A Revision of the Treaty
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Title: A Revision of the Treaty
Author: John Maynard Keynes
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*** START OF THE PROJECT GUTENBERG EBOOK A REVISION OF THE TREATY ***
[Illustration: LORD KEYNES.]
A REVISION OF THE TREATY
A REVISION
OF THE TREATY
BEING A SEQUEL TO
THE ECONOMIC CONSEQUENCES
OF THE PEACE
BY
JOHN MAYNARD KEYNES, C.B.
FELLOW OF KING’S COLLEGE, CAMBRIDGE
[Illustration]
NEW YORK
HARCOURT, BRACE AND COMPANY
1922
COPYRIGHT, 1922, BY
HARCOURT, BRACE AND COMPANY, INC.
PRINTED IN THE U. S. A. BY
THE QUINN BODEN & COMPANY
RAHWAY, N. J.
PREFACE
_The Economic Consequences of the Peace_, which I published in
December 1919, has been reprinted from time to time without revision
or correction. So much has come to our knowledge since then, that a
revised edition of that book would be out of place. I have thought it
better, therefore, to leave it unaltered, and to collect together in
this _Sequel_ the corrections and additions which the flow of events
makes necessary, together with my reflections on the present facts.
But this book is strictly what it represents itself to be—a _Sequel_;
I might almost have said an Appendix. I have nothing very new to say on
the fundamental issues. Some of the Remedies which I proposed two years
ago are now everybody’s commonplaces, and I have nothing startling to
add to them. My object is a strictly limited one, namely to provide
facts and materials for an intelligent review of the Reparation Problem
as it now is.
“The great thing about this wood,” said M. Clemenceau of his pine
forest in La Vendée, “is that, here, there is not the slightest chance
of meeting Lloyd George or President Wilson. Nothing here but the
squirrels.” I wish that I could claim the same advantages for this book.
J. M. KEYNES.
KING’S COLLEGE, CAMBRIDGE,
_December_ 1921.
CONTENTS
CHAPTER I
PAGE
THE STATE OF OPINION 3
CHAPTER II
FROM THE RATIFICATION OF THE TREATY OF VERSAILLES TO
THE SECOND ULTIMATUM OF LONDON 11
EXCURSUS I.—COAL 44
EXCURSUS II.—THE LEGALITY OF OCCUPYING GERMANY
EAST OF THE RHINE 57
CHAPTER III
THE BURDEN OF THE LONDON SETTLEMENT 64
EXCURSUS III.—THE WIESBADEN AGREEMENT 92
EXCURSUS IV.—THE MARK EXCHANGE 100
CHAPTER IV
THE REPARATION BILL 106
EXCURSUS V.—RECEIPTS AND EXPENSES PRIOR TO
MAY 1, 1921 131
EXCURSUS VI.—THE DIVISION OF RECEIPTS BETWEEN
THE ALLIES 138
CHAPTER V
THE LEGALITY OF THE CLAIM FOR PENSIONS 144
CHAPTER VI
REPARATION, INTER–ALLY DEBT, AND INTERNATIONAL TRADE 163
CHAPTER VII
THE REVISION OF THE TREATY AND THE SETTLEMENT OF
EUROPE 179
APPENDIX OF DOCUMENTS
I. SUMMARY OF SPA AGREEMENT (JULY 1920) 203
II. THE DECISIONS OF PARIS (JANUARY 1921) 207
III. THE CLAIMS SUBMITTED TO THE REPARATION COMMISSION
(FEBRUARY 1921) 210
IV. THE FIRST ULTIMATUM OF LONDON (MARCH 1921) 213
V. THE GERMAN COUNTER–PROPOSAL (APRIL 1921) 215
VI. THE REPARATION COMMISSION’S ASSESSMENT (APRIL
1921) 219
VII. THE SECOND ULTIMATUM OF LONDON (MAY 1921) 219
VIII. SUMMARY OF THE WIESBADEN AGREEMENT (OCTOBER
1921) 228
IX. TABLES OF INTER–GOVERNMENTAL INDEBTEDNESS 238
INDEX 240
A REVISION OF THE TREATY
BEING A SEQUEL TO
THE ECONOMIC CONSEQUENCES OF THE PEACE
CHAPTER I
THE STATE OF OPINION
It is the method of modern statesmen to talk as much folly as the
public demand and to practise no more of it than is compatible with
what they have said, trusting that such folly in action as must wait
on folly in word will soon disclose itself as such, and furnish an
opportunity for slipping back into wisdom,—the Montessori system for
the child, the Public. He who contradicts this child will soon give
place to other tutors. Praise, therefore, the beauty of the flames he
wishes to touch, the music of the breaking toy; even urge him forward;
yet waiting with vigilant care, the wise and kindly savior of Society,
for the right moment to snatch him back, just singed and now attentive.
I can conceive for this terrifying statesmanship a plausible defense.
Mr. Lloyd George took the responsibility for a Treaty of Peace, which
was not wise, which was partly impossible, and which endangered the
life of Europe. He may defend himself by saying that he knew that it
was not wise and was partly impossible and endangered the life of
Europe; but that public passions and public ignorance play a part
in the world of which he who aspires to lead a democracy must take
account; that the Peace of Versailles was the best momentary settlement
which the demands of the mob and the characters of the chief actors
conjoined to permit; and for the life of Europe, that he has spent his
skill and strength for two years in avoiding or moderating the dangers.
Such claims would be partly true and cannot be brushed away. The
private history of the Peace Conference, as it has been disclosed by
French and American participators, displays Mr. Lloyd George in a
partly favorable light, generally striving against the excesses of the
Treaty and doing what he could, short of risking a personal defeat.
The public history of the two years which have followed it exhibit him
as protecting Europe from as many of the evil consequences of his own
Treaty, as it lay in his power to prevent, with a craft few could have
bettered, preserving the peace, though not the prosperity, of Europe,
seldom expressing the truth, yet often acting under its influence. He
would claim, therefore, that by devious paths, a faithful servant of
the possible, he was serving Man.
He may judge rightly that this is the best of which a democracy is
capable,—to be jockeyed, humbugged, cajoled along the right road. A
preference for truth or for sincerity _as a method_ may be a prejudice
based on some esthetic or personal standard, inconsistent, in
politics, with practical good.
We cannot yet tell. Even the public learns by experience. Will
the charm work still, when the stock of statesmen’s credibility,
accumulated before these times, is getting exhausted?
In any event, private individuals are not under the same obligation
as Cabinet Ministers to sacrifice veracity to the public weal. It is
a permitted self–indulgence for a private person to speak and write
freely. Perhaps it may even contribute one ingredient to the congeries
of things which the wands of statesmen cause to work together, so
marvelously, for our ultimate good.
* * * * *
For these reasons I do not admit error in having based _The Economic
Consequences of the Peace_ on a literal interpretation of the Treaty
of Versailles, or in having examined the results of actually carrying
it out. I argued that much of it was _impossible;_ but I do not agree
with many critics, who held that, for this very reason, it was also
harmless. Inside opinion accepted from the beginning many of my main
conclusions about the Treaty.[1] But it was not therefore unimportant
that outside opinion should accept them also.
For there are, in the present times, two opinions; not, as in former
ages, the true and the false, but the outside and the inside; the
opinion of the public voiced by the politicians and the newspapers,
and the opinion of the politicians, the journalists and the civil
servants, upstairs and backstairs and behind–stairs, expressed in
limited circles. In time of war it became a patriotic duty that the two
opinions should be as different as possible; and some seem to think it
so still.
This is not entirely new. But there has been a change. Some say that
Mr. Gladstone was a hypocrite; yet if so, he dropped no mask in
private life. The high tragedians, who once ranted in the Parliaments
of the world, continued it at supper afterwards. But appearances can
no longer be kept up behind the scenes. The paint of public life, if
it is ruddy enough to cross the flaring footlights of to–day, cannot
be worn in private,—which makes a great difference to the psychology
of the actors themselves. The multitude which lives in the auditorium
of the world needs something larger than life and plainer than the
truth. Sound itself travels too slowly in this vast theater, and a true
word no longer holds when its broken echoes have reached the furthest
listener.
Those who live in the limited circles and share the inside opinion pay
both too much and too little attention to the outside opinion; too
much, because, ready in words and promises to concede to it everything,
they regard open opposition as absurdly futile; too little, because
they believe that these words and promises are so certainly destined to
change in due season, that it is pedantic, tiresome, and inappropriate
to analyze their literal meaning and exact consequences. They know all
this nearly as well as the critic, who wastes, in their view, his time
and his emotions in exciting himself too much over what, on his own
showing, cannot possibly happen. Nevertheless, what is said before the
world is, still, of deeper consequence than the subterranean breathings
and well–informed whisperings, knowledge of which allows inside opinion
to feel superior to outside opinion, even at the moment of bowing to it.
But there is a further complication. In England (and perhaps elsewhere
also), there are _two_ outside opinions, that which is expressed in the
newspapers and that which the mass of ordinary men privately suspect to
be true. These two degrees of the outside opinion are much nearer to
one another than they are to the inside, and under some aspects they
are identical; yet there is under the surface a real difference between
the dogmatism and definiteness of the press and the living, indefinite
belief of the individual man. I fancy that even in 1919 the average
Englishman never really believed in the indemnity; he took it always
with a grain of salt, with a measure of intellectual doubt. But it
seemed to him that for the time being there could be little practical
harm in going on the indemnity tack, and also that, in relation to
his feelings at that time, a belief in the possibility of boundless
payments by Germany was in better sentiment, even if less true, than
the contrary. Thus the recent modification in British outside opinion
is only partly intellectual, and is due rather to changed conditions;
for it is seen that perseverance with the indemnity does now involve
practical harm, whilst the claims of sentiment are no longer so
decisive. He is therefore prepared to attend to arguments, of which he
had always been aware out of the corner of his eye.
Foreign observers are apt to heed too little these unspoken
sensibilities, which the voice of the press is bound to express
ultimately. Inside opinion gradually affects them by percolating to
wider and wider circles; and they are susceptible in time to argument,
common sense, or self–interest. It is the business of the modern
politician to be accurately aware of all three degrees; he must have
enough intellect to understand the inside opinion, enough sympathy to
detect the inner outside opinion, and enough brass to express the outer
outside opinion.
Whether this account is true or fanciful, there can be no doubt as
to the immense change in public sentiment over the past two years.
The desire for a quiet life, for reduced commitments, for comfortable
terms with our neighbors is now paramount. The megalomania of war has
passed away, and every one wishes to conform himself with the facts.
For these reasons the Reparation Chapter of the Treaty of Versailles is
crumbling. There is little prospect now of the disastrous consequences
of its fulfilment.
I undertake in the following chapters a double task, beginning with
a chronicle of events and a statement of the present facts, and
concluding with proposals of what we ought to do. I naturally attach
primary importance to the latter. But it is not only of historical
interest to glance at the recent past. If we look back a little closely
on the two years which have just elapsed (and the general memory
unaided is now so weak that we know the past little better than the
future), we shall be chiefly struck, I think, by the large element
of injurious make–believe. My concluding proposals assume that this
element of make–believe has ceased to be politically necessary; that
outside opinion is now ready for inside opinion to disclose, and act
upon, its secret convictions; and that it is no longer an act of futile
indiscretion to speak sensibly in public.
FOOTNOTE:
[1] “Its merely colorable fulfilment of solemn contracts with a
defeated nation, its timorous failure to reckon with economic
realities,” as Professor Allyn Young wrote in a review of my book.
Yet Professor Young has thought right, nevertheless, to make
himself a partial apologist of the Treaty, and to describe it as “a
forward–looking document.”
CHAPTER II
FROM THE RATIFICATION OF THE TREATY OF VERSAILLES TO THE SECOND
ULTIMATUM OF LONDON
I. _The Execution of the Treaty and the Plebiscites_
The Treaty of Versailles was ratified on January 10, 1920, and except
in the plebiscite areas its territorial provisions came into force on
that date. The Slesvig plebiscite (February and March, 1920) awarded
the north to Denmark and the south to Germany, in each case by a
decisive majority. The East Prussian plebiscite (July, 1920) showed an
overwhelming vote for Germany. The Upper Silesian plebiscite (March,
1921) yielded a majority of nearly two to one in favor of Germany for
the province as a whole,[2] but a majority for Poland in certain areas
of the south and east. On the basis of this vote, and having regard to
the industrial unity of certain disputed areas, the principal Allies,
with the exception of France, were of opinion that, apart from the
southeastern districts of Pless and Rybnik which, although they contain
undeveloped coalfields of great importance, are at present agricultural
in character, nearly the whole of the province should be assigned to
Germany. Owing to the inability of France to accept this solution,
the whole problem was referred to the League of Nations for final
arbitration. This body bisected the industrial area in the interests of
racial or nationalistic justice; and introduced at the same time, in
the endeavor to avoid the consequences of this bisection, complicated
economic provisions of doubtful efficiency in the interests of material
prosperity. They limited these provisions to fifteen years, trusting
perhaps that something will have occurred to revise their decision
before the end of that time. Broadly speaking, the frontier has been
drawn, entirely irrespective of economic considerations, so as to
include as large as possible a proportion of German voters on one side
of it and Polish voters on the other (although to achieve this result
it has been thought necessary to assign two almost purely German towns,
Kattowitz and Königshütte to Poland). From this limited point of view
the work may have been done fairly. But the Treaty had directed that
economic and geographical considerations should be taken into account
also.
I do not intend to examine in detail the wisdom of this decision. It
is believed in Germany that subterranean influence brought to bear
by France contributed to the result. I doubt if this was a material
factor, except that the officials of the League were naturally anxious,
in the interests of the League itself, to produce a solution which
would not be a fiasco through the members of the Council of the
League failing to agree about it amongst themselves; which inevitably
imported a certain bias in favor of a solution acceptable to France.
The decision raises, I think, much more fundamental doubts about this
method of settling international affairs.
Difficulties do not arise in simple cases. The League of Nations
will be called in where there is a conflict between opposed and
incommensurable claims. A good decision can only result by impartial,
disinterested, very well–informed and authoritative persons taking
_everything_ into account. Since International Justice is dealing with
vast organic units and not with a multitude of small units of which
the individual particularities are best ignored and left to average
themselves out, it cannot be the same thing as the cut–and–dried
lawyer’s justice of the municipal court. It will be a dangerous
practice, therefore, to entrust the settlement of the ancient conflicts
now inherent in the tangled structure of Europe, to elderly gentlemen
from South America and the far Asiatic East, who will deem it their
duty to extract a strict legal interpretation from the available
signed documents,—who will, that is to say, take account of as _few_
things as possible, in an excusable search for a simplicity which is
not there. That would only give us more judgments of Solomon with the
ass’s ears, a Solomon with the bandaged eyes of law, who, when he says
“Divide ye the living child in twain,” means it.
The Wilsonian dogma, which exalts and dignifies the divisions of race
and nationality above the bonds of trade and culture, and guarantees
frontiers but not happiness, is deeply embedded in the conception of
the League of Nations as at present constituted. It yields us the
paradox that the first experiment in international government should
exert its influence in the direction of intensifying nationalism.
These parenthetic reflections have arisen from the fact that from a
certain limited point of view the Council of the League may be able to
advance a good case in favor of its decision. My criticism strikes more
deeply than would a mere allegation of partiality.
With the conclusion of the plebiscites the frontiers of Germany were
complete.
In January 1920 Holland was called on to surrender the Kaiser; and,
to the scarcely concealed relief of the Governments concerned, she
duly refused (January 23, 1920). In the same month the surrender of
some thousands of “war criminals” was claimed, but, in the face of a
passionate protest from Germany, was not insisted on. It was arranged
instead that, in the first instance at least, only a limited number of
cases should be pursued, not before Allied Courts, as provided by the
Treaty, but before the High Court of Leipzig. Some such cases have been
tried; and now, by tacit consent, we hear no more about it.
On March 13, 1920, an outbreak by the reactionaries in Berlin (the
Kapp “Putsch”) resulted in their holding the capital for five days
and in the flight of the Ebert Government to Dresden. The defeat of
this outbreak, largely by means of the weapon of the general strike
(the first success of which was, it is curious to note, in defense
of established order), was followed by Communist disturbances in
Westphalia and the Ruhr. In dealing with this second outbreak, the
German Government despatched more troops into the district than was
permissible under the Treaty, with the result that France seized the
opportunity, without the concurrence of her Allies, of occupying
Frankfurt (April 6, 1920) and Darmstadt, this being the immediate
occasion of the first of the series of Allied Conferences recorded
below—the Conference of San Remo.
These events, and also doubts as to the capacity of the Central German
Government to enforce its authority in Bavaria, led to successive
postponements of the completion of disarmament, due under the Treaty
for March 31, 1920, until its final enforcement by the London Ultimatum
of May 5, 1921.
There remains Reparation, the chief subject of the chronicle which
follows. In the course of 1920 Germany carried out certain specific
deliveries and restitutions prescribed by the Treaty. A vast quantity
of identifiable property, removed from France and Belgium, was duly
restored to its owners.[3] The Mercantile Marine was surrendered. Some
dyestuffs were delivered, and a certain quantity of coal. But Germany
paid no cash, and the real problem of Reparation was still postponed.[4]
With the Conferences of the spring and summer of 1920 there began the
long series of attempts to modify the impossibilities of the Treaty and
to mold it into workable form.
II. _The Conferences of San Remo_ (_April_ 19–26, 1920), _Hythe_ (_May_
15 _and June_ 19, 1920), _Boulogne_ (_June_ 21, 22, 1920), _Brussels_
(_July_ 2–3, 1920), _and Spa_ (_July_ 5–16, 1920)
It is difficult to keep distinct the series of a dozen discussions
between the Premiers of the Allied Powers which occupied the year from
April 1920 to April 1921. The result of each Conference was generally
abortive, but the total effect was cumulative; and by gradual stages
the project of revising the Treaty gained ground in every quarter. The
Conferences furnish an extraordinary example of Mr. Lloyd George’s
methods. At each of them he pushed the French as far as he could, but
not as far as he wanted; and then came home to acclaim the settlement
provisionally reached (and destined to be changed a month later) as an
expression of complete accord between himself and his French colleague,
as a nearly perfect embodiment of wisdom, and as a settlement which
Germany would be well advised to accept as final, adding about every
third time that, if she did not, he would support the invasion of
her territory. As time went on, his reputation with the French was
not improved; yet he steadily gained his object,—though this may be
ascribed not to the superiority of the method as such, but to facts
being implacably on his side.
The first of the series, the Conference of San Remo (April 19–26,
1920), was held under the presidency of the Italian Premier, Signor
Nitti, who did not conceal his desire to revise the Treaty. M.
Millerand stood, of course, for its integrity, whilst Mr. Lloyd George
(according to _The Times_ of that date) occupied a middle position.
Since it was evident that the French would not then accept any new
formula, Mr. Lloyd George concentrated his forces on arranging for a
discussion face to face between the Supreme Council and the German
Government, such a meeting, extraordinary to relate, having never yet
been arranged, neither during the Peace Conference nor afterwards.
Defeated in a proposal to invite German representatives to San Remo
forthwith, he succeeded in carrying a decision to summon them to
visit Spa in the following month “for the discussion of the practical
application of the Reparation Clauses.” This was the first step; and
for the rest the Conference contented itself with a Declaration on
German Disarmament. Mr. Lloyd George had had to concede to M. Millerand
that the integrity of the Treaty should be maintained; but speaking in
the House of Commons on his return home, he admitted a preference for a
not “too literal” interpretation of it.
In May the Premiers met in privacy at Hythe to consider their course
at Spa. The notion of the sliding scale, which was to play a great
part in the Paris Decisions and the Second Ultimatum of London, now
came definitely on the carpet. A Committee of Experts was appointed to
prepare for examination a scheme by which Germany should pay a certain
minimum sum each year, supplemented by further sums in accordance with
her capacity. This opened the way for new ideas, but no agreement was
yet in sight as to actual figures. Meantime the Spa Conference was put
off for a month.
