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diff --git a/old/15776.txt b/old/15776.txt new file mode 100644 index 0000000..c4a780b --- /dev/null +++ b/old/15776.txt @@ -0,0 +1,7683 @@ +The Project Gutenberg eBook, The Economic Consequences of the Peace, by +John Maynard Keynes + + +This eBook is for the use of anyone anywhere at no cost and with +almost no restrictions whatsoever. You may copy it, give it away or +re-use it under the terms of the Project Gutenberg License included +with this eBook or online at www.gutenberg.net + + + + + +Title: The Economic Consequences of the Peace + + +Author: John Maynard Keynes + +Release Date: May 6, 2005 [eBook #15776] +Most recently updated: July 15, 2013 + +Language: English + +Character set encoding: ISO-646-US (US-ASCII) + + +***START OF THE PROJECT GUTENBERG EBOOK THE ECONOMIC CONSEQUENCES OF THE +PEACE*** + + +E-text prepared by Rick Niles, Jon King, and the Project Gutenberg Online +Distributed Proofreading Team + + + +THE ECONOMIC CONSEQUENCES OF THE PEACE + +by + +JOHN MAYNARD KEYNES, C.B. +Fellow of King's College, Cambridge + +New York +Harcourt, Brace and Howe + +1920 + + + + + +PREFACE + + +The writer of this book was temporarily attached to the British +Treasury during the war and was their official representative at the +Paris Peace Conference up to June 7, 1919; he also sat as deputy for +the Chancellor of the Exchequer on the Supreme Economic Council. He +resigned from these positions when it became evident that hope could +no longer be entertained of substantial modification in the draft +Terms of Peace. The grounds of his objection to the Treaty, or rather +to the whole policy of the Conference towards the economic problems of +Europe, will appear in the following chapters. They are entirely of a +public character, and are based on facts known to the whole world. + +J.M. Keynes. +King's College, Cambridge, +November, 1919. + + + + +CONTENTS + + + I. INTRODUCTORY + II. EUROPE BEFORE THE WAR +III. THE CONFERENCE + IV. THE TREATY + V. REPARATION + VI. EUROPE AFTER THE TREATY +VII. REMEDIES + + + + +THE ECONOMIC CONSEQUENCES OF THE PEACE + + + + +CHAPTER I + +INTRODUCTORY + + +The power to become habituated to his surroundings is a marked +characteristic of mankind. Very few of us realize with conviction the +intensely unusual, unstable, complicated, unreliable, temporary nature +of the economic organization by which Western Europe has lived for the +last half century. We assume some of the most peculiar and temporary of +our late advantages as natural, permanent, and to be depended on, and we +lay our plans accordingly. On this sandy and false foundation we scheme +for social improvement and dress our political platforms, pursue our +animosities and particular ambitions, and feel ourselves with enough +margin in hand to foster, not assuage, civil conflict in the European +family. Moved by insane delusion and reckless self-regard, the German +people overturned the foundations on which we all lived and built. But +the spokesmen of the French and British peoples have run the risk of +completing the ruin, which Germany began, by a Peace which, if it is +carried into effect, must impair yet further, when it might have +restored, the delicate, complicated organization, already shaken and +broken by war, through which alone the European peoples can employ +themselves and live. + +In England the outward aspect of life does not yet teach us to feel or +realize in the least that an age is over. We are busy picking up the +threads of our life where we dropped them, with this difference only, +that many of us seem a good deal richer than we were before. Where we +spent millions before the war, we have now learnt that we can spend +hundreds of millions and apparently not suffer for it. Evidently we did +not exploit to the utmost the possibilities of our economic life. We +look, therefore, not only to a return to the comforts of 1914, but to an +immense broadening and intensification of them. All classes alike thus +build their plans, the rich to spend more and save less, the poor to +spend more and work less. + +But perhaps it is only in England (and America) that it is possible to +be so unconscious. In continental Europe the earth heaves and no one but +is aware of the rumblings. There it is not just a matter of extravagance +or "labor troubles"; but of life and death, of starvation and existence, +and of the fearful convulsions of a dying civilization. + + * * * * * + +For one who spent in Paris the greater part of the six months which +succeeded the Armistice an occasional visit to London was a strange +experience. England still stands outside Europe. Europe's voiceless +tremors do not reach her. Europe is apart and England is not of her +flesh and body. But Europe is solid with herself. France, Germany, +Italy, Austria and Holland, Russia and Roumania and Poland, throb +together, and their structure and civilization are essentially one. They +flourished together, they have rocked together in a war, which we, in +spite of our enormous contributions and sacrifices (like though in a +less degree than America), economically stood outside, and they may fall +together. In this lies the destructive significance of the Peace of +Paris. If the European Civil War is to end with France and Italy abusing +their momentary victorious power to destroy Germany and Austria-Hungary +now prostrate, they invite their own destruction also, being so deeply +and inextricably intertwined with their victims by hidden psychic and +economic bonds. At any rate an Englishman who took part in the +Conference of Paris and was during those months a member of the Supreme +Economic Council of the Allied Powers, was bound to become, for him a +new experience, a European in his cares and outlook. There, at the nerve +center of the European system, his British preoccupations must largely +fall away and he must be haunted by other and more dreadful specters. +Paris was a nightmare, and every one there was morbid. A sense of +impending catastrophe overhung the frivolous scene; the futility and +smallness of man before the great events confronting him; the mingled +significance and unreality of the decisions; levity, blindness, +insolence, confused cries from without,--all the elements of ancient +tragedy were there. Seated indeed amid the theatrical trappings of the +French Saloons of State, one could wonder if the extraordinary visages +of Wilson and of Clemenceau, with their fixed hue and unchanging +characterization, were really faces at all and not the tragi-comic masks +of some strange drama or puppet-show. + +The proceedings of Paris all had this air of extraordinary importance +and unimportance at the same time. The decisions seemed charged with +consequences to the future of human society; yet the air whispered that +the word was not flesh, that it was futile, insignificant, of no effect, +dissociated from events; and one felt most strongly the impression, +described by Tolstoy in _War and Peace_ or by Hardy in _The Dynasts_, of +events marching on to their fated conclusion uninfluenced and unaffected +by the cerebrations of Statesmen in Council: + + _Spirit of the Years_ + + Observe that all wide sight and self-command + Deserts these throngs now driven to demonry + By the Immanent Unrecking. Nought remains + But vindictiveness here amid the strong, + And there amid the weak an impotent rage. + + _Spirit of the Pities_ + + Why prompts the Will so senseless-shaped a doing? + + _Spirit of the Years_ + + I have told thee that It works unwittingly, + As one possessed not judging. + +In Paris, where those connected with the Supreme Economic Council, +received almost hourly the reports of the misery, disorder, and decaying +organization of all Central and Eastern Europe, allied and enemy alike, +and learnt from the lips of the financial representatives of Germany and +Austria unanswerable evidence, of the terrible exhaustion of their +countries, an occasional visit to the hot, dry room in the President's +house, where the Four fulfilled their destinies in empty and arid +intrigue, only added to the sense of nightmare. Yet there in Paris the +problems of Europe were terrible and clamant, and an occasional return +to the vast unconcern of London a little disconcerting. For in London +these questions were very far away, and our own lesser problems alone +troubling. London believed that Paris was making a great confusion of +its business, but remained uninterested. In this spirit the British +people received the Treaty without reading it. But it is under the +influence of Paris, not London, that this book has been written by one +who, though an Englishman, feels himself a European also, and, because +of too vivid recent experience, cannot disinterest himself from the +further unfolding of the great historic drama of these days which will +destroy great institutions, but may also create a new world. + + + + +CHAPTER II + +EUROPE BEFORE THE WAR + + +Before 1870 different parts of the small continent of Europe had +specialized in their own products; but, taken as a whole, it was +substantially self-subsistent. And its population was adjusted to this +state of affairs. + +After 1870 there was developed on a large scale an unprecedented +situation, and the economic condition of Europe became during the next +fifty years unstable and peculiar. The pressure of population on food, +which had already been balanced by the accessibility of supplies from +America, became for the first time in recorded history definitely +reversed. As numbers increased, food was actually easier to secure. +Larger proportional returns from an increasing scale of production +became true of agriculture as well as industry. With the growth of the +European population there were more emigrants on the one hand to till +the soil of the new countries, and, on the other, more workmen were +available in Europe to prepare the industrial products and capital goods +which were to maintain the emigrant populations in their new homes, and +to build the railways and ships which were to make accessible to Europe +food and raw products from distant sources. Up to about 1900 a unit of +labor applied to industry yielded year by year a purchasing power over +an increasing quantity of food. It is possible that about the year 1900 +this process began to be reversed, and a diminishing yield of Nature to +man's effort was beginning to reassert itself. But the tendency of +cereals to rise in real cost was balanced by other improvements; +and--one of many novelties--the resources of tropical Africa then for +the first time came into large employ, and a great traffic in oil-seeds +began to bring to the table of Europe in a new and cheaper form one of +the essential foodstuffs of mankind. In this economic Eldorado, in this +economic Utopia, as the earlier economists would have deemed it, most of +us were brought up. + +That happy age lost sight of a view of the world which filled with +deep-seated melancholy the founders of our Political Economy. Before the +eighteenth century mankind entertained no false hopes. To lay the +illusions which grew popular at that age's latter end, Malthus disclosed +a Devil. For half a century all serious economical writings held that +Devil in clear prospect. For the next half century he was chained up and +out of sight. Now perhaps we have loosed him again. + +What an extraordinary episode in the economic progress of man that age +was which came to an end in August, 1914! The greater part of the +population, it is true, worked hard and lived at a low standard of +comfort, yet were, to all appearances, reasonably contented with this +lot. But escape was possible, for any man of capacity or character at +all exceeding the average, into the middle and upper classes, for whom +life offered, at a low cost and with the least trouble, conveniences, +comforts, and amenities beyond the compass of the richest and most +powerful monarchs of other ages. The inhabitant of London could order by +telephone, sipping his morning tea in bed, the various products of the +whole earth, in such quantity as he might see fit, and reasonably expect +their early delivery upon his doorstep; he could at the same moment and +by the same means adventure his wealth in the natural resources and new +enterprises of any quarter of the world, and share, without exertion or +even trouble, in their prospective fruits and advantages; or he could +decide to couple the security of his fortunes with the good faith of the +townspeople of any substantial municipality in any continent that fancy +or information might recommend. He could secure forthwith, if he wished +it, cheap and comfortable means of transit to any country or climate +without passport or other formality, could despatch his servant to the +neighboring office of a bank for such supply of the precious metals as +might seem convenient, and could then proceed abroad to foreign +quarters, without knowledge of their religion, language, or customs, +bearing coined wealth upon his person, and would consider himself +greatly aggrieved and much surprised at the least interference. But, +most important of all, he regarded this state of affairs as normal, +certain, and permanent, except in the direction of further improvement, +and any deviation from it as aberrant, scandalous, and avoidable. The +projects and politics of militarism and imperialism, of racial and +cultural rivalries, of monopolies, restrictions, and exclusion, which +were to play the serpent to this paradise, were little more than the +amusements of his daily newspaper, and appeared to exercise almost no +influence at all on the ordinary course of social and economic life, the +internationalization of which was nearly complete in practice. + +It will assist us to appreciate the character and consequences of the +Peace which we have imposed on our enemies, if I elucidate a little +further some of the chief unstable elements already present when war +broke out, in the economic life of Europe. + + +I. _Population_ + +In 1870 Germany had a population of about 40,000,000. By 1892 this +figure had risen to 50,000,000, and by June 30, 1914, to about +68,000,000. In the years immediately preceding the war the annual +increase was about 850,000, of whom an insignificant proportion +emigrated.[1] This great increase was only rendered possible by a +far-reaching transformation of the economic structure of the country. +From being agricultural and mainly self-supporting, Germany transformed +herself into a vast and complicated industrial machine, dependent for +its working on the equipoise of many factors outside Germany as well as +within. Only by operating this machine, continuously and at full blast, +could she find occupation at home for her increasing population and the +means of purchasing their subsistence from abroad. The German machine +was like a top which to maintain its equilibrium must spin ever faster +and faster. + +In the Austro-Hungarian Empire, which grew from about 40,000,000 in 1890 +to at least 50,000,000 at the outbreak of war, the same tendency was +present in a less degree, the annual excess of births over deaths being +about half a million, out of which, however, there was an annual +emigration of some quarter of a million persons. + +To understand the present situation, we must apprehend with vividness +what an extraordinary center of population the development of the +Germanic system had enabled Central Europe to become. Before the war the +population of Germany and Austria-Hungary together not only +substantially exceeded that of the United States, but was about equal to +that of the whole of North America. In these numbers, situated within a +compact territory, lay the military strength of the Central Powers. But +these same numbers--for even the war has not appreciably diminished +them[2]--if deprived of the means of life, remain a hardly less danger +to European order. + +European Russia increased her population in a degree even greater than +Germany--from less than 100,000,000 in 1890 to about 150,000,000 at the +outbreak of war;[3] and in the year immediately preceding 1914 the +excess of births over deaths in Russia as a whole was at the prodigious +rate of two millions per annum. This inordinate growth in the population +of Russia, which has not been widely noticed in England, has been +nevertheless one of the most significant facts of recent years. + +The great events of history are often due to secular changes in the +growth of population and other fundamental economic causes, which, +escaping by their gradual character the notice of contemporary +observers, are attributed to the follies of statesmen or the fanaticism +of atheists. Thus the extraordinary occurrences of the past two years in +Russia, that vast upheaval of Society, which has overturned what seemed +most stable--religion, the basis of property, the ownership of land, as +well as forms of government and the hierarchy of classes--may owe more +to the deep influences of expanding numbers than to Lenin or to +Nicholas; and the disruptive powers of excessive national fecundity may +have played a greater part in bursting the bonds of convention than +either the power of ideas or the errors of autocracy. + + +II. _Organization_ + +The delicate organization by which these peoples lived depended partly +on factors internal to the system. + +The interference of frontiers and of tariffs was reduced to a minimum, +and not far short of three hundred millions of people lived within the +three Empires of Russia, Germany, and Austria-Hungary. The various +currencies, which were all maintained on a stable basis in relation to +gold and to one another, facilitated the easy flow of capital and of +trade to an extent the full value of which we only realize now, when we +are deprived of its advantages. Over this great area there was an almost +absolute security of property and of person. + +These factors of order, security, and uniformity, which Europe had never +before enjoyed over so wide and populous a territory or for so long a +period, prepared the way for the organization of that vast mechanism of +transport, coal distribution, and foreign trade which made possible an +industrial order of life in the dense urban centers of new population. +This is too well known to require detailed substantiation with figures. +But it may be illustrated by the figures for coal, which has been the +key to the industrial growth of Central Europe hardly less than of +England; the output of German coal grew from 30,000,000 tons in 1871 to +70,000,000 tons in 1890, 110,000,000 tons in 1900, and 190,000,000 tons +in 1913. + +Round Germany as a central support the rest of the European economic +system grouped itself, and on the prosperity and enterprise of Germany +the prosperity of the rest of the Continent mainly depended. The +increasing pace of Germany gave her neighbors an outlet for their +products, in exchange for which the enterprise of the German merchant +supplied them with their chief requirements at a low price. + +The statistics of the economic interdependence of Germany and her +neighbors are overwhelming. Germany was the best customer of Russia, +Norway, Holland, Belgium, Switzerland, Italy, and Austria-Hungary; she +was the second best customer of Great Britain, Sweden, and Denmark; and +the third best customer of France. She was the largest source of supply +to Russia, Norway, Sweden, Denmark, Holland, Switzerland, Italy, +Austria-Hungary, Roumania, and Bulgaria; and the second largest source +of supply to Great Britain, Belgium, and France. + +In our own case we sent more exports to Germany than to any other +country in the world except India, and we bought more from her than from +any other country in the world except the United States. + +There was no European country except those west of Germany which did not +do more than a quarter of their total trade with her; and in the case of +Russia, Austria-Hungary, and Holland the proportion was far greater. + +Germany not only furnished these countries with trade, but, in the case +of some of them, supplied a great part of the capital needed for their +own development. Of Germany's pre-war foreign investments, amounting in +all to about $6,250,000,000, not far short of $2,500,000,000 was +invested in Russia, Austria-Hungary, Bulgaria, Roumania, and Turkey.[4] +And by the system of "peaceful penetration" she gave these countries not +only capital, but, what they needed hardly less, organization. The whole +of Europe east of the Rhine thus fell into the German industrial orbit, +and its economic life was adjusted accordingly. + +But these internal factors would not have been sufficient to enable the +population to support itself without the co-operation of external +factors also and of certain general dispositions common to the whole of +Europe. Many of the circumstances already treated were true of Europe as +a whole, and were not peculiar to the Central Empires. But all of what +follows was common to the whole European system. + + +III. _The Psychology of Society_ + +Europe was so organized socially and economically as to secure the +maximum accumulation of capital. While there was some continuous +improvement in the daily conditions of life of the mass of the +population, Society was so framed as to throw a great part of the +increased income into the control of the class least likely to consume +it. The new rich of the nineteenth century were not brought up to large +expenditures, and preferred the power which investment gave them to the +pleasures of immediate consumption. In fact, it was precisely the +_inequality_ of the distribution of wealth which made possible those +vast accumulations of fixed wealth and of capital improvements which +distinguished that age from all others. Herein lay, in fact, the main +justification of the Capitalist System. If the rich had spent their new +wealth on their own enjoyments, the world would long ago have found such +a regime intolerable. But like bees they saved and accumulated, not less +to the advantage of the whole community because they themselves held +narrower ends in prospect. + +The immense accumulations of fixed capital which, to the great benefit +of mankind, were built up during the half century before the war, could +never have come about in a Society where wealth was divided equitably. +The railways of the world, which that age built as a monument to +posterity, were, not less than the Pyramids of Egypt, the work of labor +which was not free to consume in immediate enjoyment the full equivalent +of its efforts. + +Thus this remarkable system depended for its growth on a double bluff or +deception. On the one hand the laboring classes accepted from ignorance +or powerlessness, or were compelled, persuaded, or cajoled by custom, +convention, authority, and the well-established order of Society into +accepting, a situation in which they could call their own very little of +the cake that they and Nature and the capitalists were co-operating to +produce. And on the other hand the capitalist classes were allowed to +call the best part of the cake theirs and were theoretically free to +consume it, on the tacit underlying condition that they consumed very +little of it in practice. The duty of "saving" became nine-tenths of +virtue and the growth of the cake the object of true religion. There +grew round the non-consumption of the cake all those instincts of +puritanism which in other ages has withdrawn itself from the world and +has neglected the arts of production as well as those of enjoyment. And +so the cake increased; but to what end was not clearly contemplated. +Individuals would be exhorted not so much to abstain as to defer, and to +cultivate the pleasures of security and anticipation. Saving was for old +age or for your children; but this was only in theory,--the virtue of +the cake was that it was never to be consumed, neither by you nor by +your children after you. + +In writing thus I do not necessarily disparage the practices of that +generation. In the unconscious recesses of its being Society knew what +it was about. The cake was really very small in proportion to the +appetites of consumption, and no one, if it were shared all round, would +be much the better off by the cutting of it. Society was working not +for the small pleasures of to-day but for the future security and +improvement of the race,--in fact for "progress." If only the cake were +not cut but was allowed to grow in the geometrical proportion predicted +by Malthus of population, but not less true of compound interest, +perhaps a day might come when there would at last be enough to go round, +and when posterity could enter into the enjoyment of _our_ labors. In +that day overwork, overcrowding, and underfeeding would have come to an +end, and men, secure of the comforts and necessities of the body, could +proceed to the nobler exercises of their faculties. One geometrical +ratio might cancel another, and the nineteenth century was able to +forget the fertility of the species in a contemplation of the dizzy +virtues of compound interest. + +There were two pitfalls in this prospect: lest, population still +outstripping accumulation, our self-denials promote not happiness but +numbers; and lest the cake be after all consumed, prematurely, in war, +the consumer of all such hopes. + +But these thoughts lead too far from my present purpose. I seek only to +point out that the principle of accumulation based on inequality was a +vital part of the pre-war order of Society and of progress as we then +understood it, and to emphasize that this principle depended on unstable +psychological conditions, which it may be impossible to recreate. It +was not natural for a population, of whom so few enjoyed the comforts of +life, to accumulate so hugely. The war has disclosed the possibility of +consumption to all and the vanity of abstinence to many. Thus the bluff +is discovered; the laboring classes may be no longer willing to forego +so largely, and the capitalist classes, no longer confident of the +future, may seek to enjoy more fully their liberties of consumption so +long as they last, and thus precipitate the hour of their confiscation. + + +IV. _The Relation of the Old World to the New_ + +The accumulative habits of Europe before the war were the necessary +condition of the greatest of the external factors which maintained the +European equipoise. + +Of the surplus capital goods accumulated by Europe a substantial part +was exported abroad, where its investment made possible the development +of the new resources of food, materials, and transport, and at the same +time enabled the Old World to stake out a claim in the natural wealth +and virgin potentialities of the New. This last factor came to be of the +vastest importance. The Old World employed with an immense prudence the +annual tribute it was thus entitled to draw. The benefit of cheap and +abundant supplies resulting from the new developments which its surplus +capital had made possible, was, it is true, enjoyed and not postponed. +But the greater part of the money interest accruing on these foreign +investments was reinvested and allowed to accumulate, as a reserve (it +was then hoped) against the less happy day when the industrial labor of +Europe could no longer purchase on such easy terms the produce of other +continents, and when the due balance would be threatened between its +historical civilizations and the multiplying races of other climates and +environments. Thus the whole of the European races tended to benefit +alike from the development of new resources whether they pursued their +culture at home or adventured it abroad. + +Even before the war, however, the equilibrium thus established between +old civilizations and new resources was being threatened. The prosperity +of Europe was based on the facts that, owing to the large exportable +surplus of foodstuffs in America, she was able to purchase food at a +cheap rate measured in terms of the labor required to produce her own +exports, and that, as a result of her previous investments of capital, +she was entitled to a substantial amount annually without any payment in +return at all. The second of these factors then seemed out of danger, +but, as a result of the growth of population overseas, chiefly in the +United States, the first was not so secure. + +When first the virgin soils of America came into bearing, the +proportions of the population of those continents themselves, and +consequently of their own local requirements, to those of Europe were +very small. As lately as 1890 Europe had a population three times that +of North and South America added together. But by 1914 the domestic +requirements of the United States for wheat were approaching their +production, and the date was evidently near when there would be an +exportable surplus only in years of exceptionally favorable harvest. +Indeed, the present domestic requirements of the United States are +estimated at more than ninety per cent of the average yield of the five +years 1909-1913.[5] At that time, however, the tendency towards +stringency was showing itself, not so much in a lack of abundance as in +a steady increase of real cost. That is to say, taking the world as a +whole, there was no deficiency of wheat, but in order to call forth an +adequate supply it was necessary to offer a higher real price. The most +favorable factor in the situation was to be found in the extent to which +Central and Western Europe was being fed from the exportable surplus of +Russia and Roumania. + +In short, Europe's claim on the resources of the New World was becoming +precarious; the law of diminishing returns was at last reasserting +itself and was making it necessary year by year for Europe to offer a +greater quantity of other commodities to obtain the same amount of +bread; and Europe, therefore, could by no means afford the +disorganization of any of her principal sources of supply. + +Much else might be said in an attempt to portray the economic +peculiarities of the Europe of 1914. I have selected for emphasis the +three or four greatest factors of instability,--the instability of an +excessive population dependent for its livelihood on a complicated and +artificial organization, the psychological instability of the laboring +and capitalist classes, and the instability of Europe's claim, coupled +with the completeness of her dependence, on the food supplies of the New +World. + +The war had so shaken this system as to endanger the life of Europe +altogether. A great part of the Continent was sick and dying; its +population was greatly in excess of the numbers for which a livelihood +was available; its organization was destroyed, its transport system +ruptured, and its food supplies terribly impaired. + +It was the task of the Peace Conference to honor engagements and to +satisfy justice; but not less to re-establish life and to heal wounds. +These tasks were dictated as much by prudence as by the magnanimity +which the wisdom of antiquity approved in victors. We will examine in +the following chapters the actual character of the Peace. + + +FOOTNOTES: + +[1] In 1913 there were 25,843 emigrants from Germany, of whom +19,124 went to the United States. + +[2] The net decrease of the German population at the end of +1918 by decline of births and excess of deaths as compared with the +beginning of 1914, is estimated at about 2,700,000. + +[3] Including Poland and Finland, but excluding Siberia, +Central Asia, and the Caucasus. + +[4] Sums of money mentioned in this book in terms of dollars +have been converted from pounds sterling at the rate of $5 to L1. + +[5] Even since 1914 the population of the United States has +increased by seven or eight millions. As their annual consumption of +wheat per head is not less than 6 bushels, the pre-war scale of +production in the United States would only show a substantial surplus +over present domestic requirements in about one year out of five. We +have been saved for the moment by the great harvests of 1918 and 1919, +which have been called forth by Mr. Hoover's guaranteed price. But the +United States can hardly be expected to continue indefinitely to raise +by a substantial figure the cost of living in its own country, in order +to provide wheat for a Europe which cannot pay for it. + + + + +CHAPTER III + +THE CONFERENCE + + +In Chapters IV. and V. I shall study in some detail the economic and +financial provisions of the Treaty of Peace with Germany. But it will be +easier to appreciate the true origin of many of these terms if we +examine here some of the personal factors which influenced their +preparation. In attempting this task, I touch, inevitably, questions of +motive, on which spectators are liable to error and are not entitled to +take on themselves the responsibilities of final judgment. Yet, if I +seem in this chapter to assume sometimes the liberties which are +habitual to historians, but which, in spite of the greater knowledge +with which we speak, we generally hesitate to assume towards +contemporaries, let the reader excuse me when he remembers how greatly, +if it is to understand its destiny, the world needs light, even if it is +partial and uncertain, on the complex struggle of human will and +purpose, not yet finished, which, concentrated in the persons of four +individuals in a manner never paralleled, made them, in the first months +of 1919, the microcosm of mankind. + +In those parts of the Treaty with which I am here concerned, the lead +was taken by the French, in the sense that it was generally they who +made in the first instance the most definite and the most extreme +proposals. This was partly a matter of tactics. When the final result is +expected to be a compromise, it is often prudent to start from an +extreme position; and the French anticipated at the outset--like most +other persons--a double process of compromise, first of all to suit the +ideas of their allies and associates, and secondly in the course of the +Peace Conference proper with the Germans themselves. These tactics were +justified by the event. Clemenceau gained a reputation for moderation +with his colleagues in Council by sometimes throwing over with an air of +intellectual impartiality the more extreme proposals of his ministers; +and much went through where the American and British critics were +naturally a little ignorant of the true point at issue, or where too +persistent criticism by France's allies put them in a position which +they felt as invidious, of always appearing to take the enemy's part and +to argue his case. Where, therefore, British and American interests were +not seriously involved their criticism grew slack, and some provisions +were thus passed which the French themselves did not take very +seriously, and for which the eleventh-hour decision to allow no +discussion with the Germans removed the opportunity of remedy. + +But, apart from tactics, the French had a policy. Although Clemenceau +might curtly abandon the claims of a Klotz or a Loucheur, or close his +eyes with an air of fatigue when French interests were no longer +involved in the discussion, he knew which points were vital, and these +he abated little. In so far as the main economic lines of the Treaty +represent an intellectual idea, it is the idea of France and of +Clemenceau. + +Clemenceau was by far the most eminent member of the Council of Four, +and he had taken the measure of his colleagues. He alone both had an +idea and had considered it in all its consequences. His age, his +character, his wit, and his appearance joined to give him objectivity +and a, defined outline in an environment of confusion. One could not +despise Clemenceau or dislike him, but only take a different view as to +the nature of civilized man, or indulge, at least, a different hope. + +The figure and bearing of Clemenceau are universally familiar. At the +Council of Four he wore a square-tailed coat of very good, thick black +broadcloth, and on his hands, which were never uncovered, gray suede +gloves; his boots were of thick black leather, very good, but of a +country style, and sometimes fastened in front, curiously, by a buckle +instead of laces. His seat in the room in the President's house, where +the regular meetings of the Council of Four were held (as distinguished +from their private and unattended conferences in a smaller chamber +below), was on a square brocaded chair in the middle of the semicircle +facing the fireplace, with Signor Orlando on his left, the President +next by the fireplace, and the Prime Minister opposite on the other side +of the fireplace on his right. He carried no papers and no portfolio, +and was unattended by any personal secretary, though several French +ministers and officials appropriate to the particular matter in hand +would be present round him. His walk, his hand, and his voice were not +lacking in vigor, but he bore nevertheless, especially after the attempt +upon him, the aspect of a very old man conserving his strength for +important occasions. He spoke seldom, leaving the initial statement of +the French case to his ministers or officials; he closed his eyes often +and sat back in his chair with an impassive face of parchment, his gray +gloved hands clasped in front of him. A short sentence, decisive or +cynical, was generally sufficient, a question, an unqualified +abandonment of his ministers, whose face would not be saved, or a +display of obstinacy reinforced by a few words in a piquantly delivered +English.