2.8
Coffee | 54.75 | 2.0
Eggs | 48.50 | 1.8
Tobacco | 33.50 | 1.2
Butter | 29.65 | 1.1
Horses | 29.05 | 1.1
Fruit | 18.25 | 0.7
Fish | 14.95 | 0.6
Poultry | 14.00 | 0.5
Wine | 13.35 | 0.5
+---------+---------------
| 759.30 | 28.3
-----------------------------------------+---------+---------------
-----------------------------------------+---------+---------------
| Amount: | Percentage of
German Imports, 1913 | Million | Total Imports
| Dollars |
-----------------------------------------+---------+---------------
III. Manufactures:-- | |
Cotton yarn and thread and | |
cotton goods | 47.05 | 1.8
Woolen yarn and woolen | |
goods | 37.85 | 1.4
Machinery | 20.10 | 0.7
+---------+---------------
| 105.00 | 3.9
+---------+---------------
IV. Unenumerated | 876.40 | 32.5
+---------+---------------
Total |2,692.60 | 100.0
-----------------------------------------+---------+---------------
These tables show that the most important exports consisted of:--
(1) Iron goods, including tin plates (13.2 per cent),
(2) Machinery, etc. (7.5 per cent),
(3) Coal, coke, and briquettes (7 per cent),
(4) Woolen goods, including raw and combed wool (5.9 per
cent), and
(5) Cotton goods, including cotton yarn and thread and raw
cotton (5.6 per cent),
these five classes between them accounting for 39.2 per cent. of the
total exports. It will be observed that all these goods are of a kind in
which before the war competition between Germany and the United Kingdom
was very severe. If, therefore, the volume of such exports to overseas
or European destinations is very largely increased the effect upon
British export trade must be correspondingly serious. As regards two of
the categories, namely, cotton and woolen goods, the increase of an
export trade is dependent upon an increase of the import of the raw
material, since Germany produces no cotton and practically no wool.
These trades are therefore incapable of expansion unless Germany is
given facilities for securing these raw materials (which can only be at
the expense of the Allies) in excess of the pre-war standard of
consumption, and even then the effective increase is not the gross value
of the exports, but only the difference between the value of the
manufactured exports and of the imported raw material. As regards the
other three categories, namely, machinery, iron goods, and coal,
Germany's capacity to increase her exports will have been taken from her
by the cessions of territory in Poland, Upper Silesia, and
Alsace-Lorraine. As has been pointed out already, these districts
accounted for nearly one-third of Germany's production of coal. But they
also supplied no less than three-quarters of her iron-ore production, 38
per cent of her blast furnaces, and 9.5 per cent of her iron and steel
foundries. Unless, therefore, Alsace-Lorraine and Upper Silesia send
their iron ore to Germany proper, to be worked up, which will involve an
increase in the imports for which she will have to find payment, so far
from any increase in export trade being possible, a decrease is
inevitable.[127]
Next on the list come cereals, leather goods, sugar, paper, furs,
electrical goods, silk goods, and dyes. Cereals are not a net export and
are far more than balanced by imports of the same commodities. As
regards sugar, nearly 90 per cent of Germany's pre-war exports came to
the United Kingdom.[128] An increase in this trade might be stimulated
by a grant of a preference in this country to German sugar or by an
arrangement by which sugar was taken in part payment for the indemnity
on the same lines as has been proposed for coal, dyes, etc. Paper
exports also might be capable of some increase. Leather goods, furs, and
silks depend upon corresponding imports on the other side of the
account. Silk goods are largely in competition with the trade of France
and Italy. The remaining items are individually very small. I have heard
it suggested that the indemnity might be paid to a great extent in
potash and the like. But potash before the war represented 0.6 per cent
of Germany's export trade, and about $15,000,000 in aggregate value.
Besides, France, having secured a potash field in the territory which
has been restored to her, will not welcome a great stimulation of the
German exports of this material.
An examination of the import list shows that 63.6 per cent are raw
materials and food. The chief items of the former class, namely, cotton,
wool, copper, hides, iron-ore, furs, silk, rubber, and tin, could not be
much reduced without reacting on the export trade, and might have to be
increased if the export trade was to be increased. Imports of food,
namely, wheat, barley, coffee, eggs, rice, maize, and the like, present
a different problem. It is unlikely that, apart from certain comforts,
the consumption of food by the German laboring classes before the war
was in excess of what was required for maximum efficiency; indeed, it
probably fell short of that amount. Any substantial decrease in the
imports of food would therefore react on the efficiency of the
industrial population, and consequently on the volume of surplus exports
which they could be forced to produce. It is hardly possible to insist
on a greatly increased productivity of German industry if the workmen
are to be underfed. But this may not be equally true of barley, coffee,
eggs, and tobacco. If it were possible to enforce a régime in which for
the future no German drank beer or coffee, or smoked any tobacco, a
substantial saving could be effected. Otherwise there seems little room
for any significant reduction.
The following analysis of German exports and imports, according to
destination and origin, is also relevant. From this it appears that of
Germany's exports in 1913, 18 per cent went to the British Empire, 17
per cent to France, Italy, and Belgium, 10 per cent to Russia and
Roumania, and 7 per cent to the United States; that is to say, more than
half of the exports found their market in the countries of the Entente
nations. Of the balance, 12 per cent went to Austria-Hungary, Turkey,
and Bulgaria, and 35 per cent elsewhere. Unless, therefore, the present
Allies are prepared to encourage the importation of German products, a
substantial increase in total volume can only be effected by the
wholesale swamping of neutral markets.
GERMAN TRADE (1913) ACCORDING TO DESTINATION AND ORIGIN.
----------------------+--------------------+--------------------
| Destination of | Origin of
| Germany's Exports | Germany's Imports
----------------------+--------------------+--------------------
| Million Per cent | Million Per cent
| Dollars | Dollars
Great Britain | 359.55 14.2 | 219.00 8.1
India | 37.65 1.5 | 135.20 5.0
Egypt | 10.85 0.4 | 29.60 1.1
Canada | 15.10 0.6 | 16.00 0.6
Australia | 22.10 0.9 | 74.00 2.8
South Africa | 11.70 0.5 | 17.40 0.6
| ------ ---- | ------ ----
Total: British Empire | 456.95 18.1 | 491.20 18.2
| |
France | 197.45 7.8 | 146.05 5.4
Belgium | 137.75 5.5 | 86.15 3.2
Italy | 98.35 3.9 | 79.40 3.0
U.S.A. | 178.30 7.1 | 427.80 15.9
Russia | 220.00 8.7 | 356.15 13.2
Roumania | 35.00 1.4 | 19.95 0.7
Austria-Hungary | 276.20 10.9 | 206.80 7.7
Turkey | 24.60 1.0 | 18.40 0.7
Bulgaria | 7.55 0.3 | 2.00 ...
Other countries | 890.20 35.3 | 858.70 32.0
| ------ ---- | ------ ----
| 2,522.35 100.0 | 2,692.60 100.0
----------------------+--------------------+--------------------
The above analysis affords some indication of the possible magnitude of
the maximum modification of Germany's export balance under the
conditions which will prevail after the Peace. On the assumptions (1)
that we do not specially favor Germany over ourselves in supplies of
such raw materials as cotton and wool (the world's supply of which is
limited), (2) that France, having secured the iron-ore deposits, makes a
serious attempt to secure the blast-furnaces and the steel trade also,
(3) that Germany is not encouraged and assisted to undercut the iron and
other trades of the Allies in overseas market, and (4) that a
substantial preference is not given to German goods in the British
Empire, it is evident by examination of the specific items that not much
is practicable.
Let us run over the chief items again: (1) Iron goods. In view of
Germany's loss of resources, an increased net export seems impossible
and a large decrease probable. (2) Machinery. Some increase is possible.
(3) Coal and coke. The value of Germany's net export before the war was
$110,000,000; the Allies have agreed that for the time being 20,000,000
tons is the maximum possible export with a problematic (and in fact)
impossible increase to 40,000,000 tons at some future time; even on the
basis of 20,000,000 tons we have virtually no increase of value,
measured in pre-war prices;[129] whilst, if this amount is exacted,
there must be a decrease of far greater value in the export of
manufactured articles requiring coal for their production. (4) Woolen
goods. An increase is impossible without the raw wool, and, having
regard to the other claims on supplies of raw wool, a decrease is
likely. (5) Cotton goods. The same considerations apply as to wool. (6)
Cereals. There never was and never can be a net export. (7) Leather
goods. The same considerations apply as to wool.
We have now covered nearly half of Germany's pre-war exports, and there
is no other commodity which formerly represented as much as 3 per cent
of her exports. In what commodity is she to pay? Dyes?--their total
value in 1913 was $50,000,000. Toys? Potash?--1913 exports were worth
$15,000,000. And even if the commodities could be specified, in what
markets are they to be sold?--remembering that we have in mind goods to
the value not of tens of millions annually, but of hundreds of millions.
On the side of imports, rather more is possible. By lowering the
standard of life, an appreciable reduction of expenditure on imported
commodities may be possible. But, as we have already seen, many large
items are incapable of reduction without reacting on the volume of
exports.
Let us put our guess as high as we can without being foolish, and
suppose that after a time Germany will be able, in spite of the
reduction of her resources, her facilities, her markets, and her
productive power, to increase her exports and diminish her imports so as
to improve her trade balance altogether by $500,000,000 annually,
measured in pre-war prices. This adjustment is first required to
liquidate the adverse trade balance, which in the five years before the
war averaged $370,000,000; but we will assume that after allowing for
this, she is left with a favorable trade balance of $250,000,000 a year.
Doubling this to allow for the rise in pre-war prices, we have a figure
of $500,000,000. Having regard to the political, social, and human
factors, as well as to the purely economic, I doubt if Germany could be
made to pay this sum annually over a period of 30 years; but it would
not be foolish to assert or to hope that she could.
Such a figure, allowing 5 per cent for interest, and 1 per cent for
repayment of capital, represents a capital sum having a present value of
about $8,500,000,000.[130]
I reach, therefore, the final conclusion that, including all methods of
payment--immediately transferable wealth, ceded property, and an annual
tribute--$10,000,000,000 is a safe maximum figure of Germany's capacity
to pay. In all the actual circumstances, I do not believe that she can
pay as much. Let those who consider this a very low figure, bear in mind
the following remarkable comparison. The wealth of France in 1871 was
estimated at a little less than half that of Germany in 1913. Apart from
changes in the value of money, an indemnity from Germany of
$2,500,000,000 would, therefore, be about comparable to the sum paid by
France in 1871; and as the real burden of an indemnity increases more
than in proportion to its amount, the payment of $10,000,000,000 by
Germany would have far severer consequences than the $1,000,000,000 paid
by France in 1871.
There is only one head under which I see a possibility of adding to the
figure reached on the line of argument adopted above; that is, if German
labor is actually transported to the devastated areas and there engaged
in the work of reconstruction. I have heard that a limited scheme of
this kind is actually in view. The additional contribution thus
obtainable depends on the number of laborers which the German Government
could contrive to maintain in this way and also on the number which,
over a period of years, the Belgian and French inhabitants would
tolerate in their midst. In any case, it would seem very difficult to
employ on the actual work of reconstruction, even over a number of
years, imported labor having a net present value exceeding (say)
$1,250,000,000; and even this would not prove in practice a net addition
to the annual contributions obtainable in other ways.
A capacity of $40,000,000,000 or even of $25,000,000,000 is, therefore,
not within the limits of reasonable possibility. It is for those who
believe that Germany can make an annual payment amounting to hundreds of
millions sterling to say _in what specific commodities_ they intend this
payment to be made and _in what markets_ the goods are to be sold. Until
they proceed to some degree of detail, and are able to produce some
tangible argument in favor of their conclusions, they do not deserve to
be believed.[131]
I make three provisos only, none of which affect the force of my
argument for immediate practical purposes.
_First_: if the Allies were to "nurse" the trade and industry of Germany
for a period of five or ten years, supplying her with large loans, and
with ample shipping, food, and raw materials during that period,
building up markets for her, and deliberately applying all their
resources and goodwill to making her the greatest industrial nation in
Europe, if not in the world, a substantially larger sum could probably
be extracted thereafter; for Germany is capable of very great
productivity.
_Second_: whilst I estimate in terms of money, I assume that there is no
revolutionary change in the purchasing power of our unit of value. If
the value of gold were to sink to a half or a tenth of its present
value, the real burden of a payment fixed in terms of gold would be
reduced proportionately. If a sovereign comes to be worth what a
shilling is worth now, then, of course, Germany can pay a larger sum
than I have named, measured in gold sovereigns.
_Third_: I assume that there is no revolutionary change in the yield of
Nature and material to man's labor. It is not _impossible_ that the
progress of science should bring within our reach methods and devices by
which the whole standard of life would be raised immeasurably, and a
given volume of products would represent but a portion of the human
effort which it represents now. In this case all standards of "capacity"
would be changed everywhere. But the fact that all things are _possible_
is no excuse for talking foolishly.
It is true that in 1870 no man could have predicted Germany's capacity
in 1910. We cannot expect to legislate for a generation or more. The
secular changes in man's economic condition and the liability of human
forecast to error are as likely to lead to mistake in one direction as
in another. We cannot as reasonable men do better than base our policy
on the evidence we have and adapt it to the five or ten years over which
we may suppose ourselves to have some measure of prevision; and we are
not at fault if we leave on one side the extreme chances of human
existence and of revolutionary changes in the order of Nature or of
man's relations to her. The fact that we have no adequate knowledge of
Germany's capacity to pay over a long period of years is no
justification (as I have heard some people claim that, it is) for the
statement that she can pay $50,000,000,000.
Why has the world been so credulous of the unveracities of politicians?
If an explanation is needed, I attribute this particular credulity to
the following influences in part.
In the first place, the vast expenditures of the war, the inflation of
prices, and the depreciation of currency, leading up to a complete
instability of the unit of value, have made us lose all sense of number
and magnitude in matters of finance. What we believed to be the limits
of possibility have been so enormously exceeded, and those who founded
their expectations on the past have been so often wrong, that the man in
the street is now prepared to believe anything which is told him with
some show of authority, and the larger the figure the more readily he
swallows it.
But those who look into the matter more deeply are sometimes misled by a
fallacy, much more plausible to reasonableness. Such a one might base
his conclusions on Germany's total surplus of annual productivity as
distinct from her export surplus. Helfferich's estimate of Germany's
annual increment of wealth in 1913 was $2,000,000,000 to $2,125,000,000
(exclusive of increased money value of existing land and property).
Before the war, Germany spent between $250,000,000 and $500,000,000 on
armaments, with which she can now dispense. Why, therefore, should she
not pay over to the Allies an annual sum of $2,500,000,000? This puts
the crude argument in its strongest and most plausible form.
But there are two errors in it. First of all, Germany's annual savings,
after what she has suffered in the war and by the Peace, will fall far
short of what they were before, and, if they are taken from her year by
year in future, they cannot again reach their previous level. The loss
of Alsace-Lorraine, Poland, and Upper Silesia could not be assessed in
terms of surplus productivity at less than $250,000,000 annually.
Germany is supposed to have profited about $500,000,000 per annum from
her ships, her foreign investments, and her foreign banking and
connections, all of which have now been taken from her. Her saving on
armaments is far more than balanced by her annual charge for pensions
now estimated at $1,250,000,000,[132] which represents a real loss of
productive capacity. And even if we put on one side the burden of the
internal debt, which amounts to 24 milliards of marks, as being a
question of internal distribution rather than of productivity, we must
still allow for the foreign debt incurred by Germany during the war, the
exhaustion of her stock of raw materials, the depletion of her
live-stock, the impaired productivity of her soil from lack of manures
and of labor, and the diminution in her wealth from the failure to keep
up many repairs and renewals over a period of nearly five years. Germany
is not as rich as she was before the war, and the diminution in her
future savings for these reasons, quite apart from the factors
previously allowed for, could hardly be put at less than ten per cent,
that is $200,000,000 annually.
These factors have already reduced Germany's annual surplus to less than
the $500,000,000 at which we arrived on other grounds as the maximum of
her annual payments. But even if the rejoinder be made, that we have not
yet allowed for the lowering of the standard of life and comfort in
Germany which may reasonably be imposed on a defeated enemy,[133] there
is still a fundamental fallacy in the method of calculation. An annual
surplus available for home investment can only be converted into a
surplus available for export abroad by a radical change in the kind of
work performed. Labor, while it may be available and efficient for
domestic services in Germany, may yet be able to find no outlet in
foreign trade. We are back on the same question which faced us in our
examination of the export trade--in _what_ export trade is German labor
going to find a greatly increased outlet? Labor can only he diverted
into new channels with loss of efficiency, and a large expenditure of
capital. The annual surplus which German labor can produce for capital
improvements at home is no measure, either theoretically or practically,
of the annual tribute which she can pay abroad.
IV. _The Reparation Commission_.
This body is so remarkable a construction and may, if it functions at
all, exert so wide an influence on the life of Europe, that its
attributes deserve a separate examination.