In the following month the Premiers met again at Boulogne (June 21,
1920), this meeting being preceded by an informal week–end at Hythe
(June 19, 1920). It was reported that on this occasion the Allies got
so far as definitely to agree on the principle of minimum annuities
extensible in accordance with Germany’s economic revival. Definite
figures even were mentioned, namely, a period of thirty–five years and
minimum annuities of three milliard gold marks. The Spa Conference was
again put off into the next month.
At last the Spa meeting was really due. Again the Premiers met
(Brussels, July 2, 3, 1920) to consider the course they would adopt.
They discussed many things, especially the proportions in which the
still hypothetical Reparation receipts were to be divided amongst
the claimants.[5] But no concrete scheme was adopted for Reparation
itself. Meanwhile a memorandum handed in by the German experts made
it plain that no plan politically possible in France was economically
possible in Germany. “The Note of the German economic experts,” wrote
_The Times_ on July 3, 1920, “is tantamount to a demand for a complete
revision of the Peace Treaty. The Allies have therefore to consider
whether they will call the Germans sharply to order under the menace of
definite sanctions, or whether they will risk creating the impression
of feebleness by dallying with German tergiversations.” This was a
good idea; if the Allies could not agree amongst themselves as to the
precise way of altering the Treaty, a “complete accord” between them
could be re–established by “calling the Germans sharply to order” for
venturing to suggest that the Treaty could be altered at all.
At last, on July 5, 1920, the long–heralded Conference met. But,
although it occupied twelve days, no time was found for reaching
the item on the agenda which it had been primarily summoned to
discuss—namely, Reparations. Before this dangerous topic could be
reached urgent engagements recalled M. Millerand to Paris. One of the
chief subjects actually dealt with, coal, is treated in Excursus I.
at the conclusion of this chapter. But the chief significance of the
meeting lay in the fact that then for the first time the responsible
ministers and experts of Germany and the Allied States met face to face
and used the methods of public conference and even private intimacy.
The Spa Conference produced no plan; but it was the outward sign of
some progress under the surface.
III. _The Brussels Conference_ (_December_ 16–22, 1920)
Whilst the Spa Conference made no attempt to discuss the general
question of the Reparation settlement, it was again agreed that the
latter should be tackled at an early date. But time passed by, and
nothing happened. On September 23, 1920, M. Millerand succeeded to
the Presidency of the French Republic, and his place as Premier was
taken by M. Leygues. French official opinion steadily receded from
the concessions, never fully admitted to the French public, which
Mr. Lloyd George had extracted at Boulogne. They now preferred to
let the machinery of the Reparation Commission run its appointed
course. At last, however, on November 6, 1920, after much diplomatic
correspondence, it was announced that once again the French and British
Governments were in “complete accord.” A conference of experts,
nominated by the Reparation Commission, was to sit with German experts
and report; then a conference of ministers was to meet the German
Government and report; with these two reports before it the Reparation
Commission was to fix the amount of Germany’s liability; and finally,
the heads of the Allied Governments were to meet and “take decisions.”
“Thus,” _The Times_ recorded, “after long wanderings in the wilderness
we are back once more at the Treaty of Versailles.” The re–perusal of
old files of newspapers, which the industrious author has undertaken,
corroborates, if nothing else does, the words of the Preacher and the
dustiness of fate.
The first stage of this long procedure was in fact undertaken, and
certain permanent officials of the Allied Governments[6] met German
representatives at Brussels, shortly before Christmas 1920, to
ascertain facts and to explore the situation generally. This was a
conference of “experts” as distinguished from the conferences of
“statesmen” which preceded and followed it.
The work of the Brussels experts was so largely ignored and overthrown
by the meetings of the statesmen at Paris shortly afterwards, that it
is not now worth while to review it in detail. It marked, however,
a new phase in our relations with Germany. The officials of the two
sides met in an informal fashion and talked together like rational
beings. They were representative of the pick of what might be called
“international officialdom,” cynical, humane, intelligent, with a
strong bias towards facts and a realistic treatment. Both sides
believed that progress was being made towards a solution; mutual
respect was fostered; and a sincere regret was shared at the early
abandonment of reasonable conversations.
The Brussels experts did not feel themselves free to consider an
average payment less than that contemplated at Boulogne. They
recommended to the Allied Governments, accordingly, (1) that during the
five years from 1921 to 1926 Germany should pay an _average_ annuity of
$750,000,000, but that this average annuity should be so spread over
the five years that less than this amount would be payable in the first
two years and more in the last two years, the question of the amount of
subsequent payments, after the expiry of five years, being postponed
for the present;
(2) That a substantial part of this sum should be paid in the form of
deliveries of material and not of cash;
(3) That the annual expenses of the Armies of Occupation should be
limited to $60,000,000, which payment need not be additional to the
above annuities but a first charge on them;
(4) That the Allies should waive their claim on Germany to build ships
for them and should perhaps relinquish, or postpone, the claim for the
delivery of a certain number of the existing German vessels;
(5) That Germany on her side should put her finances and her budget in
order and should agree to the Allies taking control of her customs in
the event of default under the above scheme.
IV. _The Decisions of Paris_ (_January_ 24–30, 1921)
The suggestions of the Brussels experts furnished no permanent
settlement of the question, but they represented, nevertheless, a
great advance from the ideas of the Treaty. In the meantime, however,
opinion in France was rising against the concessions contemplated.
M. Leygues, it appeared, would be unable to carry in the Chamber the
scheme discussed at Boulogne. Prolonged political intrigue ended in the
succession of M. Briand to the Premiership, with the extreme defenders
of the literal integrity of the Treaty of Versailles, M. Poincaré, M.
Tardieu, and M. Klotz, still in opposition. The projects of Boulogne
and Brussels were thrown into the melting–pot, and another conference
was summoned to meet at Paris at the end of January 1921.
It was at first doubtful whether the proceedings might not terminate
with a breach between the British and the French points of view. Mr.
Lloyd George was justifiably incensed at having to surrender most of
the ground which had seemed definitely gained at Boulogne; with these
fluctuations negotiation was a waste of time and progress impossible.
He was also disinclined to demand payments from Germany which _all_
the experts now thought impossible. For a few days he was entirely
unaccommodating to the French contentions; but as the business
proceeded he became aware that M. Briand was a kindred spirit, and
that, whatever nonsense he might talk in public, he was secretly quite
sensible. A breach in the conversations might mean the fall of Briand
and the entrance to office of the wild men, Poincaré and Tardieu,
who, if their utterances were to be taken seriously and were not
merely a ruse to obtain office, might very well disturb the peace of
Europe before they could be flung from authority. Was it not better
that Mr. Lloyd George and M. Briand, both secretly sensible, should
remain colleagues at the expense of a little nonsense in unison for a
short time? This view of the situation prevailed, and an ultimatum was
conveyed to Germany on the following lines.[7]
The Reparation payments, proposed to Germany by the Paris Conference,
were made up of a determinate part and an indeterminate part.
The former consisted of $500,000,000 per annum for two years,
$750,000,000 for the next three, then $1,000,000,000 for three more,
and $1,250,000,000 for three after that, and, finally, $1,500,000,000
annually for 31 years. The latter (the indeterminate part) consisted of
an annual sum, additional to the above, equal in value to 12 per cent
of the German exports. The fixed payments under this scheme added up to
a gross total of $56,500,000,000 which was a little less than the gross
total contemplated at Boulogne but, with the export proportion added, a
far greater sum.
The indeterminate element renders impossible an exact calculation of
this burden, and it is no longer worth while to go into details. But
I calculated at the time, without contradiction, that these proposals
amounted for the normal period to a demand exceeding $2,000,000,000 per
annum, which is double the highest figure that any competent person in
Great Britain or in the United States has ever attempted to justify.
The Paris Decisions, however, coming as they did after the discussions
of Boulogne and Brussels, were not meant seriously, and were simply
another move in the game, to give M. Briand a breathing space. I wonder
if there has ever been anything quite like it—best diagnosed perhaps
as a consequence of the portentous development of “propaganda.”
The monster had escaped from the control of its authors, and the
extraordinary situation was produced in which the most powerful
statesmen in the world were compelled by forces, which they could not
evade, to meet together day after day to discuss detailed variations of
what they knew to be impossible.
Mr. Lloyd George successfully took care, however, that the bark should
have no immediate bite behind it. The consideration of effective
penalties was postponed, and the Germans were invited to attend in
London in a month’s time to convey their answer by word of mouth.
M. Briand duly secured his triumph in the Chamber. “Rarely,” _The
Times_ reported, “can M. Briand in all his long career as a speaker
and Parliamentarian have been in better form. The flaying of M.
Tardieu was intensely dramatic, even if at times almost a little
painful for the spectators as well as for the victim.” M. Tardieu
had overstated his case, and “roundly asserting that the policy of
France during the last year had been based on the conclusion that the
financial clauses of the Treaty of Versailles could not be executed,
had gained considerable applause by declaring that this was just the
thesis of the pacifist, Mr. Keynes, and of the German delegate, Count
Brockdorff–Rantzau,”—which was certainly rather unfair to the Paris
Decisions. But by that date, even in France, to praise the perfections
of the Treaty was to make oneself ridiculous. “I am an ingenuous man,”
said M. Briand as he mounted the tribune, “and when I received from M.
Tardieu news that he was going to interpellate me, I permitted myself
to feel a little pleased. I told myself that M. Tardieu was one of the
principal architects of the Treaty of Versailles, and that as such,
though he knew its good qualities, he would also know its blemishes,
and that he would, therefore, be indulgent to a man who had done
his best in fulfilling his duty of applying it—_mais voilà_ (with
a gesture)—I did not stop to remember that M. Tardieu had already
expended all his stock of indulgence upon his own handiwork.” The
monstrous offspring of propaganda was slowly dying.
V. _The First Conference of London_ (_March_ 1–7, 1921)
In Germany the Paris proposals were taken seriously and provoked
a considerable outcry. But Dr. Simons accepted the invitation to
London and his experts got to work at a counter–proposal. “I was
in agreement,” he said at Stuttgart on February 13, “with the
representatives of Britain and France at the Brussels Conference. The
Paris Conference shattered that. A catastrophe has occurred. German
public opinion will never forget these figures. Now it is impossible
to return to the Seydoux plan put forward at Brussels (_i.e._, a
provisional settlement for five years), for the German people would
always see enormous demands rising before them like a specter.... We
shall rather accept unjust dictation than sign undertakings we are not
firmly persuaded the German people can keep.”
On March 1, 1921, Dr. Simons presented his counter–proposal to the
Allies assembled in London. Like the original counter–proposal of
Brockdorff–Rantzau at Versailles, it was not clear–cut or entirely
intelligible; and it was rumored that the German experts were divided
in opinion amongst themselves. Instead of stating in plain language
what Germany thought she could perform, Dr. Simons started from the
figures of the Paris Decisions and then proceeded by transparent
and futile juggling to reduce them to a quite different figure. The
process was as follows. Take the gross total of the fixed annuities of
the Paris scheme (_i.e._, apart from the export proportion), namely
$56,500,000,000, and calculate its present value at _8 per cent
interest_, namely $12,500,000,000; deduct from this $5,000,000,000
as the alleged (but certainly not the actual) value of Germany’s
deliveries up to date, which leaves $7,500,000,000. This was the
utmost Germany could pay. If the Allies could raise an international
loan of $2,000,000,000, Germany would pay the interest and sinking
fund on this, and in addition $250,000,000 a year for five years,
towards the discharge of the capital sum remaining over and above the
$2,000,000,000, namely, $5,500,000,000, which capital sum, however,
would not carry interest pending repayment. At the end of five years
the rate of repayment would be reconsidered. The whole proposal was
contingent on the retention of Upper Silesia and the removal of all
impediments to German trade.
The actual substance of this proposal was not unreasonable and probably
as good as the Allies will ultimately secure. But the figures were far
below even those of the Brussels experts, and the mode of putting it
forward naturally provoked prejudice. It was summarily rejected.
Two days later Mr. Lloyd George read to the German Delegation a
lecture on the guilt of their country, described their proposals as
“an offense and an exasperation,” and alleged that their taxes were
“ridiculously low compared with Great Britain’s.” He then delivered
a formal declaration on behalf of the Allies that Germany was in
default in respect of “the delivery for trial of the criminals who have
offended against the laws of war, disarmament, and the payment in cash
or kind of $5,000,000,000”; and concluded with an ultimatum[8] to
the effect that unless he heard by Monday (March 7) “that Germany was
either prepared to accept the Paris Decisions or to submit proposals
which would be in other ways an equally satisfactory discharge of her
obligations under the Treaty of Versailles (subject to the concessions
made in the Paris proposals),” the Allies would proceed to (1) the
occupation of Duisberg, Ruhrort, and Düsseldorf on the right bank of
the Rhine, (2) a levy on all payments due to Germany on German goods
sent to Allied countries, (3) the establishment of a line of Customs
between the occupied area of Germany and the rest of Germany, and (4)
the retention of the Customs paid on goods entering or leaving the
occupied area.
During the next few days negotiations proceeded, to no purpose, behind
the scenes. At midnight on March 6, M. Loucheur and Lord D’Abernon
offered the Germans the alternative of a fixed payment of $750,000,000
for 30 years and an export proportion of 30 per cent.[9] The formal
Conference was resumed on March 7. “A crowd gathered outside Lancaster
House in the morning and cheered Marshal Foch and Mr. Lloyd George.
Shouts of ‘Make them pay, Lloyd George!’ were general. The German
delegates were regarded with curiosity. General von Seeckt wore uniform
with a sword. He wore also an eyeglass in the approved manner of the
Prussian officer and bore himself as the incarnation of Prussian
militarism. Marshal Foch, Field–Marshal Sir Henry Wilson, and the other
Allied soldiers also wore uniform.”[10]
Dr. Simons communicated his formal reply. He would accept the _régime_
of the Paris Decisions as fixed for the first five years, provided
Germany was helped to pay by means of a loan and retained Upper
Silesia. At the end of five years the Treaty of Versailles would
resume its authority, the provisions of which he preferred, as he was
entitled to do, to the proposals of Paris. “The question of war guilt
is to be decided neither by the Treaty, nor by acknowledgment, nor by
Sanctions; only history will be able to decide the question as to who
was responsible for the world war. We are all of us still too near to
the event.” The Sanctions threatened were, he pointed out, all of them
illegal. Germany could not be technically in default in respect of
Reparation until the Reparation Commission had made the pronouncements
due from them on May 1. The occupation of further German territory was
not lawful under the Treaty. The retention of part of the value of
German goods was contrary to undertakings given by the British and
Belgian Governments. The erection of a special Customs tariff in the
Rhineland was only permissible under Article 270 of the Treaty for
the protection of the economic interests of the Rhineland population
and not for the punishment of the whole German people in respect of
unfulfilled Treaty obligations. The arguments as to the illegality of
the Sanctions were indisputable, and Mr. Lloyd George made no attempt
to answer them. He announced that the Sanctions would be put into
operation immediately.
The rupture of the negotiations was received in Paris “with a sigh of
relief,”[11] and orders were telegraphed by Marshal Foch for his troops
to march at 7 A.M. next morning.
No new Reparation scheme, therefore, emerged from the Conference of
London. Mr. Lloyd George’s acquiescence in the Decisions of Paris had
led him too far. Some measure of personal annoyance at the demeanor of
the German representatives and the failure of what, in its inception,
may have been intended as bluff, had ended in his agreeing to an
attempt to enforce the Decisions by the invasion of Germany. The
economic penalties, whether they were legal or not, were so obviously
ineffective for the purpose of collecting money, that they can hardly
have been intended for that purpose, and were rather designed to
frighten Germany into putting her name to what she could not, and did
not intend to perform, by threatening a serious step in the direction
of the policy, openly advocated in certain French quarters, of
permanently detaching the Rhine provinces from the German Commonwealth.
The grave feature of the Conference of London lay partly in Great
Britain’s lending herself to a furtherance of this policy, and partly
in contempt for the due form and processes of law.
For it was impossible to defend the legality of the occupation
of the three towns under the Treaty of Versailles.[12] Mr. Lloyd
George endeavored to do so in the House of Commons, but at a later
stage of the debate the contention was virtually abandoned by the
Attorney–General.
The object of the Allies was to compel Germany to accept the Decisions
of Paris. But Germany’s refusal to accept these proposals was within
her rights and not contrary to the Treaty, since they lay outside the
Treaty and included features unauthorized by the Treaty which Germany
was at liberty either to accept or to reject. It was necessary,
therefore, for the Allies to find some other pretext. Their effort in
this direction was perfunctory, and consisted, as already recorded, in
a vague reference to war criminals, disarmament, and the payment of 20
milliard gold marks.
The allegation of default in paying the 20 milliard gold marks was
manifestly untenable at that date (March 7, 1921); for according to
the Treaty, Germany had to pay this sum by May 1, 1921, “in such
instalments and in such manner as the Reparation Commission may fix,”
and in March 1921 the Reparation Commission had not yet demanded these
cash payments.[13] But assuming that there had been technical default
in respect of the war criminals and disarmament (and the original
provisions of the Treaty had been so constantly modified that it was
very difficult to say to what extent this was the case), it was our
duty to state our charges precisely, and, if penalties were threatened,
to make these penalties dependent on a failure to meet our charges. We
were not entitled to make vague charges, and then threaten penalties
unless Germany agreed to something which had nothing to do with the
charges. The Ultimatum of March 7 substituted for the Treaty the
intermittent application of force in exaction of varying demands. For
whenever Germany was involved in a technical breach of any one part
of the Treaty, the Allies were, apparently, to consider themselves
entitled to make any changes they saw fit in any other part of the
Treaty.
In any case the invasion of Germany beyond the Rhine was not a lawful
act under the Treaty. This question became of even greater importance
in the following month, when the French announced their intention of
occupying the Ruhr. The legal issue is discussed in Excursus II. at the
conclusion of this Chapter.
VI. _The Second Conference of London_ (_April_ 29–_May_ 5, 1921)
The next two months were stormy. The Sanctions embittered the situation
in Germany without producing any symptoms of surrender in the German
Government. Towards the end of March the latter sought the intervention
of the United States and transmitted a new counter–proposal through the
Government of that country. In addition to being straightforward and
more precise, this offer was materially better than that of Dr. Simons
in London at the beginning of the month. The chief provisions[14] were
as follows:
1. The German liability to be fixed at $12,500,000,000 present value.
2. As much of this as possible to be raised immediately by an
international loan, issued on attractive terms, of which the proceeds
would be handed over to the Allies, and the interest and sinking fund
on which Germany would bind herself to meet.
3. Germany to pay interest on the balance at 4 per cent for the present.
4. The sinking fund on the balance to vary with the rate of Germany’s
recovery.
5. Germany, in part discharge of the above, to take upon herself the
actual reconstruction of the devastated areas on any lines agreeable to
the Allies, and in addition to make deliveries in kind on commercial
lines.
6. Germany is prepared, “up to her powers of performance,” to assume
the obligations of the Allies to America.
7. As an earnest of her good intentions, she offers $250,000,000 in
cash immediately.
If this is compared with Dr. Simons’s first offer, it will be seen that
it is at least 50 per cent better, because there is no longer any talk
of deducting from the total of $12,500,000,000 an alleged (and in fact
imaginary) sum of $5,000,000,000 in respect of deliveries prior to May
1, 1921. If we assume an international loan of $1,250,000,000, costing
8 per cent for interest and sinking fund,[15] the German offer amounted
to an immediate payment of $550,000,000 per annum, with a possibility
of an increase later in proportion to the rate of Germany’s economic
recovery.
The United States Government, having first ascertained privately that
this offer would not be acceptable to the Allies, refrained from its
formal transmission.[16] On this account, and also because it was
overshadowed shortly afterwards by the Second Conference of London,
this very straightforward proposal has never received the attention
it deserves. It was carefully and precisely drawn up, and probably
represented the full maximum that Germany could have performed, if not
more.
But the offer, as I have said, made very little impression; it was
largely ignored in the press, and scarcely commented on anywhere.