[6] But speech and passion were not lacking when they were +wanted, and the sudden outburst of words, often followed by a fit of +deep coughing from the chest, produced their impression rather by force +and surprise than by persuasion. + +Not infrequently Mr. Lloyd George, after delivering a speech in English, +would, during the period of its interpretation into French, cross the +hearthrug to the President to reinforce his case by some _ad hominem_ +argument in private conversation, or to sound the ground for a +compromise,--and this would sometimes be the signal for a general +upheaval and disorder. The President's advisers would press round him, a +moment later the British experts would dribble across to learn the +result or see that all was well, and next the French would be there, a +little suspicious lest the others were arranging something behind them, +until all the room were on their feet and conversation was general in +both languages. My last and most vivid impression is of such a +scene--the President and the Prime Minister as the center of a surging +mob and a babel of sound, a welter of eager, impromptu compromises and +counter-compromises, all sound and fury signifying nothing, on what was +an unreal question anyhow, the great issues of the morning's meeting +forgotten and neglected; and Clemenceau silent and aloof on the +outskirts--for nothing which touched the security of France was +forward--throned, in his gray gloves, on the brocade chair, dry in soul +and empty of hope, very old and tired, but surveying the scene with a +cynical and almost impish air; and when at last silence was restored and +the company had returned to their places, it was to discover that he had +disappeared. + +He felt about France what Pericles felt of Athens--unique value in her, +nothing else mattering; but his theory of politics was Bismarck's. He +had one illusion--France; and one disillusion--mankind, including +Frenchmen, and his colleagues not least. His principles for the peace +can be expressed simply. In the first place, he was a foremost believer +in the view of German psychology that the German understands and can +understand nothing but intimidation, that he is without generosity or +remorse in negotiation, that there is no advantage he will not take of +you, and no extent to which he will not demean himself for profit, that +he is without honor, pride, or mercy. Therefore you must never negotiate +with a German or conciliate him; you must dictate to him. On no other +terms will he respect you, or will you prevent him from cheating you. +But it is doubtful how far he thought these characteristics peculiar to +Germany, or whether his candid view of some other nations was +fundamentally different. His philosophy had, therefore, no place for +"sentimentality" in international relations. Nations are real things, of +whom you love one and feel for the rest indifference--or hatred. The +glory of the nation you love is a desirable end,--but generally to be +obtained at your neighbor's expense. The politics of power are +inevitable, and there is nothing very new to learn about this war or the +end it was fought for; England had destroyed, as in each preceding +century, a trade rival; a mighty chapter had been closed in the secular +struggle between the glories of Germany and of France. Prudence required +some measure of lip service to the "ideals" of foolish Americans and +hypocritical Englishmen; but it would be stupid to believe that there is +much room in the world, as it really is, for such affairs as the League +of Nations, or any sense in the principle of self-determination except +as an ingenious formula for rearranging the balance of power in one's +own interests. + +These, however, are generalities. In tracing the practical details of +the Peace which he thought necessary for the power and the security of +France, we must go back to the historical causes which had operated +during his lifetime. Before the Franco-German war the populations of +France and Germany were approximately equal; but the coal and iron and +shipping of Germany were in their infancy, and the wealth of France was +greatly superior. Even after the loss of Alsace-Lorraine there was no +great discrepancy between the real resources of the two countries. But +in the intervening period the relative position had changed completely. +By 1914 the population of Germany was nearly seventy per cent in excess +of that of France; she had become one of the first manufacturing and +trading nations of the world; her technical skill and her means for the +production of future wealth were unequaled. France on the other hand had +a stationary or declining population, and, relatively to others, had +fallen seriously behind in wealth and in the power to produce it. + +In spite, therefore, of France's victorious issue from the present +struggle (with the aid, this time, of England and America), her future +position remained precarious in the eyes of one who took the view that +European civil war is to be regarded as a normal, or at least a +recurrent, state of affairs for the future, and that the sort of +conflicts between organized great powers which have occupied the past +hundred years will also engage the next. According to this vision of the +future, European history is to be a perpetual prize-fight, of which +France has won this round, but of which this round is certainly not the +last. From the belief that essentially the old order does not change, +being based on human nature which is always the same, and from a +consequent skepticism of all that class of doctrine which the League of +Nations stands for, the policy of France and of Clemenceau followed +logically. For a Peace of magnanimity or of fair and equal treatment, +based on such "ideology" as the Fourteen Points of the President, could +only have the effect of shortening the interval of Germany's recovery +and hastening the day when she will once again hurl at France her +greater numbers and her superior resources and technical skill. Hence +the necessity of "guarantees"; and each guarantee that was taken, by +increasing irritation and thus the probability of a subsequent +_Revanche_ by Germany, made necessary yet further provisions to crush. +Thus, as soon as this view of the world is adopted and the other +discarded, a demand for a Carthaginian Peace is inevitable, to the full +extent of the momentary power to impose it. For Clemenceau made no +pretense of considering himself bound by the Fourteen Points and left +chiefly to others such concoctions as were necessary from time to time +to save the scruples or the face of the President. + +So far as possible, therefore, it was the policy of France to set the +clock back and to undo what, since 1870, the progress of Germany had +accomplished. By loss of territory and other measures her population was +to be curtailed; but chiefly the economic system, upon which she +depended for her new strength, the vast fabric built upon iron, coal, +and transport must be destroyed. If France could seize, even in part, +what Germany was compelled to drop, the inequality of strength between +the two rivals for European hegemony might be remedied for many +generations. + +Hence sprang those cumulative provisions for the destruction of highly +organized economic life which we shall examine in the next chapter. + +This is the policy of an old man, whose most vivid impressions and most +lively imagination are of the past and not of the future. He sees the +issue in terms, of France and Germany not of humanity and of European +civilization struggling forwards to a new order. The war has bitten into +his consciousness somewhat differently from ours, and he neither expects +nor hopes that we are at the threshold of a new age. + +It happens, however, that it is not only an ideal question that is at +issue. My purpose in this book is to show that the Carthaginian Peace is +not _practically_ right or possible. Although the school of thought from +which it springs is aware of the economic factor, it overlooks, +nevertheless, the deeper economic tendencies which are to govern the +future. The clock cannot be set back. You cannot restore Central Europe +to 1870 without setting up such strains in the European structure and +letting loose such human and spiritual forces as, pushing beyond +frontiers and races, will overwhelm not only you and your "guarantees," +but your institutions, and the existing order of your Society. + +By what legerdemain was this policy substituted for the Fourteen Points, +and how did the President come to accept it? The answer to these +questions is difficult and depends on elements of character and +psychology and on the subtle influence of surroundings, which are hard +to detect and harder still to describe. But, if ever the action of a +single individual matters, the collapse of The President has been one of +the decisive moral events of history; and I must make an attempt to +explain it. What a place the President held in the hearts and hopes of +the world when he sailed to us in the _George Washington!_ What a great +man came to Europe in those early days of our victory! + +In November, 1918, the armies of Foch and the words of Wilson had +brought us sudden escape from what was swallowing up all we cared for. +The conditions seemed favorable beyond any expectation. The victory was +so complete that fear need play no part in the settlement. The enemy +had laid down his arms in reliance on a solemn compact as to the general +character of the Peace, the terms of which seemed to assure a settlement +of justice and magnanimity and a fair hope for a restoration of the +broken current of life. To make assurance certain the President was +coming himself to set the seal on his work. + +When President Wilson left Washington he enjoyed a prestige and a moral +influence throughout the world unequaled in history. His bold and +measured words carried to the peoples of Europe above and beyond the +voices of their own politicians. The enemy peoples trusted him to carry +out the compact he had made with them; and the Allied peoples +acknowledged him not as a victor only but almost as a prophet. In +addition to this moral influence the realities of power were in his +hands. The American armies were at the height of their numbers, +discipline, and equipment. Europe was in complete dependence on the food +supplies of the United States; and financially she was even more +absolutely at their mercy. Europe not only already owed the United +States more than she could pay; but only a large measure of further +assistance could save her from starvation and bankruptcy. Never had a +philosopher held such weapons wherewith to bind the princes of this +world. How the crowds of the European capitals pressed about the +carriage of the President! With what curiosity, anxiety, and hope we +sought a glimpse of the features and bearing of the man of destiny who, +coming from the West, was to bring healing to the wounds of the ancient +parent of his civilization and lay for us the foundations of the future. + +The disillusion was so complete, that some of those who had trusted most +hardly dared speak of it. Could it be true? they asked of those who +returned from Paris. Was the Treaty really as bad as it seemed? What had +happened to the President? What weakness or what misfortune had led to +so extraordinary, so unlooked-for a betrayal? + +Yet the causes were very ordinary and human. The President was not a +hero or a prophet; he was not even a philosopher; but a generously +intentioned man, with many of the weaknesses of other human beings, and +lacking that dominating intellectual equipment which would have been +necessary to cope with the subtle and dangerous spellbinders whom a +tremendous clash of forces and personalities had brought to the top as +triumphant masters in the swift game of give and take, face to face in +Council,--a game of which he had no experience at all. + +We had indeed quite a wrong idea of the President. We knew him to be +solitary and aloof, and believed him very strong-willed and obstinate. +We did not figure him as a man of detail, but the clearness with which +he had taken hold of certain main ideas would, we thought, in +combination with his tenacity, enable him to sweep through cobwebs. +Besides these qualities he would have the objectivity, the cultivation, +and the wide knowledge of the student. The great distinction of language +which had marked his famous Notes seemed to indicate a man of lofty and +powerful imagination. His portraits indicated a fine presence and a +commanding delivery. With all this he had attained and held with +increasing authority the first position in a country where the arts of +the politician are not neglected. All of which, without expecting the +impossible, seemed a fine combination of qualities for the matter in +hand. + +The first impression of Mr. Wilson at close quarters was to impair some +but not all of these illusions. His head and features were finely cut +and exactly like his photographs, and the muscles of his neck and the +carriage of his head were distinguished. But, like Odysseus, the +President looked wiser when he was seated; and his hands, though capable +and fairly strong, were wanting in sensitiveness and finesse. The first +glance at the President suggested not only that, whatever else he might +be, his temperament was not primarily that of the student or the +scholar, but that he had not much even of that culture of the world +which marks M. Clemenceau and Mr. Balfour as exquisitely cultivated +gentlemen of their class and generation. But more serious than this, he +was not only insensitive to his surroundings in the external sense, he +was not sensitive to his environment at all. What chance could such a +man have against Mr. Lloyd George's unerring, almost medium-like, +sensibility to every one immediately round him? To see the British Prime +Minister watching the company, with six or seven senses not available to +ordinary men, judging character, motive, and subconscious impulse, +perceiving what each was thinking and even what each was going to say +next, and compounding with telepathic instinct the argument or appeal +best suited to the vanity, weakness, or self-interest of his immediate +auditor, was to realize that the poor President would be playing blind +man's buff in that party. Never could a man have stepped into the parlor +a more perfect and predestined victim to the finished accomplishments of +the Prime Minister. The Old World was tough in wickedness anyhow; the +Old World's heart of stone might blunt the sharpest blade of the bravest +knight-errant. But this blind and deaf Don Quixote was entering a cavern +where the swift and glittering blade was in the hands of the adversary. + +But if the President was not the philosopher-king, what was he? After +all he was a man who had spent much of his life at a University. He was +by no means a business man or an ordinary party politician, but a man of +force, personality, and importance. What, then, was his temperament? + +The clue once found was illuminating. The President was like a +Nonconformist minister, perhaps a Presbyterian. His thought and his +temperament wore essentially theological not intellectual, with all the +strength and the weakness of that manner of thought, feeling, and +expression. It is a type of which there are not now in England and +Scotland such magnificent specimens as formerly; but this description, +nevertheless, will give the ordinary Englishman the distinctest +impression of the President. + +With this picture of him in mind, we can return to the actual course of +events. The President's program for the World, as set forth in his +speeches and his Notes, had displayed a spirit and a purpose so +admirable that the last desire of his sympathizers was to criticize +details,--the details, they felt, were quite rightly not filled in at +present, but would be in due course. It was commonly believed at the +commencement of the Paris Conference that the President had thought out, +with the aid of a large body of advisers, a comprehensive scheme not +only for the League of Nations, but for the embodiment of the Fourteen +Points in an actual Treaty of Peace. But in fact the President had +thought out nothing; when it came to practice his ideas were nebulous +and incomplete. He had no plan, no scheme, no constructive ideas +whatever for clothing with the flesh of life the commandments which he +had thundered from the White House. He could have preached a sermon on +any of them or have addressed a stately prayer to the Almighty for their +fulfilment; but he could not frame their concrete application to the +actual state of Europe. + +He not only had no proposals in detail, but he was in many respects, +perhaps inevitably, ill-informed as to European conditions. And not only +was he ill-informed--that was true of Mr. Lloyd George also--but his +mind was slow and unadaptable. The President's slowness amongst the +Europeans was noteworthy. He could not, all in a minute, take in what +the rest were saying, size up the situation with a glance, frame a +reply, and meet the case by a slight change of ground; and he was +liable, therefore, to defeat by the mere swiftness, apprehension, and +agility of a Lloyd George. There can seldom have been a statesman of the +first rank more incompetent than the President in the agilities of the +council chamber. A moment often arrives when substantial victory is +yours if by some slight appearance of a concession you can save the face +of the opposition or conciliate them by a restatement of your proposal +helpful to them and not injurious to anything essential to yourself. The +President was not equipped with this simple and usual artfulness. His +mind was too slow and unresourceful to be ready with _any_ alternatives. +The President was capable of digging his toes in and refusing to budge, +as he did over Fiume. But he had no other mode of defense, and it needed +as a rule but little manoeuvering by his opponents to prevent matters +from coming to such a head until it was too late. By pleasantness and an +appearance of conciliation, the President would be manoeuvered off his +ground, would miss the moment for digging his toes in, and, before he +knew where he had been got to, it was too late. Besides, it is +impossible month after month in intimate and ostensibly friendly +converse between close associates, to be digging the toes in all the +time. Victory would only have been possible to one who had always a +sufficiently lively apprehension of the position as a whole to reserve +his fire and know for certain the rare exact moments for decisive +action. And for that the President was far too slow-minded and +bewildered. + +He did not remedy these defects by seeking aid from the collective +wisdom of his lieutenants. He had gathered round him for the economic +chapters of the Treaty a very able group of business men; but they were +inexperienced in public affairs, and knew (with one or two exceptions) +as little of Europe as he did, and they were only called in irregularly +as he might need them for a particular purpose. Thus the aloofness which +had been found effective in Washington was maintained, and the abnormal +reserve of his nature did not allow near him any one who aspired to +moral equality or the continuous exercise of influence. His +fellow-plenipotentiaries were dummies; and even the trusted Colonel +House, with vastly more knowledge of men and of Europe than the +President, from whose sensitiveness the President's dullness had gained +so much, fell into the background as time went on. All this was +encouraged by his colleagues on the Council of Four, who, by the +break-up of the Council of Ten, completed the isolation which the +President's own temperament had initiated. Thus day after day and week +after week, he allowed himself to be closeted, unsupported, unadvised, +and alone, with men much sharper than himself, in situations of supreme +difficulty, where he needed for success every description of resource, +fertility, and knowledge. He allowed himself to be drugged by their +atmosphere, to discuss on the basis of their plans and of their data, +and to be led along their paths. + +These and other various causes combined to produce the following +situation. The reader must remember that the processes which are here +compressed into a few pages took place slowly, gradually, insidiously, +over a period of about five months. + +As the President had thought nothing out, the Council was generally +working on the basis of a French or British draft. He had to take up, +therefore, a persistent attitude of obstruction, criticism, and +negation, if the draft was to become at all in line with his own ideas +and purpose. If he was met on some points with apparent generosity (for +there was always a safe margin of quite preposterous suggestions which +no one took seriously), it was difficult for him not to yield on others. +Compromise was inevitable, and never to compromise on the essential, +very difficult. Besides, he was soon made to appear to be taking the +German part and laid himself open to the suggestion (to which he was +foolishly and unfortunately sensitive) of being "pro-German." + +After a display of much principle and dignity in the early days of the +Council of Ten, he discovered that there were certain very important +points in the program of his French, British, or Italian colleague, as +the case might be, of which he was incapable of securing the surrender +by the methods of secret diplomacy. What then was he to do in the last +resort? He could let the Conference drag on an endless length by the +exercise of sheer obstinacy. He could break it up and return to America +in a rage with nothing settled. Or he could attempt an appeal to the +world over the heads of the Conference. These were wretched +alternatives, against each of which a great deal could be said. They +were also very risky,--especially for a politician. The President's +mistaken policy over the Congressional election had weakened his +personal position in his own country, and it was by no means certain +that the American public would support him in a position of +intransigeancy. It would mean a campaign in which the issues would be +clouded by every sort of personal and party consideration, and who could +say if right would triumph in a struggle which would certainly not be +decided on its merits? Besides, any open rupture with his colleagues +would certainly bring upon his head the blind passions of "anti-German" +resentment with which the public of all allied countries were still +inspired. They would not listen to his arguments. They would not be cool +enough to treat the issue as one of international morality or of the +right governance of Europe. The cry would simply be that, for various +sinister and selfish reasons, the President wished "to let the Hun off." +The almost unanimous voice of the French and British Press could be +anticipated. Thus, if he threw down the gage publicly he might be +defeated. And if he were defeated, would not the final Peace be far +worse than if he were to retain his prestige and endeavor to make it as +good as the limiting conditions of European politics would allow, him? +But above all, if he were defeated, would he not lose the League of +Nations? And was not this, after all, by far the most important issue +for the future happiness of the world? The Treaty would be altered and +softened by time. Much in it which now seemed so vital would become +trifling, and much which was impracticable would for that very reason +never happen. But the League, even in an imperfect form, was permanent; +it was the first commencement of a new principle in the government of +the world; Truth and Justice in international relations could not be +established in a few months,--they must be born in due course by the +slow gestation of the League. Clemenceau had been clever enough to let +it be seen that he would swallow the League at a price. + +At the crisis of his fortunes the President was a lonely man. Caught up +in the toils of the Old World, he stood in great need of sympathy, of +moral support, of the enthusiasm of masses. But buried in the +Conference, stifled in the hot and poisoned atmosphere of Paris, no echo +reached him from the outer world, and no throb of passion, sympathy, or +encouragement from his silent constituents in all countries. He felt +that the blaze of popularity which had greeted his arrival in Europe +was already dimmed; the Paris Press jeered at him openly; his political +opponents at home were taking advantage of his absence to create an +atmosphere against him; England was cold, critical, and unresponsive. He +had so formed his _entourage_ that he did not receive through private +channels the current of faith and enthusiasm of which the public sources +seemed dammed up. He needed, but lacked, the added strength of +collective faith. The German terror still overhung us, and even the +sympathetic public was very cautious; the enemy must not be encouraged, +our friends must be supported, this was not the time for discord or +agitations, the President must be trusted to do his best. And in this +drought the flower of the President's faith withered and dried up. + +Thus it came to pass that the President countermanded the _George +Washington_, which, in a moment of well-founded rage, he had ordered to +be in readiness to carry him from the treacherous halls of Paris back to +the seat of his authority, where he could have felt himself again. But +as soon, alas, as he had taken the road of compromise, the defects, +already indicated, of his temperament and of his equipment, were fatally +apparent. He could take the high line; he could practise obstinacy; he +could write Notes from Sinai or Olympus; he could remain unapproachable +in the White House or even in the Council of Ten and be safe. But if he +once stepped down to the intimate equality of the Four, the game was +evidently up. + +Now it was that what I have called his theological or Presbyterian +temperament became dangerous. Having decided that some concessions were +unavoidable, he might have sought by firmness and address and the use of +the financial power of the United States to secure as much as he could +of the substance, even at some sacrifice of the letter. But the +President was not capable of so clear an understanding with himself as +this implied. He was too conscientious. Although compromises were now +necessary, he remained a man of principle and the Fourteen Points a +contract absolutely binding upon him. He would do nothing that was not +honorable; he would do nothing that was not just and right; he would do +nothing that was contrary to his great profession of faith. Thus, +without any abatement of the verbal inspiration of the Fourteen Points, +they became a document for gloss and interpretation and for all the +intellectual apparatus of self-deception, by which, I daresay, the +President's forefathers had persuaded themselves that the course they +thought it necessary to take was consistent with every syllable of the +Pentateuch. + +The President's attitude to his colleagues had now become: I want to +meet you so far as I can; I see your difficulties and I should like to +be able to agree to what you propose; but I can do nothing that is not +just and right, and you must first of all show me that what you want +does really fall within the words of the pronouncements which are +binding on me. Then began the weaving of that web of sophistry and +Jesuitical exegesis that was finally to clothe with insincerity the +language and substance of the whole Treaty. The word was issued to the +witches of all Paris: + + Fair is foul, and foul is fair, + Hover through the fog and filthy air. + +The subtlest sophisters and most hypocritical draftsmen were set to +work, and produced many ingenious exercises which might have deceived +for more than an hour a cleverer man than the President. + +Thus instead of saying that German-Austria is prohibited from uniting +with Germany except by leave of France (which would be inconsistent with +the principle of self-determination), the Treaty, with delicate +draftsmanship, states that "Germany acknowledges and will respect +strictly the independence of Austria, within the frontiers which may be +fixed in a Treaty between that State and the Principal Allied and +Associated Powers; she agrees that this independence shall be +inalienable, except with the consent of the Council of the League of +Nations," which sounds, but is not, quite different. And who knows but +that the President forgot that another part of the Treaty provides that +for this purpose the Council of the League must be _unanimous_. + +Instead of giving Danzig to Poland, the Treaty establishes Danzig as a +"Free" City, but includes this "Free" City within the Polish Customs +frontier, entrusts to Poland the control of the river and railway +system, and provides that "the Polish Government shall undertake the +conduct of the foreign relations of the Free City of Danzig as well as +the diplomatic protection of citizens of that city when abroad." + +In placing the river system of Germany under foreign control, the Treaty +speaks of declaring international those "river systems which naturally +provide more than one State with access to the sea, with or without +transhipment from one vessel to another." + +Such instances could be multiplied. The honest and intelligible purpose +of French policy, to limit the population of Germany and weaken her +economic system, is clothed, for the President's sake, in the august +language of freedom and international equality. + +But perhaps the most decisive moment, in the disintegration of the +President's moral position and the clouding of his mind, was when at +last, to the dismay of his advisers, he allowed himself to be persuaded +that the expenditure of the Allied Governments on pensions and +separation allowances could be fairly regarded as "damage done to the +civilian population of the Allied and Associated Powers by German +aggression by land, by sea, and from the air," in a sense in which the +other expenses of the war could not be so regarded. It was a long +theological struggle in which, after the rejection of many different +arguments, the President finally capitulated before a masterpiece of the +sophist's art. + +At last the work was finished; and the President's conscience was still +intact. In spite of everything, I believe that his temperament allowed +him to leave Paris a really sincere man; and it is probable that to this +day he is genuinely convinced that the Treaty contains practically +nothing inconsistent with his former professions. + +But the work was too complete, and to this was due the last tragic +episode of the drama. The reply of Brockdorff-Rantzau inevitably took +the line that Germany had laid down her arms on the basis of certain +assurances, and that the Treaty in many particulars was not consistent +with these assurances. But this was exactly what the President could not +admit; in the sweat of solitary contemplation and with prayers to God +he had done _nothing_ that was not just and right; for the President to +admit that the German reply had force in it was to destroy his +self-respect and to disrupt the inner equipoise of his soul; and every +instinct of his stubborn nature rose in self-protection. In the language +of medical psychology, to suggest to the President that the Treaty was +an abandonment of his professions was to touch on the raw a Freudian +complex. It was a subject intolerable to discuss, and every subconscious +instinct plotted to defeat its further exploration. + +Thus it was that Clemenceau brought to success, what had seemed to be, a +few months before, the extraordinary and impossible proposal that the +Germans should not be heard. If only the President had not been so +conscientious, if only he had not concealed from himself what he had +been doing, even at the last moment he was in, a position to have +recovered lost ground and to have achieved some very considerable +successes. But the President was set. His arms and legs had been spliced +by the surgeons to a certain posture, and they must be broken again +before they could be altered. To his horror, Mr. Lloyd George, desiring +at the last moment all the moderation he dared, discovered that he could +not in five days persuade the President of error in what it had taken +five months to prove to him to be just and right. After all, it was +harder to de-bamboozle this old Presbyterian than it had been to +bamboozle him; for the former involved his belief in and respect for +himself. + +Thus in the last act the President stood for stubbornness and a refusal +of conciliations. + + +FOOTNOTES: + +[6] He alone amongst the Four could speak and understand both +languages, Orlando knowing only French and the Prime Minister and +President only English; and it is of historical importance that Orlando +and the President had no direct means of communication. + + + + +CHAPTER IV + +THE TREATY + + +The thoughts which I have expressed in the second chapter were not +present to the mind of Paris. The future life of Europe was not their +concern; its means of livelihood was not their anxiety. Their +preoccupations, good and bad alike, related to frontiers and +nationalities, to the balance of power, to imperial aggrandizements, to +the future enfeeblement of a strong and dangerous enemy, to revenge, and +to the shifting by the victors of their unbearable financial burdens on +to the shoulders of the defeated. + +Two rival schemes for the future polity of the world took the +field,--the Fourteen Points of the President, and the Carthaginian Peace +of M. Clemenceau. Yet only one of these was entitled to take the field; +for the enemy had not surrendered unconditionally, but on agreed terms +as to the general character of the Peace. + +This aspect of what happened cannot, unfortunately, be passed over with +a word, for in the minds of many Englishmen at least it has been a +subject of very great misapprehension. Many persons believe that the +Armistice Terms constituted the first Contract concluded between the +Allied and Associated Powers and the German Government, and that we +entered the Conference with our hands, free, except so far as these +Armistice Terms might bind us. This was not the case. To make the +position plain, it is necessary briefly to review the history, of the +negotiations which began with the German Note of October 5, 1918, and +concluded with President Wilson's Note of November 5, 1918. + +On October 5, 1918, the German Government addressed a brief Note to the +President accepting the Fourteen Points and asking for Peace +negotiations. The President's reply of October 8 asked if he was to +understand definitely that the German Government accepted "the terms +laid down" in Fourteen Points and in his subsequent Addresses and "that +its object in entering into discussion would be only to agree upon the +practical details of their application." He added that the evacuation of +invaded territory must be a prior condition of an Armistice. On October +12 the German Government returned an unconditional affirmative to these +questions;-"its object in entering into discussions would be only to +agree upon practical details of the application of these terms." On +October 14, having received this affirmative answer, the President made +a further communication to make clear the points: (1) that the details +of the Armistice would have to be left to the military advisers of the +United States and the Allies, and must provide absolutely against the +possibility of Germany's resuming hostilities; (2) that submarine +warfare must cease if these conversations were to continue; and (3) that +he required further guarantees of the representative character of the +Government with which he was dealing. On October 20 Germany accepted +points (1) and (2), and pointed out, as regards (3), that she now had a +Constitution and a Government dependent for its authority on the +Reichstag. On October 23 the President announced that, "having received +the solemn and explicit assurance of the German Government that it +unreservedly accepts the terms of peace laid down in his Address to the +Congress of the United States on January 8, 1918 (the Fourteen Points), +and the principles of settlement enunciated in his subsequent Addresses, +particularly the Address of September 27, and that it is ready to +discuss the details of their application," he has communicated the above +correspondence to the Governments of the Allied Powers "with the +suggestion that, if these Governments are disposed to effect peace upon +the terms and principles indicated," they will ask their military +advisers to draw up Armistice Terms of such a character as to "ensure to +the Associated Governments the unrestricted power to safeguard and +enforce the details of the peace to which the German Government has +agreed." At the end of this Note the President hinted more openly than +in that of October 14 at the abdication of the Kaiser. This completes +the preliminary negotiations to which the President alone was a party, +adding without the Governments of the Allied Powers. + +On November 5, 1918, the President transmitted to Germany the reply he +had received from the Governments associated with him, and added that +Marshal Foch had been authorized to communicate the terms of an +armistice to properly accredited representatives. In this reply the +Allied Governments, "subject to the qualifications which follow, declare +their willingness to make peace with the Government of Germany on the +terms of peace laid down in the President's Address to Congress of +January 8, 1918, and the principles of settlement enunciated in his +subsequent Addresses." The qualifications in question were two in +number. The first related to the Freedom of the Seas, as to which they +"reserved to themselves complete freedom." The second related to +Reparation and ran as follows:--"Further, in the conditions of peace +laid down in his Address to Congress on the 8th January, 1918 the +President declared that invaded territories must be restored as well as +evacuated and made free. The Allied Governments feel that no doubt +ought to be allowed to exist as to what this provision implies. By it +they understand that compensation will be made by Germany for all damage +done to the civilian population of the Allies and to their property by +the aggression of Germany by land, by sea, and from the air."