There are no precedents for the indemnity imposed on Germany under the
present Treaty; for the money exactions which formed part of the
settlement after previous wars have differed in two fundamental respects
from this one. The sum demanded has been determinate and has been
measured in a lump sum of money; and so long as the defeated party was
meeting the annual instalments of cash no consequential interference was
necessary.
But for reasons already elucidated, the exactions in this case are not
yet determinate, and the sum when fixed will prove in excess of what can
be paid in cash and in excess also of what can be paid at all. It was
necessary, therefore, to set up a body to establish the bill of claim,
to fix the mode of payment, and to approve necessary abatements and
delays. It was only possible to place this body in a position to exact
the utmost year by year by giving it wide powers over the internal
economic life of the enemy countries, who are to be treated henceforward
as bankrupt estates to be administered by and for the benefit of the
creditors. In fact, however, its powers and functions have been enlarged
even beyond what was required for this purpose, and the Reparation
Commission has been established as the final arbiter on numerous
economic and financial issues which it was convenient to leave unsettled
in the Treaty itself.[134]
The powers and constitution of the Reparation Commission are mainly laid
down in Articles 233-241 and Annex II. of the Reparation Chapter of the
Treaty with Germany. But the same Commission is to exercise authority
over Austria and Bulgaria, and possibly over Hungary and Turkey, when
Peace is made with these countries. There are, therefore, analogous
articles _mutatis mudandis_ in the Austrian Treaty[135] and in the
Bulgarian Treaty.[136]
The principal Allies are each represented by one chief delegate.
The delegates of the United States, Great Britain, France, and
Italy take part in all proceedings; the delegate of Belgium in all
proceedings except those attended by the delegates of Japan or the
Serb-Croat-Slovene State; the delegate of Japan in all proceedings
affecting maritime or specifically Japanese questions; and the
delegate of the Serb-Croat-Slovene State when questions relating to
Austria, Hungary, or Bulgaria are under consideration. Other allies
are to be represented by delegates, without the power to vote,
whenever their respective claims and interests are under examination.
In general the Commission decides by a majority vote, except in certain
specific cases where unanimity is required, of which the most important
are the cancellation of German indebtedness, long postponement of the
instalments, and the sale of German bonds of indebtedness. The
Commission is endowed with full executive authority to carry out its
decisions. It may set up an executive staff and delegate authority to
its officers. The Commission and its staff are to enjoy diplomatic
privileges, and its salaries are to be paid by Germany, who will,
however, have no voice in fixing them, If the Commission is to discharge
adequately its numerous functions, it will be necessary for it to
establish a vast polyglot bureaucratic organization, with a staff of
hundreds. To this organization, the headquarters of which will be in
Paris, the economic destiny of Central Europe is to be entrusted.
Its main functions are as follows:--
1. The Commission will determine the precise figure of the claim against
the enemy Powers by an examination in detail of the claims of each of
the Allies under Annex I. of the Reparation Chapter. This task must be
completed by May, 1921. It shall give to the German Government and to
Germany's allies "a just opportunity to be heard, but not to take any
part whatever in the decisions of the Commission." That is to say, the
Commission will act as a party and a judge at the same time.
2. Having determined the claim, it will draw up a schedule of payments
providing for the discharge of the whole sum with interest within thirty
years. From time to time it shall, with a view to modifying the schedule
within the limits of possibility, "consider the resources and capacity
of Germany ... giving her representatives a just opportunity to be heard."
"In periodically estimating Germany's capacity to pay, the Commission
shall examine the German system of taxation, first, to the end that the
sums for reparation which Germany is required to pay shall become a
charge upon all her revenues prior to that for the service or discharge
of any domestic loan, and secondly, so as to satisfy itself that, in
general, the German scheme of taxation is fully as heavy proportionately
as that of any of the Powers represented on the Commission."
3. Up to May, 1921, the Commission has power, with a view to securing
the payment of $5,000,000,000, to demand the surrender of any piece of
German property whatever, wherever situated: that is to say, "Germany
shall pay in such installments and in such manner, whether in gold,
commodities, ships, securities, or otherwise, as the Reparation
Commission may fix."
4. The Commission will decide which of the rights and interests of
German nationals in public utility undertakings operating in Russia,
China, Turkey, Austria, Hungary, and Bulgaria, or in any territory
formerly belonging to Germany or her allies, are to be expropriated and
transferred to the Commission itself; it will assess the value of the
interests so transferred; and it will divide the spoils.
5 The Commission will determine how much of the resources thus stripped
from Germany must be returned to her to keep enough life in her economic
organization to enable her to continue to make Reparation payments in
future.[137]
6. The Commission will assess the value, without appeal or arbitration,
of the property and rights ceded under the Armistice, and under the
Treaty,--roiling-stock, the mercantile marine, river craft, cattle, the
Saar mines, the property in ceded territory for which credit is to be
given, and so forth.
7. The Commission will determine the amounts and values (within certain
defined limits) of the contributions which Germany is to make in kind
year by year under the various Annexes to the Reparation Chapter.
8. The Commission will provide for the restitution by Germany of
property which can be identified.
9. The Commission will receive, administer, and distribute all receipts
from Germany in cash or in kind. It will also issue and market German
bonds of indebtedness.
10. The Commission will assign the share of the pre-war public debt to
be taken over by the ceded areas of Schleswig, Poland, Danzig, and Upper
Silesia. The Commission will also distribute the public debt of the late
Austro-Hungarian Empire between its constituent parts.
11. The Commission will liquidate the Austro-Hungarian Bank, and will
supervise the withdrawal and replacement of the currency system of the
late Austro-Hungarian Empire.
12. It is for the Commission to report if, in their judgment, Germany is
falling short in fulfillment of her obligations, and to advise methods
of coercion.
13. In general, the Commission, acting through a subordinate body, will
perform the same functions for Austria and Bulgaria as for Germany, and
also, presumably, for Hungary and Turkey.[138]
There are also many other relatively minor duties assigned to the
Commission. The above summary, however, shows sufficiently the scope and
significance of its authority. This authority is rendered of far greater
significance by the fact that the demands of the Treaty generally exceed
Germany's capacity. Consequently the clauses which allow the Commission
to make abatements, if in their judgment the economic conditions of
Germany require it, will render it in many different particulars the
arbiter of Germany's economic life. The Commission is not only to
inquire into Germany's general capacity to pay, and to decide (in the
early years) what import of foodstuffs and raw materials is necessary;
it is authorized to exert pressure on the German system of taxation
(Annex II. para. 12(_b_))[139] and on German internal expenditure, with
a view to insuring that Reparation payments are a first charge on the
country's entire resources; and it is to decide on the effect on German
economic life of demands for machinery, cattle, etc., and of the
scheduled deliveries of coal.
By Article 240 of the Treaty Germany expressly recognizes the Commission
and its powers "as the same may be constituted by the Allied and
Associated Governments," and "agrees irrevocably to the possession and
exercise by such Commission of the power and authority given to it under
the present Treaty." She undertakes to furnish the Commission with all
relevant information. And finally in Article 241, "Germany undertakes to
pass, issue, and maintain in force any legislation, orders, and decrees
that may be necessary to give complete effect to these provisions."
The comments on this of the German Financial Commission at Versailles
were hardly an exaggeration:--"German democracy is thus annihilated at
the very moment when the German people was about to build it up after a
severe struggle--annihilated by the very persons who throughout the war
never tired of maintaining that they sought to bring democracy to us....
Germany is no longer a people and a State, but becomes a mere trade
concern placed by its creditors in the hands of a receiver, without its
being granted so much as the opportunity to prove its willingness to
meet its obligations of its own accord. The Commission, which is to have
its permanent headquarters outside Germany, will possess in Germany
incomparably greater rights than the German Emperor ever possessed, the
German people under its régime would remain for decades to come shorn
of all rights, and deprived, to a far greater extent than any people in
the days of absolutism, of any independence of action, of any individual
aspiration in its economic or even in its ethical progress."
In their reply to these observations the Allies refused to admit that
there was any substance, ground, or force in them. "The observations of
the German Delegation," they pronounced, "present a view of this
Commission so distorted and so inexact that it is difficult to believe
that the clauses of the Treaty have been calmly or carefully examined.
It is not an engine of oppression or a device for interfering with
German sovereignty. It has no forces at its command; it has no executive
powers within the territory of Germany; it cannot, as is suggested,
direct or control the educational or other systems of the country. Its
business is to ask what is to be paid; to satisfy itself that Germany
can pay; and to report to the Powers, whose delegation it is, in case
Germany makes default. If Germany raises the money required in her own
way, the Commission cannot order that it shall be raised in some other
way; if Germany offers payment in kind, the Commission may accept such
payment, but, except as specified in the Treaty itself, the Commission
cannot require such a payment."
This is not a candid statement of the scope and authority of the
Reparation Commission, as will be seen by a comparison of its terms with
the summary given above or with the Treaty itself. Is not, for example,
the statement that the Commission "has no forces at its command" a
little difficult to justify in view of Article 430 of the Treaty, which
runs:--"In case, either during the occupation or after the expiration of
the fifteen years referred to above, the Reparation Commission finds
that Germany refuses to observe the whole or part of her obligations
under the present Treaty with regard to Reparation, the whole or part of
the areas specified in Article 429 will be reoccupied immediately by the
Allied and Associated Powers"? The decision, as to whether Germany has
kept her engagements and whether it is possible for her to keep them, is
left, it should be observed, not to the League of Nations, but to the
Reparation Commission itself; and an adverse ruling on the part of the
Commission is to be followed "immediately" by the use of armed force.
Moreover, the depreciation of the powers of the Commission attempted in
the Allied reply largely proceeds from the assumption that it is quite
open to Germany to "raise the money required in her own way," in which
case it is true that many of the powers of the Reparation Commission
would not come into practical effect; whereas in truth one of the main
reasons for setting up the Commission at all is the expectation that
Germany will not be able to carry the burden nominally laid upon her.
* * * * *
It is reported that the people of Vienna, hearing that a section of the
Reparation Commission is about to visit them, have decided
characteristically to pin their hopes on it. A financial body can
obviously take nothing from them, for they have nothing; therefore this
body must be for the purpose of assisting and relieving them. Thus do
the Viennese argue, still light-headed in adversity. But perhaps they
are right. The Reparation Commission will come into very close contact
with the problems of Europe; and it will bear a responsibility
proportionate to its powers. It may thus come to fulfil a very different
rôle from that which some of its authors intended for it. Transferred to
the League of Nations, an appanage of justice and no longer of interest,
who knows that by a change of heart and object the Reparation Commission
may not yet be transformed from an instrument of oppression and rapine
into an economic council of Europe, whose object is the restoration of
life and of happiness, even in the enemy countries?
_V_. _The German Counter-Proposals_
The German counter-proposals were somewhat obscure, and also rather
disingenuous. It will be remembered that those clauses of the Reparation
Chapter which dealt with the issue of bonds by Germany produced on the
public mind the impression that the Indemnity had been fixed at
$25,000,000,000, or at any rate at this figure as a minimum. The German
Delegation set out, therefore, to construct their reply on the basis of
this figure, assuming apparently that public opinion in Allied countries
would not be satisfied with less than the appearance of $25,000,000,000;
and, as they were not really prepared to offer so large a figure, they
exercised their ingenuity to produce a formula which might be
represented to Allied opinion as yielding this amount, whilst really
representing a much more modest sum. The formula produced was
transparent to any one who read it carefully and knew the facts, and it
could hardly have been expected by its authors to deceive the Allied
negotiators. The German tactic assumed, therefore, that the latter were
secretly as anxious as the Germans themselves to arrive at a settlement
which bore some relation to the facts, and that they would therefore be
willing, in view of the entanglements which they had got themselves into
with their own publics, to practise a little collusion in drafting the
Treaty,--a supposition which in slightly different circumstances might
have had a good deal of foundation. As matters actually were, this
subtlety did not benefit them, and they would have done much better with
a straightforward and candid estimate of what they believed to be the
amount of their liabilities on the one hand, and their capacity to pay
on the other.
The German offer of an alleged sum of $25,000,000,000 amounted to the
following. In the first place it was conditional on concessions in the
Treaty insuring that "Germany shall retain the territorial integrity
corresponding to the Armistice Convention,[140] that she shall keep her
colonial possessions and merchant ships, including those of large
tonnage, that in her own country and in the world at large she shall
enjoy the same freedom of action as all other peoples, that all war
legislation shall be at once annulled, and that all interferences during
the war with her economic rights and with German private property, etc.,
shall be treated in accordance with the principle of reciprocity";--that
is to say, the offer is conditional on the greater part of the rest of
the Treaty being abandoned. In the second place, the claims are not to
exceed a maximum of $25,000,000,000, of which $5,000,000,000 is to be
discharged by May 1, 1926; and no part of this sum is to carry interest
pending the payment of it.[141] In the third place, there are to be
allowed as credit against it (amongst other things): (_a_) the value of
all deliveries under the Armistice, including military material (_e.g._
Germany's navy); (_b_) the value of all railways and State property in
ceded territory; (_c_) the _pro rata_ share of all ceded territory in
the German public debt (including the war debt) and in the Reparation
payments which this territory would have had to bear if it had remained
part of Germany; and (_d_) the value of the cession of Germany's claims
for sums lent by her to her allies in the war.[142]
The credits to be deducted under (_a_), (_b_), (_c_), and (_d_) might be
in excess of those allowed in the actual Treaty, according to a rough
estimate, by a sum of as much as $10,000,000,000, although the sum to be
allowed under (_d_) can hardly be calculated.
If, therefore, we are to estimate the real value of the German offer of
$25,000,000,000 on the basis laid down by the Treaty, we must first of
all deduct $10,000,000,000 claimed for offsets which the Treaty does not
allow, and then halve the remainder in order to obtain the present value
of a deferred payment on which interest is not chargeable. This reduces
the offer to $7,500,000,000, as compared with the $40,000,000,000 which,
according to my rough estimate, the Treaty demands of her.
This in itself was a very substantial offer--indeed it evoked widespread
criticism in Germany--though, in view of the fact that it was
conditional on the abandonment of the greater part of the rest of the
Treaty, it could hardly be regarded as a serious one.[143] But the
German Delegation would have done better if they had stated in less
equivocal language how far they felt able to go.
In the final reply of the Allies to this counter-proposal there is one
important provision, which I have not attended to hitherto, but which
can be conveniently dealt with in this place. Broadly speaking, no
concessions were entertained on the Reparation Chapter as it was
originally drafted, but the Allies recognized the inconvenience of the
_indeterminacy_ of the burden laid upon Germany and proposed a method by
which the final total of claim might be established at an earlier date
than May 1, 1921. They promised, therefore, that at any time within four
months of the signature of the Treaty (that is to say, up to the end of
October, 1919), Germany should be at liberty to submit an offer of a
lump sum in settlement of her whole liability as defined in the Treaty,
and within two months thereafter (that is to say, before the end of
1919) the Allies "will, so far as may be possible, return their answers
to any proposals that may be made."
This offer is subject to three conditions. "Firstly, the German
authorities will be expected, before making such proposals, to confer
with the representatives of the Powers directly concerned. Secondly,
such offers must be unambiguous and must be precise and clear. Thirdly,
they must accept the categories and the Reparation clauses as matters
settled beyond discussion."
The offer, as made, does not appear to contemplate any opening up of the
problem of Germany's capacity to pay. It is only concerned with the
establishment of the total bill of claims as defined in the
Treaty--whether (_e.g._) it is $35,000,000,000, $40,000,000,000, or
$50,000,000,000. "The questions," the Allies' reply adds, "are bare
questions of fact, namely, the amount of the liabilities, and they are
susceptible of being treated in this way."
If the promised negotiations are really conducted on these lines, they
are not likely to be fruitful. It will not be much easier to arrive at
an agreed figure before the end of 1919 that it was at the time of the
Conference; and it will not help Germany's financial position to know
for certain that she is liable for the huge sum which on any computation
the Treaty liabilities must amount to. These negotiations do offer,
however, an opportunity of reopening the whole question of the
Reparation payments, although it is hardly to be hoped that at so very
early a date, public opinion in the countries of the Allies has changed
its mood sufficiently.[144]
* * * * *
I cannot leave this subject as though its just treatment wholly depended
either on our own pledges or on economic facts. The policy of reducing
Germany to servitude for a generation, of degrading the lives of
millions of human beings, and of depriving a whole nation of happiness
should be abhorrent and detestable,--abhorrent and detestable, even if
it were possible, even if it enriched ourselves, even if it did not sow
the decay of the whole civilized life of Europe. Some preach it in the
name of Justice. In the great events of man's history, in the unwinding
of the complex fates of nations Justice is not so simple. And if it
were, nations are not authorized, by religion or by natural morals, to
visit on the children of their enemies the misdoings of parents or of
rulers.
FOOTNOTES:
[76] "With reservation that any future claims and demands of
the Allies and the United States of America remain unaffected, the
following financial conditions are required: Reparation for damage done.
Whilst Armistice lasts, no public securities shall be removed by the
enemy which can serve as a pledge to the Allies for recovery or
reparation of war losses. Immediate restitution of cash deposit in
National Bank of Belgium, and, in general, immediate return of all
documents, of specie, stock, shares, paper money, together with plant
for issue thereof, touching public or private interests in invaded
countries. Restitution of Russian and Roumanian gold yielded to Germany
or taken by that Power. This gold to be delivered in trust to the Allies
until signature of peace."