For in the two months which elapsed between the First and Second
Conferences of London there were two events of great importance, which
modified the situation materially.[17]
The first of these was the result of the Silesian plebiscite held
in March 1921. The earlier German Reparation offers had all been
contingent on her retention of Upper Silesia; and this condition was
one which, in advance of the plebiscite, the Allies were unable to
accept. But it now appeared that Germany was in fact entitled to most
of the country, and, possibly, to the greater part of the industrial
area. But this result also brought to a head the acute divergence
between the policy of France and the policy of the other Allies towards
this question.
The second event was the decision of the Reparation Commission,
communicated to Germany on April 27, 1921, as to her aggregate
liabilities under the Treaty. Allied Finance Ministers had foreshadowed
300 milliard gold marks; at the time of the Decisions of Paris,
responsible opinion expected 160–200 milliards;[18] and the author
of _The Economic Consequences of the Peace_ had suffered widespread
calumny for fixing on the figure of 137 milliards,[19] as being the
nearest estimate he could make. The public, and the Government also,
were, therefore, taken by surprise when the Reparation Commission
announced that they unanimously assessed the figure at 132 milliards
(_i.e._, $33,000,000,000).[20] It now turned out that the Decisions
of Paris, which had been represented as a material amelioration of the
Treaty which Germany was ungrateful not to accept, were no such thing;
and that Germany was at that moment suffering from an invasion of her
territory for a refusal to subscribe to terms which were severer in
some respects than the Treaty itself. I shall examine the decision of
the Reparation Commission in detail in Chapter IV. It put the question
on a new basis and the Decisions of London could hardly have been
possible otherwise.
The decision of the Reparation Commission and the arrival of the date,
May 1, 1921, fixed in the Treaty for the promulgation of a definite
Reparation scheme, provided a sufficient ground for reopening the whole
question. Germany had refused the Decisions of Paris; the Sanctions had
failed to move her; the régime of the Treaty was therefore reinstated;
and under the Treaty it was for the Reparation Commission to propose a
scheme.
In these circumstances the Allies met once more in London in the
closing days of April 1921. The scheme there concerted was really
the work of the Supreme Council, but the forms of the Treaty were
preserved, and the Reparation Commission were summoned from Paris to
adopt and promulgate as their own the decree of the Supreme Council.
The Conference met in circumstances of great tension. M. Briand had
found it necessary to placate his Chamber by announcing that he
intended to occupy the Ruhr on May 1. The policy of violence and
illegality, which began with the Conference of Paris, had always
included hitherto just a sufficient ingredient of make–believe to
prevent its being as dangerous as it pretended to the peace and
prosperity of Europe. But a point had now been reached when something
definite, whether good or bad, seemed bound to happen; and there was
every reason for anxiety. Mr. Lloyd George and M. Briand had walked
hand–in–hand to the edge of a precipice; Mr. Lloyd George had looked
over the edge; and M. Briand had praised the beauties of the prospect
below and the exhilarating sensations of a descent. Mr. Lloyd George,
having indulged to the full his habitual morbid taste for looking over,
would certainly end in drawing back, explaining at the same time how
much he sympathized with M. Briand’s standpoint. But would M. Briand?
In this atmosphere the Conference met, and, considering all the
circumstances, including the past commitments of the principals,
the result was, on the whole, a victory for good sense, not least
because the Allies there decided to return to the pathway of legality
within the ambit of the Treaty. The new proposals, concerted at this
Conference, were, whether they were practicable or not in execution,
a lawful development of the Treaty, and in this respect sharply
distinguished from the Decisions of Paris in the January preceding.
However bad the Treaty might be, the London scheme provided a way of
escape from a policy worse even than that of the Treaty,—acts, that
is, of arbitrary lawlessness based on the mere possession of superior
force.
In one respect the Second Ultimatum of London was lawless; for it
included an illegal threat to occupy the Ruhr Valley if Germany
refused its terms. But this was for the sake of M. Briand, whose
minimum requirement was that he should at least be able to go home
in a position to use, for conversational purposes, the charms of the
precipice from which he was hurrying away. And the Ultimatum made
no demand on Germany to which she was not already committed by her
signature to the Treaty.
For this reason the German Government was right, in my judgment,
to accept the Ultimatum unqualified, even though it still included
demands impossible of fulfilment. For good or ill Germany had signed
the Treaty. The new scheme added nothing to the Treaty’s burdens,
and, although a reasonable permanent settlement was left where it
was before,—in the future,—in some respects it abated them. Its
ratification, in May 1921, was in conformity with the Treaty, and
merely carried into effect what Germany had had reason to anticipate
for two years past. It did not call on her to do immediately—that is
to say, in the course of the next six months—anything incapable of
performance. It wiped out the impossible liability under which she lay
of paying forthwith a balance of $3,000,000,000 due under the Treaty
on May 1. And, above all, it obviated the occupation of the Ruhr and
preserved the peace of Europe.
There were those in Germany who held that it must be wrong that Germany
should under threats profess insincerely what she could not perform.
But the submissive acceptance by Germany of a lawful notice under a
Treaty she had already signed committed her to no such profession,
and involved no recantation of her recent communication through the
President of the United States as to what would eventually prove in her
sincere belief to be the limits of practicable performance.
In the existence of such sentiments, however, Germany’s chief
difficulty lay. It has not been understood in England or in America how
deep a wound has been inflicted on Germany’s self–respect by compelling
her, not merely to perform acts, but to subscribe to beliefs which she
did not in fact accept. It is not usual in civilized countries to use
force to compel wrongdoers to confess, even when we are convinced of
their guilt; it is still more barbarous to use force, after the fashion
of inquisitors, to compel adherence to an article of belief because we
ourselves believe it. Yet towards Germany the Allies had appeared to
adopt this base and injurious practice, and had enforced on this people
at the point of the bayonet the final humiliation of reciting, through
the mouths of their representatives, what they believed to be untrue.
But in the Second Ultimatum of London the Allies were no longer in
this fanatical mood, and no such requirement was intended. I hoped,
therefore, at the time that Germany would accept the notification of
the Allies and do her best to obey it, trusting that the whole world
is not unreasonable and unjust, whatever the newspapers may say; that
Time is a healer and an illuminator; and that we had still to wait a
little before Europe and the United States could accomplish in wisdom
and mercy the economic settlement of the war.
EXCURSUS I
COAL
The question of coal has always considerable importance for Reparation,
both because (in spite of the exaggerations of the Treaty) it is a form
in which Germany can make important payments, and also because of the
reaction of coal deliveries on Germany’s internal economy. Up to the
middle of 1921 Germany’s payments for Reparation were almost entirely
in the form of coal. And coal was the main topic of the Spa Conference,
where for the first time the Governments of the Allies and of Germany
met face to face.
Under the terms of the Treaty Germany was to deliver 3,400,000 tons
of coal per month. For reasons explained in detail in _The Economic
Consequences of the Peace_ (pp. 74–89) this total was a figure of
rhetoric and not capable of realization. Accordingly for the first
quarter of 1920 the Reparation Commission reduced their demand to
1,660,000 tons per month, and in the second quarter to 1,500,000 tons
per month; whilst in the second quarter Germany actually delivered
at the rate of 770,000 tons per month. This last figure was unduly
low, and by the latter date coal was in short supply throughout the
world and very dear. The main object of the Spa Coal Agreement was,
therefore, to secure for France an increased supply of German coal.
The Conference was successful in obtaining coal, but on terms not
unfavorable to Germany. After much bargaining the deliveries were
fixed at 2,000,000 tons a month for six months from August 1920. But
the German representatives succeeded in persuading the Allies that
they could not deliver this amount unless their miners were better
fed and that this meant foreign credit. The Allies agreed, therefore,
to _pay_ Germany something substantial for this coal, the sums thus
received to be utilized in purchasing from abroad additional food
for the miners. In form, the greater part of the sum thus paid was a
loan; but, since it was set off as a prior charge against the value of
Reparation deliveries (_e.g._, the ships), it really amounted to paying
back to Germany the value of a part of these deliveries. Germany’s
total cash receipts[21] under these arrangements actually came to about
360,000,000 gold marks,[22] which worked out at about 40s. per ton
averaged over the whole of the deliveries. As at this time the German
internal price was from 25s. to 30s. per ton, the German Government
received in foreign currency substantially more than they had to pay
for the coal to the home producers. The high figure of 2,000,000 tons
per month involved short supplies to German transport and industry.
But the money was badly wanted, and was of the utmost assistance
in paying for the German food program (and also in meeting German
liabilities in respect of pre–war debts) during the autumn and winter
of 1920.
This is a convenient point at which to record the subsequent history
of the coal deliveries. During the next six months Germany very nearly
fulfilled the Spa Agreement, her deliveries towards the 2,000,000 tons
per month being 2,055,227 tons in August, 2,008,470 tons in September,
2,288,049 tons in October, 1,912,696 tons in November, 1,791,828 tons
in December, and 1,678,675 tons in January 1921. At the end of January
1921 the Spa Agreement lapsed, and since that time Germany has had to
continue her coal deliveries without any payment or advance of cash
in return for them. To make up for the accumulated deficit under the
Spa Agreement, the Reparation Commission called for 2,200,000 tons per
month in February and March, and continued to demand this figure in
subsequent months. Like so much else, however, this demand was only
on paper. Germany was not able to fulfil it, her actual deliveries
during the next six months amounting to 1,885,051 tons in February
1921, 1,419,654 tons in March, 1,510,332 tons in April, 1,549,768 tons
in May, 1,453,761 tons in June, and 1,399,132 tons in July. And the
Reparation Commission, not really wanting the coal, tacitly acquiesced
in these quantities. During the first half of 1921 there was, in fact,
a remarkable reversal of the situation six months earlier. In spite of
the British Coal Strike, France and Belgium, having replenished their
stocks and suffering from a depression in the iron and steel trades,
were in risk of being glutted with coal. If Germany had complied with
the full demands of the Reparation Commission the recipients would not
have known what to do with the deliveries. Even as it was, some of the
coal received was sold to exporters, and the coal miners of France and
Belgium were in danger of short employment.
The statistics of the aggregate German output of pit coal are now as
follows, exclusive of Alsace–Lorraine, the Saar, and the Palatinate, in
million tons:
─────────────────┬──────┬──────┬──────┬──────┬──────┬────────────
│ 1913.│ 1917.│ 1918.│ 1919.│ 1920.│ 1921 (first
│ │ │ │ │ │nine months)
─────────────────┼──────┼──────┼──────┼──────┼──────┼────────────
Germany exclusive│ │ │ │ │ │
of Upper Silesia│130.19│111.66│109.54│ 92.76│ 99.66│ 76.06
Germany inclusive│ │ │ │ │ │
of Upper Silesia│173.62│154.41│148.19│117.69│131.35│ 100.60
Per cent of 1913 │ │ │ │ │ │
output │100.00│ 88.90│ 85.40│ 67.80│ 75.70│ 77.20
─────────────────┴──────┴──────┴──────┴──────┴──────┴────────────
The production of rough lignite (I will not risk controversy by
attempting to convert this into its pit–coal equivalent) rose from 87.1
million tons in 1913 to 93.8 in 1919, 111.6 in 1920, and 90.8 in the
first three–quarters of 1921.
The Spa Agreement supplied a temporary palliative of the anomalous
conditions governing the _price_ at which these coal deliveries are
credited to Germany. But with the termination of this Agreement they
again require attention. Under the Treaty Germany is credited in the
case of coal delivered _overland_ with “the German pithead price to
German nationals” plus the freight to the frontier; and in the case
of coal delivered _by sea_ with the export price; provided in each
case this price is not in excess of the British export price. Now for
various internal reasons the German Government have thought fit to
maintain the pithead price to German nationals far below the world
price, with the result that she gets credited with much less than its
real value for her deliveries of Reparation coal. During the year
ending June 1921 the average legal maximum price of the different
kinds of coal was about 270 marks a ton, inclusive of a tax of 20 per
cent on the price,[23] which at the exchange then prevailing was about
20s., _i.e._, between a third and a half of the British price at that
date. The fall in the mark exchange in the autumn of 1921 increased the
discrepancy. For although the price of German coal was substantially
increased in terms of paper marks, and although the price of British
coal had fallen sharply, the movements of exchange so out–distanced the
other factors, that in November 1921 the price of British coal worked
out at about three and half times the price of the best bituminous coal
from the Ruhr. Thus not only were the German iron–masters placed in an
advantageous position for competing with British producers, but the
Belgian and French industries also benefited artificially through the
receipt by their Governments of very low–priced coal.
The German Government is in rather a dilemma in this matter. An
increase in the coal tax is one of the most obvious sources for an
increased revenue, and such a tax would be, from the standpoint of
the exchequer, twice blessed, since it would increase correspondingly
the Reparation credits. But on the other hand, such a proposal unites
two groups against them, the industrialists, who want cheap coal for
industry and the Socialists who want cheap coal for the domestic stove.
From the revenue standpoint the tax would probably stand an increase
from 20 per cent to 60 per cent; but from the political standpoint an
increase from 20 per cent to 30 per cent is the highest contemplated at
present, with a differential price in favor of domestic consumers.[24]
I take this opportunity of making a few corrections or amplifications
of the passages in _The Economic Consequences of the Peace_ which deal
with coal.
1. The fate of Upper Silesia is highly relevant to some of the
conclusions about coal in Chapter IV of _The Economic Consequences
of the Peace_ (pp. 77–84). I there stated that “German authorities
claim, not without contradiction, that to judge from the votes cast
at elections, one–third of the population would elect in the Polish
interest, and two–thirds in the German,” which forecast turned out to
be in almost exact accordance with the facts. I also urged that, unless
the plebiscite went in a way which I did not expect, the industrial
districts ought to be assigned to Germany. But I felt no confidence,
having regard to the policy of France, that this would be done; and
I allowed, therefore, in my figures for the possibility that Germany
would lose this area.
The actual decision of the Allies, acting on the advice of the Council
of the League of Nations to whom the matter had been referred, which
we have discussed briefly above (pp. 12–14), divides the industrial
triangle between the two claimants to it. According to an estimate
of the Prussian Ministry of Trade 86 per cent of the total coal
deposits of Upper Silesia fall to Poland, leaving 14 per cent to
Germany. Germany retains a somewhat larger proportion of pits in actual
operation, 64 per cent of the current production of coal falling to
Poland and 36 per cent to Germany.[25]
The figure of 100,000,000 tons, given in _The Economic Consequences
of the Peace_ for the _net_ German production (_i.e._, deducting
consumption at the mines themselves) in the near future _excluding_
Upper Silesia, should, therefore, be replaced by the figure of (say)
115,000,000 tons, _including_ such part of Upper Silesia as Germany is
now to retain.
2. I beg leave to correct a misleading passage in a footnote to p. 79
of _The Economic Consequences of the Peace_. I there spoke of “Poland’s
pre–war annual demand” for coal, where I should have said “pre–war
Poland’s pre–war annual demand.” The mistake was not material, as I
allowed for Germany’s diminished requirements for coal, due to loss of
territory, in the body of the text. But I confess that the footnote,
as published, might be deemed misleading. At the same time it is, I
think, a tribute to the general accuracy of _The Economic Consequences_
that partizan critics should have fastened so greedily on the omission
of the word “pre–war” before the word “Poland” in the footnote in
question. Quite a considerable literature has grown up round it. The
Polish Diet devoted January 20, 1921, to the discussion and patriotic
analysis of this footnote, and concluded with a Resolution ordering
the chief speech of the occasion (that of Deputy A. Wierzlicki) to be
published throughout the world in several languages at the expense of
the State. I apologize for any depreciation in the Polish mark for
which I may have been so inadvertently responsible. Mr. Wierzlicki
begins: “A book appeared by Keynes ... the author of a well–known work
on India, that pearl of the English crown, that land which is a beloved
subject of study to the English. Through such studies a man may win
himself name and fame,”—which was certainly a little unscrupulous of
me. And he concludes: “But England too must believe in facts! And if
Keynes, whose book is impregnated with a humanitarian spirit and with
understanding of the necessity to get up beyond selfish interests,
if Keynes is convinced by actual data that he has done a wrong, that
he has wrought confusion in the ideas of statesmen and politicians
as regards Upper Silesia, then he too will see with his eyes and
must become the friend of Poland, of Poland as an active factor in
the development of the natural wealth of Silesia.” I owe it to so
generous and eloquent a critic to quote the corrected figures, which
are as follows: the Polish lands, united by the Peace Treaty into the
new Polish State, consumed in 1913 19,445,000 tons of coal, of which
8,989,000 tons were produced within that area and 7,370,000 tons were
imported from Upper Silesia (the total production of Upper Silesia in
that year being 43,800,000 tons).[26] The Silesian Plebiscite has been
preceded and followed by a mass of propagandist literature on both
sides. For the economic questions involved see, particularly, on the
Polish side: Wierzlicki, _The Truth about Upper Silesia_; Olszewski,
_Upper Silesia, Her Influence on the Solvability and on the Economic
Life of Germany_, and _The Economic Value of Upper Silesia for Poland
and Germany respectively_; and on the German side: Sidney Osborne, _The
Upper Silesian Question and Germany’s Coal Problem, The Problem of
Upper Silesia_ (papers by various authors, not all on the German side,
with excellent maps, edited by Sidney Osborne), various pamphlets by
Professor Schulz–Gavernitz, and documents circulated by the Breslau
Chamber of Commerce.
3. My observations on Germany’s capacity to deliver reparation coal
have been criticized in some quarters[27] on the ground that I made
insufficient allowance for the compensation which is available to
her by the more intensive exploitation of her deposits of lignite
or brown coal. This criticism is scarcely fair, because I was the
first in popular controversy to call attention to the factor of
lignite, and because I was careful from the outset to disclaim expert
knowledge of the subject.[28] I still find it difficult, in the face
of conflicting expert opinions, to know how much importance to attach
to this material. Since the Armistice there has been a substantial
increase in output, which was 36 per cent higher in the first half
of 1921 than in 1913.[29] In view of the acute shortage of coal this
output must have been of material assistance towards meeting the
situation. The deposits are near the surface, and no great amount
of capital or machinery is needed for its production. But lignite
briquette is a substitute for coal for certain purposes only, and the
evidence is conflicting as to whether any further material expansion is
economically practicable.[30]
The process of briquetting the rough lignite is probably a wasteful
one, and it is doubtful whether it would be worth while to set up _new_
plant with a view to production on a larger scale. Some authorities
hold that the real future of lignite and its value as an element in the
future wealth of Germany lie in improved methods of _distillation_ (the
chief obstacle to which, as also to other uses, lies in its high water
content), by which the various oils, ammonia and benzine, latent in it
can be released for commercial uses.
It is certainly the case that the future possibilities of lignite
should not be overlooked. But there is a tendency at present, just
as was the case with potash some little time ago, to exaggerate its
importance greatly as a decisive factor in the wealth–producing
capacity of Germany.
EXCURSUS II
THE LEGALITY OF OCCUPYING GERMANY EAST OF THE RHINE
The years 1920 and 1921 have been filled with excursions and with
threats of excursions by the French Army into Germany east of the
Rhine. In March 1920 France, without the approval of her Allies,
occupied Frankfort and Darmstadt. In July 1920 a threat to invade
Germany by the Allies as a whole was successful in enforcing the Spa
Agreement. In March 1921 a similar threat was unsuccessful in securing
assent to the Paris Decisions, and Duisberg, Ruhrort, and Düsseldorf
were occupied accordingly. In spite of the objections of her Allies
France continued this occupation when, by the acceptance of the second
Ultimatum of London, the original occasion for it had disappeared, on
the ground that so long as the Upper Silesian question was unsettled,
it was in the opinion of Marshal Foch just as well to retain this
hold.[31] In April 1921 the French Government announced their intention
of occupying the Ruhr, though they were prevented from carrying this
out by the pressure of the other Allies. In May 1921 the Second
Ultimatum of London was successfully enforced by a threat to occupy
the Ruhr Valley. Thus, within the space of little more than a year the
invasion of Germany, beyond the Rhine, was threatened five times and
actually carried out twice.
