The Economic Consequences of the Peace
by John Maynard Keynes
1919
Chapter 1 Introductory
Chapter 2 Europe Before the War
Chapter 3 The Conference
Chapter 4 The Treaty
Chapter 5 Reparation
Chapter 6 Europe After the Treaty
Chapter 7 Remedies
Chapter 1: Introductory
The power to become habituated to his surroundings is a
marked characteristic of mankind. Very few of us realise with
conviction the intensely unusual, unstable, complicated,
unreliable, temporary nature of the economic organisation by
which Western Europe has lived for the last half century. We
assume some of the most peculiar and temporary of our late
advantages as natural, permanent, and to be depended on, and we
lay our plans accordingly. On this sandy and false foundation we
scheme for social improvement and dress our political platforms,
pursue our animosities and particular ambitions, and feel
ourselves with enough margin in hand to foster, not assuage,
civil conflict in the European family. Moved by insane delusion
and reckless self-regard, the German people overturned the
foundations on which we all lived and built. But the spokesmen of
the French and British peoples have run the risk of completing
the ruin which Germany began, by a peace which, if it is carried
into effect, must impair yet further, when it might have
restored, the delicate, complicated organisation, already shaken
and broken by war, through which alone the European peoples can
employ themselves and live.
In England the outward aspect of life does not yet teach us
to feel or realise in the least that an age is over. We are busy
picking up the threads of our life where we dropped them, with
this difference only, that many of us seem a good deal richer
than we were before. Where we spent millions before the war, we
have now learnt that we can spend hundreds of millions and
apparently not suffer for it. Evidently we did not exploit to the
utmost the possibilities of our economic life. We look,
therefore, not only to a return to the comforts of 1914, but to
an immense broadening and intensification of them. All classes
alike thus build their plans, the rich to spend more and save
less, the poor to spend more and work less.
But perhaps it is only in England (and America) that it is
possible to be so unconscious. In continental Europe the earth
heaves and no one but is aware of the rumblings. There it is not
just a matter of extravagance or 'labour troubles'; but of life
and death, of starvation and existence, and of the fearful
convulsions of a dying civilisation.
For one who spent in Paris the greater part of the six months
which succeeded the armistice an occasional visit to London was a
strange experience. England still stands outside Europe. Europe's
voiceless tremors do not reach her. Europe is apart and England
is not of her flesh and body. But Europe is solid with herself.
France, Germany, Italy, Austria, and Holland, Russia and Roumania
and Poland, throb together, and their structure and civilisation
are essentially one. They flourished together, they have rocked
together in a war which we, in spite of our enormous
contributions and sacrifices (like though in a less degree than
America), economically stood outside, and they may fall together.
In this lies the destructive significance of the Peace of Paris.
If the European civil war is to end with France and Italy abusing
their momentary victorious power to destroy Germany and
Austria-Hungary now prostrate, they invite their own destruction
also, being so deeply and inextricably intertwined with their
victims by hidden psychic and economic bonds. At any rate an
Englishman who took part in the Conference of Paris and was
during those months a member of the Supreme Economic Council of
the Allied Powers, was bound to become -- for him a new
experience -- a European in his cares and outlook. There, at the
nerve centre of the European system, his British preoccupations
must largely fall away and he must be haunted by other and more
dreadful spectres. Paris was a nightmare, and everyone there was
morbid. A sense of impending catastrophe overhung the frivolous
scene; the futility and smallness of man before the great events
confronting him; the mingled significance and unreality of the
decisions; levity, blindness, insolence, confused cries from
without-all the elements of ancient tragedy were there. Seated
indeed amid the theatrical trappings of the French saloons of
state, one could wonder if the extraordinary visages of Wilson
and of Clemenceau, with their fixed hue and unchanging
characterisation, were really faces at all and not the
tragic-comic masks of some strange drama or puppet-show.
The proceedings of Paris all had this air of extraordinary
importance and unimportance at the same time. The decisions
seemed charged with consequences to the future of human society;
yet the air whispered that the word was not flesh, that it was
futile, insignificant, of no effect, dissociated from events; and
one felt most strongly the impression, described by Tolstoy in
War and Peace or by Hardy in The Dynasts, of events marching on
to their fated conclusion uninfluenced and unaffected by the
cerebrations of statesmen in council:
Spirit of the Years
Observe that all wide sight and self-command
Deserts these throngs now driven to demonry
By the Immanent Unrecking. Nought remains
But vindictiveness here amid the strong,
And there amid the weak an impotent rage.
Spirit of the Pities
Why prompts the Will so senseless-shaped a doing?
Spirit of the Years
I have told thee that It works unwittingly,
As one possessed not judging.
In Paris, where those connected with the Supreme Economic
Council received almost hourly the reports of the misery,
disorder, and decaying organisation of all Central and Eastern
Europe, Allied and enemy alike, and learnt from the lips of the
financial representatives of Germany and Austria unanswerable
evidence of the terrible exhaustion of their countries, an
occasional visit to the hot, dry room in the President's house,
where the Four fulfilled their destinies in empty and arid
intrigue, only added to the sense of nightmare. Yet there in
Paris the problems of Europe were terrible and clamant, and an
occasional return to the vast unconcern of London a little
disconcerting. For in London these questions were very far away,
and our own lesser problems alone troubling. London believed that
Paris was making a great confusion of its business, but remained
uninterested. In this spirit the British people received the
treaty without reading it. But it is under the influence of
Paris, not London, that this book has been written by one who,
though an Englishman, feels himself a European also, and, because
of too vivid recent experience, cannot disinterest himself from
the further unfolding of the great historic drama of these days
which will destroy great institutions, but may also create a new
world.
Chapter 2: Europe Before the War
Before 1870 different parts of the small continent of Europe
had specialised in their own products; but, taken as a whole, it
was substantially self-subsistent. And its population was
adjusted to this state of affairs.
After 1870 there was developed on a large scale an
unprecedented situation, and the economic condition of Europe
became during the next fifty years unstable and peculiar. The
pressure of population on food, which had already been balanced
by the accessibility of supplies from America, became for the
first time in recorded history definitely reversed. As numbers
increased, food was actually easier to secure. Larger
proportional returns from an increasing scale of production
became true of agriculture as well as industry. With the growth
of the European population there were more emigrants on the one
hand to till the soil of the new countries and, on the other,
more workmen were available in Europe to prepare the industrial
products and capital goods which were to maintain the emigrant
populations in their new homes, and to build the railways and
ships which were to make accessible to Europe food and raw
products from distant sources. Up to about 1900 a unit of labour
applied to industry yielded year by year a purchasing power over
an increasing quantity of food. It is possible that about the
year 1900 this process began to be reversed, and a diminishing
yield of nature to man's effort was beginning to reassert itself.
But the tendency of cereals to rise in real cost was balanced by
other improvements; and -- one of many novelties -- the resources
of tropical Africa then for the first time came into large
employ, and a great traffic in oilseeds began to bring to the
table of Europe in a new and cheaper form one of the essential
foodstuffs of mankind. In this economic Eldorado, in this
economic Utopia, as the earlier economists would have deemed it,
most of us were brought up.
That happy age lost sight of a view of the world which filled
with deep-seated melancholy the founders of our political
economy. Before the eighteenth century mankind entertained no
false hopes. To lay the illusions which grew popular at that
age's latter end, Malthus disclosed a devil. For half a century
all serious economical writings held that devil in clear
prospect. For the next half century he was chained up and out of
sight. Now perhaps we have loosed him again.
What an extraordinary episode in the economic progress of man
that age was which came to an end in August 1914! The greater
part of the population, it is true, worked hard and lived at a
low standard of comfort, yet were, to all appearances, reasonably
contented with this lot. But escape was possible, for any man of
capacity or character at all exceeding the average, into the
middle and upper classes, for whom life offered, at a low cost
and with the least trouble, conveniences, comforts, and amenities
beyond the compass of the richest and most powerful monarchs of
other ages. The inhabitant of London could order by telephone,
sipping his morning tea in bed, the various products of the whole
earth, in such quantity as he might see fit, and reasonably
expect their early delivery upon his doorstep; he could at the
same moment and by the same means adventure his wealth in the
natural resources and new enterprises of any quarter of the
world, and share, without exertion or even trouble, in their
prospective fruits and advantages; or he could decide to couple
the security of his fortunes with the good faith of the
townspeople of any substantial municipality in any continent that
fancy or information might recommend. He could secure forthwith,
if he wished it, cheap and comfortable means of transit to any
country or climate without passport or other formality, could
despatch his servant to the neighbouring office of a bank for
such supply of the precious metals as might seem convenient, and
could then proceed abroad to foreign quarters, without knowledge
of their religion, language, or customs, bearing coined wealth
upon his person, and would consider himself greatly aggrieved and
much surprised at the least interference. But, most important of
all, he regarded this state of affairs as normal, certain, and
permanent, except in the direction of further improvement, and
any deviation from it as aberrant, scandalous, and avoidable. The
projects and politics of militarism and imperialism, of racial
and cultural rivalries, of monopolies, restrictions, and
exclusion, which were to play the serpent to this paradise, were
little more than the amusements of his daily newspaper, and
appeared to exercise almost no influence at all on the ordinary
course of social and economic life, the internationalisation of
which was nearly complete in practice.
It will assist us to appreciate the character and
consequences of the peace which we have imposed on our enemies,
if I elucidate a little further some of the chief unstable
elements, already present when war broke out, in the economic
life of Europe.
I. Population
In 1870, Germany had a population of about 40 million. By
1892 this figure had risen to 50 million, and by 30 June 1914 to
about 68 million. In the years immediately preceding the war the
annual increase was about 850,000, of whom an insignificant
proportion emigrated.(1*) This great increase was only rendered
possible by a far-reaching transformation of the economic
structure of the country. From being agricultural and mainly
self-supporting, Germany transformed herself into a vast and
complicated industrial machine dependent for its working on the
equipoise of many factors outside Germany as well as within. Only
by operating this machine, continuously and at full blast, could
she find occupation at home for her increasing population and the
means of purchasing their subsistence from abroad. The German
machine was like a top which to maintain its equilibrium must
progress ever faster and faster.
In the Austro-Hungarian empire, which grew from about 40
million in 1890 to at least 50 million at the outbreak of war,
the same tendency was present in a less degree, the annual excess
of births over deaths being about half a million, out of which,
however, there was an annual emigration of some quarter of a
million persons.
To understand the present situation, we must apprehend with
vividness what an extraordinary centre of population the
development of the Germanic system had enabled Central Europe to
become. Before the war the population of Germany and
Austria-Hungary together not only substantially exceeded that of
the United States, but was about equal to that of the whole of
North America. In these numbers, situated within a compact
territory, lay the military strength of the Central Powers. But
these same numbers -- for even the war has not appreciably
diminished them(2*) -- if deprived of the means of life, remain a
hardly less danger to European order.
European Russia increased her population in a degree even
greater than Germany -- from less than 100 million in 1890 to
about 150 million at the outbreak of war;(3*) and in the years
immediately preceding 1914 the excess of births over deaths in
Russia as a whole was at the prodigious rate of two million per
annum. This inordinate growth in the population of Russia, which
has not been widely noticed in England, has been nevertheless one
of the most significant facts of recent years.
The great events of history are often due to secular changes
in the growth of population and other fundamental economic
causes, which, escaping by their gradual character the notice of
contemporary observers, are attributed to the follies of
statesmen or the fanaticism of atheists. Thus the extraordinary
occurrences of the past two years in Russia, that vast upheaval
of society, which has overturned what seemed most stable --
religion, the basis of property, the ownership of land, as well
as forms of government and the hierarchy of classes -- may owe
more to the deep influences of expanding numbers than to Lenin or
to Nicholas; and the disruptive powers of excessive national
fecundity may have played a greater part in bursting the bonds of
convention than either the power of ideas or the errors of
autocracy.
II. Organization
The delicate organisation by which these peoples lived
depended partly on factors internal to the system.
The interference of frontiers and of tariffs was reduced to a
minimum, and not far short of three hundred millions of people
lived within the three empires of Russia, Germany, and
Austria-Hungary. The various currencies, which were all
maintained on a stable basis in relation to gold and to one
another, facilitated the easy flow of capital and of trade to an
extent the full value of which we only realise now, when we are
deprived of its advantages. Over this great area there was an
almost absolute security of property and of person.
These factors of order, security, and uniformity, which
Europe had never before enjoyed over so wide and populous a
territory or for so long a period, prepared the way for the
organisation of that vast mechanism of transport, coal
distribution, and foreign trade which made possible an industrial
order of life in the dense urban centres of new population. This
is too well known to require detailed substantiation with
figures. But it may be illustrated by the figures for coal, which
has been the key to the industrial growth of Central Europe
hardly less than of England; the output of German coal grew from
30 million tons in 1871 to 70 million tons in 1890, 110 million
tons in 1900, and 190 million tons in 1913.
Round Germany as a central support the rest of the European
economic system grouped itself, and on the prosperity and
enterprise of Germany the prosperity of the rest of the continent
mainly depended. The increasing pace of Germany gave her
neighbours an outlet for their products, in exchange for which
the enterprise of the German merchant supplied them with their
chief requirements at a low price.
The statistics of the economic interdependence of Germany and
her neighbours are overwhelming. Germany was the best customer of
Russia, Norway, Holland, Belgium, Switzerland, Italy, and
Austria-Hungary. she was the second-best customer of Great
Britain, Sweden, 'and Denmark; and the third-best customer of
France. She was the largest source of supply to Russia, Norway,
Sweden, Denmark, Holland, Switzerland, Italy, Austria-Hungary,
Roumania, and Bulgaria; and the second largest source of supply
to Great Britain, Belgium, and France.
In our own case we sent more exports to Germany than to any
other country in the world except India, and we bought more from
her than from any other country in the world except the United
States.
There was no European country except those west of Germany
which did not do more than a quarter of their total trade with
her; and in the case of Russia, Austria-Hungary, and Holland the
proportion was far greater.
Germany not only furnished these countries with trade but, in
the case of some of them, supplied a great part of the capital
needed for their own development. Of Germany's pre-war foreign
investments, amounting in all to about £31,250 million, not far
short of £3500 million was invested in Russia, Austria-Hungary,
Bulgaria, Roumania, and Turkey. And by the system of 'peaceful
penetration' she gave these countries not only capital but, what
they needed hardly less, organisation. The whole of Europe east
of the Rhine thus fell into the German industrial orbit, and its
economic life was adjusted accordingly.
But these internal factors would not have been sufficient to
enable the population to support itself without the co-operation
of external factors also and of certain general dispositions
common to the whole of Europe. Many of the circumstances already
treated were true of Europe as a whole, and were not peculiar to
the central empires. But all of what follows was common to the
whole European system.
III The Psychology of Society
Europe was so organised socially and economically as to
secure the maximum accumulation of capital. While there was some
continuous improvement in the daily conditions of life of the
mass of the population, society was so framed as to throw a great
part of the increased income into the control of the class least
likely to consume it. The new rich of the nineteenth century were
not brought up to large expenditures, and preferred the power
which investment gave them to the pleasures of immediate
consumption. In fact, it was precisely the inequality of the
distribution of wealth which made possible those vast
accumulations of fixed wealth and of capital improvements which
distinguished that age from all others. Herein lay, in fact, the
main justification of the capitalist system. If the rich had
spent their new wealth on their own enjoyments, the world would
long ago have found such a régime intolerable. But like bees they
saved and accumulated, not less to the advantage of the whole
community because they themselves held narrower ends in prospect.
The immense accumulations of fixed capital which, to the
great benefit of mankind, were built up during the half century
before the war, could never have come about in a society where
wealth was divided equitably. The railways of the world, which
that age built as a monument to posterity, were, not less than
the pyramids of Egypt, the work of labour which was not free to
consume in immediate enjoyment the full equivalent of its
efforts.
Thus this remarkable system depended for its growth on a
double bluff or deception. On the one hand the labouring classes
accepted from ignorance or powerlessness, or were compelled,
persuaded, or cajoled by custom, convention, authority, and the
well-established order of society into accepting, a situation in
which they could call their own very little of the cake that they
and nature and the capitalists were co-operating to produce. And
on the other hand the capitalist classes were allowed to call the
best part of the cake theirs and were theoretically free to
consume it, on the tacit underlying condition that they consumed
very little of it in practice. The duty of 'saving' became
nine-tenths of virtue and the growth of the cake the object of
true religion. There grew round the non-consumption of the cake
all those instincts of puritanism which in other ages has
withdrawn itself from the world and has neglected the arts of
production as well as those of enjoyment. And so the cake
increased; but to what end was not clearly contemplated.
Individuals would be exhorted not so much to abstain as to defer,
and to cultivate the pleasures of security and anticipation.
Saving was for old age or for your children; but this was only in
theory -- the virtue of the cake was that it was never to be
consumed, neither by you nor by your children after you.
In writing thus I do not necessarily disparage the practices
of that generation. In the unconscious recesses of its being
society knew what it was about. The cake was really very small in
proportion to the appetites of consumption, and no one, if it
were shared all round, would be much the better off by the
cutting of it. Society was working not for the small pleasures of
today but for the future security and improvement of the race --
in fact for 'progress'. If only the cake were not cut but was
allowed to grow in the geometrical proportion predicted by
Malthus of population, but not less true of compound interest,
perhaps a day might come when there would at last be enough to go
round, and when posterity could enter into the enjoyment of our
labours. In that day overwork, overcrowding, and underfeeding
would come to an end, and men, secure of the comforts and
necessities of the body, could proceed to the nobler exercises of
their faculties. One geometrical ratio might cancel another, and
the nineteenth century was able to forget the fertility of the
species in a contemplation of the dizzy virtues of compound
interest.
There were two pitfalls in this prospect: lest, population
still outstripping accumulation, our self-denials promote not
happiness but numbers; and lest the cake be after all consumed,
prematurely, in war, the consumer of all such hopes.
But these thoughts lead too far from my present purpose. I
seek only to point out that the principle of accumulation based
in on equality was a vital part of the pre-war order of society
and of progress as we then understood it, and to emphasise that
this principle depended on unstable psychological conditions,
which it may be impossible to re-create. It was not natural for a
population, of whom so few enjoyed the comforts of life, to
accumulate so hugely. The war has disclosed the possibility of
consumption to all and the vanity of abstinence to many. Thus the
bluff is discovered; the labouring classes may be no longer
willing to forgo so largely, and the capitalist classes, no
longer confident of the future, may seek to enjoy more fully
their liberties of consumption so long as they last, and thus
precipitate the hour of their confiscation.
IV. The Relation of the Old World to the New
The accumulative habits of Europe before the war were the
necessary condition of the greatest of the external factors which
maintained the European equipoise.
Of the surplus capital goods accumulated by Europe a
substantial part was exported abroad, where its investment made
possible the development of the new resources of food, materials,
and transport, and at the same time enabled the Old World to
stake out a claim in the natural wealth and virgin potentialities
of the New. This last factor came to be of the vastest
importance. The Old World employed with an immense prudence the
annual tribute it was thus entitled to draw. The benefit of cheap
and abundant supplies, resulting from the new developments which
its surplus capital had made possible was, it is true, enjoyed
and not postponed. But the greater part of the money interest
accruing on these foreign investments was reinvested and allowed
to accumulate, as a reserve (it was then hoped) against the less
happy day when the industrial labour of Europe could no longer
purchase on such easy terms the produce of other continents, and
when the due balance would be threatened between its historical
civilisations and the multiplying races of other climates and
environments. Thus the whole of the European races tended to
benefit alike from the development of new resources whether they
pursued their culture at home or adventured it abroad.
Even before the war, however, the equilibrium thus
established between old civilisations and new resources was being
threatened. The prosperity of Europe was based on the facts that,
owing to the large exportable surplus of foodstuffs in America,
she was able to purchase food at a cheap rate measured in terms
of the labour required to produce her own exports, and that, as a
result of her previous investments of capital, she was entitled
to a substantial amount annually without any payment in return at
all. The second of these factors then seemed out of danger but,
as a result of the growth of population overseas, chiefly in the
United States, the first was not so secure.
When first the virgin soils of America came into bearing, the
proportions of the population of those continents themselves, and
consequently of their own local requirements, to those of Europe
were very small. As lately as 1890 Europe had a population three
times that of North and South America added together. But by 1914
the domestic requirements of the United states for wheat were
approaching their production, and the date was evidently near
when there would be an exportable surplus only in years of
exceptionally favourable harvest. Indeed, the present domestic
requirements of the United States are estimated at more than
ninety per cent of the average yield of the five years
1909-13.(4*) At that time, however, the tendency towards
stringency was showing itself, not so much in a lack of abundance
as in a steady increase of real cost. That is to say, taking the
world as a whole, there was no deficiency of wheat, but in order
to call forth an adequate supply it was necessary to offer a
higher real price. The most favourable factor in the situation
was to be found in the extent to which Central and Western Europe
was being fed from the exportable surplus of Russia and Roumania.
In short, Europe's claim on the resources of the New World
was becoming precarious; the law of diminishing returns was at
last reasserting itself, and was making it necessary year by year
for Europe to offer a greater quantity of other commodities to
obtain the same amount of bread; and Europe, therefore, could by
no means afford the disorganisation of any of her principal
sources of supply.
Much else might be said in an attempt to portray the economic
peculiarities of the Europe of 1914. I have selected for emphasis
the three or four greatest factors of instability -- the
instability of an excessive population dependent for its
livelihood on a complicated and artificial organisation, the
psychological instability of the labouring and capitalist
classes, and the instability of Europe's claim, coupled with the
completeness of her dependence, on the food supplies of the New
World.
The war had so shaken this system as to endanger the life of
Europe altogether. A great part of the continent was sick and
dying; its population was greatly in excess of the numbers for
which a livelihood was available; its organisation was destroyed,
its transport system ruptured, and its food supplies terribly
impaired.
It was the task of the peace conference to honour engagements
and to satisfy justice; but not less to re-establish life and to
heal wounds. These tasks were dictated as much by prudence as by
the magnanimity which the wisdom of antiquity approved in
victors. We will examine in the following chapters the actual
character of the peace.
NOTES:
1. In 1913 there were 25,843 emigrants from Germany, of whom
19,124 went to the United States.
2. The net decrease of the German population at the end of 1918
by decline of births and excess of deaths as compared with the
beginning of 1914, is estimated at about 2,700,000.
3. Including Poland and Finland, but excluding Siberia, central
Asia,and the Caucasus.
4. Even since 1914 the population of the United States has
increased by seven or eight million. As their annual consumption
of wheat per head is not less than six bushels, the pre-war scale
of production in the United States would only show a substantial
surplus over present domestic requirements in about one year out
of five. We have been saved for the moment by the great harvests
of 1918 and 1919, which have been called forth by Mr Hoover's
guaranteed price. But the United States can hardly be expected to
continue indefinitely to raise by a substantial figure the cost
of living in its own country, in order to provide wheat for a
Europe which cannot pay for it.
Chapter 3: The Conference
In chapters 4 and 5 I shall study in some detail the economic
and financial provisions of the treaty of peace with Germany. But
it will be easier to appreciate the true origin of many of these
terms if we examine here some of the personal factors which
influenced their preparation. In attempting this task I touch,
inevitably, questions of motive, on which spectators are liable
to error and are not entitled to take on themselves the
responsibilities of final judgment. Yet, if I seem in this
chapter to assume sometimes the liberties which are habitual to
historians, but which, in spite of the greater knowledge with
which we speak, we generally hesitate to assume towards
contemporaries, let the reader excuse me when he remembers how
greatly, if it is to understand its destiny, the world needs
light, even if it is partial and uncertain, on the complex
struggle of human will and purpose, not yet finished, which,
concentrated in the persons of four individuals in a manner never
paralleled, made them in the first months of 1919 the microcosm
of mankind.
In those parts of the treaty with which I am here concerned,
the lead was taken by the French, in the sense that it was
generally they who made in the first instance the most definite
and the most extreme proposals. This was partly a matter of
tactics. When the final result is expected to be a compromise, it
is often prudent to start from an extreme position; and the
French anticipated at the outset -- like most other persons -- a
double process of compromise, first of all to suit the ideas of
their allies and associates, and secondly in the course of the
peace conference proper with the Germans themselves. These
tactics were justified by the event. Clemenceau gained a
reputation for moderation with his colleagues in council by
sometimes throwing over with an air of intellectual impartiality
the more extreme proposals of his ministers; and much went
through where the American and British critics were naturally a
little ignorant of the true point at issue, or where too
persistent criticism by France's allies put them in a position
which they felt as invidious, of always appearing to take the
enemy's part and to argue his case. Where, therefore, British and
American interests were not seriously involved their criticism
grew slack, and some provisions were thus passed which the French
themselves did not take very seriously, and for which the
eleventh-hour decision to allow no discussion with the Germans
removed the opportunity of remedy.
But, apart from tactics, the French had a policy. Although
Clemenceau might curtly abandon the claims of a Klotz or a
Loucheur, or close his eyes with an air of fatigue when French
interests were no longer involved in the discussion, he knew
which points were vital, and these he abated little. In so far as
the main economic lines of the treaty represent an intellectual
idea, it is the idea of France and of Clemenceau.
Clemenceau was by far the most eminent member of the Council
of Four, and he had taken the measure of his colleagues. He alone
both had an idea and had considered it in all its consequences.
His age, his character, his wit, and his appearance joined to
give him objectivity and a defined outline in an environment of
confusion. One could not despise Clemenceau or dislike him, but
only take a different view as to the nature of civilised man, or
indulge, at least, a different hope.
The figure and bearing of Clemenceau are universally
familiar. At the Council of Four he wore a square-tailed coat of
a very good, thick black broadcloth, and on his hands, which were
never uncovered, grey suede gloves; his boots were of thick black
leather, very good, but of a country style, and sometimes
fastened in front, curiously, by a buckle instead of laces. His
seat in the room in the President's house, where the regular
meetings of the Council of Four were held (as distinguished from
their private and unattended conferences in a smaller chamber
below), was on a square brocaded chair in the middle of the
semicircle facing the fire-place, with Signor Orlando on his
left, the President next by the fire-place, and the Prime
Minister opposite on the other side of the fire-place on his
right. He carried no papers and no portfolio, and was unattended
by any personal secretary, though several French ministers and
officials appropriate to the particular matter in hand would be
present round him. His walk, his hand, and his voice were not
lacking in vigour, but he bore nevertheless, especially after the
attempt upon him, the aspect of a very old man conserving his
strength for important occasions. He spoke seldom, leaving the
initial statement of the French case to his ministers or
officials; he closed his eyes often and sat back in his chair
with an impassive face of parchment, his grey-gloved hands
clasped in front of him. A short sentence, decisive or cynical,
was generally sufficient, a question, an unqualified abandonment
of his ministers, whose face would not be saved, or a display of
obstinacy reinforced by a few words in a piquantly delivered
English.(1*) But speech and passion were not lacking when they
were wanted, and the sudden outburst of words, often followed by
a fit of deep coughing from the chest, produced their impression
rather by force and surprise than by persuasion.
Not infrequently Mr Lloyd George, after delivering a speech
in English, would, during the period of its interpretation into
French, cross the hearth-rug to the President to reinforce his
case by some ad hominem argument in private conversation, or to
sound the ground for a compromise -- and this would sometimes be
the signal for a general upheaval and disorder. The President's
advisers would press round him, a moment later the British
experts would dribble across to learn the result or see that all
was well, and next the French would be there, a little suspicious
lest the others were arranging something behind them, until all
the room were on their feet and conversation was general in both
languages. My last and most vivid impression is of such a scene
-- the President and the Prime Minister as the centre of a
surging mob and a babel of sound, a welter of eager, impromptu
compromises and counter-compromises, all sound and fury
signifying nothing, on what was an unreal question anyhow, the
great issues of the morning's meeting forgotten and neglected;
and Clemenceau, silent and aloof on the outskirts -- for nothing
which touched the security of France was forward -- throned, in
his grey gloves, on the brocade chair, dry in soul and empty of
hope, very old and tired, but surveying the scene with a cynical
and almost impish air; and when at last silence was restored and
the company had returned to their places, it was to discover that
he had disappeared.
He felt about France what Pericles felt of Athens -- unique
value in her, nothing else mattering; but his theory of politics
was Bismarck's. He had one illusion -- France; and one
disillusion -- mankind, including Frenchmen, and his colleagues
not least. His principles for the peace can be expressed simply.
In the first place, he was a foremost believer in the view of
German psychology that the German understands and can understand
nothing but intimidation, that he is without generosity or
remorse in negotiation, that there is no advantage he will not
take of you, and no extent to which he will not demean himself
for profit, that he is without honour, pride, or mercy. Therefore
you must never negotiate with a German or conciliate him; you
must dictate to him. On no other terms will he respect you, or
will you prevent him from cheating you. But it is doubtful how
far he thought these characteristics peculiar to Germany, or
whether his candid view of some other nations was fundamentally
different. His philosophy had, therefore, no place for
'sentimentality' in international relations. Nations are real
things, of whom you love one and feel for the rest indifference
-- or hatred. The glory of the nation you love is a desirable end
-- but generally to be obtained at your neighbour's expense. The
politics of power are inevitable, and there is nothing very new
to learn about this war or the end it was fought for; England had
destroyed, as in each preceding century, a trade rival; a mighty
chapter had been closed in the secular struggle between the
glories of Germany and of France. Prudence required some measure
of lip service to the 'ideals' of foolish Americans and
hypocritical Englishmen; but it would be stupid to believe that
there is much room in the world, as it really is, for such
affairs as the League of Nations, or any sense in the principle
of self-determination except as an ingenious formula for
rearranging the balance of power in one's own interests.