[7] + +The nature of the Contract between Germany and the Allies resulting from +this exchange of documents is plain and unequivocal. The terms of the +peace are to be in accordance with the Addresses of the President, and +the purpose of the Peace Conference is "to discuss the details of their +application." The circumstances of the Contract were of an unusually +solemn and binding character; for one of the conditions of it was that +Germany should agree to Armistice Terms which were to be such as would +leave her helpless. Germany having rendered herself helpless in reliance +on the Contract, the honor of the Allies was peculiarly involved in +fulfilling their part and, if there were ambiguities, in not using their +position to take advantage of them. + +What, then, was the substance of this Contract to which the Allies had +bound themselves? An examination of the documents shows that, although a +large part of the Addresses is concerned with spirit, purpose, and +intention, and not with concrete solutions, and that many questions +requiring a settlement in the Peace Treaty are not touched on, +nevertheless, there are certain questions which they settle definitely. +It is true that within somewhat wide limits the Allies still had a free +hand. Further, it is difficult to apply on a contractual basis those +passages which deal with spirit, purpose, and intention;--every man must +judge for himself whether, in view of them, deception or hypocrisy has +been practised. But there remain, as will be seen below, certain +important issues on which the Contract is unequivocal. + +In addition to the Fourteen Points of January 18, 1918, the Addresses of +the President which form part of the material of the Contract are four +in number,--before the Congress on February 11; at Baltimore on April 6; +at Mount Vernon on July 4; and at New York on September 27, the last of +these being specially referred to in the Contract. I venture to select +from these Addresses those engagements of substance, avoiding +repetitions, which are most relevant to the German Treaty. The parts I +omit add to, rather than detract from, those I quote; but they chiefly +relate to intention, and are perhaps too vague and general to be +interpreted contractually.[8] + +_The Fourteen Points_.--(3). "The removal, so far as possible, of all +economic barriers and the establishment of an equality of trade +conditions among _all_ the nations consenting to the Peace and +associating themselves for its maintenance." (4). "Adequate guarantees +_given and taken_ that national armaments will be reduced to the lowest +point consistent with domestic safety." (5). "A free, open-minded, and +absolutely impartial adjustment of all colonial claims," regard being +had to the interests of the populations concerned. (6), (7), (8), and +(11). The evacuation and "restoration" of all invaded territory, +especially of Belgium. To this must be added the rider of the Allies, +claiming compensation for all damage done to civilians and their +property by land, by sea, and from the air (quoted in full above). (8). +The righting of "the wrong done to France by Prussia in 1871 in the +matter of Alsace-Lorraine." (13). An independent Poland, including "the +territories inhabited by indisputably Polish populations" and "assured a +free and secure access to the sea." (14). The League of Nations. + +_Before the Congress, February 11_.--"There shall be no annexations, _no +contributions, no punitive damages_.... Self-determination is not a +mere phrase. It is an imperative principle of action which statesmen +will henceforth ignore at their peril.... Every territorial settlement +involved in this war must be made in the interest and for the benefit of +the populations concerned, and not as a part of any mere adjustment or +compromise of claims amongst rival States." + +_New York, September 27_.--(1) "The impartial justice meted out must +involve no discrimination between those to whom we wish to be just and +those to whom we do not wish to be just." (2) "No special or separate +interest of any single nation or any group of nations can be made the +basis of any part of the settlement which is not consistent with the +common interest of all." (3) "There can be no leagues or alliances or +special covenants and understandings within the general and common +family of the League of Nations." (4) "There can be no special selfish +economic combinations within the League and no employment of any form of +economic boycott or exclusion, except as the power of economic penalty +by exclusion from the markets of the world may be vested in the League +of Nations itself as a means of discipline and control." (5) "All +international agreements and treaties of every kind must be made known +in their entirety to the rest of the world." + +This wise and magnanimous program for the world had passed on November +5, 1918 beyond the region of idealism and aspiration, and had become +part of a solemn contract to which all the Great Powers of the world had +put their signature. But it was lost, nevertheless, in the morass of +Paris;--the spirit of it altogether, the letter in parts ignored and in +other parts distorted. + +The German observations on the draft Treaty of Peace were largely a +comparison between the terms of this understanding, on the basis of +which the German nation had agreed to lay down its arms, and the actual +provisions of the document offered them for signature thereafter. The +German commentators had little difficulty in showing that the draft +Treaty constituted a breach of engagements and of international morality +comparable with their own offense in the invasion of Belgium. +Nevertheless, the German reply was not in all its parts a document fully +worthy of the occasion, because in spite of the justice and importance +of much of its contents, a truly broad treatment and high dignity of +outlook were a little wanting, and the general effect lacks the simple +treatment, with the dispassionate objectivity of despair which the deep +passions of the occasion might have evoked. The Allied governments gave +it, in any case, no serious consideration, and I doubt if anything which +the German delegation could have said at that stage of the proceedings +would have much influenced the result. + +The commonest virtues of the individual are often lacking in the +spokesmen of nations; a statesman representing not himself but his +country may prove, without incurring excessive blame--as history often +records--vindictive, perfidious, and egotistic. These qualities are +familiar in treaties imposed by victors. But the German delegation did +not succeed in exposing in burning and prophetic words the quality which +chiefly distinguishes this transaction from all its historical +predecessors--its insincerity. + +This theme, however, must be for another pen than mine. I am mainly +concerned in what follows, not with the justice of the Treaty,--neither +with the demand for penal justice against the enemy, nor with the +obligation of contractual justice on the victor,--but with its wisdom +and with its consequences. + +I propose, therefore, in this chapter to set forth baldly the principal +economic provisions of the Treaty, reserving, however, for the next my +comments on the Reparation Chapter and on Germany's capacity to meet the +payments there demanded from her. + +The German economic system as it existed before the war depended on +three main factors: I. Overseas commerce as represented by her +mercantile marine, her colonies, her foreign investments, her exports, +and the overseas connections of her merchants; II. The exploitation of +her coal and iron and the industries built upon them; III. Her transport +and tariff system. Of these the first, while not the least important, +was certainly the most vulnerable. The Treaty aims at the systematic +destruction of all three, but principally of the first two. + + +I + +(1) Germany has ceded to the Allies _all_ the vessels of her mercantile +marine exceeding 1600 tons gross, half the vessels between 1000 tons and +1600 tons, and one quarter of her trawlers and other fishing boats.[9] +The cession is comprehensive, including not only vessels flying the +German flag, but also all vessels owned by Germans but flying other +flags, and all vessels under construction as well as those afloat.[10] +Further, Germany undertakes, if required, to build for the Allies such +types of ships as they may specify up to 200,000 tons[11] annually for +five years, the value of these ships being credited to Germany against +what is due from her for Reparation.[12] + +Thus the German mercantile marine is swept from the seas and cannot be +restored for many years to come on a scale adequate to meet the +requirements of her own commerce. For the present, no lines will run +from Hamburg, except such as foreign nations may find it worth while to +establish out of their surplus tonnage. Germany will have to pay to +foreigners for the carriage of her trade such charges as they may be +able to exact, and will receive only such conveniences as it may suit +them to give her. The prosperity of German ports and commerce can only +revive, it would seem, in proportion as she succeeds in bringing under +her effective influence the merchant marines of Scandinavia and of +Holland. + +(2) Germany has ceded to the Allies "all her rights and titles over her +oversea possessions."[13] This cession not only applies to sovereignty +but extends on unfavorable terms to Government property, all of which, +including railways, must be surrendered without payment, while, on the +other hand, the German Government remains liable for any debt which may +have been incurred for the purchase or construction of this property, or +for the development of the colonies generally.[14] + +In distinction from the practice ruling in the case of most similar +cessions in recent history, the property and persons of private German +nationals, as distinct from their Government, are also injuriously +affected. The Allied Government exercising authority in any former +German colony "may make such provisions as it thinks fit with reference +to the repatriation from them of German nationals and to the conditions +upon which German subjects of European origin shall, or shall not, be +allowed to reside, hold property, trade or exercise a profession in +them."[15] All contracts and agreements in favor of German nationals for +the construction or exploitation of public works lapse to the Allied +Governments as part of the payment due for Reparation. + +But these terms are unimportant compared with the more comprehensive +provision by which "the Allied and Associated Powers reserve the right +to retain and liquidate _all_ property, rights, and interests belonging +at the date of the coming into force of the present Treaty to German +nationals, or companies controlled by them," within the former German +colonies.[16] This wholesale expropriation of private property is to +take place without the Allies affording any compensation to the +individuals expropriated, and the proceeds will be employed, first, to +meet private debts due to Allied nationals from any German nationals, +and second, to meet claims due from Austrian, Hungarian, Bulgarian, or +Turkish nationals. Any balance may either be returned by the liquidating +Power direct to Germany, or retained by them. If retained, the proceeds +must be transferred to the Reparation Commission for Germany's credit in +the Reparation account.[17] + +In short, not only are German sovereignty and German influence +extirpated from the whole of her former oversea possessions, but the +persons and property of her nationals resident or owning property in +those parts are deprived of legal status and legal security. + +(3) The provisions just outlined in regard to the private property of +Germans in the ex-German colonies apply equally to private German +property in Alsace-Lorraine, except in so far as the French Government +may choose to grant exceptions.[18] This is of much greater practical +importance than the similar expropriation overseas because of the far +higher value of the property involved and the closer interconnection, +resulting from the great development of the mineral wealth of these +provinces since 1871, of German economic interests there with those in +Germany itself. Alsace-Lorraine has been part of the German Empire for +nearly fifty years--a considerable majority of its population is German +speaking--and it has been the scene of some of Germany's most important +economic enterprises. Nevertheless, the property of those Germans who +reside there, or who have invested in its industries, is now entirely at +the disposal of the French Government without compensation, except in so +far as the German Government itself may choose to afford it. The French +Government is entitled to expropriate without compensation the personal +property of private German citizens and German companies resident or +situated within Alsace-Lorraine, the proceeds being credited in part +satisfaction of various French claims. The severity of this provision is +only mitigated to the extent that the French Government may expressly +permit German nationals to continue to reside, in which case the above +provision is not applicable. Government, State, and Municipal property, +on the other hand, is to be ceded to France without any credit being +given for it. This includes the railway system of the two provinces, +together with its rolling-stock.[19] But while the property is taken +over, liabilities contracted in respect of it in the form of public +debts of any kind remain the liability of Germany.[20] The provinces +also return to French sovereignty free and quit of their share of German +war or pre-war dead-weight debt; nor does Germany receive a credit on +this account in respect of Reparation. + +(4) The expropriation of German private property is not limited, +however, to the ex-German colonies and Alsace-Lorraine. The treatment of +such property forms, indeed, a very significant and material section of +the Treaty, which has not received as much attention as it merits, +although it was the subject of exceptionally violent objection on the +part of the German delegates at Versailles. So far as I know, there is +no precedent in any peace treaty of recent history for the treatment of +private property set forth below, and the German representatives urged +that the precedent now established strikes a dangerous and immoral blow +at the security of private property everywhere. This is an exaggeration, +and the sharp distinction, approved by custom and convention during the +past two centuries, between the property and rights of a State and the +property and rights of its nationals is an artificial one, which is +being rapidly put out of date by many other influences than the Peace +Treaty, and is inappropriate to modern socialistic conceptions of the +relations between the State and its citizens. It is true, however, that +the Treaty strikes a destructive blow at a conception which lies at the +root of much of so-called international law, as this has been expounded +hitherto. + +The principal provisions relating to the expropriation of German private +property situated outside the frontiers of Germany, as these are now +determined, are overlapping in their incidence, and the more drastic +would seem in some cases to render the others unnecessary. Generally +speaking, however, the more drastic and extensive provisions are not so +precisely framed as those of more particular and limited application. +They are as follows:-- + +(_a_) The Allies "reserve the right to retain and liquidate all +property, rights and interests belonging at the date of the coming into +force of the present Treaty to German nationals, or companies controlled +by them, within their territories, colonies, possessions and +protectorates, including territories ceded to them by the present +Treaty."[21] + +This is the extended version of the provision which has been discussed +already in the case of the colonies and of Alsace-Lorraine. The value of +the property so expropriated will be applied, in the first instance, to +the satisfaction of private debts due from Germany to the nationals of +the Allied Government within whose jurisdiction the liquidation takes +place, and, second, to the satisfaction of claims arising out of the +acts of Germany's former allies. Any balance, if the liquidating +Government elects to retain it, must be credited in the Reparation +account.[22] It is, however, a point of considerable importance that the +liquidating Government is not compelled to transfer the balance to the +Reparation Commission, but can, if it so decides, return the proceeds +direct to Germany. For this will enable the United States, if they so +wish, to utilize the very large balances, in the hands of their +enemy-property custodian, to pay for the provisioning of Germany, +without regard to the views of the Reparation Commission. + +These provisions had their origin in the scheme for the mutual +settlement of enemy debts by means of a Clearing House. Under this +proposal it was hoped to avoid much trouble and litigation by making +each of the Governments lately at war responsible for the collection of +private _debts_ due from its nationals to the nationals of any of the +other Governments (the normal process of collection having been +suspended by reason of the war), and for the distribution of the funds +so collected to those of its nationals who had _claims_ against the +nationals of the other Governments, any final balance either way being +settled in cash. Such a scheme could have been completely bilateral and +reciprocal. And so in part it is, the scheme being mainly reciprocal as +regards the collection of commercial debts. But the completeness of +their victory permitted the Allied Governments to introduce in their own +favor many divergencies from reciprocity, of which the following are the +chief: Whereas the property of Allied nationals within German +jurisdiction reverts under the Treaty to Allied ownership on the +conclusion of Peace, the property of Germans within Allied jurisdiction +is to be retained and liquidated as described above, with the result +that the whole of German property over a large part of the world can be +expropriated, and the large properties now within the custody of Public +Trustees and similar officials in the Allied countries may be retained +permanently. In the second place, such German assets are chargeable, not +only with the liabilities of Germans, but also, if they run to it, with +"payment of the amounts due in respect of claims by the nationals of +such Allied or Associated Power with regard to their property, rights, +and interests in the territory of other Enemy Powers," as, for example, +Turkey, Bulgaria, and Austria.[23] This is a remarkable provision, +which is naturally non-reciprocal. In the third place, any final balance +due to Germany on private account need not be paid over, but can be held +against the various liabilities of the German Government.[24] The +effective operation of these Articles is guaranteed by the delivery of +deeds, titles, and information.[25] In the fourth place, pre-war +contracts between Allied and German nationals may be canceled or revived +at the option of the former, so that all such contracts which are in +Germany's favor will be canceled, while, on the other hand, she will be +compelled to fulfil those which are to her disadvantage. + +(_b_) So far we have been concerned with German property within Allied +jurisdiction. The next provision is aimed at the elimination of German +interests in the territory of her neighbors and former allies, and of +certain other countries. Under Article 260 of the Financial Clauses it +is provided that the Reparation Commission may, within one year of the +coming into force of the Treaty, demand that the German Government +expropriate its nationals and deliver to the Reparation Commission "any +rights and interests of German nationals in any public utility +undertaking or in any concession[26] operating in Russia, China, Turkey, +Austria, Hungary, and Bulgaria, or in the possessions or dependencies of +these States, or in any territory formerly belonging to Germany or her +allies, to be ceded by Germany or her allies to any Power or to be +administered by a Mandatory under the present Treaty." This is a +comprehensive description, overlapping in part the provisions dealt with +under (_a_) above, but including, it should be noted, the new States and +territories carved out of the former Russian, Austro-Hungarian, and +Turkish Empires. Thus Germany's influence is eliminated and her capital +confiscated in all those neighboring countries to which she might +naturally look for her future livelihood, and for an outlet for her +energy, enterprise, and technical skill. + +The execution of this program in detail will throw on the Reparation +Commission a peculiar task, as it will become possessor of a great +number of rights and interests over a vast territory owing dubious +obedience, disordered by war, disruption, and Bolshevism. The division +of the spoils between the victors will also provide employment for a +powerful office, whose doorsteps the greedy adventurers and jealous +concession-hunters of twenty or thirty nations will crowd and defile. + +Lest the Reparation Commission fail by ignorance to exercise its rights +to the full, it is further provided that the German Government shall +communicate to it within six months of the Treaty's coming into force a +list of all the rights and interests in question, "whether already +granted, contingent or not yet exercised," and any which are not so +communicated within this period will automatically lapse in favor of the +Allied Governments.[27] How far an edict of this character can be made +binding on a German national, whose person and property lie outside the +jurisdiction of his own Government, is an unsettled question; but all +the countries specified in the above list are open to pressure by the +Allied authorities, whether by the imposition of an appropriate Treaty +clause or otherwise. + +(_c_) There remains a third provision more sweeping than either of the +above, neither of which affects German interests in _neutral_ +countries. The Reparation Commission is empowered up to May 1, 1921, to +demand payment up to $5,000,000,000 _in such manner as they may fix_, +"whether in gold, commodities, ships, securities or otherwise."[28] This +provision has the effect of intrusting to the Reparation Commission for +the period in question dictatorial powers over all German property of +every description whatever. They can, under this Article, point to any +specific business, enterprise, or property, whether within or outside +Germany, and demand its surrender; and their authority would appear to +extend not only to property existing at the date of the Peace, but also +to any which may be created or acquired at any time in the course of the +next eighteen months. For example, they could pick out--as presumably +they will as soon as they are established--the fine and powerful German +enterprise in South America known as the _Deutsche Ueberseeische +Elektrizitaetsgesellschaft_ (the D.U.E.G.), and dispose of it to Allied +interests. The clause is unequivocal and all-embracing. It is worth +while to note in passing that it introduces a quite novel principle in +the collection of indemnities. Hitherto, a sum has been fixed, and the +nation mulcted has been left free to devise and select for itself the +means of payment. But in this case the payees can (for a certain +period) not only demand a certain sum but specify the particular kind of +property in which payment is to be effected. Thus the powers of the +Reparation Commission, with which I deal more particularly in the next +chapter, can be employed to destroy Germany's commercial and economic +organization as well as to exact payment. + +The cumulative effect of (_a_), (_b_), and (_c_) (as well as of certain +other minor provisions on which I have not thought it necessary to +enlarge) is to deprive Germany (or rather to empower the Allies so to +deprive her at their will--it is not yet accomplished) of everything she +possesses outside her own frontiers as laid down in the Treaty. Not only +are her oversea investments taken and her connections destroyed, but the +same process of extirpation is applied in the territories of her former +allies and of her immediate neighbors by land. + +(5) Lest by some oversight the above provisions should overlook any +possible contingencies, certain other Articles appear in the Treaty, +which probably do not add very much in practical effect to those already +described, but which deserve brief mention as showing the spirit of +completeness in which the victorious Powers entered upon the economic +subjection of their defeated enemy. + +First of all there is a general clause of barrer and renunciation: "In +territory outside her European frontiers as fixed by the present Treaty, +Germany renounces all rights, titles and privileges whatever in or over +territory which belonged to her or to her allies, and all rights, titles +and privileges whatever their origin which she held as against the +Allied and Associated Powers...."[29] + +There follow certain more particular provisions. Germany renounces all +rights and privileges she may have acquired in China.[30] There are +similar provisions for Siam,[31] for Liberia,[32] for Morocco,[33] and +for Egypt.[34] In the case of Egypt not only are special privileges +renounced, but by Article 150 ordinary liberties are withdrawn, the +Egyptian Government being accorded "complete liberty of action in +regulating the status of German nationals and the conditions under which +they may establish themselves in Egypt." + +By Article 258 Germany renounces her right to any participation in any +financial or economic organizations of an international character +"operating in any of the Allied or Associated States, or in Austria, +Hungary, Bulgaria or Turkey, or in the dependencies of these States, or +in the former Russian Empire." + +Generally speaking, only those pre-war treaties and conventions are +revived which it suits the Allied Governments to revive, and those in +Germany's favor may be allowed to lapse.[35] + +It is evident, however, that none of these provisions are of any real +importance, as compared with those described previously. They represent +the logical completion of Germany's outlawry and economic subjection to +the convenience of the Allies; but they do not add substantially to her +effective disabilities. + + +II + +The provisions relating to coal and iron are more important in respect +of their ultimate consequences on Germany's internal industrial economy +than for the money value immediately involved. The German Empire has +been built more truly on coal and iron than on blood and iron. The +skilled exploitation of the great coalfields of the Ruhr, Upper Silesia, +and the Saar, alone made possible the development of the steel, +chemical, and electrical industries which established her as the first +industrial nation of continental Europe. One-third of Germany's +population lives in towns of more than 20,000 inhabitants, an industrial +concentration which is only possible on a foundation of coal and iron. +In striking, therefore, at her coal supply, the French politicians were +not mistaking their target. It is only the extreme immoderation, and +indeed technical impossibility, of the Treaty's demands which may save +the situation in the long-run. + +(1) The Treaty strikes at Germany's coal supply in four ways:-- + +(i.) "As compensation for the destruction of the coal-mines in the north +of France, and as part payment towards the total reparation due from +Germany for the damage resulting from the war, Germany cedes to France +in full and absolute possession, with exclusive rights of exploitation, +unencumbered, and free from all debts and charges of any kind, the +coal-mines situated in the Saar Basin."[36] While the administration of +this district is vested for fifteen years in the League of Nations, it +is to be observed that the mines are ceded to France absolutely. Fifteen +years hence the population of the district will be called upon to +indicate by plebiscite their desires as to the future sovereignty of the +territory; and, in the event of their electing for union with Germany, +Germany is to be entitled to repurchase the mines at a price payable in +gold.[37] + +The judgment of the world has already recognized the transaction of the +Saar as an act of spoliation and insincerity. So far as compensation for +the destruction of French coal-mines is concerned, this is provided for, +as we shall see in a moment, elsewhere in the Treaty. "There is no +industrial region in Germany," the German representatives have said +without contradiction, "the population of which is so permanent, so +homogeneous, and so little complex as that of the Saar district. Among +more than 650,000 inhabitants, there were in 1918 less than 100 French. +The Saar district has been German for more than 1,000 years. Temporary +occupation as a result of warlike operations on the part of the French +always terminated in a short time in the restoration of the country upon +the conclusion of peace. During a period of 1048 years France has +possessed the country for not quite 68 years in all. When, on the +occasion of the first Treaty of Paris in 1814, a small portion of the +territory now coveted was retained for France, the population raised the +most energetic opposition and demanded 'reunion with their German +fatherland,' to which they were 'related by language, customs, and +religion.' After an occupation of one year and a quarter, this desire +was taken into account in the second Treaty of Paris in 1815. Since then +the country has remained uninterruptedly attached to Germany, and owes +its economic development to that connection." + +The French wanted the coal for the purpose of working the ironfields of +Lorraine, and in the spirit of Bismarck they have taken it. Not +precedent, but the verbal professions of the Allies, have rendered it +indefensible.[38] + +(ii.) Upper Silesia, a district without large towns, in which, however, +lies one of the major coalfields of Germany with a production of about +23 per cent of the total German output of hard coal, is, subject to a +plebiscite,[39] to be ceded to Poland. Upper Silesia was never part of +historic Poland; but its population is mixed Polish, German, and +Czecho-Slovakian, the precise proportions of which are disputed.[40] +Economically it is intensely German; the industries of Eastern Germany +depend upon it for their coal; and its loss would be a destructive blow +at the economic structure of the German State.[41] + +With the loss of the fields of Upper Silesia and the Saar, the coal +supplies of Germany are diminished by not far short of one-third. + +(iii.) Out of the coal that remains to her, Germany is obliged to make +good year by year the estimated loss which France has incurred by the +destruction and damage of war in the coalfields of her northern +Provinces. In para. 2 of Annex V. to the Reparation Chapter, "Germany +undertakes to deliver to France annually, for a period not exceeding ten +years, an amount of coal equal to the difference between the annual +production before the war of the coal-mines of the Nord and Pas de +Calais, destroyed as a result of the war, and the production of the +mines of the same area during the year in question: such delivery not to +exceed 20,000,000 tons in any one year of the first five years, and +8,000,000 tons in any one year of the succeeding five years." + +This is a reasonable provision if it stood by itself, and one which +Germany should be able to fulfil if she were left her other resources to +do it with. + +(iv.) The final provision relating to coal is part of the general scheme +of the Reparation Chapter by which the sums due for Reparation are to be +partly paid in kind instead of in cash. As a part of the payment due for +Reparation, Germany is to make the following deliveries of coal or +equivalent in coke (the deliveries to France being wholly additional to +the amounts available by the cession of the Saar or in compensation for +destruction in Northern France):-- + +(i.) To France 7,000,000 tons annually for ten years;[42] + +(ii.) To Belgium 8,000,000 tons annually for ten years; + +(iii.) To Italy an annual quantity, rising by annual increments from +4,500,000 tons in 1919-1920 to 8,500,000 tons in each of the six years, +1923-1924 to 1928-1929; + +(iv.) To Luxemburg, if required, a quantity of coal equal to the +pre-war annual consumption of German coal in Luxemburg. + +This amounts in all to an annual average of about 25,000,000 tons. + + * * * * * + +These figures have to be examined in relation to Germany's probable +output. The maximum pre-war figure was reached in 1913 with a total of +191,500,000 tons. Of this, 19,000,000 tons were consumed at the mines, +and on balance (_i.e._ exports less imports) 33,500,000 tons were +exported, leaving 139,000,000 tons for domestic consumption. It is +estimated that this total was employed as follows:-- + + Railways 18,000,000 tons. + Gas, water, and electricity 12,500,000 " + Bunkers 6,500,000 " + House-fuel, small industry + and agriculture 24,000,000 " + Industry 78,000,000 " + ----------- + 139,000,000 " + +The diminution of production due to loss of territory is:-- + + Alsace-Lorraine 3,800,000 tons. + Saar Basin 13,200,000 " + Upper Silesia 43,800,000 " + ----------- + 60,800,000 " + +There would remain, therefore, on the basis of the 1913 output, +130,700,000 tons, or, deducting consumption at the mines themselves, +(say) 118,000,000 tons. For some years there must be sent out of this +supply upwards of 20,000,000 tons to France as compensation for damage +done to French mines, and 25,000,000 tons to France, Belgium, Italy, and +Luxemburg;[43] as the former figure is a maximum, and the latter figure +is to be slightly less in the earliest years, we may take the total +export to Allied countries which Germany has undertaken to provide as +40,000,000 tons, leaving, on the above basis, 78,000,000 tons for her +own use as against a pre-war consumption of 139,000,000 tons. + +This comparison, however, requires substantial modification to make it +accurate. On the one hand, it is certain that the figures of pre-war +output cannot be relied on as a basis of present output. During 1918 the +production was 161,500,000 tons as compared with 191,500,000 tons in +1913; and during the first half of 1919 it was less than 50,000,000 +tons, exclusive of Alsace-Lorraine and the Saar but including Upper +Silesia, corresponding to an annual production of about 100,000,000 +tons.[44] The causes of so low an output were in part temporary and +exceptional but the German authorities agree, and have not been +confuted, that some of them are bound to persist for some time to come. +In part they are the same as elsewhere; the daily shift has been +shortened from 8-1/2 to 7 hours, and it is improbable that the powers of +the Central Government will be adequate to restore them to their former +figure. But in addition, the mining plant is in bad condition (due to +the lack of certain essential materials during the blockade), the +physical efficiency of the men is greatly impaired by malnutrition +(which cannot be cured if a tithe of the reparation demands are to be +satisfied,--the standard of life will have rather to be lowered), and +the casualties of the war have diminished the numbers of efficient +miners. The analogy of English conditions is sufficient by itself to +tell us that a pre-war level of output cannot be expected in Germany. +German authorities put the loss of output at somewhat above 30 per +cent, divided about equally between the shortening of the shift and the +other economic influences. This figure appears on general grounds to be +plausible, but I have not the knowledge to endorse or to criticize it. + +The pre-war figure of 118,000,000 tons net (_i.e._ after allowing for +loss of territory and consumption at the mines) is likely to fall, +therefore, at least as low as to 100,000,000[45] tons, having regard to +the above factors. If 40,000,000 tons of this are to be exported to the +Allies, there remain 60,000,000 tons for Germany herself to meet her own +domestic consumption. Demand as well as supply will be diminished by +loss of territory, but at the most extravagant estimate this could not +be put above 29,000,000 tons.[46] Our hypothetical calculations, +therefore, leave us with post-war German domestic requirements, on the +basis of a pre-war efficiency of railways and industry, of 110,000,000 +tons against an output not exceeding 100,000,000 tons, of which +40,000,000 tons are mortgaged to the Allies. + +The importance of the subject has led me into a somewhat lengthy +statistical analysis. It is evident that too much significance must not +be attached to the precise figures arrived at, which are hypothetical +and dubious.