We are supposed to be at peace with Germany, and the invasion of a
country in time of peace is an irregular act, even when the invaded
country is not in a position to resist. We are also bound by our
adhesion to the League of Nations to avoid such action. It is,
however, the contention of France, and apparently, from time to time,
that of the British Government also, that these acts are in some way
permissible under the Treaty of Versailles, whenever Germany is in
technical default in regard to any part of the Treaty, that is to say,
since some parts of the Treaty are incapable of literal fulfilment, at
any time. In particular the French Government maintained in April 1921
that so long as Germany possessed any tangible assets capable of being
handed over, she was in voluntary default in respect of Reparation,
and that if she was in voluntary default any Ally was entitled to
invade and pillage her territory without being guilty of an act of war.
In the previous month the Allies as a whole had argued that default
under Chapters of the Treaty, other than the Reparation Chapter, also
justified invasion.
Though the respect shown for legality is now very small, the legal
position under the Treaty deserves nevertheless an exact examination.
The Treaty of Versailles expressly provides for breaches by Germany of
the _Reparation_ Chapter. It contains no special provision for breaches
of other Chapters, and such breaches are, therefore, in exactly the
same position as breaches of any other Treaty. Accordingly, I will
discuss separately default in respect of Reparation, and other defaults.
Sections 17 and 18 of the Reparation Chapter, Annex II. run as follows:
“(17) In case of default by Germany in the performance of any
obligation under this part of the present Treaty, the Commission will
forthwith give notice of such default to each of the interested Powers,
and will make such recommendations as to the action to be taken in
consequence of such default as it may think necessary.
“(18) The measures which the Allied and Associated Powers shall have
the right to take in case of voluntary default by Germany, and which
Germany agrees not to regard as acts of war, may include economic
and financial prohibitions and reprisals, and in general such other
measures as the respective Governments may determine to be necessary in
the circumstances.”
There is also a provision in Article 430 of the Treaty, by which any
part of the occupied area which has been evacuated may be reoccupied if
Germany fails to observe her obligations with regard to Reparation.
The French Government base their contention on the words “and in
general such other measures” in § 18, arguing that this gives them
an entirely free hand. The sentence taken as a whole, however,
supports, on the principle of _ejusdem generis_, the interpretation
that the other measures contemplated are of the nature of economic
and financial reprisals. This view is confirmed by the fact that the
rest of the Treaty narrowly limits the rights of occupying German
territory, which, as M. Tardieu’s book shows, was the subject of an
acute difference of opinion between France and her Associates at the
Peace Conference. There is _no_ provision for occupying territory on
the _right_ bank of the Rhine; and the only provision for occupation in
the event of default is that contained in Article 430. This Article,
which provides for _reoccupation_ of the _left_ bank in the event of
default, would have been entirely pointless and otiose if the French
view were correct. Indeed the theory, that at any time during the next
thirty years any Ally can invade any part of Germany on the ground that
Germany has not fulfilled every letter of the Treaty, is on the face of
it unreasonable.
In any case, however, §§ 17, 18 of Annex II. of the Reparation Chapter
only operate after a specific procedure has been set on foot by the
Reparation Commission. It is the duty of the Reparation Commission to
give notice of the default to each of the interested Powers, including
presumably the United States, and to recommend action. If the default
is voluntary—there is no provision as to who is to decide this—then
the paragraphs in question become operative. There is no warrant
here for isolated action by a single Ally. And indeed the Reparation
Commission have never so far put this procedure in operation.
If, on the other hand, Germany is alleged to be in default under some
other Chapter of the Treaty, then the Allies have no recourse except
to the League of Nations; and they are bound to bring into operation
Article 17 of the Covenant, which provides for the case of a dispute
between a member of the League and a non–member. That is to say,
apart from procedure by the Reparation Commission as set forth above,
breaches or alleged breaches of this Treaty are in precisely the same
position as breaches of any other treaty between two Powers which are
at peace.
According to Article 17, in the event of a dispute between a member
of the League and a State which is not a member of the League, the
latter “shall be invited to accept the obligations of membership in
the League for the purposes of such dispute, upon such conditions
as the Council may deem just. If such invitation is accepted, the
provisions of Articles 12 to 16 inclusive shall be applied, with such
modifications as may be deemed necessary by the Council. Upon such
invitation being given, the Council shall immediately institute an
inquiry into the circumstances of the dispute, and recommend such
action as may seem best and most effectual in the circumstances.”
Articles 12 to 16 provide, amongst other things, for arbitration in
any case of “disputes as to the interpretation of a Treaty; as to
any question of international law; as to the existence of any fact
which, if established, would constitute a breach of any international
obligation; or as to the extent and nature of the reparation to be made
for any such breach.”
The Allies as signatories of the Treaty and of the Covenant are
therefore absolutely precluded in the event of a breach or alleged
breach by Germany of the Treaty, from proceeding except under the power
given to the Reparation Commission as stated above, or under Article 17
of the Covenant. Any other act on their part is illegal.
In any case it is _obligatory_ on the Council of the League, under
Article 17, to invite Germany, in the event of a dispute between
Germany and the Allies, to accept the obligations of membership in the
League for the purposes of such dispute, and to institute immediately
an inquiry into the circumstances of the dispute.
In my opinion the protest addressed by the German Government to the
Council of the League of Nations in March 1921 was correctly argued.
But, as with the inclusion of pensions in the Reparation Bill, we
reserve the whole stock of our indignation over illegality between
nations for the occasions when it is the fault of others. I am told
that to object to this is to overlook “the human element” and is
therefore both wrong and foolish.
FOOTNOTES:
[2] More exactly, out of 1,220,000 entitled to vote and 1,186,000
actual voters, 707,000 votes or seven–elevenths were cast for Germany,
and 479,000 votes or four–elevenths for Poland. Out of 1522 communes,
844 showed a majority for Germany and 678 for Poland. The Polish voters
were mainly rural, as is shown by the fact that in 36 towns Germany
polled 267,000 votes against 70,000 for Poland, and in the country
440,000 votes against 409,000 for Poland.
[3] Up to May 31, 1920, securities and other identifiable assets to
the value of 8300 million francs and 500,000 tons of machinery and raw
material had been restored to France (_Report of Finance Commission of
French Chamber_, June 14, 1920), also 445,000 head of live stock.
[4] Up to May, 1921, the _cash_ receipts of the Reparation Commission
amounted to no more than 124,000,000 gold marks.
[5] See Excursus VI.
[6] Lord D’Abernon and Sir John Bradbury for Great Britain, Seydoux and
Cheysson for France, d’Amelio and Giannini for Italy, Delacroix and
Lepreux for Belgium, and, in accordance with custom, two Japanese. The
German representatives included Bergmann, Havenstein, Cuno, Melchior,
von Stauss, Bonn, and Schroeder.
[7] The text of these Decisions is given in Appendix No. 2.
[8] The full text is given in Appendix No. 4.
[9] Compare this with the fixed payment of $500,000,000 and an export
proportion of 26 per cent proposed in the second Ultimatum of London,
only two months later.
[10] _The Times_, March 8, 1921.
[11] _The Times_, March 8, 1921.
[12] A week or two later the German Government made a formal appeal to
the League of Nations against the legality of this act; but I am not
aware that the League took any action on it.
[13] A few weeks later the Reparation Commission endeavored to put the
action of the Supreme Council in order, by demanding one milliard marks
in gold ($250,000,000), that is to say, the greater part of the reserve
of the Reichsbank against its note issue. This demand was afterwards
dropped.
[14] The full text is given in Appendix No. 5.
[15] The practicability of such a loan on a large scale is of course
more than doubtful.
[16] The German Government is reported also to have offered,
alternatively, to accept any sum which the President of the United
States might fix.
[17] After the enforcement of the Sanctions and the failure of the
counter–proposals, the Cabinet of Herr Fehrenbach and Dr. Simons was
succeeded by that of Dr. Wirth.
[18] As late as January 26, 1921, M. Doumer gave a forecast of 240
milliards.
[19] Exclusive of sums due in repayment of war loans made to Belgium.
[20] Exclusive of sums due in repayment of war loans made to Belgium.
[21] Under the Spa Agreement (see Appendix No. 1) Germany was to be
paid in cash 5 gold marks per ton for _all_ coal delivered, and, in
the case of coal delivered _overland_, “lent” (_i.e._, advanced out
of Reparation receipts) the difference between the German inland
price and the British export price. At the date of the Spa Conference
this difference was about 70s. per ton (100s. less 30s.), but this
sum was not to be advanced in the case of the undetermined amount of
coal delivered _by sea_. The advances were made by the Allies in the
proportions, 61 per cent by France, 24 per cent by Great Britain, and
15 per cent by Belgium and Italy.
[22] For details of these payments see p. 133.
[23] This very valuable tax, first imposed in 1917, yielded in 1920–21
mks. 4½ milliards.
[24] Dr. Wirth’s first Government prepared a Bill to raise the tax to
30 per cent, with power, however, to reduce the rate temporarily to 25
per cent. It was estimated that the 30 per cent tax would bring in a
revenue of 9.2 milliard marks.
[25] The same authority estimates that 85.6 of Upper Silesia’s zinc
ore production and all the zinc smelting works fall to Poland. This is
of some importance, since before the war Upper Silesia was responsible
for 17 per cent of the total world production of zinc. Of the iron and
steel production of the area 63 per cent falls to Poland. I am not in
a position to check any of these figures. Some authorities ascribe a
higher proportion of the coal to Poland.
[26] These are the figures according to the Polish authorities. But it
is difficult to obtain accurate pre–war figures for an area which was
not coterminous with any then existing State; and these totals have
been questioned in detail by Dr. W. Schotte.
[27] See _e.g._, my controversy with M. Brenier in _The Times_.
[28] In _The Economic Consequences of the Peace_, p. 92 _n._, I wrote
as follows: “The reader must be reminded in particular that the above
calculations take no account of the German production of lignite....
I am not competent to speak on the extent to which the loss of coal
can be made good by the extended use of lignite or by economies in
its present employment; but some authorities believe that Germany may
obtain substantial compensation for her loss of coal by paying more
attention to her deposits of lignite.”
[29] That is to say, production in the middle of 1921 was at the rate
of about 120,000,000 tons per annum. At that time the legal maximum
price was 60 paper marks per ton (_i.e._, 5s. or less); so that the
national _profit_ on the output in terms of money cannot have been a
very material amount.
[30] In order to secure the increased output the number of miners was
increased much more than in proportion, namely from 59,000 in 1913 to
171,000 in the first half of 1921. As a result, the cost of production
of lignite rose much faster than that of coal. Also since its calorific
value is much less than that of coal per unit of weight (even when it
is briquetted), it can only compete with coal, unless it is assisted by
preferential freight rates, within a limited area in the neighborhood
of the mines.
[31] At the Paris Conference of August 1921 Lord Curzon tried
unavailingly to persuade France to abandon this illegal occupation.
The so–called “Economic Sanctions” were raised on October 1, 1921. The
occupation still continues, though both the above pretexts have now
disappeared.
CHAPTER III
THE BURDEN OF THE LONDON SETTLEMENT
The settlement of Reparations communicated to Germany by the Allied
Powers on May 5, 1921, and accepted a few days later, constitutes the
definitive scheme under the Treaty according to which Germany for the
next two generations is to discharge her liabilities.[32] It will not
endure. But it is the _fait accompli_ of the hour, and, therefore,
deserves examination.[33]
The settlement falls into three parts comprising (1) provisions for the
delivery of Bonds; (2) provisions for setting up in Berlin an Allied
Committee of Guarantees; (3) provisions for actual payment in cash and
kind.
1. _The Delivery of Bonds._—These provisions are the latest variant of
similar provisions in the Treaty itself. Allied Finance Ministers have
encouraged themselves (or their constituents) with the hope that some
part of the capital sum of Germany’s liabilities might be anticipated
by the sale to private investors of Bonds secured on future Reparation
payments. For this purpose it was necessary that Germany should deliver
negotiable Bonds. These Bonds do not constitute any _additional_ burden
on Germany. They are simply documents constituting a title to the sums
which, under other clauses, Germany is to pay over annually to the
Reparation Commission.
The advantages to the Allies of marketing such Bonds are obvious. If
they could get rid of the Bonds they would have thrown the risk of
Germany’s default on to others; they would have interested a great
number of people all over the world in Germany’s not defaulting;
and they would have secured the actual cash which the exigencies of
their Budgets demand. But the hope is illusory. When at last a real
settlement is made, it may be practicable for the German Government to
float an international loan of moderate amount, well within the world’s
estimate of their minimum capacity of payment. But, though there are
foolish investors in the world, it would be sanguine to believe that
there are so many of such folly as to swallow at this moment on these
lines a loan of vast dimensions. It costs France at the present time
somewhere about 10 per cent to float a loan of modest dimensions on
the New York market. As the proposed German Bonds will carry 5 per
cent interest and 1 per cent sinking fund, it would be necessary to
reduce their price to 57 before they would yield 10 per cent including
redemption. It would be very optimistic, therefore, to expect to
market them at above half their par value. Even so, the world is not
likely to invest in them any large proportion of its current savings,
so that the whole amount even of the A Bonds, specified below, could
not be marketed at this price. Moreover, in so far as the service of
the Bonds marketed is within the _minimum_ expectation of Germany’s
capacity to pay (as it would have to be), the financial effect on the
Ally which markets the Bonds is nearly the same as though they were
to borrow themselves at the rate in question. Except, therefore, in
the case of those Allies whose credit is inferior to Germany’s, the
advantage compared with borrowing on their own credit would not be very
material.[34]
The details relating to the Bonds are not likely, therefore, to be
operative, and need not be taken very seriously. They are really a
relic of the pretenses of the Peace Conference days. Briefly, the
arrangements are as follows:
Germany must deliver 12 milliards of gold marks ($3,000,000,000) in A
Bonds, 38 milliards ($9,500,000,000) in B Bonds, and the balance of her
liabilities, provisionally estimated at 82 milliards ($20,500,000,000),
in C Bonds. All the Bonds carry 5 per cent interest and 1 per cent
cumulative sinking fund. The services of the series A, B, and C
constitute respectively a first, second, and third charge on the
available funds. The A Bonds are issued to the Reparation Commission
as from May 1, 1921, and the B Bonds as from November 1, 1921, but
the C Bonds shall not be issued (and shall not carry interest in
the meantime) except as and when the Reparation Commission is of
the opinion that the payments which Germany is making under the new
settlement are adequate to provide their service.
It may be noticed that the service of the A Bonds will cost
$180,000,000 per annum, a sum well within Germany’s capacity, and
the service of the B Bonds will cost $570,000,000 per annum, making
$750,000,000 altogether, a sum in excess of my own expectations of
what is practicable, but not in excess of the figure at which some
independent experts, whose opinion deserves respect, have estimated
Germany’s probable capacity to pay. It may also be noticed that
the aggregate face value of the A and B Bonds ($12,500,000,000)
corresponds to the figure at which the German Government have agreed
(in their counter–proposal transmitted to the United States) that their
aggregate liability might be assessed. It is probable that, sooner or
later, the C Bonds at any rate will be not only postponed, but canceled.
2. _The Committee of Guarantees._—This new body, which is to have a
permanent office in Berlin, is in form and status a sub–commission
of the Reparation Commission. Its members consist of representatives
of the Allies represented on the Reparation Commission, with a
representative of the United States, if that country consents to
nominate.[35] To it are assigned the various wide and indefinite powers
accorded by the Treaty of Peace to the Reparation Commission, for the
general control and supervision of Germany’s financial system. But its
exact functions, in practice and in detail, are still obscure.
According to the letter of its constitution the Committee might embark
on difficult and dangerous functions. Accounts are to be opened in
the name of the Committee, to which will be paid over in _gold or
foreign currency_ the proceeds of the German Customs, 26 per cent of
the value of all exports and the proceeds of any other taxes which
may be assigned as a “guarantee” for the payment of Reparation. These
receipts, however, chiefly accrue not in gold or foreign currency, but
in paper marks. If the Committee attempts to regulate the conversion
of these paper marks into foreign currencies, it will in effect become
responsible for the foreign exchange policy of Germany, which it would
be much more prudent to leave alone. If not, it is difficult to see
what the “guarantees” really add to the other provisions by which
Germany binds herself to make payments in foreign money.
I suspect that the only real and useful purpose of the Committee of
Guarantees is as an office of the Reparation Commission _in Berlin_,
a highly necessary adjunct; and the clause about “guarantees” is
merely one more of the pretenses, which, in all these agreements, the
requirements of politics intermingle with the provisions of finance.
It is usual, particularly in France, to talk much about “guarantees,”
by which is meant, apparently, some device for making sure that
the impossible will occur. A “guarantee” is not the same thing as
a “sanction.” When M. Briand is accused of weakness at the Second
Conference of London and of abandoning France’s “real guarantees,”
these provisions enable him to repudiate the charge indignantly. He
can point out that the Second Conference of London not only set up a
Committee of Guarantees but secured, as a new and additional guarantee,
the German Customs. There is no answer to that![36]
3. _The Provisions for Payment in Cash and Kind._—The Bonds and the
Guarantees are apparatus and incantation. We come now to the solid part
of the settlement, the provisions for payment.
Germany is to pay in each year, until her aggregate liability is
discharged:
(1) Two milliard gold marks.
(2) A sum equivalent to 26 per cent of the value of her exports, or
alternatively an equivalent amount as fixed in accordance with any
other index proposed by Germany and accepted by the Commission.
(1) is to be paid quarterly on January 15, April 15, July 15, and
October 15 of each year, and (2) is to be paid quarterly on February
15, May 15, August 15, and November 15 of each year.
This sum, calculated on any reasonable estimate of the future value
of German exports, is materially less than the original demands of
the Treaty. Germany’s total liability under the Treaty amounts to 138
milliard gold marks (inclusive of the liability for Belgian debt). At
5 per cent interest and 1 per cent sinking fund, the annual charge on
this would be 8.28 milliard gold marks. Under the new scheme the annual
value of Germany’s exports would have to rise to the improbable figure
of 24 milliard gold marks before she would be liable for so much as
this. As we shall see below, the probable burden of the new settlement
in the near future is probably not much more than half that of the
Treaty.
There is another important respect in which the demands of the Treaty
are much abated. The Treaty included a crushing provision by which the
part of Germany’s nominal liability on which she was not able to pay
interest in the early years was to accumulate at compound interest.[37]
There is no such provision in the new scheme; the C Bonds are not to
carry interest until the receipts from Germany are adequate to meet
their service; and the only provision relating to back interest is for
the payment of _simple_ interest in the event of there being a surplus
out of the receipts.
In order to understand how great an advance this settlement represented
it is necessary to carry our minds back to the ideas which were
prevalent not very long ago. The following table is interesting, in
which, in order to reduce capital sums and annual payments to a common
basis of comparison, estimates in terms of capital sums are replaced
by annuities of 6 per cent of their amount:
In terms of Annuities
Estimates of expressed in Milliards
of Gold Marks.
1. Lord Cunliffe and the figure given
out in the British General Election
of 1918[38] 28.8
2. M. Klotz’s forecast in the French
Chamber, September 5, 1919 18
3. The Assessment of the Reparation
Commission, April 1921 8.28
4. The London Settlement, May 1921 4.6[39]
The estimate of The _Economic Consequences of the Peace_ (1919),
namely 2 milliards, was nearly contemporaneous with M. Klotz’s figure
of 18 milliards. M. Tardieu recalls that, when the Peace Conference
was considering whether a definite figure could be inserted in the
Treaty, the lowest figure which the British and French Prime Ministers
would accept, as a compromise to meet the pressure put upon them by
the American representatives, corresponded to an annuity of 10.8
milliards,[40] which is nearly two and a half times the figure which
they accepted two years later under the pressure, not of Americans, but
of facts.
There was yet another feature in the London Settlement which
recommended it to moderate opinion. The dates of payment were so
arranged as to reduce the burden on Germany during the first year. The
Reparation year runs from May 1 in each year to April 30 in the next;
but in the period May 1, 1921–April 30, 1922 only two, instead of four,
of the quarterly payments in respect of the export proportion will fall
due.