These, however, are generalities. In tracing the practical
details of the peace which he thought necessary for the power and
the security of France, we must go back to the historical causes
which had operated during his lifetime. Before the Franco-German
war the populations of France and Germany were approximately
equal; but the coal and iron and shipping of Germany were in
their infancy, and the wealth of France was greatly superior.
Even after the loss of Alsace-Lorraine there was no great
discrepancy between the real resources of the two countries. But
in the intervening period the relative position had changed
completely. By 1914 the population of Germany was nearly seventy
per cent in excess of that of France; she had become one of the
first manufacturing and trading nations of the world; her
technical skill and her means for the production of future wealth
were unequalled. France on the other hand had a stationary or
declining population, and, relatively to others, had fallen
seriously behind in wealth and in the power to produce it.
In spite, therefore, of France's victorious issue from the
present struggle (with the aid, this time, of England and
America), her future position remained precarious in the eyes of
one who took the view that European civil war is to be regarded
as a normal, or at least a recurrent, state of affairs for the
future, and that the sort of conflicts between organised Great
Powers which have occupied the past hundred years will also
engage the next. According to this vision of the future, European
history is to be a perpetual prize-fight, of which France has won
this round, but of which this round is certainly not the last.
From the belief that essentially the old order does not change,
being based on human nature which is always the same, and from a
consequent scepticism of all that class of doctrine which the
League of Nations stands for, the policy of France and of
Clemenceau followed logically. For a peace of magnanimity or of
fair and equal treatment, based on such 'ideology' as the
Fourteen Points of the President, could only have the effect of
shortening the interval of Germany's recovery and hastening the
day when she will once again hurl at France her greater numbers
and her superior resources and technical skill. Hence the
necessity of 'guarantees'; and each guarantee that was taken, by
increasing irritation and thus the probability of a subsequent
revanche by Germany, made necessary yet further provisions to
crush. Thus, as soon as this view of the world is adopted and the
other discarded, a demand for a Carthaginian peace is inevitable,
to the full extent of the momentary power to impose it. For
Clemenceau made no pretence of considering himself bound by the
Fourteen Points and left chiefly to others such concoctions as
were necessary from time to time to save the scruples or the face
of the President.
So far as possible, therefore, it was the policy of France to
set the clock back and to undo what, since 1870, the progress of
Germany had accomplished. By loss of territory and other measures
her population was to be curtailed; but chiefly the economic
system, upon which she depended for her new strength, the vast
fabric built upon iron, coal, and transport, must be destroyed.
If France could seize, even in part, what Germany was compelled
to drop, the inequality of strength between the two rivals for
European hegemony might be remedied for many generations.
Hence sprang those cumulative provisions for the destruction
of highly organised economic life which we shall examine in the
next chapter.
This is the policy of an old man, whose most vivid
impressions and most lively imagination are of the past and not
of the future. He sees the issue in terms of France and Germany,
not of humanity and of European civilisation struggling forwards
to a new order. The war has bitten into his consciousness
somewhat differently from ours, and he neither expects nor hopes
that we are at the threshold of a new age.
It happens, however, that it is not only an ideal question
that is at issue. My purpose in this book is to show that the
Carthaginian peace is not practically right or possible. Although
the school of thought from which it springs is aware of the
economic factor, it overlooks, nevertheless, the deeper economic
tendencies which are to govern the future. The clock cannot be
set back. You cannot restore Central Europe to 1870 without
setting up such strains in the European structure and letting
loose such human and spiritual forces as, pushing beyond
frontiers and races, will overwhelm not only you and your
'guarantees', but your institutions, and the existing order of
your society.
By what legerdemain was this policy substituted for the
Fourteen Points, and how did the President come to accept it? The
answer to these questions is difficult and depends on elements of
character and psychology and on the subtle influence of
surroundings, which are hard to detect and harder still to
describe. But, if ever the action of a single individual matters,
the collapse of the President has been one of the decisive moral
events of history; and I must make an attempt to explain it. What
a place the President held in the hearts and hopes of the world
when he sailed to us in the George Washington! What a great man
came to Europe in those early days of our victory!
In November 1918 the armies of Foch and the words of Wilson
had brought us sudden escape from what was swallowing up all we
cared for. The conditions seemed favourable beyond any
expectation. The victory was so complete that fear need play no
part in the settlement. The enemy had laid down his arms in
reliance on a solemn compact as to the general character of the
peace, the terms of which seemed to assure a settlement of
justice and magnanimity and a fair hope for a restoration of the
broken current of life. To make assurance certain the President
was coming himself to set the seal on his work.
When President Wilson left Washington he enjoyed a prestige
and a moral influence throughout the world unequalled in history.
His bold and measured words carried to the peoples of Europe
above and beyond the voices of their own politicians. The enemy
peoples trusted him to carry out the compact he had made with
them; and the Allied peoples acknowledged him not as a victor
only but almost as a prophet. In addition to this moral influence
the realities of power were in his hands. The American armies
were at the height of their numbers, discipline, and equipment.
Europe was in complete dependence on the food supplies of the
United States; and financially she was even more absolutely at
their mercy. Europe not only already owed the United States more
than she could pay; but only a large measure of further
assistance could save her from starvation and bankruptcy. Never
had a philosopher held such weapons wherewith to bind the princes
of this world. How the crowds of the European capitals pressed
about the carriage of the President! With what curiosity,
anxiety, and hope we sought a glimpse of the features and bearing
of the man of destiny who, coming from the West, was to bring
healing to the wounds of the ancient parent of his civilisation
and lay for us the foundations of the future.
The disillusion was so complete, that some of those who had
trusted most hardly dared speak of it. Could it be true? they
asked of those who returned from Paris. Was the treaty really as
bad as it seemed? What had happened to the President? What
weakness or what misfortune had led to so extraordinary, so
unlooked-for a betrayal?
Yet the causes were very ordinary and human. The President
was not a hero or a prophet; he was not even a philosopher; but a
generously intentioned man, with many of the weaknesses of other
human beings, and lacking that dominating intellectual equipment
which would have been necessary to cope with the subtle and
dangerous spellbinders whom a tremendous clash of forces and
personalities had brought to the top as triumphant masters in the
swift game of give and take, face to face in council -- a game of
which he had no experience at all.
We had indeed quite a wrong idea of the President. We knew
him to be solitary and aloof, and believed him very strong-willed
and obstinate. We did not figure him as a man of detail, but the
clearness with which he had taken hold of certain main ideas
would, we thought, in combination with his tenacity, enable him
to sweep through cobwebs. Besides these qualities he would have
the objectivity, the cultivation, and the wide knowledge of the
student. The great distinction of language which had marked his
famous Notes seemed to indicate a man of lofty and powerful
imagination. His portraits indicated a fine presence and a
commanding delivery. With all this he had attained and held with
increasing authority the first position in a country where the
arts of the politician are not neglected. All of which, without
expecting the impossible, seemed a fine combination of qualities
for the matter in hand.
The first impression of Mr Wilson at close quarters was to
impair some but not all of these illusions. His head and features
were finely cut and exactly like his photographs, and the muscles
of his neck and the carriage of his head were distinguished. But,
like Odysseus, the President looked wiser when he was seated; and
his hands, though capable and fairly strong, were wanting in
sensitiveness and finesse. The first glance at the President
suggested not only that, whatever else he might be, his
temperament was not primarily that of the student or the scholar,
but that he had not much even of that culture of the world which
marks M. Clemenceau and Mr Balfour as exquisitely cultivated
gentlemen of their class and generation. But more serious than
this, he was not only insensitive to his surroundings in the
external sense, he was not sensitive to his environment at all.
What chance could such a man have against Mr Lloyd George's
unerring, almost medium-like, sensibility to everyone immediately
round him? To see the British Prime Minister watching the
company, with six or seven senses not available to ordinary men,
judging character, motive, and subconscious impulse, perceiving
what each was thinking and even what each was going to say next,
and compounding with telepathic instinct the argument or appeal
best suited to the vanity, weakness, or self-interest of his
immediate auditor, was to realise that the poor President would
be playing blind man's buff in that party. Never could a man have
stepped into the parlour a more perfect and predestined victim to
the finished accomplishments of the Prime the Minister. The Old
World was tough in wickedness anyhow; the Old World's heart of
stone might blunt the sharpest blade of the bravest
knight-errant. But this blind and deaf Don Quixote was entering a
cavern where the swift and glittering blade was in the hands of
the adversary.
But if the President was not the philosopher-king, what was
he? After all he was a man who had spent much of his life at a
university. He was by no means a business man or an ordinary
party politician, but a man of force, personality, and
importance. What, then, was his temperament?
The clue once found was illuminating. The President was like
a nonconformist minister, perhaps a Presbyterian. His thought and
his temperament were essentially theological not intellectual,
with all the strength and the weakness of that manner of thought,
feeling, and expression. It is a type of which there are not now
in England and Scotland such magnificent specimens as formerly;
but this description, nevertheless, will give the ordinary
Englishman the distinctest impression of the President.
With this picture of him in mind, we can return to the actual
course of events. The President's programme for the world, as set
forth in his speeches and his Notes, had displayed a spirit and a
purpose so admirable that the last desire of his sympathisers was
to criticise details-the details, they felt, were quite rightly
not filled in at present, but would be in due course. It was
commonly believed at the commencement of the Paris conference
that the President had thought out, with the aid of a large body
of advisers, a comprehensive scheme not only for the League of
Nations, but for the embodiment of the Fourteen Points in an
actual treaty of peace. But in fact the President had thought out
nothing; when it came to practice his ideas were nebulous and
incomplete. He had no plan, no scheme, no constructive ideas
whatever for clothing with the flesh of life the commandments
which he had thundered from the White House. He could have
preached a sermon on any of them or have addressed a stately
prayer to the Almighty for their fulfilment; but he could not
frame their concrete application to the actual state of Europe.
He not only had no proposals in detail, but he was in many
respects, perhaps inevitably, ill-informed as to European
conditions. And not only was he ill-informed -- that was true of
Mr Lloyd George also -- but his mind was slow and unadaptable.
The President's slowness amongst the Europeans was noteworthy. He
could not, all in a minute, take in what the rest were saying,
size up the situation with a glance, frame a reply, and meet the
case by a slight change of ground; and he was liable, therefore,
to defeat by the mere swiftness, apprehension, and agility of a
Lloyd George. There can seldom have been a statesman of the first
rank more incompetent than the President in the agilities of the
council chamber. A moment often arrives when substantial victory
is yours if by some slight appearance of a concession you can
save the face of the opposition or conciliate them by a
restatement of your proposal helpful to them and not injurious to
anything essential to yourself. The President was not equipped
with this simple and usual artfulness. His mind was too slow and
unresourceful to be ready with any alternatives. The President
was capable of digging his toes in and refusing to budge, as he
did over Fiume. But he had no other mode of defence, and it
needed as a rule but little manoeuvring by his opponents to
prevent matters from coming to such a head until it was too late.
By pleasantness and an appearance of conciliation, the President
would be manoeuvred off his ground, would miss the moment for
digging his toes in and, before he knew where he had been got to,
it was too late. Besides, it is impossible month after month, in
intimate and ostensibly friendly converse between close
associates, to be digging the toes in all the time. Victory would
only have been possible to one who had always a sufficiently
lively apprehension of the position as a whole to reserve his
fire and know for certain the rare exact moments for decisive
action. And for that the President was far too slow-minded and
bewildered.
He did not remedy these defects by seeking aid from the
collective wisdom of his lieutenants. He had gathered round him
for the economic chapters of the treaty a very able group of
businessmen; but they were inexperienced in public affairs, and
knew (with one or two exceptions) as little of Europe as he did,
and they were only called in irregularly as he might need them
for a particular purpose. Thus the aloofness which had been found
effective in Washington was maintained, and the abnormal reserve
of his nature did not allow near him anyone who aspired to moral
equality or the continuous exercise of influence. His
fellow-plenipotentiaries were dummies; and even the trusted
Colonel House, with vastly more knowledge of men and of Europe
than the President, from whose sensitiveness the President's
dullness had gained so much, fell into the background as time
went on. All this was encouraged by his colleagues on the Council
of Four, who, by the break-up of the Council of Ten, completed
the isolation which the President's own temperament had
initiated. Thus day after day and week after week he allowed
himself to be closeted, unsupported, unadvised, and alone, with
men much sharper than himself, in situations of supreme
difficulty, where he needed for success every description of
resource, fertility, and knowledge. He allowed himself to be
drugged by their atmosphere, to discuss on the basis of their
plans and of their data, and to be led along their paths.
These and other various causes combined to produce the
following situation. The reader must remember that the processes
which are here compressed into a few pages took place slowly,
gradually, insidiously, over a period of about five months.
As the President had thought nothing out, the Council was
generally working on the basis of a French or British draft. He
had to take up, therefore, a persistent attitude of obstruction,
criticism, and negation, if the draft was to become at all in
line with his own ideas and purpose. If he was met on some points
with apparent generosity (for there was always a safe margin of
quite preposterous suggestions which no one took seriously), it
was difficult for him not to yield on others. Compromise was
inevitable, and never to compromise on the essential, very
difficult. Besides, he was soon made to appear to be taking the
German part, and laid himself open to the suggestion (to which he
was foolishly and unfortunately sensitive) of being 'pro-German'.
After a display of much principle and dignity in the early
days of the Council of Ten, he discovered that there were certain
very important points in the programme of his French, British or
Italian colleague, as the case might be, of which he was
incapable of securing the surrender by the methods of secret
diplomacy. What then was he to do in the last resort? He could
let the conference drag on an endless length by the exercise of
sheer obstinacy. He could break it up and return to America in a
rage with nothing settled. Or he could attempt an appeal to the
world over the heads of the conference. These were wretched
alternatives, against each of which a great deal could be said.
They were also very risky, especially for a politician. The
President's mistaken policy over the congressional election had
weakened his personal position in his own country, and it was by
no means certain that the American public would support him in a
position of intransigency. It would mean a campaign in which the
issues would be clouded by every sort of personal and party
consideration, and who could say if right would triumph in a
struggle which would certainly not be decided on its merits.
Besides, any open rupture with his colleagues would certainly
bring upon his head the blind passions of 'anti-German'
resentment with which the public of all Allied countries were
still inspired. They would not listen to his arguments. They
would not be cool enough to treat the issue as one of
international morality or of the right governance of Europe. The
cry would simply be that for various sinister and selfish reasons
the President wished 'to let the Hun off'. The almost unanimous
voice of the French and British Press could be anticipated. Thus,
if he threw down the gage publicly he might be defeated. And if
he were defeated, would not the final peace be far worse than if
he were to retain his prestige and endeavour to make it as good
as the limiting conditions of European politics would allow him?
But above all, if he were defeated, would he not lose the League
of Nations? And was not this, after all, by far the most
important issue for the future happiness of the world? The treaty
would be altered and softened by time. Much in it which now
seemed so vital would become trifling, and much which was
impracticable would for that very reason never happen. But the
League, even in an imperfect form, was permanent; it was the
first commencement of a new principle in the government of the
world; truth and justice in international relations could not be
established in a few months -- they must be born in due course by
the slow gestation of the League. Clemenceau had been clever
enough to let it be seen that he would swallow the League at a
price.
At the crisis of his fortunes the President was a lonely man.
Caught up in the toils of the Old World, he stood in great need
of sympathy, of moral support, of the enthusiasm of masses. But
buried in the conference, stifled in the hot and poisoned
atmosphere of Paris, no echo reached him from the outer world,
and no throb of passion, sympathy, or encouragement from his
silent constituents in all countries. He felt that the blaze of
popularity which had greeted his arrival in Europe was already
dimmed; the Paris Press jeered at him openly; his political
opponents at home were taking advantage of his absence to create
an atmosphere against him; England was cold, critical, and
unresponsive. He had so formed his entourage that he did not
receive through private channels the current of faith and
enthusiasm of which the public sources seemed dammed up. He
needed, but lacked, the added strength of collective faith. The
German terror still overhung us, and even the sympathetic public
was very cautious; the enemy must not be encouraged, our friends
must be supported, this was not the time for discord or
agitations, the President must be trusted to do his best. And in
this drought the flower of the President's faith withered and
dried up.
Thus it came to pass that the President countermanded the
George Washington, which, in a moment of well-founded rage, he
had ordered to be in readiness to carry him from the treacherous
halls of Paris back to the seat of his authority, where he could
have felt himself again. But as soon, alas, as he had taken the
road of compromise, the defects, already indicated, of his
temperament and of his equipment, were fatally apparent. He could
take the high line; he could practise obstinacy; he could write
Notes from Sinai or Olympus; he could remain unapproachable in
the White House or even in the Council of Ten and be safe. But if
he once stepped down to the intimate equality of the Four, the
game was evidently up.
Now it was that what I have called his theological or
Presbyterian temperament became dangerous. Having decided that
some concessions were unavoidable, he might have sought by
firmness and address and the use of the financial power of the
United States to secure as much as he could of the substance,
even at some sacrifice of the letter. But the President was not
capable of so clear an understanding with himself as this
implied. He was too conscientious. Although compromises were now
necessary, he remained a man of principle and the Fourteen Points
a contract absolutely binding upon him. He would do nothing that
was not honourable; he would do nothing that was not just and
right; he would do nothing that was contrary to his great
profession of faith. Thus, without any abatement of the verbal
inspiration of the Fourteen Points, they became a document for
gloss and interpretation and for all the intellectual apparatus
of self-deception by which, I daresay, the President's
forefathers had persuaded themselves that the course they thought
it necessary to take was consistent with every syllable of the
Pentateuch.
The President's attitude to his colleagues had now become: I
want to meet you so far as I can; I see your difficulties and I
should like to be able to agree to what you propose; but I can do
nothing that is not just and right, and you must first of all
show me that what you want does really fall within the words of
the pronouncements which are binding on me. Then began the
weaving of that web of sophistry and Jesuitical exegesis that was
finally to clothe with insincerity the language and substance of
the whole treaty. The word was issued to the witches of all
Paris:
Fair is foul, and foul is fair,
Hover through the fog and filthy air.
The subtlest sophisters and most hypocritical draftsmen were
set to work, and produced many ingenious exercises which might
have deceived for more than an hour a cleverer man than the
President.
Thus instead of saying that German Austria is prohibited from
uniting with Germany except by leave of France (which would be
inconsistent with the principle of self-determination), the
treaty, with delicate draftsmanship, states that 'Germany
acknowledges and will respect strictly the independence of
Austria, within the frontiers which may be fixed in a treaty
between that state and the principal Allied and Associated
Powers; she agrees that this independence shall be inalienable,
except with the consent of the council of the League of Nations',
which sounds, but is not, quite different. And who knows but that
the President forgot that another part of the treaty provides
that for this purpose the council of the League must be
unanimous.
Instead of giving Danzig to Poland, the treaty establishes
Danzig as a 'free' city, but includes this 'free' city within the
Polish customs frontier, entrusts to Poland the control of the
river and railway system, and provides that 'the Polish
government shall undertake the conduct of the foreign relations
of the free city of Danzig as well as the diplomatic protection
of citizens of that city when abroad.'
In placing the river system of Germany under foreign control,
the treaty speaks of declaring international those 'river systems
which naturally provide more than one state with access to the
sea, with or without transhipment from one vessel to another'.
Such instances could be multiplied. The honest and
intelligible purpose of French policy, to limit the population of
Germany and weaken her economic system, is clothed, for the
President's sake, in the august language of freedom and
international equality.
But perhaps the most decisive moment in the disintegration of
the President's moral position and the clouding of his mind was
when at last, to the dismay of his advisers, he allowed himself
to be persuaded that the expenditure of the Allied governments on
pensions and separation allowances could be fairly regarded as
'damage done to the civilian population of the Allied and
Associated Powers by German aggression by land, by sea, and from
the air', in a sense in which the other expenses of the war could
not be so regarded. It was a long theological struggle in which,
after the rejection of many different arguments, the President
finally capitulated before a masterpiece of the sophist's art.
At last the work was finished; and the President's conscience
was still intact. In spite of everything, I believe that his
temperament allowed him to leave Paris a really sincere man; and
it is probable that to this day he is genuinely convinced that
the treaty contains practically nothing inconsistent with his
former professions.
But the work was too complete, and to this was due the last
tragic episode of the drama. The reply of Brockdorff-Rantzau
inevitably took the line that Germany had laid down her arms on
the basis of certain assurances, and that the treaty in many
particulars was not consistent with these assurances. But this
was exactly what the President could not admit; in the sweat of
solitary contemplation and with prayers to God he had done
nothing that was not just and right; for the President to admit
that the German reply had force in it was to destroy his
self-respect and to disrupt the inner equipoise of his soul; and
every instinct of his stubborn nature rose in self-protection. In
the language of medical psychology, to suggest to the President
that the treaty was an abandonment of his professions was to
touch on the raw a Freudian complex. It was a subject intolerable
to discuss, and every subconscious instinct plotted to defeat its
further exploration.
Thus it was that Clemenceau brought to success what had
seemed to be, a few months before, the extraordinary and
impossible proposal that the Germans should not be heard. If only
the President had not been so conscientious, if only he had not
concealed from himself what he had been doing, even at the last
moment he was in a position to have recovered lost ground and to
have achieved some very considerable successes. But the President
was set. His arms and legs had been spliced by the surgeons to a
certain posture, and they must be broken again before they could
be altered. To his horror, Mr Lloyd George, desiring at the last
moment all the moderation he dared, discovered that he could not
in five days persuade the President of error in what it had taken
five months to prove to him to be just and right. After all, it
was harder to de-bamboozle this old Presbyterian than it had been
to bamboozle him; for the former involved his belief in and
respect for himself.
Thus in the last act the President stood for stubbornness and
a refusal of conciliations.
NOTES:
1. He alone amongst the Four could speak and understand both
languages, Orlando knowing only French and the Prime Minister and
President only English; and it is of historical importance that
Orlando and the President had no direct means of communication.
Chapter 4: The Treaty
The thoughts which I have expressed in the second chapter
were not present to the mind of Paris. The future life of Europe
was not their concern; its means of livelihood was not their
anxiety. Their preoccupations, good and bad alike, related to
frontiers and nationalities, to the balance of power, to imperial
aggrandisements, to the future enfeeblement of a strong and
dangerous enemy, to revenge, and to the shifting by the victors
of their unbearable financial burdens on to the shoulders of the
defeated.
Two rival schemes for the future polity of the world took the
field -- the Fourteen Points of the President, and the
Carthaginian peace of M. Clemenceau. Yet only one of these was
entitled to take the field; for the enemy had not surrendered
unconditionally, but on agreed terms as to the general character
of the peace.
This aspect of what happened cannot, unfortunately, be passed
over with a word, for in the minds of many Englishmen at least it
has been a subject of very great misapprehension. Many persons
believe that the armistice terms constituted the first contract
concluded between the Allied and Associated Powers and the German
government, and that we entered the conference with our hands
free, except so far as these armistice terms might bind us. This
was not the case. To make the position plain, it is necessary
briefly to review the history of the negotiations which began
with the German Note of 5 October 1918, and concluded with
President Wilson's Note of 5 November 1918.
On 5 October 1918 the German government addressed a brief
Note to the President accepting the Fourteen Points and asking
for peace negotiations. The President's reply of 8 October asked
if he was to understand definitely that the German government
accepted 'the terms laid down' in the Fourteen Points and in his
subsequent addresses and 'that its object in entering into
discussion would be only to agree upon the practical details of
their application.' He added that the evacuation of invaded
territory must be a prior condition of an armistice. On 12
October the German government returned an unconditional
affirmative to these questions; 'its object in entering into
discussions would be only to agree upon practical details of the
application of these terms'. On 14 October, having received this
affirmative answer, the President made a further communication to
make clear the points: (1) that the details of the armistice
would have to be left to the military advisers of the United
States and the Allies, and must provide absolutely against the
possibility of Germany's resuming hostilities; (2) that submarine
warfare must cease if these conversations were to continue; and
(3) that he required further guarantees of the representative
character of the government with which he was dealing. On 20
October Germany accepted points (1) and (2), and pointed out, as
regards (3), that she now had a constitution and a government
dependent for its authority on the Reichstag. On 23 October the
President announced that, 'having received the solemn and
explicit assurance of the German government that it unreservedly
accepts the terms of peace laid down in his address to the
Congress of the United States on 8 January 1918 (the Fourteen
Points), and the principles of settlement enunciated in his
subsequent addresses, particularly the address of 27 September,
and that it is ready to discuss the details of their
application', he has communicated the above correspondence to the
governments of the Allied Powers 'with the suggestion that, if
these governments are disposed to effect peace upon the terms and
principles indicated,' they will ask their military advisers to
draw up armistice terms of such a character as to 'ensure to the
associated governments the unrestricted power to safeguard and
enforce the details of the peace to which the German government
has agreed'. At the end of this Note the President hinted more
openly than in that of 14 October at the abdication of the
Kaiser. This completes the preliminary negotiations to which the
President alone was a party, acting without the governments of
the Allied Powers.
On 5 November 1918 the President transmitted to Germany the
reply he had received from the governments associated with him,
and added that Marshal Foch had been authorised to communicate
the terms of an armistice to properly accredited representatives.
In this reply the allied governments, 'subject to the
qualifications which follow, declare their willingness to make
peace with the government of Germany on the terms of peace laid
down in the President's address to Congress of 8 January 1918,
and the principles of settlement enunciated in his subsequent
addresses'. The qualifications in question were two in number.
The first related to the freedom of the seas, as to which they
'reserved to themselves complete freedom'. The second related to
reparation and ran as follows: 'Further, in the conditions of
peace laid down in his address to Congress on 8 January 1918, the
President declared that invaded territories must be restored as
well as evacuated and made free. The allied governments feel that
no doubt ought to be allowed to exist as to what this provision
implies. By it they understand that compensation will be made by
Germany for all damage done to the civilian population of the
Allies and to their property by the aggression of Germany by
land, by sea, and from the air.'(1*)
The nature of the contract between Germany and the Allies
resulting from this exchange of documents is plain and
unequivocal. The terms of the peace are to be in accordance with
the addresses of the President, and the purpose of the peace
conference is 'to discuss the details of their application.' The
circumstances of the contract were of an unusually solemn and
binding character; for one of the conditions of it was that
Germany should agree to armistice terms which were to be such as
would leave her helpless. Germany having rendered herself
helpless in reliance on the contract, the honour of the Allies
was peculiarly involved in fulfilling their part and, if there
were ambiguities, in not using their position to take advantage
of them.
What, then, was the substance of this contract to which the
Allies had bound themselves? An examination of the documents
shows that, although a large part of the addresses is concerned
with spirit, purpose, and intention, and not with concrete
solutions, and that many questions requiring a settlement in the
peace treaty are not touched on, nevertheless there are certain
questions which they settle definitely. It is true that within
somewhat wide limits the Allies still had a free hand. Further,
it is difficult to apply on a contractual basis those passages
which deal with spirit, purpose, and intention; every man must
judge for himself whether, in view of them, deception or
hypocrisy has been practised. But there remain, as will be seen
below, certain important issues on which the contract is
unequivocal.
In addition to the Fourteen Points of 8 January 1918, the
addresses of the President which form part of the material of the
contract are four in number -- before the Congress of 11
February; at Baltimore on 6 April; at Mount Vernon on 4 July; and
at New York on 27 September, the last of these being specially
referred to in the contract. I venture to select from these
addresses those engagements of substance, avoiding repetitions,
which are most relevant to the German treaty. The parts I omit
add to, rather than detract from, those I quote; but they chiefly
relate to intention, and are perhaps too vague and general to be
interpreted contractually.(2*)
The Fourteen Points -- (3) 'The removal. so far as possible,
of all economic barriers and the establishment of an equality of
trade conditions among all the nations consenting to the peace
and associating themselves for its maintenance.' (4) 'Adequate
guarantees given and taken that national armaments will be
reduced to the lowest point consistent with domestic safety.' (5)
'A free, open-minded, and absolutely impartial adjustment of all
colonial claims', regard being had to the interests of the
populations concerned. (6), (7), (8), and (11) The evacuation and
'restoration' of all invaded territory, especially of Belgium. To
this must be added the rider of the Allies, claiming compensation
for all damage done to civilians and their property by land, by
sea, and from the air (quoted in full above). (8) The righting of
'the wrong done to France by Prussia in 1871 in the matter of
Alsace-Lorraine'. (13) An independent Poland, including 'the
territories inhabited by indisputably Polish populations' and
'assured a free and secure access to the sea'. (14) The League of
Nations.
Before the Congress, 11 February -- 'There shall be no
annexations, no contributions, no punitive damages...
Self-determination is not a mere phrase. It is an imperative
principle of action which statesmen will henceforth ignore at
their peril... Every territorial settlement involved in this war
must be made in the interest and for the benefit of the
populations concerned, and not as a part of any mere adjustment
or compromise of claims amongst rival States.'