[77] It is to be noticed, in passing, that they contain nothing
which limits the damage to damage inflicted contrary to the recognized
rules of warfare. That is to say, it is permissible to include claims
arising out of the legitimate capture of a merchantman at sea, as well
as the costs of illegal submarine warfare.
[78] Mark-paper or mark-credits owned in ex-occupied territory
by Allied nationals should be included, if at all, in the settlement of
enemy debts, along with other sums owed to Allied nationals, and not in
connection with reparation.
[79] A special claim on behalf of Belgium was actually included
In the Peace Treaty, and was accepted by the German representatives
without demur.
[80] To the British observer, one scene, however, stood out
distinguished from the rest--the field of Ypres. In that desolate and
ghostly spot, the natural color and humors of the landscape and the
climate seemed designed to express to the traveler the memories of the
ground. A visitor to the salient early in November, 1918, when a few
German bodies still added a touch of realism and human horror, and the
great struggle was not yet certainly ended, could feel there, as nowhere
else, the present outrage of war, and at the same time the tragic and
sentimental purification which to the future will in some degree
transform its harshness.
[81] These notes, estimated to amount to no less than six
thousand million marks, are now a source of embarrassment and great
potential loss to the Belgian Government, inasmuch as on their recovery
of the country they took them over from their nationals in exchange for
Belgian notes at the rate of Fr. 120 = Mk. 1. This rate of exchange, being
substantially in excess of the value of the mark-notes at the rate of
exchange current at the time (and enormously in excess of the rate to
which the mark notes have since fallen, the Belgian franc being now
worth more than three marks), was the occasion of the smuggling of
mark-notes into Belgium on an enormous scale, to take advantage of the
profit obtainable. The Belgian Government took this very imprudent step,
partly because they hoped to persuade the Peace Conference to make the
redemption of these bank-notes, at the par of exchange, a first charge
on German assets. The Peace Conference held, however, that Reparation
proper must take precedence of the adjustment of improvident banking
transactions effected at an excessive rate of exchange. The possession
by the Belgian Government of this great mass of German currency, in
addition to an amount of nearly two thousand million marks held by the
French Government which they similarly exchanged for the benefit of the
population of the invaded areas and of Alsace-Lorraine, is a serious
aggravation of the exchange position of the mark. It will certainly be
desirable for the Belgian and German Governments to come to some
arrangement as to its disposal, though this is rendered difficult by the
prior lien held by the Reparation Commission over all German assets
available for such purposes.
[82] It should be added, in fairness, that the very high claims
put forward on behalf of Belgium generally include not only devastation
proper, but all kinds of other items, as, for example, the profits and
earnings which Belgians might reasonably have expected to earn if there
had been no war.
[83] "The Wealth and Income of the Chief Powers," by J.C. Stamp
(_Journal of the Royal Statistical Society_, July, 1919).
[84] Other estimates vary from $12,100,000,000 to
$13,400,000,000. See Stamp, _loc. cit._
[85] This was clearly and courageously pointed out by M.
Charles Gide in _L'Emancipation_ for February, 1919.
[86] For details of these and other figures, see Stamp, _loc.
cit._
[87] Even when the extent of the material damage has been
established, it will be exceedingly difficult to put a price on it,
which must largely depend on the period over which restoration is
spread, and the methods adopted. It would be impossible to make the
damage good in a year or two at any price, and an attempt to do so at a
rate which was excessive in relation to the amount of labor and
materials at hand might force prices up to almost any level. We must, I
think, assume a cost of labor and materials about equal to that current
in the world generally. In point of fact, however, we may safely assume
that literal restoration will never be attempted. Indeed, it would be
very wasteful to do so. Many of the townships were old and unhealthy,
and many of the hamlets miserable. To re-erect the same type of building
in the same places would be foolish. As for the land, the wise course
may be in some cases to leave long strips of it to Nature for many years
to come. An aggregate money sum should be computed as fairly
representing the value of the material damage, and France should be left
to expend it in the manner she thinks wisest with a view to her economic
enrichment as a whole. The first breeze of this controversy has already
blown through France. A long and inconclusive debate occupied the
Chamber during the spring of 1919, as to whether inhabitants of the
devastated area receiving compensation should be compelled to expend it
in restoring the identical property, or whether they should be free to
use it as they like. There was evidently a great deal to be said on both
sides; in the former case there would be much hardship and uncertainty
for owners who could not, many of them, expect to recover the effective
use of their property perhaps for years to come, and yet would not be
free to set themselves up elsewhere; on the other hand, if such persons
were allowed to take their compensation and go elsewhere, the
countryside of Northern France would never be put right. Nevertheless I
believe that the wise course will be to allow great latitude and let
economic motives take their own course.
[88] _La Richesse de la France devant la Guerre_, published in
1916.
[89] _Revue Bleue_, February 3, 1919. This is quoted in a very
valuable selection of French estimates and expressions of opinion,
forming chapter iv. of _La Liquidation financière de la Guerre_, by H.
Charriaut and R. Hacault. The general magnitude of my estimate is
further confirmed by the extent of the repairs already effected, as set
forth in a speech delivered by M. Tardieu on October 10, 1919, in which
he said: "On September 16 last, of 2246 kilomètres of railway track
destroyed, 2016 had been repaired; of 1075 kilomètres of canal, 700; of
1160 constructions, such as bridges and tunnels, which had been blown
up, 588 had been replaced; of 550,000 houses ruined by bombardment,
60,000 had been rebuilt; and of 1,800,000 hectares of ground rendered
useless by battle, 400,000 had been recultivated, 200,000 hectares of
which are now ready to be sown. Finally, more than 10,000,000 mètres of
barbed wire had been removed."
[90] Some of these estimates include allowance for contingent
and immaterial damage as well as for direct material injury.
[91] A substantial part of this was lost in the service of the
Allies; this must not be duplicated by inclusion both in their claims
and in ours.
[92] The fact that no separate allowance is made in the above
for the sinking of 675 fishing vessels of 71,765 tons gross, or for the
1855 vessels of 8,007,967 tons damaged or molested, but not sunk, may be
set off against what may be an excessive figure for replacement cost.
[93] The losses of the Greek mercantile marine were excessively
high, as a result of the dangers of the Mediterranean; but they were
largely incurred on the service of the other Allies, who paid for them
directly or indirectly. The claims of Greece for maritime losses
incurred on the service of her own nationals would not be very
considerable.
[94] There is a reservation in the Peace Treaty on this
question. "The Allied and Associated Powers formally reserve the right
of Russia to obtain from Germany restitution and reparation based on the
principles of the present Treaty" (Art. 116).
[95] Dr. Diouritch in his "Economic and Statistical Survey of
the Southern Slav Nations" (_Journal of Royal Statistical Society_, May,
1919), quotes some extraordinary figures of the loss of life: "According
to the official returns, the number of those fallen in battle or died in
captivity up to the last Serbian offensive, amounted to 320,000, which
means that one half of Serbia's male population, from 18 to 60 years of
age, perished outright in the European War. In addition, the Serbian
Medical Authorities estimate that about 300,000 people have died from
typhus among the civil population, and the losses among the population
interned in enemy camps are estimated at 50,000. During the two Serbian
retreats and during the Albanian retreat the losses among children and
young people are estimated at 200,000. Lastly, during over three years
of enemy occupation, the losses in lives owing to the lack of proper
food and medical attention are estimated at 250,000." Altogether, he
puts the losses in life at above 1,000,000, or more than one-third of
the population of Old Serbia.
[96] _Come si calcola e a quanto ammonta la richezza d'Italia e
delle altre principali nazioni_, published in 1919.
[97] Very large claims put forward by the Serbian authorities
include many hypothetical items of indirect and non-material damage; but
these, however real, are not admissible under our present formula.
[98] Assuming that in her case $1,250,000,000 are included for
the general expenses of the war defrayed out of loans made to Belgium by
her allies.
[99] It must be said to Mr. Hughes' honor that he apprehended
from the first the bearing of the pre-Armistice negotiations on our
right to demand an indemnity covering the full costs of the war,
protested against our ever having entered into such engagements, and
maintained loudly that he had been no party to them and could not
consider himself bound by them. His indignation may have been partly due
to the fact that Australia, not having been ravaged, would have no
claims at all under the more limited interpretation of our rights.
[100] The whole cost of the war has been estimated at from
$120,000,000,000 upwards. This would mean an annual payment for interest
(apart from sinking fund) of $6,000,000,000. Could any expert Committee
have reported that Germany can pay this sum?
[101] But unhappily they did not go down with their flags
flying very gloriously. For one reason or another their leaders
maintained substantial silence. What a different position in the
country's estimation they might hold now if they had suffered defeat
amidst firm protests against the fraud, chicane, and dishonor of the
whole proceedings.
[102] Only after the most painful consideration have I written
these words. The almost complete absence of protest from the leading
Statesmen of England makes one feel that one must have made some
mistake. But I believe that I know all the facts, and I can discover no
such mistake. In any case I have set forth all the relevant engagements
in Chapter IV. and at the beginning of this chapter, so that the reader
can form his own judgment.
[103] In conversation with Frenchmen who were private persons
and quite unaffected by political considerations, this aspect became
very clear. You might persuade them that some current estimates as to
the amount to be got out of Germany were quite fantastic. Yet at the end
they would always come back to where they had started: "But Germany
_must_ pay; for, otherwise, what is to happen to France?"
[104] A further paragraph claims the war costs of Belgium "in
accordance with Germany's pledges, already given, as to complete
restoration for Belgium."
[105] The challenge of the other Allies, as well as the enemy,
had to be met; for in view of the limited resources of the latter, the
other Allies had perhaps a greater interest than the enemy in seeing
that no one of their number established an excessive claim.
[106] M. Klotz has estimated the French claims on this head at
$15,000,000,000 (75 milliard francs, made up of 13 milliard for
allowances, 60 for pensions, and 2 for widows). If this figure is
correct, the others should probably be scaled up also.
[107] That is to say, I claim for the aggregate figure an
accuracy within 25 per cent.
[108] In his speech of September 5, 1919, addressed to the
French Chamber, M. Klotz estimated the total Allied claims against
Germany under the Treaty at $75,000,000,000, which would accumulate at
interest until 1921, and be paid off thereafter by 34 annual
installments of about $5,000,000,000 each, of which France would receive
about $2,750,000,000 annually. "The general effect of the statement
(that France would receive from Germany this annual payment) proved," it
is reported, "appreciably encouraging to the country as a whole, and was
immediately reflected in the improved tone on the Bourse and throughout
the business world in France." So long as such statements can be
accepted in Paris without protest, there can be no financial or economic
future for France, and a catastrophe of disillusion is not far distant.
[109] As a matter of subjective judgment, I estimate for this
figure an accuracy of 10 per cent in deficiency and 20 per cent in
excess, _i.e._ that the result will lie between $32,000,000,000 and
$44,000,000,000.
[110] Germany is also liable under the Treaty, as an addition
to her liabilities for Reparation, to pay all the costs of the Armies of
Occupation _after_ Peace is signed for the fifteen subsequent years of
occupation. So far as the text of the Treaty goes, there is nothing to
limit the size of these armies, and France could, therefore, by
quartering the whole of her normal standing army in the occupied area,
shift the charge from her own taxpayers to those of Germany,--though in
reality any such policy would be at the expense not of Germany, who by
hypothesis is already paying for Reparation up to the full limit of her
capacity, but of France's Allies, who would receive so much less in
respect of Reparation. A White Paper (Cmd. 240) has, however, been
issued, in which is published a declaration by the Governments of the
United States, Great Britain, and France engaging themselves to limit
the sum payable annually by Germany to cover the cost of occupation to
$60,000,000 "as soon as the Allied and Associated Powers _concerned_ are
convinced that the conditions of disarmament by Germany are being
satisfactorily fulfilled." The word which I have italicized is a little
significant. The three Powers reserve to themselves the liberty to
modify this arrangement at any time if they agree that it is necessary.
[111] Art. 235. The force of this Article is somewhat
strengthened by Article 251, by virtue of which dispensations may also
be granted for "other payments" as well as for food and raw material.
[112] This is the effect of Para. 12 (_c_) of Annex II. of the
Reparation Chapter, leaving minor complications on one side. The Treaty
fixes the payments in terms of _gold marks_, which are converted in the
above rate of 20 to $5.
[113] If, _per impossibile_, Germany discharged $2,500,000,000
in cash or kind by 1921, her annual payments would be at the rate of
$312,500,000 from 1921 to 1925 and of $750,000,000 thereafter.
[114] Para. 16 of Annex II. of The Reparation Chapter. There is
also an obscure provision by which interest may be charged "on sums
arising out of _material damage_ as from November 11, 1918, up to May 1,
1921." This seems to differentiate damage to property from damage to the
person in favor of the former. It does not affect Pensions and
Allowances, the cost of which is capitalized as at the date of the
coming into force of the Treaty.
[115] On the assumption which no one supports and even the most
optimistic fear to be unplausible, that Germany can pay the full charge
for interest and sinking fund _from the outset_, the annual payment
would amount to $2,400,000,000.
[116] Under Para. 13 of Annex II. unanimity is required (i.)
for any postponement beyond 1930 of installments due between 1921 and
1926, and (ii.) for any postponement for more than three years of
instalments due after 1926. Further, under Art. 234, the Commission may
not cancel any part of the indebtedness without the specific authority
of _all_ the Governments represented on the Commission.
[117] On July 23, 1914, the amount was $339,000,000.
[118] Owing to the very high premium which exists on German
silver coin, as the combined result of the depreciation of the mark and
the appreciation of silver, it is highly improbable that it will be
possible to extract such coin out of the pockets of the people. But it
may gradually leak over the frontier by the agency of private
speculators, and thus indirectly benefit the German exchange position as
a whole.
[119] The Allies made the supply of foodstuffs to Germany
during the Armistice, mentioned above, conditional on the provisional
transfer to them of the greater part of the Mercantile Marine, to be
operated by them for the purpose of shipping foodstuffs to Europe
generally, and to Germany in particular. The reluctance of the Germans
to agree to this was productive of long and dangerous delays in the
supply of food, but the abortive Conferences of Trèves and Spa (January
16, February 14-16, and March 4-5, 1919) were at last followed by the
Agreement of Brussels (March 14, 1919). The unwillingness of the Germans
to conclude was mainly due to the lack of any absolute guarantee on the
part of the Allies that, if they surrendered the ships, they would get
the food. But assuming reasonable good faith on the part of the latter
(their behavior in respect of certain other clauses of the Armistice,
however, had not been impeccable and gave the enemy some just grounds
for suspicion), their demand was not an improper one; for without the
German ships the business of transporting the food would have been
difficult, if not impossible, and the German ships surrendered or their
equivalent were in fact almost wholly employed in transporting food to
Germany itself. Up to June 30, 1919, 176 German ships of 1,025,388 gross
tonnage had been surrendered, to the Allies in accordance with the
Brussels Agreement.
[120] The amount of tonnage transferred may be rather greater
and the value per ton rather less. The aggregate value involved is not
likely, however, to be less than $500,000,000 or greater than
$750,000,000.
[121] This census was carried out by virtue of a Decree of
August 23, 1918. On March 22, 1917, the German Government acquired
complete control over the utilization of foreign securities in German
possession; and in May, 1917, it began to exercise these powers for the
mobilization of certain Swedish, Danish, and Swiss securities.
[122] 1892. Schmoller $2,500,000,000
1892. Christians 3,250,000,000
1893-4. Koch 3,000,000,000
1905. v. Halle 4,000,000,000[A]
1913. Helfferich 5,000,000,000[B]
1914. Ballod 6,250,000,000
1914. Pistorius 6,250,000,000
1919. Hans David 5,250,000,000[C]
[A] Plus $2,500,000 for investments other than securities.
[B] Net investments, _i.e._ after allowance for property in
Germany owned abroad. This may also be the case with some of the other
estimates.
[C] This estimate, given in the _Weltwirtschaftszeitung_ (June
13, 1919), is an estimate of the value of Germany's foreign investments
as at the outbreak of war.
[123] I have made no deduction for securities in the ownership
of Alsace-Lorrainers and others who have now ceased to be German
nationals.
[124] In all these estimates, I am conscious of being driven by
a fear of overstating the case against the Treaty, of giving figures in
excess of my own real judgment. There is a great difference between
putting down on paper fancy estimates of Germany's resources and
actually extracting contributions in the form of cash. I do not myself
believe that the Reparation Commission will secure real resources from
the above items by May, 1921, even as great as the _lower_ of the two
figures given above.
[125] The Treaty (see Art. 114) leaves it very dubious how far
the Danish Government is under an obligation to make payments to the
Reparation Commission in respect of its acquisition of Schleswig. They
might, for instance, arrange for various offsets such as the value of
the mark notes held by the inhabitants of ceded areas. In any case the
amount of money involved is quite small. The Danish Government is
raising a loan for $33,000,000 (kr. 120,000,000) for the joint purposes
of "taking over Schleswig's share of the German debt, for buying German
public property, for helping the Schleswig population, and for settling
the currency question."