[47] But the general character of the facts presents itself +irresistibly. Allowing for the loss of territory and the loss of +efficiency, Germany cannot export coal in the near future (and will even +be dependent on her Treaty rights to purchase in Upper Silesia), if she +is to continue as an industrial nation. Every million tons she is forced +to export must be at the expense of closing down an industry. With +results to be considered later this within certain limits is _possible_. +But it is evident that Germany cannot and will not furnish the Allies +with a contribution of 40,000,000 tons annually. Those Allied Ministers, +who have told their peoples that she can, have certainly deceived them +for the sake of allaying for the moment the misgivings of the European +peoples as to the path along which they are being led. + +The presence of these illusory provisions (amongst others) in the +clauses of the Treaty of Peace is especially charged with danger for +the future. The more extravagant expectations as to Reparation +receipts, by which Finance Ministers have deceived their publics, will +be heard of no more when they have served their immediate purpose of +postponing the hour of taxation and retrenchment. But the coal clauses +will not be lost sight of so easily,--for the reason that it will be +absolutely vital in the interests of France and Italy that these +countries should do everything in their power to exact their bond. As a +result of the diminished output due to German destruction in France, of +the diminished output of mines in the United Kingdom and elsewhere, and +of many secondary causes, such as the breakdown of transport and of +organization and the inefficiency of new governments, the coal position +of all Europe is nearly desperate;[48] and France and Italy, entering +the scramble with certain Treaty rights, will not lightly surrender +them. + +As is generally the case in real dilemmas, the French and Italian case +will possess great force, indeed unanswerable force from a certain point +of view. The position will be truly represented as a question between +German industry on the one hand and French and Italian industry on the +other. It may be admitted that the surrender of the coal will destroy +German industry, but it may be equally true that its non-surrender will +jeopardize French and Italian industry. In such a case must not the +victors with their Treaty rights prevail, especially when much of the +damage has been ultimately due to the wicked acts of those who are now +defeated? Yet if these feelings and these rights are allowed to prevail +beyond what wisdom would recommend, the reactions on the social and +economic life of Central Europe will be far too strong to be confined +within their original limits. + +But this is not yet the whole problem. If France and Italy are to make +good their own deficiencies in coal from the output of Germany, then +Northern Europe, Switzerland, and Austria, which previously drew their +coal in large part from Germany's exportable surplus, must be starved of +their supplies. Before the war 13,600,000 tons of Germany's coal exports +went to Austria-Hungary. Inasmuch as nearly all the coalfields of the +former Empire lie outside what is now German-Austria, the industrial +ruin of this latter state, if she cannot obtain coal from Germany, will +be complete. The case of Germany's neutral neighbors, who were formerly +supplied in part from Great Britain but in large part from Germany, +will be hardly less serious. They will go to great lengths in the +direction of making their own supplies to Germany of materials which are +essential to her, conditional on these being paid for in coal. Indeed +they are already doing so.[49] With the breakdown of money economy the +practice of international barter is becoming prevalent. Nowadays money +in Central and South-Eastern Europe is seldom a true measure of value in +exchange, and will not necessarily buy anything, with the consequence +that one country, possessing a commodity essential to the needs of +another, sells it not for cash but only against a reciprocal engagement +on the part of the latter country to furnish in return some article not +less necessary to the former. This is an extraordinary complication as +compared with the former almost perfect simplicity of international +trade. But in the no less extraordinary conditions of to-day's industry +it is not without advantages as a means of stimulating production. The +butter-shifts of the Ruhr[50] show how far modern Europe has +retrograded in the direction of barter, and afford a picturesque +illustration of the low economic organization to which the breakdown of +currency and free exchange between individuals and nations is quickly +leading us. But they may produce the coal where other devices would +fail.[51] + +Yet if Germany can find coal for the neighboring neutrals, France and +Italy may loudly claim that in this case she can and must keep her +treaty obligations. In this there will be a great show of justice, and +it will be difficult to weigh against such claims the possible facts +that, while German miners will work for butter, there is no available +means of compelling them to get coal, the sale of which will bring in +nothing, and that if Germany has no coal to send to her neighbors she +may fail to secure imports essential to her economic existence. + +If the distribution of the European coal supplies is to be a scramble in +which France is satisfied first, Italy next, and every one else takes +their chance, the industrial future of Europe is black and the prospects +of revolution very good. It is a case where particular interests and +particular claims, however well founded in sentiment or in justice, +must yield to sovereign expediency. If there is any approximate truth in +Mr. Hoover's calculation that the coal output of Europe has fallen by +one-third, a situation confronts us where distribution must be effected +with even-handed impartiality in accordance with need, and no incentive +can be neglected towards increased production and economical methods of +transport. The establishment by the Supreme Council of the Allies in +August, 1919, of a European Coal Commission, consisting of delegates +from Great Britain, France, Italy, Belgium, Poland, and Czecho-Slovakia +was a wise measure which, properly employed and extended, may prove of +great assistance. But I reserve constructive proposals for Chapter VII. +Here I am only concerned with tracing the consequences, _per +impossibile_, of carrying out the Treaty _au pied de lettre_.[52] + +(2) The provisions relating to iron-ore require less detailed attention, +though their effects are destructive. They require less attention, +because they are in large measure inevitable. Almost exactly 75 per cent +of the iron-ore raised in Germany in 1913 came from Alsace-Lorraine.[53] +In this the chief importance of the stolen provinces lay. + +There is no question but that Germany must lose these ore-fields. The +only question is how far she is to be allowed facilities for purchasing +their produce. The German Delegation made strong efforts to secure the +inclusion of a provision by which coal and coke to be furnished by them +to France should be given in exchange for _minette_ from Lorraine. But +they secured no such stipulation, and the matter remains at France's +option. + +The motives which will govern France's eventual policy are not entirely +concordant. While Lorraine comprised 75 per cent of Germany's iron-ore, +only 25 per cent of the blast furnaces lay within Lorraine and the Saar +basin together, a large proportion of the ore being carried into Germany +proper. Approximately the same proportion of Germany's iron and steel +foundries, namely 25 per cent, were situated in Alsace-Lorraine. For +the moment, therefore, the most economical and profitable course would +certainly be to export to Germany, as hitherto, a considerable part of +the output of the mines. + +On the other hand, France, having recovered the deposits of Lorraine, +may be expected to aim at replacing as far as possible the industries, +which Germany had based on them, by industries situated within her own +frontiers. Much time must elapse before the plant and the skilled labor +could be developed within France, and even so she could hardly deal with +the ore unless she could rely on receiving the coal from Germany. The +uncertainty, too, as to the ultimate fate of the Saar will be disturbing +to the calculations of capitalists who contemplate the establishment of +new industries in France. + +In fact, here, as elsewhere, political considerations cut disastrously +across economic. In a regime of Free Trade and free economic intercourse +it would be of little consequence that iron lay on one side of a +political frontier, and labor, coal, and blast furnaces on the other. +But as it is, men have devised ways to impoverish themselves and one +another; and prefer collective animosities to individual happiness. It +seems certain, calculating on the present passions and impulses of +European capitalistic society, that the effective iron output of Europe +will be diminished by a new political frontier (which sentiment and +historic justice require), because nationalism and private interest are +thus allowed to impose a new economic frontier along the same lines. +These latter considerations are allowed, in the present governance of +Europe, to prevail over the intense need of the Continent for the most +sustained and efficient production to repair the destructions of war, +and to satisfy the insistence of labor for a larger reward.[54] + +The same influences are likely to be seen, though on a lesser scale, in +the event of the transference of Upper Silesia to Poland. While Upper +Silesia contains but little iron, the presence of coal has led to the +establishment of numerous blast furnaces. What is to be the fate of +these? If Germany is cut off from her supplies of ore on the west, will +she export beyond her frontiers on the east any part of the little which +remains to her? The efficiency and output of the industry seem certain +to diminish. + +Thus the Treaty strikes at organization, and by the destruction of +organization impairs yet further the reduced wealth of the whole +community. The economic frontiers which are to be established between +the coal and the iron, upon which modern industrialism is founded, will +not only diminish the production of useful commodities, but may possibly +occupy an immense quantity of human labor in dragging iron or coal, as +the case may be, over many useless miles to satisfy the dictates of a +political treaty or because obstructions have been established to the +proper localization of industry. + + +III + +There remain those Treaty provisions which relate to the transport and +the tariff systems of Germany. These parts of the Treaty have not nearly +the importance and the significance of those discussed hitherto. They +are pin-pricks, interferences and vexations, not so much objectionable +for their solid consequences, as dishonorable to the Allies in the light +of their professions. Let the reader consider what follows in the light +of the assurances already quoted, in reliance on which Germany laid down +her arms. + +(i.) The miscellaneous Economic Clauses commence with a number of +provisions which would be in accordance with the spirit of the third of +the Fourteen Points,--if they were reciprocal. Both for imports and +exports, and as regards tariffs, regulations, and prohibitions, Germany +binds herself for five years to accord most-favored-nation treatment to +the Allied and Associated States.[55] But she is not entitled herself to +receive such treatment. + +For five years Alsace-Lorraine shall be free to export into Germany, +without payment of customs duty, up to the average amount sent annually +into Germany from 1911 to 1913.[56] But there is no similar provision +for German exports into Alsace-Lorraine. + +For three years Polish exports to Germany, and for five years +Luxemburg's exports to Germany, are to have a similar privilege,[57]-- +but not German exports to Poland or to Luxemburg. Luxemburg also, which +for many years has enjoyed the benefits of inclusion within the German +Customs Union, is permanently excluded from it henceforward.[58] + +For six months after the Treaty has come into force Germany may not +impose duties on imports from the Allied and Associated States higher +than the most favorable duties prevalent before the war and for a +further two years and a half (making three years in all) this +prohibition continues to apply to certain commodities, notably to some +of those as to which special agreements existed before the war, and also +to wine, to vegetable oils, to artificial silk, and to washed or scoured +wool.[59] This is a ridiculous and injurious provision, by which Germany +is prevented from taking those steps necessary to conserve her limited +resources for the purchase of necessaries and the discharge of +Reparation. As a result of the existing distribution of wealth in +Germany, and of financial wantonness amongst individuals, the offspring +of uncertainty, Germany is threatened with a deluge of luxuries and +semi-luxuries from abroad, of which she has been starved for years, +which would exhaust or diminish her small supplies of foreign exchange. +These provisions strike at the authority of the German Government to +ensure economy in such consumption, or to raise taxation during a +critical period. What an example of senseless greed overreaching itself, +to introduce, after taking from Germany what liquid wealth she has and +demanding impossible payments for the future, a special and +particularized injunction that she must allow as readily as in the days +of her prosperity the import of champagne and of silk! + +One other Article affects the Customs Regime 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 regime 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 regime 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 +regime, 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. Herve in _La +Victorie_, May 31, 1919). + +[39] This plebiscite is the most important of the concessions +accorded to Germany in the Allies' Final Note, and one for which Mr. +Lloyd George, who never approved the Allies' policy on the Eastern +frontiers of Germany, can claim the chief credit. The vote cannot take +place before the spring of 1920, and may be postponed until 1921. In the +meantime the province will be governed by an Allied Commission. The vote +will be taken by communes, and the final frontiers will be determined by +the Allies, who shall have regard, partly to the results of the vote in +each commune, and partly "to the geographical and economic conditions of +the locality." It would require great local knowledge to predict the +result. By voting Polish, a locality can escape liability for the +indemnity, and for the crushing taxation consequent on voting German, a +factor not to be neglected. On the other hand, the bankruptcy and +incompetence of the new Polish State might deter those who were disposed +to vote on economic rather than on racial grounds. It has also been +stated that the conditions of life in such matters as sanitation and +social legislation are incomparably better in Upper Silesia than in the +adjacent districts of Poland, where similar legislation is in its +infancy. The argument in the text assumes that Upper Silesia will cease +to be German. But much may happen in a year, and the assumption is not +certain. To the extent that it proves erroneous the conclusions must be +modified. + +[40] German authorities claim, not without contradiction, that +to judge from the votes cast at elections, one-third of the population +would elect in the Polish interest, and two-thirds in the German. + +[41] It must not be overlooked, however, that, amongst the +other concessions relating to Silesia accorded in the Allies' Final +Note, there has been included Article 90, by which "Poland undertakes to +permit for a period of fifteen years the exportation to Germany of the +products of the mines in any part of Upper Silesia transferred to Poland +in accordance with the present Treaty. Such products shall be free from +all export duties or other charges or restrictions on exportation. +Poland agrees to take such steps as may be necessary to secure that any +such products shall be available for sale to purchasers in Germany on +terms as favorable as are applicable to like products sold under similar +conditions to purchasers in Poland or in any other country." This does +not apparently amount to a right of preemption, and it is not easy to +estimate its effective practical consequences. It is evident, however, +that in so far as the mines are maintained at their former efficiency, +and in so far as Germany is in a position to purchase substantially her +former supplies from that source, the loss is limited to the effect on +her balance of trade, and is without the more serious repercussions on +her economic life which are contemplated in the text. Here is an +opportunity for the Allies to render more tolerable the actual operation +of the settlement. The Germans, it should be added, have pointed out +that the same economic argument which adds the Saar fields to France +allots Upper Silesia to Germany. For whereas the Silesian mines are +essential to the economic life of Germany, Poland does not need them. Of +Poland's pre-war annual demand of 10,500,000 tons, 6,800,000 tons were +supplied by the indisputably Polish districts adjacent to Upper Silesia. +1,500,000 tons from Upper Silesia (out of a total Upper Silesian output +of 43,500,000 tons), and the balance from what is now Czecho-Slovakia. +Even without any supply from Upper Silesia and Czecho-Slovakia, Poland +could probably meet her requirements by the fuller exploitation of her +own coalfields which are not yet scientifically developed, or from the +deposits of Western Galicia which are now to be annexed to her. + +[42] France is also to receive annually for three years 35,000 +tons of benzol, 60,000 tons of coal tar, and 30,000 tons of sulphate of +ammonia. + +[43] The Reparation Commission is authorized under the Treaty +(Part VIII Annex V. para. 10) "to postpone or to cancel deliveries" if +they consider "that the full exercise of the foregoing options would +interfere unduly with the industrial requirements of Germany." In the +event of such postponements or cancellations "the coal to replace coal +from destroyed mines shall receive priority over other deliveries." This +concluding clause is of the greatest importance, if, as will be seen, it +is physically impossible for Germany to furnish the full 45,000,000; for +it means that France will receive 20,000,000 tons before Italy receives +anything. The Reparation Commission has no discretion to modify this. +The Italian Press has not failed to notice the significance of the +provision, and alleges that this clause was inserted during the absence +of the Italian representatives from Paris (_Corriere della Sera_, July +19, 1919). + +[44] It follows that the current rate of production in Germany +has sunk to about 60 per cent of that of 1913. The effect on reserves +has naturally been disastrous, and the prospects for the coming winter +are dangerous. + +[45] This assumes a loss of output of 15 per cent as compared +with the estimate of 30 per cent quoted above. + +[46] This supposes a loss of 23 per cent of Germany's +industrial undertaking and a diminution of 13 per cent in her other +requirements. + +[47] The reader must be reminded in particular that the above +calculations take no account of the German production of lignite, which +yielded in 1913 13,000,000 tons of rough lignite in addition to an +amount converted into 21,000,000 tons of briquette. This amount of +lignite, however, was required in Germany before the war _in addition +to_ the quantities of coal assumed above. I am not competent to speak on +the extent to which the loss of coal can be made good by the extended +use of lignite or by economies in its present employment; but some +authorities believe that Germany may obtain substantial compensation for +her loss of coal by paying more attention to her deposits of lignite. + +[48] Mr. Hoover, in July, 1919, estimated that the coal output +of Europe, excluding Russia and the Balkans, had dropped from +679,500,000 tons to 443,000,000 tons,--as a result in a minor degree of +loss of material and labor, but owing chiefly to a relaxation of +physical effort after the privations and sufferings of the war, a lack +of rolling-stock and transport, and the unsettled political fate of some +of the mining districts. + +[49] Numerous commercial agreements during the war ware +arranged on these lines. But in the month of June, 1919, alone, minor +agreements providing for payment in coal were made by Germany with +Denmark, Norway, and Switzerland. The amounts involved were not large, +but without them Germany could not have obtained butter from Denmark, +fats and herrings from Norway, or milk and cattle from Switzerland. + +[50] "Some 60,000 Ruhr miners have agreed to work extra +shifts--so-called butter-shifts--for the purpose of furnishing coal for +export to Denmark hence butter will be exported in return. The butter +will benefit the miners in the first place, as they have worked +specially to obtain it" (_Koelnische 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 role. +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. Rene Pupin, the author of the most comprehensive +and scientific estimate of the pre-war wealth of France,[88] which I did +not come across until after my own figure had been arrived at. This +authority estimates the material losses of the invaded regions at from +$2,000,000,000 to $3,000,000,000 (10 to 15 milliards),[89] between which +my own figure falls half-way. + +Nevertheless, M. Dubois, speaking on behalf of the Budget Commission of +the Chamber, has given the figure of $13,000,000,000 (65 milliard +francs) "as a minimum" without counting "war levies, losses at sea, the +roads, or the loss of public monuments." And M. Loucheur, the Minister +of Industrial Reconstruction, stated before the Senate on the 17th +February, 1919, that the reconstitution of the devastated regions would +involve an expenditure of $15,000,000,000 (75 milliard francs),--more +than double M. Pupin's estimate of the entire wealth of their +inhabitants. But then at that time M. Loucheur was taking a prominent +part in advocating the claims of France before the Peace Conference, +and, like others, may have found strict veracity inconsistent with the +demands of patriotism.[90] + +The figure discussed so far is not, however, the totality of the French +claims. There remain, in particular, levies and requisitions on the +occupied areas and the losses of the French mercantile marine at sea +from the attacks of German cruisers and submarines. Probably +$1,000,000,000 would be ample to cover all such claims; but to be on the +safe side, we will, somewhat arbitrarily, make an addition to the French +claim of $1,500,000,000 on all heads, bringing it to $4,000,000,000 in +all. + +The statements of M. Dubois and M. Loucheur were made in the early +spring of 1919. A speech delivered by M. Klotz before the French Chamber +six months later (Sept. 5, 1919) was less excusable. In this speech the +French Minister of Finance estimated the total French claims for damage +to property (presumably inclusive of losses at sea, etc., but apart from +pensions and allowances) at $26,800,000,000 (134 milliard francs), or +more than six times my estimate. Even if my figure prove erroneous, M. +Klotz's can never have been justified. So grave has been the deception +practised on the French people by their Ministers that when the +inevitable enlightenment comes, as it soon must (both as to their own +claims and as to Germany's capacity to meet them), the repercussions +will strike at more than M. Klotz, and may even involve the order of +Government and Society for which he stands. + +British claims on the present basis would be practically limited to +losses by sea--losses of hulls and losses of cargoes. Claims would lie, +of course, for damage to civilian property in air raids and by +bombardment from the sea, but in relation to such figures as we are now +dealing with, the money value involved is insignificant,--$25,000,000 +might cover them all, and $50,000,000 would certainly do so. + +The British mercantile vessels lost by enemy action, excluding fishing +vessels, numbered 2479, with an aggregate of 7,759,090 tons gross.[91] +There is room for considerable divergence of opinion as to the proper +rate to take for replacement cost; at the figure of $150 per gross ton, +which with the rapid growth of shipbuilding may soon be too high but can +be replaced by any other which better authorities[92] may prefer, the +aggregate claim is $1,150,000,000. To this must be added the loss of +cargoes, the value of which is almost entirely a matter of guesswork. An +estimate of $200 per ton of shipping lost may be as good an +approximation as is possible, that is to say $1,550,000,000, making +$2,700,000,000 altogether. + +An addition to this of $150,000,000, to cover air raids, bombardments, +claims of interned civilians, and miscellaneous items of every +description, should be more than sufficient,--making a total claim for +Great Britain of $2,850,000,000. It is surprising, perhaps, that the +money value of Great Britain's claim should be so little short of that +of France and actually in excess of that of Belgium. But, measured +either by pecuniary loss or real loss to the economic power of the +country, the injury to her mercantile marine was enormous. + +There remain the claims of Italy, Serbia, and Roumania for damage by +invasion and of these and other countries, as for example Greece,[93] +for losses at sea. I will assume for the present argument that these +claims rank against Germany, even when they were directly caused not by +her but by her allies; but that it is not proposed to enter any such +claims on behalf of Russia.[94] Italy's losses by invasion and at sea +cannot be very heavy, and a figure of from $250,000,000 to $500,000,000 +would be fully adequate to cover them. The losses of Serbia, although +from a human point of view her sufferings were the greatest of all,[95] +are not measured _pecuniarily_ by very great figures, on account of her +low economic development. Dr. Stamp (_loc. cit._) quotes an estimate by +the Italian statistician Maroi, which puts the national wealth of Serbia +at $2,400,000,000 or $525 per head,[96] and the greater part of this +would be represented by land which has sustained no permanent +damage.[97] In view of the very inadequate data for guessing at more +than the _general magnitude_ of the legitimate claims of this group of +countries, I prefer to make one guess rather than several and to put the +figure for the whole group at the round sum of $1,250,000,000. + +We are finally left with the following-- + + Belgium $ 2,500,000,000[98] + France 4,000,000,000 + Great Britain 2,850,000,000 + Other Allies 1,250,000,000 + --------------- + Total $10,600,000,000 + +I need not impress on the reader that there is much guesswork in the +above, and the figure for France in particular is likely to be +criticized. But I feel some confidence that the _general magnitude_, as +distinct from the precise figures, is not hopelessly erroneous; and this +may be expressed by the statement that a claim against Germany, based on +the interpretation of the pre-Armistice engagements of the Allied +Powers which is adopted above, would assuredly be found to exceed +$8,000,000,000 and to fall short of $15,000,000,000. + +This is the amount of the claim which we were entitled to present to the +enemy. For reasons which will appear more fully later on, I believe that +it would have been a wise and just act to have asked the German +Government at the Peace Negotiations to agree to a sum of +$10,000,000,000 in final settlement, without further examination of +particulars. This would have provided an immediate and certain solution, +and would have required from Germany a sum which, if she were granted +certain indulgences, it might not have proved entirely impossible for +her to pay. This sum should have been divided up amongst the Allies +themselves on a basis of need and general equity. + +But the question was not settled on its merits. + + +II. _The Conference and the Terms of the Treaty_ + +I do not believe that, at the date of the Armistice, responsible +authorities in the Allied countries expected any indemnity from Germany +beyond the cost of reparation for the direct material damage which had +resulted from the invasion of Allied territory and from the submarine +campaign. At that time there were serious doubts as to whether Germany +intended to accept our terms, which in other respects were inevitably +very severe, and it would have been thought an unstatesmanlike act to +risk a continuance of the war by demanding a money payment which Allied +opinion was not then anticipating and which probably could not be +secured in any case. The French, I think, never quite accepted this +point of view; but it was certainly the British attitude; and in this +atmosphere the pre-Armistice conditions were framed. + +A month later the atmosphere had changed completely. We had discovered +how hopeless the German position really was, a discovery which some, +though not all, had anticipated, but which no one had dared reckon on as +a certainty. It was evident that we could have secured unconditional +surrender if we had determined to get it. + +But there was another new factor in the situation which was of greater +local importance. The British Prime Minister had perceived that the +conclusion of hostilities might soon bring with it the break-up of the +political _bloc_ upon which he was depending for his personal +ascendency, and that the domestic difficulties which would be attendant +on demobilization, the turn-over of industry from war to peace +conditions, the financial situation, and the general psychological +reactions of men's minds, would provide his enemies with powerful +weapons, if he were to leave them time to mature. The best chance, +therefore, of consolidating his power, which was personal and exercised, +as such, independently of party or principle, to an extent unusual in +British politics, evidently lay in active hostilities before the +prestige of victory had abated, and in an attempt to found on the +emotions of the moment a new basis of power which might outlast the +inevitable reactions of the near future. Within a brief period, +therefore, after the Armistice, the popular victor, at the height of his +influence and his authority, decreed a General Election. It was widely +recognized at the time as an act of political immorality. There were no +grounds of public interest which did not call for a short delay until +the issues of the new age had a little defined themselves and until the +country had something more specific before it on which to declare its +mind and to instruct its new representatives. But the claims of private +ambition determined otherwise. + +For a time all went well. But before the campaign was far advanced +Government candidates were finding themselves handicapped by the lack of +an effective cry. The War Cabinet was demanding a further lease of +authority on the ground of having won the war. But partly because the +new issues had not yet defined themselves, partly out of regard for the +delicate balance of a Coalition Party, the Prime Minister's future +policy was the subject of silence or generalities. The campaign seemed, +therefore, to fall a little flat. In the light of subsequent events it +seems improbable that the Coalition Party was ever in real danger. But +party managers are easily "rattled." The Prime Minister's more neurotic +advisers told him that he was not safe from dangerous surprises, and the +Prime Minister lent an ear to them. The party managers demanded more +"ginger." The Prime Minister looked about for some. + +On the assumption that the return of the Prime Minister to power was the +primary consideration, the rest followed naturally. At that juncture +there was a clamor from certain quarters that the Government had given +by no means sufficiently clear undertakings that they were not going "to +let the Hun off." Mr. Hughes was evoking a good deal of attention by his +demands for a very large indemnity,[99] and Lord Northcliffe was lending +his powerful aid to the same cause. This pointed the Prime Minister to +a stone for two birds. By himself adopting the policy of Mr. Hughes and +Lord Northcliffe, he could at the same time silence those powerful +critics and provide his party managers with an effective platform cry to +drown the increasing voices of criticism from other quarters. + +The progress of the General Election of 1918 affords a sad, dramatic +history of the essential weakness of one who draws his chief inspiration +not from his own true impulses, but from the grosser effluxions of the +atmosphere which momentarily surrounds him. The Prime Minister's natural +instincts, as they so often are, were right and reasonable. He himself +did not believe in hanging the Kaiser or in the wisdom or the +possibility of a great indemnity. On the 22nd of November he and Mr. +Bonar Law issued their Election Manifesto. It contains no allusion of +any kind either to the one or to the other but, speaking, rather, of +Disarmament and the League of Nations, concludes that "our first task +must be to conclude a just and lasting peace, and so to establish the +foundations of a new Europe that occasion for further wars may be for +ever averted." In his speech at Wolverhampton on the eve of the +Dissolution (November 24), there is no word of Reparation or Indemnity. +On the following day at Glasgow, Mr. Bonar Law would promise nothing. +"We are going to the Conference," he said, "as one of a number of +allies, and you cannot expect a member of the Government, whatever he +may think, to state in public before he goes into that Conference, what +line he is going to take in regard to any particular question." But a +few days later at Newcastle (November 29) the Prime Minister was warming +to his work: "When Germany defeated France she made France pay. That is +the principle which she herself has established. There is absolutely no +doubt about the principle, and that is the principle we should proceed +upon--that Germany must pay the costs of the war up to the limit of her +capacity to do so." But he accompanied this statement of principle with +many "words of warning" as to the practical difficulties of the case: +"We have appointed a strong Committee of experts, representing every +shade of opinion, to consider this question very carefully and to advise +us. There is no doubt as to the justice of the demand. She ought to pay, +she must pay as far as she can, but we are not going to allow her to pay +in such a way as to wreck our industries." At this stage the Prime +Minister sought to indicate that he intended great severity, without +raising excessive hopes of actually getting the money, or committing +himself to a particular line of action at the Conference. It was +rumored that a high city authority had committed himself to the opinion +that Germany could certainly pay $100,000,000,000 and that this +authority for his part would not care to discredit a figure of twice +that sum. The Treasury officials, as Mr. Lloyd George indicated, took a +different view. He could, therefore, shelter himself behind the wide +discrepancy between the opinions of his different advisers, and regard +the precise figure of Germany's capacity to pay as an open question in +the treatment of which he must do his best for his country's interests. +As to our engagements under the Fourteen Points he was always silent. + +On November 30, Mr. Barnes, a member of the War Cabinet, in which he was +supposed to represent Labor, shouted from a platform, "I am for hanging +the Kaiser." + +On December 6, the Prime Minister issued a statement of policy and aims +in which he stated, with significant emphasis on the word _European_, +that "All the European Allies have accepted the principle that the +Central Powers must pay the cost of the war up to the limit of their +capacity." + +But it was now little more than a week to Polling Day, and still he had +not said enough to satisfy the appetites of the moment. On December 8, +the _Times_, providing as usual a cloak of ostensible decorum for the +lesser restraint of its associates, declared in a leader entitled +"Making Germany Pay," that "The public mind was still bewildered by the +Prime Minister's various statements." "There is too much suspicion," +they added, "of influences concerned to let the Germans off lightly, +whereas the only possible motive in determining their capacity to pay +must be the interests of the Allies." "It is the candidate who deals +with the issues of to-day," wrote their Political Correspondent, "who +adopts Mr. Barnes's phrase about 'hanging the Kaiser' and plumps for the +payment of the cost of the war by Germany, who rouses his audience and +strikes the notes to which they are most responsive." + +On December 9, at the Queen's Hall, the Prime Minister avoided the +subject. But from now on, the debauchery of thought and speech +progressed hour by hour. The grossest spectacle was provided by Sir Eric +Geddes in the Guildhall at Cambridge. An earlier speech in which, in a +moment of injudicious candor, he had cast doubts on the possibility of +extracting from Germany the whole cost of the war had been the object of +serious suspicion, and he had therefore a reputation to regain. "We will +get out of her all you can squeeze out of a lemon and a bit more," the +penitent shouted, "I will squeeze her until you can hear the pips +squeak"; his policy was to take every bit of property belonging to +Germans in neutral and Allied countries, and all her gold and silver and +her jewels, and the contents of her picture-galleries and libraries, to +sell the proceeds for the Allies' benefit. "I would strip Germany," he +cried, "as she has stripped Belgium." + +By December 11 the Prime Minister had capitulated. His Final Manifesto +of Six Points issued on that day to the electorate furnishes a +melancholy comparison with his program of three weeks earlier. I quote +it in full: + + "1. Trial of the Kaiser. + 2. Punishment of those responsible for atrocities. + 3. Fullest Indemnities from Germany. + 4. Britain for the British, socially and industrially. + 5. Rehabilitation of those broken in the war. + 6. A happier country for all." + +Here is food for the cynic. To this concoction of greed and sentiment, +prejudice and deception, three weeks of the platform had reduced the +powerful governors of England, who but a little while before had spoken +not ignobly of Disarmament and a League of Nations and of a just and +lasting peace which should establish the foundations of a new Europe. + +On the same evening the Prime Minister at Bristol withdrew in effect his +previous reservations and laid down four principles to govern his +Indemnity Policy, of which the chief were: First, we have an absolute +right to demand the whole cost of the war; second, we propose to demand +the whole cost of the war; and third, a Committee appointed by direction +of the Cabinet believe that it can be done.