New York, 27 September -- (1) 'The impartial justice meted
out must involve no discrimination between those to whom we wish
to be just and those to whom we do not wish to be just.' (2) 'No
special or separate interest of any single nation or any group of
nations can be made the basis of any part of the settlement which
is not consistent with the common interest of all.' (3) 'There
can be no leagues or alliances or special covenants and
understandings within the general and common family of the League
of Nations.' (4) 'There can be no special selfish economic
combinations within the League and no employment of any form of
economic boycott or exclusion, except as the power of economic
penalty by exclusion from the markets of the world may be vested
in the League of Nations itself as a means of discipline and
control.' (5) 'All international agreements and treaties of every
kind must be made known in their entirety to the rest of the
world.'
This wise and magnanimous programme for the world had passed,
on 5 November 1918, beyond the region of idealism and aspiration,
and had become part of a solemn contract to which all the Great
Powers of the world had put their signature. But it was lost,
nevertheless, in the morass of Paris -- the spirit of it
altogether, the letter in parts ignored and in other parts
distorted.
The German observations on the draft treaty of peace were
largely a comparison between the terms of this understanding, on
the basis of which the German nation had agreed to lay down its
arms, and the actual provisions of the document offered them for
signature thereafter. The German commentators had little
difficulty in showing that the draft treaty constituted a breach
of engagements and of international morality comparable with
their own offence in the invasion of Belgium. Nevertheless, the
German reply was not in all its parts a document fully worthy of
the occasion, because in spite of the justice and importance of
much of its contents, a truly broad treatment and high dignity of
outlook were a little wanting, and the general effect lacks the
simple treatment, with the dispassionate objectivity of despair,
which the deep passions of the occasion might have evoked. The
Allied governments gave it, in any case, no serious
consideration, and I doubt if anything which the German
delegation could have said at that stage of the proceedings would
have much influenced the result.
The commonest virtues of the individual are often lacking in
the spokesmen of nations; a statesman representing not himself
but his country may prove, without incurring excessive blame --
as history often records -- vindictive, perfidious, and
egotistic. These qualities are familiar in treaties imposed by
victors. But the German delegation did not succeed in exposing in
burning and prophetic words the quality which chiefly
distinguishes this transaction from all its historical
predecessors -- its insincerity.
This theme, however, must be for another pen than mine. I am
mainly concerned in what follows not with the justice of the
treaty -- neither with the demand for penal justice against the
enemy, nor with the obligation of contractual justice on the
victor -- but with its wisdom and with its consequences.
I propose, therefore, in this chapter to set forth baldly the
principal economic provisions of the treaty, reserving, however,
for the next my comments on the reparation chapter and on
Germany's capacity to meet the payments there demanded from her.
The German economic system as it existed before the war
depended on three main factors: I. Overseas commerce as
represented by her mercantile marine, her colonies, her foreign
investments, her exports, and the overseas connections of her
merchants. II. The exploitation of her coal and iron and the
industries built upon them. III. Her transport and tariff system.
Of these the first, while not the least important, was certainly
the most vulnerable. The treaty aims at the systematic
destruction of all three, but principally of the first two.
I
(1) Germany has ceded to the Allies all the vessels of her
mercantile marine exceeding 1,600 tons gross, half the vessels
between 1,000 tons and 1,600 tons, and one-quarter of her
trawlers and other fishing boats.(3*) The cession is
comprehensive, including not only vessels flying the German flag,
but also all vessels owned by Germans but flying other flags, and
all vessels under construction as well as those afloat.(4*)
Further, Germany undertakes, if required, to build for the Allies
such types of ships as they may specify up to 200,000 tons(5*)
annually for five years, the value of these ships being credited
to Germany against what is due from her for reparation.(6*)
Thus the German mercantile marine is swept from the seas and
cannot be restored for many years to come on a scale adequate to
meet the requirements of her own commerce. For the present, no
lines will run from Hamburg, except such as foreign nations may
find it worth while to establish out of their surplus tonnage.
Germany will have to pay to foreigners for the carriage of her
trade such charges as they may be able to exact, and will receive
only such conveniences as it may suit them to give her. The
prosperity of German ports and commerce can only revive, it would
seem, in proportion as she succeeds in bringing under her
effective influence the merchant marines of Scandinavia and of
Holland.
(2) Germany has ceded to the Allies 'all her rights and
titles over her overseas possessions.'(7*)
This cession not only applies to sovereignty but extends on
unfavourable terms to government property, all of which,
including railways, must be surrendered without payment, while,
on the other hand, the German government remains liable for any
debt which may have been incurred for the purchase or
construction of this property, or for the development of the
colonies generally.(8*)
In distinction from the practice ruling in the case of most
similar cessions in recent history, the property and persons of
private German nationals, as distinct from their government, are
also injuriously affected. The Allied government exercising
authority in any former German colony 'may make such provisions
as it thinks fit with reference to the repatriation from them of
German nationals and to the conditions upon which German subjects
of European origin shall, or shall not, be allowed to reside,
hold property, trade or exercise a profession in them'.(9*) All
contracts and agreements in favour of German nationals for the
construction or exploitation of public works lapse to the Allied
governments as part of the payment due for reparation.
But these terms are unimportant compared with the more
comprehensive provision by which 'the Allied and Associated
Powers reserve the right to retain and liquidate all property,
rights, and interests belonging at the date of the coming into
force of the present treaty to German nationals, or companies
controlled by them', within the former German colonies.(10*) This
wholesale expropriation of private property is to take place
without the Allies affording any compensation to the individuals
expropriated, and the proceeds will be employed, first, to meet
private debts due to Allied nationals from any German nationals,
and second, to meet claims due from Austrian, Hungarian,
Bulgarian, or Turkish nationals. Any balance may either be
returned by the liquidating Power direct to Germany, or retained
by them. If retained, the proceeds must be transferred to the
reparation commission for Germany's credit in the reparation
account.(11*)
In short, not only are German sovereignty and German
influence extirpated from the whole of her former overseas
possessions, but the persons and property of her nationals
resident or owning property in those parts are deprived of legal
status and legal security.
(3) The provisions just outlined in regard to the private
property of Germans in the ex-German colonies apply equally to
private German property in Alsace-Lorraine, except in so far as
the French government may choose to grant exceptions.(12*) This
is of much greater practical importance than the similar
expropriation overseas because of the far higher value of the
property involved and the closer interconnection, resulting from
the great development of the mineral wealth of these provinces
since 1871, of German economic interests there with those in
Germany itself. Alsace-Lorraine has been part of the German
empire for nearly fifty years -- a considerable majority of its
population is German-speaking -- and it has been the scene of
some of Germany's most important economic enterprises.
Nevertheless, the property of those Germans who reside there, or
who have invested in its industries, is now entirely at the
disposal of the French government without compensation, except in
so far as the German government itself may choose to afford it.
The French government is entitled to expropriate without
compensation the personal property of private German citizens and
German companies resident or situated within Alsace-Lorraine, the
proceeds being credited in part satisfaction of various French
claims. The severity of this provision is only mitigated to the
extent that the French government may expressly permit German
nationals to continue to reside, in which case the above
provision is not applicable. Government, state, and municipal
property, on the other hand, is to be ceded to France without any
credit being given for it. This includes the railway system of
the two provinces, together with its rolling-stock.(13*) But
while the property is taken over, liabilities contracted in
respect of it in the form of public debts of any kind remain the
liability of Germany.(14*) The provinces also return to French
sovereignty free and quit of their share of German war or pre-war
dead-weight debt; nor does Germany receive a credit on this
account in respect of reparation.
(4) The expropriation of German private property is not
limited, however, to the ex-German colonies and Alsace-Lorraine.
The treatment of such property forms, indeed, a very significant
and material section of the treaty, which has not received as
much attention as it merits, although it was the subject of
exceptionally violent objection on the part of the German
delegates at Versailles. So far as I know, there is no precedent
in any peace treaty of recent history for the treatment of
private property set forth below, and the German representatives
urged that the precedent now established strikes a dangerous and
immoral blow at the security of private property everywhere. This
is an exaggeration, and the sharp distinction, approved by custom
and convention during the past two centuries, between the
property and rights of a state and the property and rights of its
nationals is an artificial one, which is being rapidly put out of
date by many other influences than the peace treaty, and is
inappropriate to modern socialistic conceptions of the relations
between the state and its citizens. It is true, however, that the
treaty strikes a destructive blow at a conception which lies at
the root of much of so-called international law, as this has been
expounded hitherto.
The principal provisions relating to the expropriation of
German private property situated outside the frontiers of
Germany, as these are now determined, are overlapping in their
incidence, and the more drastic would seem in some cases to
render the others unnecessary. Generally speaking, however, the
more drastic and extensive provisions are not so precisely framed
as those of more particular and limited application. They are as
follows:
(a) The Allies 'reserve the right to retain and liquidate all
property, rights and interests belonging at the date of the
coming into force of the present treaty to German nationals, or
companies controlled by them, within their territories, colonies,
possessions and protectorates, including territories ceded to
them by the present treaty.'(15*)
This is the extended version of the provision which has been
discussed already in the case of the colonies and of
Alsace-Lorraine. The value of the property so expropriated will
be applied, in the first instance, to the satisfaction of private
debts due from Germany to the nationals of the Allied government
within whose jurisdiction the liquidation takes place, and,
second, to the satisfaction of claims arising out of the acts of
Germany's former allies. Any balance, if the liquidating
government elects to retain it, must be credited in the
reparation account.(16*) It is, however, a point of considerable
importance that the liquidating government is not compelled to
transfer the balance to the reparation commission, but can, if it
so decides, return the proceeds direct to Germany. For this will
enable the United States, if they so wish, to utilise the very
large balances in the hands of their enemy-property custodian to
pay for the provisioning of Germany, without regard to the views
of the reparation commission.
These provisions had their origin in the scheme for the
mutual settlement of enemy debts by means of a clearing house.
Under this proposal it was hoped to avoid much trouble and
litigation by making each of the governments lately at war
responsible for the collection of private debts due from its
nationals to the nationals of any of the other governments (the
normal process of collection having been suspended by reason of
the war), and for the distribution of the funds so collected to
those of its nationals who had claims against the nationals of
the other governments, any final balance either way being settled
in cash. Such a scheme could have been completely bilateral and
reciprocal. And so in part it is, the scheme being mainly
reciprocal as regards the collection of commercial debts. But the
completeness of their victory permitted the Allied governments to
introduce in their own favour many divergencies from reciprocity,
of which the following are the chief: Whereas the property of
Allied nationals within German jurisdiction reverts under the
treaty to Allied ownership on the conclusion of peace, the
property of Germans within Allied jurisdiction is to be retained
and liquidated as described above, with the result that the whole
of German property over a large part of the world can be
expropriated, and the large properties now within the custody of
public trustees and similar officials in the Allied countries may
be retained permanently. In the second place, such German assets
are chargeable, not only with the liabilities of Germans, but
also, if they run to it, with 'payment of the amounts due in
respect of claims by the nationals of such Allied or Associated
Power with regard to their property, rights, and interests in the
territory of other enemy Powers,' as, for example, Turkey,
Bulgaria, and Austria.(17*) This is a remarkable provision, which
is naturally non-reciprocal. In the third place, any final
balance due to Germany on private account need not be paid over,
but can be held against the various liabilities of the German
government.(18*) The effective operation of these articles is
guaranteed by the delivery of deeds, titles, and
information.(19*) In the fourth place, pre-war contracts between
Allied and German nationals may be cancelled or revived at the
option of the former, so that all such contracts which are in
Germany's favour will be cancelled, while, on the other hand, she
will be compelled to fulfil those which are to her disadvantage.
(b) So far we have been concerned with German property within
Allied jurisdiction. The next provision is aimed at the
elimination of German interests in the territory of her
neighbours and former allies, and of certain other countries.
Under article 260 of the financial clauses it is provided that
the reparation commission may, within one year of the coming into
force of the treaty, demand that the German government
expropriate its nationals and deliver to the reparation
commission 'any rights and interests of German nationals in any
public utility undertaking or in any concession(20*) operating in
Russia, China, Turkey, Austria, Hungary, and Bulgaria, or in the
possessions or dependencies of these states, or in any territory
formerly belonging to Germany or her allies, to be ceded by
Germany or her allies to any Power or to be administered by a
mandatory under the present treaty.' This is a comprehensive
description, overlapping in part the provisions dealt with under
(a) above, but including, it should be noted, the new states and
territories carved out of the former Russian, Austro-Hungarian,
and Turkish empires. Thus Germany's influence is eliminated and
her capital confiscated in all those neighbouring countries to
which she might naturally look for her future livelihood, and for
an outlet for her energy, enterprise, and technical skill.
The execution of this programme in detail will throw on the
reparation commission a peculiar task, as it will become
possessor of a great number of rights and interests over a vast
territory owing dubious obedience, disordered by war, disruption,
and Bolshevism. The division of the spoils between the victors
will also provide employment for a powerful office, whose
doorsteps the greedy adventurers and jealous concession-hunters
of twenty or thirty nations will crowd and defile.
Lest the reparation commission fail by ignorance to exercise
its rights to the full, it is further provided that the German
government shall communicate to it within six months of the
treaty's coming into force a list of all the rights and interests
in question, 'whether already granted, contingent or not yet
exercised', and any which are not so communicated within this
period will automatically lapse in favour of the Allied
governments.(21*) How far an edict of this character can be made
binding on a German national, whose person and property lie
outside the jurisdiction of his own government, is an unsettled
question; but all the countries specified in the above list are
open to pressure by the Allied authorities, whether by the
imposition of an appropriate treaty clause or otherwise.
(c) There remains a third provision more sweeping than either
of the above, neither of which affects German interests in
neutral countries. The reparation commission is empowered up to 1
May 1921 to demand payment up to £31,000 million in such manner as
they may fix, 'whether in gold, commodities, ships, securities or
otherwise'.(22*) This provision has the effect of entrusting to
the reparation commission for the period in question dictatorial
powers over all German property of every description whatever.
They can, under this article, point to any specific business,
enterprise, or property, whether within or outside Germany, and
demand its surrender; and their authority would appear to extend
not only to property existing at the date of the peace, but also
to any which may be created or acquired at any time in the course
of the next eighteen months. For example, they could pick out --
as presumably they will as soon as they are established -- the fine
and powerful German enterprise in South America known as the
Deutsche Ueberseeische Elektrizitëtsgesellschaft (the D.U.E.G.),
and dispose of it to Allied interests. The clause is unequivocal
and all-embracing. It is worth while to note in passing that it
introduces a quite novel principle in the collection of
indemnities. Hitherto, a sum has been fixed, and the nation
mulcted has been left free to devise and select for itself the
means of payment. But in this case the payees can (for a certain
period) not only demand a certain sum but specify the particular
kind of property in which payment is to be effected. Thus the
powers of the reparation commission, with which I deal more
particularly in the next chapter, can be employed to destroy
Germany's commercial and economic organisation as well as to
exact payment.
The cumulative effect of (a), (b), and (c) (as well as of
certain other minor provisions on which I have not thought it
necessary to enlarge) is to deprive Germany (or rather to empower
the Allies so to deprive her at their will -- it is not yet
accomplished) of everything she possesses outside her own
frontiers as laid down in the treaty. Not only are her overseas
investments taken and her connections destroyed, but the same
process of extirpation is applied in the territories of her
former allies and of her immediate neighbours by land.
(5) Lest by some oversight the above provisions should
overlook any possible contingencies, certain other articles
appear in the treaty, which probably do not add very much in
practical effect to those already described, but which deserve
brief mention as showing the spirit of completeness in which the
victorious Powers entered upon the economic subjection of their
defeated enemy.
First of all there is a general clause of barrer and
renunciation: 'In territory outside her European frontiers as
fixed by the present treaty, Germany renounces all rights, titles
and privileges whatever in or over territory which belonged to
her or to her allies, and all rights, titles and privileges
whatever their origin which she held as against the Allied and
Associated Powers...'(23*)
There follow certain more particular provisions. Germany
renounces all rights and privileges she may have acquired in
China.(24*) There are similar provisions for Siam,(25*) for
Liberia,(26*) for Morocco,(27*) and for Egypt.(28*) In the case
of Egypt not only are special privileges renounced, but by
article 150 ordinary liberties are withdrawn, the Egyptian
government being accorded 'complete liberty of action in
regulating the status of German nationals and the conditions
under which they may establish themselves in Egypt.'
By article 258 Germany renounces her right to any
participation in any financial or economic organisations of an
international character 'operating in any of the Allied or
Associated States, or in Austria, Hungary, Bulgaria or Turkey, or
in the dependencies of these states, or in the former Russian
empire'.
Generally speaking, only those pre-war treaties and
conventions are revived which it suits the Allied governments to
revive, and those in Germany's favour may be allowed to
lapse.(29*)
It is evident, however, that none of these provisions are of
any real importance, as compared with those described previously.
They represent the logical completion of Germany's outlawry and
economic subjection to the convenience of the Allies; but they do
not add substantially to her effective disabilities.
II
The provisions relating to coal and iron are more important
in respect of their ultimate consequences on Germany's internal
industrial economy than for the money value immediately involved.
The German empire has been built more truly on coal and iron than
on blood and iron. The skilled exploitation of the great
coalfields of the Ruhr, Upper Silesia, and the Saar, alone made
possible the development of the steel, chemical, and electrical
industries which established her as the first industrial nation
of continental Europe. One-third of Germany's population lives in
towns of more than 20,000 inhabitants, an industrial
concentration which is only possible on a foundation of coal and
iron. In striking, therefore, at her coal supply, the French
politicians were not mistaking their target. It is only the
extreme immoderation, and indeed technical impossibility, of the
treaty's demands which may save the situation in the long run.
(1) The treaty strikes at Germany's coal supply in four ways:
(i) 'As compensation for the destruction of the coal-mines in
the north of France, and as part payment towards the total
reparation due from Germany for the damage resulting from the
war, Germany cedes to France in full and absolute possession,
with exclusive rights of exploitation, unencumbered, and free
from all debts and charges of any kind, the coal-mines situated
in the Saar Basin.'(30*) While the administration of this
district is vested for fifteen years in the League of Nations, it
is to be observed that the mines are ceded to France absolutely.
Fifteen years hence the population of the district will be called
upon to indicate by plebiscite their desires as to the future
sovereignty of the territory; and, in the event of their electing
for union with Germany, Germany is to be entitled to repurchase
the mines at a price payable in gold.(31*)
The judgment of the world has already recognised the
transaction of the Saar as an act of spoliation and insincerity.
So far as compensation for the destruction of French coal-mines
is concerned, this is provided for, as we shall see in a moment,
elsewhere in the treaty. 'There is no industrial region in
Germany', the German representatives have said without
contradiction, 'the population of which is so permanent, so
homogeneous, and so little complex as that of the Saar district.
Among more than 650,000 inhabitants, there were in 1918 less than
100 French. The Saar district has been German for more than 1,000
years. Temporary occupation as a result of warlike operations on
the part of the French always terminated in a short time in the
restoration of the country upon the conclusion of peace. During a
period of 1,048 years France has possessed the country for not
quite 68 years in all. When, on the occasion of the first Treaty
of Paris in 1814, a small portion of the territory now coveted
was retained for France, the population raised the most energetic
opposition and demanded "reunion with their German fatherland,"
to which they were "related by language, customs, and religion".
After an occupation of one year and a quarter, this desire was
taken into account in the second Treaty of Paris in 1815. Since
then the country has remained uninterruptedly attached to
Germany, and owes its economic development to that connection.'
The French wanted the coal for the purpose of working the
ironfields of Lorraine, and in the spirit of Bismarck they have
taken it. Not precedent, but the verbal professions of the
Allies, have rendered it indefensible.(32*)
(ii) Upper Silesia, a district without large towns, in which,
however, lies one of the major coalfields of Germany with a
production of about 23% of the total German output of hard coal,
is, subject to a plebiscite,(33*) to be ceded to Poland. Upper
Silesia was never part of historic Poland; but its population is
mixed Polish, German, and Czechoslovakian, the precise
proportions of which are disputed.(34*) Economically it is
intensely German; the industries of eastern Germany depend upon
it for their coal; and its loss would be a destructive blow at
the economic structure of the German state.(35*)
With the loss of the fields of Upper Silesia and the Saar,
the coal supplies of Germany are diminished by not far short of
one-third.
(iii) Out of the coal that remains to her, Germany is obliged
to make good year by year the estimated loss which France has
incurred by the destruction and damage of war in the coalfields
of her northern provinces. In paragraph 2 of annex V to the
reparation chapter, 'Germany undertakes to deliver to France
annually, for a period not exceeding ten years, an amount of coal
equal to the difference between the annual production before the
war of the coal-mines of the Nord and Pas de Calais, destroyed as
a result of the war, and the production of the mines of the same
area during the year in question: such delivery not to exceed 20
million tons in any one year of the first five years, and 8
million tons in any one year of the succeeding five years'.
This is a reasonable provision if it stood by itself, and one
which Germany should be able to fulfil if she were left her other
resources to do it with.
(iv) The final provision relating to coal is part of the
general scheme of the reparation chapter by which the sums due
for reparation are to be partly paid in kind instead of in cash.
As a part of the payment due for reparation, Germany is to make
the following deliveries of coal or its equivalent in coke (the
deliveries to France being wholly additional to the amounts
available by the cession of the Saar or in compensation for
destruction in Northern France):
(a) to France 7 million tons annually for ten years;(36*)
(b) to Belgium 8 million tons annually for ten years;
(c) to Italy an annual quantity, rising by annual increments
from 4.5 million tons in 1919-20 to 8.5 million tons in each of
the six years 1923-4 to 1928-9;
(d) to Luxemburg, if required, a quantity of coal equal to
the pre-war annual consumption of German coal in Luxemburg.
This amounts in all to an annual average of about 25 million
tons.
These figures have to be examined in relation to Germany's
probable output. The maximum pre-war figure was reached in 1913
with a total of 191.5 million tons. Of this, 19 million tons were
consumed at the mines, and on balance (i.e. exports less imports)
33.5 million tons were exported, leaving 139 million tons for
domestic consumption. It is estimated that this total was
employed as follows:
Million tons
Railways 18.0
Gas, water, and electricity 12.5
Bunkers 6.5
House-fuel, small industry
and agriculture 24.0
Industry 78.0
139.0
The diminution of production due to loss of territory is:
Million tons
Alsace-Lorraine 3.8
Saar Basin 13.2
Upper Silesia 43.8
60.8
There would remain, therefore, on the basis of the 1913
output, 130.7 million tons or, deducting consumption at the mines
themselves, (say) 118 million tons. For some years there must be
sent out of this supply upwards of 20 million tons to France as
compensation for damage done to French mines, and 25 million tons
to France, Belgium, Italy, and Luxemburg;(37*) as the former
figure is a maximum, and the latter figure is to be slightly less
in the earliest years, we may take the total export to Allied
countries which Germany has undertaken to provide as 40 million
tons, leaving, on the above basis, 78 million tons for her own
use as against a pre-war consumption of 139 million tons.
This comparison, however, requires substantial modification
to make it accurate. On the one hand, it is certain that the
figures of pre-war output cannot be relied on as a basis of
present output. During 1918 the production was 161.5 million tons
as compared with 191.5 million tons in 1913; and during the first
half of 1919 it was less than 50 million tons, exclusive of
Alsace-Lorraine and the Saar but including Upper Silesia,
corresponding to an annual production of about 100 million
tons.(38*) The causes of so low an output were in part temporary
and exceptional, but the German authorities agree, and have not
been confuted, that some of them are bound to persist for some
time to come. In part they are the same as elsewhere; the daily
shift has been shortened from 8 1/2 to 7 hours, and it is
improbable that the powers of the central government will be
adequate to restore them to their former figure. But in addition,
the mining plant is in bad condition (due to the lack of certain
essential materials during the blockade), the physical efficiency
of the men is greatly impaired by malnutrition (which cannot be
cured if a tithe of the reparation demands are to be satisfied --
the standard of life will have rather to be lowered), and the
casualties of the war have diminished the numbers of efficient
miners. The analogy of English conditions is sufficient by itself
to tell us that a pre-war level of output cannot be expected in
Germany. German authorities put the loss of output at somewhat
above thirty per cent, divided about equally between the
shortening of the shift and the other economic influences. This
figure appears on general grounds to be plausible, but I have not
the knowledge to endorse or to criticise it.
The pre-war figure of 118 million tons net (i.e. after
allowing for loss of territory and consumption at the mines) is
likely to fall, therefore, at least as low as to 100 million(39*)
tons, having regard to the above factors. If 40 million tons of
this are to be exported to the Allies, there remain 60 million
tons for Germany herself to meet her own domestic consumption.
Demand as well as supply will be diminished by loss of territory,
but at the most extravagant estimate this could not be put above
29 million tons.(40*) Our hypothetical calculations, therefore,
leave us with post-war German domestic requirements, on the basis
of a prewar efficiency of railways and industry, of 110 million
tons against an output not exceeding 100 million tons, of which
40 million tons are mortgaged to the Allies.
The importance of the subject has led me into a somewhat
lengthy statistical analysis. It is evident that too much
significance must not be attached to the precise figures arrived
at, which are hypothetical and dubious.(41*) But the general
character of the facts presents itself irresistibly. Allowing for
the loss of territory and the loss of efficiency, Germany cannot
export coal in the near future (and will even be dependent on her
treaty rights to purchase in Upper Silesia), if she is to
continue as an industrial nation. Every million tons she is
forced to export must be at the expense of closing down an
industry. With results to be considered later this within certain
limits is possible. But it is evident that Germany cannot and
will not furnish the Allies with a contribution of 40 million
tons annually. Those Allied ministers who have told their peoples
that she can have certainly deceived them for the sake of
allaying for the moment the misgivings of the European peoples as
to the path along which they are being led.
The presence of these illusory provisions (amongst others) in
the clauses of the treaty of peace is especially charged with
danger for the future. The more extravagant expectations as to
reparation receipts, by which finance ministers have deceived
their publics, will be heard of no more when they have served
their immediate purpose of postponing the hour of taxation and
retrenchment. But the coal clauses will not be lost sight of so
easily -- for the reason that it will be absolutely vital in the
interests of France and Italy that these countries should do
everything in their power to exact their bond. As a result of the
diminished output due to German destruction in France, of the
diminished output of mines in the United Kingdom and elsewhere,
and of many secondary causes, such as the breakdown of transport
and of organisation and the inefficiency of new governments, the
coal position of all Europe is nearly desperate;(42*) and France
and Italy, entering the scramble with certain treaty rights, will
not lightly surrender them.
As is generally the case in real dilemmas, the French and
Italian case will possess great force, indeed unanswerable force
from a certain point of view. The position will be truly
represented as a question between German industry on the one hand
and French and Italian industry on the other. It may be admitted
that the surrender of the coal will destroy German industry; but
it may be equally true that its non-surrender will jeopardise
French and Italian industry. In such a case must not the victors
with their treaty rights prevail, especially when much of the
damage has been ultimately due to the wicked acts of those who
are now defeated? Yet if these feelings and these rights are
allowed to prevail beyond what wisdom would recommend, the
reactions on the social and economic life of Central Europe will
be far too strong to be confined within their original limits.
But this is not yet the whole problem. If France and Italy
are to make good their own deficiencies in coal from the output
of Germany, then northern Europe, Switzerland, and Austria, which
previously drew their coal in large part from Germany's
exportable surplus, must be starved of their supplies. Before the
war 13.4 million tons of Germany's coal exports went to
Austria-Hungary. Inasmuch as nearly all the coalfields of the
former empire lie outside what is now German Austria, the
industrial ruin of this latter state, if she cannot obtain coal
from Germany, will be complete. The case of Germany's neutral
neighbours, who were formerly supplied in part from Great Britain
but in large part from Germany, will be hardly less serious. They
will go to great lengths in the direction of making their own
supplies to Germany of materials which are essential to her,
conditional on these being paid for in coal. Indeed they are
already doing so.(43*) With the breakdown of money economy the
practice of international barter is becoming prevalent. Nowadays
money in Central and south-eastern Europe is seldom a true
measure of value in exchange, and will not necessarily buy
anything, with the consequence that one country, possessing a
commodity essential to the needs of another, sells it not for
cash but only against a reciprocal engagement on the part of the
latter country to furnish in return some article not less
necessary to the former. This is an extraordinary complication as
compared with the former almost perfect simplicity of
international trade. But in the no less extraordinary conditions
of today's industry it is not without advantages as a means of
stimulating production. The butter-shifts of the Ruhr(44*) show
how far modern Europe has retrograded in the direction of barter,
and afford a picturesque illustration of the low economic
organisation to which the breakdown of currency and free exchange
between individuals and nations is quickly leading us. But they
may produce the coal where other devices would fail.(45*)
Yet if Germany can find coal for the neighbouring neutrals,
France and Italy may loudly claim that in this case she can and
must keep her treaty obligations. In this there will be a great
show of justice, and it will be difficult to weigh against such
claims the possible facts that, while German miners will work for
butter, there is no available means of compelling them to get
coal the sale of which will bring in nothing, and that if Germany
has no coal to send to her neighbours she may fail to secure
imports essential to her economic existence.