No wonder, therefore, that this settlement, so reasonable in itself
compared with what had preceded it, was generally approved and widely
accepted as a real and permanent solution. But in spite of its
importance for the time being, as a preservative of peace, as affording
a breathing space, and as a transition from foolish expectations, it
cannot be a permanent solution. It is, like all its predecessors, a
temporizing measure, which is bound to need amendment.
To calculate the total burden, it is necessary to estimate the value
of German exports. In 1920 they amounted to about 5 milliard gold
marks. In 1921 the volume will be greater, but this will be offset by
the fact that gold prices have fallen to less than two–thirds of what
they were, so that 4 to 5 milliard gold marks is quite high enough as
a preliminary forecast for the year commencing May 1, 1921.[41] It is,
of course, impossible to make a close estimate for later years. The
figures will depend, not only on the recovery of Germany, but on the
state of international trade generally, and more especially on the
level of gold prices.[42] For the next two or three years, if we are to
make an estimate at all, 6 to 10 milliards is, in my judgment, the best
one can make.
Twenty–six per cent of exports, valued at 6 milliards gold, will amount
to about 1½ milliard gold marks, making, with the fixed annual
payment of 2 milliards, 3½ milliards altogether. If exports rise to
10 milliards, the corresponding figure is 4½ milliards. The table
of payments in the near future is then as shown on the next page, all
the figures being in terms of milliards of gold marks. In the case of
payments after May 1, 1922, I give alternative estimates on the basis
of exports on the scale of 6 and 10 milliards respectively.
Not the whole of these sums need be paid in cash, and the value of
deliveries in kind is to be credited to Germany against them. This
item has been estimated as high as 1.2 to 1.4 milliard gold marks per
annum. The result will chiefly depend (1) on the amount and price of
the coal deliveries, and (2) on the degree of success which attends the
negotiations between France and Germany for the supply by the latter
of materials required for the repair of the devastated area. The value
of the coal deliveries depends on factors already discussed on p. 49,
above, the _price_ of the coal being chiefly governed by the internal
German price. At a price of 20 gold marks per ton and deliveries of
2,000,000 tons a month (neither of which figures are likely to be
exceeded, or even reached, in the near future), coal will yield credits
of .48 milliard gold marks. In the Loucheur–Rathenau Agreement[43] the
value of deliveries in kind to France, including coal, over the next
five years has been estimated at a possible total of 1.4 milliard gold
marks per annum. If France receives .4 milliard gold marks in coal, not
more than 35 per cent of the balance will be credited in the Reparation
account. If this were realized, the aggregate deliveries in kind might
approach 1 milliard. But, for various reasons, political and economic,
this figure is unlikely to be reached, and if as much as .75 milliards
per annum is realized from coal and reconstruction deliveries, this
ought to be considered a highly satisfactory result.
──────────────┬────────────────┬────────────────┬───────────────
│ 1921─22 │ 1922─23 and │ 1922─23 and
│ (Exports │ subsequently │ subsequently
│ 4 Milliards). │ (Exports │ (Exports
│ │ 6 Milliards). │ 10 Milliards).
──────────────┼────────────────┼────────────────┼───────────────
May 25 }│ │ .39 │ .65
July 15 }│ │ .50 │ .50
Aug. 15 }│ 1.00 │ .39 │ .65
Oct. 15 }│ │ .50 │ .50
Nov. 15 │ .26 │ .39 │ .65
Jan. 15 │ .50 │ .50 │ .50
Feb. 15 │ .26 │ .39 │ .65
April 15 │ .50 │ .50 │ .50
│ ──── │ ──── │ ────
Total │ 2.52 │ 3.56 │ 4.60
──────────────┼────────────────┼────────────────┼───────────────
Equivalent }│ │ │
in dollars }│ │ │
at $1 = 4 }│ $630,000,000 │ $890,000,000 │ $1,150,000,000
gold marks }│ │ │
──────────────┴────────────────┴────────────────┴───────────────
Now the payments were so arranged as to present no insuperable
difficulties during 1921. The instalment of August 31, 1921 (which
did not exceed the sum which the Germans had themselves offered for
immediate payment in their counterproposal of April 1921) was duly
paid, partly out of foreign balances accumulated before May 1 last,
partly by selling out paper marks over the foreign exchanges, and
partly by temporary advances from an international group of bankers.
The instalment of November 15,1921, was covered by the value of
deliveries of coal and other material subsequent to May 1, 1921. Even
the instalments of January 15 and February 15, 1922, might be covered
out of further deliveries, temporary advances, and the foreign assets
of German industrialists, if the German Government could get hold of
them. But the payment of April 15, 1922, must present more difficulty;
whilst further instalments follow quickly on May 15, July 15, and
August 15. Some time between February and August 1922 Germany will
succumb to an inevitable default. This is the maximum extent of our
breathing space.[44]
That is to say, in so far as she depends for payment (as in the
long run she must do) on current income. If capital, non–recurrent
resources become available, the above conclusion will require
modification accordingly. Germany still has an important capital asset
untouched—the property of her nationals now sequestered in the hands
of the Enemy–Property Custodian in the United States, of which the
value is rather more than 1 milliard gold marks. If this were to become
available for Reparation, directly or indirectly, default could be
delayed correspondingly.[45] Similarly the grant to Germany of foreign
credits on a substantial scale, even three–months’ credits from bankers
on the security of the Reichsbank’s gold, would postpone the date a
little, however useless in the long run.
In reaching this conclusion, one can approach the problem from three
points of view: (1) the problem of paying outside Germany, that is
to say, the problem of exports and the balance of trade; (2) the
problem of providing for payment by taxation, that is to say, the
problem of the Budget; (3) the proportion of the sums demanded to the
German national income. I will take them in turn, confining myself to
what Germany can be expected to perform in the near future, to the
exclusion of what she might do in hypothetical circumstances many
years hence.
(1) In order that Germany may be able to make payments abroad, it is
necessary, not only that she should have exports, but that she should
have a surplus of exports over imports. In 1920, the last complete
year for which figures are available, so far from a surplus there was
a deficit, the exports being valued at about 5 milliard gold marks and
the imports at 5.4 milliards. The figures for 1921 so far available
indicate not an improvement but a deterioration. The myth that Germany
is carrying on a vast and increasing export trade is so widespread,
that the actual figures for the six months from May to October 1921,
converted into gold marks, may be given with advantage:
─–──────────────────┬─────────────────┬──────────────────────────
│ Million Paper │ Million Gold Marks.[46]
│ Marks. │
├────────┬────────┼────────┬────────┬────────
│ │ │ │ │Excess
│Imports.│Exports.│Imports.│Exports.│ of
│ │ │ │ │Imports.
────────────────────┼────────┼────────┼────────┼────────┼────────
1921, May │ 5,487│ 4,512│ 374.4│ 307.9│ 66.5
” June │ 6,409│ 5,433│ 388.8│ 329.7│ 59.1
” July │ 7,580│ 6,208│ 413.7│ 338.7│ 75.0
” August │ 9,418│ 6,684│ 477.2│ 334.8│ 142.4
” September │ 10,668│ 7,519│ 436.6│ 307.7│ 128.9
” October[47] │ 13,900│ 9,700│ 352.6│ 246.0│ 106.6
├────────┼────────┼────────┼────────┼────────
Total for six months│ 53,462│ 40,056│ 2443.3│ 1864.8│ 578.5
────────────────────┴────────┴────────┴────────┴────────┴────────
In respect of these six months Germany must make a fixed payment of
1000 million gold marks plus 26 per cent of the exports as above,
namely 484.8 million gold marks, that is 1484.8 million gold marks
altogether, which is equal to about 80 per cent of her exports; whereas
apart from any Reparation payments, she had a _deficit_ on her foreign
trade at the rate of more than 1 milliard gold marks per annum. The
bulk of Germany’s imports are necessary either to her industries or
to the food supply of the country. It is therefore certain that with
exports of (say) 6 milliards she could not cut her imports so low as to
have the surplus of 3½ milliards, which would be necessary to meet
her Reparation liabilities. If, however, her exports were to rise to
10 milliards, her Reparation liabilities would become 4.6 milliards.
Germany, to meet her liabilities, must therefore raise the gold–value
of her exports to double what they were in 1920 and 1921 _without
increasing her imports at all_.
I do not say that this is impossible, given time and an overwhelming
motive, and with active assistance by the Allies to Germany’s export
industries; but does any one think it practicable or likely in the
actual circumstances of the case? And if Germany succeeded, would not
this vast expansion of exports, unbalanced by imports, be considered
by our manufacturers to be her crowning crime? That this should be
the case even under the London Settlement of 1921 is a measure of
the ludicrous folly of the figures given out in the British General
Election of 1918, which were six times as high again.
(2) Next there is the problem of the Budget. For Reparation payments
are a liability of the German _Government_ and must be covered by
taxation. At this point it is necessary to introduce an assumption as
to the relation between the gold mark and the paper mark. For whilst
the liability is fixed in terms of gold marks, the revenue (or the
bulk of it) is collected in terms of paper marks. The relation is a
very fluctuating one, best measured by the exchange value of the paper
mark in terms of American gold dollars. This fluctuation is of more
importance over short periods than in the long run. For in the long run
_all_ values in Germany, including the yield of taxation, will tend
to adjust themselves to an appreciation or depreciation in the value
of the paper mark outside Germany. But the process may be a very slow
one, and, over the period covered by a year’s budget, unanticipated
fluctuations in the ratio of the gold to the paper mark may upset
entirely the financial arrangements of the German Treasury.
This disturbance has of course occurred on an unprecedented scale
during the latter half of 1921. Taxation in terms of paper marks,
which was heavy when the dollar was worth 50 paper marks, becomes
very inadequate when the dollar is worth 200 paper marks; but it is
beyond the power of any Finance Minister to adjust taxation to such a
situation quickly. In the first place, when the fall in the external
value of the mark is proceeding rapidly, the corresponding fall in the
internal value lags far behind. Until this adjustment has taken place,
which may occupy a considerable time before it is complete, the taxable
capacity of the people, measured in gold, is less than it was before.
But even then a further interval must elapse before the gold–value of
the _yield_ of taxation collectible in paper marks can catch up. The
experience of the British Inland Revenue Department well shows that the
yield of direct taxation must largely depend on the taxable assessments
of the _previous_ period.
For these reasons the collapse of the mark exchange must, if it
persists, destroy beyond repair the Budget of 1921–22, and probably
that of the first half of 1922–23 also. But I should be overstating my
argument if I were to base my conclusions on the figures current at the
end of 1921. In the shifting sands in which the mark is foundering it
is difficult to find for one’s argument any secure foothold.
During the summer of 1921 the gold mark was worth, in round figures,
20 paper marks. The internal purchasing power of the paper mark for
the purposes of working–class consumption was still nearly double
its corresponding value abroad, so that one could scarcely say that
equilibrium had been established. Nevertheless, the position was very
well adjusted compared with what it has since become. As I write
(December 1921) the gold mark has been fluctuating between 45 and
60 paper marks, while the purchasing power of the paper mark inside
Germany is for general purposes perhaps three times what it is outside
Germany.
Since my figures of Government revenue and expenditure are based on
statements made in the summer of 1921, perhaps my best course is to
take a figure of 20 paper marks to the gold mark. The effect of this
will be to understate my argument rather than the contrary. The reader
must remember that, if the mark remains at its present exchange value
long enough for internal values to adjust themselves to that rate, the
items in the following account, the income and the outgoings and the
deficit, will all tend to be multiplied threefold.
At this ratio (of 20 paper marks=1 gold mark), a Reparation liability
of 3½ milliard gold marks (assuming exports on the scale of 6
milliards) is equivalent to 70 milliard paper marks, and a liability
of 4½ milliards (assuming exports of 10 milliards) is equivalent
to 90 milliard paper marks. The German Budget for the financial year
April 1, 1921, to March 31, 1922, provided for an expenditure of
93.5 milliards, exclusive of Reparation payments, and for a revenue
of 59 milliards.[48] Thus the present Reparation demand would by
itself absorb more than the whole of the existing revenue. Doubtless
expenditure can be cut down, and revenue somewhat increased. But the
Budget will not cover even the lower scale of the Reparation payments
unless expenditure is halved and revenue doubled.[49]
If the German Budget for 1922–23 manages to balance, _apart_ from any
provision for Reparation, this will represent a great effort and a
considerable achievement. Apart, however, from the technical financial
difficulties, there is a political and social aspect of the question
which deserves attention here. The Allies deal with the established
German Government, make bargains with them, and look to them for
fulfilment. The Allies do not extract payment out of individual
Germans direct; they put pressure on the transitory abstraction called
Government, and leave it to this to determine and to enforce which
individuals are to pay, and how much. Since at the present time the
German Budget is far from balancing even if there were no Reparation
payments at all, it is fair to say that not even a beginning has yet
been made towards settling the problem of how the burden is to be
distributed between different classes and different interests.
Yet this problem is fundamental. Payment takes on a different aspect
when, instead of being expressed in terms of milliards and as a
liability of the transitory abstraction, it is translated into a
demand for a definite sum from a specific individual. This stage is not
yet reached, and until it is reached the full intrinsic difficulty will
not be felt. For at this stage the struggle ceases to be primarily one
between the Allies and the German Government and becomes a struggle
between different sections and classes of Germans. The struggle will
be bitter and violent, for it will present itself to each of the
contesting interests as an affair of life and death. The most powerful
influences and motives of self–interest and self–preservation will be
engaged. Conflicting conceptions of the end and nature of Society will
be ranged in conflict. A Government which makes a serious attempt to
cover its liabilities will inevitably fall from power.
(3) What relation do the demands bear to the third test of capacity,
the present income of the German people? A burden of 70 milliard paper
marks (if we may, provisionally, adopt that figure as the basis of our
calculations) amounts, since the population is now about 60 millions,
to 1170 marks per head for every man, woman, and child.
The great changes in money values have made it difficult, in all
countries, to obtain estimates of the national income in terms of money
under the new conditions. The Brussels Conference of 1920, on the basis
of inquiries made in 1919 and at the beginning of 1920, estimated the
German income per head at 3900 paper marks. This figure may have
been too low at the time, and, on account of the further depreciation
of the mark, is certainly too low now. A writer in the _Deutsche
Allgemeine Zeitung_ (Feb. 14, 1921), working on the statistics of
statutory deductions from wages and on income–tax, arrived at a figure
of 2333 marks per head. This figure also is likely to be too low,
partly because the statistics must mainly refer to earlier dates when
the mark was less depreciated, and partly because all such statistics
necessarily suffer from evasions. At the other extreme lies the
estimate of Dr. Albert Lansburgh, who, by implication (_Die Bank_,
March 1921), estimated the income per head at 6570 marks.[50] Another
recent estimate is that of Dr. Arthur Heichen in the _Pester Lloyd_
(June 5, 1921), who put the figure at 4450 marks. In a newspaper
article published in various quarters in August 1921 I ventured to
adopt the figure of 5000 marks as the nearest estimate I could make.
In fixing on this figure I was influenced by the above estimates, and
also by statistics as to the general level of salaries and wages. Since
then I have looked into the matter further and am still of the opinion
that this figure was high enough for that date.
I am fortified in this conclusion by the result of inquiries which I
addressed to Dr. Moritz Elsas of Frankfort–on–Main, on whose authority
I quote the following figures. The best–known estimate of the German
pre–war income is Helfferich’s in his _Deutschlands Volkswohlstand_
1888–1913. In this volume he put the national income in 1913 at 40–41
milliard gold marks, _plus_ 2½ milliards for net income from
nationalized concerns (railways, post office, etc.), that it is say,
an aggregate of 43 milliards or 642 marks per head. Starting from the
figure of 41 milliards (since the national services no longer produce
a profit) and deducting 15 per cent for loss of territory, we have a
figure of 34.85 milliards. What multiplier ought we to apply to this in
order to arrive at the present income in terms of paper marks? In 1920
commercial employees obtained on the average in terms of marks 4½
times their pre–war income, whilst at that time workmen had secured an
increase in their nominal wages of 50 per cent more than this, that is
to say, their wages were 6 to 8 times the pre–war figure. According
to the Statistischen Reichsamt (_Wirtschaft und Statistik_, Heft 4,
Jahrgang 1) commercial employees at the beginning of 1921 earned,
males 6⅔ times and females 10 times as much as in 1913.[51] On the
basis of the same proportion as in 1920 we arrive at an increase of
10 times in the nominal wages of workmen. The wages index number of
the _Frankfurter Zeitung_ for August 1921 estimates the wages per hour
at 11 times the pre–war level, but, as the number of working hours
has fallen from 10 to 8, these figures yield an increase of 8.8 times
in the wage actually received. Since the wages of male commercial
employees have increased less than this, since business profits in
terms of paper marks only reach this figure of increase in exceptional
cases, and since the income of the rentier, landlord, and professional
classes has increased in a far lower proportion, an estimate of an
8–fold increase in the nominal income of the country as a whole at
that date (August 1921) is likely to be an over–estimate rather than
an under–estimate. This leads to an aggregate national income, on the
basis of the Helfferich pre–war figures, of 278.80 milliard paper
marks, and to an income of 4647 marks per head in August 1921.
No allowance is made here for the loss by war of men in the prime
of life, for the loss of external income previously earned from
foreign investment and the mercantile marine, or for the increase of
officials. Against these omissions there may be set off the decrease of
the army and the increased number of women employees.
The extreme instability of economic conditions makes it almost
impossible to conduct a direct statistical inquiry into this problem
at the present time. In such circumstances the general method of Dr.
Elsas seems to me to be the best available. His results show that the
figure taken above is of the right general dimensions and is not likely
to be widely erroneous. It enables us, too, to put an upper limit of
reasonable possibility on our figures. No one, I think, would maintain
that in August 1921 nominal incomes in Germany averaged 10 times their
pre–war level; and 10 times Helfferich’s pre–war estimate comes to
6420 marks. _No_ statistics of national incomes are very precise, but
an assertion that in the middle of 1921 the German income per head per
annum lay between 4500 marks and 6500 marks, and that it was probably
much nearer the lower than the higher of these figures, say 5000 marks,
is about as near the truth as we shall get.
In view of the instability of the mark, it is, of course, the case
that such estimates do not hold good for any length of time and need
constant revision. Nevertheless this fact does not upset the following
calculation as much as might be supposed, because it operates to a
certain extent on both sides of the account. If the mark depreciates
further, the average income per head in paper marks will tend to rise;
but in this event the equivalent in paper marks of the Reparation
liability will, since it is expressed in terms of _gold_ marks, rise
also. A real alleviation can only result from a fall in the value of
_gold_ (_i.e._, a rise in world prices).
To the taxation in respect of the Reparation charge there must be added
the burden of Germany’s own government, central and local. By the most
extreme economies, short of repudiation of war loans and war pensions,
this burden could hardly be brought below 1000 paper marks per head (at
20 paper marks=1 gold mark), _i.e._, 60 milliards altogether, a figure
greatly below the present expenditure. In the aggregate, therefore,
2170 marks out of the average income of 5000 marks, or 43 per cent,
would go in taxation. If exports rise to 10 milliards (gold) and the
average income to 6000 paper marks, the corresponding figures are 2500
marks and 42 per cent.
There are circumstances in which a wealthy nation, impelled by
overwhelming motives of self–interest, might support this burden.
But the annual income of 5000 paper marks per head is equivalent in
exchange value (at an exchange of 20 paper marks to 1 gold mark) to
$62.50, and after deduction of taxation to about $35, that is to say
to less than 10 cents a day, which in August 1921 was the equivalent
in purchasing power in Germany of something between 20 cents and 25
cents in the United States.[52] If Germany was given a respite, her
income and with it her capacity would increase; but under her present
burdens, which render saving impossible, a degradation of standards is
more likely. Would the whips and scorpions of any Government recorded
in history have been efficient to extract nearly half their income from
a people so situated?
For these reasons I conclude that whilst the Settlement of London
granted a breathing space to the end of 1921, it can be no more
permanent than its predecessors.
