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 be 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 till
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
be 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 be 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 be 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
be 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 dignify 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 rot 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 he, 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 he 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 effiuxions 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 he 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, even 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
halt 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 o
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 due 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 or
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
he 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 he 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 be
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.
**THE END**