If the distribution of the European coal supplies is to be a
scramble in which France is satisfied first, Italy next, and
everyone else takes their chance, the industrial future of Europe
is black and the prospects of revolution very good. It is a case
where particular interests and particular claims, however well
founded in sentiment or in justice, must yield to sovereign
expediency. If there is any approximate truth in Mr Hoover's
calculation that the coal output of Europe has fallen by
one-third, a situation confronts us where distribution must be
effected with evenhanded impartiality in accordance with need,
and no incentive can be neglected towards increased production
and economical methods of transport. The establishment by the
Supreme Council of the Allies in August 1919 of a European coal
commission, consisting of delegates from Great Britain, France,
Italy, Belgium, Poland, and Czechoslovakia, was a wise measure
which, properly employed and extended, may prove of great
assistance. But I reserve constructive proposals for chapter 7.
Here I am only concerned with tracing the consequences, per
impossibile, of carrying out the treaty au pied de la
lettre.(46*)
(2) The provisions relating to iron ore require less detailed
attention, though their effects are destructive. They require
less attention, because they are in large measure inevitable.
Almost exactly 75% of the iron ore raised in Germany in 1913 came
from Alsace-Lorraine.(47*) In this the chief importance of the
stolen provinces lay.
There is no question but that Germany must lose these
orefields. The only question is how far she is to be allowed
facilities for purchasing their produce. The German delegation
made strong efforts to secure the inclusion of a provision by
which coal and coke to be furnished by them to France should be
given in exchange for minette from Lorraine. But they secured no
such stipulation, and the matter remains at France's option.
The motives which will govern France's eventual policy are
not entirely concordant. While Lorraine comprised 75% of
Germany's iron ore, only 25 % of the blast furnaces lay within
Lorraine and the Saar basin together, a large proportion of the
ore being carried into Germany proper. Approximately the same
proportion of Germany's iron and steel foundries, namely 25 per
cent, were situated in Alsace-Lorraine. For the moment,
therefore, the most economical and profitable course would
certainly be to export to Germany, as hitherto, a considerable
part of the output of the mines.
On the other hand, France, having recovered the deposits of
Lorraine, may be expected to aim at replacing as far as possible
the industries which Germany had based on them by industries
situated within her own frontiers. Much time must elapse before
the plant and the skilled labour could be developed within
France, and even so she could hardly deal with the ore unless she
could rely on receiving the coal from Germany. The uncertainty,
too, as to the ultimate fate of the Saar will be disturbing to
the calculations of capitalists who contemplate the establishment
of new industries in France.
In fact, here, as elsewhere, political considerations cut
disastrously across economic. In a régime of free trade and free
economic intercourse it would be of little consequence that iron
lay on one side of a political frontier, and labour, coal, and
blast furnaces on the other. But as it is, men have devised ways
to impoverish themselves and one another; and prefer collective
animosities to individual happiness. It seems certain,
calculating on the present passions and impulses of European
capitalistic society, that the effective iron output of Europe
will be diminished by a new political frontier (which sentiment
and historic justice require), because nationalism and private
interest are thus allowed to impose a new economic frontier along
the same lines. These latter considerations are allowed, in the
present governance of Europe, to prevail over the intense need of
the continent for the most sustained and efficient production to
repair the destructions of war, and to satisfy the insistence of
labour for a larger reward.(48*)
The same influences are likely to be seen, though on a lesser
scale, in the event of the transference of Upper Silesia to
Poland. While Upper Silesia contains but little iron, the
presence of coal has led to the establishment of numerous blast
furnaces. What is to be the fate of these? If Germany is cut off
from her supplies of ore on the west, will she export beyond her
frontiers on the east any part of the little which remains to
her? The efficiency and output of the industry seem certain to
diminish.
Thus the treaty strikes at organisation, and by the
destruction of organisation impairs yet further the reduced
wealth of the whole community. The economic frontiers which are
to be established between the coal and the iron upon which modern
industrialism is founded will not only diminish the production of
useful commodities, but may possibly occupy an immense quantity
of human labour in dragging iron or coal, as the case may be,
over many useless miles to satisfy the dictates of a political
treaty or because obstructions have been established to the
proper localisation of industry.
III
There remain those treaty provisions which relate to the
transport and the tariff systems of Germany. These parts of the
treaty have not nearly the importance and the significance of
those discussed hitherto. They are pinpricks, interferences and
vexations, not so much objectionable for their solid
consequences, as dishonourable to the Allies in the light of
their professions. Let the reader consider what follows in the
light of the assurances already quoted, in reliance on which
Germany laid down her arms.
(1) The miscellaneous economic clauses commence with a number
of provisions which would be in accordance with the spirit of the
third of the Fourteen Points -- if they were reciprocal. Both for
imports and exports, and as regards tariffs, regulations, and
prohibitions, Germany binds herself for five years to accord
most-favoured-nation treatment to the Allied and Associated
states.(49*) But she is not entitled herself to receive such
treatment.
For five years Alsace-Lorraine shall be free to export into
Germany, without payment of customs duty, up to the average
amount sent annually into Germany from 1911 to 1913.(50*) But
there is no similar provision for German exports into
Alsace-Lorraine.
For three years Polish exports to Germany, and for five years
Luxemburg's exports to Germany, are to have a similar
privilege,(51*) but not German exports to Poland or to Luxemburg.
Luxemburg also, which for many years has enjoyed the benefits of
inclusion within the German customs union, is permanently
excluded from it henceforward.(52*)
For six months after the treaty has come into force Germany
may not impose duties on imports from the Allied and Associated
states higher than the most favourable duties prevalent before
the war; and for a further two years and a half (making three
years in all) this prohibition continues to apply to certain
commodities, notably to some of those as to which special
agreements existed before the war, and also to wine, to vegetable
oils, to artificial silk, and to washed or scoured wool.(53*)
This is a ridiculous and injurious provision, by which Germany is
prevented from taking those steps necessary to conserve her
limited resources for the purchase of necessaries and the
discharge of reparation. As a result of the existing distribution
of wealth in Germany, and of financial wantonness amongst
individuals, the offspring of uncertainty, Germany is threatened
with a deluge of luxuries and semi-luxuries from abroad, of which
she has been starved for years, which would exhaust or diminish
her small supplies of foreign exchange. These provisions strike
at the authority of the German government to ensure economy in
such consumption, or to raise taxation during a critical period.
What an example of senseless greed overreaching itself, to
introduce, after taking from Germany what liquid wealth she has
and demanding impossible payments for the future, a special and
particularised injunction that she must allow as readily as in
the days of her prosperity the import of champagne and of silk!
One other article affects the customs régime of Germany
which, if it was applied, would be serious and extensive in its
consequences. The Allies have reserved the right to apply a
special customs régime to the occupied area on the left bank of
the Rhine, 'in the event of such a measure being necessary in
their opinion in order to safeguard the economic interests of the
population of these territories'.(54*) This provision was
probably introduced as a possibly useful adjunct to the French
policy of somehow detaching the left-bank provinces from Germany
during the years of their occupation. The project of establishing
an independent republic under French clerical auspices, which
would act as a buffer state and realise the French ambition of
driving Germany proper beyond the Rhine, has not yet been
abandoned. Some believe that much may be accomplished by a régime
of threats, bribes, and cajolery extended over a period of
fifteen years or longer.(55*) If this article is acted upon, and
the economic system of the left bank of the Rhine is effectively
severed from the rest of Germany, the effect would be
far-reaching. But the dreams of designing diplomats do not always
prosper, and we must trust the future.
(2) The clauses relating to railways, as originally presented
to Germany, were substantially modified in the final treaty, and
are now limited to a provision by which goods coming from Allied
territory to Germany, or in transit through Germany, shall
receive the most favoured treatment as regards rail freight,
rates, etc., applied to goods of the same kind carried on any
German lines 'under similar conditions of transport, for example,
as regards length of route'.(56*) As a non-reciprocal provision
this is an act of interference in internal arrangements which it
is difficult to justify, but the practical effect of this,(57*)
and of an analogous provision relating to passenger traffic,(58*)
will much depend on the interpretation of the phrase, 'similar
conditions of transport'.(59*)
For the time being Germany's transport system will be much
more seriously disordered by the provisions relating to the
cession of rolling-stock. Under paragraph 7 of the armistice
conditions Germany was called on to surrender 5,000 locomotives
and 150,000 waggons, 'in good working order, with all necessary
spare parts and fittings'. Under the treaty Germany is required
to confirm this surrender and to recognise the title of the
Allies to the material.(60*) She is further required, in the case
of railway systems in ceded territory, to hand over these systems
complete with their full complement of rolling-stock 'in a normal
state of upkeep' as shown in the last inventory before 11
November 1918.(61*) That is to say, ceded railway systems are not
to bear any share in the general depletion and deterioration of
the German rolling-stock as a whole.
This is a loss which in course of time can doubtless be made
good. But lack of lubricating oils and the prodigious wear and
tear of the war, not compensated by normal repairs, had already
reduced the German railway system to a low state of efficiency.
The further heavy losses under the treaty will confirm this state
of affairs for some time to come, and are a substantial
aggravation of the difficulties of the coal problem and of export
industry generally.
(3) There remain the clauses relating to the river system of
Germany. These are largely unnecessary and are so little related
to the supposed aims of the Allies that their purport is
generally unknown. Yet they constitute an unprecedented
interference with a country's domestic arrangements, and are
capable of being so operated as to take from Germany all
effective control over her own transport system. In their present
form they are incapable of justification; but some simple changes
might transform them into a reasonable instrument.
Most of the principal rivers of Germany have their source or
their outlet in non-German territory. The Rhine, rising in
Switzerland, is now a frontier river for a part of its course,
and finds the sea in Holland; the Danube rises in Germany but
flows over its greater length elsewhere; the Elbe rises in the
mountains of Bohemia, now called Czechoslovakia; the Oder
traverses Lower Silesia; and the Niemen now bounds the frontier
of East Prussia and has its source in Russia. Of these, the Rhine
and the Niemen are frontier rivers, the Elbe is primarily German
but in its upper reaches has much importance for Bohemia, the
Danube in its German parts appears to have little concern for any
country but Germany, and the Oder is an almost purely German
river unless the result of the plebiscite is to detach all Upper
Silesia.
Rivers which, in the words of the treaty, 'naturally provide
more than one state with access to the sea', properly require
some measure of international regulation and adequate guarantees
against discrimination. This principle has long been recognised
in the international commissions which regulate the Rhine and the
Danube. But on such commissions the states concerned should be
represented more or less in proportion to their interests. The
treaty, however, has made the international character of these
rivers a pretext for taking the river system of Germany out of
German control.
After certain articles which provide suitably against
discrimination and interference with freedom of transit,(62*) the
treaty proceeds to hand over the administration of the Elbe, the
Oder, the Danube, and the Rhine to international
commissions.(63*) The ultimate powers of these commissions are to
be determined by 'a general convention drawn up by the Allied and
Associated Powers, and approved by the League of Nations'.(64*)
In the meantime the commissions are to draw up their own
constitutions and are apparently to enjoy powers of the most
extensive description, 'particularly in regard to the execution
of works of maintenance, control, and improvement on the river
system, the financial régime, the fixing and collection of
charges, and regulations for navigation.'(65*)
So far there is much to be said for the treaty. Freedom of
through transit is a not unimportant part of good international
practice and should be established everywhere. The objectionable
feature of the commissions lies in their membership. In each case
the voting is so weighted as to place Germany in a clear
minority. On the Elbe commission Germany has four votes out of
ten; on the Oder commission three out of nine; on the Rhine
commission four out of nineteen; on the Danube commission, which
is not yet definitely constituted, she will be apparently in a
small minority. On the government of all these rivers France and
Great Britain are represented; and on the Elbe for some
undiscoverable reason there are also representatives of Italy and
Belgium.
Thus the great waterways of Germany are handed over to
foreign bodies with the widest powers; and much of the local and
domestic business of Hamburg, Magdeburg, Dresden, Stettin,
Frankfurt, Breslau, and Ulm will be subject to a foreign
jurisdiction. It is almost as though the Powers of continental
Europe were to be placed in a majority on the Thames Conservancy
or the Port of London.
Certain minor provisions follow lines which in our survey of
the treaty are now familiar. Under annex III of the reparation
chapter Germany is to cede up to 20% of her inland navigation
tonnage. Over and above this she must cede such proportion of her
river craft upon the Elbe, the Oder, the Niemen, and the Danube
as an American arbitrator may determine, 'due regard being had to
the legitimate needs of the parties concerned, and particularly
to the shipping traffic during the five years preceding the war',
the craft so ceded to be selected from those most recently
built.(66*) The same course is to be followed with German vessels
and tugs on the Rhine and with German property in the port of
Rotterdam.(67*) Where the Rhine flows between France and Germany,
France is to have all the rights of utilising the water for
irrigation or for power and Germany is to have none;(68*) and all
the bridges are to be French property as to their whole
length.(69*) Finally, the administration of the purely German
Rhine port of Kehl lying on the eastern bank of the river is to
be united to that of Strassburg for seven years and managed by a
Frenchman nominated by the new Rhine commission.
Thus the economic clauses of the treaty are comprehensive,
and little has been overlooked which might impoverish Germany now
or obstruct her development in future. So situated, Germany is to
make payments of money, on a scale and in a manner to be examined
in the next chapter.
NOTES:
1. The precise force of this reservation is discussed in detail
in chapter 5.
2. I also omit those which have no special relevance to the
German settlement. The second of the Fourteen Points, which
relates to the freedom of the seas, is omitted because the Allies
did not accept it.
3. Part VIII, annex III (1).
4. Part VIII, annex III (3).
5. In the years before the war the average shipbuilding output of
Germany was about 350,000 tons annually, exclusive of warships.
6. Part VIII, annex III (5).
7. Article 119.
8. Article 120 and 257.
9. Article 122.
10. Articles 121 and 297(b). The exercise or non-exercise of this
option of expropriation appears to lie, not with the reparation
commission, but with the particular Power in whose territory the
property has become situated by cession or mandation.
11. Article 297(h) and paragraph 4 of annex to part X, section
IV.
12. Articles 53 and 74.
13. In 1871 Germany granted France credit for the railways of
Alsace-Lorraine but not for state property. At that time,
however, the railways were private property. As they afterwards
became the property of the German government, the French
government have held, in spite of the large additional capital
which Germany has sunk in them, that their treatment must follow
the precedent of state property generally.
14. Articles 55 and 255. This follows the precedent of 1871.
15. Articles 297(b).
16. Part X, sections III and IV and article 243.
17. The interpretation of the words between inverted commas is a
little dubious. The phrase is so wide as to seem to include
private debts. But in the final draft of the treaty private debts
are not explicitly referred to.
18. This provision is mitigated in the case of German property in
Poland and the other new states, the proceeds of liquidation in
these areas being payable direct to the owner (article 92).
19. Part x, section IV, annex, paragraph 10: 'Germany will,
within six months from the coming into force of the present
treaty, deliver to each Allied or Associated Power all
securities, certificates, deeds, or other documents of title held
by its nationals and relating to property, rights, or interests
situated in the territory of that Allied or Associated Power...
Germany will at any time on demand of any Allied or Associated
Power furnish such information as may be required with regard to
the property, rights, and interests of German nationals within
the territory of such Allied or Associated Power, or with regard
to any transactions concerning such property, rights, or
interests effected since 1 July 1914.'
20. 'Any public utility undertaking or concession' is a vague
phrase, the precise interpretation of which is not provided for.
21. Article 260.
22. Article 235.
23. Article 118.
24. Articles 129 and 132.
25. Articles 135-7.
26. Articles 135 40.
27. Article 141: 'Germany renounces all rights, titles and
privileges conferred on her by the general Act of Algeciras of 7
April 1906, and by the Franco-German agreements of 9 February
1909 and 4 November 1911...'
28. Article 148: 'All treaties, agreements, arrangements and
contracts concluded by Germany with Egypt are regarded as
abrogated from 4 August 1914.' Article 153: 'All property and
possessions in Egypt of the German empire and the German states
pass to the Egyptian government without payment.'
29. Article 289.
30. Article 45.
31. Part IV, section IV, annex, chapter III.
32. 'We take over the ownership of the Sarre mines, and in order
not to be inconvenienced in the exploitation of these coal
deposits, we constitute a distinct little estate for the 600,000
Germans who inhabit this coal basin, and in fifteen years we
shall endeavour by a plebiscite to bring them to declare that
they want to be French. We know what that means. During fifteen
years we are going to work on them, to attack them from every
point, till we obtain from them a declaration of love. It is
evidently a less brutal proceeding than the coup de force which
detached from us our Alsatians and Lorrainers. But if less
brutal, it is more hypocritical. We know quite well between
ourselves that it is an attempt to annex these 600,000 Germans.
One can understand very well the reasons of an economic nature
which have led Clemenceau to wish to give us these Sarre coal
deposits, but in order to acquire them must we give ourselves the
appearance of wanting to juggle with 600,000 Germans in order to
make Frenchmen of them in fifteen years?' (M. Hervé in La
Victoire, 31 May 1919).
33. This plebiscite is the most important of the concessions
accorded to Germany in the Allies' final Note, and one for which
Mr Lloyd George, who never approved the Allies' policy on the
eastern frontiers of Germany, can claim the chief credit. The
vote cannot take place before the spring of 1920, and may be
postponed until 1921. In the meantime the province will be
governed by an Allied commission. The vote will be taken by
communes, and the final frontiers will be determined by the
Allies, who shall have regard, partly to the results of the vote
in each commune, and partly 'to the geographical and economic
conditions of the locality'. It would require great local
knowledge to predict the result. By voting Polish, a locality can
escape liability for the indemnity and for the crushing taxation
consequent on voting German, a factor not to be neglected. On the
other hand, the bankruptcy and incompetence of the new Polish
state might deter those who were disposed to vote on economic
rather than on racial grounds. It has also been stated that the
conditions of life in such matters as sanitation and social
legislation are incomparably better in Upper Silesia than in the
adjacent districts of Poland, where similar legislation is in its
infancy. The argument in the text assumes that Upper Silesia will
cease to be German. But much may happen in a year, and the
assumption is not certain. To the extent that it proves erroneous
the conclusions must be modified.
34. 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.
35. It must not be overlooked, however, that, amongst the other
concessions relating to Silesia accorded in the Allies' final
Note, there has been included article 90, by which 'Poland
undertakes to permit for a period of fifteen years the
exportation to Germany of the products of the mines in any part
of Upper Silesia transferred to Poland in accordance with the
present treaty. Such products shall be free from all export
duties or other charges or restrictions on exportation. Poland
agrees to take such steps as may be necessary to secure that any
such products shall be available for sale to purchasers in
Germany on terms as favourable as are applicable to like products
sold under similar conditions to purchasers in Poland or in any
other country.' This does not apparently amount to a right of
pre-emption, and it is not easy to estimate its effective
practical consequences. It is evident, however, that in so far as
the mines are maintained at their former efficiency, and in so
far as Germany is in a position to purchase substantially her
former supplies from that source, the loss is limited to the
effect on her balance of trade, and is without the more serious
repercussions on her economic life which are contemplated in the
text. Here is an opportunity for the Allies to render more
tolerable the actual operation of the settlement. The Germans, it
should be added, have pointed out that the same economic argument
which adds the Saar fields to France, allots Upper Silesia to
Germany. For whereas the Silesian mines are essential to the
economic life of Germany, Poland does not need them. Of Poland's
pre-war annual demand of 10.5 million tons, 6.8 million tons were
supplied by the indisputably Polish districts adjacent to Upper
Silesia, 1.5 million tons from Upper Silesia (out of a total
Upper Silesian output of 43.5 million tons) , and the balance
from what is now Czechoslovakia. Even without any supply from
Upper Silesia and Czechoslovakia, Poland could probably meet her
requirements by the fuller exploitation of her own coalfields
which are not yet scientifically developed, or from the deposits
of Western Galicia which are now to be annexed to her.
36. France is also to receive annually for three years 35,000
tons of benzol, 50,000 tons of coal tar, and 30,000 tons of
sulphate of ammonia.
37. The reparation commission is authorised under the treaty
(part VIII, annex V, paragraph 10) 'to postpone or to cancel
deliveries' if they consider 'that the full exercise of the
foregoing options would interfere unduly with the industrial
requirements of Germany'. In the event of such postponements or
cancellations 'the coal to replace coal from destroyed mines
shall receive priority over other deliveries'. This concluding
clause is of the greatest importance if, as will be seen, it is
physically impossible for Germany to furnish the full 45 million;
for it means that France will receive 20 million tons before
Italy receives anything. The reparation commission has no
discretion to modify this. The Italian Press has not failed to
notice the significance of the provision, and alleges that this
clause was inserted during the absence of the Italian
representatives from Paris (Corriere della Sera, 19 July 1919).
38. It follows that the current rate of production in Germany has
sunk to about sixty per cent of that of 1913. The effect on
reserves has naturally been disastrous, and the prospects for the
coming winter are dangerous.
39. This assumes a loss of output of fifteen per cent as compared
with the estimate of thirty per cent quoted above.
40. This supposes a loss of twenty-five per cent of Germany's
industrial undertakings and a diminution of thirteen per cent in
her other requirements.
41. The reader must be reminded in particular that the above
calculations take no account of the German production of lignite,
which yielded in 1913 13 million tons of rough lignite in
addition to an amount converted into 21 million tons of
briquette. This amount of lignite, however, was required in
Germany before the war in addition to the quantities of coal
assumed above. I am not competent to speak on the extent to which
the loss of coal can be made good by the extended use of lignite
or by economies in its present employment; but some authorities
believe that Germany may obtain substantial compensation for her
loss of coal by paying more attention to her deposits of lignite.
42. Mr Hoover, in July 1919, estimated that the coal output of
Europe, excluding Russia and the Balkans, had dropped from 679.5
million tons to 443 million tons -- as a result in a minor degree
of loss of material and labour, but owing chiefly to a relaxation
of physical effort after the privations and sufferings of the
war, a lack of rolling-stock and transport, and the unsettled
political fate of some of the mining districts.
43. Numerous commercial agreements during the war were arranged
on these lines. But in the month of June 1919 alone, minor
agreements providing for payment in coal were made by Germany
with Denmark, Norway, and Switzerland. The amounts involved were
not large, but without them Germany could not have obtained
butter from Denmark, fats and herrings from Norway, or milk and
cattle from Switzerland.
44. 'Some 60,000 Ruhr miners have agreed to work extra shifts --
so-called butter-shifts -- for the purpose of furnishing coal for
export to Denmark, whence butter will be exported in return. The
butter will benefit the miners in the first place, as they have
worked specially to obtain it' (Kölnische Zeitung, 11 June 1919).
45. What of the prospects of whisky-shifts in England?
46. As early as 1 September 1919 the coal commission had to face
the physical impracticability of enforcing the demands of the
treaty, and agreed to modify them as follows: 'Germany shall in
the next six months make deliveries corresponding to an annual
delivery of 20 million tons as compared with 43 millions as
provided in the peace treaty. If Germany's total production
exceeds the present level of about 108 millions a year, 60% of
the extra production, up to 128 millions, shall be delivered to
the Entente, and 50% of any extra beyond that, until the figure
provided in the peace treaty is reached. If the toil production
falls below 108 millions the Entente will examine the situation,
after hearing Germany, and take account of it.'
47. 21,136,265 tons out of a total of 28,607,903 tons. The loss
of iron ore in respect of Upper Silesia is insignificant. The
exclusion of the iron and steel of Luxemburg from the German
customs union is, however, important, especially when this loss
is added to that of Alsace-Lorraine. It may be added in passing
that Upper Silesia includes 75% of the zinc production of
Germany.
48. In April 1919 the British Ministry of Munitions despatched an
expert commission to examine the conditions of the iron and steel
works in Lorraine and the occupied areas of Germany. The Report
states that the iron and steel works in Lorraine, and to a lesser
extent in the Saar Valley, are dependent on supplies of coal and
coke from Westphalia. It is necessary to mix Westphalian coal
with Saar coal to obtain a good furnace coke. The entire
dependence of all the Lorraine iron and steel works upon Germany
for fuel supplies 'places them', says the Report, 'in a very
unenviable position'.
49. Articles 264, 265, 266, and 267. These provisions can only be
extended beyond five years by the council of the League of
Nations.
50. Article 268 (a).
51. Article 268 (b) and (c).
52. The Grand Duchy is also deneutralised and Germany binds
herself to 'accept in advance all international arrangements
which may be concluded by the Allied and Associated Powers
relating to the Grand Duchy' (article 40). At the end of
September 1919 a plebiscite was held to determine whether
Luxemburg should join the French or the Belgian customs union,
which decided by a substantial majority in favour of the former.
The third alternative of the maintenance of the union with
Germany was not left open to the electorate.
53. Article 269.
54. Article 270.
55. The occupation provisions may be conveniently summarised at
this point. German territory situated west of the Rhine, together
with the bridge-heads, is subject to occupation for a period of
fifteen years (article 428). If, however, 'the conditions of the
present treaty are faithfully carried out by Germany', the
Cologne district will be evacuated after five years, and the
Coblenz district after ten years (article 429). It is, however,
further provided that if at the expiration of fifteen years 'the
guarantees against unprovoked aggression by Germany are not
considered sufficient by the Allied and Associated governments,
the evacuation of the occupying troops may be delayed to the
extent regarded as necessary for the purpose of obtaining the
required guarantees' (article 429); and also that 'in case either
during the occupation or after the expiration of the fifteen
years, the reparation commission finds that Germany refuses to
observe the whole or part of her obligations under the present
treaty with regard to reparation, the whole or part of the areas
specified in article 429 will be re-occupied immediately by the
Allied and Associated Powers , (article 430). Since it will be
impossible for Germany to fulfil the whole of her reparation
obligations, the effect of the above provisions will be in
practice that the Allies will occupy the left bank of the Rhine
just so long as they choose. They will also govern it in such
manner as they may determine (e.g. not only as regards customs,
but such matters as the respective authority of the local German
representatives and the Allied governing commission), since 'all
matters relating to the occupation and not provided for by the
present treaty shall be regulated by subsequent agreements, which
Germany hereby undertakes to observe' (article 432). The actual
agreement under which the occupied areas are to be administered
for the present has been published as a White Paper (Cd. 222).
The supreme authority is to be in the hands of an inter-Allied
Rhineland commission, consisting of a Belgian, a French, a
British, and an American member. The articles of this agreement
are very fairly and reasonably drawn.
56. Article 365. After five years this article is subject to
revision by the Council of the League of Nations.
57. The German government withdrew, as from 1 September 1919, all
preferential railway tariffs for the export of iron and steel
goods, on the ground that these privileges would have been more
than counterbalanced by the corresponding privileges which, under
this article of the treaty, they would have been forced to give
to Allied traders.
58. Article 367.
59. Questions of interpretation and application are to be
referred to the League of Nations (article 376).
60. Article 250.
61. Article 371. This provision is even applied 'to the lines of
former Russian Poland converted by Germany to the German gauge,
such lines being regarded as detached from the Prussian state
system'.
62. Articles 332-7. Exception may be taken, however, to the
second paragraph of article 332, which allows the vessels of
other nations to trade between German towns but forbids German
vessels to trade between non-German towns except with special
permission; and article 333, which prohibits Germany from making
use of her river system as a source of revenue, may be
injudicious.
63. The Niemen and the Moselle are to be similarly treated at a
later date if required.
64. Article 338.
65. Article 344. This is with particular reference to the Elbe
and the Oder; the Danube and the Rhine are dealt with in relation
to the existing commissions.
66. Article 339.
67. Article 357.
68. Article 358. Germany is, however, to be allowed some payment
or credit in respect of power so taken by France.
69. Article 66.
Chapter 5: Reparations
I. Undertakings Given Pride to the Peace Negotiations
The categories of damage in respect of which the Allies were
entitled to ask for reparation are governed by the relevant
passages in President Wilson's Fourteen Points of 8 January 1918,
as modified by the Allied governments in their qualifying Note,
the text of which the President formally communicated to the
German government as the basis of peace on 5 November 1918. These
passages have been quoted in full at the beginning of chapter 4.
That is to say, 'compensation will be made by Germany for all
damage done to the civilian population of the Allies and to their
property by the aggression of Germany by land, by sea, and from
the air.' The limiting quality of this sentence is reinforced by
the passage in the President's speech before Congress on 11
February 1918 (the terms of this speech being an express part of
the contract with the enemy), that there shall be 'no
contributions' and 'no punitive damages'.
It has sometimes been argued that the preamble to paragraph
19(1*) of the armistice terms, to the effect 'that any future
claims and demands of the Allies and the United States of America
remain unaffected,' wiped out all precedent conditions, and left
the Allies free to make whatever demands they chose. But it is
not possible to maintain that this casual protective phrase, to
which no one at the time attached any particular importance, did
away with all the formal communications which passed between the
President and the German government as to the basis of the terms
of peace during the days preceding the armistice, abolished the
Fourteen Points, and converted the German acceptance of the
armistice terms into unconditional surrender, so far as affects
the financial clauses. It is merely the usual phrase of the
draftsman who, about to rehearse a list of certain claims, wishes
to guard himself from the implication that such a list is
exhaustive. In any case this contention is disposed of by the
Allied reply to the German observations on the first draft of the
treaty, where it is admitted that the terms of the reparation
chapter must be governed by the President's Note of 5 November.