[100] Four days later he went +to the polls. + +The Prime Minister never said that he himself believed that Germany +could pay the whole cost of the war. But the program became in the +mouths of his supporters on the hustings a great deal more than +concrete. The ordinary voter was led to believe that Germany could +certainly be made to pay the greater part, if not the whole cost of the +war. Those whose practical and selfish fears for the future the expenses +of the war had aroused, and those whose emotions its horrors had +disordered, were both provided for. A vote for a Coalition candidate +meant the Crucifixion of Anti-Christ and the assumption by Germany of +the British National Debt. + +It proved an irresistible combination, and once more Mr. George's +political instinct was not at fault. No candidate could safely denounce +this program, and none did so. The old Liberal Party, having nothing +comparable to offer to the electorate, was swept out of existence.[101] +A new House of Commons came into being, a majority of whose members had +pledged themselves to a great deal more than the Prime Minister's +guarded promises. Shortly after their arrival at Westminster I asked a +Conservative friend, who had known previous Houses, what he thought of +them. "They are a lot of hard-faced men," he said, "who look as if they +had done very well out of the war." + +This was the atmosphere in which the Prime Minister left for Paris, and +these the entanglements he had made for himself. He had pledged himself +and his Government to make demands of a helpless enemy inconsistent with +solemn engagements on our part, on the faith of which this enemy had +laid down his arms. There are few episodes in history which posterity +will have less reason to condone,--a war ostensibly waged in defense of +the sanctity of international engagements ending in a definite breach of +one of the most sacred possible of such engagements on the part of +victorious champions of these ideals.[102] + +Apart from other aspects of the transaction, I believe that the +campaign for securing out of Germany the general costs of the war was +one of the most serious acts of political unwisdom for which our +statesmen have ever been responsible. To what a different future Europe +might have looked forward if either Mr. Lloyd George or Mr. Wilson had +apprehended that the most serious of the problems which claimed their +attention were not political or territorial but financial and economic, +and that the perils of the future lay not in frontiers or sovereignties +but in food, coal, and transport. Neither of them paid adequate +attention to these problems at any stage of the Conference. But in any +event the atmosphere for the wise and reasonable consideration of them +was hopelessly befogged by the commitments of the British delegation on +the question of Indemnities. The hopes to which the Prime Minister had +given rise not only compelled him to advocate an unjust and unworkable +economic basis to the Treaty with Germany, but set him at variance with +the President, and on the other hand with competing interests to those +of France and Belgium. The clearer it became that but little could be +expected from Germany, the more necessary it was to exercise patriotic +greed and "sacred egotism" and snatch the bone from the juster claims +and greater need of France or the well-founded expectations of Belgium. +Yet the financial problems which were about to exercise Europe could not +be solved by greed. The possibility of _their_ cure lay in magnanimity. + +Europe, if she is to survive her troubles, will need so much magnanimity +from America, that she must herself practice it. It is useless for the +Allies, hot from stripping Germany and one another, to turn for help to +the United States to put the States of Europe, including Germany, on to +their feet again. If the General Election of December, 1918, had been +fought on lines of prudent generosity instead of imbecile greed, how +much better the financial prospect of Europe might now be. I still +believe that before the main Conference, or very early in its +proceedings, the representatives of Great Britain should have entered +deeply, with those of the United States, into the economic and financial +situation as a whole, and that the former should have been authorized to +make concrete proposals on the general lines (1) that all inter-allied +indebtedness be canceled outright; (2) that the sum to be paid by +Germany be fixed at $10,000,000,000; (3) that Great Britain renounce all +claim to participation in this sum and that any share to which she +proves entitled be placed at the disposal of the Conference for the +purpose of aiding the finances of the New States about to be +established; (4) that in order to make some basis of credit immediately +available an appropriate proportion of the German obligations +representing the sum to be paid by her should be guaranteed by all +parties to the Treaty; and (5) that the ex-enemy Powers should also be +allowed, with a view to their economic restoration, to issue a moderate +amount of bonds carrying a similar guarantee. Such proposals involved an +appeal to the generosity of the United States. But that was inevitable; +and, in view of her far less financial sacrifices, it was an appeal +which could fairly have been made to her. Such proposals would have been +practicable. There is nothing in them quixotic or Utopian. And they +would have opened up for Europe some prospect of financial stability and +reconstruction. + +The further elaboration of these ideas, however, must be left to Chapter +VII., and we must return to Paris. I have described the entanglements +which Mr. Lloyd George took with him. The position of the Finance +Ministers of the other Allies was even worse. We in Great Britain had +not based our financial arrangements on any expectations of an +indemnity. Receipts from such a source would have been more or less in +the nature of a windfall; and, in spite of subsequent developments, +there was an expectation at that time of balancing our budget by normal +methods. But this was not the case with France or Italy. Their peace +budgets made no pretense of balancing and had no prospects of doing so, +without some far-reaching revision of the existing policy. Indeed, the +position was and remains nearly hopeless. These countries were heading +for national bankruptcy. This fact could only be concealed by holding +out the expectation of vast receipts from the enemy. As soon as it was +admitted that it was in fact impossible to make Germany pay the expenses +of both sides, and that the unloading of their liabilities upon the +enemy was not practicable, the position of the Ministers of Finance of +France and Italy became untenable. + +Thus a scientific consideration of Germany's capacity to pay was from +the outset out of court. The expectations which the exigencies of +politics had made it necessary to raise were so very remote from the +truth that a slight distortion of figures was no use, and it was +necessary to ignore the facts entirely. The resulting unveracity was +fundamental. On a basis of so much falsehood it became impossible to +erect any constructive financial policy which was workable. For this +reason amongst others, a magnanimous financial policy was essential. The +financial position of France and Italy was so bad that it was impossible +to make them listen to reason on the subject of the German Indemnity, +unless one could at the same time point out to them some alternative +mode of escape from their troubles.[103] The representatives of the +United States were greatly at fault, in my judgment, for having no +constructive proposals whatever to offer to a suffering and distracted +Europe. + +It is worth while to point out in passing a further element in the +situation, namely, the opposition which existed between the "crushing" +policy of M. Clemenceau and the financial necessities of M. Klotz. +Clemenceau's aim was to weaken and destroy Germany in every possible +way, and I fancy that he was always a little contemptuous about the +Indemnity; he had no intention of leaving Germany in a position to +practise a vast commercial activity. But he did not trouble his head to +understand either the indemnity or poor M. Klotz's overwhelming +financial difficulties. If it amused the financiers to put into the +Treaty some very large demands, well there was no harm in that; but the +satisfaction of these demands must not be allowed to interfere with the +essential requirements of a Carthaginian Peace. The combination of the +"real" policy of M. Clemenceau on unreal issues, with M. Klotz's policy +of pretense on what were very real issues indeed, introduced into the +Treaty a whole set of incompatible provisions, over and above the +inherent impracticabilities of the Reparation proposals. + +I cannot here describe the endless controversy and intrigue between the +Allies themselves, which at last after some months culminated in the +presentation to Germany of the Reparation Chapter in its final form. +There can have been few negotiations in history so contorted, so +miserable, so utterly unsatisfactory to all parties. I doubt if any one +who took much part in that debate can look back on it without shame. I +must be content with an analysis of the elements of the final compromise +which is known to all the world. + +The main point to be settled was, of course, that of the items for which +Germany could fairly be asked to make payment. Mr. Lloyd George's +election pledge to the effect that the Allies were _entitled_ to demand +from Germany the entire costs of the war was from the outset clearly +untenable; or rather, to put it more impartially, it was clear that to +persuade the President of the conformity of this demand with our +pro-Armistice engagements was beyond the powers of the most plausible. +The actual compromise finally reached is to be read as follows in the +paragraphs of the Treaty as it has been published to the world. + +Article 231 reads: "The Allied and Associated Governments affirm and +Germany accepts the responsibility of Germany and her allies for causing +all the loss and damage to which the Allied and Associated Governments +and their nationals have been subjected as a consequence of the war +imposed upon them by the aggression of Germany and her allies." This is +a well and carefully drafted Article; for the President could read it as +statement of admission on Germany's part of _moral_ responsibility for +bringing about the war, while the Prime Minister could explain it as an +admission of _financial_ liability for the general costs of the war. +Article 232 continues: "The Allied and Associated Governments recognize +that the resources of Germany are not adequate, after taking into +account permanent diminutions of such resources which will result from +other provisions of the present Treaty, to make complete reparation for +all such loss and damage." The President could comfort himself that this +was no more than a statement of undoubted fact, and that to recognize +that Germany _cannot_ pay a certain claim does not imply that she is +_liable_ to pay the claim; but the Prime Minister could point out that +in the context it emphasizes to the reader the assumption of Germany's +theoretic liability asserted in the preceding Article. Article 232 +proceeds: "The Allied and Associated Governments, however, require, and +Germany undertakes, that _she will make compensation for all damage done +to the civilian population of the Allied and Associated Powers and to +their property_ during the period of the belligerency of each as an +Allied or Associated Power against Germany _by such aggression by land, +by sea, and from the air_, and in general all damage as defined in Annex +I. hereto."[104] The words italicized being practically a quotation from +the pre-Armistice conditions, satisfied the scruples of the President, +while the addition of the words "and in general all damage as defined in +Annex I. hereto" gave the Prime Minister a chance in Annex I. + +So far, however, all this is only a matter of words, of virtuosity in +draftsmanship, which does no one any harm, and which probably seemed +much more important at the time than it ever will again between now and +Judgment Day. For substance we must turn to Annex I. + +A great part of Annex I. is in strict conformity with the pre-Armistice +conditions, or, at any rate, does not strain them beyond what is fairly +arguable. Paragraph 1 claims damage done for injury to the persons of +civilians, or, in the case of death, to their dependents, as a direct +consequence of acts of war; Paragraph 2, for acts of cruelty, violence, +or maltreatment on the part of the enemy towards civilian victims; +Paragraph 3, for enemy acts injurious to health or capacity to work or +to honor towards civilians in occupied or invaded territory; Paragraph +8, for forced labor exacted by the enemy from civilians; Paragraph 9, +for damage done to property "with the exception of naval and military +works or materials" as a direct consequence of hostilities; and +Paragraph 10, for fines and levies imposed by the enemy upon the +civilian population. All these demands are just and in conformity with +the Allies' rights. + +Paragraph 4, which claims for "damage caused by any kind of maltreatment +of prisoners of war," is more doubtful on the strict letter, but may be +justifiable under the Hague Convention and involves a very small sum. + +In Paragraphs 5, 6, and 7, however, an issue of immensely greater +significance is involved. These paragraphs assert a claim for the amount +of the Separation and similar Allowances granted during the war by the +Allied Governments to the families of mobilized persons, and for the +amount of the pensions and compensations in respect of the injury or +death of combatants payable by these Governments now and hereafter. +Financially this adds to the Bill, as we shall see below, a very large +amount, indeed about twice as much again as all the other claims added +together. + +The reader will readily apprehend what a plausible case can be made out +for the inclusion of these items of damage, if only on sentimental +grounds. It can be pointed out, first of all, that from the point of +view of general fairness it is monstrous that a woman whose house is +destroyed should be entitled to claim from the enemy whilst a woman +whose husband is killed on the field of battle should not be so +entitled; or that a farmer deprived of his farm should claim but that a +woman deprived of the earning power of her husband should not claim. In +fact the case for including Pensions and Separation Allowances largely +depends on exploiting the rather _arbitrary_ character of the criterion +laid down in the pre-Armistice conditions. Of all the losses caused by +war some bear more heavily on individuals and some are more evenly +distributed over the community as a whole; but by means of compensations +granted by the Government many of the former are in fact converted into +the latter. The most logical criterion for a limited claim, falling +short of the entire costs of the war, would have been in respect of +enemy acts contrary to International engagements or the recognized +practices of warfare. But this also would have been very difficult to +apply and unduly unfavorable to French interests as compared with +Belgium (whose neutrality Germany had guaranteed) and Great Britain (the +chief sufferer from illicit acts of submarines). + +In any case the appeals to sentiment and fairness outlined above are +hollow; for it makes no difference to the recipient of a separation +allowance or a pension whether the State which pays them receives +compensation on this or on another head, and a recovery by the State out +of indemnity receipts is just as much in relief of the general taxpayer +as a contribution towards the general costs of the war would have been. +But the main consideration is that it was too late to consider whether +the pre-Armistice conditions were perfectly judicious and logical or to +amend them; the only question at issue was whether these conditions were +not in fact limited to such classes of direct damage to civilians and +their property as are set forth in Paragraphs 1, 2, 3, 8, 9, and 10 of +Annex I. If words have any meaning, or engagements any force, we had no +more right to claim for those war expenses of the State, which arose out +of Pensions and Separation Allowances, than for any other of the general +costs of the war. And who is prepared to argue in detail that we were +entitled to demand the latter? + +What had really happened was a compromise between the Prime Minister's +pledge to the British electorate to claim the entire costs of the war +and the pledge to the contrary which the Allies had given to Germany at +the Armistice. The Prime Minister could claim that although he had not +secured the entire costs of the war, he had nevertheless secured an +important contribution towards them, that he had always qualified his +promises by the limiting condition of Germany's capacity to pay, and +that the bill as now presented more than exhausted this capacity as +estimated by the more sober authorities. The President, on the other +hand, had secured a formula, which was not too obvious a breach of +faith, and had avoided a quarrel with his Associates on an issue where +the appeals to sentiment and passion would all have been against him, in +the event of its being made a matter of open popular controversy. In +view of the Prime Minister's election pledges, the President could +hardly hope to get him to abandon them in their entirety without a +struggle in public; and the cry of pensions would have had an +overwhelming popular appeal in all countries. Once more the Prime +Minister had shown himself a political tactician of a high order. + +A further point of great difficulty may be readily perceived between the +lines of the Treaty. It fixes no definite sum as representing Germany's +liability. This feature has been the subject of very general +criticism,--that it is equally inconvenient to Germany and to the Allies +themselves that she should not know what she has to pay or they what +they are to receive. The method, apparently contemplated by the Treaty, +of arriving at the final result over a period of many months by an +addition of hundreds of thousands of individual claims for damage to +land, farm buildings, and chickens, is evidently impracticable; and the +reasonable course would have been for both parties to compound for a +round sum without examination of details. If this round sum had been +named in the Treaty, the settlement would have been placed on a more +business-like basis. + +But this was impossible for two reasons. Two different kinds of false +statements had been widely promulgated, one as to Germany's capacity to +pay, the other as to the amount of the Allies' just claims in respect of +the devastated areas. The fixing of either of these figures presented a +dilemma. A figure for Germany's prospective capacity to pay, not too +much in excess of the estimates of most candid and well-informed +authorities, would have fallen hopelessly far short of popular +expectations both in England and in France. On the other hand, a +definitive figure for damage done which would not disastrously +disappoint the expectations which had been raised in France and Belgium +might have been incapable of substantiation under challenge,[105] and +open to damaging criticism on the part of the Germans, who were believed +to have been prudent enough to accumulate considerable evidence as to +the extent of their own misdoings. + +By far the safest course for the politicians was, therefore, to mention +no figure at all; and from this necessity a great deal of the +complication of the Reparation Chapter essentially springs. + +The reader may be interested, however, to have my estimate of the claim +which can in fact be substantiated under Annex I. of the Reparation +Chapter. In the first section of this chapter I have already guessed the +claims other than those for Pensions and Separation Allowances at +$15,000,000,000 (to take the extreme upper limit of my estimate). The +claim for Pensions and Separation Allowances under Annex I. is not to be +based on the _actual_ cost of these compensations to the Governments +concerned, but is to be a computed figure calculated on the basis of the +scales in force in France at the date of the Treaty's coming into +operation. This method avoids the invidious course of valuing an +American or a British life at a higher figure than a French or an +Italian. The French rate for Pensions and Allowances is at an +intermediate rate, not so high as the American or British, but above the +Italian, the Belgian, or the Serbian. The only data required for the +calculation are the actual French rates and the numbers of men mobilized +and of the casualties in each class of the various Allied Armies. None +of these figures are available in detail, but enough is known of the +general level of allowances, of the numbers involved, and of the +casualties suffered to allow of an estimate which may not be _very wide_ +of the mark. My guess as to the amount to be added in respect of +Pensions and Allowances is as follows: + + British Empire $ 7,000,000,000[106] + France 12,000,000,000[106] + Italy 2,500,000,000 + Others (including United States) 3,500,000,000 + --------------- + Total $ 25,000,000,000 + +I feel much more confidence in the approximate accuracy of the total +figure[107] than in its division between the different claimants. The +reader will observe that in any case the addition of Pensions and +Allowances enormously increases the aggregate claim, raising it indeed +by nearly double. Adding this figure to the estimate under other heads, +we have a total claim against Germany of $40,000,000,000.[108] I believe +that this figure is fully high enough, and that the actual result may +fall somewhat short of it.[109] In the next section of this chapter the +relation of this figure to Germany's capacity to pay will be examined. +It is only necessary here to remind the reader of certain other +particulars of the Treaty which speak for themselves: + +1. Out of the total amount of the claim, whatever it eventually turns +out to be, a sum of $5,000,000,000 must be paid before May 1, 1921. The +possibility of this will be discussed below. But the Treaty itself +provides certain abatements. In the first place, this sum is to include +the expenses of the Armies of Occupation since the Armistice (a large +charge of the order of magnitude of $1,000,000,000 which under another +Article of the Treaty--No. 249--is laid upon Germany).[110] But further, +"such supplies of food and raw materials as may be judged by the +Governments of the Principal Allied and Associated Powers to be +essential to enable Germany to meet her obligations for Reparation may +also, with the approval of the said Governments, be paid for out of the +above sum."[111] This is a qualification of high importance. The clause, +as it is drafted, allows the Finance Ministers of the Allied countries +to hold out to their electorates the hope of substantial payments at an +early date, while at the same time it gives to the Reparation Commission +a discretion, which the force of facts will compel them to exercise, to +give back to Germany what is required for the maintenance of her +economic existence. This discretionary power renders the demand for an +immediate payment of $5,000,000,000 less injurious than it would +otherwise be, but nevertheless it does not render it innocuous. In the +first place, my conclusions in the next section of this chapter indicate +that this sum cannot be found within the period indicated, even if a +large proportion is in practice returned to Germany for the purpose of +enabling her to pay for imports. In the second place, the Reparation +Commission can only exercise its discretionary power effectively by +taking charge of the entire foreign trade of Germany, together with the +foreign exchange arising out of it, which will be quite beyond the +capacity of any such body. If the Reparation Commission makes any +serious attempt to administer the collection of this sum of +$5,000,000,000 and to authorize the return to Germany of a part it, the +trade of Central Europe will be strangled by bureaucratic regulation in +its most inefficient form. + +2. In addition to the early payment in cash or kind of a sum of +$5,000,000,000, Germany is required to deliver bearer bonds to a further +amount of $10,000,000,000, or, in the event of the payments in cash or +kind before May 1, 1921, available for Reparation, falling short of +$5,000,000,000 by reason of the permitted deductions, to such further +amount as shall bring the total payments by Germany in cash, kind, and +bearer bonds up to May 1, 1921, to a figure of $15,000,000,000 +altogether.[112] These bearer bonds carry interest at 2-1/2 per cent per +annum from 1921 to 1925, and at 5 per cent _plus_ 1 per cent for +amortization thereafter. Assuming, therefore, that Germany is not able +to provide any appreciable surplus towards Reparation before 1921, she +will have to find a sum of $375,000,000 annually from 1921 to 1925, and +$900,000,000 annually thereafter.[113] + +3. As soon as the Reparation Commission is satisfied that Germany can do +better than this, 5 per cent bearer bonds are to be issued for a further +$10,000,000,000, the rate of amortization being determined by the +Commission hereafter. This would bring the annual payment to +$1,400,000,000 without allowing anything for the discharge of the +capital of the last $10,000,000,000. + +4. Germany's liability, however, is not limited to $25,000,000,000, and +the Reparation Commission is to demand further instalments of bearer +bonds until the total enemy liability under Annex I. has been provided +for. On the basis of my estimate of $40,000,000,000 for the total +liability, which is more likely to be criticized as being too low than +as being too high, the amount of this balance will be $15,000,000,000. +Assuming interest at 5 per cent, this will raise the annual payment to +$2,150,000,000 without allowance for amortization. + +5. But even this is not all. There is a further provision of devastating +significance. Bonds representing payments in excess of $15,000,000,000 +are not to be issued until the Commission is satisfied that Germany can +meet the interest on them. But this does not mean that interest is +remitted in the meantime. As from May 1, 1921, interest is to be debited +to Germany on such part of her outstanding debt as has not been covered +by payment in cash or kind or by the issue of bonds as above,[114] and +"the rate of interest shall be 5 per cent unless the Commission shall +determine at some future time that circumstances justify a variation of +this rate." That is to say, the capital sum of indebtedness is rolling +up all the time at compound interest. The effect of this provision +towards increasing the burden is, on the assumption that Germany cannot +pay very large sums at first, enormous. At 5 per cent compound interest +a capital sum doubles itself in fifteen years. On the assumption that +Germany cannot pay more than $750,000,000 annually until 1936 (_i.e._ 5 +per cent interest on $15,000,000,000) the $25,000,000,000 on which +interest is deferred will have risen to $50,000,000,000, carrying an +annual interest charge of $2,500,000,000. That is to say, even if +Germany pays $750,000,000 annually up to 1936, she will nevertheless owe +us at that date more than half as much again as she does now +($65,000,000,000 as compared with $40,000,000,000). From 1936 onwards +she will have to pay to us $3,250,000,000 annually in order to keep pace +with the interest alone. At the end of any year in which she pays less +than this sum she will owe more than she did at the beginning of it. And +if she is to discharge the capital sum in thirty years from 1930, _i.e._ +in forty-eight years from the Armistice, she must pay an additional +$650,000,000 annually, making $3,900,000,000 in all.[115] + +It is, in my judgment, as certain as anything can be, for reasons which +I will elaborate in a moment, that Germany cannot pay anything +approaching this sum. Until the Treaty is altered, therefore, Germany +has in effect engaged herself to hand over to the Allies the whole of +her surplus production in perpetuity. + +6. This is not less the case because the Reparation Commission has been +given discretionary powers to vary the rate of interest, and to postpone +and even to cancel the capital indebtedness. In the first place, some of +these powers can only be exercised if the Commission or the Governments +represented on it are _unanimous_.[116] But also, which is perhaps more +important, it will be the _duty_ of the Reparation Commission, until +there has been a unanimous and far-reaching change of the policy which +the Treaty represents, to extract from Germany year after year the +maximum sum obtainable. There is a great difference between fixing a +definite sum, which though large is within Germany's capacity to pay and +yet to retain a little for herself, and fixing a sum far beyond her +capacity, which is then to be reduced at the discretion of a foreign +Commission acting with the object of obtaining each year the maximum +which the circumstances of that year permit. The first still leaves her +with some slight incentive for enterprise, energy, and hope. The latter +skins her alive year by year in perpetuity, and however skilfully and +discreetly the operation is performed, with whatever regard for not +killing the patient in the process, it would represent a policy which, +if it were really entertained and deliberately practised, the judgment +of men would soon pronounce to be one of the most outrageous acts of a +cruel victor in civilized history. + +There are other functions and powers of high significance which the +Treaty accords to the Reparation Commission. But these will be most +conveniently dealt with in a separate section. + + +III. _Germany's Capacity to pay_ + +The forms in which Germany can discharge the sum which she has engaged +herself to pay are three in number-- + +1. Immediately transferable wealth in the form of gold, ships, and +foreign securities; + +2. The value of property in ceded territory, or surrendered under the +Armistice; + +3. Annual payments spread over a term of years, partly in cash and +partly in materials such as coal products, potash, and dyes. + +There is excluded from the above the actual restitution of property +removed from territory occupied by the enemy, as, for example, Russian +gold, Belgian and French securities, cattle, machinery, and works of +art. In so far as the actual goods taken can be identified and restored, +they must clearly be returned to their rightful owners, and cannot be +brought into the general reparation pool. This is expressly provided for +in Article 238 of the Treaty. + + +1. _Immediately Transferable Wealth_ + +(_a_) _Gold_.--After deduction of the gold to be returned to Russia, the +official holding of gold as shown in the Reichsbank's return of the 30th +November, 1918, amounted to $577,089,500. This was a very much larger +amount than had appeared in the Reichsbank's return prior to the +war,[117] and was the result of the vigorous campaign carried on in +Germany during the war for the surrender to the Reichsbank not only of +gold coin but of gold ornaments of every kind. Private hoards doubtless +still exist, but, in view of the great efforts already made, it is +unlikely that either the German Government or the Allies will be able to +unearth them. The return can therefore be taken as probably representing +the maximum amount which the German Government are able to extract from +their people. In addition to gold there was in the Reichsbank a sum of +about $5,000,000 in silver. There must be, however, a further +substantial amount in circulation, for the holdings of the Reichsbank +were as high as $45,500,000 on the 31st December, 1917, and stood at +about $30,000,000 up to the latter part of October, 1918, when the +internal run began on currency of every kind.