EXCURSUS III
THE WIESBADEN AGREEMENT
In the summer of 1921 much interest was excited by reports of
confidential interviews between M. Loucheur and Herr Rathenau, the
Ministers of Reconstruction in France and Germany respectively. An
agreement was provisionally reached in August 1921 and was finally
signed at Wiesbaden on October 6, 1921[53]; but it does not come into
force until it has received the approval of the Reparation Commission.
This Commission, whilst approving the general principles underlying it,
have referred it to the principal Allied Governments on the ground that
it involves departures from the Treaty of Versailles beyond their own
competence to authorize. The British delegate, Sir John Bradbury, has
advised his Government that the Agreement should be approved subject
to certain modifications which he sets forth; and his Report has been
published.[54]
The Wiesbaden Agreement is a complicated document. But the essence of
it is easily explained. It falls into two distinct parts. First, it
sets up a procedure by which private French firms can acquire from
private German firms materials required for reconstruction in France,
without France having to make payment in cash. Secondly, it provides
that, whilst Germany is not to receive payment at once for any part
of these goods, only a proportion of the sum due is credited to her
immediately in the books of the Reparation Commission, the balance
being advanced by her to France for the time being and only brought
into the Reparation account at a later date.
The first set of provisions has met with unqualified approval from
every one. An arrangement which may possibly stimulate payment of
Reparation in the form of actual materials for the reconstruction
of the devastated districts satisfies convenience, economics, and
sentiment in a peculiarly direct way. But such supplies were already
arranged for under the Treaty, and the chief value of the new procedure
lies in its replacing the machinery of the Reparation Commission by
direct negotiation between the French and German authorities.[55]
The second set of provisions is, however, of a different character,
since it interferes with the existing agreements between the Allies
themselves as to the order and proportions in which each is to share
in the available receipts from Germany, and seeks to secure for
France a larger share of the earlier payments than she would receive
otherwise. A priority to France is, in my opinion, desirable; but such
priority should be accorded as part of a general re–settlement of
Reparation, in which Great Britain should waive her claim entirely.
Further, the Agreement involves an act of doubtful good faith on the
part of Germany. She has been protesting with great vehemence (and, I
believe, with perfect truth) that the Decisions of London exact from
her more than she can perform. But in such circumstances it is an act
of impropriety for her to enter voluntarily into an agreement which
must have the effect, if it is operative, of further increasing her
liabilities even beyond those against which she protests as impossible.
Herr Rathenau may justify his action by the arguments that this is a
first step towards replacing the Decisions of London by more sensible
arrangements, and also that, if he can placate Germany’s largest and
most urgent creditor in the shape of France, he has not much to fear
from the others. M. Loucheur, on the other hand, may know as well as I
do, though speaking otherwise, that the Decisions of London cannot be
carried out, and that the time for a more realistic policy is at hand;
he may even regard his interviews with Herr Rathenau as a foretaste of
more intimate relationships between business interests on the two sides
of the Rhine. But these considerations, if we were to pursue them,
would lead us to a different plane of argument.
Sir John Bradbury in his Report[56] on the Agreement to the British
Government has proposed certain modifications which would have the
effect of preserving the advantages of the first set of provisions,
but of nullifying the latter so far as they could operate to the
detriment of France’s Allies.
I consider, however, that exaggerated importance has been attached
to this topic, since the actual deliveries of goods made under the
Wiesbaden or similar agreements are not likely to be worth such large
sums of money as are spoken of. Deliveries of coal, dyestuffs, and
ships, dealt with in the Annexes to Part VIII. of the Treaty are
specifically excluded from the operation of the Wiesbaden Agreement
which is expressly limited to deliveries of plant and material, and
these France undertakes to apply _solely_ to the reconstitution of the
devastated regions. The quantities of goods, which French firms and
individuals will be ready to order from Germany at the full market
price, and which Germany can supply, for this limited purpose (so great
a part of the cost of which is necessarily due to _labor_ employed on
the spot and not to materials capable of being imported from Germany),
are not likely to amount, during the next five years, to a sum of money
which the other Allies need grudge France as a priority claim.
My other reserve relates to the supposed importance of the Wiesbaden
Agreement as a precedent for similar arrangements with the other
Allies, and raises the general issue of the utility of arrangements for
securing that Germany should pay in kind rather than in cash, for other
purposes than those of the devastated areas.
It is commonly believed that, if our demands on Germany are met by
her delivering to us not cash but particular commodities selected by
ourselves, we can thus avoid the competition of German products against
our own in the markets of the world, which must result if we compel her
to find foreign currency by selling goods abroad at whatever cut in
price may be necessary to market them.[57]
Most suggestions in favor of our being paid in kind are too vague to
be criticized. But they usually suffer from the confusion of supposing
that there is some advantage in our being paid directly in kind even in
the case of articles which Germany might be expected to export in any
case. For example, the Annexes to the Treaty which deal with deliveries
in kind chiefly relate to coal, dyestuffs, and ships. These certainly
do not satisfy the criterion of not competing with our own products;
and I see very little advantage, but on the other hand some loss and
inconvenience, in the Allies’ receiving these goods direct, instead of
Germany’s selling them in the best market and paying over the proceeds.
In the case of coal in particular, it would be much better if Germany
sold her output for cash in the best export markets, whether to France
and Belgium or to the neighboring neutrals, and then paid the cash
over to France and Belgium, than that coal should be delivered to the
Allies for which the latter may have no immediate use, or by transport
routes which are uneconomical, when neutrals need the coal and what the
Allies really require is the equivalent cash. In some cases the Allies
have re–sold the coal which Germany has delivered to them,—a procedure
which, in the case of an article for which freight charges cover so
large a proportion of the whole value, involves a preposterous waste.
If we try to stipulate the precise commodities in which Germany is to
pay us, we shall not secure from her so large a contribution, as if
we fix a reasonable sum which is within her capacity, and then leave
her to find the money as best she can. If, moreover, the sum fixed is
reasonable, the annual payments will not be so large, in proportion to
the total volume of international trade, that Great Britain need be
nervous lest the payments upset the normal equilibrium of her economic
life in any greater degree than is bound to result in any case from the
gradual economic recovery of so formidable a trade rival as pre–war
Germany.
Whilst I make these observations in the interests of scientific
accuracy, I admit that projects, for insisting on payment in kind may
be very useful politically as a means of escaping out of our present
_impasse_. In practice the value of such deliveries would turn out to
be immensely less than the cash we are now demanding; but it may be
easier to substitute deliveries of materials in place of cash, which
will in practice result in a great abatement of our demands, than to
abate the latter in so many words. Moreover, protests, against leaving
Germany free to pay us in cash by selling goods how and where she can,
enlist on the side of revision all the latent Protectionist sentiment
which still abounds. If Germany were to make a strenuous effort to
pay us by exploiting the only method open to her, namely, by selling
as many goods as possible at low prices all over the world, it would
not be long before many minds would represent this effort as a plot to
ruin us; and persons of this way of thinking will be most easily won
over, if we describe a reduction in our demands, as a prohibition to
Germany against developing a nefarious competitive trade. Such a way
of expressing a desirable change of policy combines, with a basis of
truth, sufficient false doctrine to enable _The Times_, for example,
to recommend it in a leading article without feeling conscious of any
intellectual inconsistency; and it furnishes what so many people are
now looking for, namely, a pretext for behaving sensibly, without
having to suffer the indignity and inconvenience of thinking and
speaking so too. Heaven forbid that I should discourage them! It
is only too rarely that a good cause can summon to its assistance
arguments sufficiently mixed to insure success.
EXCURSUS IV
THE MARK EXCHANGE
The gold value of a country’s inconvertible paper money may fall,
either because the Government is spending more than it is raising by
loans and taxes and is meeting the balance by issuing paper money,
or because the country is under the obligation of paying increased
sums to foreigners for the purchase of investments or in discharge of
debts. Temporarily it may be affected by speculation, that is to say by
_anticipation_, whether well or ill founded, that one or other of the
above influences will operate shortly; but the influence of speculation
is generally much exaggerated, because of the immense effect which it
may exercise momentarily. Both influences can only operate through
the balance of debts, due for immediate payment, between the country
in question and the rest of the world: the liability to make payments
to foreigners operating on this directly; and the inflation of the
currency operating on it indirectly, either because the additional
paper money stimulates imports and retards exports, by increasing
local purchasing power at the existing level of values or because the
expectation that it will so act causes anticipatory speculation. The
expansion of the currency can have no effect whatever on the exchanges
until it reacts on imports and exports, or encourages speculation; and
as the latter cancels out, sooner or later, the effect of currency
expansion on the exchanges can only last by reacting on imports and
exports.
These principles can be applied without difficulty to the exchange
value of the mark since 1920. At first the various influences were
not all operating in the same direction. Currency inflation tended
to depreciate the mark; so did foreign investment by Germans (the
“flight from the mark”); but investment by foreigners in German Bonds
and German currency (an exact line between which and short–period
speculation it is not easy to draw) operated sharply in the other
direction. After the mark had fallen to such a level that more than
25 marks could be obtained for a dollar, numerous persons all over
the world formed the opinion that there would be a reaction some day
to the pre–war value, and that therefore a purchase of marks or mark
Bonds would be a good investment. This investment proceeded on so vast
a scale that it placed foreign currency at the disposal of Germany up
to an aggregate value which has been estimated at from $800,000,000
to $1,000,000,000. These resources enabled Germany, partially at
least, to replenish her food supplies and to restock her industries
with raw materials, requirements involving an excess of imports over
exports which could not otherwise have been paid for. In addition it
even enabled individual Germans to remove a part of their wealth from
Germany for investment in other countries.
Meanwhile currency inflation was proceeding. In the course of the year
1920 the note circulation of the Reichsbank approximately doubled,
whilst on balance the exchange value of the mark had deteriorated only
slightly as compared with the beginning of that year.
Moreover, up to the end of 1920 and even during the first quarter of
1921 Germany had made no cash payments for Reparation and had even
_received_ cash (under the Spa Agreement) for a considerable part of
her coal deliveries.
After the middle of 1921, however, the various influences, which up
to that time had partly balanced one another, began to work all in
one direction, that is to say, adversely to the value of the mark.
Currency inflation continued, and during 1921 the note circulation of
the Reichsbank was nearly trebled, bringing it up to nearly six times
what it had been two years earlier. Imports steadily exceeded exports
in value. Some foreign investors in marks began to take fright and,
so far from increasing their holdings, sought to diminish them. And
now at last the German Government was called on to make important cash
payments on Reparation account. Sales of marks from Germany, instead of
being absorbed by foreign investors, had now to be made in competition
with sales from these same investors. Naturally the mark collapsed. It
had to fall to a value at which new buyers would come forward or at
which sellers would hold off.[58]
There is no mystery here, nothing but what is easily explained. The
credence attached to stories of a “German plot” to depreciate the mark
wilfully is further evidence of the overwhelming popular ignorance of
the influences governing the exchanges, an ignorance already displayed,
to the great pecuniary advantage of Germany, by the international craze
to purchase mark notes.
In its later stages the collapse has been mainly due to the necessity
of paying money abroad in discharge of Reparation and in repaying
foreign investors in marks, with the result that the fall in the
external value of the mark has outstripped any figure which could be
justified merely as a consequence of the present degree of currency
inflation. Germany would require a much larger note issue than at
present, if German internal prices were to become adjusted to gold
prices at an exchange of more than 400 marks to the dollar.[1] If,
therefore, the other influences were to be removed, if, that is to
say, the Reparation demands were revised and foreign investors were to
take heart again, a sharp recovery might occur. On the other hand, a
serious attempt by Germany to meet the Reparation demands would cause
the expenditure of her Government to exceed its income by so great an
amount, that currency inflation and the internal price level would
catch up in due course the external depreciation in the mark.
In either event Germany is faced with an unfortunate prospect. If the
present exchange depreciation persists and the internal price level
becomes adjusted to it, the resulting redistribution of wealth between
different classes of the community will amount to a social catastrophe.
If, on the other hand, there is a recovery in the exchange, the
cessation of the existing artificial stimulus to industry and of the
Stock Exchange boom based on the depreciating mark may lead to a
financial catastrophe.[59] Those responsible for the financial policy
of Germany have a problem of incomparable difficulty in front of them.
Until the Reparation liability has been settled reasonably, it is
scarcely worth the while of any one to trouble his head about a problem
which is insoluble. When stabilization has become a practicable policy,
the wisest course will probably be to stabilize at whatever level
prices and trade seem most nearly adjusted to at that date.
FOOTNOTES:
[32] The preamble states that the settlement is “in accordance with
Article 233 of the Treaty of Versailles.” This Article prescribes
that the scheme of payments shall provide for the discharge of the
liabilities within _thirty_ years, any unpaid balance at the end of
this period being “postponed” or “handled otherwise.” In the actual
settlement, however, the initial limitation to thirty years has been
neglected.
[33] This actual text is printed below in full, Appendix No. 7.
[34] It is not competent for a single Ally (_e.g._, Portugal) to claim
its share of the Bonds and market them at the best price obtainable.
Under the Treaty of Versailles Part VIII. Annex II. 13 (_b_) questions
relating to the marketing of these Bonds can only be settled by
_unanimous_ decision of the Reparation Commission.
[35] The Committee is to coöpt three representatives of neutrals when a
sufficient proportion of the Bonds to justify their representation has
been marketed on neutral Stock Exchanges.
[36] And it really is an adequate rejoinder to deputies like M.
Forgeot. If a partisan or a child wants a silly, harmful thing, it
may be better to meet him with a silly, harmless thing, than with
explanations he cannot understand. This is the traditional wisdom of
statesmen and nursemaids.
[37] The effect of this provision is discussed in _The Economic
Consequences of the Peace_, pp. 165–167.
[38] Cf. Baruch, _The Making of the Reparation and Economic Sections of
the Treaty_, p. 46; and Lamont, _What Really Happened at Paris_, p. 275.
[39] Assuming exports of 10 milliards, which is double the actual
figure of 1920.
[40] _The Truth about the Treaty_, p. 305.
[41] Exports for the six months May–October 1921 were valued at about
40 milliard paper marks (exclusive, I think, of deliveries of coal
and payments in kind to the Allies), as against imports valued at 53
milliard paper marks. If the monthly export figures are converted into
gold marks at the average exchange of the month, the exports for the
six months work out at about 1865 million gold marks, or at the rate of
rather less than 4 milliard gold marks per annum.
[42] In _The Economic Consequences of the Peace_, p. 203, I expressly
premised that my estimates were based on a value of money not widely
different from that existing at the date at which I wrote. Since then
prices have risen and fallen back again. The same proviso is necessary
in the case of the present estimates. It would have been more practical
if, in fixing Germany’s liability in terms of money for a long period
of years, some provision had been made for adjusting the real burden in
accordance with fluctuations in the value of money during the period of
payment.
[43] See Excursus III.
[44] I first published this prediction in August 1921. As this book
goes to press, the German Government have notified the Reparation
Commission (December 15, 1921) that, having failed in their attempt to
secure a foreign loan, they cannot find, apart from deliveries in kind,
more than 150 or 200 million gold marks towards the instalments of
January and February, 1922.
[45] The United States has the right to retain and liquidate all
property, rights, and interests belonging to German nationals and
lying within the territories, colonies, and possessions of the United
States on January 10, 1920. The proceeds of such liquidation are at
the disposal of the United States “in accordance with its laws and
regulations,” that is to say, at the disposal of Congress within the
limitations of the Constitution, and may be applied by them in any of
the three following ways: (1) the assets in question may be returned to
their original German owners; (2) they may be applied to the discharge
of claims by United States nationals with regard to their property,
rights, and interests in German territory, or debts owing to them by
German nationals, or to the payment of claims growing out of acts of
the German Government after the United States entered the war, and also
to the discharge of similar American claims in respect of those of
Germany’s Allies against whom the United States was at war; (3) they
may be turned over to the Reparation Commission as a credit to Germany
under this head.
[46] The rates for conversion of paper marks into gold marks have been
taken as follows: Number of paper marks per 100 gold marks in May,
1465.5; June, 1647.9; July, 1832; August, 1996.4; September, 2443.2;
October, 3942.6
[47] Provisional figures.
[48] The ordinary revenue and expenditure were estimated to balance
at 48.48 milliard paper marks. The extraordinary expenditure was
estimated at 59.68 milliards, making a total expenditure of 108.16
milliards. Included in this, however, were 14.6 milliards for various
Reparation items. These are in respect of various pre–May 1, 1921,
items and do not allow for payments under the London Settlement; but to
avoid confusion I have deducted these from the estimate of expenditure
as stated above. The extraordinary revenue was estimated at 10.5
milliards, making a total revenue of 58.98 milliards.
[49] I have allowed nothing so far for the costs of the Armies of
Occupation, which, under the letter of the Treaty, Germany is under
obligation to pay in addition to the sums due for Reparation proper.
As these charges rank in priority ahead of Reparation, and as the
London Agreement does not deal with them, I think Germany is liable to
be called on to pay these as they accrue in addition to the annuities
fixed in the London Settlement. But I am doubtful whether the Allies
intend in fact to demand this. Hitherto the expense of the Armies has
been so great as to absorb virtually the whole of the receipts (see
Excursus V. below), having amounted by the middle of 1921 to about
$1,000,000,000. In any case, it is now time that the agreement, signed
at Paris in 1919 by Clemenceau, Lloyd George, and Wilson, should be
brought into force, to the effect that the sum payable annually by
Germany to cover the cost of occupation shall be limited to 240 million
gold marks as soon as the Allies “are convinced that the conditions
of disarmament by Germany are being satisfactorily fulfilled.” If we
assume that this reduced figure is brought into force, as it ought to
be, the total burden on Germany for Separation and Occupation comes, on
the assumption of the lower figure for exports, to 3.8 milliard gold
marks, that is, to 76 milliard paper marks.
[50] “This estimate is based on an average wage of about 800 paper
marks monthly for male, and about 400 paper marks monthly for female,
employees.” Converting these figures at the rate of 12 paper marks
equal to 1 gold mark, he arrived at an aggregate national income
between 30 and 34 milliard gold marks. It is not easy to see how these
wage estimates, even assuming their correctness, can lead to so high an
aggregate figure.
[51] There are twice as many male commercial employees as there are
female.
[52] For a full examination of the purchasing power of the paper mark
inside Germany, see an article by M. Elsas in the _Economic Journal_,
September 1921.
[53] A summary of this Agreement and other papers relating to it are
given in the Appendix No. 8.
[54] See Appendix No. 8.
[55] Incidentally the Wiesbaden Agreement sets up a fairer procedure
for fixing the prices of supplies in kind than that contemplated in
the Treaty. According to the Treaty the prices are fixed at the sole
discretion of the Reparation Commission. In the Wiesbaden Agreement
this duty is assigned to an Arbitral Commission consisting of a German
representative, a French representative, and an impartial third who are
to fix the prices, broadly speaking, on the basis of price existing in
France in each quarterly period subject to this price being not more
than 5 per cent below the German price.
[56] See Appendix No. 8.
[57] I return to the theoretical aspects of this question in Chapter VI.
[58] Any one, who can fully persuade himself of the unalterable truth
of the proposition that _every day_ the sales of exchange must exactly
equal the purchases, will have gone a long way towards understanding
the secret of the exchanges.
[59] Furthermore, every improvement in the value of the mark increases
the real burden of what Germany owes to foreign holders of marks and
also the real burden of the Public Debt on the Exchequer. A rate of
exchange exceeding 400 marks to the dollar has at least this advantage
that it has reduced these two burdens to very moderate dimensions.
CHAPTER IV
THE REPARATION BILL
The Treaty of Versailles specified the classes of damage in respect
of which Germany was to pay Reparation. It made no attempt to assess
the amount of this damage. This duty was assigned to the Reparation
Commission, who were instructed to notify their assessment to the
German Government on or before May 1, 1921.
An attempt was made during the Peace Conference to agree to a figure
there and then for insertion in the Treaty. The American delegates in
particular favored this course. But an agreement could not be reached.