Assuming then that the terms of this Note are binding, we are
left to elucidate the precise force of the phrase -- 'all damage
done to the civilian population of the Allies and to their
property by the aggression of Germany by land, by sea, and from
the air'. Few sentences in history have given so much work to the
sophists and the lawyers, as we shall see in the next section of
this chapter, as this apparently simple and unambiguous
statement. Some have not scrupled to argue that it covers the
entire cost of the war; for, they point out, the entire cost of
the war has to be met by taxation, and such taxation is 'damaging
to the civilian population'. They admit that the phrase is
cumbrous, and that it would have been simpler to have said 'all
loss and expenditure of whatever description'; and they allow
that the apparent emphasis on damage to the persons and property
of civilians is unfortunate; but errors of draftsmanship should
not, in their opinion, shut off the Allies from the rights
inherent in victors.
But there are not only the limitations of the phrase in its
natural meaning and the emphasis on civilian damages as distinct
from military expenditure generally; it must also be remembered
that the context of the term is in elucidation of the meaning of
the term 'restoration' in the President's Fourteen Points. The
Fourteen Points provide for damage in invaded territory --
Belgium, France, Roumania, Serbia, and Montenegro (Italy being
unaccountably omitted) -- but they do not cover losses at sea by
submarine, bombardments from the sea (as at Scarborough), or
damage done by air raids. It was to repair these omissions, which
involved losses to the life and property of civilians not really
distinguishable in kind from those effected in occupied
territory, that the Supreme Council of the Allies in Paris
proposed to President Wilson their qualifications. At that time
-- the last days of October 1918 -- I do not believe that any
responsible statesman had in mind the exaction from Germany of an
indemnity for the general costs of the war. They sought only to
make it clear (a point of considerable importance to Great
Britain) that reparation for damage done to non-combatants and
their property was not limited to invaded territory (as it would
have been by the Fourteen Points unqualified), but applied
equally to all such damage, whether 'by land, by sea, or from the
air'. It was only at a later stage that a general popular demand
for an indemnity, covering the full costs of the war, made it
politically desirable to practise dishonesty and to try to
discover in the written word what was not there.
What damages, then, can be claimed from the enemy on a strict
interpretation of our engagements?(2*) In the case of the United
Kingdom the bill would cover the following items --
(a) Damage to civilian life and property by the acts of an
enemy government, including damage by air raids, naval
bombardments, submarine warfare, and mines.
(b) Compensation for improper treatment of interned
civilians.
It would not include the general costs of the war or (e.g.)
indirect damage due to loss of trade.
The French claim would include, as well as items
corresponding to the above --
(c) Damage done to the property and persons of civilians in
the war area, and by aerial warfare behind the enemy lines.
(d) Compensation for loot of food, raw materials, livestock,
machinery, household effects, timber, and the like by the enemy
governments or their nationals in territory occupied by them.
(e) Repayment of fines and requisitions levied by the enemy
governments or their officers on French municipalities or
nationals.
(f) Compensation to French nationals deported or compelled to
do forced labour.
In addition to the above there is a further item of more
doubtful character, namely --
(g) The expenses of the relief commission in providing
necessary food and clothing to maintain the civilian French
population in the enemy-occupied districts.
The Belgian claim would include similar items.(3*) If it were
argued that in the case of Belgium something more nearly
resembling an indemnity for general war costs can be justified,
this could only be on the ground of the breach of international
law involved in the invasion of Belgium, whereas, as we have
seen, the Fourteen Points include no special demands on this
ground.(4*) As the cost of Belgian relief under (g), as well as
her general war costs, has been met already by advances from the
British, French, and United States governments, Belgium would
presumably employ any repayment of them by Germany in part
discharge of her debt to these governments, so that any such
demands are, in effect, an addition to the claims of the three
lending governments.
The claims of the other Allies would be compiled on similar
lines. But in their case the question arises more acutely how far
Germany can be made contingently liable for damage done, not by
herself, but by her co-belligerents, Austria-Hungary, Bulgaria,
and Turkey. This is one of the many questions to which the
Fourteen Points give no clear answer; on the one hand, they cover
explicitly in point II damage done to Roumania, Serbia, and
Montenegro, without qualification as to the nationality of the
troops inflicting the damage; on the other hand, the Note of the
Allies speaks of 'German' aggression when it might have spoken of
the aggression of 'Germany and her allies'. On a strict and
literal interpretation, I doubt if claims lie against Germany for
damage done, e.g. by the Turks to the Suez Canal, or by Austrian
submarines in the Adriatic. But it is a case where, if the Allies
wished to strain a point, they could impose contingent liability
on Germany without running seriously contrary to the general
intention of their engagements.
As between the Allies themselves the case is quite different.
It would be an act of gross unfairness and infidelity if France
and Great Britain were to take what Germany could pay and leave
Italy and Serbia to get what they could out of the remains of
Austria-Hungary. As amongst the Allies themselves it is clear
that assets should be pooled and shared out in proportion to
aggregate claims.
In this event, and if my estimate is accepted, as given
below, that Germany's capacity to pay will be exhausted by the
direct and legitimate claims which the Allies hold against her,
the question of her contingent liability for her allies becomes
academic. Prudent and honourable statesmanship would therefore
have given her the benefit of the doubt, and claimed against her
nothing but the damage she had herself caused.
What, on the above basis of claims, would the aggregate
demand amount to? No figures exist on which to base any
scientific or exact estimate, and I give my own guess for what it
is worth, prefacing it with the following observations.
The amount of the material damage done in the invaded
districts has been the subject of enormous, if natural,
exaggeration. A journey through the devastated areas of France is
impressive to the eye and the imagination beyond description.
During the winter of 1918-19, before Nature had cast over the
scene her ameliorating mantle, the horror and desolation of war
was made visible to sight on an extraordinary scale of blasted
grandeur. The completeness of the destruction was evident. For
mile after mile nothing was left. No building was habitable and
no field fit for the plough. The sameness was also striking. One
devastated area was exactly like another -- a heap of rubble, a
morass of shell-holes, and a tangle of wire.(5*) The amount of
human labour which would be required to restore such a
countryside seemed incalculable; and to the returned traveller
any number of milliards of pounds was inadequate to express in
matter the destruction thus impressed upon his spirit. Some
governments for a variety of intelligible reasons have not been
ashamed to exploit these feelings a little.
Popular sentiment is most at fault, I think, in the case of
Belgium. In any event Belgium is a small country, and in its case
the actual area of devastation is a small proportion of the
whole. The first onrush of the Germans in 1914 did some damage
locally; after that the battle-line in Belgium did not sway
backwards and forwards, as in France, over a deep belt of
country. It was practically stationary, and hostilities were
confined to a small corner of the country, much of which in
recent times was backward, poor, and sleepy, and did not include
the active industry of the country. There remains some injury in
the small flooded area, the deliberate damage done by the
retreating Germans to buildings, plant, and transport, and the
loot of machinery, cattle, and other movable property. But
Brussels, Antwerp, and even Ostend are substantially intact, and
the great bulk of the land, which is Belgium's chief wealth, is
nearly as well cultivated as before. The traveller by motor can
pass through and from end to end of the devastated area of
Belgium almost before he knows it; whereas the destruction in
France is on a different kind of scale altogether. Industrially,
the loot has been serious and for the moment paralysing; but the
actual money cost of replacing machinery mounts up slowly, and a
very few tens of millions would have covered the value of every
machine of every possible description that Belgium ever
possessed. Besides, the cold statistician must not overlook the
fact that the Belgian people possess the instinct of individual
self-protection unusually well developed; and the great mass of
German bank-notes(6*) held in the country at the date of the
armistice shows that certain classes of them at least found a
way, in spite of all the severities and barbarities of German
rule, to profit at the expense of the invader. Belgian claims
against Germany such as I have seen, amounting to a sum in excess
of the total estimated pre-war wealth of the whole country, are
simply irresponsible.(7*)
It will help to guide our ideas to quote the official survey
of Belgian wealth published in 1913 by the Finance Ministry of
Belgium, which was as follows:
Million £3
Land 264
Buildings 235
Personal wealth 545
Cash 17
Furniture, etc. 120
Total 1,181
This total yields an average of £3156 per inhabitant, which Dr
Stamp, the highest authority on the subject, is disposed to
consider as prima facie too low (though he does not accept
certain much higher estimates lately current), the corresponding
wealth per head (to take Belgium's immediate neighbours) being
£3167 for Holland, £3244 for Germany, and £3303 for France.(8*) A
total of £31,500 million, giving an average of about £3200 per
head, would, however, be fairly liberal. The official estimate of
land and buildings is likely to be more accurate than the rest.
On the other hand, allowance has to be made for the increased
costs of construction.
Having regard to all these considerations, I do not put the
money value of the actual physical loss of Belgian property by
destruction and loot above £3150 million as a maximum, and while I
hesitate to put yet lower an estimate which differs so widely
from those generally current, I shall be surprised if it proves
possible to substantiate claims even to this amount. Claims in
respect of levies, fines, requisitions, and so forth might
possibly amount to a further £3100 million. If the sums advanced
to Belgium by her allies for the general costs of the war are to
be included, a sum of about £3250 million has to be added (which
includes the cost of relief), bringing the total to £3500 million.
The destruction in France was on an altogether more
significant scale, not only as regards the length of the
battle-line, but also on account of the immensely deeper area of
country over which the battle swayed from time to time. It is a
popular delusion to think of Belgium as the principal victim of
the war; it will turn out, I believe, that taking account of
casualties, loss of property, and burden of future debt, Belgium
has made the least relative sacrifice of all the belligerents
except the United States. Of the Allies, Serbia's sufferings and
loss have been proportionately the greatest, and after Serbia,
France. France in all essentials was just as much the victim of
German ambition as was Belgium, and France's entry into the war
was just as unavoidable. France, in my judgment, in spite of her
policy at the peace conference, a policy largely traceable to her
sufferings, has the greatest claims on our generosity.
The special position occupied by Belgium in the popular mind
is due, of course, to the fact that in 1914 her sacrifice was by
far the greatest of any of the Allies. But after 1914 she played
a minor role. Consequently, by the end of 1918, her relative
sacrifices, apart from those sufferings from invasion which
cannot be measured in money, had fallen behind, and in some
respects they were not even as great as, for example,
Australia's. I say this with no wish to evade the obligations
towards Belgium under which the pronouncements of our responsible
statesmen at many different dates have certainly laid us. Great
Britain ought not to seek any payment at all from Germany for
herself until the just claims of Belgium have been fully
satisfied. But this is no reason why we or they should not tell
the truth about the amount.
While the French claims are immensely greater, here too there
has been excessive exaggeration, as responsible French
statisticians have themselves pointed out. Not above 10% of the
area of France was effectively occupied by the enemy, and not
above 4% lay within the area of substantial devastation. Of the
sixty French towns having a population exceeding 35,000, only two
were destroyed -- Reims (115,178) and St. Quentin (55,571); three
others were occupied -- Lille, Roubaix, and Douai -- and suffered
from loot of machinery and other property, but were not
substantially injured otherwise. Amiens, Calais, Dunkerque, and
Boulogne suffered secondary damage by bombardment and from the
air; but the value of Calais and Boulogne must have been
increased by the new works of various kinds erected for the use
of the British army.
The Annuaire statistique de la France, 1917, values the
entire house property of France at £32,380 million (59.5 milliard
francs).(9*) An estimate current in France of £3800 million (20
milliard francs) for the destruction of house property alone is,
therefore, obviously wide of the mark.(10*) £3120 million at
pre-war prices, or say £3250 million at the present time, is much
nearer the right figure. Estimates of the value of the land of
France (apart from buildings) vary from £32,480 million to £33,116
million, so that it would be extravagant to put the damage on
this head as high as £3100 million. Farm capital for the whole of
France has not been put by responsible authorities above £3420
million.(11*) There remain the loss of furniture and machinery,
the damage to the coal-mines and the transport system, and many
other minor items. But these losses, however serious, cannot be
reckoned in value by hundreds of millions sterling in respect of
so small a part of France. In short, it will be difficult to
establish a bill exceeding £3500 million, for physical and
material damage in the occupied and devastated areas of northern
France.(12*) I am confirmed in this estimate by the opinion of M.
René Pupin, the author of the most comprehensive and scientific
estimate of the pre-war wealth of France,(13*) which I did not
come across until after my own figure had been arrived at. This
authority estimates the material losses of the invaded regions at
from £3400 million to £3600 million (10 to 15 milliards),(14*)
between which my own figure falls half-way.
Nevertheless, M. Dubois, speaking on behalf of the budget
commission of the Chamber, has given the figure of £32,600 million
(65 milliard francs) 'as a minimum' without counting 'war levies,
losses at sea, the roads, or the loss of public monuments'. And
M. Loucheur, the Minister of Industrial Reconstruction, stated
before the Senate on 17 February 1919 that the reconstitution of
the devastated regions would involve an expenditure of £33,000
million (75 milliard francs) -- more than double M. Pupin's
estimate of the entire wealth of their inhabitants. But then at
that time M. Loucheur was taking a prominent part in advocating
the claims of France before the peace conference, and, like
others, may have found strict veracity inconsistent with the
demands of patriotism.(15*)
The figure discussed so far is not, however, the totality of
the French claims. There remain, in particular, levies and
requisitions on the occupied areas and the losses of the French
mercantile marine at sea from the attacks of German cruisers and
submarines. Probably £3200 million would be ample to cover all
such claims. but to be on the safe side, we will, somewhat
arbitrarily, make an addition to the French claim of £3300 million
on all heads, bringing it to £3800 million in all.
The statements of M. Dubois and M. Loucheur were made in the
early spring of 1919. A speech delivered by M. Klotz before the
French Chamber six months later (5 September 1919), was less
excusable. In this speech the French Minister of Finance
estimated the total French claims for damage to property
(presumably inclusive of losses at sea, etc., but apart from
pensions and allowances) at £35,360 million (134 milliard francs),
or more than six times my estimate. Even if my figure prove
erroneous, M. Klotz's can never have been justified. So grave has
been the deception practised on the French people by their
ministers that when the inevitable enlightenment comes, as it
soon must (both as to their own claims and as to Germany's
capacity to meet them), the repercussions will strike at more
than M. Klotz, and may even involve the order of government and
society for which he stands.
British claims on the present basis would be practically
limited to losses by sea-losses of hulls and losses of cargoes.
Claims would lie, of course, for damage to civilian property in
air raids and by bombardment from the sea, but in relation to
such figures as we are now dealing with, the money value involved
is insignificant -- £35 million might cover them all, and £310
million would certainly do so.
The British mercantile vessels lost by enemy action,
excluding fishing vessels, numbered 2,479, with an aggregate of
7,759,090 tons gross.(16*) There is room for considerable
divergence of opinion as to the proper rate to take for
replacement cost; at the figure of £330 per gross ton, which with
the rapid growth of shipbuilding may soon be too high but can be
replaced by any other which better authorities(17*) may prefer,
the aggregate claim is £3230 million. To this must be added the
loss of cargoes, the value of which is almost entirely a matter
of guesswork. An estimate of £340 per ton of shipping lost may be
as good an approximation as is possible, that is to say £3310
million, making £3540 million altogether.
An addition to this of £330 million, to cover air raids,
bombardments, claims of interned civilians, and miscellaneous
items of every description, should be more than sufficient --
making a total claim for Great Britain of £3570 million. It is
surprising, perhaps, that the money value of our claim should be
so little short of that of France and actually in excess of that
of Belgium. But, measured either by pecuniary loss or real loss
to the economic power of the country, the injury to our
mercantile marine was enormous.
There remain the claims of Italy, Serbia, and Roumania for
damage by invasion and of these and other countries, as for
example Greece,(18*) for losses at sea. I will assume for the
present argument that these claims rank against Germany, even
when they were directly caused not by her but by her allies; but
that it is not proposed to enter any such claims on behalf of
Russia.(19*) Italy's losses by invasion and at sea cannot be very
heavy, and a figure of from £350 million to £3100 million would be
fully adequate to cover them. The losses of Serbia, although from
a human point of view her sufferings were the greatest of
all,(20*) are not measured pecuniarily by very great figures, on
account of her low economic development. Dr Stamp (loc. cit.)
quotes an estimate by the Italian statistician Maroi, which puts
the national wealth of Serbia at £3480 million or £3105 per
head,(21*) and the greater part of this would be represented by
land which has sustained no permanent damage.(22*) In view of the
very inadequate data for guessing at more than the general
magnitude of the legitimate claims of this group of countries, I
prefer to make one guess rather than several and to put the
figure for the whole group at the round sum of £3250 million.
We are finally left with the following --
Million £3
Belgium 500(23*)
France 800
Great Britain 570
Other Allies 250
Total 2,120
I need not impress on the reader that there is much guesswork
in the above, and the figure for France in particular is likely
to be criticised. But I feel some confidence that the general
magnitude, as distinct from the precise figures, is not
hopelessly erroneous; and this may be expressed by the statement
that a claim against Germany, based on the interpretation of the
pre-armistice engagements of the Allied Powers which is adopted
above, would assuredly be found to exceed £31,600 million and to
fall short of £33,000 million.
This is the amount of the claim which we were entitled to
present to the enemy. For reasons which will appear more fully
later on, I believe that it would have been a wise and just act
to have asked the German government at the peace negotiations to
agree to a sum of £32,000 million in final settlement without
further examination of particulars. This would have provided an
immediate and certain solution, and would have required from
Germany a sum which, if she were granted certain indulgences, it
might not have proved entirely impossible for her to pay. This
sum should have been divided up amongst the Allies themselves on
a basis of need and general equity.
But the question was not settled on its merits.
II. THE CONFERENCE AND THE TERMS OF THE TREATY
I do not believe that, at the date of the armistice,
responsible authorities in the Allied countries expected any
indemnity from Germany beyond the cost of reparation for the
direct material damage which had resulted from the invasion of
Allied territory and from the submarine campaign. At that time
there were serious doubts as to whether Germany intended to
accept our terms, which in other respects were inevitably very
severe, and it would have been thought an unstatesmanlike act to
risk a continuance of the war by demanding a money payment which
Allied opinion was not then anticipating and which probably could
not be secured in any case. The French, I think, never quite
accepted this point of view; but it was certainly the British
attitude; and in this atmosphere the pre-armistice conditions
were framed.
A month later the atmosphere had changed completely. We had
discovered how hopeless the German position really was, a
discovery which some, though not all, had anticipated, but which
no one had dared reckon on as a certainty. It was evident that we
could have secured unconditional surrender if we had determined
to get it.
But there was another new factor in the situation which was
of greater local importance. The British Prime Minister had
perceived that the conclusion of hostilities might soon bring
with it the break-up of the political bloc upon which he was
depending for his personal ascendancy, and that the domestic
difficulties which would be attendant on demobilisation, the
turnover of industry from war to peace conditions, the financial
situation, and the general psychological reactions of men's
minds, would provide his enemies with powerful weapons, if he
were to leave them time to mature. The best chance, therefore, of
consolidating his power, which was personal and exercised, as
such, independently of party or principle to an extent unusual in
British politics, evidently lay in active hostilities before the
prestige of victory had abated, and in an attempt to found on the
emotions of the moment a new basis of power which might outlast
the inevitable reactions of the near future. Within a brief
period, therefore, after the armistice, the popular victor, at
the height of his influence and his authority, decreed a general
election. It was widely recognised at the time as an act of
political immorality. There were no grounds of public interest
which did not call for a short delay until the issues of the new
age had a little defined themselves, and until the country had
something more specific before it on which to declare its mind
and to instruct its new representatives. But the claims of
private ambition determined otherwise.
For a time all went well. But before the campaign was far
advanced government candidates were finding themselves
handicapped by the lack of an effective cry. The War Cabinet was
demanding a further lease of authority on the ground of having
won the war. But partly because the new issues had not yet
defined themselves, partly out of regard for the delicate balance
of a Coalition party, the Prime Minister's future policy was the
subject of silence or generalities. The campaign seemed,
therefore, to fall a little flat. In the light of subsequent
events it seems improbable that the Coalition party was ever in
real danger. But party managers are easily 'rattled'. The Prime
Minister's more neurotic advisers told him that he was not safe
from dangerous surprises, and the Prime Minister lent an ear to
them. The party managers demanded more 'ginger'. The Prime
Minister looked about for some.
On the assumption that the return of the Prime Minister to
power was the primary consideration, the rest followed naturally.
At that juncture there was a clamour from certain quarters that
the government had given by no means sufficiently clear
undertakings that they were not going 'to let the Hun off'. Mr
Hughes was evoking a good deal of attention by his demands for a
very large indemnity(24*) and Lord Northcliffe was lending his
powerful aid to the same cause. This pointed the Prime Minister
to a stone for two birds. By himself adopting the policy of Mr
Hughes and Lord Northcliffe, he could at the same time silence
those powerful critics and provide his party managers with an
effective platform cry to drown the increasing voices of
criticism from other quarters.
The progress of the General Election of 1918 affords a sad,
dramatic history of the essential weakness of one who draws his
chief inspiration not from his own true impulses, but from the
grosser effluxions of the atmosphere which momentarily surrounds
him. The Prime Minister's natural instincts, as they so often
are, were right and reasonable. He himself did not believe in
hanging the Kaiser or in the wisdom or the possibility of a great
indemnity. On the 22nd of November he and Mr Bonar Law issued
their election manifesto. It contains no allusion of any kind
either to the one or to the other, but, speaking, rather, of
disarmament and the League of Nations, concludes that 'our first
task must be to conclude a just and lasting peace, and so to
establish the foundations of a new Europe that occasion for
further wars may be for ever averted'. In his speech at
Wolverhampton on the eve of the dissolution (24 November), there
is no word of reparation or indemnity. On the following day at
Glasgow, Mr Bonar Law would promise nothing. 'We are going to the
conference,, he said, 'as one of a number of allies, and you
cannot expect a member of the government, whatever he may think,
to state in public before he goes into that conference, what line
he is going to take in regard to any particular question.' But a
few days later at Newcastle (29 November) the Prime Minister was
warming to his work: 'When Germany defeated France she made
France pay. That is the principle which she herself has
established. There is absolutely no doubt about the principle,
and that is the principle we should proceed upon -- that Germany
must pay the costs of the war up to the limit of her capacity to
do so.' But he accompanied this statement of principle with many
' words of warning, as to the practical difficulties of the case:
'We have appointed a strong committee of experts, representing
every shade of opinion, to consider this question very carefully
and to advise us. There is no doubt as to the justice of the
demand. She ought to pay, she must pay as far as she can, but we
are not going to allow her to pay in such a way as to wreck our
industries.' At this stage the Prime Minister sought to indicate
that he intended great severity, without raising excessive hopes
of actually getting the money, or committing himself to a
particular line of action at the conference. It was rumoured that
a high City authority had committed himself to the opinion that
Germany could certainly pay £320,000 million and that this
authority for his part would not care to discredit a figure of
twice that sum. The Treasury officials, as Mr Lloyd George
indicated, took a different view. He could, therefore, shelter
himself behind the wide discrepancy between the opinions of his
different advisers, and regard the precise figure of Germany's
capacity to pay as an open question in the treatment of which he
must do his best for his country's interests. As to our
engagements under the Fourteen Points he was always silent.
On 30 November, Mr Barnes, a member of the War Cabinet, in
which he was supposed to represent Labour, shouted from a
platform, 'I am for hanging the Kaiser.'
On 6 December, the Prime Minister issued a statement of
policy and aims in which he stated, with significant emphasis on
the word European, that 'All the European Allies have accepted
the principle that the Central Powers must pay the cost of the
war up to the limit of their capacity.'
But it was now little more than a week to polling day, and
still he had not said enough to satisfy the appetites of the
moment. On 8 December The Times, providing as usual a cloak of
ostensible decorum for the lesser restraint of its associates,
declared in a leader entitled 'Making Germany pay,' that 'the
public mind was still bewildered by the Prime Minister's various
statements.' 'There is too much suspicion', they added, 'of
influences concerned to let the Germans off lightly 'whereas the
only possible motive in determining their capacity to pay must be
the interests of the Allies.' 'It is the candidate who deals with
the issues of today,' wrote their political correspondent, 'who
adopts Mr Barnes's phrase about "hanging the Kaiser" and plumps
for the payment of the cost of the war by Germany, who rouses his
audience and strikes the notes to which they are most
responsive.'
On 9 December, at the Queen's Hall, the Prime Minister
avoided the subject. But from now on, the debauchery of thought
and speech progressed hour by hour. The grossest spectacle was
provided by Sir Eric Geddes in the Guildhall at Cambridge. An
earlier speech in which, in a moment of injudicious candour, he
had cast doubts on the possibility of extracting from Germany the
whole cost of the war had been the object of serious suspicion,
and he had therefore a reputation to regain. 'We will get out of
her all you can squeeze out of a lemon and a bit more,' the
penitent shouted, 'I will squeeze her until you can hear the
pips, squeak'; his policy was to take every bit of property
belonging to Germans in neutral and Allied countries, and all her
gold and silver and her jewels, and the contents of her
picture-galleries and libraries, to sell the proceeds for the
Allies' benefit. 'I would strip Germany,' he cried, 'as she has
stripped Belgium.'
By 11 December the Prime Minister had capitulated. His final
manifesto of six points issued on that day to the electorate
furnishes a melancholy comparison with his programme of three
weeks earlier. I quote it in full:
1. Trial of the Kaiser.
2. Punishment of those responsible for atrocities.
3. Fullest indemnities from Germany.
4. Britain for the British, socially and
industrially.
5. rehabilitation of those broken in the war.
6. A happier country for all.
Here is food for the cynic. To this concoction of greed and
sentiment, prejudice and deception, three weeks of the platform
had reduced the powerful governors of England, who but a little
while before had spoken not ignobly of disarmament and a League
of Nations and of a just and lasting peace which should establish
the foundations of a new Europe.
On the same evening the Prime Minister at Bristol withdrew in
effect his previous reservations and laid down four principles to
govern his indemnity policy, of which the chief were: First, we
have an absolute right to demand the whole cost of the war;
second, we propose to demand the whole cost of the war; and
third, a committee appointed by direction of the Cabinet believe
that it can be done.(25*) Four days later he went to the polls.
The Prime Minister never said that he himself believed that
Germany could pay the whole cost of the war. But the programme
became in the mouths of his supporters on the hustings a great
deal more concrete. The ordinary voter was led to believe that
Germany could certainly be made to pay the greater part, if not
the whole cost of the war. Those whose practical and selfish
fears for the future the expenses of the war had aroused, and
those whose emotions its horrors had disordered, were both
provided for. A vote for a Coalition candidate meant the
crucifixion of Antichrist and the assumption by Germany of the
British national debt.
It proved an irresistible combination, and once more Mr
George's political instinct was not at fault. No candidate could
safely denounce this programme, and none did so. The old Liberal
party, having nothing comparable to offer to the electorate, was
swept out of existence.(26*) A new House of Commons came into
being, a majority of whose members had pledged themselves to a
great deal more than the Prime Minister's guarded promises.
Shortly after their arrival at Westminster I asked a Conservative
friend, who had known previous Houses, what he thought of them.
'They are a lot of hard-faced men', he said, 'who look as if they
had done very well out of the war.'
This was the atmosphere in which the Prime Minister left for
Paris, and these the entanglements he had made for himself. He
had pledged himself and his government to make demands of a
helpless enemy inconsistent with solemn engagements on our part,
on the faith of which this enemy had laid down his arms. There
are few episodes in history which posterity will have less reason
to condone -- a war ostensibly waged in defence of the sanctity
of international engagements ending a definite breach of one of
the most sacred possible of such engagements on the part of the
victorious champions of these ideals.(27*)
Apart from other aspects of the transaction, I believe that
the campaign for securing out of Germany the general costs of the
war was one of the most serious acts of political unwisdom for
which our statesmen have ever been responsible. To what a
different future Europe might have looked forward if either Mr
Lloyd George or Mr Wilson had apprehended that the most serious
of the problems which claimed their attention were not political
or territorial but financial and economic, and that the perils of
the future lay not in frontiers or sovereignties but in food,
coal, and transport. Neither of them paid adequate attention to
these problems at any stage of the conference. But in any event
the atmosphere for the wise and reasonable consideration of them
was hopelessly befogged by the commitments of the British
delegation on the question of indemnities. The hopes to which the
Prime Minister had given rise not only compelled him to advocate
an unjust and unworkable economic basis to the treaty with
Germany, but set him at variance with the President, and on the
other hand with competing interests to those of France and
Belgium. The clearer it became that but little could be expected
from Germany, the more necessary it was to exercise patriotic
greed and 'sacred egotism' and snatch the bone from the juster
claims and greater need of France or the well-founded
expectations of Belgium. Yet the financial problems which were
about to exercise Europe could not be solved by greed. The
possibility of their cure lay in magnanimity.