[118] We may, therefore, +take a total of (say) $625,000,000 for gold and silver together at the +date of the Armistice. + +These reserves, however, are no longer intact. During the long period +which elapsed between the Armistice and the Peace it became necessary +for the Allies to facilitate the provisioning of Germany from abroad. +The political condition of Germany at that time and the serious menace +of Spartacism rendered this step necessary in the interests of the +Allies themselves if they desired the continuance in Germany of a stable +Government to treat with. The question of how such provisions were to be +paid for presented, however, the gravest difficulties. A series of +Conferences was held at Treves, at Spa, at Brussels, and subsequently at +Chateau 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 regime 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 regime 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 +role 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 financiere 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 kilometres of railway track +destroyed, 2016 had been repaired; of 1075 kilometres 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 metres 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 Treves and Spa (January +16, February 14-16, and March 4-5, 1919) were at last followed by the +Agreement of Brussels (March 14, 1919). The unwillingness of the Germans +to conclude was mainly due to the lack of any absolute guarantee on the +part of the Allies that, if they surrendered the ships, they would get +the food. But assuming reasonable good faith on the part of the latter +(their behavior in respect of certain other clauses of the Armistice, +however, had not been impeccable and gave the enemy some just grounds +for suspicion), their demand was not an improper one; for without the +German ships the business of transporting the food would have been +difficult, if not impossible, and the German ships surrendered or their +equivalent were in fact almost wholly employed in transporting food to +Germany itself. Up to June 30, 1919, 176 German ships of 1,025,388 gross +tonnage had been surrendered, to the Allies in accordance with the +Brussels Agreement. + +[120] The amount of tonnage transferred may be rather greater +and the value per ton rather less. The aggregate value involved is not +likely, however, to be less than $500,000,000 or greater than +$750,000,000. + +[121] This census was carried out by virtue of a Decree of +August 23, 1918. On March 22, 1917, the German Government acquired +complete control over the utilization of foreign securities in German +possession; and in May, 1917, it began to exercise these powers for the +mobilization of certain Swedish, Danish, and Swiss securities. + +[122] 1892. Schmoller $2,500,000,000 + 1892. Christians 3,250,000,000 + 1893-4. Koch 3,000,000,000 + 1905. v. Halle 4,000,000,000[A] + 1913. Helfferich 5,000,000,000[B] + 1914. Ballod 6,250,000,000 + 1914. Pistorius 6,250,000,000 + 1919. Hans David 5,250,000,000[C] + +[A] Plus $2,500,000 for investments other than securities. + +[B] Net investments, _i.e._ after allowance for property in +Germany owned abroad. This may also be the case with some of the other +estimates. + +[C] This estimate, given in the _Weltwirtschaftszeitung_ (June +13, 1919), is an estimate of the value of Germany's foreign investments +as at the outbreak of war. + +[123] I have made no deduction for securities in the ownership +of Alsace-Lorrainers and others who have now ceased to be German +nationals. + +[124] In all these estimates, I am conscious of being driven by +a fear of overstating the case against the Treaty, of giving figures in +excess of my own real judgment. There is a great difference between +putting down on paper fancy estimates of Germany's resources and +actually extracting contributions in the form of cash. I do not myself +believe that the Reparation Commission will secure real resources from +the above items by May, 1921, even as great as the _lower_ of the two +figures given above. + +[125] The Treaty (see Art. 114) leaves it very dubious how far +the Danish Government is under an obligation to make payments to the +Reparation Commission in respect of its acquisition of Schleswig. They +might, for instance, arrange for various offsets such as the value of +the mark notes held by the inhabitants of ceded areas. In any case the +amount of money involved is quite small. The Danish Government is +raising a loan for $33,000,000 (kr. 120,000,000) for the joint purposes +of "taking over Schleswig's share of the German debt, for buying German +public property, for helping the Schleswig population, and for settling +the currency question." + +[126] Here again my own judgment would carry me much further +and I should doubt the possibility of Germany's exports equaling her +imports during this period. But the statement in the text goes far +enough for the purpose of my argument. + +[127] It has been estimated that the cession of territory to +France, apart from the loss of Upper Silesia, may reduce Germany's +annual pre-war production of steel ingots from 20,000,000 tons to +14,000,000 tons, and increase France's capacity from 5,000,000 tons to +11,000,000 tons. + +[128] Germany's exports of sugar in 1913 amounted to 1,110,073 +tons of the value of $65,471,500, of which 838,583 tons were exported to +the United Kingdom at a value of $45,254,000. These figures were in +excess of the normal, the average total exports for the five years +ending 1913 being about $50,000,000. + +[129] The necessary price adjustment, which is required, on +both sides of this account, will be made _en bloc_ later. + +[130] If the amount of the sinking fund be reduced, and the +annual payment is continued over a greater number of years, the present +value--so powerful is the operation of compound interest--cannot be +materially increased. A payment of $500,000,000 annually _in +perpetuity_, assuming interest, as before, at 5 per cent, would only +raise the present value to $10,000,000,000. + +[131] As an example of public misapprehension on economic +affairs, the following letter from Sir Sidney Low to _The Times_ of the +3rd December, 1918, deserves quotation: "I have seen authoritative +estimates which place the gross value of Germany's mineral and chemical +resources as high as $1,250,000,000,000 or even more; and the Ruhr basin +mines alone are said to be worth over $225,000,000,000. It is certain, +at any rate, that the capital value of these natural supplies is much +greater than the total war debts of all the Allied States. Why should +not some portion of this wealth be diverted for a sufficient period from +its present owners and assigned to the peoples whom Germany has +assailed, deported, and injured? The Allied Governments might justly +require Germany to surrender to them the use of such of her mines, and +mineral deposits as would yield, say, from $500,000,000 to +$1,000,000,000 annually for the next 30, 40, or 50 years. By this means +we could obtain sufficient compensation from Germany without unduly +stimulating her manufactures and export trade to our detriment." It is +not clear why, if Germany has wealth exceeding $1,250,000,000,000. Sir +Sidney Low is content with the trifling sum of $500,000,000 to +$1,000,000,000 annually. But his letter is an admirable _reductio ad +absurdum_ of a certain line of thought. While a mode of calculation, +which estimates the value of coal miles deep in the bowels of the earth +as high as in a coal scuttle, of an annual lease of $5000 for 999 years +at $4,995,000 and of a field (presumably) at the value of all the crops +it will grow to the end of recorded time, opens up great possibilities, +it is also double-edged. If Germany's total resources are worth +$1,250,000,000,000, those she will part with in the cession of +Alsace-Lorraine and Upper Silesia should be more than sufficient to pay +the entire costs of the war and reparation together. In point of fact, +the _present_ market value of all the mines in Germany of every kind has +been estimated at $1,500,000,000, or a little more than one-thousandth +part of Sir Sidney Low's expectations. + +[132] The conversion at par of 5,000 million marks overstates, +by reason of the existing depreciation of the mark, the present money +burden of the actual pensions payments, but not, in all probability, the +real loss of national productivity as a result of the casualties +suffered in the war. + +[133] It cannot be overlooked, in passing, that in its results +on a country's surplus productivity a lowering of the standard of life +acts both ways. Moreover, we are without experience of the psychology of +a white race under conditions little short of servitude. It is, however, +generally supposed that if the whole of a man's surplus production is +taken from him, his efficiency and his industry are diminished, The +entrepreneur and the inventor will not contrive, the trader and the +shopkeeper will not save, the laborer will not toil, if the fruits of +their industry are set aside, not for the benefit of their children, +their old age, their pride, or their position, but for the enjoyment of +a foreign conqueror. + +[134] In the course of the compromises and delays of the +Conference, there were many questions on which, in order to reach any +conclusion at all, it was necessary to leave a margin of vagueness and +uncertainty. The whole method of the Conference tended towards +this,--the Council of Four wanted, not so much a settlement, as a +treaty. On political and territorial questions the tendency was to leave +the final arbitrament to the League of Nations. But on financial and +economic questions, the final decision has generally be a left with the +Reparation Commission,--in spite of its being an executive body composed +of interested parties. + +[135] The sum to be paid by Austria for Reparation is left to +the absolute discretion of the Reparation Commission, no determinate +figure of any kind being mentioned in the text of the Treaty Austrian +questions are to be handled by a special section of the Reparation +Commission, but the section will have no powers except such as the main +Commission may delegate. + +[136] Bulgaria is to pay an indemnity of $450,000,000 by +half-yearly instalments, beginning July 1, 1920. These sums will be +collected, on behalf of the Reparation Commission, by an Inter-Ally +Commission of Control, with its seat at Sofia. In some respects the +Bulgarian Inter-Ally Commission appears to have powers and authority +independent of the Reparation Commission, but it is to act, +nevertheless, as the agent of the latter, and is authorized to tender +advice to the Reparation Commission as to, for example, the reduction of +the half-yearly instalments. + +[137] Under the Treaty this is the function of any body +appointed for the purpose by the principal Allied and Associated +Governments, and not necessarily of the Reparation Commission. But it +may be presumed that no second body will be established for this special +purpose. + +[138] At the date of writing no treaties with these countries +have been drafted. It is possible that Turkey might be dealt with by a +separate Commission. + +[139] This appears to me to be in effect the position (if this +paragraph means anything at all), in spite of the following disclaimer +of such intentions in the Allies' reply:--"Nor does Paragraph 12(b) of +Annex II. give the Commission powers to prescribe or enforce taxes or to +dictate the character of the German budget." + +[140] Whatever that may mean. + +[141] Assuming that the capital sum is discharged evenly over a +period as short as thirty-three years, this has the effect of _halving_ +the burden as compared with the payments required on the basis of 5 per +cent interest on the outstanding capital. + +[142] I forbear to outline the further details of the German +offer as the above are the essential points. + +[143] For this reason it is not strictly comparable with my +estimate of Germany's capacity in an earlier section of this chapter, +which estimate is on the basis of Germany's condition as it will be when +the rest of the Treaty has come into effect. + +[144] Owing to delays on the part of the Allies in ratifying +the Treaty, the Reparation Commission had not yet been formally +constituted by the end of October, 1919. So far as I am aware, +therefore, nothing has been done to make the above offer effective. But, +perhaps in view of the circumstances, there has been an extension of the +date. + + + + +CHAPTER VI + +EUROPE AFTER THE TREATY + + +This chapter must be one of pessimism. The Treaty includes no provisions +for the economic rehabilitation of Europe,--nothing to make the defeated +Central Empires into good neighbors, nothing to stabilize the new States +of Europe, nothing to reclaim Russia; nor does it promote in any way a +compact of economic solidarity amongst the Allies themselves; no +arrangement was reached at Paris for restoring the disordered finances +of France and Italy, or to adjust the systems of the Old World and the +New. + +The Council of Four paid no attention to these issues, being preoccupied +with others,--Clemenceau to crush the economic life of his enemy, Lloyd +George to do a deal and bring home something which would pass muster for +a week, the President to do nothing that was not just and right. It is +an extraordinary fact that the fundamental economic problems of a Europe +starving and disintegrating before their eyes, was the one question in +which it was impossible to arouse the interest of the Four. Reparation +was their main excursion into the economic field, and they settled it +as a problem of theology, of polities, of electoral chicane, from every +point of view except that of the economic future of the States whose +destiny they were handling. + +I leave, from this point onwards, Paris, the Conference, and the Treaty, +briefly to consider the present situation of Europe, as the War and the +Peace have made it; and it will no longer be part of my purpose to +distinguish between the inevitable fruits of the War and the avoidable +misfortunes of the Peace. + +The essential facts of the situation, as I see them, are expressed +simply. Europe consists of the densest aggregation of population in the +history of the world. This population is accustomed to a relatively high +standard of life, in which, even now, some sections of it anticipate +improvement rather than deterioration. In relation to other continents +Europe is not self-sufficient; in particular it cannot feed Itself. +Internally the population is not evenly distributed, but much of it is +crowded into a relatively small number of dense industrial centers. This +population secured for itself a livelihood before the war, without much +margin of surplus, by means of a delicate and immensely complicated +organization, of which the foundations were supported by coal, iron, +transport, and an unbroken supply of imported food and raw materials +from other continents. By the destruction of this organization and the +interruption of the stream of supplies, a part of this population is +deprived of its means of livelihood. Emigration is not open to the +redundant surplus. For it would take years to transport them overseas, +even, which is not the case, if countries could be found which were +ready to receive them. The danger confronting us, therefore, is the +rapid depression of the standard of life of the European populations to +a point which will mean actual starvation for some (a point already +reached in Russia and approximately reached in Austria). Men will not +always die quietly. For starvation, which brings to some lethargy and a +helpless despair, drives other temperaments to the nervous instability +of hysteria and to a mad despair. And these in their distress may +overturn the remnants of organization, and submerge civilization itself +in their attempts to satisfy desperately the overwhelming needs of the +individual. This is the danger against which all our resources and +courage and idealism must now co-operate. + +On the 13th May, 1919, Count Brockdorff-Rantzau addressed to the Peace +Conference of the Allied and Associated Powers the Report of the German +Economic Commission charged with the study of the effect of the +conditions of Peace on the situation of the German population. "In the +course of the last two generations," they reported, "Germany has become +transformed from an agricultural State to an industrial State. So long +as she was an agricultural State, Germany could feed forty million +inhabitants. As an industrial State she could insure the means of +subsistence for a population of sixty-seven millions; and in 1913 the +importation of foodstuffs amounted, in round figures, to twelve million +tons. Before the war a total of fifteen million persons in Germany +provided for their existence by foreign trade, navigation, and the use, +directly or indirectly, of foreign raw material." After rehearsing the +main relevant provisions of the Peace Treaty the report continues: +"After this diminution of her products, after the economic depression +resulting from the loss of her colonies, her merchant fleet and her +foreign investments, Germany will not be in a position to import from +abroad an adequate quantity of raw material. An enormous part of German +industry will, therefore, be condemned inevitably to destruction. The +need of importing foodstuffs will increase considerably at the same time +that the possibility of satisfying this demand is as greatly diminished. +In a very short time, therefore, Germany will not be in a position to +give bread and work to her numerous millions of inhabitants, who are +prevented from earning their livelihood by navigation and trade. These +persons should emigrate, but this is a material impossibility, all the +more because many countries and the most important ones will oppose any +German immigration. To put the Peace conditions into execution would +logically involve, therefore, the loss of several millions of persons in +Germany. This catastrophe would not be long in coming about, seeing that +the health of the population has been broken down during the War by the +Blockade, and during the Armistice by the aggravation of the Blockade of +famine. No help, however great, or over however long a period it were +continued, could prevent those deaths _en masse_." "We do not know, and +indeed we doubt," the report concludes, "whether the Delegates of the +Allied and Associated Powers realize the inevitable consequences which +will take place if Germany, an industrial State, very thickly populated, +closely bound up with the economic system of the world, and under the +necessity of importing enormous quantities of raw material and +foodstuffs, suddenly finds herself pushed back to the phase of her +development, which corresponds to her economic condition and the numbers +of her population as they were half a century ago. Those who sign this +Treaty will sign the death sentence of many millions of German men, +women and children." + +I know of no adequate answer to these words. The indictment is at least +as true of the Austrian, as of the German, settlement. This is the +fundamental problem in front of us, before which questions of +territorial adjustment and the balance of European power are +insignificant. Some of the catastrophes of past history, which have +thrown back human progress for centuries, have been due to the reactions +following on the sudden termination, whether in the course of nature or +by the act of man, of temporarily favorable conditions which have +permitted the growth of population beyond what could be provided for +when the favorable conditions were at an end. + +The significant features of the immediate situation can be grouped under +three heads: first, the absolute falling off, for the time being, in +Europe's internal productivity; second, the breakdown of transport and +exchange by means of which its products could be conveyed where they +were most wanted; and third, the inability of Europe to purchase its +usual supplies from overseas. + +The decrease of productivity cannot be easily estimated, and may be the +subject of exaggeration. But the _prima facie_ evidence of it is +overwhelming, and this factor has been the main burden of Mr. Hoover's +well-considered warnings. A variety of causes have produced it;--violent +and prolonged internal disorder as in Russia and Hungary; the creation +of new governments and their inexperience in the readjustment of +economic relations, as in Poland and Czecho-Slovakia; the loss +throughout the Continent of efficient labor, through the casualties of +war or the continuance of mobilization; the falling-off in efficiency +through continued underfeeding in the Central Empires; the exhaustion of +the soil from lack of the usual applications of artificial manures +throughout the course of the war; the unsettlement of the minds of the +laboring classes on the above all (to quote Mr. Hoover), "there is a +great fundamental economic issues of their lives. But relaxation of +effort as the reflex of physical exhaustion of large sections of the +population from privation and the mental and physical strain of the +war." Many persons are for one reason or another out of employment +altogether. According to Mr. Hoover, a summary of the unemployment +bureaus in Europe in July, 1919, showed that 15,000,000 families were +receiving unemployment allowances in one form or another, and were being +paid in the main by a constant inflation of currency. In Germany there +is the added deterrent to labor and to capital (in so far as the +Reparation terms are taken literally), that anything, which they may +produce beyond the barest level of subsistence, will for years to come +be taken away from them. + +Such definite data as we possess do not add much, perhaps, to the +general picture of decay. But I will remind the reader of one or two of +them. The coal production of Europe as a whole is estimated to have +fallen off by 30 per cent; and upon coal the greater part of the +industries of Europe and the whole of her transport system depend. +Whereas before the war Germany produced 85 per cent of the total food +consumed by her inhabitants, the productivity of the soil is now +diminished by 40 per cent and the effective quality of the live-stock by +55 per cent.[145] Of the European countries which formerly possessed a +large exportable surplus, Russia, as much by reason of deficient +transport as of diminished output, may herself starve. Hungary, apart +from her other troubles, has been pillaged by the Romanians immediately +after harvest. Austria will have consumed the whole of her own harvest +for 1919 before the end of the calendar year. The figures are almost too +overwhelming to carry conviction to our minds; if they were not quite so +bad, our effective belief in them might be stronger. + +But even when coal can be got and grain harvested, the breakdown of the +European railway system prevents their carriage; and even when goods can +be manufactured, the breakdown of the European currency system prevents +their sale. I have already described the losses, by war and under the +Armistice surrenders, to the transport system of Germany. But even so, +Germany's position, taking account of her power of replacement by +manufacture, is probably not so serious as that of some of her +neighbors. In Russia (about which, however, we have very little exact or +accurate information) the condition of the rolling-stock is believed to +be altogether desperate, and one of the most fundamental factors in her +existing economic disorder. And in Poland, Roumania, and Hungary the +position is not much better. Yet modern industrial life essentially +depends on efficient transport facilities, and the population which +secured its livelihood by these means cannot continue to live without +them. The breakdown of currency, and the distrust in its purchasing +value, is an aggravation of these evils which must be discussed in a +little more detail in connection with foreign trade. + +What then is our picture of Europe? A country population able to support +life on the fruits of its own agricultural production but without the +accustomed surplus for the towns, and also (as a result of the lack of +imported materials and so of variety and amount in the saleable +manufactures of the towns) without the usual incentives to market food +in return for other wares; an industrial population unable to keep its +strength for lack of food, unable to earn a livelihood for lack of +materials, and so unable to make good by imports from abroad the failure +of productivity at home. Yet, according to Mr. Hoover, "a rough estimate +would indicate that the population of Europe is at least 100,000,000 +greater than can be supported without imports, and must live by the +production and distribution of exports." + +The problem of the re-inauguration of the perpetual circle of production +and exchange in foreign trade leads me to a necessary digression on the +currency situation of Europe. + +Lenin is said to have declared that the best way to destroy the +Capitalist System was to debauch the currency. By a continuing process +of inflation, governments can confiscate, secretly and unobserved, an +important part of the wealth of their citizens. By this method they not +only confiscate, but they confiscate _arbitrarily_; and, while the +process impoverishes many, it actually enriches some. The sight of this +arbitrary rearrangement of riches strikes not only at security, but at +confidence in the equity of the existing distribution of wealth. Those +to whom the system brings windfalls, beyond their deserts and even +beyond their expectations or desires, become "profiteers,", who are the +object of the hatred of the bourgeoisie, whom the inflationism has +impoverished, not less than of the proletariat. As the inflation +proceeds and the real value of the currency fluctuates wildly from +month to month, all permanent relations between debtors and creditors, +which form the ultimate foundation of capitalism, become so utterly +disordered as to be almost meaningless; and the process of +wealth-getting degenerates into a gamble and a lottery. + +Lenin was certainly right. There is no subtler, no surer means of +overturning the existing basis of society than to debauch the currency. +The process engages all the hidden forces of economic law on the side of +destruction, and does it in a manner which not one man in a million is +able to diagnose. + +In the latter stages of the war all the belligerent governments +practised, from necessity or incompetence, what a Bolshevist might have +done from design. Even now, when the war is over, most of them continue +out of weakness the same malpractices. But further, the Governments of +Europe, being many of them at this moment reckless in their methods as +well as weak, seek to direct on to a class known as "profiteers" the +popular indignation against the more obvious consequences of their +vicious methods. These "profiteers" are, broadly speaking, the +entrepreneur class of capitalists, that is to say, the active and +constructive element in the whole capitalist society, who in a period of +rapidly rising prices cannot help but get rich quick whether they wish +it or desire it or not. If prices are continually rising, every trader +who has purchased for stock or owns property and plant inevitably makes +profits. By directing hatred against this class, therefore, the European +Governments are carrying a step further the fatal process which the +subtle mind of Lenin had consciously conceived. The profiteers are a +consequence and not a cause of rising prices. By combining a popular +hatred of the class of entrepreneurs with the blow already given to +social security by the violent and arbitrary disturbance of contract and +of the established equilibrium of wealth which is the inevitable result +of inflation, these Governments are fast rendering impossible a +continuance of the social and economic order of the nineteenth century. +But they have no plan for replacing it. + +We are thus faced in Europe with the spectacle of an extraordinary +weakness on the part of the great capitalist class, which has emerged +from the industrial triumphs of the nineteenth century, and seemed a +very few years ago our all-powerful master. The terror and personal +timidity of the individuals of this class is now so great, their +confidence in their place in society and in their necessity to the +social organism so diminished, that they are the easy victims of +intimidation. This was not so in England twenty-five years ago, any +more than it is now in the United States. Then the capitalists believed +in themselves, in their value to society, in the propriety of their +continued existence in the full enjoyment of their riches and the +unlimited exercise of their power. Now they tremble before every +insult;--call them pro-Germans, international financiers, or profiteers, +and they will give you any ransom you choose to ask not to speak of them +so harshly. They allow themselves to be ruined and altogether undone by +their own instruments, governments of their own making, and a press of +which they are the proprietors. Perhaps it is historically true that no +order of society ever perishes save by its own hand. In the complexer +world of Western Europe the Immanent Will may achieve its ends more +subtly and bring in the revolution no less inevitably through a Klotz or +a George than by the intellectualisms, too ruthless and self-conscious +for us, of the bloodthirsty philosophers of Russia. + +The inflationism of the currency systems of Europe has proceeded to +extraordinary lengths. The various belligerent Governments, unable, or +too timid or too short-sighted to secure from loans or taxes the +resources they required, have printed notes for the balance. In Russia +and Austria-Hungary this process has reached a point where for the +purposes of foreign trade the currency is practically valueless. The +Polish mark can be bought for about three cents and the Austrian crown +for less than two cents, but they cannot be sold at all. The German mark +is worth less than four cents on the exchanges. In most of the other +countries of Eastern and South-Eastern Europe the real position is +nearly as bad. The currency of Italy has fallen to little more than a +half of its nominal value in spite of its being still subject to some +degree of regulation; French currency maintains an uncertain market; and +even sterling is seriously diminished in present value and impaired in +its future prospects. + +But while these currencies enjoy a precarious value abroad, they have +never entirely lost, not even in Russia, their purchasing power at home. +A sentiment of trust in the legal money of the State is so deeply +implanted in the citizens of all countries that they cannot but believe +that some day this money must recover a part at least of its former +value. To their minds it appears that value is inherent in money as +such, and they do not apprehend that the real wealth, which this money +might have stood for, has been dissipated once and for all. This +sentiment is supported by the various legal regulations with which the +Governments endeavor to control internal prices, and so to preserve some +purchasing power for their legal tender. Thus the force of law +preserves a measure of immediate purchasing power over some commodities +and the force of sentiment and custom maintains, especially amongst +peasants, a willingness to hoard paper which is really worthless. + +The presumption of a spurious value for the currency, by the force of +law expressed in the regulation of prices, contains in itself, however, +the seeds of final economic decay, and soon dries up the sources of +ultimate supply. If a man is compelled to exchange the fruits of his +labors for paper which, as experience soon teaches him, he cannot use to +purchase what he requires at a price comparable to that which he has +received for his own products, he will keep his produce for himself, +dispose of it to his friends and neighbors as a favor, or relax his +efforts in producing it. A system of compelling the exchange of +commodities at what is not their real relative value not only relaxes +production, but leads finally to the waste and inefficiency of barter. +If, however, a government refrains from regulation and allows matters to +take their course, essential commodities soon attain a level of price +out of the reach of all but the rich, the worthlessness of the money +becomes apparent, and the fraud upon the public can be concealed no +longer. + +The effect on foreign trade of price-regulation and profiteer-hunting +as cures for inflation is even worse. Whatever may be the case at home, +the currency must soon reach its real level abroad, with the result that +prices inside and outside the country lose their normal adjustment. The +price of imported commodities, when converted at the current rate of +exchange, is far in excess of the local price, so that many essential +goods will not be imported at all by private agency, and must be +provided by the government, which, in re-selling the goods below cost +price, plunges thereby a little further into insolvency. The bread +subsidies, now almost universal throughout Europe, are the leading +example of this phenomenon. + +The countries of Europe fall into two distinct groups at the present +time as regards their manifestations of what is really the same evil +throughout, according as they have been cut off from international +intercourse by the Blockade, or have had their imports paid for out of +the resources of their allies. I take Germany as typical of the first, +and France and Italy of the second. + +The note circulation of Germany is about ten times[146] what it was +before the war. The value of the mark in terms of gold is about +one-eighth of its former value. As world-prices in terms of gold are +more than double what they were, it follows that mark-prices inside +Germany ought to be from sixteen to twenty times their pre-war level if +they are to be in adjustment and proper conformity with prices outside +Germany.[147] But this is not the case. In spite of a very great rise in +German prices, they probably do not yet average much more than five +times their former level, so far as staple commodities are concerned; +and it is impossible that they should rise further except with a +simultaneous and not less violent adjustment of the level of money +wages. The existing maladjustment hinders in two ways (apart from other +obstacles) that revival of the import trade which is the essential +preliminary of the economic reconstruction of the country. In the first +place, imported commodities are beyond the purchasing power of the great +mass of the population,[148] and the flood of imports which might have +been expected to succeed the raising of the blockade was not in fact +commercially possible.[149] In the second place, it is a hazardous +enterprise for a merchant or a manufacturer to purchase with a foreign +credit material for which, when he has imported it or manufactured it, +he will receive mark currency of a quite uncertain and possibly +unrealizable value. This latter obstacle to the revival of trade is one +which easily escapes notice and deserves a little attention. It is +impossible at the present time to say what the mark will be worth in +terms of foreign currency three or six months or a year hence, and the +exchange market can quote no reliable figure. It may be the case, +therefore, that a German merchant, careful of his future credit and +reputation, who is actually offered a short period credit in terms of +sterling or dollars, may be reluctant and doubtful whether to accept it. +He will owe sterling or dollars, but he will sell his product for marks, +and his power, when the time comes, to turn these marks into the +currency in which he has to repay his debt is entirely problematic. +Business loses its genuine character and becomes no better than a +speculation in the exchanges, the fluctuations in which entirely +obliterate the normal profits of commerce. + +There are therefore three separate obstacles to the revival of trade: a +maladjustment between internal prices and international prices, a lack +of individual credit abroad wherewith to buy the raw materials needed to +secure the working capital and to re-start the circle of exchange, and a +disordered currency system which renders credit operations hazardous or +impossible quite apart from the ordinary risks of commerce. + +The note circulation of France is more than six times its pre-war level. +The exchange value of the franc in terms of gold is a little less than +two-thirds its former value; that is to say, the value of the franc has +not fallen in proportion to the increased volume of the currency.[150] +This apparently superior situation of France is due to the fact that +until recently a very great part of her imports have not been paid for, +but have been covered by loans from the Governments of Great Britain and +the United States. This has allowed a want of equilibrium between +exports and imports to be established, which is becoming a very serious +factor, now that the outside assistance is being gradually discontinued. +The internal economy of France and its price level in relation to the +note circulation and the foreign exchanges is at present based on an +excess of imports over exports which cannot possibly continue. Yet it is +difficult to see how the position can be readjusted except by a lowering +of the standard of consumption in France, which, even if it is only +temporary, will provoke a great deal of discontent.[151] + +The situation of Italy is not very different. There the note circulation +is five or six times its pre-war level, and the exchange value of the +lira in terms of gold about half its former value. Thus the adjustment +of the exchange to the volume of the note circulation has proceeded +further in Italy than in France. On the other hand, Italy's "invisible" +receipts, from emigrant remittances and the expenditure of tourists, +have been very injuriously affected; the disruption of Austria has +deprived her of an important market; and her peculiar dependence on +foreign shipping and on imported raw materials of every kind has laid +her open to special injury from the increase of world prices. For all +these reasons her position is grave, and her excess of imports as +serious a symptom as in the case of France.[152] + +The existing inflation and the maladjustment of international trade are +aggravated, both in France and in Italy, by the unfortunate budgetary +position of the Governments of these countries. + +In France the failure to impose taxation is notorious. Before the war +the aggregate French and British budgets, and also the average taxation +per head, were about equal; but in France no substantial effort has been +made to cover the increased expenditure. "Taxes increased in Great +Britain during the war," it has been estimated, "from 95 francs per head +to 265 francs, whereas the increase in France was only from 90 to 103 +francs." The taxation voted in France for the financial year ending June +30, 1919, was less than half the estimated normal _post-bellum_ +expenditure. The normal budget for the future cannot be put below +$4,400,000,000 (22 milliard francs), and may exceed this figure; but +even for the fiscal year 1919-20 the estimated receipts from taxation +do not cover much more than half this amount. The French Ministry of +Finance have no plan or policy whatever for meeting this prodigious +deficit, except the expectation of receipts from Germany on a scale +which the French officials themselves know to be baseless. In the +meantime they are helped by sales of war material and surplus American +stocks and do not scruple, even in the latter half of 1919, to meet the +deficit by the yet further expansion of the note issue of the Bank of +France.[153] + +The budgetary position of Italy is perhaps a little superior to that of +France. Italian finance throughout the war was more enterprising than +the French, and far greater efforts were made to impose taxation and pay +for the war. Nevertheless Signor Nitti, the Prime Minister, in a letter +addressed to the electorate on the eve of the General Election (Oct., +1919), thought it necessary to make public the following desperate +analysis of the situation:--(1) The State expenditure amounts to about +three times the revenue. (2) All the industrial undertakings of the +State, including the railways, telegraphs, and telephones, are being run +at a loss. Although the public is buying bread at a high price, that +price represents a loss to the Government of about a milliard a year. +(3) Exports now leaving the country are valued at only one-quarter or +one-fifth of the imports from abroad. (4) The National Debt is +increasing by about a milliard lire per month. (5) The military +expenditure for one month is still larger than that for the first year +of the war. + +But if this is the budgetary position of France and Italy, that of the +rest of belligerent Europe is yet more desperate. In Germany the total +expenditure of the Empire, the Federal States, and the Communes in +1919-20 is estimated at 25 milliards of marks, of which not above 10 +milliards are covered by previously existing taxation. This is without +allowing anything for the payment of the indemnity. In Russia, Poland, +Hungary, or Austria such a thing as a budget cannot be seriously +considered to exist at all.