JOHN MAYNARD KEYNES: The Economic Consequences of the Peace FULL Audiobook


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

Maurice Vega

9 Responses

  1. Keynesianism has been tried everywhere, and has failed everywhere. If any of it were true, someone would have gotten it right accidentally by now. Its problem is that it has been applied exactly as it was intended. You probably make such ridiculous apologies for socialism as well.

  2. Keynes' reputation has suffered during the past 10-15 yrs, perhaps rightly. But his vision regarding a lasting European peace (which proved correct, but was ignored) and his work in the General Theory (partially correct, intentionally misinterpreted) only prove that men like Keynes, and the profession of economics in general, are used by those in power when it suits them and ignored when inconvenient.

  3. Can anyone casually tossing around opinions on Keynesian economics and its shortcomings offer me a basic summary of his arguments? I suspect not one critic posting comments has read anything he wrote… I have suffered through The General Theory, found it largely unreadable, but carefully argued and subtle. He does not make the bold pronouncements and dogmatic proscriptions often attributed to him. Very little of whats been done in his name would meet w/ his approval.

  4. Джон Мейнард Кейнс. РОССИЯ (1922) … Reduced fertility and high mortality of children and the elderly in severe conditions can cause long-term positive impact on the labor market.
    The growing mass of people who occupied the seventh of the earth's land surface is controlled by the most violent, the most corrupt and ineffective government most of all who call themselves civilized. It is preferred to "fed" human bodies rather than brains. But contained a huge army. A tiny part of the people living in luxury, being enriched at the expense of illegal operations with foreign capital, or private ownership of natural resources are inexhaustible. Behind the facade of this world class professional revolutionaries worked, brought up the idea of ​​the game life and destiny – their own and other people.
    Russian Slavic genius showed itself poorly suited to modern business and entrepreneurship in the framework of an increasingly complex economy the industrial world …Снижение рождаемости и высокой смертности детей и пожилых людей в тяжелых условиях может вызывать долгосрочные положительное влияние на рынок труда. Растущая масса людей, которые занимали седьмую поверхности суши Земли управляется самым жестоким, самым коррумпированным и неэффективным правительством большинстве все, кто называют себя цивилизованными. Предпочтительно, чтобы "кормили" человеческих тел, а не мозги. Но содержал огромную армию. Крошечная часть людей, живущих в роскоши, обогащаясь за счет незаконных операций с иностранным капиталом, или частной собственности природных ресурсов неисчерпаемы. За фасадом этого мирового класса профессиональные революционеры работал, воспитал идею жизни и судьбе игры – их собственных и других людей. Русский славянский гений показал себя плохо подходит для современного бизнеса и предпринимательства в рамках более сложной экономики индустриального мира …

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