There was no reasonable figure which was not seriously inadequate
to popular expectations in France and the British Empire.[60] The
highest figure to which the Americans would agree, namely, 140 milliard
gold marks, was, as we shall see later, not much above the eventual
assessment of the Reparation Commission; the lowest figure to which
France and Great Britain would agree, namely, 180 milliard gold marks,
was, as it has turned out, much above the amount to which they were
entitled even under their own categories of claim.[61]
Between the date of the Treaty and the announcement of its decision
by the Reparation Commission, there was much controversy as to what
this amount should be. I propose to review some of the details of
this problem, because, if men are in any way actuated by veracity in
international affairs, a just opinion about it is still relevant to the
Reparation problem.
The main contentions of _The Economic Consequences of the Peace_
were these: (1) that the claims against Germany which the Allies
were contemplating were impossible of payment; (2) that the economic
solidarity of Europe was so close that the attempt to enforce these
claims might ruin every one; (3) that the money cost of the damage
done by the enemy in France and Belgium had been exaggerated; (4) that
the inclusion of pensions and allowances in our claims was a breach of
faith; and (5) that our legitimate claim against Germany was within her
capacity to pay.
I have made some supplementary observations about (1) and (2) in
Chapters III. and VI. I deal with (3) here and in Chapter V. with (4).
These latter are still important. For, whilst time is so dealing with
(1) and (2) that very few people now dispute them, the amount of our
legitimate claim against Germany has not been brought into so sharp a
focus by the pressure of events. Yet if my contention about this can
be substantiated, the world will find it easier to arrange a practical
settlement. The claims of justice in this connection are generally
thought to be opposed to those of possibility, so that even if the
pressure of events drives us reluctantly to admit that the latter must
prevail, the former will rest unsatisfied. If, on the other hand,
restricting ourselves to the devastations in France and Belgium, we
can demonstrate that it is within the capacity of Germany to make full
reparation, a harmony of sentiment and action can be established.
With this end in view it is necessary that I should take up again,
in the light of the fuller information now available, the statements
which I made in _The Economic Consequences of the Peace_ (p. 120) to
the effect that “the amount of the material damage done in the invaded
districts has been the subject of enormous, if natural, exaggeration.”
These statements have involved me in a charge, with which Frenchmen
as eminent as M. Clemenceau[62] and M. Poincaré have associated
themselves, that I was actuated not by the truth but by a supposed
hostility to France in speaking thus of the allegations of M. Klotz and
M. Loucheur and some other Frenchmen. But I still urge on France that
her cause may be served by accuracy and the avoidance of overstatement;
that the damage she has suffered is more likely to be made good if
the amount is possible than if it is impossible; and that, the more
moderate her claims are, the more likely she is to win the support of
the world in securing priority for them. M. Brenier, in particular, has
conducted a widespread propaganda with the object of creating prejudice
against my statistics. Yet to add a large number of noughts at the
end of an estimate is not really an indication of nobility of mind.
Nor, in the long run, are those persons good advocates of France’s
cause who bring her name into contempt and her sincerity into doubt by
using figures wildly. We shall never get to work with the restoration
of Europe unless we can bring not only experts, but the public, to
consider coolly what material damage France has suffered and what
material resources of reparation Germany commands. _The Times_, in a
leading article which accompanied some articles by M. Brenier (December
4, 1920), wrote with an air of noble contempt—“Mr. Keynes treats their
losses as matter for statistics.” But chaos and poverty will continue
as long as we insist on treating statistics as an emotional barometer
and as a convenient vehicle of sentiment. In the following examination
of figures let us agree that we are employing them to measure facts and
not as a literary expression of love or hate.
Leaving on one side for the present the items of pensions and
allowances and loans to Belgium, let us examine the data relating
to the material damage in Northern France. The claims made by the
French Government did not vary very much from the spring of 1919, when
the Peace Conference was sitting, down to the spring of 1921, when
the Reparation Commission was deciding its assessment, though the
fluctuations in the value of the franc over that period cause some
confusion. Early in 1919 M. Dubois, speaking on behalf of the Budget
Commission of the Chamber, gave the figure of 65 milliard francs “as a
minimum,” and on February 17, 1919, M. Loucheur, speaking before the
Senate as Minister of Industrial Reconstruction, estimated the cost at
75 milliards at the prices then prevailing. On September 5, 1919, M.
Klotz, addressing the Chamber as Minister of Finance, put the total
French claims for damage to property (presumably inclusive of losses
at sea, etc.) at 134 milliards. In July 1920 M. Dubois, by that time
President of the Reparation Commission, in a Report for the Brussels
and Spa Conferences, put the figure at 62 milliards on the basis of
pre–war prices.[63] In January 1921 M. Doumer, speaking as Finance
Minister, put the figure at 110 milliards. The actual claim which the
French Government submitted to the Reparation Commission in April 1921
was for 127 milliard paper francs at current prices.[64] By that time
the exchange value of the franc, and also its purchasing power, had
considerably depreciated, and, allowing for this, there is not so great
a discrepancy as appears at first sight between the above estimates.
For the assessment of the Reparation Commission it was necessary to
convert this claim from paper francs into gold marks. The rate to be
adopted for this purpose was the subject of acute controversy. On the
basis of the actual rate of exchange prevailing at that date (April
1921) the gold mark was worth about 3.25 paper francs. The French
representatives claimed that this depreciation was temporary and
that a permanent settlement ought not to be based on it. They asked,
therefore, for a rate of about frs. 1.50 or frs. 1.75 to the gold
mark.[65] The question was eventually submitted to the arbitration of
Mr. Boyden, the American member of the Reparation Commission, who,
like most arbitrators, took a middle course and decided that 2.20
paper francs should be deemed equivalent to 1 gold mark.[66] He would
probably have found it difficult to give a reason for this decision.
As regards that part of the claim which was in respect of pensions, a
forecast of the gold value of the franc, however impracticable, was
relevant. But as regards that part which was in respect of material
damage, no such adjustment was necessary[67]; for the French claim had
been drawn up on the basis of the current costs of reconstruction, the
gold equivalent of which need not be expected to rise with an increase
in the gold value of the franc, an improvement in the exchange being
balanced sooner or later by a fall in franc prices. It might have been
proper to make allowance for any premium existing, at the date of the
assessment, on the internal purchasing power of the franc over that of
its external exchange–equivalent in gold. But in April 1921 the franc
was not far from its proper “purchasing power parity,” and I calculate
that on this basis it would have been approximately accurate to have
equated the gold mark with 3 paper francs. The rate of 2.20 had the
effect, therefore, of inflating the French claim against Germany very
materially.
At this rate the claim of 127 milliard paper francs for material damage
was equivalent to 57.7 milliard gold marks, of which the chief items
were as follows:
──────────────────────┬───────────────┬─────────────
│Francs (paper),│Marks (Gold),
│ millions. │ millions.
──────────────────────┼───────────────┼─────────────
Industrial damages │ 38,882 │ 17,673
Damage to houses │ 36,892 │ 16,768
Furniture and fittings│ 25,119 │ 11,417
Unbuilt-on land │ 21,671 │ 9,850
State property │ 1,958 │ 890
Public works │ 2,583 │ 1,174
├───────────────┼─────────────
Total │ 127,105 │ 57,772
──────────────────────┴───────────────┴─────────────
This total is one which I believe to be a vast, indeed a fantastic,
exaggeration beyond anything which it would be possible to justify
under cross–examination. At the date when I wrote _The Economic
Consequences of the Peace_, exact statistics as to the damage done were
not available, and it was only possible to fix a maximum limit to a
reasonable claim, having regard to the pre–war wealth of the invaded
districts. Now, however, much more detail is available with which to
check the claim.
The following particulars are quoted from a statement made by M. Briand
in the French Senate on April 6, 1921, supplemented by an official
memorandum published a few days later, and represent the position at
about that date:[68]
(1) The population inhabiting the devastated districts in April 1921
was 4,100,000, as compared with 4,700,000 in 1914.
(2) Of the cultivable land 95 per cent of the surface had been
releveled and 90 per cent had been plowed and was producing crops.
(3) 293,733 houses were totally destroyed, in replacement of which
132,000 provisional dwellings of different kinds had been erected.
(4) 296,502 houses were partially destroyed, of which 281,300 had been
repaired.
(5) Fifty per cent of the factories were again working.
(6) Out of 2404 kilometers of railway destroyed, practically the whole
had been reconstructed.
It seems, therefore, that, apart from refurnishing and from the
rebuilding of houses and factories, the greater part of which had
still to be accomplished, the bulk of the devastation was already made
good out of the daily labor of France within two years of the Peace
Conference, before Germany had paid anything.
This is a great achievement,—one more demonstration of the riches
accruing to France from the patient industry of peasants, which makes
her one of the rich countries of the world, in spite of the corrupt
Parisian finance which for a generation past has wasted the savings
of her investors. When we look at Northern France we see what honest
Frenchmen can accomplish.[69] But when we turn to the money claims
which are based on this, we are back in the atmosphere of Parisian
finance,—so grasping, faithless, and extravagantly unveracious as to
defeat in the end its own objects.
For let us compare some of these items of devastation with the claims
lodged.
(1) 293,733 houses were totally destroyed and 296,502 were partially
destroyed. Since nearly all the latter have been repaired, we shall
not be underestimating the damage in assuming, for the purposes of a
rough comparison, that, on the average, the damaged houses were _half_
destroyed, which gives us altogether the equivalent of 442,000 houses
totally destroyed. Turning back, we find that the French Government’s
claim for damage to houses was 16,768 million gold marks, that is to
say $4,192,000,000. Dividing this sum by the number of houses, we find
an average claim of $9,480, per house![70] This is a claim for what
were chiefly peasants’ and miners’ cottages and the tenements of small
country towns. M. Tardieu has quoted M. Loucheur as saying that the
houses in the Lens–Courrières district were worth 5000 francs ($1000)
a–piece before the war, but would cost 15,000 francs to rebuild after
the war, which sounds not at all unreasonable. In April 1921 the cost
of building construction in Paris (which had been a good deal higher
some months before) was estimated to be, in terms of paper francs,
three and a half times the pre–war figure.[71] But even if we take the
cost in francs at five times the pre–war figure, namely 25,000 paper
francs per house, the claim lodged by the French Government is still
three and a half times the truth. I fancy that the discrepancy, here
and also under other heads, may be partly explained by the inclusion
in the official French claim of indirect damages, namely, for loss of
rent—_perte de loyer_. It does not appear what attitude the Reparation
Commission took up towards _indirect_ pecuniary and business losses
arising in the devastated districts out of the war. But I do not think
that such claims are admissible under the Treaty. Such losses, real
though they were, were not essentially different from analogous losses
occurring in other areas, and indeed throughout the territory of the
Allies. The maximum claim, however, on this head would not go far
towards justifying the above figure, and we can allow a considerable
margin of error for such additional items without impairing the
conclusion that the claim is exaggerated. In _The Economic Consequences
of the Peace_ (p. 127) I estimated that $1,250,000,000 might be a fair
estimate for damage to house property; and I still think that this was
about right.
(2) This claim for damage to houses is exclusive of furniture and
fittings, which are the subject of a separate claim, namely, for 11,417
million gold marks, or about $2,850,000,000. To check this figure let
us assume that the whole of the furniture and fittings were destroyed,
not only where the houses were destroyed, but also in every case where
a house was damaged. This is an overstatement, but we may set it off
against the fact that in a good many cases the furniture may have been
looted and not recovered by restitution (a large amount has, in fact,
been recovered in this way), although the structure of the house was
not damaged at all. The total number of houses damaged or destroyed
was 590,000. Dividing this into $2,850,000,000, we have an average of
nearly $5,000 per house—an average valuation of the furniture and
fittings in each peasant’s or collier’s house of nearly $5,000! I
hesitate to guess how great an overstatement shows itself here.
(3) The largest claim of all, however, is for “industrial damages,”
namely, 17,673 million gold marks, or about $4,400,000,000. In 1919 M.
Loucheur estimated the cost of reconstruction of the coal mines at 2000
million francs, that is $400,000,000 at the par of exchange.[72] As
the pre–war value of all the coal mines in Great Britain was estimated
at only $650,000,000, and as the pre–war output of the British mines
was fifteen times that of the invaded districts of France, this figure
seems high.[73] But even if we accept it, there is still four thousand
million dollars to account for. The great textile industries of Lille
and Roubaix were robbed of their raw material, but their plant was not
seriously injured, as is shown by the fact that in 1920 the woolen
industry of these districts was already employing 93.8 per cent and the
cotton industry 78.8 per cent of their pre–war personnel. At Tourcoing
55 factories out of 57 were in operation, and at Roubaix 46 out of
48.[74]
Altogether 11,500 industrial establishments are said to have been
interfered with, but this includes every village workshop, and about
three–quarters of them employed less than 20 persons. Half of them were
at work again by the spring of 1921. What is the average claim made on
their behalf? Deducting the coal mines as above and dividing the total
claim by 11,500, we reach an average figure of nearly $35,000. The
exaggeration seems _prima facie_ on as high a scale as in the case of
houses and furniture.
(4) The remaining item of importance is for unbuilt–on land. The
claim under this head is for 9850 million gold marks, or about
$2,460,000,000. M. Tardieu (_op. cit._, p. 347) quotes Mr. Lloyd
George as follows, in the course of a discussion during the Peace
Conference in which he was pointing out the excessive character of
the French claims: “If you had to spend the money which you ask for
the reconstruction of the devastated regions of the North of France,
I assert that you could not manage to spend it. Besides, the land is
still there. Although it has been badly upheaved in parts, it has not
disappeared. Even if you put the Chemin des Dames up to auction, you
would find buyers.” Mr. Lloyd George’s view has been justified by
events. In April 1921 the French Prime Minister was able to tell his
Senate that 95 per cent of the cultivable land had been releveled and
that 90 per cent had been plowed and was producing crops. Some go so
far as to maintain that the fertility of the soil has been actually
improved by the disturbance of its surface and by its lying fallow
for several years. But apart from its having proved easier than was
anticipated to make good this category of damage, the total cultivated
area (excluding woodland) of the whole of the eleven Departments
affected was about 6,650,000 acres, of which 270,000 acres were in the
“zone of destruction,” 2,000,000 acres in the “zone of trenches and
bombardment,” and 4,200,000 acres in the “zone of simple occupation.”
The claim, therefore, averaged _over the whole area_, works out at
about $370 per acre and, averaged over the first two categories above,
at more than $1000 per acre. This claim, though it is described as
being in respect of unbuilt–on land, probably includes farm buildings
(other than houses), implements, live stock, and the growing crops of
August 1914. As experience has proved that the permanent qualities of
the land have only been seriously impaired over a small area, these
latter items should probably constitute the major part of the claim.
We have also to allow for destruction of woodlands. But even with high
estimates for each of these items, I do not see how we could reach a
total above a third of the amount actually claimed.
These arguments are not exact, but they are sufficiently so to
demonstrate that the claim sent in to the Reparation Commission is
untenable. I believe that it is at least four times the truth. But
it is possible that I have overlooked some items of claim, and it is
better in discussions of this kind to leave a wide margin for possible
error. I assert, therefore, that on the average the claim is not less
than two or three times the truth.
I have spent much time over the French claim, because it is the
largest, and because more particulars are available about it than
about the claims of the other Allies. On the face of it, the Belgian
claim is open to the same criticism as the French. But in this claim a
larger part is played by levies on the civilian population and personal
injuries to civilians. The material damage, however, was on a very
much smaller scale than in France. Belgian industry is already working
at its pre–war efficiency, and the amount of reconstruction still to
be made good is not on a great scale. The Belgian Minister for Home
Affairs stated in Parliament in February 1920 that at the date of the
Armistice 80,000 houses and 1100 public buildings had been destroyed.
This suggests that the Belgian claim on this head ought to be about a
quarter of the French claim; but in view of the greater wealth of the
invaded districts of France, the Belgian loss is probably decidedly
less than a quarter of the French loss. The claim, actually submitted
by Belgium, for property, shipping, civilians and prisoners (that is to
say, the aggregate claim apart from pensions and allowances) amounted
to 34,254 million Belgian francs. Inasmuch as the Belgian Ministry of
Finance, in an official survey published in 1913, estimate the entire
wealth of the country at 29,525 million Belgian francs, it is evident
that, even allowing for the diminished value of the Belgian franc,
which is our measuring rod, this claim is very grossly excessive. I
should guess that the degree of exaggeration is quite as great as in
the case of France.
The British Empire claim is, apart from pensions and allowances, almost
entirely in respect of shipping losses. The tonnage lost and damaged
is definitely known. The value of the cargoes carried is a matter of
difficult guesswork. On the basis of an average of $150 for the hull
and $200 for the cargo per gross ton lost, I estimated the claim in
_The Economic Consequences of the Peace_ (p. 132) at $2,700,000,000.
The actual claim lodged was for $3,835,000,000. Much depends on the
date at which the cost of replacement is calculated. Most of the
tonnage was in fact replaced out of vessels the building of which
commenced before the end of the war or shortly afterwards, and thus
cost a much higher price than prevailed in, _e.g._, 1921. But even so
the claim lodged is very high. It seems to be based on an estimate of
$500 per gross ton lost for hull and cargo together, any excess in this
being set off against the fact that no separate allowance is made for
vessels damaged or molested, but not sunk. This figure is the highest
for which any sort of plausible argument could be adduced, rather than
a judicial estimate. I adhere to the estimate which I gave in _The
Economic Consequences of the Peace_.
I forbear to examine the claims of the other Allies. The details, so
far as they have been published, are given in Appendix No. 3.
The observations made above relate to the claims for material damage
and do not bear on those for pensions and allowances, which are,
nevertheless, a very large item. These latter are to be calculated,
according to the Treaty, in the case of pensions “as being the
capitalized cost at the date of coming into force of the Treaty, on the
basis of the scales in force in France at such date,” and in the case
of allowances made during hostilities to the dependents of mobilized
persons “on the basis of the average scale for such payments in force
in France” during each year. That is to say, the French Army scale is
to be applied all round; and the result, given the numbers affected,
should be a calculable figure, in which there should be little room
for serious error. The actual claims were as follows in milliard gold
marks:[75]
Milliard marks
(gold).
France 33
British Empire 37
Italy 17
Belgium 1
Japan 1
Roumania 4
──
93
This does not include Serbia, for which a separate figure is not
available, or the United States. The total would work out, therefore,
at about 100 milliard gold marks.[76]
What does the aggregate of the claims work out at under all heads,
and what relation does this total bear to the final assessment of
the Reparation Commission? As the claims are stated in a variety of
national currencies, it is not quite a simple matter to reach a total.
In the following table French francs are converted into gold marks at
2.20 (the rate adopted by the Commission as explained above), sterling
approximately at par (on the analogy of the rate for francs), Belgian
francs at the same rate as French francs, Italian lire at twice this
rate, Serbian dinars at four times this rate, and Japanese yen at par.
Milliard marks
(gold).
France 99
British Empire 54
Italy 27
Belgium 16½
Japan 1½
Jugo–Slavia 9½
Roumania 14
Greece 2
────
223½
There are omitted from this table Poland and Czecho–Slovakia, of
which the claims are probably inadmissible, the United States, which
submitted no claim, and certain minor claimants shown in Appendix No. 3.
In round figures, therefore, we may put the claims as lodged before the
Reparations Commission at about 225 milliard gold marks, of which 95
milliards was in respect of pensions and allowances, and 130 milliards
for claims under other heads.
The Reparation Commission in announcing its decision did not
particularize as between different claimants or as between different
heads of claim, and merely stated a lump sum figure. Their figure was
132 milliards; that is to say, about 58 per cent of the sums claimed.
This decision was in no way concerned with Germany’s capacity to pay,
and was simply an assessment, intended to be judicial, as to the sum
justly due under the heads of claim established by the Treaty of
Versailles.
The decision was unanimous, but only in face of sharp differences of
opinion. It is not suitable or in accordance with decency to set up a
body of interested representatives to give a judicial decision in their
own case. This arrangement was an offspring of the assumption which
runs through the Treaty that the Allies are incapable of doing wrong,
or even of partiality.