Europe, if she is to survive her troubles, will need so much
magnanimity from America, that she must herself practise it. It
is useless for the Allies, hot from stripping Germany and one
another, to turn for help to the United States to put the states
of Europe, including Germany, on to their feet again. If the
General Election of December 1918 had been fought on lines of
prudent generosity instead of imbecile greed, how much better the
financial prospect of Europe might now be. I still believe that
before the main conference, or very early in its proceedings, the
representatives of Great Britain should have entered deeply, with
those of the United States, into the economic and financial
situation as a whole, and that the former should have been
authorised to make concrete proposals on the general lines (1)
that all inter-Allied indebtedness be cancelled outright; (2)
that the sum to be paid by Germany be fixed at £32,000 million;
(3) that Great Britain renounce all claim to participation in
this sum, and that any share to which she proves entitled be
placed at the disposal of the conference for the purpose of
aiding the finances of the new states about to be established;
(4) that in order to make some basis of credit immediately
available an appropriate proportion of the German obligations
representing the sum to be paid by her should be guaranteed by
all parties to the treaty; and (5) that the ex-enemy Powers
should also be allowed, with a view to their economic
restoration, to issue a moderate amount of bonds carrying a
similar guarantee. Such proposals involved an appeal to the
generosity of the United States. But that was inevitable; and, in
view of her far less financial sacrifices, it was an appeal which
could fairly have been made to her. Such proposals would have
been practicable. There is nothing in them quixotic or Utopian.
And they would have opened up for Europe some prospect of
financial stability and reconstruction.
The further elaboration of these ideas, however, must be left
to chapter 7, and we must return to Paris. I have described the
entanglements which Mr Lloyd George took with him. The position
of the finance ministers of the other Allies was even worse. We
in Great Britain had not based our financial arrangements on any
expectation of an indemnity. Receipts from such a source would
have been more or less in the nature of a windfall; and, in spite
of subsequent developments, there was an expectation at that time
of balancing our budget by normal methods. But this was not the
case with France or Italy. Their peace budgets made no pretence
of balancing, and had no prospects of doing so, without some
far-reaching revision of the existing policy. Indeed, the
position was and remains nearly hopeless. These countries were
heading for national bankruptcy. This fact could only be
concealed by holding out the expectation of vast receipts from
the enemy. As soon as it was admitted that it was in fact
impossible to make Germany pay the expenses of both sides, and
that the unloading of their liabilities upon the enemy was not
practicable, the position of the Ministers of Finance of France
and Italy became untenable.
Thus a scientific consideration of Germany's capacity to pay
was from the outset out of court. The expectations which the
exigencies of politics had made it necessary to raise were so
very remote from the truth that a slight distortion of figures
was no use, and it was necessary to ignore the facts entirely.
The resulting unveracity was fundamental. On a basis of so much
falsehood it became impossible to erect any constructive
financial policy which was workable. For this reason amongst
others, a magnanimous financial policy was essential. The
financial position of France and Italy was so bad that it was
impossible to make them listen to reason on the subject of the
German indemnity, unless one could at the same time point out to
them some alternative mode of escape from their troubles.(28*)
The representatives of the United States were greatly at fault,
in my judgment, for having no constructive proposals whatever to
offer to a suffering and distracted Europe.
It is worth while to point out in passing a further element
in the situation, namely, the opposition which existed between
the 'crushing' policy of M. Clemenceau and the financial
necessities of M. Klotz. Clemenceau's aim was to weaken and
destroy Germany in every possible way, and I fancy that he was
always a little contemptuous about the indemnity; he had no
intention of leaving Germany in a position to practise a vast
commercial activity. But he did not trouble his head to
understand either the indemnity or poor M. Klotz's overwhelming
financial difficulties. If it amused the financiers to put into
the treaty some very large demands, well there was no harm in
that; but the satisfaction of these demands must not be allowed
to interfere with the essential requirements of a Carthaginian
peace. The combination of the 'real' policy of M. Clemenceau on
unreal issues, with M. Klotz's policy of pretence on what were
very real issues indeed, introduced into the treaty a whole set
of incompatible provisions, over and above the inherent
impracticabilities of the reparation proposals.
I cannot here describe the endless controversy and intrigue
between the Allies themselves, which at last after some months
culminated in the presentation to Germany of the reparation
chapter in its final form. There can have been few negotiations
in history so contorted, so miserable, so utterly unsatisfactory
to all parties. I doubt if anyone who took much part in that
debate can look back on it without shame. I must be content with
an analysis of the elements of the final compromise which is
known to all the world.
The main point to be settled was, of course, that of the
items for which Germany could fairly be asked to make payment. Mr
Lloyd George's election pledge to the effect that the Allies were
entitled to demand from Germany the entire costs of the war was
from the outset clearly untenable; or rather, to put it more
impartially, it was clear that to persuade the President of the
conformity of this demand with our pre-armistice engagements was
beyond the powers of the most plausible. The actual compromise
finally reached is to be read as follows in the paragraphs of the
treaty as it has been published to the world.
Article 231 reads: 'The Allied and Associated governments
affirm and Germany accepts the responsibility of Germany and her
allies for causing all the loss and damage to which the Allied
and Associated governments and their nationals have been
subjected as a consequence of the war imposed upon them by the
aggression of Germany and her allies.' This is a well and
carefully drafted article; for the President could read it as
statement of admission on Germany's part of moral responsibility
for bringing about the war, while the Prime Minister could
explain it as an admission of financial liability for the general
costs of the war. Article 232 continues: 'The Allied and
Associated governments recognise that the resources of Germany
are not adequate, after taking into account permanent diminutions
of such resources which will result from other provisions of the
present treaty, to make complete reparation for all such loss and
damage.' The President could comfort himself that this was no
more than a statement of undoubted fact, and that to recognise
that Germany cannot pay a certain claim does not imply that she
is liable to pay the claim; but the Prime Minister could point
out that in the context it emphasises to the reader the
assumption of Germany's theoretic liability asserted in the
preceding article. Article 232 proceeds: 'The Allied and
Associated governments, however, require, and Germany undertakes,
that she will make compensation for all damage done to the
civilian population of the Allied and Associated Powers and to
their property during the period of the belligerency of each as
an Allied or Associated Power against Germany by such aggression
by land, by sea, and from the air, and in general all damage as
defined in annex I hereto.'(29*) The words italicised, being
practically a quotation from the pre-armistice conditions,
satisfied the scruples of the President, while the additions of
the words 'and in general all damage as defined in annex I
hereto' gave the Prime Minister a chance in annex I.
So far, however, all this is only a matter of words, of
virtuosity in draftsmanship, which does no one any harm, and
which probably seemed much more important at the time than it
ever will again between now and judgment day. For substance we
must turn to annex I.
A great part of annex I is in strict conformity with the pre-
armistice conditions or, at any rate, does not strain them beyond
what is fairly arguable. Paragraph 1 claims damage done for
injury to the persons of civilians or, in the case of death, to
their dependants, as a direct consequence of acts of war;
paragraph 2, for acts of cruelty, violence, or maltreatment on
the part of the enemy towards civilian victims; paragraph 3, for
enemy acts injurious to health or capacity to work or to honour
towards civilians in occupied or invaded territory; paragraph 8,
for forced labour exacted by the enemy from civilians; paragraph
9, for damage done to property 'with the exception of naval and
military works or materials' as a direct consequence of
hostilities; and paragraph 10, for fines and levies imposed by
the enemy upon the civilian population. All these demands are
just and in conformity with the Allies' rights.
Paragraph 4, which claims for 'damage caused by any kind of
maltreatment of prisoners of war', is more doubtful on the strict
letter, but may be justifiable under the Hague convention and
involves a very small sum.
In paragraphs 5, 6, and 7, however, an issue of immensely
greater significance is involved. These paragraphs assert a claim
for the amount of the separation and similar allowances granted
during the war by the Allied governments to the families of
mobilised persons, and for the amount of the pensions and
compensations in respect of the injury or death of combatants
payable by these governments now and hereafter. Financially this
adds to the bill, as we shall see below, a very large amount,
indeed about twice as much again as all the other claims added
together.
The reader will readily apprehend what a plausible case can
be made out for the inclusion of these items of damage, if only
on sentimental grounds. It can be pointed out, first of all, that
from the point of view of general fairness it is monstrous that a
woman whose house is destroyed should be entitled to claim from
the enemy whilst a woman whose husband is killed on the field of
battle should not be so entitled; or that a farmer deprived of
his farm should claim but that a woman deprived of the earning
power of her husband should not claim. In fact the case for
including pensions and separation allowances largely depends on
exploiting the rather arbitrary character of the criterion laid
down in the pre-armistice conditions. Of all the losses caused by
war some bear more heavily on individuals and some are more
evenly distributed over the community as a whole; but by means of
compensations granted by the government many of the former are in
fact converted into the latter. The most logical criterion for a
limited claim, falling short of the entire costs of the war,
would have been in respect of enemy acts contrary to
international engagements or the recognised practices of warfare.
But this also would have been very difficult to apply and unduly
unfavourable to French interests as compared with Belgium (whose
neutrality Germany had guaranteed) and Great Britain (the chief
sufferer from illicit acts of submarines).
In any case the appeals to sentiment and fairness outlined
above are hollow; for it makes no difference to the recipient of
a separation allowance or a pension whether the state which pays
them receives compensation on this or on another head, and a
recovery by the state out of indemnity receipts is just as much
in relief of the general taxpayer as a contribution towards the
general costs of the war would have been. But the main
consideration is that it was too late to consider whether the
pre-armistice conditions were perfectly judicious and logical or
to amend them; the only question at issue was whether these
conditions were not in fact limited to such classes of direct
damage to civilians and their property as are set forth in
paragraphs 1, 2, 3, 8, 9, and 10 of annex I. If words have any
meaning, or engagements any force, we had no more right to claim
for those war expenses of the state which arose out of pensions
and separation allowances, than for any other of the general
costs of the war. And who is prepared to argue in detail that we
were entitled to demand the latter?
What had really happened was a compromise between the Prime
Minister's pledge to the British electorate to claim the entire
costs of the war and the pledge to the contrary which the Allies
had given to Germany at the armistice. The Prime Minister could
claim that although he had not secured the entire costs of the
war, he had nevertheless secured an important contribution
towards them, that he had always qualified his promises by the
limiting condition of Germany's capacity to pay, and that the
bill as now presented more than exhausted this capacity as
estimated by the more sober authorities. The President, on the
other hand, had secured a formula which was not too obvious a
breach of faith, and had avoided a quarrel with his associates on
an issue where the appeals to sentiment and passion would all
have been against him, in the event of its being made a matter of
open popular controversy. In view of the Prime Minister's
election pledges, the President could hardly hope to get him to
abandon them in their entirety without a struggle in public; and
the cry of pensions would have had an overwhelming popular appeal
in all countries. Once more the Prime Minister had shown himself
a political tactician of a high order.
A further point of great difficulty may be readily perceived
between the lines of the treaty. It fixes no definite sum as
representing Germany's liability. This feature has been the
subject of very general criticism -- that it is equally
inconvenient to Germany and to the Allies themselves that she
should not know what she has to pay or they what they are to
receive. The method, apparently contemplated by the treaty, of
arriving at the final result over a period of many months by an
addition of hundreds of thousands of individual claims for damage
to land, farm buildings, and chickens, is evidently
impracticable; and the reasonable course would have been for both
parties to compound for a round sum without examination of
details. If this round sum had been named in the treaty, the
settlement would have been placed on a more business-like basis.
But this was impossible for two reasons. Two different kinds
of false statement had been widely promulgated, one as to
Germany's capacity to pay, the other as to the amount of the
Allies' just claims in respect of the devastated areas. The
fixing of either of these figures presented a dilemma. A figure
for Germany's prospective capacity to pay, not too much in excess
of the estimates of most candid and well-informed authorities,
would have fallen hopelessly far short of popular expectations
both in England and in France. On the other hand, a definitive
figure for damage done which would not disastrously disappoint
the expectations which had been raised in France and Belgium
might have been incapable of substantiation under challenge,(30*)
and open to damaging criticism on the part of the Germans, who
were believed to have been prudent enough to accumulate
considerable evidence as to the extent of their own misdoings.
By far the safest course for the politicians was, therefore,
to mention no figure at all; and from this necessity a great deal
of the complication of the reparation chapter essentially
springs.
The reader may be interested, however, to have my estimate of
the claim which can in fact be substantiated under annex I of the
reparation chapter. In the first section of this chapter I have
already guessed the claims other than those for pensions and
separation allowances at £33,000 million (to take the extreme
upper limit of my estimate). The claim for pensions and
separation allowances under annex I is not to be based on the
actual cost of these compensations to the governments concerned,
but is to be a computed figure calculated on the basis of the
scales in force in France at the date of the treaty's coming into
operation. This method avoids the invidious course of valuing an
American or a British life at a higher figure than a French or an
Italian. The French rate for pensions and allowances is at an
intermediate rate, not so high as the American or British, but
above the Italian, the Belgian, or the Serbian. The only data
required for the calculation are the actual French rates, and the
numbers of men mobilised and of the casualties in each class of
the various Allied armies. None of these figures are available in
detail, but enough is known of the general level of allowances,
of the numbers involved, and of the casualties suffered to allow
of an estimate which may not be very wide of the mark. My guess
as to the amount to be added in respect of pensions and
allowances is as follows:
Million £3
British Empire 1,400
France 2,400(31*)
Italy 500
Others
(including United States) 700
Total 5,000
I feel much more confidence in the approximate accuracy of
the total figure(32*) than in its division between the different
claimants. The reader will observe that in any case the addition
of pensions and allowances enormously increases the aggregate
claim, raising it indeed by nearly double. Adding this figure to
the estimate under other heads, we have a total claim against
Germany of £38,000 million.(33*) I believe that this figure is
fully high enough, and that the actual result may fall somewhat
short of it.(34*) In the next section of this chapter the
relation of this figure to Germany's capacity to pay will be
examined. It is only necessary here to remind the reader of
certain other particulars of the treaty which speak for
themselves:
(1) Out of the total amount of the claim, whatever it
eventually turns out to be, a sum of £31,000 million must be paid
before 1 May 1921. The possibility of this will be discussed
below. But the treaty itself provides certain abatements. In the
first place, this sum is to include the expenses of the armies of
occupation since the armistice (a large charge of the order of
magnitude of £3200 million which under another article of the
treaty -- no. 249 -- is laid upon Germany).(35*) But further,
'such supplies of food and raw materials as may be judged by the
governments of the Principal Allied and Associated Powers to be
essential to enable Germany to meet her obligations for
reparation may also, with the approval of the said governments,
be paid for out of the above sum.'(36*) This is a qualification
of high importance. The clause, as it is drafted, allows the
finance ministers of the Allied countries to hold out to their
electorates the hope of substantial payments at an early date,
while at the same time it gives to the reparation commission a
discretion, which the force of facts will compel them to
exercise, to give back to Germany what is required for the
maintenance of her economic existence. This discretionary power
renders the demand for an immediate payment of £31,000 million
less injurious than it would otherwise be, but nevertheless it
does not render it innocuous. In the first place, my conclusions
in the next section of this chapter indicate that this sum cannot
be found within the period indicated, even if a large proportion
is in practice returned to Germany for the purpose of enabling
her to pay for imports. In the second place, the reparation
commission can only exercise its discretionary power effectively
by taking charge of the entire foreign trade of Germany, together
with the foreign exchange arising out of it, which will be quite
beyond the capacity of any such body. If the reparation
commission makes any serious attempt to administer the collection
of this sum of £31,000 million, and to authorise the return to
Germany of a part of it, the trade of Central Europe will be
strangled by bureaucratic regulation in its most inefficient
form.
(2) In addition to the early payment in cash or kind of a sum
of £31,000 million, Germany is required to deliver bearer bonds to
a further amount of £32,000 million or, in the event of the
payments in cash or kind before 1 May 1921, available for
reparation, falling short of £31,000 million by reason of the
permitted deductions, to such further amount as shall bring the
total payments by Germany in cash, kind, and bearer bonds up to 1
May 1921, to a figure of £33,000 million altogether.(37*) These
bearer bonds carry interest at 2 1/2% per annum from 1921 to
1925, and at 5% plus 1% for amortisation thereafter. Assuming,
therefore, that Germany is not able to provide any appreciable
surplus towards reparation before 1921, she will have to find a
sum of £375 million annually from 1921 to 1925, and £3180 million
annually thereafter.(38*)
(3) As soon as the reparation commission is satisfied that
Germany can do better than this, 5% bearer bonds are to be issued
for a further £32,000 million, the rate of amortisation being
determined by the commission hereafter. This would bring the
annual payment to £328O million without allowing anything for the
discharge of the capital of the last £32,000 million.
(4) Germany's liability, however, is not limited to £35,000
million, and the reparation commission is to demand further
instalments of bearer bonds until the total enemy liability under
annex I has been provided for. On the basis of my estimate of
£38,000 million for the total liability, which is more likely to
be criticised as being too low than as being too high, the amount
of this balance will be £33,000 million. Assuming interest at 5%,
this will raise the annual payment to £3430 million. without
allowance for amortisation.
(5) But even this is not all. There is a further provision of
devastating significance. Bonds representing payments in excess
of £33,000 million are not to be issued until the commission is
satisfied that Germany can meet the interest on them. But this
does not mean that interest is remitted in the meantime. As from
1 May 1921, interest is to be debited to Germany on such part of
her outstanding debt as has not been covered by payment in cash
or kind or by the issue of bonds as above,(39*) and 'the rate of
interest shall be 5 per cent unless the commission shall
determine at some future time that circumstances justify a
variation of this rate.' That is to say, the capital sum of
indebtedness is rolling up all the time at compound interest. The
effect of this provision towards increasing the burden is, on the
assumption that Germany cannot pay very large sums at first,
enormous. At 5% compound interest a capital sum doubles itself in
fifteen years. On the assumption that Germany cannot pay more
than £3150 million annually until 1936 (i.e. 5% interest on £33,000
million) the £35,000 million on which interest is deferred will
have risen to £310,000 million, carrying an annual interest charge
of £3500 million. That is to say, even if Germany pays £3150
million annually up to 1936, she will nevertheless owe us at that
date more than half as much again as she does now (£313,000
million as compared with £38,000 million). From 1936 onwards she
will have to pay to us £3650 million annually in order to keep
pace with the interest alone. At the end of any year in which she
pays less than this sum she will owe more than she did at the
beginning of it. And if she is to discharge the capital sum in
thirty years from 1936, i.e. in forty-eight years from the
armistice, she must pay an additional £3130 million annually,
making £3780 million in all.(40*)
It is, in my judgment, as certain as anything can be, for
reasons which I will elaborate in a moment, that Germany cannot
pay anything approaching this sum. Until the treaty is altered,
therefore, Germany has in effect engaged herself to hand over to
the Allies the whole of her surplus production in perpetuity.
(6) This is not less the case because the reparation
commission has been given discretionary powers to vary the rate
of interest, and to postpone and even to cancel the capital
indebtedness. In the first place, some of these powers can only
be exercised if the commission or the governments represented on
it are unanimous.(41*) But also, which is perhaps more important,
it will be the duty of the reparation commission, until there has
been a unanimous and far-reaching change of the policy which the
treaty represents, to extract from Germany year after year the
maximum sum obtainable. There is a great difference between
fixing a definite sum, which though large is within Germany's
capacity to pay and yet to retain a little for herself, and
fixing a sum far beyond her capacity, which is then to be reduced
at the discretion of a foreign commission acting with the object
of obtaining each year the maximum which the circumstances of
that year permit. The first still leaves her with some slight
incentive for enterprise, energy, and hope. The latter skins her
alive year by year in perpetuity, and however skilfully and
discreetly the operation is performed, with whatever regard for
not killing the patient in the process, it would represent a
policy which, if it were really entertained and deliberately
practised, the judgment of men would soon pronounce to be one of
the most outrageous acts of a cruel victor in civilised history.
There are other functions and powers of high significance
which the treaty accords to the reparation commission. But these
will be most conveniently dealt with in a separate section.
III. GERMANY'S CAPACITY TO PAY
The forms in which Germany can discharge the sum which she
has engaged herself to pay are three in number --
(1) immediately transferable wealth in the form of gold,
ships, and foreign securities; (2) the value of property in ceded
territory, or surrendered under the armistice; (3) annual
payments spread over a term of years, partly in cash and partly
in materials such as coal products, potash, and dyes.
There is excluded from the above the actual restitution of
property removed from territory occupied by the enemy, as, for
example, Russian gold, Belgian and French securities, cattle,
machinery, and works of art. In so far as the actual goods taken
can be identified and restored, they must clearly be returned to
their rightful owners, and cannot be brought into the general
reparation pool. This is expressly provided for in article 238 of
the treaty.
1. Immediately transferable wealth
(a) Gold. After deduction of the gold to be returned to
Russia, the official holding of gold as shown in the Reichsbank's
return of 30 November 1918 amounted to £3115,417,900. This was a
very much larger amount than had appeared in the Reichsbank's
return prior to the war,(42*) and was the result of the vigorous
campaign carried on in Germany during the war for the surrender
to the Reichsbank not only of gold coin but of gold ornaments of
every kind. Private hoards doubtless still exist but, in view of
the great efforts already made, it is unlikely that either the
German government or the Allies will be able to unearth them. The
return can therefore be taken as probably representing the
maximum amount which the German government are able to extract
from their people. In addition to gold there was in the
Reichsbank a sum of about £31 million in silver. There must be,
however, a further substantial amount in circulation, for the
holdings of the Reichsbank were as high as £39.1 million on 31
December 1917, and stood at about £36 million up to the latter
part of October 1918, when the internal run began on currency of
every kind.(43*) We may, therefore, take a total of (say) £3125
million for gold and silver together at the date of the
armistice.
These reserves, however, are no longer intact. During the
long period which elapsed between the armistice and the peace it
became necessary for the Allies to facilitate the provisioning of
Germany from abroad. The political condition of Germany at that
time and the serious menace of Spartacism rendered this step
necessary in the interests of the Allies themselves if they
desired the continuance in Germany of a stable government to
treat with. The question of how such provisions were to be paid
for presented, however, the gravest difficulties. A series of
conferences was held at Trèves, at Spa, at Brussels, and
subsequently at Château Villette and Versailles, between
representatives of the Allies and of Germany, with the object of
finding some method of payment as little injurious as possible to
the future prospects of reparation payments. The German
representatives maintained from the outset that the financial
exhaustion of their country was for the time being so complete
that a temporary loan from the Allies was the only possible
expedient. This the Allies could hardly admit at a time when they
were preparing demands for the immediate payment by Germany of
immeasurably larger sums. But, apart from this, the German claim
could not be accepted as strictly accurate so long as their gold
was still untapped and their remaining foreign securities
unmarketed. In any case, it was out of the question to suppose
that in the spring of 1919 public opinion in the Allied countries
or in America would have allowed the grant of a substantial loan
to Germany. On the other hand, the Allies were naturally
reluctant to exhaust on the provisioning of Germany the gold
which seemed to afford one of the few obvious and certain sources
for reparation. Much time was expended in the exploration of all
possible alternatives. but it was evident at last that, even if
German exports and saleable foreign securities had been available
to a sufficient value, they could not be liquidated in time, and
that the financial exhaustion of Germany was so complete that
nothing whatever was immediately available in substantial amounts
except the gold in the Reichsbank. Accordingly a sum exceeding
£350 million in all out of the Reichsbank gold was transferred by
Germany to the Allies (chiefly to the United States, Great
Britain, however, also receiving a substantial sum) during the
first six months of 1919 in payment for foodstuffs.
But this was not all. Although Germany agreed, under the
first extension of the armistice, not to export gold without
Allied permission, this permission could not be always withheld.
There were liabilities of the Reichsbank accruing in the
neighbouring neutral countries, which could not be met otherwise
than in gold. The failure of the Reichsbank to meet its
liabilities would have caused a depreciation of the exchange so
injurious to Germany's credit as to react on the future prospects
of reparation. In some cases, therefore, permission to export
gold was accorded to the Reichsbank by the Supreme Economic
Council of the Allies.
The net result of these various measures was to reduce the
gold reserve of the Reichsbank by more than half, the figures
falling from £3115 million to £355 million in September 1919.
It would be possible under the treaty to take the whole of
this latter sum for reparation purposes. It amounts, however, as
it is, to less than 4 % of the Reichsbank's note issue, and the
psychological effect of its total confiscation might be expected
(having regard to the very large volume of mark-notes held
abroad) to destroy the exchange value of the mark almost
entirely. A sum of £35 million, £310 million, or even £320 million
might be taken for a special purpose. But we may assume that the
reparation commission will judge it imprudent, having regard to
the reaction on their future prospects of securing payment, to
ruin the German currency system altogether, more particularly
because the French and Belgian governments, being holders of a
very large volume of mark-notes formerly circulating in the
occupied or ceded territory have a great interest in maintaining
some exchange value for the mark, quite apart from reparation
prospects.
It follows, therefore, that no sum worth speaking of can be
expected in the form of gold or silver towards the initial
payment of £31,000 million due by 1921.
(b) Shipping. Germany has engaged, as we have seen above, to
surrender to the Allies virtually the whole of her merchant
shipping. A considerable part of it, indeed, was already in the
hands of the Allies prior to the conclusion of peace, either by
detention in their ports or by the provisional transfer of
tonnage under the Brussels agreement in connection with the
supply of foodstuffs.(44*) Estimating the tonnage of German
shipping to be taken over under the treaty at 4 million gross
tons, and the average value per ton at £330 per ton, the total
money value involved is £3120 million.(45*)
(c) Foreign securities. Prior to the census of foreign
securities carried out by the German government in September
1916,(46*) of which the exact results have not been made public,
no official return of such investments was ever called for in
Germany, and the various unofficial estimates are confessedly
based on insufficient data, such as the admission of foreign
securities to the German stock exchanges, the receipts of the
stamp duties, consular reports, etc. The principal German
estimates current before the war are given in the appended
footnote.(47*) This shows a general consensus of opinion among
German authorities that their net foreign investments were
upwards of £31,250 million. I take this figure as the basis of my
calculations, although I believe it to be an exaggeration; £31,000
million would probably be a safer figure.
Deductions from this aggregate total have to be made under
four heads.
(i) Investments in Allied countries and in the United States,
which between them constitute a considerable part of the world,
have been sequestrated by Public Trustees, custodians of enemy
property, and similar officials, and are not available for
reparation except in so far as they show a surplus over various
private claims. Under the scheme for dealing with enemy debts
outlined in chapter 4, the first charge on these assets is the
private claims of Allied against German nationals. It is
unlikely, except in the United States, that there will be any
appreciable surplus for any other purpose.
(ii) Germany's most important fields of foreign investment
before the war were not, like ours, overseas, but in Russia,
Austria-Hungary, Turkey, Roumania, and Bulgaria. A great part of
these has now become almost valueless, at any rate for the time
being; especially those in Russia and Austria-Hungary. If present
market value is to be taken as the test, none of these
investments are now saleable above a nominal figure. Unless the
Allies are prepared to take over these securities much above
their nominal market valuation, and hold them for future
realisation, there is no substantial source of funds for
immediate payment in the form of investments in these countries.
(iii) While Germany was not in a position to realise her
foreign investments during the war to the degree that we were,
she did so nevertheless in the case of certain countries and to
the extent that she was able. Before the United States came into
the war, she is believed to have resold a large part of the pick
of her investments in American securities, although some current
estimates of these sales (a figure of £360 million has been
mentioned) are probably exaggerated. But throughout the war and
particularly in its later stages, when her exchanges were weak
and her credit in the neighbouring neutral countries was becoming
very low, she was disposing of such securities as Holland,
Switzerland, and Scandinavia would buy or would accept as
collateral. It is reasonably certain that by June 1919 her
investments in these countries had been reduced to a negligible
figure and were far exceeded by her liabilities in them. Germany
has also sold certain overseas securities, such as Argentine
cedulas, for which a market could be found.
(iv) It is certain that since the armistice there has been a
great flight abroad of the foreign securities still remaining in
private hands. This is exceedingly difficult to prevent. German
foreign investments are as a rule in the form of bearer
securities and are not registered. They are easily smuggled
abroad across Germany's extensive land frontiers, and for some
months before the conclusion of peace it was certain that their
owners would not be allowed to retain them if the Allied
governments could discover any method of getting hold of them.
These factors combined to stimulate human ingenuity, and the
efforts both of the Allied and of the German governments to
interfere effectively with the outflow are believed to have been
largely futile.
In face of all these considerations, it will be a miracle if
much remains for reparation. The countries of the Allies and of
the United States, the countries of Germany's own allies, and the
neutral countries adjacent to Germany exhaust between them almost
the whole of the civilised world; and, as we have seen, we cannot
expect much to be available for reparation from investments in
any of these quarters. Indeed there remain no countries of
importance for investments except those of South America.
To convert the significance of these deductions into figures
involves much guesswork. I give the reader the best personal
estimate I can form after pondering the matter in the light of
the available figures and other relevant data.
I put the deduction under (i) at £3300 million, of which £3100
million may be ultimately available after meeting private debts,
etc.