[154] + +Thus the menace of inflationism described above is not merely a product +of the war, of which peace begins the cure. It is a continuing +phenomenon of which the end is not yet in sight. + +All these influences combine not merely to prevent Europe from +supplying immediately a sufficient stream of exports to pay for the +goods she needs to import, but they impair her credit for securing the +working capital required to re-start the circle of exchange and also, by +swinging the forces of economic law yet further from equilibrium rather +than towards it, they favor a continuance of the present conditions +instead of a recovery from them. An inefficient, unemployed, +disorganized Europe faces us, torn by internal strife and international +hate, fighting, starving, pillaging, and lying. What warrant is there +for a picture of less somber colors? + +I have paid little heed in this book to Russia, Hungary, or +Austria.[155] There the miseries of life and the disintegration of +society are too notorious to require analysis; and these countries are +already experiencing the actuality of what for the rest of Europe is +still in the realm of prediction. Yet they comprehend a vast territory +and a great population, and are an extant example of how much man can +suffer and how far society can decay. Above all, they are the signal to +us of how in the final catastrophe the malady of the body passes over +into malady of the mind. Economic privation proceeds by easy stages, and +so long as men suffer it patiently the outside world cares little. +Physical efficiency and resistance to disease slowly diminish,[156] but +life proceeds somehow, until the limit of human endurance is reached at +last and counsels of despair and madness stir the sufferers from the +lethargy which precedes the crisis. Then man shakes himself, and the +bonds of custom are loosed. The power of ideas is sovereign, and he +listens to whatever instruction of hope, illusion, or revenge is carried +to him on the air. As I write, the flames of Russian Bolshevism seem, +for the moment at least, to have burnt themselves out, and the peoples +of Central and Eastern Europe are held in a dreadful torpor. The lately +gathered harvest keeps off the worst privations, and Peace has been +declared at Paris. But winter approaches. Men will have nothing to look +forward to or to nourish hopes on. There will be little fuel to moderate +the rigors of the season or to comfort the starved bodies of the +town-dwellers. + +But who can say how much is endurable, or in what direction men will +seek at last to escape from their misfortunes? + + +FOOTNOTES: + +[145] Professor Starling's _Report on Food Conditions in +Germany_. (Cmd. 280.) + +[146] Including the _Darlehenskassenscheine_ somewhat more. + +[147] Similarly in Austria prices ought to be between twenty +and thirty times their former level. + +[148] One of the moat striking and symptomatic difficulties +which faced the Allied authorities in their administration of the +occupied areas of Germany during the Armistice arose out of the fact +that even when they brought food into the country the inhabitants could +not afford to pay its cost price. + +[149] Theoretically an unduly low level of home prices should +stimulate exports and so cure itself. But in Germany, and still more in +Poland and Austria, there is little or nothing to export. There must be +imports _before_ there can be exports. + +[150] Allowing for the diminished value of gold, the exchange +value of the franc should be less than 40 per cent of its previous +value, instead of the actual figure of about 60 per cent, if the fall +were proportional to the increase in the volume of the currency. + +[151] How very far from equilibrium France's international +exchange now is can be seen from the following table: + + Excess of + Monthly Imports Exports Imports + Average $1,000 $1,000 $1,000 + + 1913 140,355 114,670 25,685 + 1914 106,705 81,145 25,560 + 1918 331,915 69,055 262,860 + Jan.-Mar. 1919 387,140 66,670 320,470 + Apr.-June 1919 421,410 83,895 337,515 + July 1919 467,565 123,675 343,890 + +These figures have been converted, at approximately par rates, but this +is roughly compensated by the fact that the trade of 1918 and 1919 has +been valued at 1917 official rates. French imports cannot possibly +continue at anything approaching these figures, and the semblance of +prosperity based on such a state of affairs is spurious. + +[152] The figures for Italy are as follows: + + Excess of + Monthly Imports Exports Imports + Average $1,000 $1,000 $1,000 + + 1913 60,760 41,860 18,900 + 1914 48,720 36,840 11,880 + 1918 235,025 41,390 193,635 + Jan.-Mar. 1919 229,240 38,685 191,155 + Apr.-June 1919 331,035 69,250 261,785 + July-Aug. 1919 223,535 84,515 139,020 + +[153] In the last two returns of the Bank of France available +as I write (Oct. 2 and 9, 1919) the increases in the note issue on the +week amounted to $93,750,000 and $94,125,000 respectively. + +[154] On October 3, 1919, M. Bilinski made his financial +statement to the Polish Diet. He estimated his expenditure for the next +nine months at rather more than double his expenditure for the past nine +months, and while during the first period his revenue had amounted to +one-fifth of his expenditure, for the coming months he was budgeting for +receipts equal to one-eighth of his outgoings. The _Times_ correspondent +at Warsaw reported that "in general M. Bilinski's tone was optimistic +and appeared to satisfy his audience." + +[155] The terms of the Peace Treaty imposed on the Austrian +Republic bear no relation to the real facts of that State's desperate +situation. The _Arbeiter Zeitung_ of Vienna on June 4, 1919, commented +on them as follows: "Never has the substance of a treaty of peace so +grossly betrayed the intentions which were said to have guided its +construction as is the case with this Treaty ... in which every provision +is permeated with ruthlessness and pitilessness, in which no breath of +human sympathy can be detected, which flies in the face of everything +which binds man to man, which is a crime against humanity itself, +against a suffering and tortured people." I am acquainted in detail with +the Austrian Treaty and I was present when some of its terms were being +drafted, but I do not find it easy to rebut the justice of this +outburst. + +[156] For months past the reports of the health conditions in +the Central Empires have been of such a character that the imagination +is dulled, and one almost seems guilty of sentimentality in quoting +them. But their general veracity is not disputed, and I quote the three +following, that the reader may not be unmindful of them: "In the last +years of the war, in Austria alone at least 35,000 people died of +tuberculosis, in Vienna alone 12,000. Today we have to reckon with a +number of at least 350,000 to 400,000 people who require treatment for +tuberculosis.... As the result of malnutrition a bloodless generation is +growing up with undeveloped muscles, undeveloped joints, and undeveloped +brain" (_Neue Freie Presse_, May 31, 1919). The Commission of Doctors +appointed by the Medical Faculties of Holland, Sweden, and Norway to +examine the conditions in Germany reported as follows in the Swedish +Press in April, 1919: "Tuberculosis, especially in children, is +increasing in an appalling way, and, generally speaking, is malignant. +In the same way rickets is more serious and more widely prevalent. It is +impossible to do anything for these diseases; there is no milk for the +tuberculous, and no cod-liver oil for those suffering from rickets.... +Tuberculosis is assuming almost unprecedented aspects, such as have +hitherto only been known in exceptional cases. The whole body is +attacked simultaneously, and the illness in this form is practically +incurable.... Tuberculosis is nearly always fatal now among adults. It +is the cause of 90 per cent of the hospital cases. Nothing can be done +against it owing to lack of food-stuffs.... It appears in the most +terrible forms, such as glandular tuberculosis, which turns into +purulent dissolution." The following is by a writer in the _Vossische +Zeitung_, June 5, 1919, who accompanied the Hoover Mission to the +Erzgebirge: "I visited large country districts where 90 per cent of all +the children were ricketty and where children of three years are only +beginning to walk.... Accompany me to a school in the Erzgebirge. You +think it is a kindergarten for the little ones. No, these are children +of seven and eight years. Tiny faces, with large dull eyes, overshadowed +by huge puffed, ricketty foreheads, their small arms just skin and bone, +and above the crooked legs with their dislocated joints the swollen, +pointed stomachs of the hunger oedema.... 'You see this child here,' the +physician in charge explained; 'it consumed an incredible amount of +bread, and yet did not get any stronger. I found out that it hid all the +bread it received underneath its straw mattress. The fear of hunger was +so deeply rooted in the child that it collected stores instead of eating +the food: a misguided animal instinct made the dread of hunger worse +than the actual pangs.'" Yet there are many persons apparently in whose +opinion justice requires that such beings should pay tribute until they +are forty or fifty years of age in relief of the British taxpayer. + + + + +CHAPTER VII + +REMEDIES + + +It is difficult to maintain true perspective in large affairs. I have +criticized the work of Paris, and have depicted in somber colors the +condition and the prospects of Europe. This is one aspect of the +position and, I believe, a true one. But in so complex a phenomenon the +prognostics do not all point one way; and we may make the error of +expecting consequences to follow too swiftly and too inevitably from +what perhaps are not _all_ the relevant causes. The blackness of the +prospect itself leads us to doubt its accuracy; our imagination is +dulled rather than stimulated by too woeful a narration, and our minds +rebound from what is felt "too bad to be true." But before the reader +allows himself to be too much swayed by these natural reflections, and +before I lead him, as is the intention of this chapter, towards remedies +and ameliorations and the discovery of happier tendencies, let him +redress the balance of his thought by recalling two contrasts--England +and Russia, of which the one may encourage his optimism too much, but +the other should remind him that catastrophes can still happen, and +that modern society is not immune from the very greatest evils. + +In the chapters of this book I have not generally had in mind the +situation or the problems of England. "Europe" in my narration must +generally be interpreted to exclude the British Isles. England is in a +state of transition, and her economic problems are serious. We may be on +the eve of great changes in her social and industrial structure. Some of +us may welcome such prospects and some of us deplore them. But they are +of a different kind altogether from those impending on Europe. I do not +perceive in England the slightest possibility of catastrophe or any +serious likelihood of a general upheaval of society. The war has +impoverished us, but not seriously;--I should judge that the real wealth +of the country in 1919 is at least equal to what it was in 1900. Our +balance of trade is adverse, but not so much so that the readjustment of +it need disorder our economic life.[157] The deficit in our Budget is +large, but not beyond what firm and prudent statesmanship could bridge. +The shortening of the hours of labor may have somewhat diminished our +productivity. But it should not be too much to hope that this is a +feature of transition, and no one who is acquainted with the British +workingman can doubt that, if it suits him, and if he is in sympathy and +reasonable contentment with the conditions of his life, he can produce +at least as much in a shorter working day as he did in the longer hours +which prevailed formerly. The most serious problems for England have +been brought to a head by the war, but are in their origins more +fundamental. The forces of the nineteenth century have run their course +and are exhausted. The economic motives and ideals of that generation no +longer satisfy us: we must find a new way and must suffer again the +_malaise_, and finally the pangs, of a new industrial birth. This is one +element. The other is that on which I have enlarged in Chapter II.;--the +increase in the real cost of food and the diminishing response of nature +to any further increase in the population of the world, a tendency which +must be especially injurious to the greatest of all industrial +countries and the most dependent on imported supplies of food. + +But these secular problems are such as no age is free from. They are of +an altogether different order from those which may afflict the peoples +of Central Europe. Those readers who, chiefly mindful of the British +conditions with which they are familiar, are apt to indulge their +optimism, and still more those whose immediate environment is American, +must cast their minds to Russia, Turkey, Hungary, or Austria, where the +most dreadful material evils which men can suffer--famine, cold, +disease, war, murder, and anarchy--are an actual present experience, if +they are to apprehend the character of the misfortunes against the +further extension of which it must surely be our duty to seek the +remedy, if there is one. + +What then is to be done? The tentative suggestions of this chapter may +appear to the reader inadequate. But the opportunity was missed at Paris +during the six months which followed the Armistice, and nothing we can +do now can repair the mischief wrought at that time. Great privation and +great risks to society have become unavoidable. All that is now open to +us is to redirect, so far as lies in our power, the fundamental economic +tendencies which underlie the events of the hour, so that they promote +the re-establishment of prosperity and order, instead of leading us +deeper into misfortune. + +We must first escape from the atmosphere and the methods of Paris. Those +who controlled the Conference may bow before the gusts of popular +opinion, but they will never lead us out of our troubles. It is hardly +to be supposed that the Council of Four can retrace their steps, even if +they wished to do so. The replacement of the existing Governments of +Europe is, therefore, an almost indispensable preliminary. + +I propose then to discuss a program, for those who believe that the +Peace of Versailles cannot stand, under the following heads: + +1. The Revision of the Treaty. + +2. The settlement of inter-Ally indebtedness. + +3. An international loan and the reform of the currency. + +4. The relations of Central Europe to Russia. + + +1. _The Revision of the Treaty_ + +Are any constitutional means open to us for altering the Treaty? +President Wilson and General Smuts, who believe that to have secured the +Covenant of the League of Nations outweighs much evil in the rest of the +Treaty, have indicated that we must look to the League for the gradual +evolution of a more tolerable life for Europe. "There are territorial +settlements," General Smuts wrote in his statement on signing the Peace +Treaty, "which will need revision. There are guarantees laid down which +we all hope will soon be found out of harmony with the new peaceful +temper and unarmed state of our former enemies. There are punishments +foreshadowed over most of which a calmer mood may yet prefer to pass the +sponge of oblivion. There are indemnities stipulated which cannot be +enacted without grave injury to the industrial revival of Europe, and +which it will be in the interests of all to render more tolerable and +moderate.... I am confident that the League of Nations will yet prove +the path of escape for Europe out of the ruin brought about by this +war." Without the League, President Wilson informed the Senate when he +presented the Treaty to them early in July, 1919, "...long-continued +supervision of the task of reparation which Germany was to undertake to +complete within the next generation might entirely break down;[158] the +reconsideration and revision of administrative arrangements and +restrictions which the Treaty prescribed, but which it recognized might +not provide lasting advantage or be entirely fair if too long enforced, +would be impracticable." + +Can we look forward with fair hopes to securing from the operation of +the League those benefits which two of its principal begetters thus +encourage us to expect from it? The relevant passage is to be found in +Article XIX. of the Covenant, which runs as follows: + + "The Assembly may from time to time advise the + reconsideration by Members of the League of treaties which + have become inapplicable and the consideration of + international conditions whose continuance might endanger the + peace of the world." + +But alas! Article V. provides that "Except where otherwise expressly +provided in this Covenant or by the terms of the present Treaty, +decisions at any meeting of the Assembly or of the Council shall require +the agreement of all the Members of the League represented at the +meeting." Does not this provision reduce the League, so far as concerns +an early reconsideration of any of the terms of the Peace Treaty, into a +body merely for wasting time? If all the parties to the Treaty are +unanimously of opinion that it requires alteration in a particular +sense, it does not need a League and a Covenant to put the business +through. Even when the Assembly of the League is unanimous it can only +"advise" reconsideration by the members specially affected. + +But the League will operate, say its supporters, by its influence on the +public opinion of the world, and the view of the majority will carry +decisive weight in practice, even though constitutionally it is of no +effect. Let us pray that this be so. Yet the League in the hands of the +trained European diplomatist may become an unequaled instrument for +obstruction and delay. The revision of Treaties is entrusted primarily, +not to the Council, which meets frequently, but to the Assembly, which +will meet more rarely and must become, as any one with an experience of +large Inter-Ally Conferences must know, an unwieldy polyglot debating +society in which the greatest resolution and the best management may +fail altogether to bring issues to a head against an opposition in favor +of the _status quo_. There are indeed two disastrous blots on the +Covenant,--Article V., which prescribes unanimity, and the +much-criticized Article X., by which "The Members of the League +undertake to respect and preserve as against external aggression the +territorial integrity and existing political independence of all Members +of the League." These two Articles together go some way to destroy the +conception of the League as an instrument of progress, and to equip it +from the outset with an almost fatal bias towards the _status quo_. It +is these Articles which have reconciled to the League some of its +original opponents, who now hope to make of it another Holy Alliance for +the perpetuation of the economic ruin of their enemies and the Balance +of Power in their own interests which they believe themselves to have +established by the Peace. + +But while it would be wrong and foolish to conceal from ourselves in the +interests of "idealism" the real difficulties of the position in the +special matter of revising treaties, that is no reason for any of us to +decry the League, which the wisdom of the world may yet transform into a +powerful instrument of peace, and which in Articles XI.-XVII.[159] has +already accomplished a great and beneficent achievement. I agree, +therefore, that our first efforts for the Revision of the Treaty must be +made through the League rather than in any other way, in the hope that +the force of general opinion and, if necessary, the use of financial +pressure and financial inducements, may be enough to prevent a +recalcitrant minority from exercising their right of veto. We must trust +the new Governments, whose existence I premise in the principal Allied +countries, to show a profounder wisdom and a greater magnanimity than +their predecessors. + +We have seen in Chapters IV. and V. that there are numerous particulars +in which the Treaty is objectionable. I do not intend to enter here into +details, or to attempt a revision of the Treaty clause by clause. I +limit myself to three great changes which are necessary for the economic +life of Europe, relating to Reparation, to Coal and Iron, and to +Tariffs. + +_Reparation_.--If the sum demanded for Reparation is less than what the +Allies are entitled to on a strict interpretation of their engagements, +it is unnecessary to particularize the items it represents or to hear +arguments about its compilation. I suggest, therefore, the following +settlement:-- + +(1) The amount of the payment to be made by Germany in respect of +Reparation and the costs of the Armies of Occupation might be fixed at +$10,000,000,000. + +(2) The surrender of merchant ships and submarine cables under the +Treaty, of war material under the Armistice, of State property in ceded +territory, of claims against such territory in respect of public debt, +and of Germany's claims against her former Allies, should be reckoned as +worth the lump sum of $2,500,000,000, without any attempt being made to +evaluate them item by item. + +(3) The balance of $7,500,000,000 should not carry interest pending its +repayment, and should be paid by Germany in thirty annual instalments of +$250,000,000, beginning in 1923. + +(4) The Reparation Commission should be dissolved, or, if any duties +remain for it to perform, it should become an appanage of the League of +Nations and should include representatives of Germany and of the neutral +States. + +(5) Germany would be left to meet the annual instalments in such manner +as she might see fit, any complaint against her for non-fulfilment of +her obligations being lodged with the League of Nations. That is to say, +there would be no further expropriation of German private property +abroad, except so far as is required to meet private German obligations +out of the proceeds of such property already liquidated or in the hands +of Public Trustees and Enemy Property Custodians in the Allied countries +and in the United States; and, in particular, Article 260 (which +provides for the expropriation of German interests in public utility +enterprises) would be abrogated. + +(6) No attempt should be made to extract Reparation payments from +Austria. + +_Coal and Iron_.--(1) The Allies' options on coal under Annex V. should +be abandoned, but Germany's obligation to make good France's loss of +coal through the destruction of her mines should remain. That is to say, +Germany should undertake "to deliver to France annually for a period not +exceeding ten years an amount of coal equal to the difference between +the annual production before the war of the coal mines of the Nord and +Pas de Calais, destroyed as a result of the war, and the production of +the mines of the same area during the years in question; such delivery +not to exceed twenty million tons in any one year of the first five +years, and eight million tons in any one year of the succeeding five +years." This obligation should lapse, nevertheless, in the event of the +coal districts of Upper Silesia being taken from Germany in the final +settlement consequent on the plebiscite. + +(2) The arrangement as to the Saar should hold good, except that, on the +one hand, Germany should receive no credit for the mines, and, on the +other, should receive back both the mines and the territory without +payment and unconditionally after ten years. But this should be +conditional on France's entering into an agreement for the same period +to supply Germany from Lorraine with at least 50 per cent of the +iron-ore which was carried from Lorraine into Germany proper before the +war, in return for an undertaking from Germany to supply Lorraine with +an amount of coal equal to the whole amount formerly sent to Lorraine +from Germany proper, after allowing for the output of the Saar. + +(3) The arrangement as to Upper Silesia should hold good. That is to +say, a plebiscite should be held, and in coming to a final decision +"regard will be paid (by the principal Allied and Associated Powers) to +the wishes of the inhabitants as shown by the vote, and to the +geographical and economic conditions of the locality." But the Allies +should declare that in their judgment "economic conditions" require the +inclusion of the coal districts in Germany unless the wishes of the +inhabitants are decidedly to the contrary. + +(4) The Coal Commission already established by the Allies should become +an appanage of the League of Nations, and should be enlarged to include +representatives of Germany and the other States of Central and Eastern +Europe, of the Northern Neutrals, and of Switzerland. Its authority +should be advisory only, but should extend over the distribution of the +coal supplies of Germany, Poland, and the constituent parts of the +former Austro-Hungarian Empire, and of the exportable surplus of the +United Kingdom. All the States represented on the Commission should +undertake to furnish it with the fullest information, and to be guided +by its advice so far as their sovereignty and their vital interests +permit. + +_Tariffs_.--A Free Trade Union should be established under the auspices +of the League of Nations of countries undertaking to impose no +protectionist tariffs[160] whatever against the produce of other members +of the Union, Germany, Poland, the new States which formerly composed +the Austro-Hungarian and Turkish Empires, and the Mandated States should +be compelled to adhere to this Union for ten years, after which time +adherence would be voluntary. The adherence of other States would be +voluntary from the outset. But it is to be hoped that the United +Kingdom, at any rate, would become an original member. + + * * * * * + +By fixing the Reparation payments well within Germany's capacity to pay, +we make possible the renewal of hope and enterprise within her +territory, we avoid the perpetual friction and opportunity of improper +pressure arising out of Treaty clauses which are impossible of +fulfilment, and we render unnecessary the intolerable powers of the +Reparation Commission. + +By a moderation of the clauses relating directly or indirectly to coal, +and by the exchange of iron-ore, we permit the continuance of Germany's +industrial life, and put limits on the loss of productivity which would +be brought about otherwise by the interference of political frontiers +with the natural localization of the iron and steel industry. + +By the proposed Free Trade Union some part of the loss of organization +and economic efficiency may be retrieved, which must otherwise result +from the innumerable new political frontiers now created between greedy, +jealous, immature, and economically incomplete nationalist States. +Economic frontiers were tolerable so long as an immense territory was +included in a few great Empires; but they will not be tolerable when the +Empires of Germany, Austria-Hungary, Russia, and Turkey have been +partitioned between some twenty independent authorities. A Free Trade +Union, comprising the whole of Central, Eastern, and South-Eastern +Europe, Siberia, Turkey, and (I should hope) the United Kingdom, Egypt, +and India, might do as much for the peace and prosperity of the world as +the League of Nations itself. Belgium, Holland, Scandinavia, and +Switzerland might be expected to adhere to it shortly. And it would be +greatly to be desired by their friends that France and Italy also should +see their way to adhesion. + +It would be objected, I suppose, by some critics that such an +arrangement might go some way in effect towards realizing the former +German dream of Mittel-Europa. If other countries were so foolish as to +remain outside the Union and to leave to Germany all its advantages, +there might be some truth in this. But an economic system, to which +every one had the opportunity of belonging and which gave special +privilege to none, is surely absolutely free from the objections of a +privileged and avowedly imperialistic scheme of exclusion and +discrimination. Our attitude to these criticisms must be determined by +our whole moral and emotional reaction to the future of international +relations and the Peace of the World. If we take the view that for at +least a generation to come Germany cannot be trusted with even a modicum +of prosperity, that while all our recent Allies are angels of light, all +our recent enemies, Germans, Austrians, Hungarians, and the rest, are +children of the devil, that year by year Germany must be kept +impoverished and her children starved and crippled, and that she must be +ringed round by enemies; then we shall reject all the proposals of this +chapter, and particularly those which may assist Germany to regain a +part of her former material prosperity and find a means of livelihood +for the industrial population of her towns. But if this view of nations +and of their relation to one another is adopted by the democracies of +Western Europe, and is financed by the United States, heaven help us +all. If we aim deliberately at the impoverishment of Central Europe, +vengeance, I dare predict, will not limp. Nothing can then delay for +very long that final civil war between the forces of Reaction and the +despairing convulsions of Revolution, before which the horrors of the +late German war will fade into nothing, and which will destroy, whoever +is victor, the civilization and the progress of our generation. Even +though the result disappoint us, must we not base our actions on better +expectations, and believe that the prosperity and happiness of one +country promotes that of others, that the solidarity of man is not a +fiction, and that nations can still afford to treat other nations as +fellow-creatures? + +Such changes as I have proposed above might do something appreciable to +enable the industrial populations of Europe to continue to earn a +livelihood. But they would not be enough by themselves. In particular, +France would be a loser on paper (on paper only, for she will never +secure the actual fulfilment of her present claims), and an escape from +her embarrassments must be shown her in some other direction. I proceed, +therefore, to proposals, first, for the adjustment of the claims of +America and the Allies amongst themselves; and second, for the provision +of sufficient credit to enable Europe to re-create her stock of +circulating capital. + + +2. _The Settlement of Inter-Ally Indebtedness_ + +In proposing a modification of the Reparation terms, I have considered +them so far only in relation to Germany. But fairness requires that so +great a reduction in the amount should be accompanied by a readjustment +of its apportionment between the Allies themselves. The professions +which our statesmen made on every platform during the war, as well as +other considerations, surely require that the areas damaged by the +enemy's invasion should receive a priority of compensation. While this +was one of the ultimate objects for which we said we were fighting, we +never included the recovery of separation allowances amongst our war +aims. I suggest, therefore, that we should by our acts prove ourselves +sincere and trustworthy, and that accordingly Great Britain should waive +altogether her claims for cash payment in favor of Belgium, Serbia, and +France. The whole of the payments made by Germany would then be subject +to the prior charge of repairing the material injury done to those +countries and provinces which suffered actual invasion by the enemy; and +I believe that the sum of $7,500,000,000 thus available would be +adequate to cover entirely the actual costs of restoration. Further, it +is only by a complete subordination of her own claims for cash +compensation that Great Britain can ask with clean hands for a revision +of the Treaty and clear her honor from the breach of faith for which she +bears the main responsibility, as a result of the policy to which the +General Election of 1918 pledged her representatives. + +With the Reparation problem thus cleared up it would be possible to +bring forward with a better grace and more hope of success two other +financial proposals, each of which involves an appeal to the generosity +of the United States. + +The first is for the entire cancellation of Inter-Ally indebtedness +(that is to say, indebtedness between the Governments of the Allied and +Associated countries) incurred for the purposes of the war. This +proposal, which has been put forward already in certain quarters, is one +which I believe to be absolutely essential to the future prosperity of +the world. It would be an act of far-seeing statesmanship for the United +Kingdom and the United States, the two Powers chiefly concerned, to +adopt it. The sums of money which are involved are shown approximately +in the following table:--[161] + + -----------------+------------+------------+-----------+---------- + Loans to | By United | By United | By France | Total + | States | Kingdom | | + -----------------+------------+------------+-----------+---------- + | Million | Million | Million | Million + | Dollars | Dollars | Dollars | Dollars + | | | | + United Kingdom | 4,210 | 0 | 0 | 4,210 + France | 2,750 | 2,540 | 0 | 5,200 + Italy | 1,625 | 2,335 | 175 | 4,135 + Russia | 190 | 2,840[162]| 800 | 3,830 + Belgium | 400 | 490[163]| 450 | 1,340 + Serbia and | | | | + Jugo-Slavia | 100 | 100[163]| 100 | 300 + Other Allies | 175 | 395 | 250 | 820 + | ----- | ----- | ----- | ------ + Total | 9,450[164]| 8,700 | 1,775 | 19,925 + | | | | + -----------------+------------+------------+-----------+---------- + +Thus the total volume of Inter-Ally indebtedness, assuming that loans +from one Ally are not set off against loans to another, is nearly +$20,000,000,000. The United States is a lender only. The United Kingdom +has lent about twice as much as she has borrowed. France has borrowed +about three times as much as she has lent. The other Allies have been +borrowers only. + +If all the above Inter-Ally indebtedness were mutually forgiven, the +net result on paper (_i.e._ assuming all the loans to be good) would be +a surrender by the United States of about $10,000,000,000 and by the +United Kingdom of about $4,500,000,000. France would gain about +$3,500,000,000 and Italy about $4,000,000,000. But these figures +overstate the loss to the United Kingdom and understate the gain to +France; for a large part of the loans made by both these countries has +been to Russia and cannot, by any stretch of imagination, be considered +good. If the loans which the United Kingdom has made to her Allies are +reckoned to be worth 50 per cent of their full value (an arbitrary but +convenient assumption which the Chancellor of the Exchequer has adopted +on more than one occasion as being as good as any other for the purposes +of an approximate national balance sheet), the operation would involve +her neither in loss nor in gain. But in whatever way the net result is +calculated on paper, the relief in anxiety which such a liquidation of +the position would carry with it would be very great. It is from the +United States, therefore, that the proposal asks generosity. + +Speaking with a very intimate knowledge of the relations throughout the +war between the British, the American, and the other Allied Treasuries, +I believe this to be an act of generosity for which Europe can fairly +ask, provided Europe is making an honorable attempt in other +directions, not to continue war, economic or otherwise, but to achieve +the economic reconstitution of the whole Continent, The financial +sacrifices of the United States have been, in proportion to her wealth, +immensely less than those of the European States. This could hardly have +been otherwise. It was a European quarrel, in which the United States +Government could not have justified itself before its citizens in +expending the whole national strength, as did the Europeans. After the +United States came into the war her financial assistance was lavish and +unstinted, and without this assistance the Allies could never have won +the war,[165] quite apart from the decisive influence of the arrival of +the American troops. Europe, too, should never forget the extraordinary +assistance afforded her during the first six months of 1919 through the +agency of Mr. Hoover and the American Commission of Relief. Never was a +nobler work of disinterested goodwill carried through with more tenacity +and sincerity and skill, and with less thanks either asked or given. +The ungrateful Governments of Europe owe much more to the statesmanship +and insight of Mr. Hoover and his band of American workers than they +have yet appreciated or will ever acknowledge. The American Relief +Commission, and they only, saw the European position during those months +in its true perspective and felt towards it as men should. It was their +efforts, their energy, and the American resources placed by the +President at their disposal, often acting in the teeth of European +obstruction, which not only saved an immense amount of human suffering, +but averted a widespread breakdown of the European system.