[126] Here again my own judgment would carry me much further
and I should doubt the possibility of Germany's exports equaling her
imports during this period. But the statement in the text goes far
enough for the purpose of my argument.
[127] It has been estimated that the cession of territory to
France, apart from the loss of Upper Silesia, may reduce Germany's
annual pre-war production of steel ingots from 20,000,000 tons to
14,000,000 tons, and increase France's capacity from 5,000,000 tons to
11,000,000 tons.
[128] Germany's exports of sugar in 1913 amounted to 1,110,073
tons of the value of $65,471,500, of which 838,583 tons were exported to
the United Kingdom at a value of $45,254,000. These figures were in
excess of the normal, the average total exports for the five years
ending 1913 being about $50,000,000.
[129] The necessary price adjustment, which is required, on
both sides of this account, will be made _en bloc_ later.
[130] If the amount of the sinking fund be reduced, and the
annual payment is continued over a greater number of years, the present
value--so powerful is the operation of compound interest--cannot be
materially increased. A payment of $500,000,000 annually _in
perpetuity_, assuming interest, as before, at 5 per cent, would only
raise the present value to $10,000,000,000.
[131] As an example of public misapprehension on economic
affairs, the following letter from Sir Sidney Low to _The Times_ of the
3rd December, 1918, deserves quotation: "I have seen authoritative
estimates which place the gross value of Germany's mineral and chemical
resources as high as $1,250,000,000,000 or even more; and the Ruhr basin
mines alone are said to be worth over $225,000,000,000. It is certain,
at any rate, that the capital value of these natural supplies is much
greater than the total war debts of all the Allied States. Why should
not some portion of this wealth be diverted for a sufficient period from
its present owners and assigned to the peoples whom Germany has
assailed, deported, and injured? The Allied Governments might justly
require Germany to surrender to them the use of such of her mines, and
mineral deposits as would yield, say, from $500,000,000 to
$1,000,000,000 annually for the next 30, 40, or 50 years. By this means
we could obtain sufficient compensation from Germany without unduly
stimulating her manufactures and export trade to our detriment." It is
not clear why, if Germany has wealth exceeding $1,250,000,000,000. Sir
Sidney Low is content with the trifling sum of $500,000,000 to
$1,000,000,000 annually. But his letter is an admirable _reductio ad
absurdum_ of a certain line of thought. While a mode of calculation,
which estimates the value of coal miles deep in the bowels of the earth
as high as in a coal scuttle, of an annual lease of $5000 for 999 years
at $4,995,000 and of a field (presumably) at the value of all the crops
it will grow to the end of recorded time, opens up great possibilities,
it is also double-edged. If Germany's total resources are worth
$1,250,000,000,000, those she will part with in the cession of
Alsace-Lorraine and Upper Silesia should be more than sufficient to pay
the entire costs of the war and reparation together. In point of fact,
the _present_ market value of all the mines in Germany of every kind has
been estimated at $1,500,000,000, or a little more than one-thousandth
part of Sir Sidney Low's expectations.
[132] The conversion at par of 5,000 million marks overstates,
by reason of the existing depreciation of the mark, the present money
burden of the actual pensions payments, but not, in all probability, the
real loss of national productivity as a result of the casualties
suffered in the war.
[133] It cannot be overlooked, in passing, that in its results
on a country's surplus productivity a lowering of the standard of life
acts both ways. Moreover, we are without experience of the psychology of
a white race under conditions little short of servitude. It is, however,
generally supposed that if the whole of a man's surplus production is
taken from him, his efficiency and his industry are diminished, The
entrepreneur and the inventor will not contrive, the trader and the
shopkeeper will not save, the laborer will not toil, if the fruits of
their industry are set aside, not for the benefit of their children,
their old age, their pride, or their position, but for the enjoyment of
a foreign conqueror.
[134] In the course of the compromises and delays of the
Conference, there were many questions on which, in order to reach any
conclusion at all, it was necessary to leave a margin of vagueness and
uncertainty. The whole method of the Conference tended towards
this,--the Council of Four wanted, not so much a settlement, as a
treaty. On political and territorial questions the tendency was to leave
the final arbitrament to the League of Nations. But on financial and
economic questions, the final decision has generally be a left with the
Reparation Commission,--in spite of its being an executive body composed
of interested parties.
[135] The sum to be paid by Austria for Reparation is left to
the absolute discretion of the Reparation Commission, no determinate
figure of any kind being mentioned in the text of the Treaty Austrian
questions are to be handled by a special section of the Reparation
Commission, but the section will have no powers except such as the main
Commission may delegate.
[136] Bulgaria is to pay an indemnity of $450,000,000 by
half-yearly instalments, beginning July 1, 1920. These sums will be
collected, on behalf of the Reparation Commission, by an Inter-Ally
Commission of Control, with its seat at Sofia. In some respects the
Bulgarian Inter-Ally Commission appears to have powers and authority
independent of the Reparation Commission, but it is to act,
nevertheless, as the agent of the latter, and is authorized to tender
advice to the Reparation Commission as to, for example, the reduction of
the half-yearly instalments.
[137] Under the Treaty this is the function of any body
appointed for the purpose by the principal Allied and Associated
Governments, and not necessarily of the Reparation Commission. But it
may be presumed that no second body will be established for this special
purpose.
[138] At the date of writing no treaties with these countries
have been drafted. It is possible that Turkey might be dealt with by a
separate Commission.
[139] This appears to me to be in effect the position (if this
paragraph means anything at all), in spite of the following disclaimer
of such intentions in the Allies' reply:--"Nor does Paragraph 12(b) of
Annex II. give the Commission powers to prescribe or enforce taxes or to
dictate the character of the German budget."
[140] Whatever that may mean.
[141] Assuming that the capital sum is discharged evenly over a
period as short as thirty-three years, this has the effect of _halving_
the burden as compared with the payments required on the basis of 5 per
cent interest on the outstanding capital.
[142] I forbear to outline the further details of the German
offer as the above are the essential points.
[143] For this reason it is not strictly comparable with my
estimate of Germany's capacity in an earlier section of this chapter,
which estimate is on the basis of Germany's condition as it will be when
the rest of the Treaty has come into effect.
[144] Owing to delays on the part of the Allies in ratifying
the Treaty, the Reparation Commission had not yet been formally
constituted by the end of October, 1919. So far as I am aware,
therefore, nothing has been done to make the above offer effective. But,
perhaps in view of the circumstances, there has been an extension of the
date.
CHAPTER VI
EUROPE AFTER THE TREATY
This chapter must be one of pessimism. The Treaty includes no provisions
for the economic rehabilitation of Europe,--nothing to make the defeated
Central Empires into good neighbors, nothing to stabilize the new States
of Europe, nothing to reclaim Russia; nor does it promote in any way a
compact of economic solidarity amongst the Allies themselves; no
arrangement was reached at Paris for restoring the disordered finances
of France and Italy, or to adjust the systems of the Old World and the
New.
The Council of Four paid no attention to these issues, being preoccupied
with others,--Clemenceau to crush the economic life of his enemy, Lloyd
George to do a deal and bring home something which would pass muster for
a week, the President to do nothing that was not just and right. It is
an extraordinary fact that the fundamental economic problems of a Europe
starving and disintegrating before their eyes, was the one question in
which it was impossible to arouse the interest of the Four. Reparation
was their main excursion into the economic field, and they settled it
as a problem of theology, of polities, of electoral chicane, from every
point of view except that of the economic future of the States whose
destiny they were handling.
I leave, from this point onwards, Paris, the Conference, and the Treaty,
briefly to consider the present situation of Europe, as the War and the
Peace have made it; and it will no longer be part of my purpose to
distinguish between the inevitable fruits of the War and the avoidable
misfortunes of the Peace.
The essential facts of the situation, as I see them, are expressed
simply. Europe consists of the densest aggregation of population in the
history of the world. This population is accustomed to a relatively high
standard of life, in which, even now, some sections of it anticipate
improvement rather than deterioration. In relation to other continents
Europe is not self-sufficient; in particular it cannot feed Itself.
Internally the population is not evenly distributed, but much of it is
crowded into a relatively small number of dense industrial centers. This
population secured for itself a livelihood before the war, without much
margin of surplus, by means of a delicate and immensely complicated
organization, of which the foundations were supported by coal, iron,
transport, and an unbroken supply of imported food and raw materials
from other continents. By the destruction of this organization and the
interruption of the stream of supplies, a part of this population is
deprived of its means of livelihood. Emigration is not open to the
redundant surplus. For it would take years to transport them overseas,
even, which is not the case, if countries could be found which were
ready to receive them. The danger confronting us, therefore, is the
rapid depression of the standard of life of the European populations to
a point which will mean actual starvation for some (a point already
reached in Russia and approximately reached in Austria). Men will not
always die quietly. For starvation, which brings to some lethargy and a
helpless despair, drives other temperaments to the nervous instability
of hysteria and to a mad despair. And these in their distress may
overturn the remnants of organization, and submerge civilization itself
in their attempts to satisfy desperately the overwhelming needs of the
individual. This is the danger against which all our resources and
courage and idealism must now co-operate.
On the 13th May, 1919, Count Brockdorff-Rantzau addressed to the Peace
Conference of the Allied and Associated Powers the Report of the German
Economic Commission charged with the study of the effect of the
conditions of Peace on the situation of the German population. "In the
course of the last two generations," they reported, "Germany has become
transformed from an agricultural State to an industrial State. So long
as she was an agricultural State, Germany could feed forty million
inhabitants. As an industrial State she could insure the means of
subsistence for a population of sixty-seven millions; and in 1913 the
importation of foodstuffs amounted, in round figures, to twelve million
tons. Before the war a total of fifteen million persons in Germany
provided for their existence by foreign trade, navigation, and the use,
directly or indirectly, of foreign raw material." After rehearsing the
main relevant provisions of the Peace Treaty the report continues:
"After this diminution of her products, after the economic depression
resulting from the loss of her colonies, her merchant fleet and her
foreign investments, Germany will not be in a position to import from
abroad an adequate quantity of raw material. An enormous part of German
industry will, therefore, be condemned inevitably to destruction. The
need of importing foodstuffs will increase considerably at the same time
that the possibility of satisfying this demand is as greatly diminished.
In a very short time, therefore, Germany will not be in a position to
give bread and work to her numerous millions of inhabitants, who are
prevented from earning their livelihood by navigation and trade. These
persons should emigrate, but this is a material impossibility, all the
more because many countries and the most important ones will oppose any
German immigration. To put the Peace conditions into execution would
logically involve, therefore, the loss of several millions of persons in
Germany. This catastrophe would not be long in coming about, seeing that
the health of the population has been broken down during the War by the
Blockade, and during the Armistice by the aggravation of the Blockade of
famine. No help, however great, or over however long a period it were
continued, could prevent those deaths _en masse_." "We do not know, and
indeed we doubt," the report concludes, "whether the Delegates of the
Allied and Associated Powers realize the inevitable consequences which
will take place if Germany, an industrial State, very thickly populated,
closely bound up with the economic system of the world, and under the
necessity of importing enormous quantities of raw material and
foodstuffs, suddenly finds herself pushed back to the phase of her
development, which corresponds to her economic condition and the numbers
of her population as they were half a century ago. Those who sign this
Treaty will sign the death sentence of many millions of German men,
women and children."
I know of no adequate answer to these words. The indictment is at least
as true of the Austrian, as of the German, settlement. This is the
fundamental problem in front of us, before which questions of
territorial adjustment and the balance of European power are
insignificant. Some of the catastrophes of past history, which have
thrown back human progress for centuries, have been due to the reactions
following on the sudden termination, whether in the course of nature or
by the act of man, of temporarily favorable conditions which have
permitted the growth of population beyond what could be provided for
when the favorable conditions were at an end.
The significant features of the immediate situation can be grouped under
three heads: first, the absolute falling off, for the time being, in
Europe's internal productivity; second, the breakdown of transport and
exchange by means of which its products could be conveyed where they
were most wanted; and third, the inability of Europe to purchase its
usual supplies from overseas.
The decrease of productivity cannot be easily estimated, and may be the
subject of exaggeration. But the _primâ facie_ evidence of it is
overwhelming, and this factor has been the main burden of Mr. Hoover's
well-considered warnings. A variety of causes have produced it;--violent
and prolonged internal disorder as in Russia and Hungary; the creation
of new governments and their inexperience in the readjustment of
economic relations, as in Poland and Czecho-Slovakia; the loss
throughout the Continent of efficient labor, through the casualties of
war or the continuance of mobilization; the falling-off in efficiency
through continued underfeeding in the Central Empires; the exhaustion of
the soil from lack of the usual applications of artificial manures
throughout the course of the war; the unsettlement of the minds of the
laboring classes on the above all (to quote Mr. Hoover), "there is a
great fundamental economic issues of their lives. But relaxation of
effort as the reflex of physical exhaustion of large sections of the
population from privation and the mental and physical strain of the
war." Many persons are for one reason or another out of employment
altogether. According to Mr. Hoover, a summary of the unemployment
bureaus in Europe in July, 1919, showed that 15,000,000 families were
receiving unemployment allowances in one form or another, and were being
paid in the main by a constant inflation of currency. In Germany there
is the added deterrent to labor and to capital (in so far as the
Reparation terms are taken literally), that anything, which they may
produce beyond the barest level of subsistence, will for years to come
be taken away from them.
Such definite data as we possess do not add much, perhaps, to the
general picture of decay. But I will remind the reader of one or two of
them. The coal production of Europe as a whole is estimated to have
fallen off by 30 per cent; and upon coal the greater part of the
industries of Europe and the whole of her transport system depend.
Whereas before the war Germany produced 85 per cent of the total food
consumed by her inhabitants, the productivity of the soil is now
diminished by 40 per cent and the effective quality of the live-stock by
55 per cent.[145] Of the European countries which formerly possessed a
large exportable surplus, Russia, as much by reason of deficient
transport as of diminished output, may herself starve. Hungary, apart
from her other troubles, has been pillaged by the Romanians immediately
after harvest. Austria will have consumed the whole of her own harvest
for 1919 before the end of the calendar year. The figures are almost too
overwhelming to carry conviction to our minds; if they were not quite so
bad, our effective belief in them might be stronger.
But even when coal can be got and grain harvested, the breakdown of the
European railway system prevents their carriage; and even when goods can
be manufactured, the breakdown of the European currency system prevents
their sale. I have already described the losses, by war and under the
Armistice surrenders, to the transport system of Germany. But even so,
Germany's position, taking account of her power of replacement by
manufacture, is probably not so serious as that of some of her
neighbors. In Russia (about which, however, we have very little exact or
accurate information) the condition of the rolling-stock is believed to
be altogether desperate, and one of the most fundamental factors in her
existing economic disorder. And in Poland, Roumania, and Hungary the
position is not much better. Yet modern industrial life essentially
depends on efficient transport facilities, and the population which
secured its livelihood by these means cannot continue to live without
them. The breakdown of currency, and the distrust in its purchasing
value, is an aggravation of these evils which must be discussed in a
little more detail in connection with foreign trade.
What then is our picture of Europe? A country population able to support
life on the fruits of its own agricultural production but without the
accustomed surplus for the towns, and also (as a result of the lack of
imported materials and so of variety and amount in the saleable
manufactures of the towns) without the usual incentives to market food
in return for other wares; an industrial population unable to keep its
strength for lack of food, unable to earn a livelihood for lack of
materials, and so unable to make good by imports from abroad the failure
of productivity at home. Yet, according to Mr. Hoover, "a rough estimate
would indicate that the population of Europe is at least 100,000,000
greater than can be supported without imports, and must live by the
production and distribution of exports."
The problem of the re-inauguration of the perpetual circle of production
and exchange in foreign trade leads me to a necessary digression on the
currency situation of Europe.
Lenin is said to have declared that the best way to destroy the
Capitalist System was to debauch the currency. By a continuing process
of inflation, governments can confiscate, secretly and unobserved, an
important part of the wealth of their citizens. By this method they not
only confiscate, but they confiscate _arbitrarily_; and, while the
process impoverishes many, it actually enriches some. The sight of this
arbitrary rearrangement of riches strikes not only at security, but at
confidence in the equity of the existing distribution of wealth. Those
to whom the system brings windfalls, beyond their deserts and even
beyond their expectations or desires, become "profiteers,", who are the
object of the hatred of the bourgeoisie, whom the inflationism has
impoverished, not less than of the proletariat. As the inflation
proceeds and the real value of the currency fluctuates wildly from
month to month, all permanent relations between debtors and creditors,
which form the ultimate foundation of capitalism, become so utterly
disordered as to be almost meaningless; and the process of
wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of
overturning the existing basis of society than to debauch the currency.
The process engages all the hidden forces of economic law on the side of
destruction, and does it in a manner which not one man in a million is
able to diagnose.