As regards (ii) -- according to a census taken by the
Austrian Ministry of Finance on 31 December 1912, the nominal
value of the Austro-Hungarian securities held by Germans was
£3197,300,000. Germany's pre-war investments in Russia outside
government securities have been estimated at £395 million, which
is much lower than would be expected, and in 1906 Sartorius von
Waltershausen estimated her investments in Russian government
securities at £3150 million. This gives a total of £3245 million,
which is to some extent borne out by the figure of £3200 million
given in 1911 by Dr Ischchanian as a deliberately modest
estimate. A Roumanian estimate, published at the time of that
country's entry into the war, gave the value of Germany's
investments in Roumania at £34,000,000-£34,400,000, of which
£32,800,000-£33,200,000 were in government securities. An
association for the defence of French interests in Turkey, as
reported in the Temps (8 September 1919), has estimated the total
amount of German capital invested in Turkey at about £359 million,
of which, according to the latest Report of the council of
foreign bondholders, £332,500,000 was held by German nationals in
the Turkish external debt. No estimates are available to me of
Germany's investments in Bulgaria. Altogether I venture a
deduction of £3500 million in respect of this group of countries
as a whole.
Resales and the pledging as collateral of securities during
the war under (iii) I put at £3100 million to £3150 million,
comprising practically all Germany's holding of Scandinavian,
Dutch, and Swiss securities, a part of her South American
securities, and a substantial proportion of her North American
securities sold prior to the entry of the United States into the
war.
As to the proper deduction under (iv) there are naturally no
available figures. For months past the European Press has been
full of sensational stories of the expedients adopted. But if we
put the value of securities which have already left Germany or
have been safely secreted within Germany itself beyond discovery
by the most inquisitorial and powerful methods at £3100 million,
we are not likely to overstate it.
These various items lead, therefore, in all to a deduction of
a round figure of about £31,000 million, and leave us with an
amount of £3250 million theoretically still available.(48*)
To some readers this figure may seem low, but let them
remember that it purports to represent the remnant of saleable
securities upon which the German government might be able to lay
hands for public purposes. In my own opinion it is much too high,
and considering the problem by a different method of attack I
arrive at a lower figure. For leaving out of account sequestered
Allied securities and investments in Austria, Russia, etc., what
blocks of securities, specified by countries and enterprises, can
Germany possibly still have which could amount to as much as £3250
million? I cannot answer the question. She has some Chinese
government securities which have not been sequestered, a few
Japanese perhaps, and a more substantial value of first-class
South American properties. But there are very few enterprises of
this class still in German hands, and even their value is
measured by one or two tens of millions, not by fifties or
hundreds. He would be a rash man, in my judgment, who joined a
syndicate to pay £3100 million in cash for the unsequestered
remnant of Germany's overseas investments. If the reparation
commission is to realise even this lower figure, it is probable
that they will have to nurse, for some years, the assets which
they take over, not attempting their disposal at the present
time.
We have, therefore, a figure of from £3100 million to £3250
million as the maximum contribution from Germany's foreign
securities.
Her immediately transferable wealth is composed, then, of:
(a) gold and silver -- say £360 million; (b) ships -- £3120
million; (c) foreign securities -- £3100-250 million.
Of the gold and silver, it is not, in fact, practicable to
take any substantial part without consequences to the German
currency system injurious to the interests of the Allies
themselves. The contribution from all these sources together
which the reparation commission can hope to secure by May 1921
may be put, therefore, at from £3250 million to £3350 million as a
maximum.(49*)
2. Property in ceded territory or surrendered under the armistace
As the treaty has been drafted Germany will not receive
important credits available towards meeting reparation in respect
of her property in ceded territory.
Private property in most of the ceded territory is utilised
towards discharging private German debts to Allied nationals, and
only the surplus, if any, is available towards reparation. The
value of such property in Poland and the other new states is
payable direct to the owners.
Government property in Alsace-Lorraine, in territory ceded to
Belgium, and in Germany's former colonies transferred to a
mandatory, is to be forfeited without credit given. Buildings,
forests, and other state property which belonged to the former
kingdom of Poland are also to be surrendered without credit.
There remain, therefore, government properties, other than the
above, surrendered to Poland, government properties in Schleswig
surrendered to Denmark,(50*) the value of the Saar coalfields,
the value of certain river craft, etc., to be surrendered under
the ports, waterways, and railways chapter, and the value of the
German submarine cables transferred under annex VII of the
reparation chapter.
Whatever the treaty may say, the reparation commission will
not secure any cash payments from Poland. I believe that the Saar
coalfields have been valued at from £315 million to £320 million. A
round figure of £330 million for all the above items, excluding
any surplus available in respect of private property, is probably
a liberal estimate.
There remains the value of material surrendered under the
armistice. Article 250 provides that a credit shall be assessed
by the reparation commission for rolling-stock surrendered under
the armistice as well as for certain other specified items, and
generally for any material so surrendered for which the
reparation commission think that credit should be given, 'as
having non-military value'. The rolling-stock (150,000 wagons and
5,000 locomotives) is the only very valuable item. A round figure
of £350 million, for all the armistice surrenders, is probably
again a liberal estimate.
We have, therefore, £380 million to add in respect of this
heading to our figure of £3250-350 million under the previous
heading. This figure differs from the preceding in that it does
not represent cash capable of benefiting the financial situation
of the Allies, but is only a book credit between themselves or
between them and Germany.
The total of £3330 million to £3430 million now reached is not,
however, available for reparation. The first charge upon it,
under article 251 of the treaty, is the cost of the armies of
occupation both during the armistice and after the conclusion of
peace. The aggregate of this figure up to May 1921 cannot be
calculated until the rate of withdrawal is known which is to
reduce the monthly cost from the figure exceeding £320 million
which prevailed during the first part of 1919, to that of £31
million, which is to be the normal figure eventually. I estimate,
however, that this aggregate may be about £3200 million. This
leaves us with from £3100 million to £3200 million still in hand.
Out of this, and out of exports of goods, and payments in
kind under the treaty prior to May 1921 (for which I have not as
yet made any allowance), the Allies have held out the hope that
they will allow Germany to receive back such sums for the
purchase of necessary food and raw materials as the former deem
it essential for her to have. It is not possible at the present
time to form an accurate judgment either as to the money-value of
the goods which Germany will require to purchase from abroad in
order to re-establish her economic life, or as to the degree of
liberality with which the Allies will exercise their discretion.
If her stocks of raw materials and food were to be restored to
anything approaching their normal level by May 1921, Germany
would probably require foreign purchasing power of from £3100 to
£3200 million at least, in addition to the value of her current
exports. While this is not likely to be permitted, I venture to
assert as a matter beyond reasonable dispute that the social and
economic condition of Germany cannot possibly permit a surplus of
exports over imports during the period prior to May 1921, and
that the value of any payments in kind with which she may be able
to furnish the Allies under the treaty in the form of coal, dyes,
timber, or other materials will have to be returned to her to
enable her to pay for imports essential to her existence.(51*)
The reparation commission can, therefore, expect no addition
from other sources to the sum of from £3100 million to £3200
million with which we have hypothetically credited it after the
realisation of Germany's immediately transferable wealth, the
calculation of the credits due to Germany under the treaty, and
the discharge of the cost of the armies of occupation. As Belgium
has secured a private agreement with France, the United States,
and Great Britain, outside the treaty, by which she is to
receive, towards satisfaction of her claims, the first £3100
million available for reparation, the upshot of the whole matter
is that Belgium may possibly get her £3100 million by May 1921,
but none of the other Allies are likely to secure by that date
any contribution worth speaking of. At any rate, it would be very
imprudent for finance ministers to lay their plans on any other
hypothesis.
3. Annual payments spread over a term of years
It is evident that Germany's pre-war capacity to pay an
annual foreign tribute has not been unaffected by the almost
total loss of her colonies, her overseas connections, her
mercantile marine, and her foreign properties, by the cession of
ten per cent of her territory and population, of one-third of her
coal and of three-quarters of her iron ore, by two million
casualties amongst men in the prime of life, by the starvation of
her people for four years, by the burden of a vast war debt, by
the depreciation of her currency to less than one-seventh its
former value, by the disruption of her allies and their
territories, by revolution at home and Bolshevism on her borders,
and by all the unmeasured ruin in strength and hope of four years
of all-swallowing war and final defeat.
All this, one would have supposed, is evident. Yet most
estimates of a great indemnity from Germany depend on the
assumption that she is in a position to conduct in the future a
vastly greater trade than ever she has had in the past.
For the purpose of arriving at a figure it is of no great
consequence whether payment takes the form of cash (or rather of
foreign exchange) or is partly effected in kind (coal, dyes,
timber, etc.), as contemplated by the treaty. In any event, it is
only by the export of specific commodities that Germany can pay,
and the method of turning the value of these exports to account
for reparation purposes is, comparatively, a matter of detail.
We shall lose ourselves in mere hypothesis unless we return
in some degree to first principles and, whenever we can, to such
statistics as there are. It is certain that an annual payment can
only be made by Germany over a series of years by diminishing her
imports and increasing her exports, thus enlarging the balance in
her favour which is available for effecting payments abroad.
Germany can pay in the long run in goods, and in goods only,
whether these goods are furnished direct to the Allies, or
whether they are sold to neutrals and the neutral credits so
arising are then made over to the Allies. The most solid basis
for estimating the extent to which this 'process can be carried
is to be found, therefore, in an analysis of her trade returns
before the war. Only on the basis of such an analysis,
supplemented by some general data as to the aggregate
wealth-producing capacity of the country, can a rational guess be
made as to the maximum degree to which the exports of Germany
could be brought to exceed her imports.
In the year 1913 Germany's imports amounted to £3538 million
and her exports to £3505 million, exclusive of transit trade and
bullion. That is to say, imports exceeded exports by about £333
million. On the average of the five years ending 1913, however,
her imports exceeded her exports by a substantially larger
amount, namely, £374 million. It follows, therefore, that more
than the whole of Germany's pre-war balance for new foreign
investment was derived from the interest on her existing foreign
securities, and from the profits of her shipping, foreign
banking, etc. As her foreign properties and her mercantile marine
are now to be taken from her, and as her foreign banking and
other miscellaneous sources of revenue from abroad have been
largely destroyed, it appears that, on the pre-war basis of
exports and imports, Germany, so far from having a surplus
wherewith to make a foreign payment, would be not nearly
self-supporting. Her first task, therefore, must be to effect a
readjustment of consumption and production to cover this deficit.
Any further economy she can effect in the use of imported
commodities, and any further stimulation of exports will then be
available for reparation.
Two-thirds of Germany's import and export trade is enumerated
under separate headings in the following tables. The
considerations applying to the enumerated portions may be assumed
to apply more or less to the remaining one-third, which is
composed of commodities of minor importance individually.
German exports, 1913 Amount Percentage of
(million £3) total exports
Iron goods (including
tin-plates, etc.) 66.13 13.2
Machinery and parts
(including motor-cars) 37.55 7.5
Coal, coke, and briquettes 35.34 7.0
Woollen goods (including
raw and combined wool
and clothing) 29.40 5.9
Cotton goods (including
raw cotton, yarn and thread) 28.15 5.6
196.57 39.2
Cereals, etc. (including
rye, oats, wheat, hops) 21.18 4.1
Leather and leather goods 15.47 3.0
Sugar 13.20 2.6
Paper, etc. 13.10 2.6
Furs 11.75 2.2
Electrical goods
(installations, machinery,
lamps, cables) 10.88 2.2
Silk goods 10.10 2.0
Dyes 9.76 1.9
Copper goods 6.50 1.3
Toys 5.15 1.0
Rubber and rubber goods 4.27 0.9
Books, maps, and music 3.71 0.8
Potash 3.18 0.6
Glass 3.14 0.6
Potassium chloride 2.91 0.6
Pianos, organs, and parts 2.77 0.6
Raw zinc 2.74 0.5
Porcelain 2.53 0.5
142.34 28.0
Other goods, unenumerated 165.92 32.8
Total 504.83 100.0
German imports, 1913 Amount Percentage of
(million £3) total imports
1. Raw materials:
Cotton 30.35 5.6
Hides and skins 24.86 4.6
Wool 23.67 4.4
Copper 16.75 3.1
Coal 13.66 2.5
Timber 11.60 2.2
Iron ore 11.35 2.1
Furs 9.35 1.7
Flax and flaxseed 9.33 1.7
Saltpetre 8.55 1.6
Silk 7.90 1.5
Rubber 7.30 1.4
Jute 4.70 0.9
Petroleum 3.49 0.7
Tin 2.91 0.5
Phosphorus chalk 2.32 0.4
Lubricating oil 2.29 0.4
190.38 35.3
II. Food, tobacco, etc.:
Cereals, etc. (wheat,
barley, bran, rice, maize,
oats, rye, clover) 65.51 12.2
Oilseeds and cake, etc.
(including palm kernels,
copra, cocoa beans) 20.53 3.8
Cattle, lamb fat, bladders 14.62 2.8
Coffee 10.95 2.0
Eggs 9.70 1.8
Tobacco 6.70 1.2
Butter 5.93 1.1
Horses 5.81 1.1
Fruit 3.65 0.7
Fish 2.99 0.6
Poultry 2.80 0.5
Wine 2.67 0.5
151.86 28.3
III. Manufactures:
Cotton yarn and thread
and cotton goods 9.41 1.8
Woollen yarn and
woollen goods 7.57 1.4
Machinery 4.02 0.7
21.00 3.9
IV. Unenumerated 175.28 32.5
Total 538.52 100.0
These tables show that the most important exports consisted
of: (1) iron goods, including tin-plates (13.2%); (2) machinery,
etc. (7.5%); (3) coal, coke, and briquettes (7%); (4) woollen
goods, including raw and combed wool (5.9 %); and (5) cotton
goods, including cotton yarn and thread and raw cotton (5.6%),
these five classes between them accounting for 39.2% of the total
exports. It will be observed that all these goods are of a kind
in which before the war competition between Germany and the
United Kingdom was very severe. If, therefore, the volume of such
exports to overseas or European destinations is very largely
increased the effect upon British export trade must be
correspondingly serious. As regards two of the categories,
namely, cotton and woollen goods, the increase of an export trade
is dependent upon an increase of the import of the raw material,
since Germany produces no cotton and practically no wool. These
trades are therefore incapable of expansion unless Germany is
given facilities for securing these raw materials (which can only
be at the expense of the Allies) in excess of the pre-war
standard of consumption, and even then the effective increase is
not the gross value of the exports, but only the difference
between the value of the manufactured exports and of the imported
raw material. As regards the other three categories, namely,
machinery, iron goods, and coal, Germany's capacity to increase
her exports will have been taken from her by the cessions of
territory in Poland, Upper Silesia, and Alsace-Lorraine. As has
been pointed out already, these districts accounted for nearly
one-third of Germany's production of coal. But they also supplied
no less than three-quarters of her iron-ore production, 38% of
her blast furnaces, and 9.5% of her iron and steel foundries.
Unless, therefore, Alsace-Lorraine and Upper Silesia send their
iron ore to Germany proper, to be worked up, which will involve
an increase in the imports for which she will have to find
payment, so far from any increase in export trade being possible,
a decrease is inevitable.(52*)
Next on the list come cereals, leather goods, sugar, paper,
furs, electrical goods, silk goods, and dyes. Cereals are not a
net export and are far more than balanced by imports of the same
commodities. As regards sugar, nearly 90 per cent of Germany's
pre-war exports came to the United Kingdom.(53*) An increase in
this trade might be stimulated by the grant of a preference in
this country to German sugar or by an arrangement by which sugar
was taken in part payment for the indemnity on the same lines as
has been proposed for coal, dyes, etc. Paper exports also might
be capable of some increase. Leather goods, furs, and silks
depend upon corresponding imports on the other side of the
account. Silk goods are largely in competition with the trade of
France and Italy. The remaining items are individually very
small. I have heard it suggested that the indemnity might be paid
to a great extent in potash and the like. But potash before the
war represented 0.6% of Germany's export trade, and about £33
million in aggregate value. Besides, France, having secured a
potash field in the territory which has been restored to her,
will not welcome a great stimulation of the German exports of
this material.
An examination of the import list shows that 63.6% are raw
materials and food. The chief items of the former class, namely,
cotton, wool, copper, hides, iron ore, furs, silk, rubber, and
tin, could not be much reduced without reacting on the export
trade, and might have to be increased if the export trade was to
be increased. Imports of food, namely, wheat, barley, coffee,
eggs, rice, maize, and the like, present a different problem. It
is unlikely that, apart from certain comforts, the consumption of
food by the German labouring classes before the war was in excess
of what was required for maximum efficiency; indeed, it probably
fell short of that amount. Any substantial decrease in the
imports of food would therefore react on the efficiency of the
industrial population, and consequently on the volume of surplus
exports which they could be forced to produce. It is hardly
possible to insist on a greatly increased productivity of German
industry if the workmen are to be underfed. But this may not be
equally true of barley, coffee, eggs, and tobacco. If it were
possible to enforce a regime in which for the future no German
drank beer or coffee, or smoked any tobacco, a substantial saving
could be effected. Otherwise there seems little room for any
significant reduction.
The following analysis of German exports and imports
according to destination and origin is also relevant. From this
it appears that of Germany's exports in 1913, 18% went to the
British empire, 17% to France, Italy, and Belgium, 10% to Russia
and Roumania, and 7% to the United States; that is to say, more
than half of the exports found their market in the countries of
the Entente nations. Of the balance, 12% went to Austria-Hungary,
Turkey, and Bulgaria, and 35% elsewhere. Unless, therefore, the
present Allies are prepared to encourage the importation of
German products, a substantial increase in total volume can only
be effected by the wholesale swamping of neutral markets.
GERMAN TRADE (1913) ACCORDING TO DESTINATION AND ORIGIN
Destination of Germany's Origin of Germany's
exports imports
Million £3 Per cent Million £3 Per cent
Great Britain 71.91 14.2 43.80 8.1
India 7.53 1.5 27.04 5.0
Egypt 2.17 0.4 5.92 1.1
Canada 3.02 0.6 3.20 0.6
Australia 4.42 0.9 14.80 2.8
South Africa 2.34 0.5 3.48 0.6
Total,
British empire 91.39 18.1 98.24 18.2
France 39.49 7.8 29.21 5.4
Belgium 27.55 5.5 17.23 3.2
Italy 19.67 3.9 15.88 3.0
U.S.A. 35.66 7.1 85.56 15.9
Russia 44.00 8.7 71.23 13.2
Roumania 7.00 1.4 3.99 0.7
Austria-Hungary 55.24 10.9 41.36 7.7
Turkey 4.92 1.0 3.68 0.7
Bulgaria 1.51 0.3 0.40 ---
Other counties 178.04 35.3 171.74 32.0
504.47 100.0 538.52 100.0
The above analysis affords some indication of the possible
magnitude of the maximum modification of Germany's export balance
under the conditions which will prevail after the peace. On the
assumptions (1) that we do not specially favour Germany over
ourselves in supplies of such raw materials as cotton and wool
(the world's supply of which is limited), (2) that France, having
secured the iron-ore deposits, makes a serious attempt to secure
the blast furnaces and the steel trade also, (3) that Germany is
not encouraged and assisted to undercut the iron and other trades
of the Allies in overseas markets, and (4) that a substantial
preference is not given to German goods in the British empire, it
is evident by examination of the specific items that not much is
practicable.
Let us run over the chief items again: (1) Iron goods. In
view of Germany's loss of resources, an increased net export
seems impossible and a large decrease probable. (2) Machinery.
Some increase is possible. (3) Coal and coke. The value of
Germany's net export before the war was £322 million; the Allies
have agreed that for the time being 20 million tons is the
maximum possible export with a problematic (and in fact)
impossible increase to 40 million tons at some future time; even
on the basis of 20 million tons we have virtually no increase of
value, measured in pre-war prices;(54*) whilst, if this amount is
exacted, there must be a decrease of far greater value in the
export of manufactured articles requiring coal for their
production. (4) Woollen goods. An increase is impossible without
the raw wool, and, having regard to the other claims on supplies
of raw wool, a decrease is likely. (5) Cotton goods. The same
considerations apply as to wool. (6) Cereals. There never was and
never can be a net export. (7) Leather goods. The same
considerations apply as to wool.
We have now covered nearly half of Germany's pre-war exports,
and there is no other commodity which formerly represented as
much as 3 per cent of her exports. In what commodity is she to
pay? Dyes? -- their total value in 1913 was £310 million. Toys?
Potash? -- 1913 exports were worth £33 million. And even if the
commodities could be specified, in what markets are they to be
sold? -- remembering that we have in mind goods to the value not
of tens of millions annually, but of hundreds of millions.
On the side of imports, rather more is possible. By lowering
the standard of life, an appreciable reduction of expenditure on
imported commodities may be possible. But, as we have already
seen, many large items are incapable of reduction without
reacting on the volume of exports.
Let us put our guess as high as we can without being foolish,
and suppose that after a time Germany will be able, in spite of
the reduction of her resources, her facilities, her markets, and
her productive power, to increase her exports and diminish her
imports so as to improve her trade balance altogether by £3100
million annually, measured in pre-war prices. This adjustment is
first required to liquidate the adverse trade balance, which in
the five years before the war averaged £374 million; but we will
assume that after allowing for this, she is left with a
favourable trade balance of £350 million a year. Doubling this to
allow for the rise in pre-war prices, we have a figure of £3100
million. Having regard to the political, social, and human
factors, as well as to the purely economic, I doubt if Germany
could be made to pay this sum annually over a period of 30 years;
but it would not be foolish to assert or to hope that she could.
Such a figure, allowing 5% for interest, and 1% for repayment
of capital, represents a capital sum having a present value of
about £31,700 million.(55*)
I reach, therefore, the final conclusion that, including all
methods of payment -- immediately transferable wealth, ceded
property, and an annual tribute -- £32,000 million is a safe
maximum figure of Germany's capacity to pay. In all the actual
circumstances, I do not believe that she can pay as much. Let
those who consider this a very low figure, bear in mind the
following remarkable comparison. The wealth of France in 1871 was
estimated at a little less than half that of Germany in 1913.
Apart from changes in the value of money, an indemnity from
Germany of £3500 million would, therefore, be about comparable to
the sum paid by France in 1871; and as the real burden of an
indemnity increases more than in proportion to its amount, the
payment of £32,000 million by Germany would have far severer
consequences than the £3200 million paid by France in 1871.
There is only one head under which I see a possibility of
adding to the figure reached on the line of argument adopted
above; that is, if German labour is actually transported to the
devastated areas and there engaged in the work of reconstruction.
I have heard that a limited scheme of this kind is actually in
view. The additional contribution thus obtainable depends on the
number of labourers which the German government could contrive to
maintain in this way and also on the number which, over a period
of years, the Belgian and French inhabitants would tolerate in
their midst. In any case, it would seem very difficult to employ
on the actual work of reconstruction, even over a number of
years, imported labour having a net present value exceeding (say)
£3250 million; and even this would not prove in practice a net
addition to the annual contributions obtainable in other ways.
A capacity of £38,000 million or even of £35,000 million is,
therefore, not within the limits of reasonable possibility. It is
for those who believe that Germany can make an annual payment
amounting to hundreds of millions sterling to say in what
specific commodities they intend this payment to be made, and in
what markets the goods are to be sold. Until they proceed to some
degree of detail, and are able to produce some tangible argument
in favour of their conclusions, they do not deserve to be
believed.(56*)
I make three provisos only, none of which affect the force of
my argument for immediate practical purposes.
First: if the Allies were to 'nurse' the trade and industry
of Germany for a period of five or ten years, supplying her with
large loans, and with ample shipping, food, and raw materials
during that period, building up markets for her, and deliberately
applying all their resources and goodwill to making her the
greatest industrial nation in Europe, if not in the world, a
substantially larger sum could probably be extracted thereafter;
for Germany is capable of very great productivity.
Second: whilst I estimate in terms of money, I assume that
there is no revolutionary change in the purchasing power of our
unit of value. If the value of gold were to sink to a half or a
tenth of its present value, the real burden of a payment fixed in
terms of gold would be reduced proportionately. If a gold
sovereign comes to be worth what a shilling is worth now, then,
of course, Germany can pay a larger sum than I have named,
measured in gold sovereigns.
Third: I assume that there is no revolutionary change in the
yield of nature and material to man's labour. It is not
impossible that the progress of science should bring within our
reach methods and devices by which the whole standard of life
would be raised immeasurably, and a given volume of products
would represent but a portion of the human effort which it
represents now. In this case all standards of 'capacity' would be
changed everywhere. But the fact that all things are possible is
no excuse for talking foolishly.
It is true that in 1870 no man could have predicted Germany's
capacity in 1910. We cannot expect to legislate for a generation
or more. The secular changes in man's economic condition and the
liability of human forecast to error are as likely to lead to
mistake in one direction as in another. We cannot as reasonable
men do better than base our policy on the evidence we have and
adapt it to the five or ten years over which we may suppose
ourselves to have some measure of prevision; and we are not at
fault if we leave on one side the extreme chances of human
existence and of revolutionary changes in the order of Nature or
of man's relations to her. The fact that we have no adequate
knowledge of Germany's capacity to pay over a long period of
years is no justification (as I have heard some people claim that
it is) for the statement that she can pay ten thousand million
pounds.
Why has the world been so credulous of the unveracities of
politicians? If an explanation is needed, I attribute this
particular credulity to the following influences in part.
In the first place, the vast expenditures of the war, the
inflation of prices, and the depreciation of currency, leading up
to a complete instability of the unit of value, have made us lose
all sense of number and magnitude in matters of finance. What we
believed to be the limits of possibility have been so enormously
exceeded, and those who founded their expectations on the past
have been so often wrong, that the man in the street is now
prepared to believe anything which is told him with some show of
authority, and the larger the figure the more readily he swallows
it.
But those who look into the matter more deeply are sometimes
misled by a fallacy much more plausible to reasonable persons.
Such a one might base his conclusions on Germany's total surplus
of annual productivity as distinct from her export surplus.
Helfferich's estimate of Germany's annual increment of wealth in
1913 was £3400 million to £3425 million (exclusive of increased
money value of existing land and property). Before the war,
Germany spent between £350 million and £3100 million on armaments,
with which she can now dispense. Why, therefore, should she not
pay over to the Allies an annual sum of £3500 million? This puts
the crude argument in its strongest and most plausible form.
But there are two errors in it. First of all, Germany's
annual savings, after what she has suffered in the war and by the
peace, will fall far short of what they were before and, if they
are taken from her year by year in future, they cannot again
reach their previous level. The loss of Alsace-Lorraine, Poland,
and Upper Silesia could not be assessed in terms of surplus
productivity at less than £350 million annually. Germany is
supposed to have profited about £3100 million per annum from her
ships, her foreign investments, and her foreign banking and
connections, all of which have now been taken from her. Her
saving on armaments is far more than balanced by her annual
charge for pensions, now estimated at £3250 million,(57*) which
represents a real loss of productive capacity. And even if we put
on one side the burden of the internal debt, which amounts to 240
milliards of marks, as being a question of internal distribution
rather than of productivity, we must still allow for the foreign
debt incurred by Germany during the war, the exhaustion of her
stock of raw materials, the depletion of her livestock, the
impaired productivity of her soil from lack of manures and of
labour, and the diminution in her wealth from the failure to keep
up many repairs and renewals over a period of nearly five years.
Germany is not as rich as she was before the war, and the
diminution in her future savings for these reasons, quite apart
from the factors previously allowed for, could hardly be put at
less than ten per cent, that is £340 million annually.
These factors have already reduced Germany's annual surplus
to less than the £ 3100 million at which we arrived on other
grounds as the maximum of her annual payments. But even if the
rejoinder be made that we have not yet allowed for the lowering
of the standard of life and comfort in Germany which may
reasonably be imposed on a defeated enemy,(58*) there is still a
fundamental fallacy in the method of calculation. An annual
surplus available for home investment can only be converted into
a surplus available for export abroad by a radical change in the
kind of work performed. Labour, while it may be available and
efficient for domestic services in Germany, may yet be able to
find no outlet in foreign trade. We are back on the same question
which faced us in our examination of the export trade -- in what
export trade is German labour going to find a greatly increased
outlet? Labour can only be diverted into new channels with loss
of efficiency, and a large expenditure of capital. The annual
surplus which German labour can produce for capital improvements
at home is no measure, either theoretically or practically, of
the annual tribute which she can pay abroad.
IV. THE REPARATION COMMISSION
This body is so remarkable a construction and may, if it
functions at all, exert so wide an influence on the life of
Europe, that its attributes deserve a separate examination.
There are no precedents for the indemnity imposed on Germany
under the present treaty; for the money exactions which formed
part of the settlement after previous wars have differed in two
fundamental respects from this one. The sum demanded has been
determinate and has been measured in a lump sum of money; and so
long as the defeated party was meeting the annual instalments of
cash, no further interference was necessary.