Nothing has been published in England about the discussions which led
up to this conclusion. But M. Poincaré, at one time President of the
Reparation Commission and presumably well–informed about its affairs,
has lifted a corner of the veil in an article published in the _Revue
des Deux Mondes_ for May 15, 1921. He there divulges the fact that
the final result was a compromise between the French and the British
representatives, the latter of whom endeavored to fix the figure at
104 milliards, and defended this adjudication with skilful and even
passionate advocacy.[77]
When the decision of the Reparation Commission was first announced,
and was found to abate so largely the claims lodged with it, I hailed
it, led away a little perhaps by its very close agreement with my own
predictions, as a great triumph for justice in international affairs.
So, in a measure, I still think it. The Reparation Commission went a
considerable way in disavowing the veracity of the claims of the Allied
Governments. Indeed, their reduction of the claims for items other than
pensions and allowances must have been very great since the claims for
pensions, being capable of more or less exact calculation,[78] can
hardly have been subject to an initial error of anything approaching
42 per cent. If, for example, they reduced the claim for pensions and
allowances from 95 to 80 milliards, they must have reduced the other
claims from 130 milliards to 52 milliards, that is to say, by 60 per
cent. Yet even so, on the data now available, I do not believe that
their adjudication could be maintained before an impartial tribunal.
The figure of 104 milliards, attributed by M. Poincaré to Sir John
Bradbury, is probably the nearest we shall get to a strictly impartial
assessment.
To complete our summary of the facts two particulars must be added.
(1) The total, as assessed by the Reparation Commission, comprehends
the total claim against Germany _and her Allies_. It includes, that
is to say, the damage done by the armies of Austria–Hungary, Turkey,
and Bulgaria, as well as by those of Germany. Payments, if any, made
by Germany’s Allies must, presumably, be deducted from the sum due.
But Annex I. of the Reparation Chapter of the Treaty of Versailles
is so drafted as to render Germany liable for the whole amount. (2)
This total is exclusive of the sum due under the Treaty for the
reimbursement of sums lent to Belgium by her Allies during the war. At
the date of the London Agreement (May 1921) Germany’s liability under
this head was provisionally estimated at 3 milliard gold marks. But it
had not then been decided at what rate these loans, which were made in
terms of dollars, sterling, and francs, should be converted into gold
marks. The question was referred for arbitration to Mr. Boyden, the
United States Delegate on the Reparation Commission, and at the end of
September 1921 he announced his decision to the effect that the rate of
conversion should be based on the rate of exchange prevailing at the
date of the Armistice. Including interest at 5 per cent, as provided by
the Treaty, I estimate that this liability amounts at the end of 1921
to about 6 milliard gold marks, of which slightly more than a third is
due to Great Britain and slightly less than a third each to France and
the United States respectively.
I take, therefore, as my final conclusion that the best available
estimate of the sum due from Germany, under the strict letter of
the Treaty of Versailles, is 110 milliard gold marks, which may be
divided between the main categories of claim in the proportions—74
milliards for pensions and allowances, 30 milliards for direct damage
to the property and persons of civilians, and 6 milliards for war debt
incurred by Belgium.
This total is more than Germany can pay. But the claim exclusive of
pensions and allowances should be within her capacity. The inclusion of
a demand for pensions and allowances was the subject of a long struggle
and a bitter controversy in Paris. I have argued that those were right
who maintained that this demand was inconsistent with the terms on
which Germany surrendered at the Armistice. I return to this subject in
the next chapter.
EXCURSUS V
RECEIPTS AND EXPENSES PRIOR TO MAY 1, 1921
The provision in the Treaty of Versailles that Germany, subject to
certain deductions, was to pay $5000 millions (gold) before May
1, 1921, was so remarkably wide of facts and possibilities, that
for some time past no one has said much about this offspring of the
unimaginative imaginations of Paris. As it was totally abandoned by the
London Agreement of May 5, 1921, there is no need to return to what is
an obsolete controversy. But it is interesting to record what payments
Germany did actually effect during the transitional period.
The following details are from a statement published by the British
Treasury in August 1921:
APPROXIMATE STATEMENT BY THE REPARATION COMMISSION OF DELIVERIES MADE
BY GERMANY FROM NOVEMBER 11, 1918, TO APRIL 30, 1921
Gold Marks.
Receipts in cash 99,334,000
Deliveries in kind:
Ships 270,331,000
Coal 437,160,000
Dyestuffs 36,823,000
Other deliveries 937,040,000
──────────────
1,780,688,000
Immovable property and assets not yet encashed 2,754,104,000
──────────────
4,534,792,000
say $1,130,000,000
The immovable property consists chiefly of the Saar coalfields
surrendered to France, State property in Schleswig surrendered to
Denmark, and State property (with certain exceptions) in the territory
transferred to Poland.
The whole of the cash, two–thirds of the ships, and a quarter of
the dyestuffs accrued to Great Britain. A share of the ships and
dyestuffs, the Saar coalfields, the bulk of the coal and of the “other
deliveries,” including valuable materials left behind by the German
Army, accrued to France. Some ships, a proportion of the coal and other
deliveries, and the compensation, payable by Denmark in respect of
Schleswig, fell to Belgium. Italy obtained a portion of the coal and
ships and some other trifles. The value of German State property in
Poland could not be transferred to any one but Poland.
But the sums thus received were not available for Reparation. There had
to be deducted from them (1) the sums returned to Germany under the Spa
Agreement, namely 360,000,000 gold marks,[79] and (2) the costs of the
Armies of Occupation.
In September 1921 the Reparation Commission published an approximate
estimate, as follows, of the cost of occupation of German territory by
the Allied Armies from the Armistice until May 1, 1921:
───────────────┬─────────────────────┬───────────────
│ │ Cost per man
│ Total cost. │ per day.
───────────────┼─────────────────────┼───────────────
United States │ $278,067,610 │ $4.50
Great Britain │ £52,881,298 │ 14s.
France │ Frs. 2,304,850,470 │ Frs. 15.25
Belgium │ Frs. 378,731,390 │ Frs. 16.50
Italy │ Frs. 15,207,717 │ Frs. 22
───────────────┴─────────────────────┴───────────────
The conversion of these sums into gold marks raises the usual
controversy as to the rates at which conversion is to be effected.
The total was estimated, however, at three milliard gold marks,[80]
of which one milliard was owed to the United States, one milliard to
France, 900 millions to Great Britain, 175 millions to Belgium, and 5
millions to Italy. On May 1, 1921, France had about 70,000 soldiers on
the Rhine, Great Britain about 18,000, and the United States a trifling
number.
The net result of the transitional period was, therefore, as follows:
(1) Putting on one side State property transferred to Poland, the whole
of the transferable wealth obtained from Germany in the two and a
half years following the Armistice under all the rigors of the Treaty,
designed as they were to extract every available liquid asset, just
about covered the costs of collection, that is to say, the expenses of
the Armies of Occupation, and left _nothing_ over for Reparation.
(2) But as the United States has not yet been paid the milliard owing
to her for her Army, the other Allies have received between them on
balance a surplus of about one milliard. This surplus was not divided
amongst them equally. Great Britain had received 450–500 million gold
marks _less_ than her expenses, Belgium 300–350 million _more_ than her
expenses, and France 1000–1200 millions _more_ than her expenses.[81]
Under the strict letter of the Treaty those Allies who had received
less than their share might have claimed to be paid the difference in
cash by those who had received more. This situation and the allocation
of the milliard paid by Germany between May and August 1921 were the
subject of the Financial Agreement provisionally signed at Paris on
August 13, 1921. This Agreement chiefly consisted of concessions
to France, partly by Belgium, who agreed in effect to a partial
postponement of her priority charge on two milliards out of the
first sums received from Germany for Reparation, and partly by Great
Britain, who accepted for the purposes of internal accounting amongst
the Allies themselves a lower value for the coal delivered by Germany
than the value fixed by the Treaty.[82] In view of these concessions
about future payment, the _first_ milliard in cash, received _after_
May 1, 1921, was divided between Great Britain and Belgium, the former
receiving 450 million gold marks in discharge of the balance still due
to her in respect of the costs of occupation, and the balance falling
to the latter as a further instalment of her agreed priority charge.
This Agreement was represented in the French press as laying new
burdens upon France, or at least as withdrawing existing rights from
her. But this was not the case. The Agreement was directed throughout
to moderating the harshness with which the letter of the Treaty and the
arrangements of Spa would have operated against France.[83]
The actual value of these deliveries is a striking example of how
far the value of deliverable articles falls below the estimates which
used to be current. The Reparation Commission have stated that the
credit which Germany will receive in respect of her Mercantile Marine
will amount to about 755 million gold marks. This figure is low,
partly because many of the ships were disposed of after the slump in
tonnage.[84] Nevertheless, this was one of the tangible assets of great
value, which it was customary at one time to invoke in answer to those
who disputed Germany’s capacity to make vast payments. What does it
amount to in relation to the bill against her? The bill is 138 milliard
gold marks, on which interest at 6 per cent for one year is 8280
million gold marks. That is to say, Germany’s Mercantile Marine in its
entirety, of which the surrender humbled so much pride and engulfed so
vast an effort, would about meet a month’s charges.
EXCURSUS VI
THE DIVISION OF RECEIPTS AMONGST THE ALLIES
The Allied Governments took advantage of the Spa meeting (July 1920)
to settle amongst themselves a Reparation question which had given
much trouble in Paris and had been left unsolved[85]—namely, the
proportions in which the Reparation receipts are to be divided between
the various Allied claimants.[86] The Treaty provides that the receipts
from Germany will be divided by the Allies “in proportions which _have_
been determined upon by them in advance, on a basis of general equity
and of the rights of each.” The failure, described by M. Tardieu, to
reach an agreement in Paris, rendered the tense of this provision
inaccurate, but at Spa it was settled as follows:
France 52 per cent.
British Empire[87] 22 ”
Italy 10 ”
Belgium 8 ”
Japan and Portugal ¾ of 1 per cent each;
the remaining 6½ per cent being reserved for the Serbo–Croat–Slovene
State and for Greece, Rumania, and other Powers not signatories of the
Spa Agreement.[88]
This settlement represented some concession on the part of Great
Britain, whose proportionate claim was greatly increased by the
inclusion of pensions beyond what it would have been on the basis of
Reparation proper; and the proportion claimed by Mr. Lloyd George in
Paris was probably nearer the truth (namely that the French and British
shares should be in the proportion 5 to 3). I estimate that France
45 per cent, British Empire 33 per cent, Italy 10 per cent, Belgium
6 per cent, and the rest 6 per cent would have been more exactly in
accordance with the claims of each under the Treaty. In view of all the
facts, however, the Spa division may be held to have done substantial
justice on the whole.
At the same time the priority to Belgium to the extent of $500,000,000
was confirmed; and it was agreed that the loans made to Belgium
during the war by the other Allies, for which Germany is liable under
Article 232[89] of the Treaty, should be dealt with out of the moneys
next received. These loans, including interest, will amount by the end
of 1921 to something in the neighborhood of $1,500,000,000, of which
$550,000,000 will be due to Great Britain, $500,000,000 to France, and
$450,000,000 to the United States.
Under the Spa Agreement, therefore, sums received from Germany in cash,
and credits in respect of deliveries in kind were to be applied to the
discharge of her obligations in the following order:
1. The cost of the Armies of Occupation, estimated at $750,000,000 up
to May 1, 1921.
2. Advances to Germany for food purchases under the Spa Agreement, say
$90,000,000.
3. Belgian priority of $500,000,000.
4. Repayment of Allied advances to Belgium, say $1,500,000,000.
This amounts to about $2,850,000,000 altogether, of which I estimate
that about $750,000,000 is due to France, $850,000,000 to Great
Britain, $550,000,000 to Belgium, and $700,000,000 to the United
States.
Very few people, I think, have appreciated how large a sum is due to
the United States under the strict letter of the Agreement. Since
France has already received almost two–thirds of her share as above,
whilst Belgium has had about one–third, Great Britain less than
one–third, and the United States nothing, it follows that, even on
the most favorable hypothesis as to Germany’s impending payments,
comparatively small sums are strictly due to France in the near future.
The Financial Agreement of August 13, 1921, was aimed at modifying the
harshness of these priority provisions towards France.[90] The details
of this Agreement have not yet been published, but it is said to make
a somewhat different provision from that contemplated at Spa for the
repayment of Allied war advances to Belgium.
The reception of this Agreement by the French public was a good
illustration of the effect of keeping people in the dark. The effect of
the Spa Agreement had never been understood in France, with the result
that the August Financial Agreement, which much improved France’s
position, was believed to interfere seriously with her existing rights.
M. Doumer never had the pluck to tell his public the truth, although,
if he had, it would have been clear that, in signing the Agreement
provisionally, he was acting in the interests of his country.
The mention of the United States invites attention to the anomalous
position of that country under the Peace Treaty. Her failure to ratify
the Treaty forfeits none of her rights under it, either in respect of
her share of the costs of the Army of Occupation (which, however, is
offset to a small extent by the German ships she has retained), or
in respect of the repayment of her war advances to Belgium.[91] It
follows that the United States is entitled, on the strict letter, to a
considerable part of the cash receipts from Germany in the near future.
There is, however, a possible offset to these claims which has been
mentioned already (p. 78) but must not be overlooked here. Under the
Treaty, private German property in an Allied country is, in the case
of countries adopting the Clearing House Scheme, applied in the first
instance to debts owing from German nationals to the nationals of the
Allied country in question, and the balance, if any, is retained for
Reparation. What is to happen in the case of similar German assets
in the United States is still undetermined. The surplus assets, the
value of which may be about $300,000,000,[92] will be retained, until
Congress determines otherwise, by the Enemy Property Custodian. There
have been negotiations from time to time for a loan in favor of Germany
on the security of these assets, but the legal position has rendered
progress impossible. At any rate this important German asset is still
under American control.
FOOTNOTES:
[60] A fairly adequate account of this controversy during the Peace
Conference can be pieced together from the following passages: Baruch,
_Making of Reparation and Economic Sections of the Treaty_, pp. 45–55;
Lamont, _What really happened at Paris_, pp. 262–265; Tardieu, _The
Truth about the Treaty_, pp. 294–309.
[61] For these figures see Tardieu, _op. cit._, p. 305.
[62] It is of these passages that M. Clemenceau wrote as follows in his
preface to M. Tardieu’s book: “Fort en thème d’économiste, M. Keynes
(qui ne fut pas seul, dans la Conférence, à professer cette opinion)
combat, sans aucun ménagement, ‘l’abus des exigences des Alliés’
(lisez: ‘de la France’) et de ses négociateurs.... Ces reproches et
tant d’autres d’une violence brutale, dont je n’aurais rien dit, si
l’auteur, à tous risques, n’eût cru servir sa cause en les livrant à
la publicité, font assez clairement voir jusqu’où certains esprits
s’étaient montés.” (In the English edition, M. Tardieu has caused the
words _fort en thème d’économiste_ to be translated by the words “with
some knowledge of economics but neither imagination nor character”—which
seems rather a free rendering.)
[63] At about the same date, the German Indemnity Commission
(_Reichsentschädigungskommission_) estimated the cost at 7228 million
gold marks, also on the basis of pre–war prices; that is to say, at
about one–seventh of M. Dubois’ estimate.
[64] The details of this claim, so far as they have been published,
are given in Appendix No. 3. The above figure comprises the items
for Industrial Damages, Damage to Houses, Furniture and Fittings,
Unbuilt–on Land, State Property, and Public Works.
[65] See M. Loucheur’s speech in the French Chamber, May 20, 1921.
[66] For this rate to be justified the exchange value of the franc in
New York must rise to about 11 cents.
[67] M. Loucheur’s statement to the French Chamber implied that the
rate of conversion was applicable to material damage as well as to
pensions, and I have assumed this in what follows; but precise official
information is lacking.
[68] The figures of damage done, given by M. Briand, are generally
speaking rather lower than those given ten months earlier (in June
1920) in a report by M. Tardieu in his capacity as President of the
Comité des Régions Dévastées. But the difference is not very material.
For purposes of comparison, I give M. Tardieu’s figures below together
with those of the amount of reconstruction completed at that earlier
date:
Destroyed. Repaired.
Houses totally destroyed 319,269 2,000
Houses partially destroyed 313,675 182,000
Railway lines 5,534 kilos. 4,042 kilos.
Canals 1,596 ” 784 ”
Roads 39,000 ” 7,548 ”
Bridges, embankments, etc. 4,785 ” 3,424 ”
Destroyed. Cleared from Leveled. Plowed.
shells.
Arable land
(hectares) 3,200,000 2,900,000 1,700,000 1,150,000
Destroyed. Reconstructed Under
and working. reconstruction.
Factories and works 11,500 3,540 3,812
A much earlier estimate is that made by M. Dubois for the Budget
Commission of the French Chamber and published as Parliamentary Paper
No. 5432 of the Session of 1918.
[69] A more recent estimate (namely, for July 1, 1921) has been given,
presumably from official sources, by M. Fournier–Sarlovèze, Deputy for
the Oise. The following are some of his figures:
INHABITED HOUSES
At the Armistice: Totally destroyed 289,147
Badly injured 164,317
Partially injured 258,419
By July 1921: Entirely rebuilt 118,863
Temporarily repaired 182,694
PUBLIC BUILDINGS
─────────────┬─────────┬───────────┬────────┬────────┬───────────
│ │ Municipal │ │ Post │
│Churches.│ Buildings.│Schools.│Offices.│Hospitals.
─────────────┼─────────┼───────────┼────────┼────────┼───────────
Destroyed │ 1,407 │ 1,415 │ 2,243 │ 171 │ 30
Damaged │ 2,079 │ 2,154 │ 3,153 │ 271 │ 197
Restored │ 1,214 │ 322 │ 720 │ 53 │ 28
Temporarily │ │ │ │ │
patched up │ 1,097 │ 931 │ 2,093 │ 196 │ 128
─────────────┴─────────┴───────────┴────────┴────────┴───────────
CULTIVATED LAND
Acres.
At the Armistice: Totally destroyed 4,653,516
By July 1921: Leveled 4,067,408
Plowed 3,528,950
LIVE STOCK
─────────────────────────────┬────────────┬─────────────┬────────────
│ 1914. │ Nov. 1918. │ July 1921.
─────────────────────────────┼────────────┼─────────────┼────────────
Cattle │ 890,084 │ 57,500 │ 478,000
Horses, donkeys, and mules │ 412,730 │ 32,600 │ 235,400
Sheep and goats │ 958,308 │ 69,100 │ 276,700
Pigs │ 357,003 │ 25,000 │ 169,000
─────────────────────────────┴────────────┴─────────────┴────────────
[70] Even if we assumed that every house which had been injured at all
was totally destroyed, the figure would work out at about $7,000.
[71] M. Brenier, who has spent much time criticizing me, quotes
with approval (_The Times_, January 24, 1921) a French architect as
estimating the cost of reconstruction at an average of $2,500 per
house, and quotes also, without dissent, a German estimate that the
pre–war average was $1,200. He also states, in the same article, that
the number of houses destroyed was 304,191 and the number damaged
290,425, or 594,616 in all. Having pointed out the importance of not
overlooking sentiment in these questions, he then multiplies $2,500,
not by the number of houses but by the number of the _population_,
and arrives at an answer of $3,750,000,000. What is one to reply to
sentimental multiplication? What is the courteous retort to controversy
on these lines? (His other figures are clearly such a mass of
misprints, muddled arithmetic, confusion between hectares and acres
and the like, that, whilst an attack could easily make a devastated
area of them, it would be unfair to base any serious criticism on this
well–intentioned farrago. As a writer on these topics, M. Brenier is
about of the caliber of M. Raphaël–Georges Lévy.)
[72] M. Tardieu states that, on account of the subsequent rise in
prices, M. Loucheur’s estimate has proved, in terms of paper francs,
to be inadequate. But this is allowed for by my having converted paper
francs into dollars at the par of exchange.
[73] The Lens coal mines, which were the object of most complete
destruction, comprised 29 pits, and had, in 1913, 16,000 workmen with
an output of 4 million tons.
[74] I take these figures from M. Tardieu, who argues, most
illuminatingly, in alternate chapters, according to his thesis for the
time being, that reconstruction has hardly begun, and that it is nearly
finis
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