In the latter stages of the war all the belligerent governments
practised, from necessity or incompetence, what a Bolshevist might have
done from design. Even now, when the war is over, most of them continue
out of weakness the same malpractices. But further, the Governments of
Europe, being many of them at this moment reckless in their methods as
well as weak, seek to direct on to a class known as "profiteers" the
popular indignation against the more obvious consequences of their
vicious methods. These "profiteers" are, broadly speaking, the
entrepreneur class of capitalists, that is to say, the active and
constructive element in the whole capitalist society, who in a period of
rapidly rising prices cannot help but get rich quick whether they wish
it or desire it or not. If prices are continually rising, every trader
who has purchased for stock or owns property and plant inevitably makes
profits. By directing hatred against this class, therefore, the European
Governments are carrying a step further the fatal process which the
subtle mind of Lenin had consciously conceived. The profiteers are a
consequence and not a cause of rising prices. By combining a popular
hatred of the class of entrepreneurs with the blow already given to
social security by the violent and arbitrary disturbance of contract and
of the established equilibrium of wealth which is the inevitable result
of inflation, these Governments are fast rendering impossible a
continuance of the social and economic order of the nineteenth century.
But they have no plan for replacing it.
We are thus faced in Europe with the spectacle of an extraordinary
weakness on the part of the great capitalist class, which has emerged
from the industrial triumphs of the nineteenth century, and seemed a
very few years ago our all-powerful master. The terror and personal
timidity of the individuals of this class is now so great, their
confidence in their place in society and in their necessity to the
social organism so diminished, that they are the easy victims of
intimidation. This was not so in England twenty-five years ago, any
more than it is now in the United States. Then the capitalists believed
in themselves, in their value to society, in the propriety of their
continued existence in the full enjoyment of their riches and the
unlimited exercise of their power. Now they tremble before every
insult;--call them pro-Germans, international financiers, or profiteers,
and they will give you any ransom you choose to ask not to speak of them
so harshly. They allow themselves to be ruined and altogether undone by
their own instruments, governments of their own making, and a press of
which they are the proprietors. Perhaps it is historically true that no
order of society ever perishes save by its own hand. In the complexer
world of Western Europe the Immanent Will may achieve its ends more
subtly and bring in the revolution no less inevitably through a Klotz or
a George than by the intellectualisms, too ruthless and self-conscious
for us, of the bloodthirsty philosophers of Russia.
The inflationism of the currency systems of Europe has proceeded to
extraordinary lengths. The various belligerent Governments, unable, or
too timid or too short-sighted to secure from loans or taxes the
resources they required, have printed notes for the balance. In Russia
and Austria-Hungary this process has reached a point where for the
purposes of foreign trade the currency is practically valueless. The
Polish mark can be bought for about three cents and the Austrian crown
for less than two cents, but they cannot be sold at all. The German mark
is worth less than four cents on the exchanges. In most of the other
countries of Eastern and South-Eastern Europe the real position is
nearly as bad. The currency of Italy has fallen to little more than a
half of its nominal value in spite of its being still subject to some
degree of regulation; French currency maintains an uncertain market; and
even sterling is seriously diminished in present value and impaired in
its future prospects.
But while these currencies enjoy a precarious value abroad, they have
never entirely lost, not even in Russia, their purchasing power at home.
A sentiment of trust in the legal money of the State is so deeply
implanted in the citizens of all countries that they cannot but believe
that some day this money must recover a part at least of its former
value. To their minds it appears that value is inherent in money as
such, and they do not apprehend that the real wealth, which this money
might have stood for, has been dissipated once and for all. This
sentiment is supported by the various legal regulations with which the
Governments endeavor to control internal prices, and so to preserve some
purchasing power for their legal tender. Thus the force of law
preserves a measure of immediate purchasing power over some commodities
and the force of sentiment and custom maintains, especially amongst
peasants, a willingness to hoard paper which is really worthless.
The presumption of a spurious value for the currency, by the force of
law expressed in the regulation of prices, contains in itself, however,
the seeds of final economic decay, and soon dries up the sources of
ultimate supply. If a man is compelled to exchange the fruits of his
labors for paper which, as experience soon teaches him, he cannot use to
purchase what he requires at a price comparable to that which he has
received for his own products, he will keep his produce for himself,
dispose of it to his friends and neighbors as a favor, or relax his
efforts in producing it. A system of compelling the exchange of
commodities at what is not their real relative value not only relaxes
production, but leads finally to the waste and inefficiency of barter.
If, however, a government refrains from regulation and allows matters to
take their course, essential commodities soon attain a level of price
out of the reach of all but the rich, the worthlessness of the money
becomes apparent, and the fraud upon the public can be concealed no
longer.
The effect on foreign trade of price-regulation and profiteer-hunting
as cures for inflation is even worse. Whatever may be the case at home,
the currency must soon reach its real level abroad, with the result that
prices inside and outside the country lose their normal adjustment. The
price of imported commodities, when converted at the current rate of
exchange, is far in excess of the local price, so that many essential
goods will not be imported at all by private agency, and must be
provided by the government, which, in re-selling the goods below cost
price, plunges thereby a little further into insolvency. The bread
subsidies, now almost universal throughout Europe, are the leading
example of this phenomenon.
The countries of Europe fall into two distinct groups at the present
time as regards their manifestations of what is really the same evil
throughout, according as they have been cut off from international
intercourse by the Blockade, or have had their imports paid for out of
the resources of their allies. I take Germany as typical of the first,
and France and Italy of the second.
The note circulation of Germany is about ten times[146] what it was
before the war. The value of the mark in terms of gold is about
one-eighth of its former value. As world-prices in terms of gold are
more than double what they were, it follows that mark-prices inside
Germany ought to be from sixteen to twenty times their pre-war level if
they are to be in adjustment and proper conformity with prices outside
Germany.[147] But this is not the case. In spite of a very great rise in
German prices, they probably do not yet average much more than five
times their former level, so far as staple commodities are concerned;
and it is impossible that they should rise further except with a
simultaneous and not less violent adjustment of the level of money
wages. The existing maladjustment hinders in two ways (apart from other
obstacles) that revival of the import trade which is the essential
preliminary of the economic reconstruction of the country. In the first
place, imported commodities are beyond the purchasing power of the great
mass of the population,[148] and the flood of imports which might have
been expected to succeed the raising of the blockade was not in fact
commercially possible.[149] In the second place, it is a hazardous
enterprise for a merchant or a manufacturer to purchase with a foreign
credit material for which, when he has imported it or manufactured it,
he will receive mark currency of a quite uncertain and possibly
unrealizable value. This latter obstacle to the revival of trade is one
which easily escapes notice and deserves a little attention. It is
impossible at the present time to say what the mark will be worth in
terms of foreign currency three or six months or a year hence, and the
exchange market can quote no reliable figure. It may be the case,
therefore, that a German merchant, careful of his future credit and
reputation, who is actually offered a short period credit in terms of
sterling or dollars, may be reluctant and doubtful whether to accept it.
He will owe sterling or dollars, but he will sell his product for marks,
and his power, when the time comes, to turn these marks into the
currency in which he has to repay his debt is entirely problematic.
Business loses its genuine character and becomes no better than a
speculation in the exchanges, the fluctuations in which entirely
obliterate the normal profits of commerce.
There are therefore three separate obstacles to the revival of trade: a
maladjustment between internal prices and international prices, a lack
of individual credit abroad wherewith to buy the raw materials needed to
secure the working capital and to re-start the circle of exchange, and a
disordered currency system which renders credit operations hazardous or
impossible quite apart from the ordinary risks of commerce.
The note circulation of France is more than six times its pre-war level.
The exchange value of the franc in terms of gold is a little less than
two-thirds its former value; that is to say, the value of the franc has
not fallen in proportion to the increased volume of the currency.[150]
This apparently superior situation of France is due to the fact that
until recently a very great part of her imports have not been paid for,
but have been covered by loans from the Governments of Great Britain and
the United States. This has allowed a want of equilibrium between
exports and imports to be established, which is becoming a very serious
factor, now that the outside assistance is being gradually discontinued.
The internal economy of France and its price level in relation to the
note circulation and the foreign exchanges is at present based on an
excess of imports over exports which cannot possibly continue. Yet it is
difficult to see how the position can be readjusted except by a lowering
of the standard of consumption in France, which, even if it is only
temporary, will provoke a great deal of discontent.[151]
The situation of Italy is not very different. There the note circulation
is five or six times its pre-war level, and the exchange value of the
lira in terms of gold about half its former value. Thus the adjustment
of the exchange to the volume of the note circulation has proceeded
further in Italy than in France. On the other hand, Italy's "invisible"
receipts, from emigrant remittances and the expenditure of tourists,
have been very injuriously affected; the disruption of Austria has
deprived her of an important market; and her peculiar dependence on
foreign shipping and on imported raw materials of every kind has laid
her open to special injury from the increase of world prices. For all
these reasons her position is grave, and her excess of imports as
serious a symptom as in the case of France.[152]
The existing inflation and the maladjustment of international trade are
aggravated, both in France and in Italy, by the unfortunate budgetary
position of the Governments of these countries.
In France the failure to impose taxation is notorious. Before the war
the aggregate French and British budgets, and also the average taxation
per head, were about equal; but in France no substantial effort has been
made to cover the increased expenditure. "Taxes increased in Great
Britain during the war," it has been estimated, "from 95 francs per head
to 265 francs, whereas the increase in France was only from 90 to 103
francs." The taxation voted in France for the financial year ending June
30, 1919, was less than half the estimated normal _post-bellum_
expenditure. The normal budget for the future cannot be put below
$4,400,000,000 (22 milliard francs), and may exceed this figure; but
even for the fiscal year 1919-20 the estimated receipts from taxation
do not cover much more than half this amount. The French Ministry of
Finance have no plan or policy whatever for meeting this prodigious
deficit, except the expectation of receipts from Germany on a scale
which the French officials themselves know to be baseless. In the
meantime they are helped by sales of war material and surplus American
stocks and do not scruple, even in the latter half of 1919, to meet the
deficit by the yet further expansion of the note issue of the Bank of
France.[153]
The budgetary position of Italy is perhaps a little superior to that of
France. Italian finance throughout the war was more enterprising than
the French, and far greater efforts were made to impose taxation and pay
for the war. Nevertheless Signor Nitti, the Prime Minister, in a letter
addressed to the electorate on the eve of the General Election (Oct.,
1919), thought it necessary to make public the following desperate
analysis of the situation:--(1) The State expenditure amounts to about
three times the revenue. (2) All the industrial undertakings of the
State, including the railways, telegraphs, and telephones, are being run
at a loss. Although the public is buying bread at a high price, that
price represents a loss to the Government of about a milliard a year.
(3) Exports now leaving the country are valued at only one-quarter or
one-fifth of the imports from abroad. (4) The National Debt is
increasing by about a milliard lire per month. (5) The military
expenditure for one month is still larger than that for the first year
of the war.
But if this is the budgetary position of France and Italy, that of the
rest of belligerent Europe is yet more desperate. In Germany the total
expenditure of the Empire, the Federal States, and the Communes in
1919-20 is estimated at 25 milliards of marks, of which not above 10
milliards are covered by previously existing taxation. This is without
allowing anything for the payment of the indemnity. In Russia, Poland,
Hungary, or Austria such a thing as a budget cannot be seriously
considered to exist at all.[154]
Thus the menace of inflationism described above is not merely a product
of the war, of which peace begins the cure. It is a continuing
phenomenon of which the end is not yet in sight.
All these influences combine not merely to prevent Europe from
supplying immediately a sufficient stream of exports to pay for the
goods she needs to import, but they impair her credit for securing the
working capital required to re-start the circle of exchange and also, by
swinging the forces of economic law yet further from equilibrium rather
than towards it, they favor a continuance of the present conditions
instead of a recovery from them. An inefficient, unemployed,
disorganized Europe faces us, torn by internal strife and international
hate, fighting, starving, pillaging, and lying. What warrant is there
for a picture of less somber colors?
I have paid little heed in this book to Russia, Hungary, or
Austria.[155] There the miseries of life and the disintegration of
society are too notorious to require analysis; and these countries are
already experiencing the actuality of what for the rest of Europe is
still in the realm of prediction. Yet they comprehend a vast territory
and a great population, and are an extant example of how much man can
suffer and how far society can decay. Above all, they are the signal to
us of how in the final catastrophe the malady of the body passes over
into malady of the mind. Economic privation proceeds by easy stages, and
so long as men suffer it patiently the outside world cares little.
Physical efficiency and resistance to disease slowly diminish,[156] but
life proceeds somehow, until the limit of human endurance is reached at
last and counsels of despair and madness stir the sufferers from the
lethargy which precedes the crisis. Then man shakes himself, and the
bonds of custom are loosed. The power of ideas is sovereign, and he
listens to whatever instruction of hope, illusion, or revenge is carried
to him on the air. As I write, the flames of Russian Bolshevism seem,
for the moment at least, to have burnt themselves out, and the peoples
of Central and Eastern Europe are held in a dreadful torpor. The lately
gathered harvest keeps off the worst privations, and Peace has been
declared at Paris. But winter approaches. Men will have nothing to look
forward to or to nourish hopes on. There will be little fuel to moderate
the rigors of the season or to comfort the starved bodies of the
town-dwellers.
But who can say how much is endurable, or in what direction men will
seek at last to escape from their misfortunes?
FOOTNOTES:
[145] Professor Starling's _Report on Food Conditions in
Germany_. (Cmd. 280.)
[146] Including the _Darlehenskassenscheine_ somewhat more.
[147] Similarly in Austria prices ought to be between twenty
and thirty times their former level.
[148] One of the moat striking and symptomatic difficulties
which faced the Allied authorities in their administration of the
occupied areas of Germany during the Armistice arose out of the fact
that even when they brought food into the country the inhabitants could
not afford to pay its cost price.
[149] Theoretically an unduly low level of home prices should
stimulate exports and so cure itself. But in Germany, and still more in
Poland and Austria, there is little or nothing to export. There must be
imports _before_ there can be exports.
[150] Allowing for the diminished value of gold, the exchange
value of the franc should be less than 40 per cent of its previous
value, instead of the actual figure of about 60 per cent, if the fall
were proportional to the increase in the volume of the currency.
[151] How very far from equilibrium France's international
exchange now is can be seen from the following table:
Excess of
Monthly Imports Exports Imports
Average $1,000 $1,000 $1,000
1913 140,355 114,670 25,685
1914 106,705 81,145 25,560
1918 331,915 69,055 262,860
Jan.-Mar. 1919 387,140 66,670 320,470
Apr.-June 1919 421,410 83,895 337,515
July 1919 467,565 123,675 343,890
These figures have been converted, at approximately par rates, but this
is roughly compensated by the fact that the trade of 1918 and 1919 has
been valued at 1917 official rates. French imports cannot possibly
continue at anything approaching these figures, and the semblance of
prosperity based on such a state of affairs is spurious.
[152] The figures for Italy are as follows:
Excess of
Monthly Imports Exports Imports
Average $1,000 $1,000 $1,000
1913 60,760 41,860 18,900
1914 48,720 36,840 11,880
1918 235,025 41,390 193,635
Jan.-Mar. 1919 229,240 38,685 191,155
Apr.-June 1919 331,035 69,250 261,785
July-Aug. 1919 223,535 84,515 139,020
[153] In the last two returns of the Bank of France available
as I write (Oct. 2 and 9, 1919) the increases in the note issue on the
week amounted to $93,750,000 and $94,125,000 respectively.
[154] On October 3, 1919, M. Bilinski made his financial
statement to the Polish Diet. He estimated his expenditure for the next
nine months at rather more than double his expenditure for the past nine
months, and while during the first period his revenue had amounted to
one-fifth of his expenditure, for the coming months he was budgeting for
receipts equal to one-eighth of his outgoings. The _Times_ correspondent
at Warsaw reported that "in general M. Bilinski's tone was optimistic
and appeared to satisfy his audience."
[155] The terms of the Peace Treaty imposed on the Austrian
Republic bear no relation to the real facts of that State's desperate
situation. The _Arbeiter Zeitung_ of Vienna on June 4, 1919, commented
on them as follows: "Never has the substance of a treaty of peace so
grossly betrayed the intentions which were said to have guided its
construction as is the case with this Treaty ... in which every provision
is permeated with ruthlessness and pitilessness, in which no breath of
human sympathy can be detected, which flies in the face of everything
which binds man to man, which is a crime against humanity itself,
against a suffering and tortured people." I am acquainted in detail with
the Austrian Treaty and I was present when some of its terms were being
drafted, but I do not find it easy to rebut the justice of this
outburst.
[156] For months past the reports of the health conditions in
the Central Empires have been of such a character that the imagination
is dulled, and one almost seems guilty of sentimentality in quoting
them. But their general veracity is not disputed, and I quote the three
following, that the reader may not be unmindful of them: "In the last
years of the war, in Austria alone at least 35,000 people died of
tuberculosis, in Vienna alone 12,000. Today we have to reckon with a
number of at least 350,000 to 400,000 people who require treatment for
tuberculosis.... As the result of malnutrition a bloodless generation is
growing up with undeveloped muscles, undeveloped joints, and undeveloped
brain" (_Neue Freie Presse_, May 31, 1919). The Commission of Doctors
appointed by the Medical Faculties of Holland, Sweden, and Norway to
examine the conditions in Germany reported as follows in the Swedish
Press in April, 1919: "Tuberculosis, especially in children, is
increasing in an appalling way, and, generally speaking, is malignant.