[166] + +But in speaking thus as we do of American financial assistance, we +tacitly assume, and America, I believe, assumed it too when she gave the +money, that it was not in the nature of an investment. If Europe is +going to repay the $10,000,000,000 worth of financial assistance which +she has had from the United States with compound interest at 5 per cent, +the matter takes on quite a different complexion. If America's advances +are to be regarded in this light, her relative financial sacrifice has +been very slight indeed. + +Controversies as to relative sacrifice are very barren and very foolish +also; for there is no reason in the world why relative sacrifice should +necessarily be equal,--so many other very relevant considerations being +quite different in the two cases. The two or three facts following are +put forward, therefore, not to suggest that they provide any compelling +argument for Americans, but only to show that from his own selfish point +of view an Englishman is not seeking to avoid due sacrifice on his +country's part in making the present suggestion. (1) The sums which the +British Treasury borrowed from the American Treasury, after the latter +came into the war, were approximately offset by the sums which England +lent to her other Allies _during the same period_ (i.e. excluding sums +lent before the United States came into the war); so that almost the +whole of England's indebtedness to the United States was incurred, not +on her own account, but to enable her to assist the rest of her Allies, +who were for various reasons not in a position to draw their assistance +from the United States direct.[167] (2) The United Kingdom has disposed +of about $5,000,000,000 worth of her foreign securities, and in addition +has incurred foreign debt to the amount of about $6,000,000,000. The +United States, so far from selling, has bought back upwards of +$5,000,000,000, and has incurred practically no foreign debt. (3) The +population of the United Kingdom is about one-half that of the United +States, the income about one-third, and the accumulated wealth between +one-half and one-third. The financial capacity of the United Kingdom may +therefore be put at about two-fifths that of the United States. This +figure enables us to make the following comparison:--Excluding loans to +Allies in each case (as is right on the assumption that these loans are +to be repaid), the war expenditure of the United Kingdom has been about +three times that of the United Sates, or in proportion to capacity +between seven and eight times. + +Having cleared this issue out of the way as briefly as possible, I turn +to the broader issues of the future relations between the parties to the +late war, by which the present proposal must primarily be judged. + +Failing such a settlement as is now proposed, the war will have ended +with a network of heavy tribute payable from one Ally to another. The +total amount of this tribute is even likely to exceed the amount +obtainable from the enemy; and the war will have ended with the +intolerable result of the Allies paying indemnities to one another +instead of receiving them from the enemy. + +For this reason the question of Inter-Allied indebtedness is closely +bound up with the intense popular feeling amongst the European Allies on +the question of indemnities,--a feeling which is based, not on any +reasonable calculation of what Germany can, in fact, pay, but on a +well-founded appreciation of the unbearable financial situation in which +these countries will find themselves unless she pays. Take Italy as an +extreme example. If Italy can reasonably be expected to pay +$4,000,000,000, surely Germany can and ought to pay an immeasurably +higher figure. Or if it is decided (as it must be) that Austria can pay +next to nothing, is it not an intolerable conclusion that Italy should +be loaded with a crushing tribute, while Austria escapes? Or, to put it +slightly differently, how can Italy be expected to submit to payment of +this great sum and see Czecho-Slovakia pay little or nothing? At the +other end of the scale there is the United Kingdom. Here the financial +position is different, since to ask us to pay $4,000,000,000 is a very +different proposition from asking Italy to pay it. But the sentiment is +much the same. If we have to be satisfied without full compensation from +Germany, how bitter will be the protests against paying it to the +United States. We, it will be said, have to be content with a claim +against the bankrupt estates of Germany, France, Italy, and Russia, +whereas the United States has secured a first mortgage upon us. The case +of France is at least as overwhelming. She can barely secure from +Germany the full measure of the destruction of her countryside. Yet +victorious France must pay her friends and Allies more than four times +the indemnity which in the defeat of 1870 she paid Germany. The hand of +Bismarck was light compared with that of an Ally or of an Associate. A +settlement of Inter-Ally indebtedness is, therefore, an indispensable +preliminary to the peoples of the Allied countries facing, with other +than a maddened and exasperated heart, the inevitable truth about the +prospects of an indemnity from the enemy. + +It might be an exaggeration to say that it is impossible for the +European Allies to pay the capital and interest due from them on these +debts, but to make them do so would certainly be to impose a crushing +burden. They may be expected, therefore, to make constant attempts to +evade or escape payment, and these attempts will be a constant source of +international friction and ill-will for many years to come. A debtor +nation does not love its creditor, and it is fruitless to expect +feelings of goodwill from France, Italy, and Russia towards this +country or towards America, if their future development is stifled for +many years to come by the annual tribute which they must pay us. There +will be a great incentive to them to seek their friends in other +directions, and any future rupture of peaceable relations will always +carry with it the enormous advantage of escaping the payment of external +debts, if, on the other hand, these great debts are forgiven, a stimulus +will be given to the solidarity and true friendliness of the nations +lately associated. + +The existence of the great war debts is a menace to financial stability +everywhere. There is no European country in which repudiation may not +soon become an important political issue. In the case of internal debt, +however, there are interested parties on both sides, and the question is +one of the internal distribution of wealth. With external debts this is +not so, and the creditor nations may soon find their interest +inconveniently bound up with the maintenance of a particular type of +government or economic organization in the debtor countries. Entangling +alliances or entangling leagues are nothing to the entanglements of cash +owing. + +The final consideration influencing the reader's attitude to this +proposal must, however, depend on his view as to the future place in the +world's progress of the vast paper entanglements which are our legacy +from war finance both at home and abroad. The war has ended with every +one owing every one else immense sums of money. Germany owes a large sum +to the Allies, the Allies owe a large sum to Great Britain, and Great +Britain owes a large sum to the United States. The holders of war loan +in every country are owed a large sum by the State, and the State in its +turn is owed a large sum by these and other taxpayers. The whole +position is in the highest degree artificial, misleading, and vexatious. +We shall never be able to move again, unless we can free our limbs from +these paper shackles. A general bonfire is so great a necessity that +unless we can make of it an orderly and good-tempered affair in which no +serious injustice is done to any one, it will, when it comes at last, +grow into a conflagration that may destroy much else as well. As regards +internal debt, I am one of those who believe that a capital levy for the +extinction of debt is an absolute prerequisite of sound finance in +everyone of the European belligerent countries. But the continuance on a +huge scale of indebtedness between Governments has special dangers of +its own. + +Before the middle of the nineteenth century no nation owed payments to a +foreign nation on any considerable scale, except such tributes as were +exacted under the compulsion of actual occupation in force and, at one +time, by absentee princes under the sanctions of feudalism. It is true +that the need for European capitalism to find an outlet in the New World +has led during the past fifty years, though even now on a relatively +modest scale, to such countries as Argentine owing an annual sum to such +countries as England. But the system is fragile; and it has only +survived because its burden on the paying countries has not so far been +oppressive, because this burden is represented by real assets and is +bound up with the property system generally, and because the sums +already lent are not unduly large in relation to those which it is still +hoped to borrow. Bankers are used to this system, and believe it to be a +necessary part of the permanent order of society. They are disposed to +believe, therefore, by analogy with it, that a comparable system between +Governments, on a far vaster and definitely oppressive scale, +represented by no real assets, and less closely associated with the +property system, is natural and reasonable and in conformity with human +nature. + +I doubt this view of the world. Even capitalism at home, which engages +many local sympathies, which plays a real part in the daily process of +production, and upon the security of which the present organization of +society largely depends, is not very safe. But however this may be, will +the discontented peoples of Europe be willing for a generation to come +so to order their lives that an appreciable part of their daily produce +may be available to meet a foreign payment, the reason of which, whether +as between Europe and America, or as between Germany and the rest of +Europe, does not spring compellingly from their sense of justice or +duty? + +On the one hand, Europe must depend in the long run on her own daily +labor and not on the largesse of America; but, on the other hand, she +will not pinch herself in order that the fruit of her daily labor may go +elsewhere. In short, I do not believe that any of these tributes will +continue to be paid, at the best, for more than a very few years. They +do not square with human nature or agree with the spirit of the age. + +If there is any force in this mode of thought, expediency and generosity +agree together, and the policy which will best promote immediate +friendship between nations will not conflict with the permanent +interests of the benefactor.[168] + + +3. _An International Loan_ + +I pass to a second financial proposal. The requirements of Europe are +_immediate_. The prospect of being relieved of oppressive interest +payments to England and America over the whole life of the next two +generations (and of receiving from Germany some assistance year by year +to the costs of restoration) would free the future from excessive +anxiety. But it would not meet the ills of the immediate present,--the +excess of Europe's imports over her exports, the adverse exchange, and +the disorder of the currency. It will be very difficult for European +production to get started again without a temporary measure of external +assistance. I am therefore a supporter of an international loan in some +shape or form, such as has been advocated in many quarters in France, +Germany, and England, and also in the United States. In whatever way the +ultimate responsibility for repayment is distributed, the burden of +finding the immediate resources must inevitably fall in major part upon +the United States. + +The chief objections to all the varieties of this species of project +are, I suppose, the following. The United States is disinclined to +entangle herself further (after recent experiences) in the affairs of +Europe, and, anyhow, has for the time being no more capital to spare for +export on a large scale. There is no guarantee that Europe will put +financial assistance to proper use, or that she will not squander it and +be in just as bad case two or three years hence as she is in now;--M. +Klotz will use the money to put off the day of taxation a little longer, +Italy and Jugo-Slavia will fight one another on the proceeds, Poland +will devote it to fulfilling towards all her neighbors the military role +which France has designed for her, the governing classes of Roumania +will divide up the booty amongst themselves. In short, America would +have postponed her own capital developments and raised her own cost of +living in order that Europe might continue for another year or two the +practices, the policy, and the men of the past nine months. And as for +assistance to Germany, is it reasonable or at all tolerable that the +European Allies, having stripped Germany of her last vestige of working +capital, in opposition to the arguments and appeals of the American +financial representatives at Paris, should then turn to the United +States for funds to rehabilitate the victim in sufficient measure to +allow the spoliation to recommence in a year or two? + +There is no answer to these objections as matters are now. If I had +influence at the United States Treasury, I would not lend a penny to a +single one of the present Governments of Europe. They are not to be +trusted with resources which they would devote to the furtherance of +policies in repugnance to which, in spite of the President's failure to +assert either the might or the ideals of the people of the United +States, the Republican and the Democratic parties are probably united. +But if, as we must pray they will, the souls of the European peoples +turn away this winter from the false idols which have survived the war +that created them, and substitute in their hearts for the hatred and the +nationalism, which now possess them, thoughts and hopes of the happiness +and solidarity of the European family,--then should natural piety and +filial love impel the American people to put on one side all the smaller +objections of private advantage and to complete the work, that they +began in saving Europe from the tyranny of organized force, by saving +her from herself. And even if the conversion is not fully accomplished, +and some parties only in each of the European countries have espoused a +policy of reconciliation, America can still point the way and hold up +the hands of the party of peace by having a plan and a condition on +which she will give her aid to the work of renewing life. + +The impulse which, we are told, is now strong in the mind of the United +States to be quit of the turmoil, the complication, the violence, the +expense, and, above all, the unintelligibility of the European problems, +is easily understood. No one can feel more intensely than the writer +how natural it is to retort to the folly and impracticability of the +European statesmen,--Rot, then, in your own malice, and we will go our +way-- + + + Remote from Europe; from her blasted hopes; + Her fields of carnage, and polluted air. + +But if America recalls for a moment what Europe has meant to her and +still means to her, what Europe, the mother of art and of knowledge, in +spite of everything, still is and still will be, will she not reject +these counsels of indifference and isolation, and interest herself in +what may prove decisive issues for the progress and civilization of all +mankind? + +Assuming then, if only to keep our hopes up, that America will be +prepared to contribute to the process of building up the good forces of +Europe, and will not, having completed the destruction of an enemy, +leave us to our misfortunes,--what form should her aid take? + +I do not propose to enter on details. But the main outlines of all +schemes for an international loan are much the same, The countries in a +position to lend assistance, the neutrals, the United Kingdom, and, for +the greater portion of the sum required, the United States, must provide +foreign purchasing credits for all the belligerent countries of +continental Europe, allied and ex-enemy alike. The aggregate sum +required might not be so large as is sometimes supposed. Much might be +done, perhaps, with a fund of $1,000,000,000 in the first instance. This +sum, even if a precedent of a different kind had been established by the +cancellation of Inter-Ally War Debt, should be lent and should be +borrowed with the unequivocal intention of its being repaid in full. +With this object in view, the security for the loan should be the best +obtainable, and the arrangements for its ultimate repayment as complete +as possible. In particular, it should rank, both for payment of interest +and discharge of capital, in front of all Reparation claims, all +Inter-Ally War Debt, all internal war loans, and all other Government +indebtedness of any other kind. Those borrowing countries who will be +entitled to Reparation payments should be required to pledge all such +receipts to repayment of the new loan. And all the borrowing countries +should be required to place their customs duties on a gold basis and to +pledge such receipts to its service. + +Expenditure out of the loan should be subject to general, but not +detailed, supervision by the lending countries. + +If, in addition to this loan for the purchase of food and materials, a +guarantee fund were established up to an equal amount, namely +$1,000,000,000 (of which it would probably prove necessary to find only +a part in cash), to which all members of the League of Nations would +contribute according to their means, it might be practicable to base +upon it a general reorganization of the currency. + +In this manner Europe might be equipped with the minimum amount of +liquid resources necessary to revive her hopes, to renew her economic +organization, and to enable her great intrinsic wealth to function for +the benefit of her workers. It is useless at the present time to +elaborate such schemes in further detail. A great change is necessary in +public opinion before the proposals of this chapter can enter the region +of practical politics, and we must await the progress of events as +patiently as we can. + + +4. _The Relations of Central Europe to Russia_ + +I have said very little of Russia in this book. The broad character of +the situation there needs no emphasis, and of the details we know almost +nothing authentic. But in a discussion as to how the economic situation +of Europe can be restored there are one or two aspects of the Russian +question which are vitally important. + +From the military point of view an ultimate union of forces between +Russia and Germany is greatly feared in some quarters. This would be +much more likely to take place in the event of reactionary movements +being successful in each of the two countries, whereas an effective +unity of purpose between Lenin and the present essentially middle-class +Government of Germany is unthinkable. On the other hand, the same people +who fear such a union are even more afraid of the success of Bolshevism; +and yet they have to recognize that the only efficient forces for +fighting it are, inside Russia, the reactionaries, and, outside Russia, +the established forces of order and authority in Germany. Thus the +advocates of intervention in Russia, whether direct or indirect, are at +perpetual cross-purposes with themselves. They do not know what they +want; or, rather, they want what they cannot help seeing to be +incompatibles. This is one of the reasons why their policy is so +inconstant and so exceedingly futile. + +The same conflict of purpose is apparent in the attitude of the Council +of the Allies at Paris towards the present Government of Germany. A +victory of Spartacism in Germany might well be the prelude to Revolution +everywhere: it would renew the forces of Bolshevism in Russia, and +precipitate the dreaded union of Germany and Russia; it would certainly +put an end to any expectations which have been built on the financial +and economic clauses of the Treaty of Peace. Therefore Paris does not +love Spartacus. But, on the other hand, a victory of reaction in Germany +would be regarded by every one as a threat to the security of Europe, +and as endangering the fruits of victory and the basis of the Peace. +Besides, a new military power establishing itself in the East, with its +spiritual home in Brandenburg, drawing to itself all the military talent +and all the military adventurers, all those who regret emperors and hate +democracy, in the whole of Eastern and Central and South-Eastern Europe, +a power which would be geographically inaccessible to the military +forces of the Allies, might well found, at least in the anticipations of +the timid, a new Napoleonic domination, rising, as a phoenix, from the +ashes of cosmopolitan militarism. So Paris dare not love Brandenburg. +The argument points, then, to the sustentation of those moderate forces +of order, which, somewhat to the world's surprise, still manage to +maintain themselves on the rock of the German character. But the present +Government of Germany stands for German unity more perhaps than for +anything else; the signature of the Peace was, above all, the price +which some Germans thought it worth while to pay for the unity which was +all that was left them of 1870. Therefore Paris, with some hopes of +disintegration across the Rhine not yet extinguished, can resist no +opportunity of insult or indignity, no occasion of lowering the +prestige or weakening the influence of a Government, with the continued +stability of which all the conservative interests of Europe are +nevertheless bound up. + +The same dilemma affects the future of Poland in the role which France +has cast for her. She is to be strong, Catholic, militarist, and +faithful, the consort, or at least the favorite, of victorious France, +prosperous and magnificent between the ashes of Russia and the ruin of +Germany. Roumania, if only she could be persuaded to keep up appearances +a little more, is a part of the same scatter-brained conception. Yet, +unless her great neighbors are prosperous and orderly, Poland is an +economic impossibility with no industry but Jew-baiting. And when Poland +finds that the seductive policy of France is pure rhodomontade and that +there is no money in it whatever, nor glory either, she will fall, as +promptly as possible, into the arms of somebody else. + +The calculations of "diplomacy" lead us, therefore, nowhere. Crazy +dreams and childish intrigue in Russia and Poland and thereabouts are +the favorite indulgence at present of those Englishmen and Frenchmen who +seek excitement in its least innocent form, and believe, or at least +behave as if foreign policy was of the same _genre_ as a cheap +melodrama. + +Let us turn, therefore, to something more solid. The German Government +has announced (October 30, 1919) its continued adhesion to a policy of +non-intervention in the internal affairs of Russia, "not only on +principle, but because it believes that this policy is also justified +from a practical point of view." Let us assume that at last we also +adopt the same standpoint, if not on principle, at least from a +practical point of view. What are then the fundamental economic factors +in the future relations of Central to Eastern Europe? + +Before the war Western and Central Europe drew from Russia a substantial +part of their imported cereals. Without Russia the importing countries +would have had to go short. Since 1914 the loss of the Russian supplies +has been made good, partly by drawing on reserves, partly from the +bumper harvests of North America called forth by Mr. Hoover's guaranteed +price, but largely by economies of consumption and by privation. After +1920 the need of Russian supplies will be even greater than it was +before the war; for the guaranteed price in North America will have been +discontinued, the normal increase of population there will, as compared +with 1914, have swollen the home demand appreciably, and the soil of +Europe will not yet have recovered its former productivity. If trade is +not resumed with Russia, wheat in 1920-21 (unless the seasons are +specially bountiful) must be scarce and very dear. The blockade of +Russia, lately proclaimed by the Allies, is therefore a foolish and +short-sighted proceeding; we are blockading not so much Russia as +ourselves. + +The process of reviving the Russian export trade is bound in any case to +be a slow one. The present productivity of the Russian peasant is not +believed to be sufficient to yield an exportable surplus on the pre-war +scale. The reasons for this are obviously many, but amongst them are +included the insufficiency of agricultural implements and accessories +and the absence of incentive to production caused by the lack of +commodities in the towns which the peasants can purchase in exchange for +their produce. Finally, there is the decay of the transport system, +which hinders or renders impossible the collection of local surpluses in +the big centers of distribution. + +I see no possible means of repairing this loss of productivity within +any reasonable period of time except through the agency of German +enterprise and organization. It is impossible geographically and for +many other reasons for Englishmen, Frenchmen, or Americans to undertake +it;--we have neither the incentive nor the means for doing the work on a +sufficient scale. Germany, on the other hand, has the experience, the +incentive, and to a large extent the materials for furnishing the +Russian peasant with the goods of which he has been starved for the +past five years, for reorganizing the business of transport and +collection, and so for bringing into the world's pool, for the common +advantage, the supplies from which we are now so disastrously cut off. +It is in our interest to hasten the day when German agents and +organizers will be in a position to set in train in every Russian +village the impulses of ordinary economic motive. This is a process +quite independent of the governing authority in Russia; but we may +surely predict with some certainty that, whether or not the form of +communism represented by Soviet government proves permanently suited to +the Russian temperament, the revival of trade, of the comforts of life +and of ordinary economic motive are not likely to promote the extreme +forms of those doctrines of violence and tyranny which are the children +of war and of despair. + +Let us then in our Russian policy not only applaud and imitate the +policy of non-intervention which the Government of Germany has +announced, but, desisting from a blockade which is injurious to our own +permanent interests, as well as illegal, let us encourage and assist +Germany to take up again her place in Europe as a creator and organizer +of wealth for her Eastern and Southern neighbors. + +There are many persons in whom such proposals will raise strong +prejudices. I ask them to follow out in thought the result of yielding +to these prejudices. If we oppose in detail every means by which Germany +or Russia can recover their material well-being, because we feel a +national, racial, or political hatred for their populations or their +Governments, we must be prepared to face the consequences of such +feelings. Even if there is no moral solidarity between the +nearly-related races of Europe, there is an economic solidarity which we +cannot disregard. Even now, the world markets are one. If we do not +allow Germany to exchange products with Russia and so feed herself, she +must inevitably compete with us for the produce of the New World. The +more successful we are in snapping economic relations between Germany +and Russia, the more we shall depress the level of our own economic +standards and increase the gravity of our own domestic problems. This is +to put the issue on its lowest grounds. There are other arguments, which +the most obtuse cannot ignore, against a policy of spreading and +encouraging further the economic ruin of great countries. + + * * * * * + +I see few signs of sudden or dramatic developments anywhere. Riots and +revolutions there may be, but not such, at present, as to have +fundamental significance. Against political tyranny and injustice +Revolution is a weapon. But what counsels of hope can Revolution offer +to sufferers from economic privation, which does not arise out of the +injustices of distribution but is general? The only safeguard against +Revolution in Central Europe is indeed the fact that, even to the minds +of men who are desperate, Revolution offers no prospect of improvement +whatever. There may, therefore, be ahead of us a long, silent process of +semi-starvation, and of a gradual, steady lowering of the standards of +life and comfort. The bankruptcy and decay of Europe, if we allow it to +proceed, will affect every one in the long-run, but perhaps not in a way +that is striking or immediate. + +This has one fortunate side. We may still have time to reconsider our +courses and to view the world with new eyes. For the immediate future +events are taking charge, and the near destiny of Europe is no longer in +the hands of any man. The events of the coming year will not be shaped +by the deliberate acts of statesmen, but by the hidden currents, flowing +continually beneath the surface of political history, of which no one +can predict the outcome. In one way only can we influence these hidden +currents,--by setting in motion those forces of instruction and +imagination which change _opinion_. The assertion of truth, the +unveiling of illusion, the dissipation of hate, the enlargement and +instruction of men's hearts and minds, must be the means. + +In this autumn of 1919, in which I write, we are at the dead season of +our fortunes. The reaction from the exertions, the fears, and the +sufferings of the past five years is at its height. Our power of feeling +or caring beyond the immediate questions of our own material well-being +is temporarily eclipsed. The greatest events outside our own direct +experience and the most dreadful anticipations cannot move us. + + In each human heart terror survives + The ruin it has gorged: the loftiest fear + All that they would disdain to think were true: + Hypocrisy and custom make their minds + The fanes of many a worship, now outworn. + They dare not devise good for man's estate, + And yet they know not that they do not dare. + The good want power but to weep barren tears. + The powerful goodness want: worse need for them. + The wise want love; and those who love want wisdom; + And all best things are thus confused to ill. + Many are strong and rich, and would be just, + But live among their suffering fellow-men + As if none felt: they know not what they do. + +We have been moved already beyond endurance, and need rest. Never in the +lifetime of men now living has the universal element in the soul of man +burnt so dimly. + +For these reasons the true voice of the new generation has not yet +spoken, and silent opinion is not yet formed. To the formation of the +general opinion of the future I dedicate this book. + + +THE END + + +FOOTNOTES: + +[157] The figures for the United Kingdom are as follows: + + Net Excess of + Monthly Imports Exports Imports + Average $1,000 $1,000 $1,000 + + 1913 274,650 218,850 55,800 + 1914 250,485 179,465 71,020 + Jan.-Mar. 1919 547,890 245,610 302,280 + April-June 1919 557,015 312,315 244,700 + July-Sept. 1919 679,635 344,315 335,320 + +But this excess is by no means so serious as it looks; for with the +present high freight earnings of the mercantile marine the various +"invisible" exports of the United Kingdom are probably even higher than +they were before the war, and may average at least $225,000,000 monthly. + +[158] President Wilson was mistaken in suggesting that the +supervision of Reparation payments has been entrusted to the League of +Nations. As I pointed out in Chapter V., whereas the League is invoked +in regard to most of the continuing economic and territorial provisions +of the Treaty, this is not the case as regards Reparation, over the +problems and modifications of which the Reparation Commission is supreme +without appeal of any kind to the League of Nations. + +[159] These Articles, which provide safeguards against the +outbreak of war between members of the League and also between members +and non-members, are the solid achievement of the Covenant. These +Articles make substantially less probable a war between organized Great +Powers such as that of 1914. This alone should commend the League to all +men. + +[160] It would be expedient so to define a "protectionist +tariff" as to permit (_a_) the total prohibition of certain imports; +(_b_) the imposition of sumptuary or revenue customs duties on +commodities not produced at home; (_c_) the imposition of customs duties +which did not exceed by more than five per cent a countervailing excise +on similar commodities produced at home; (_d_) export duties. Further, +special exceptions might be permitted by a majority vote of the +countries entering the Union. Duties which had existed for five years +prior to a country's entering the Union might be allowed to disappear +gradually by equal instalments spread over the five years subsequent to +joining the Union. + +[161] The figures in this table are partly estimated, and are +probably not completely accurate in detail; but they show the +approximate figures with sufficient accuracy for the purposes of the +present argument. The British figures are taken from the White Paper of +October 23, 1919 (Cmd. 377). In any actual settlement, adjustments would +be required in connection with certain loans of gold and also in other +respects, and I am concerned in what follows with the broad principle +only. The total excludes loans raised by the United Kingdom on the +market in the United States, and loans raised by France on the market in +the United Kingdom or the United States, or from the Bank of England. + +[162] This allows nothing for interest on the debt since the +Bolshevik Revolution. + +[163] No interest has been charged on the advances made to +these countries. + +[164] The actual total of loans by the United States up to date +is very nearly $10,000,000,000, but I have not got the latest details. + +[165] The financial history of the six months from the end of +the summer of 1916 up to the entry of the United States into the war in +April, 1917, remains to be written. Very few persons, outside the +half-dozen officials of the British Treasury who lived in daily contact +with the immense anxieties and impossible financial requirements of +those days, can fully realize what steadfastness and courage were +needed, and how entirely hopeless the task would soon have become +without the assistance of the United States Treasury. The financial +problems from April, 1917, onwards were of an entirely different order +from those of the preceding months. + +[166] Mr. Hoover was the only man who emerged from the ordeal +of Paris with an enhanced reputation. This complex personality, with his +habitual air of weary Titan (or, as others might put it, of exhausted +prize-fighter), his eyes steadily fixed on the true and essential facts +of the European situation, imported into the Councils of Paris, when he +took part in them, precisely that atmosphere of reality, knowledge, +magnanimity, and disinterestedness which, if they had been found in +other quarters also, would have given us the Good Peace. + +[167] Even after the United States came into the war the bulk +of Russian expenditure in the United States, as well as the whole of +that Government's other foreign expenditure, had to be paid for by the +British Treasury. + +[168] It is reported that the United States Treasury has agreed +to fund (_i.e._ to add to the principal sum) the interest owing them on +their loans to the Allied Governments during the next three years. I +presume that the British Treasury is likely to follow suit. If the debts +are to be paid ultimately, this piling up of the obligations at compound +interest makes the position progressively worse. But the arrangement +wisely offered by the United States Treasury provides a due interval for +the calm consideration of the whole problem in the light of the +after-war position as it will soon disclose itself. + + + +***END OF THE PROJECT GUTENBERG EBOOK THE ECONOMIC CONSEQUENCES OF THE +PEACE*** + + +******* This file should be named 15776.txt or 15776.zip ******* + + +This and all associated files of various formats will be found in: +http://www.gutenberg.org/dirs/1/5/7/7/15776 + + + +Updated editions will replace the previous one--the old editions +will be renamed. + +Creating the works from public domain print editions means that no +one owns a United States copyright in these works, so the Foundation +(and you!) can copy and distribute it in the United States without +permission and without paying copyright royalties. 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