In the same way rickets is more serious and more widely prevalent. It is
impossible to do anything for these diseases; there is no milk for the
tuberculous, and no cod-liver oil for those suffering from rickets....
Tuberculosis is assuming almost unprecedented aspects, such as have
hitherto only been known in exceptional cases. The whole body is
attacked simultaneously, and the illness in this form is practically
incurable.... Tuberculosis is nearly always fatal now among adults. It
is the cause of 90 per cent of the hospital cases. Nothing can be done
against it owing to lack of food-stuffs.... It appears in the most
terrible forms, such as glandular tuberculosis, which turns into
purulent dissolution." The following is by a writer in the _Vossische
Zeitung_, June 5, 1919, who accompanied the Hoover Mission to the
Erzgebirge: "I visited large country districts where 90 per cent of all
the children were ricketty and where children of three years are only
beginning to walk.... Accompany me to a school in the Erzgebirge. You
think it is a kindergarten for the little ones. No, these are children
of seven and eight years. Tiny faces, with large dull eyes, overshadowed
by huge puffed, ricketty foreheads, their small arms just skin and bone,
and above the crooked legs with their dislocated joints the swollen,
pointed stomachs of the hunger oedema.... 'You see this child here,' the
physician in charge explained; 'it consumed an incredible amount of
bread, and yet did not get any stronger. I found out that it hid all the
bread it received underneath its straw mattress. The fear of hunger was
so deeply rooted in the child that it collected stores instead of eating
the food: a misguided animal instinct made the dread of hunger worse
than the actual pangs.'" Yet there are many persons apparently in whose
opinion justice requires that such beings should pay tribute until they
are forty or fifty years of age in relief of the British taxpayer.
CHAPTER VII
REMEDIES
It is difficult to maintain true perspective in large affairs. I have
criticized the work of Paris, and have depicted in somber colors the
condition and the prospects of Europe. This is one aspect of the
position and, I believe, a true one. But in so complex a phenomenon the
prognostics do not all point one way; and we may make the error of
expecting consequences to follow too swiftly and too inevitably from
what perhaps are not _all_ the relevant causes. The blackness of the
prospect itself leads us to doubt its accuracy; our imagination is
dulled rather than stimulated by too woeful a narration, and our minds
rebound from what is felt "too bad to be true." But before the reader
allows himself to be too much swayed by these natural reflections, and
before I lead him, as is the intention of this chapter, towards remedies
and ameliorations and the discovery of happier tendencies, let him
redress the balance of his thought by recalling two contrasts--England
and Russia, of which the one may encourage his optimism too much, but
the other should remind him that catastrophes can still happen, and
that modern society is not immune from the very greatest evils.
In the chapters of this book I have not generally had in mind the
situation or the problems of England. "Europe" in my narration must
generally be interpreted to exclude the British Isles. England is in a
state of transition, and her economic problems are serious. We may be on
the eve of great changes in her social and industrial structure. Some of
us may welcome such prospects and some of us deplore them. But they are
of a different kind altogether from those impending on Europe. I do not
perceive in England the slightest possibility of catastrophe or any
serious likelihood of a general upheaval of society. The war has
impoverished us, but not seriously;--I should judge that the real wealth
of the country in 1919 is at least equal to what it was in 1900. Our
balance of trade is adverse, but not so much so that the readjustment of
it need disorder our economic life.[157] The deficit in our Budget is
large, but not beyond what firm and prudent statesmanship could bridge.
The shortening of the hours of labor may have somewhat diminished our
productivity. But it should not be too much to hope that this is a
feature of transition, and no one who is acquainted with the British
workingman can doubt that, if it suits him, and if he is in sympathy and
reasonable contentment with the conditions of his life, he can produce
at least as much in a shorter working day as he did in the longer hours
which prevailed formerly. The most serious problems for England have
been brought to a head by the war, but are in their origins more
fundamental. The forces of the nineteenth century have run their course
and are exhausted. The economic motives and ideals of that generation no
longer satisfy us: we must find a new way and must suffer again the
_malaise_, and finally the pangs, of a new industrial birth. This is one
element. The other is that on which I have enlarged in Chapter II.;--the
increase in the real cost of food and the diminishing response of nature
to any further increase in the population of the world, a tendency which
must be especially injurious to the greatest of all industrial
countries and the most dependent on imported supplies of food.
But these secular problems are such as no age is free from. They are of
an altogether different order from those which may afflict the peoples
of Central Europe. Those readers who, chiefly mindful of the British
conditions with which they are familiar, are apt to indulge their
optimism, and still more those whose immediate environment is American,
must cast their minds to Russia, Turkey, Hungary, or Austria, where the
most dreadful material evils which men can suffer--famine, cold,
disease, war, murder, and anarchy--are an actual present experience, if
they are to apprehend the character of the misfortunes against the
further extension of which it must surely be our duty to seek the
remedy, if there is one.
What then is to be done? The tentative suggestions of this chapter may
appear to the reader inadequate. But the opportunity was missed at Paris
during the six months which followed the Armistice, and nothing we can
do now can repair the mischief wrought at that time. Great privation and
great risks to society have become unavoidable. All that is now open to
us is to redirect, so far as lies in our power, the fundamental economic
tendencies which underlie the events of the hour, so that they promote
the re-establishment of prosperity and order, instead of leading us
deeper into misfortune.
We must first escape from the atmosphere and the methods of Paris. Those
who controlled the Conference may bow before the gusts of popular
opinion, but they will never lead us out of our troubles. It is hardly
to be supposed that the Council of Four can retrace their steps, even if
they wished to do so. The replacement of the existing Governments of
Europe is, therefore, an almost indispensable preliminary.
I propose then to discuss a program, for those who believe that the
Peace of Versailles cannot stand, under the following heads:
1. The Revision of the Treaty.
2. The settlement of inter-Ally indebtedness.
3. An international loan and the reform of the currency.
4. The relations of Central Europe to Russia.
1. _The Revision of the Treaty_
Are any constitutional means open to us for altering the Treaty?
President Wilson and General Smuts, who believe that to have secured the
Covenant of the League of Nations outweighs much evil in the rest of the
Treaty, have indicated that we must look to the League for the gradual
evolution of a more tolerable life for Europe. "There are territorial
settlements," General Smuts wrote in his statement on signing the Peace
Treaty, "which will need revision. There are guarantees laid down which
we all hope will soon be found out of harmony with the new peaceful
temper and unarmed state of our former enemies. There are punishments
foreshadowed over most of which a calmer mood may yet prefer to pass the
sponge of oblivion. There are indemnities stipulated which cannot be
enacted without grave injury to the industrial revival of Europe, and
which it will be in the interests of all to render more tolerable and
moderate.... I am confident that the League of Nations will yet prove
the path of escape for Europe out of the ruin brought about by this
war." Without the League, President Wilson informed the Senate when he
presented the Treaty to them early in July, 1919, "...long-continued
supervision of the task of reparation which Germany was to undertake to
complete within the next generation might entirely break down;[158] the
reconsideration and revision of administrative arrangements and
restrictions which the Treaty prescribed, but which it recognized might
not provide lasting advantage or be entirely fair if too long enforced,
would be impracticable."
Can we look forward with fair hopes to securing from the operation of
the League those benefits which two of its principal begetters thus
encourage us to expect from it? The relevant passage is to be found in
Article XIX. of the Covenant, which runs as follows:
"The Assembly may from time to time advise the
reconsideration by Members of the League of treaties which
have become inapplicable and the consideration of
international conditions whose continuance might endanger the
peace of the world."
But alas! Article V. provides that "Except where otherwise expressly
provided in this Covenant or by the terms of the present Treaty,
decisions at any meeting of the Assembly or of the Council shall require
the agreement of all the Members of the League represented at the
meeting." Does not this provision reduce the League, so far as concerns
an early reconsideration of any of the terms of the Peace Treaty, into a
body merely for wasting time? If all the parties to the Treaty are
unanimously of opinion that it requires alteration in a particular
sense, it does not need a League and a Covenant to put the business
through. Even when the Assembly of the League is unanimous it can only
"advise" reconsideration by the members specially affected.
But the League will operate, say its supporters, by its influence on the
public opinion of the world, and the view of the majority will carry
decisive weight in practice, even though constitutionally it is of no
effect. Let us pray that this be so. Yet the League in the hands of the
trained European diplomatist may become an unequaled instrument for
obstruction and delay. The revision of Treaties is entrusted primarily,
not to the Council, which meets frequently, but to the Assembly, which
will meet more rarely and must become, as any one with an experience of
large Inter-Ally Conferences must know, an unwieldy polyglot debating
society in which the greatest resolution and the best management may
fail altogether to bring issues to a head against an opposition in favor
of the _status quo_. There are indeed two disastrous blots on the
Covenant,--Article V., which prescribes unanimity, and the
much-criticized Article X., by which "The Members of the League
undertake to respect and preserve as against external aggression the
territorial integrity and existing political independence of all Members
of the League." These two Articles together go some way to destroy the
conception of the League as an instrument of progress, and to equip it
from the outset with an almost fatal bias towards the _status quo_. It
is these Articles which have reconciled to the League some of its
original opponents, who now hope to make of it another Holy Alliance for
the perpetuation of the economic ruin of their enemies and the Balance
of Power in their own interests which they believe themselves to have
established by the Peace.
But while it would be wrong and foolish to conceal from ourselves in the
interests of "idealism" the real difficulties of the position in the
special matter of revising treaties, that is no reason for any of us to
decry the League, which the wisdom of the world may yet transform into a
powerful instrument of peace, and which in Articles XI.-XVII.[159] has
already accomplished a great and beneficent achievement. I agree,
therefore, that our first efforts for the Revision of the Treaty must be
made through the League rather than in any other way, in the hope that
the force of general opinion and, if necessary, the use of financial
pressure and financial inducements, may be enough to prevent a
recalcitrant minority from exercising their right of veto. We must trust
the new Governments, whose existence I premise in the principal Allied
countries, to show a profounder wisdom and a greater magnanimity than
their predecessors.
We have seen in Chapters IV. and V. that there are numerous particulars
in which the Treaty is objectionable. I do not intend to enter here into
details, or to attempt a revision of the Treaty clause by clause. I
limit myself to three great changes which are necessary for the economic
life of Europe, relating to Reparation, to Coal and Iron, and to
Tariffs.
_Reparation_.--If the sum demanded for Reparation is less than what the
Allies are entitled to on a strict interpretation of their engagements,
it is unnecessary to particularize the items it represents or to hear
arguments about its compilation. I suggest, therefore, the following
settlement:--
(1) The amount of the payment to be made by Germany in respect of
Reparation and the costs of the Armies of Occupation might be fixed at
$10,000,000,000.
(2) The surrender of merchant ships and submarine cables under the
Treaty, of war material under the Armistice, of State property in ceded
territory, of claims against such territory in respect of public debt,
and of Germany's claims against her former Allies, should be reckoned as
worth the lump sum of $2,500,000,000, without any attempt being made to
evaluate them item by item.
(3) The balance of $7,500,000,000 should not carry interest pending its
repayment, and should be paid by Germany in thirty annual instalments of
$250,000,000, beginning in 1923.
(4) The Reparation Commission should be dissolved, or, if any duties
remain for it to perform, it should become an appanage of the League of
Nations and should include representatives of Germany and of the neutral
States.
(5) Germany would be left to meet the annual instalments in such manner
as she might see fit, any complaint against her for non-fulfilment of
her obligations being lodged with the League of Nations. That is to say,
there would be no further expropriation of German private property
abroad, except so far as is required to meet private German obligations
out of the proceeds of such property already liquidated or in the hands
of Public Trustees and Enemy Property Custodians in the Allied countries
and in the United States; and, in particular, Article 260 (which
provides for the expropriation of German interests in public utility
enterprises) would be abrogated.
(6) No attempt should be made to extract Reparation payments from
Austria.
_Coal and Iron_.--(1) The Allies' options on coal under Annex V. should
be abandoned, but Germany's obligation to make good France's loss of
coal through the destruction of her mines should remain. That is to say,
Germany should undertake "to deliver to France annually for a period not
exceeding ten years an amount of coal equal to the difference between
the annual production before the war of the coal mines of the Nord and
Pas de Calais, destroyed as a result of the war, and the production of
the mines of the same area during the years in question; such delivery
not to exceed twenty million tons in any one year of the first five
years, and eight million tons in any one year of the succeeding five
years." This obligation should lapse, nevertheless, in the event of the
coal districts of Upper Silesia being taken from Germany in the final
settlement consequent on the plebiscite.
(2) The arrangement as to the Saar should hold good, except that, on the
one hand, Germany should receive no credit for the mines, and, on the
other, should receive back both the mines and the territory without
payment and unconditionally after ten years. But this should be
conditional on France's entering into an agreement for the same period
to supply Germany from Lorraine with at least 50 per cent of the
iron-ore which was carried from Lorraine into Germany proper before the
war, in return for an undertaking from Germany to supply Lorraine with
an amount of coal equal to the whole amount formerly sent to Lorraine
from Germany proper, after allowing for the output of the Saar.
(3) The arrangement as to Upper Silesia should hold good. That is to
say, a plebiscite should be held, and in coming to a final decision
"regard will be paid (by the principal Allied and Associated Powers) to
the wishes of the inhabitants as shown by the vote, and to the
geographical and economic conditions of the locality." But the Allies
should declare that in their judgment "economic conditions" require the
inclusion of the coal districts in Germany unless the wishes of the
inhabitants are decidedly to the contrary.
(4) The Coal Commission already established by the Allies should become
an appanage of the League of Nations, and should be enlarged to include
representatives of Germany and the other States of Central and Eastern
Europe, of the Northern Neutrals, and of Switzerland. Its authority
should be advisory only, but should extend over the distribution of the
coal supplies of Germany, Poland, and the constituent parts of the
former Austro-Hungarian Empire, and of the exportable surplus of the
United Kingdom. All the States represented on the Commission should
undertake to furnish it with the fullest information, and to be guided
by its advice so far as their sovereignty and their vital interests
permit.
_Tariffs_.--A Free Trade Union should be established under the auspices
of the League of Nations of countries undertaking to impose no
protectionist tariffs[160] whatever against the produce of other members
of the Union, Germany, Poland, the new States which formerly composed
the Austro-Hungarian and Turkish Empires, and the Mandated States should
be compelled to adhere to this Union for ten years, after which time
adherence would be voluntary. The adherence of other States would be
voluntary from the outset. But it is to be hoped that the United
Kingdom, at any rate, would become an original member.
* * * * *
By fixing the Reparation payments well within Germany's capacity to pay,
we make possible the renewal of hope and enterprise within her
territory, we avoid the perpetual friction and opportunity of improper
pressure arising out of Treaty clauses which are impossible of
fulfilment, and we render unnecessary the intolerable powers of the
Reparation Commission.
By a moderation of the clauses relating directly or indirectly to coal,
and by the exchange of iron-ore, we permit the continuance of Germany's
industrial life, and put limits on the loss of productivity which would
be brought about otherwise by the interference of political frontiers
with the natural localization of the iron and steel industry.
By the proposed Free Trade Union some part of the loss of organization
and economic efficiency may be retrieved, which must otherwise result
from the innumerable new political frontiers now created between greedy,
jealous, immature, and economically incomplete nationalist States.
Economic frontiers were tolerable so long as an immense territory was
included in a few great Empires; but they will not be tolerable when the
Empires of Germany, Austria-Hungary, Russia, and Turkey have been
partitioned between some twenty independent authorities. A Free Trade
Union, comprising the whole of Central, Eastern, and South-Eastern
Europe, Siberia, Turkey, and (I should hope) the United Kingdom, Egypt,
and India, might do as much for the peace and prosperity of the world as
the League of Nations itself. Belgium, Holland, Scandinavia, and
Switzerland might be expected to adhere to it shortly. And it would be
greatly to be desired by their friends that France and Italy also should
see their way to adhesion.
It would be objected, I suppose, by some critics that such an
arrangement might go some way in effect towards realizing the former
German dream of Mittel-Europa. If other countries were so foolish as to
remain outside the Union and to leave to Germany all its advantages,
there might be some truth in this. But an economic system, to which
every one had the opportunity of belonging and which gave special
privilege to none, is surely absolutely free from the objections of a
privileged and avowedly imperialistic scheme of exclusion and
discrimination. Our attitude to these criticisms must be determined by
our whole moral and emotional reaction to the future of international
relations and the Peace of the World. If we take the view that for at
least a generation to come Germany cannot be trusted with even a modicum
of prosperity, that while all our recent Allies are angels of light, all
our recent enemies, Germans, Austrians, Hungarians, and the rest, are
children of the devil, that year by year Germany must be kept
impoverished and her children starved and crippled, and that she must be
ringed round by enemies; then we shall reject all the proposals of this
chapter, and particularly those which may assist Germany to regain a
part of her former material prosperity and find a means of livelihood
for the industrial population of her towns. But if this view of nations
and of their relation to one another is adopted by the democracies of
Western Europe, and is financed by the United States, heaven help us
all. If we aim deliberately at the impoverishment of Central Europe,
vengeance, I dare predict, will not limp. Nothing can then delay for
very long that final civil war between the forces of Reaction and the
despairing convulsions of Revolution, before which the horrors of the
late German war will fade into nothing, and which will destroy, whoever
is victor, the civilization and the progress of our generation. Even
though the result disappoint us, must we not base our actions on better
expectations, and believe that the prosperity and happiness of one
country promotes that of others, that the solidarity of man is not a
fiction, and that nations can still afford to treat other nations as
fellow-creatures?
Such changes as I have proposed above might do something appreciable to
enable the industrial populations of Europe to continue to earn a
livelihood. But they would not be enough by themselves. In particular,
France would be a loser on paper (on paper only, for she will never
secure the actual fulfilment of her present claims), and an escape from
her embarrassments must be shown her in some other direction. I proceed,
therefore, to proposals, first, for the adjustment of the claims of
America and the Allies amongst themselves; and second, for the provision
of sufficient credit to enable Europe to re-create her stock of
circulating capital.
2. _The Settlement of Inter-Ally Indebtedness_
In proposing a modification of the Reparation terms, I have considered
them so far only in relation to Germany. But fairness requires that so
great a reduction in the amount should be accompanied by a readjustment
of its apportionment between the Allies themselves. The professions
which our statesmen made on every platform during the war, as well as
other considerations, surely require that the areas damaged by the
enemy's invasion should receive a priority of compensation. While this
was one of the ultimate objects for which we said we were fighting, we
never included the recovery of separation allowances amongst our war
aims. I suggest, therefore, that we should by our acts prove ourselves
sincere and trustworthy, and that accordingly Great Britain should waive
altogether her claims for cash payment in favor of Belgium, Serbia, and
France. The whole of the payments made by Germany would then be subject
to the prior charge of repairing the material injury done to those
countries and provinces which suffered actual invasion by the enemy; and
I believe that the sum of $7,500,000,000 thus available would be
adequate to cover entirely the actual costs of restoration. Further, it
is only by a complete subordination of her own claims for cash
compensation that Great Britain can ask with clean hands for a revision
of the Treaty and clear her honor from the breach of faith for which she
bears the main responsibility, as a result of the policy to which the
General Election of 1918 pledged her representatives.
With the Reparation problem thus cleared up it would be possible to
bring forward with a better grace and more hope of success two other
financial proposals, each of which involves an appeal to the generosity
of the United States.
The first is for the entire cancellation of Inter-Ally indebtedness
(that is to say, indebtedness between the Governments of the Allied and
Associated countries) incurred for the purposes of the war. This
proposal, which has been put forward already in certain quarters, is one
which I believe to be absolutely essential to the future prosperity of
the world. It would be an act of far-seeing statesmanship for the United
Kingdom and the United States, the two Powers chiefly concerned, to
adopt it. The sums of money which are involved are shown approximately
in the following table:--[161]
-----------------+------------+------------+-----------+----------
Loans to | By United | By United | By France | Total
| States | Kingdom | |
-----------------+------------+------------+-----------+----------
| Million | Million | Million | Million
| Dollars | Dollars | Dollars | Dollars
| | | |
United Kingdom | 4,210 | 0 | 0 | 4,210
France | 2,750 | 2,540 | 0 | 5,200
Italy | 1,625 | 2,335 | 175 | 4,135
Russia | 190 | 2,840[162]| 800 | 3,830
Belgium | 400 | 490[163]| 450 | 1,340
Serbia and | | | |
Jugo-Slavia | 100 | 100[163]| 100 | 300
Other Allies | 175 | 395 | 250 | 820
| ----- | ----- | ----- | ------
Total | 9,450[164]| 8,700 | 1,775 | 19,925
| | | |
-----------------+------------+------------+-----------+----------
Thus the total volume of Inter-Ally indebtedness, assuming that loans
from one Ally are not set off against loans to another, is nearly
$20,000,000,000. The United States is a lender only. The United Kingdom
has lent about twice as much as she has borrowed. France has borrowed
about three times as much as she has lent. The other Allies have been
borrowers only.
If all the above Inter-Ally indebtedness were mutually forgiven, the
net result on paper (_i.e._ assuming all the loans to be good) would be
a surrender by the United States of about $10,000,000,000 and by the
United Kingdom of about $4,500,000,000. France would gain about
$3,500,000,000 and Italy about $4,000,000,000. But these figures
overstate the loss to the United Kingdom and understate the gain to
France; for a large part of the loans made by both these countries has
been to Russia and cannot, by any stretch of imagination, be considered
good. If the loans which the United Kingdom has made to her Allies are
reckoned to be worth 50 per cent of their full value (an arbitrary but
convenient assumption which the Chancellor of the Exchequer has adopted
on more than one occasion as being as good as any other for the purposes
of an approximate national balance sheet), the operation would involve
her neither in loss nor in gain. But in whatever way the net result is
calculated on paper, the relief in anxiety which such a liquidation of
the position would carry with it would be very great. It is from the
United States, therefore, that the proposal asks generosity.
Speaking with a very intimate knowledge of the relations throughout the
war between the British, the American, and the other Allied Treasuries,
I believe this to be an act of generosity for which Europe can fairly
ask, provided Europe is making an honorable attempt in other
directions, not to continue war, economic or otherwise, but to achieve
the economic reconstitution of the whole Continent, The financial
sacrifices of the United States have been, in proportion to her wealth,
immensely less than those of the European States. This could hardly have
been otherwise. It was a European quarrel, in which the United States
Government could not have justified itself before its citizens in
expending the whole national strength, as did the Europeans. After the
United States came into the war her financial assistance was lavish and
unstinted, and without this assistance the Allies could never have won
the war,[165] quite apart from the decisive influence of the arrival of
the American troops. Europe, too, should never forget the extraordinary
assistance afforded her during the first six months of 1919 through the
agency of Mr. Hoover and the American Commission of Relief. Never was a
nobler work of disinterested goodwill carried through with more tenacity
and sincerity and skill, and with less thanks either asked or given.
The ungrateful Governments of Europe owe much more to the statesmanship
and insight of Mr. Hoover and his band of American workers than they
have yet appreciated or will ever acknowledge. The American Relief
Commission, and they only, saw the European position during those months
in its true perspective and felt towards it as men should. It was their
efforts, their energy, and the American resources placed by the
President at their disposal, often acting in the teeth of European
obstruction, which not only saved an immense amount of human suffering,
but averted a widespread breakdown of the European system.[166]
But in speaking thus as we do of American financial assistance, we
tacitly assume, and America, I believe, assumed it too when she gave the
money, that it was not in the nature of an investment. If Europe is
going to repay the $10,000,000,000 worth of financial assistance which
she has had from the United States with compound interest at 5 per cent,
the matter takes on quite a different complexion. If America's advances
are to be regarded in this light, her relative financial sacrifice has
been very slight indeed.
Controversies as to relative sacrifice are very barren and very foolish
also; for there is no reason in the world why relative sacrifice should
necessarily be equal,--so many other very relevant considerations being
quite different in the two cases. The two or three facts following are
put forward, therefore, not to suggest that they provide any compelling
argument for Americans, but only to show that from his own selfish point
of view an Englishman is not seeking to avoid due sacrifice on his
country's part in making the present suggestion. (1) The sums which the
British Treasury borrowed from the American Treasury, after the latter
came into the war, were approximately offset by the sums which England
lent to her other Allies _during the same period_ (i.e. excluding sums
lent before the United States came into the war); so that almost the
whole of England's indebtedness to the United States was incurred, not
on her own account, but to enable her to assist the rest of her Allies,
who were for various reasons not in a position to draw their assistance
from the United States direct.[167] (2) The United Kingdom has disposed
of about $5,000,000,000 worth of her foreign securities, and in addition
has incurred foreign debt to the amount of about $6,000,000,000. The
United States, so far from selling, has bought back upwards of
$5,000,000,000, and has incurred practically no foreign debt. (3) The
population of the United Kingdom is about one-half that of the United
States, the income about one-third, and the accumulated wealth between
one-half and one-third. The financial capacity of the United Kingdom may
therefore be put at about two-fifths that of the United States. This
figure enables us to make the following comparison:--Excluding loans to
Allies in each case (as is right on the assumption that these loans are
to be repaid), the war expenditure of the United Kingdom has been about
three times that of the United Sates, or in proportion to capacity
between seven and eight times.
Having cleared this issue out of the way as briefly as possible, I turn
to the broader issues of the future relations between the parties to the
late war, by which the present proposal must primarily be judged.
Failing such a settlement as is now proposed, the war will have ended
with a network of heavy tribute payable from one Ally to another. The
total amount of this tribute is even likely to exceed the amount
obtainable from the enemy; and the war will have ended with the
intolerable result of the Allies paying indemnities to one another
instead of receiving them from the enemy.
For this reason the question of Inter-Allied indebtedness is closely
bound up with the intense popular feeling amongst the European Allies on
the question of indemnities,--a feeling which is based, not on any
reasonable calculation of what Germany can, in fact, pay, but on a
well-founded appreciation of the unbearable financial situation in which
these countries will find themselves unless she pays. Take Italy as an
extreme example. If Italy can reasonably be expected to pay
$4,000,000,000, surely Germany can and ought to pay an immeasurably
higher figure. Or if it is decided (as it must be) that Austria can pay
next to nothing, is it not an intolerable conclusion that Italy should
be loaded with a crushing tribute, while Austria escapes? Or, to put it
slightly differently, how can Italy be expected to submit to payment of
this great sum and see Czecho-Slovakia pay little or nothing? At the
other end of the scale there is the United Kingdom. Here the financial
position is different, since to ask us to pay $4,000,000,000 is a very
different proposition from asking Italy to pay it. But the sentiment is
much the same. If we have to be satisfied without full compensation from
Germany, how bitter will be the protests against paying it to the
United States. We, it will be said, have to be content with a claim
against the bankrupt estates of Germany, France, Italy, and Russia,
whereas the United States has secured a first mortgage upon us. The case
of France is at least as overwhelming. She can barely secure from
Germany the full measure of the destruction of her countryside. Yet
victorious France must pay her friends and Allies more than four times
the indemnity which in the defeat of 1870 she paid Germany. The hand of
Bismarck was light compared with that of an Ally or of an Associate. A
settlement of Inter-Ally indebtedness is, therefore, an indispensable
preliminary to the peoples of the Allied countries facing, with other
than a maddened and exasperated heart, the inevitable truth about the
prospects of an indemnity from the enemy.
It might be an exaggeration to say that it is impossible for the
European Allies to pay the capital and interest due from them on these
debts, but to make them do so would certainly be to impose a crushing
burden. They may be expected, therefore, to make constant attempts to
evade or escape payment, and these attempts will be a constant source of
international friction and ill-will for many years to come. A debtor
nation does not love its creditor, and it is fruitless to expect
feelings of goodwill from France, Italy, and Russia towards this
country or towards America, if their future development is stifled for
many years to come by the annual tribute which they must pay us. There
will be a great incentive to them to seek their friends in other
directions, and any future rupture of peaceable relations will always
carry with it the enormous advantage of escaping the payment of external
debts, if, on the other hand, these great debts are forgiven, a stimulus
will be given to the solidarity and true friendliness of the nations
lately associated.
The existence of the great war debts is a menace to financial stability
everywhere. There is no European country in which repudiation may not
soon become an important political issue. In the case of internal debt,
however, there are interested parties on both sides, and the question is
one of the internal distribution of wealth. With external debts this is
not so, and the creditor nations may soon find their interest
inconveniently bound up with the maintenance of a particular type of
government or economic organization in the debtor countries. Entangling
alliances or entangling leagues are nothing to the entanglements of cash
owing.
The final consideration influencing the reader's attitude to this
proposal must, however, depend on his view as to the future place in the
world's progress of the vast paper entanglements which are our legacy
from war finance both at home and abroad. The war has ended with every
one owing every one else immense sums of money. Germany owes a large sum
to the Allies, the Allies owe a large sum to Great Britain, and Great
Britain owes a large sum to the United States. The holders of war loan
in every country are owed a large sum by the State, and the State in its
turn is owed a large sum by these and other taxpayers. The whole
position is in the highest degree artificial, misleading, and vexatious.
We shall never be able to move again, unless we can free our limbs from
these paper shackles. A general bonfire is so great a necessity that
unless we can make of it an orderly and good-tempered affair in which no
serious injustice is done to any one, it will, when it comes at last,
grow into a conflagration that may destroy much else as well. As regards
internal debt, I am one of those who believe that a capital levy for the
extinction of debt is an absolute prerequisite of sound finance in
everyone of the European belligerent countries. But the continuance on a
huge scale of indebtedness between Governments has special dangers of
its own.
Before the middle of the nineteenth century no nation owed payments to a
foreign nation on any considerable scale, except such tributes as were
exacted under the compulsion of actual occupation in force and, at one
time, by absentee princes under the sanctions of feudalism. It is true
that the need for European capitalism to find an outlet in the New World
has led during the past fifty years, though even now on a relatively
modest scale, to such countries as Argentine owing an annual sum to such
countries as England. But the system is fragile; and it has only
survived because its burden on the paying countries has not so far been
oppressive, because this burden is represented by real assets and is
bound up with the property system generally, and because the sums
already lent are not unduly large in relation to those which it is still
hoped to borrow. Bankers are used to this system, and believe it to be a
necessary part of the permanent order of society. They are disposed to
believe, therefore, by analogy with it, that a comparable system between
Governments, on a far vaster and definitely oppressive scale,
represented by no real assets, and less closely associated with the
property system, is natural and reasonable and in conformity with human
nature.
I doubt this view of the world. Even capitalism at home, which engages
many local sympathies, which plays a real part in the daily process of
production, and upon the security of which the present organization of
society largely depends, is not very safe. But however this may be, will
the discontented peoples of Europe be willing for a generation to come
so to order their lives that an appreciable part of their daily produce
may be available to meet a foreign payment, the reason of which, whether
as between Europe and America, or as between Germany and the rest of
Europe, does not spring compellingly from their sense of justice or
duty?
On the one hand, Europe must depend in the long run on her own daily
labor and not on the largesse of America; but, on the other hand, she
will not pinch herself in order that the fruit of her daily labor may go
elsewhere. In short, I do not believe that any of these tributes will
continue to be paid, at the best, for more than a very few years. They
do not square with human nature or agree with the spirit of the age.
If there is any force in this mode of thought, expediency and generosity
agree together, and the policy which will best promote immediate
friendship between nations will not conflict with the permanent
interests of the benefactor.[168]
3. _An International Loan_
I pass to a second financial proposal. The requirements of Europe are
_immediate_. The prospect of being relieved of oppressive interest
payments to England and America over the whole life of the next two
generations (and of receiving from Germany some assistance year by year
to the costs of restoration) would free the future from excessive
anxiety. But it would not meet the ills of the immediate present,--the
excess of Europe's imports over her exports, the adverse exchange, and
the disorder of the currency. It will be very difficult for European
production to get started again without a temporary measure of external
assistance. I am therefore a supporter of an international loan in some
shape or form, such as has been advocated in many quarters in France,
Germany, and England, and also in the United States. In whatever way the
ultimate responsibility for repayment is distributed, the burden of
finding the immediate resources must inevitably fall in major part upon
the United States.
The chief objections to all the varieties of this species of project
are, I suppose, the following. The United States is disinclined to
entangle herself further (after recent experiences) in the affairs of
Europe, and, anyhow, has for the time being no more capital to spare for
export on a large scale. There is no guarantee that Europe will put
financial assistance to proper use, or that she will not squander it and
be in just as bad case two or three years hence as she is in now;--M.
Klotz will use the money to put off the day of taxation a little longer,
Italy and Jugo-Slavia will fight one another on the proceeds, Poland
will devote it to fulfilling towards all her neighbors the military rôle
which France has designed for her, the governing classes of Roumania
will divide up the booty amongst themselves. In short, America would
have postponed her own capital developments and raised her own cost of
living in order that Europe might continue for another year or two the
practices, the policy, and the men of the past nine months. And as for
assistance to Germany, is it reasonable or at all tolerable that the
European Allies, having stripped Germany of her last vestige of working
capital, in opposition to the arguments and appeals of the American
financial representatives at Paris, should then turn to the United
States for funds to rehabilitate the victim in sufficient measure to
allow the spoliation to recommence in a year or two?
There is no answer to these objections as matters are now. If I had
influence at the United States Treasury, I would not lend a penny to a
single one of the present Governments of Europe. They are not to be
trusted with resources which they would devote to the furtherance of
policies in repugnance to which, in spite of the President's failure to
assert either the might or the ideals of the people of the United
States, the Republican and the Democratic parties are probably united.
But if, as we must pray they will, the souls of the European peoples
turn away this winter from the false idols which have survived the war
that created them, and substitute in their hearts for the hatred and the
nationalism, which now possess them, thoughts and hopes of the happiness
and solidarity of the European family,--then should natural piety and
filial love impel the American people to put on one side all the smaller
objections of private advantage and to complete the work, that they
began in saving Europe from the tyranny of organized force, by saving
her from herself. And even if the conversion is not fully accomplished,
and some parties only in each of the European countries have espoused a
policy of reconciliation, America can still point the way and hold up
the hands of the party of peace by having a plan and a condition on
which she will give her aid to the work of renewing life.
The impulse which, we are told, is now strong in the mind of the United
States to be quit of the turmoil, the complication, the violence, the
expense, and, above all, the unintelligibility of the European problems,
is easily understood. No one can feel more intensely than the writer
how natural it is to retort to the folly and impracticability of the
European statesmen,--Rot, then, in your own malice, and we will go our
way--
Remote from Europe; from her blasted hopes;
Her fields of carnage, and polluted air.
But if America recalls for a moment what Europe has meant to her and
still means to her, what Europe, the mother of art and of knowledge, in
spite of everything, still is and still will be, will she not reject
these counsels of indifference and isolation, and interest herself in
what may prove decisive issues for the progress and civilization of all
mankind?
Assuming then, if only to keep our hopes up, that America will be
prepared to contribute to the process of building up the good forces of
Europe, and will not, having completed the destruction of an enemy,
leave us to our misfortunes,--what form should her aid take?
I do not propose to enter on details. But the main outlines of all
schemes for an international loan are much the same, The countries in a
position to lend assistance, the neutrals, the United Kingdom, and, for
the greater portion of the sum required, the United States, must provide
foreign purchasing credits for all the belligerent countries of
continental Europe, allied and ex-enemy alike. The aggregate sum
required might not be so large as is sometimes supposed. Much might be
done, perhaps, with a fund of $1,000,000,000 in the first instance. This
sum, even if a precedent of a different kind had been established by the
cancellation of Inter-Ally War Debt, should be lent and should be
borrowed with the unequivocal intention of its being repaid in full.
With this object in view, the security for the loan should be the best
obtainable, and the arrangements for its ultimate repayment as complete
as possible. In particular, it should rank, both for payment of interest
and discharge of capital, in front of all Reparation claims, all
Inter-Ally War Debt, all internal war loans, and all other Government
indebtedness of any other kind. Those borrowing countries who will be
entitled to Reparation payments should be required to pledge all such
receipts to repayment of the new loan. And all the borrowing countries
should be required to place their customs duties on a gold basis and to
pledge such receipts to its service.
Expenditure out of the loan should be subject to general, but not
detailed, supervision by the lending countries.
If, in addition to this loan for the purchase of food and materials, a
guarantee fund were established up to an equal amount, namely
$1,000,000,000 (of which it would probably prove necessary to find only
a part in cash), to which all members of the League of Nations would
contribute according to their means, it might be practicable to base
upon it a general reorganization of the currency.
In this manner Europe might be equipped with the minimum amount of
liquid resources necessary to revive her hopes, to renew her economic
organization, and to enable her great intrinsic wealth to function for
the benefit of her workers. It is useless at the present time to
elaborate such schemes in further detail. A great change is necessary in
public opinion before the proposals of this chapter can enter the region
of practical politics, and we must await the progress of events as
patiently as we can.
4. _The Relations of Central Europe to Russia_
I have said very little of Russia in this book. The broad character of
the situation there needs no emphasis, and of the details we know almost
nothing authentic. But in a discussion as to how the economic situation
of Europe can be restored there are one or two aspects of the Russian
question which are vitally important.
From the military point of view an ultimate union of forces between
Russia and Germany is greatly feared in some quarters. This would be
much more likely to take place in the event of reactionary movements
being successful in each of the two countries, whereas an effective
unity of purpose between Lenin and the present essentially middle-class
Government of Germany is unthinkable. On the other hand, the same people
who fear such a union are even more afraid of the success of Bolshevism;
and yet they have to recognize that the only efficient forces for
fighting it are, inside Russia, the reactionaries, and, outside Russia,
the established forces of order and authority in Germany. Thus the
advocates of intervention in Russia, whether direct or indirect, are at
perpetual cross-purposes with themselves. They do not know what they
want; or, rather, they want what they cannot help seeing to be
incompatibles. This is one of the reasons why their policy is so
inconstant and so exceedingly futile.
The same conflict of purpose is apparent in the attitude of the Council
of the Allies at Paris towards the present Government of Germany. A
victory of Spartacism in Germany might well be the prelude to Revolution
everywhere: it would renew the forces of Bolshevism in Russia, and
precipitate the dreaded union of Germany and Russia; it would certainly
put an end to any expectations which have been built on the financial
and economic clauses of the Treaty of Peace. Therefore Paris does not
love Spartacus. But, on the other hand, a victory of reaction in Germany
would be regarded by every one as a threat to the security of Europe,
and as endangering the fruits of victory and the basis of the Peace.
Besides, a new military power establishing itself in the East, with its
spiritual home in Brandenburg, drawing to itself all the military talent
and all the military adventurers, all those who regret emperors and hate
democracy, in the whole of Eastern and Central and South-Eastern Europe,
a power which would be geographically inaccessible to the military
forces of the Allies, might well found, at least in the anticipations of
the timid, a new Napoleonic domination, rising, as a phoenix, from the
ashes of cosmopolitan militarism. So Paris dare not love Brandenburg.
The argument points, then, to the sustentation of those moderate forces
of order, which, somewhat to the world's surprise, still manage to
maintain themselves on the rock of the German character. But the present
Government of Germany stands for German unity more perhaps than for
anything else; the signature of the Peace was, above all, the price
which some Germans thought it worth while to pay for the unity which was
all that was left them of 1870. Therefore Paris, with some hopes of
disintegration across the Rhine not yet extinguished, can resist no
opportunity of insult or indignity, no occasion of lowering the
prestige or weakening the influence of a Government, with the continued
stability of which all the conservative interests of Europe are
nevertheless bound up.
The same dilemma affects the future of Poland in the rôle which France
has cast for her. She is to be strong, Catholic, militarist, and
faithful, the consort, or at least the favorite, of victorious France,
prosperous and magnificent between the ashes of Russia and the ruin of
Germany. Roumania, if only she could be persuaded to keep up appearances
a little more, is a part of the same scatter-brained conception. Yet,
unless her great neighbors are prosperous and orderly, Poland is an
economic impossibility with no industry but Jew-baiting. And when Poland
finds that the seductive policy of France is pure rhodomontade and that
there is no money in it whatever, nor glory either, she will fall, as
promptly as possible, into the arms of somebody else.
The calculations of "diplomacy" lead us, therefore, nowhere. Crazy
dreams and childish intrigue in Russia and Poland and thereabouts are
the favorite indulgence at present of those Englishmen and Frenchmen who
seek excitement in its least innocent form, and believe, or at least
behave as if foreign policy was of the same _genre_ as a cheap
melodrama.
Let us turn, therefore, to something more solid. The German Government
has announced (October 30, 1919) its continued adhesion to a policy of
non-intervention in the internal affairs of Russia, "not only on
principle, but because it believes that this policy is also justified
from a practical point of view." Let us assume that at last we also
adopt the same standpoint, if not on principle, at least from a
practical point of view. What are then the fundamental economic factors
in the future relations of Central to Eastern Europe?
Before the war Western and Central Europe drew from Russia a substantial
part of their imported cereals. Without Russia the importing countries
would have had to go short. Since 1914 the loss of the Russian supplies
has been made good, partly by drawing on reserves, partly from the
bumper harvests of North America called forth by Mr. Hoover's guaranteed
price, but largely by economies of consumption and by privation. After
1920 the need of Russian supplies will be even greater than it was
before the war; for the guaranteed price in North America will have been
discontinued, the normal increase of population there will, as compared
with 1914, have swollen the home demand appreciably, and the soil of
Europe will not yet have recovered its former productivity. If trade is
not resumed with Russia, wheat in 1920-21 (unless the seasons are
specially bountiful) must be scarce and very dear. The blockade of
Russia, lately proclaimed by the Allies, is therefore a foolish and
short-sighted proceeding; we are blockading not so much Russia as
ourselves.
The process of reviving the Russian export trade is bound in any case to
be a slow one. The present productivity of the Russian peasant is not
believed to be sufficient to yield an exportable surplus on the pre-war
scale. The reasons for this are obviously many, but amongst them are
included the insufficiency of agricultural implements and accessories
and the absence of incentive to production caused by the lack of
commodities in the towns which the peasants can purchase in exchange for
their produce. Finally, there is the decay of the transport system,
which hinders or renders impossible the collection of local surpluses in
the big centers of distribution.
I see no possible means of repairing this loss of productivity within
any reasonable period of time except through the agency of German
enterprise and organization. It is impossible geographically and for
many other reasons for Englishmen, Frenchmen, or Americans to undertake
it;--we have neither the incentive nor the means for doing the work on a
sufficient scale. Germany, on the other hand, has the experience, the
incentive, and to a large extent the materials for furnishing the
Russian peasant with the goods of which he has been starved for the
past five years, for reorganizing the business of transport and
collection, and so for bringing into the world's pool, for the common
advantage, the supplies from which we are now so disastrously cut off.
It is in our interest to hasten the day when German agents and
organizers will be in a position to set in train in every Russian
village the impulses of ordinary economic motive. This is a process
quite independent of the governing authority in Russia; but we may
surely predict with some certainty that, whether or not the form of
communism represented by Soviet government proves permanently suited to
the Russian temperament, the revival of trade, of the comforts of life
and of ordinary economic motive are not likely to promote the extreme
forms of those doctrines of violence and tyranny which are the children
of war and of despair.
Let us then in our Russian policy not only applaud and imitate the
policy of non-intervention which the Government of Germany has
announced, but, desisting from a blockade which is injurious to our own
permanent interests, as well as illegal, let us encourage and assist
Germany to take up again her place in Europe as a creator and organizer
of wealth for her Eastern and Southern neighbors.
There are many persons in whom such proposals will raise strong
prejudices. I ask them to follow out in thought the result of yielding
to these prejudices. If we oppose in detail every means by which Germany
or Russia can recover their material well-being, because we feel a
national, racial, or political hatred for their populations or their
Governments, we must be prepared to face the consequences of such
feelings. Even if there is no moral solidarity between the
nearly-related races of Europe, there is an economic solidarity which we
cannot disregard. Even now, the world markets are one. If we do not
allow Germany to exchange products with Russia and so feed herself, she
must inevitably compete with us for the produce of the New World. The
more successful we are in snapping economic relations between Germany
and Russia, the more we shall depress the level of our own economic
standards and increase the gravity of our own domestic problems. This is
to put the issue on its lowest grounds. There are other arguments, which
the most obtuse cannot ignore, against a policy of spreading and
encouraging further the economic ruin of great countries.
* * * * *
I see few signs of sudden or dramatic developments anywhere. Riots and
revolutions there may be, but not such, at present, as to have
fundamental significance. Against political tyranny and injustice
Revolution is a weapon. But what counsels of hope can Revolution offer
to sufferers from economic privation, which does not arise out of the
injustices of distribution but is general? The only safeguard against
Revolution in Central Europe is indeed the fact that, even to the minds
of men who are desperate, Revolution offers no prospect of improvement
whatever. There may, therefore, be ahead of us a long, silent process of
semi-starvation, and of a gradual, steady lowering of the standards of
life and comfort. The bankruptcy and decay of Europe, if we allow it to
proceed, will affect every one in the long-run, but perhaps not in a way
that is striking or immediate.
This has one fortunate side. We may still have time to reconsider our
courses and to view the world with new eyes. For the immediate future
events are taking charge, and the near destiny of Europe is no longer in
the hands of any man. The events of the coming year will not be shaped
by the deliberate acts of statesmen, but by the hidden currents, flowing
continually beneath the surface of political history, of which no one
can predict the outcome. In one way only can we influence these hidden
currents,--by setting in motion those forces of instruction and
imagination which change _opinion_. The assertion of truth, the
unveiling of illusion, the dissipation of hate, the enlargement and
instruction of men's hearts and minds, must be the means.
In this autumn of 1919, in which I write, we are at the dead season of
our fortunes. The reaction from the exertions, the fears, and the
sufferings of the past five years is at its height. Our power of feeling
or caring beyond the immediate questions of our own material well-being
is temporarily eclipsed. The greatest events outside our own direct
experience and the most dreadful anticipations cannot move us.
In each human heart terror survives
The ruin it has gorged: the loftiest fear
All that they would disdain to think were true:
Hypocrisy and custom make their minds
The fanes of many a worship, now outworn.
They dare not devise good for man's estate,
And yet they know not that they do not dare.
The good want power but to weep barren tears.
The powerful goodness want: worse need for them.
The wise want love; and those who love want wisdom;
And all best things are thus confused to ill.
Many are strong and rich, and would be just,
But live among their suffering fellow-men
As if none felt: they know not what they do.
We have been moved already beyond endurance, and need rest. Never in the
lifetime of men now living has the universal element in the soul of man
burnt so dimly.
For these reasons the true voice of the new generation has not yet
spoken, and silent opinion is not yet formed. To the formation of the
general opinion of the future I dedicate this book.
THE END
FOOTNOTES:
[157] The figures for the United Kingdom are as follows:
Net Excess of
Monthly Imports Exports Imports
Average $1,000 $1,000 $1,000
1913 274,650 218,850 55,800
1914 250,485 179,465 71,020
Jan.-Mar. 1919 547,890 245,610 302,280
April-June 1919 557,015 312,315 244,700
July-Sept. 1919 679,635 344,315 335,320
But this excess is by no means so serious as it looks; for with the
present high freight earnings of the mercantile marine the various
"invisible" exports of the United Kingdom are probably even higher than
they were before the war, and may average at least $225,000,000 monthly.
[158] President Wilson was mistaken in suggesting that the
supervision of Reparation payments has been entrusted to the League of
Nations. As I pointed out in Chapter V., whereas the League is invoked
in regard to most of the continuing economic and territorial provisions
of the Treaty, this is not the case as regards Reparation, over the
problems and modifications of which the Reparation Commission is supreme
without appeal of any kind to the League of Nations.
[159] These Articles, which provide safeguards against the
outbreak of war between members of the League and also between members
and non-members, are the solid achievement of the Covenant. These
Articles make substantially less probable a war between organized Great
Powers such as that of 1914. This alone should commend the League to all
men.
[160] It would be expedient so to define a "protectionist
tariff" as to permit (_a_) the total prohibition of certain imports;
(_b_) the imposition of sumptuary or revenue customs duties on
commodities not produced at home; (_c_) the imposition of customs duties
which did not exceed by more than five per cent a countervailing excise
on similar commodities produced at home; (_d_) export duties. Further,
special exceptions might be permitted by a majority vote of the
countries entering the Union. Duties which had existed for five years
prior to a country's entering the Union might be allowed to disappear
gradually by equal instalments spread over the five years subsequent to
joining the Union.
[161] The figures in this table are partly estimated, and are
probably not completely accurate in detail; but they show the
approximate figures with sufficient accuracy for the purposes of the
present argument. The British figures are taken from the White Paper of
October 23, 1919 (Cmd. 377). In any actual settlement, adjustments would
be required in connection with certain loans of gold and also in other
respects, and I am concerned in what follows with the broad principle
only. The total excludes loans raised by the United Kingdom on the
market in the United States, and loans raised by France on the market in
the United Kingdom or the United States, or from the Bank of England.
[162] This allows nothing for interest on the debt since the
Bolshevik Revolution.
[163] No interest has been charged on the advances made to
these countries.
[164] The actual total of loans by the United States up to date
is very nearly $10,000,000,000, but I have not got the latest details.
[165] The financial history of the six months from the end of
the summer of 1916 up to the entry of the United States into the war in
April, 1917, remains to be written. Very few persons, outside the
half-dozen officials of the British Treasury who lived in daily contact
with the immense anxieties and impossible financial requirements of
those days, can fully realize what steadfastness and courage were
needed, and how entirely hopeless the task would soon have become
without the assistance of the United States Treasury. The financial
problems from April, 1917, onwards were of an entirely different order
from those of the preceding months.
[166] Mr. Hoover was the only man who emerged from the ordeal
of Paris with an enhanced reputation. This complex personality, with his
habitual air of weary Titan (or, as others might put it, of exhausted
prize-fighter), his eyes steadily fixed on the true and essential facts
of the European situation, imported into the Councils of Paris, when he
took part in them, precisely that atmosphere of reality, knowledge,
magnanimity, and disinterestedness which, if they had been found in
other quarters also, would have given us the Good Peace.
[167] Even after the United States came into the war the bulk
of Russian expenditure in the United States, as well as the whole of
that Government's other foreign expenditure, had to be paid for by the
British Treasury.
[168] It is reported that the United States Treasury has agreed
to fund (_i.e._ to add to the principal sum) the interest owing them on
their loans to the Allied Governments during the next three years. I
presume that the British Treasury is likely to follow suit. If the debts
are to be paid ultimately, this piling up of the obligations at compound
interest makes the position progressively worse. But the arrangement
wisely offered by the United States Treasury provides a due interval for
the calm consideration of the whole problem in the light of the
after-war position as it will soon disclose itself.
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