But for reasons already elucidated, the exactions in this
case are not yet determinate, and the sum when fixed will prove
in excess of what can be paid in cash and in excess also of what
can be paid at all. It was necessary, therefore, to set up a body
to establish the bill of claim, to fix the mode of payment, and
to approve necessary abatements and delays. It was only possible
to place this body in a position to exact the utmost year by year
by giving it wide powers over the internal, economic life of the
enemy countries who are to be treated henceforward as bankrupt
estates to be administered by and for the benefit of the
creditors. In fact, however, its powers and functions have been
enlarged even beyond what was required for this purpose, and the
reparation commission has been established as the final arbiter
on numerous economic and financial issues which it was convenient
to leave unsettled in the treaty itself.(59*)
The powers and constitution of the reparation commission are
mainly laid down in articles 233-41 and annex II of the
reparation chapter of the treaty with Germany. But the same
commission is to exercise authority over Austria and Bulgaria,
and possibly over Hungary and Turkey, when peace is made with
these countries. There are therefore analogous articles mutatis
mutandis in the Austrian treaty(60*) and in the Bulgarian
treaty.(61*)
The principal Allies are each represented by one chief
delegate. The delegates of the United States, Great Britain,
France, and Italy take part in all proceedings; the delegate of
Belgium in all proceedings except those attended by the delegates
of Japan or the Serb-Croat-Slovene state; the delegate of Japan
in all proceedings affecting maritime or specifically Japanese
questions; and the delegate of the Serb-Croat-Slovene state when
questions relating to Austria, Hungary, or Bulgaria are under
consideration. Other Allies are to be represented by delegates,
without the power to vote, whenever their respective claims and
interests are under examination.
In general the commission decides by a majority vote, except
in certain specific cases where unanimity is required, of which
the most important are the cancellation of German indebtedness,
long postponement of the instalments, and the sale of German
bonds of indebtedness. The commission is endowed with full
executive authority to carry out its decisions. It may set up an
executive staff and delegate authority to its officers. The
commission and its staff are to enjoy diplomatic privileges, and
its salaries are to be paid by Germany, who will, however, have
no voice in fixing them. If the commission is to discharge
adequately its numerous functions, it will be necessary for it to
establish a vast polyglot bureaucratic organisation, with a staff
of hundreds. To this organisation, the headquarters of which will
be in Paris, the economic destiny of Central Europe is to be
entrusted.
Its main functions are as follows:
(1) The commission will determine the precise figure of the
claim against the enemy Powers by an examination in detail of the
claims of each of the Allies under annex I of the reparation
chapter. This task must be completed by May 1921. It shall give
to the German government and to Germany's allies 'a just
opportunity to be heard, but not to take any part whatever in the
decisions of the commission'. That is to say, the commission will
act as a party and a judge at the same time.
(2) Having determined the claim, it will draw up a schedule
of payments providing for the discharge of the whole sum with
interest within thirty years. From time to time it shall, with a
view to modifying the schedule within the limits of possibility,
'consider the resources and capacity of Germany... giving her
representatives a just opportunity to be heard'.
'In periodically estimating Germany's capacity to pay, the
commission shall examine the German system of taxation, first, to
the end that the sums for reparation which Germany is required to
pay shall become a charge upon all her revenues prior to that for
the service or discharge of any domestic loan, and secondly, so
as to satisfy itself that, in general, the German scheme of
taxation is fully as heavy proportionately as that of any of the
Powers represented on the commission.'
(3) Up to May 1921 the commission has power, with a view to
securing the payment of £31,000 million, to demand the surrender
of any piece of German property whatever, wherever situated: that
is to say, 'Germany shall pay in such instalments and in such
manner, whether in gold, commodities, ships, securities, or
otherwise, as the reparation commission may fix'.
(4) The commission will decide which of the rights and
interests of German nationals in public utility undertakings
operating in Russia, China, Turkey, Austria, Hungary, and
Bulgaria, or in any territory formerly belonging to Germany or
her allies, are to be expropriated and transferred to the
commission itself; it will assess the value of the interests so
transferred; and it will divide the spoils.
(5) The commission will determine how much of the resources
thus stripped from Germany must be returned to her to keep enough
life in her economic organisation to enable her to continue to
make reparation payments in future.(62*)
(6) The commission will assess the value, without appeal or
arbitration, of the property and rights ceded under the
Armistice, and under the Treaty -- rolling-stock, the mercantile
marine, river craft, cattle, the Saar mines, the property in
ceded territory for which credit is to be given, and so forth.
(7) The commission will determine the amounts and values
(within certain defined limits) of the contributions which
Germany is to make in kind year by year under the various annexes
to the reparation chapter.
(8) The commission will provide for the restitution by
Germany of property which can be identified.
(9) The commission will receive, administer, and distribute
all receipts from Germany in cash or in kind. It will also issue
and market German bonds of indebtedness.
(10) The commission will assign the share of the pre-war
public debt to be taken over by the ceded areas of Schleswig,
Poland, Danzig, and Upper Silesia. The commission will also
distribute the public debt of the late Austro-Hungarian empire
between its constituent parts.
(11) The Commission will liquidate the Austro-Hungarian Bank,
and will supervise the withdrawal and replacement of the currency
system of the late Austro-Hungarian empire.
(12) It is for the commission to report if, in their
judgment, Germany is falling short in fulfilment of her
obligations, and to advise methods of coercion.
(13) In general, the commission, acting through a subordinate
body, will perform the same functions for Austria and Bulgaria as
for Germany, and also, presumably, for Hungary and Turkey.(63*)
There are also many other relatively minor duties assigned to
the commission. The above summary, however, shows sufficiently
the scope and significance of its authority. This authority is
rendered of far greater significance by the fact that the demands
of the treaty generally exceed Germany's capacity. Consequently
the clauses which allow the commission to make abatements, if in
their judgment the economic conditions of Germany require it,
will render it in many different particulars the arbiter of
Germany's economic life. The commission is not only to inquire
into Germany's general capacity to pay, and to decide (in the
early years) what import of foodstuffs and raw materials is
necessary; it is authorised to exert pressure on the German
system of taxation (annex II, paragraph 12(b))(64*) and on German
internal expenditure, with a view to ensuring that reparation
payments are a first charge on the country's entire resources;
and it is to decide on the effect on German economic life of
demands for machinery, cattle, etc., and of the scheduled
deliveries of coal.
By article 240 of the treaty Germany expressly recognises the
commission and its powers 'as the same may be constituted by the
Allied and Associated governments', and 'agrees irrevocably to
the possession and exercise by such commission of the power and
authority given to it under the present treaty'. She undertakes
to furnish the commission with all relevant information. And
finally in article 241, 'Germany undertakes to pass, issue, and
maintain in force any legislation, orders, and decrees that may
be necessary to give complete effect to these provisions'.
The comments on this of the German financial commission at
Versailles were hardly an exaggeration: 'German democracy is thus
annihilated at the very moment when the German people was about
to build it up after a severe struggle -- annihilated by the very
persons who throughout the war never tired of maintaining that
they sought to bring democracy to us... Germany is no longer a
people and a state, but becomes a mere trade concern placed by
its creditors in the hands of a receiver, without its being
granted so much as the opportunity to prove its willingness to
meet its obligations of its own accord. The commission, which is
to have its permanent headquarters outside Germany, will possess
in Germany incomparably greater rights than the German emperor
ever possessed; the German people under its régime would remain
for decades to come shorn of all rights, and deprived, to a far
greater extent than any people in the days of absolutism, of any
independence of action, of any individual aspiration in its
economic or even in its ethical progress.'
In their reply to these observations the Allies refused to
admit that there was any substance, ground, or force in them.
'The observations of the German delegation', they pronounced,
'present a view of this commission so distorted and so inexact
that it is difficult to believe that the clauses of the treaty
have been calmly or carefully examined. It is not an engine of
oppression or a device for interfering with German sovereignty.
It has no forces at its command; it has no executive powers
within the territory of Germany; it cannot, as is suggested,
direct or control the educational or other systems of the
country. Its business is to ask what is to be paid; to satisfy
itself that Germany can pay; and to report to the Powers, whose
delegation it is, in case Germany makes default. If Germany
raises the money required in her own way, the commission cannot
order that it shall be raised in some other way. if Germany
offers payment in kind, the commission may accept such payment,
but, except as specified in the treaty itself, the commission
cannot require such a payment.'
This is not a candid statement of the scope and authority of
the reparation commission, as will be seen by a comparison of its
terms with the summary given above or with the treaty itself. Is
not, for example, the statement that the commission 'has no
forces at its command' a little difficult to justify in view of
article 430 of the treaty, which runs: 'In case, either during
the occupation or after the expiration of the fifteen years
referred to above, the reparation commission finds that Germany
refuses to observe the whole or part of her obligations under the
present treaty with regard to reparation, the whole or part of
the areas specified in article 429 will be reoccupied immediately
by the Allied and Associated Powers'? The decision as to whether
Germany has kept her engagements and whether it is possible for
her to keep them is left, it should be observed, not to the
League of Nations, but to the reparation commission itself; and
an adverse ruling on the part of the commission to is be followed
'immediately' by the use of armed force. Moreover, the
depreciation of the powers of the commission attempted in the
Allied reply largely proceeds from the assumption that it is
quite open to Germany to 'raise the money required in her own
way', in which case it is true that many of the powers of the
reparation commission would not come into practical effect;
whereas in truth one of the main reasons for setting up the
commission at all is the expectation that Germany will not be
able to carry the burden nominally laid upon her.
It is reported that the people of Vienna, hearing that a
section of the reparation commission is about to visit them, have
decided characteristically to pin their hopes on it. A financial
body can obviously take nothing from them, for they have nothing;
therefore this body must be for the purpose of assisting and
relieving them. Thus do the Viennese argue, still light-headed in
adversity. But perhaps they are right. The reparation commission
will come into very close contact with the problems of Europe;
and it will bear a responsibility proportionate to its powers. It
may thus come to fulfil a very different role from that which
some of its authors intended for it. Transferred to the League of
Nations, an organ of justice and no longer of interest, who knows
that by a change of heart and object the reparation commission
may not yet be transformed from an instrument of oppression and
rapine into an economic council of Europe, whose object is the
restoration of life and of happiness, even in the enemy
countries?
V. THE GERMAN COUNTER-PROPOSALS
The German counter-proposals were somewhat obscure, and also
rather disingenuous. It will be remembered that those clauses of
the reparation chapter which dealt with the issue of bonds by
Germany produced on the public mind the impression that the
indemnity had been fixed at £35,000 million, or at any rate at
this figure as a minimum. The German delegation set out,
therefore, to construct their reply on the basis of this figure,
assuming apparently that public opinion in Allied countries would
not be satisfied with less than the appearance of £35,000 million;
and, as they were not really prepared to offer so large a figure,
they exercised their ingenuity to produce a formula which might
be represented to Allied opinion as yielding this amount, whilst
really representing a much more modest sum. The formula produced
was transparent to anyone who read it carefully and knew the
facts, and it could hardly have been expected by its authors to
deceive the Allied negotiators. The German tactic assumed,
therefore, that the latter were secretly as anxious as the
Germans themselves to arrive at a settlement which bore some
relation to the facts, and that they would therefore be willing,
in view of the entanglements which they had got themselves into
with their own publics, to practise a little collusion in
drafting the treaty -- a supposition which in slightly different
circumstances might have had a good deal of foundation. As
matters actually were, this subtlety did not benefit them, and
they would have done much better with a straightforward and
candid estimate of what they believed to be the amount of their
liabilities on the one hand, and their capacity to pay on the
other.
The German offer of an alleged sum of £35,000 million amounted
to the following. In the first place it was conditional on
concessions in the treaty ensuring that 'Germany shall retain the
territorial integrity corresponding to the armistice
convention,(65*) that she shall keep her colonial possessions and
merchant ships, including those of large tonnage, that in her own
country and in the world at large she shall enjoy the same
freedom of action as all other peoples, that all war legislation
shall be at once annulled, and that all interferences during the
war with her economic rights and with German private property,
etc., shall be treated in accordance with the principle of
reciprocity'; that is to say, the offer is conditional on the
greater part of the rest of the treaty being abandoned. In the
second place, the claims are not to exceed a maximum of £35,000
million, of which £31,000 million is to be discharged by 1 May
1926; and no part of this sum is to carry interest pending the
payment of it.(66*) In the third place, there are to be allowed
as credits against it (amongst other things): (a) the value of
all deliveries under the armistice, including military material
(e.g. Germany's navy); (b) the value of all railways and state
property in ceded territory. (c) the pro rata, share of all ceded
territory in the Germany public debt (including the war debt) and
in the reparation payments which this territory would have had to
bear if it had remained part of Germany; and (d) the value of the
cession of Germany's claims for sums lent by her to her allies in
the war.(67*)
The credits to be deducted under (a), (b), (c), and (d) might
be in excess of those allowed in the actual treaty, according to
a rough estimate, by a sum of as much as £32,000 million, although
the sum to be allowed under (d) can hardly be calculated.
If, therefore, we are to estimate the real value of the
German offer of £35,000 million on the basis laid down by the
treaty, we must first of all deduct £32,000 million claimed for
offsets which the treaty does not allow, and then halve the
remainder in order to obtain the present value of a deferred
payment on which interest is not chargeable. This reduces the
offer to £31,500 million, as compared with the £38,000 million
which, according to my rough estimate, the treaty demands of her.
This in itself was a very substantial offer -- indeed it
evoked widespread criticism in Germany -- though, in view of the
fact that it was conditional on the abandonment of the greater
part of the rest of the treaty, it could hardly be regarded as a
serious one.(68*) But the German delegation might have done
better if they had stated in less equivocal language how far they
felt able to go.
In the final reply of the Allies to this counter-proposal
there is one important provision, which I have not attended to
hitherto, but which can be conveniently dealt with in this place.
Broadly speaking, no concessions were entertained on the
reparation chapter as it was originally drafted, but the Allies
recognised the inconvenience of the indeterminacy of the burden
laid upon Germany and proposed a method by which the final total
of claim might be established at an earlier date than 1 May 1921.
They promised, therefore, that at any time within four months of
the signature of the treaty (that is to say, up to the end of
October 1919), Germany should be at liberty to submit an offer of
a lump sum in settlement of her whole liability as defined in the
treaty, and within two months thereafter (that is to say, before
the end of 1919) the Allies 'will, so far as may be possible,
return their answers to any proposals that may be made.'
This offer is subject to three conditions. 'Firstly, the
German authorities will be expected, before making such
proposals, to confer with the representatives of the Powers
directly concerned. Secondly, such offers must be unambiguous and
must be precise and clear. Thirdly, they must accept the
categories and the reparation clauses as matters settled beyond
discussion.'
The offer, as made, does not appear to contemplate any
opening up of the problem of Germany's capacity to pay. It is
only concerned with the establishment of the total bill of claims
as defined in the treaty -- whether (e.g.) it is £37,000 million,
£38,000 million, or £310,000 million. 'The questions', the Allies'
reply adds, 'are bare questions of fact, namely, the amount of
the liabilities, and they are susceptible of being treated in
this way.'
If the promised negotiations are really conducted on these
lines, they are not likely to be fruitful. It will not be much
easier to arrive at an agreed figure before the end of 1919 than
it was at the time of the conference; and it will not help
Germany's financial position to know for certain that she is
liable for the huge sum which on any computation the treaty
liabilities must amount to. These negotiations do offer, however,
an opportunity of reopening the whole question of the reparation
payments, although it is hardly to be hoped that at so very early
a date, public opinion in the countries of the Allies has changed
its mood sufficiently.(69*)
I cannot leave this subject as though its just treatment
wholly depended either on our own pledges or on economic facts.
The policy of reducing Germany to servitude for a generation, of
degrading the lives of millions of human beings, and of depriving
a whole nation of happiness should be abhorrent and detestable --
abhorrent and detestable, even if it were possible, even if it
enriched ourselves, even if it did not sow the decay of the whole
civilised life of Europe. Some preach it in the name of justice.
In the great events of man's history, in the unwinding of the
complex fates of nations, justice is not so simple. And if it
were, nations are not authorised, by religion or by natural
morals, to visit on the children of their enemies the misdoings
of parents or of rulers.
NOTES:
1. 'With reservation that any future claims and demands of the
Allies and the United States of America remain unaffected, the
following financial conditions are required: Reparation for
damage done. While armistice lasts, no public securities shall be
removed by the enemy which can serve as a pledge to the Allies
for recovery or reparation of war losses. Immediate restitution
of cash deposit in National Bank of Belgium, and, in general,
immediate return of all documents, of specie, stock, shares,
paper money, together with plant for issue thereof, touching
public or private interests in invaded countries. Restitution of
Russian and Roumanian gold yielded to Germany or taken by that
Power. This gold to be delivered in trust to the Allies until
signature of peace.'
2. It is to be noticed, in passing, that they contain nothing
which limits the damage to damage inflicted contrary to the
recognised rules of warfare. That is to say, it is permissible to
include claims arising out of the legitimate capture of a
merchantman at sea, as well as the costs of illegal submarine
warfare.
3. Mark-paper or mark-credits owned in ex-occupied territory by
Allied nationals should be included, if at all, in the settlement
of enemy debts, along with other sums owed to Allied nationals,
and not in connection with reparation.
4. A special claim on behalf of Belgium was actually included in
the peace treaty, and was accepted by the German representatives
without demur.
5. To the British observer, one scene, however, stood out
distinguished from the rest -- the field of Ypres. In that
desolate and ghostly spot, the natural colour and humours of the
landscape and the climate seemed designed to express to the
traveller the memories of the ground. A visitor to the salient
early in November 1918, when a few German bodies still added a
touch of realism and human horror, and the great struggle was not
yet certainly ended, could feel there, as nowhere else, the
present outrage of war, and at the same time the tragic and
sentimental purification which to the future will in some degree
transform its harshness.
6. These notes, estimated to amount to no less than six thousand
million marks, are now a source of embarrassment and great
potential loss to the Belgian government, inasmuch as on their
recovery of the country they took them over from their nationals
in exchange for Belgian notes at the rate of Fr. 1.20 = Mk. 1.
This rate of exchange, being substantially in excess of the value
of the mark-notes at the rate of exchange current at the time
(and enormously in excess of the rate to which the mark-notes
have since fallen, the Belgian franc being now worth more than
three marks), was the occasion of the smuggling of mark-notes
into Belgium on an enormous scale, to take advantage of the
profit obtainable. The Belgian government took this very
imprudent step partly because they hoped to persuade the peace
conference to make the redemption of these bank-notes, at the par
of exchange, a first charge on German assets. The peace
conference held, however, that reparation proper must ike
precedence of the adjustment of improvident banking transactions
effected at an excessive rate of exchange. The possession by the
Belgian government of this great mass of German currency, in
addition to an amount of nearly two thousand million marks held
by the French government which they similarly exchanged for the
benefit of the population of the invaded areas and of
Alsace-Lorraine, is a serious aggravation of the exchange
position of the mark. It will certainly be desirable for the
Belgian and German governments to come to some arrangement as to
its disposal, though this is rendered difficult by the prior lien
held by the reparation commission over all German assets
available for such purposes.
7. It should be added, in fairness, that the very high claims put
forward on behalf of Belgium generally include not only
devastation proper, but all kinds of other items, as, for
example, the profits and earnings which Belgians might reasonably
have expected to earn if there had been no war.
8. 'The wealth and income of the chief Powers', by J. C. Stamp
(Journal of the Royal Statistical Society, July 1919).
9. Other estimates vary from £32,420 million to £32,680 million.
See Stamp, loc. cit.
10. This was clearly and courageously pointed out by M. Charles
Gide in L'Emancipation for February 1919.
11. For details of these and other figures, see Stamp, loc. cit.
12. Even when the extent of the material damage has been
established, it will be exceedingly difficult to put a price on
it, which must largely depend on the period over which
restoration is spread, and the methods adopted. It would be
impossible to make the damage good in a year or two at any price,
and an attempt to do so at a rate which was excessive in relation
to the amount of labour and materials at hand might force prices
up to almost any level. We must, I think, assume a cost of labour
and materials about equal to that current in the world generally.
In point of fact, however, we may safely assume that literal
restoration will never be attempted. Indeed, it would be very
wasteful to do so. Many of the townships were old and unhealthy,
and many of the hamlets miserable. To re-erect the same type of
building in the same places would be foolish. As for the land,
the wise course may be in some cases to leave long strips of it
to Nature for many years to come. An aggregate money sum should
be computed as fairly representing the value of the material
damage, and France should be left to expend it in the manner she
thinks wisest with a view to her economic enrichment as a whole.
The first breeze of this controversy has already blown through
France. A long and inconclusive debate occupied the Chamber
during the spring of 1919, as to whether inhabitants of the
devastated area receiving compensation should be compelled to
expend it in restoring the identical property, or whether they
should be free to use it as they like. There was evidently a
great deal to be said on both sides; in the former case there
would be much hardship and uncertainty for owners who could not,
many of them, hope to recover the effective use of their property
perhaps for years to come, and yet would not be free to set
themselves up elsewhere; on the other hand, if such persons were
allowed to take their compensation and go elsewhere, the
countryside of northern France would never be put right.
Nevertheless I believe that the wise course will be to allow
great latitude and let economic motives take their own course.
13. La Richesse de la France devant la Guerre, published in 1916.
14. Revue Bleue, 3 February 1919. This is quoted in a very
valuable selection of French estimates and expressions of
opinion, forming chapter iv of La Liquidation financière de la
Guerre, by H. Charriaut and R. Hacault. The general magnitude of
my estimate is further confirmed by the extent of the repairs
already effected, as set forth in a speech delivered by M.
Tardieu on 10 October 1919, in which he said: 'On 16 September
last, of 2,246 kilometres of railway track destroyed, 2,016 had
been repaired; of 1,075 kilometres of canal, 700; of 1,160
constructions, such as bridges and tunnels, which had been blown
up, 588 had been replaced; of 550,000 houses ruined by
bombardment, 60,000 had been rebuilt; and of 1,800,000 hectares
of ground rendered useless by battle, 400,000 had been
recultivated, 200,000 hectares of which are now ready to be sown.
Finally, more than 10,000,000 metres of barbed wire had been
removed.'
15. Some of these estimates include allowance for contingent and
immaterial damage as well as for direct material injury.
16. A substantial part of this was lost in the service of the
Allies; this must not be duplicated by inclusion both in their
claims and in ours.
17. The fact that no separate allowance is made in the above for
the sinking of 675 fishing vessels of 71,765 tons gross, or for
the 1,885 vessels of 8,007,967 tons damaged or molested, but not
sunk, may be set off against what may be an excessive figure for
replacement cost.
18. The losses of the Greek mercantile marine were excessively
high, as a result of the dangers of the Mediterranean; but they
were largely incurred on the service of the other Allies, who
paid for them directly or indirectly. The claims of Greece for
maritime losses incurred on the service of her own nationals
would not be very considerable.
19. There is a reservation in the peace treaty on this question.
'The Allied and Associated Powers formally reserve the right of
Russia to obtain from Germany restitution and reparation based on
the principles of the present treaty' (article 116).
20. Dr Diouritch in his 'Economic and statistical survey of the
southern Slav nations' (Journal of the Royal Statistical Society,
May 1919), quotes some extraordinary figures of the loss of life:
'According to the official returns, the number of those fallen in
battle or died in captivity up to the last Serbian offensive
amounted to 320,000, which means that one-half of Serbia's male
population, from 18 to 60 years of age, perished outright in the
European war. In addition, the Serbian medical authorities
estimate that about 300,000 people have died from typhus among
the civil population, and the losses among the population
interned in enemy camps are estimated at 50,000. During the two
Serbian retreats and during the Albanian retreat the losses among
children and young people are estimated at 200,000. Lastly,
during over three years of enemy occupation, the losses in lives
owing to the lack of proper food and medical attention are
estimated at 250,000.' Altogether, he puts the losses in life at
above a million, or more than one-third of the population of Old
Serbia.
21 Come si calcola e a quanto ammonta la richezza d'Iialia e
delle altre principali nazioni, published in 1919.
22. Very large claims put forward by the Serbian authorities
include many hypothetical items of indirect and non-material
damage; but these, however real, are not admissible under our
present formula.
23. Assuming that in her case £3250 million are included for the
general expenses of the war defrayed out of loans made to Belgium
by her allies.
24. It must be said to Mr Hughes' honour that he apprehended from
the first the bearing of the pre-armistice negotiations on our
right to demand an indemnity covering the full costs of the war,
protested against our ever having entered into such engagements,
and maintained loudly that he had been no party to them and could
not consider himself bound by them. His indignation may have been
partly due to the fact that Australia, not having been ravaged,
would have no claims at all under the more limited interpretation
of our rights.
25. The whole cost of the war has been estimated at from £324,000
million upwards. This would mean an annual payment of interest
(apart from sinking fund) of £31,200 million. Could any expert
committee have reported that Germany can pay this sum?
26. But unhappily they did not go down with their flags flying
very gloriously. For one reason or another their leaders
maintained substantial silence. What a different position in the
country's estimation they might hold now if they had suffered
defeat amidst firm protests against the fraud, chicane, and
dishonour of the whole proceedings.
27. Only after the most painful consideration have I written
these words. The almost complete absence of protest from the
leading statesmen of England makes one feel that one must have
made some mistake. But I believe that I know all the facts, and I
can discover no such mistake. In any case, I have set forth all
the relevant engagements in chapter 4 and at the beginning of
this chapter, so that the reader can form his own judgment.
28. In conversation with Frenchmen who were private persons and
quite unaffected by political considerations, this aspect became
very clear. You might persuade them that some current estimates
as to the amount to be got out of Germany were quite fantastic.
Yet at the end they would always come back to where they had
started: 'But Germany must pay; for, otherwise, what is to happen
to France?'
29. A further paragraph claims the war costs of Belgium 'in
accordance with Germany's pledges, already given, as to complete
restoration for Belgium'.
30. The challenge of the other Allies, as well as of the enemy,
had to be met; for in view of the limited resources of the
latter, the other Allies had perhaps a greater interest than the
enemy in seeing that no one of their number established an
excessive claim.
31. M. Klotz has estimated the French claims on this head at
£33,000 million (75 milliard francs, made up of 13 milliard for
allowances, 60 for pensions, and 2 for widows). If this figure is
correct, the others should probably be scaled up also.
32. That is to say, I claim for the aggregate figure an accuracy
within 25%.
33. In his speech of 5 September 1919, addressed to the French
Chamber, M. Klotz estimated the total Allied claims against
Germany under the treaty at £315,000 million, which would
accumulate at interest until 1921, and be paid off thereafter by
34 annual instalments of about £31,000 million each, of which
France would receive about £3550 million annually. 'The general
effect of the statement (that France would receive from Germany
this annual payment) proved', it is reported, 'appreciably
encouraging to the country as a whole, and was immediately
reflected in the improved tone on the Bourse and throughout the
business world in France.' So long as such statements can be
accepted in Paris without protest, there can be no financial or
economic future for France, and a catastrophe of disillusion is
not far distant.
34. As a matter of subjective judgment, I estimate for this
figure an accuracy of 10% in deficiency and 20% in excess, i.e.
that the result will lie between £36,400 million and £38,800
million.
35. Germany is also liable under the treaty, as an addition to
her liabilities for reparation, to pay all the costs of the
armies of occupation after peace is signed for the fifteen
subsequent years of occupation. So far as the text of the treaty
goes, there is nothing to limit the size of these armies, and
France could, therefore, by quartering the whole of her normal
standing army in the occupied area, shift the charge from her own
taxpayers to those of Germany -- though in reality any such
policy would be at the expense not of Germany, who by hypothesis
is already paying for reparation up to the full limit of her
capacity, but of France's allies, who would receive so much less
in respect of reparation. A White Paper (Cmd. 240) has, however,
been issued, in which is published a declaration by the
governments of the United States, Great Britain, and France
engaging themselves to limit the sum payable annually by Germany
to cover the cost of occupation to £312 million, 'as soon as the
Allied and Associated Powers concerned are convinced that the
conditions of disarmament by Germany are being satisfactorily
fulfilled'. The three Powers reserve to themselves the liberty
to modify this arrangement at any time if they agree that it is
necessary.
36. Article 235. The force of this article is somewhat
strengthened by article 251, by virtue of which dispensations may
also be granted for 'other payments' as well as for food and raw
material.
37. This is the effect of paragraph 12 (c) of annex II of the
reparation chapter, leaving minor complications on one side. The
treaty fixes the payments in terms of gold marks, which are
converted in the above at the rate of 20 to £31.
38. If, per impossibile, Germany discharged £3500 million in cash
or kind by 1921, her annual payments would be at the rate of
£362,500,000 from 1921 to 1925 and of £3150 million thereafter
39. Paragraph 16 of annex II of the reparation chapter. There is
also an obscure provision by which interest may be charged 'on
sums arising out of material damage as from 11 November 1918 up
to 1 May 1921'. This seems to differentiate damage to property
from damage to the person in favour of the former. It does not
affect pensions and allowances, the cost of which is capitalised
as at the date of the coming into force of the treaty.
40. On the assumption which no one supports and even the most
optimistic fear to be unplausible, that Germany can pay the full
charge for interest and siding fund from the outset, the annual
payment would amount to £3480 million.
41. Under paragraph 13 of annex II unanimity is required (i) for
any postponement beyond 1930 of instalments due between 1921 and
1926, and (ii) for any postponement for more than three years of
instalments due after 1926. Further, under article 234, the
commission may not cancel any part of the indebtedness without
the specific authority of all the governments represented on the
commission.
42. On 23 July 1914 the amount was £367,800,000.
43. Owing to the very high premium which exists on German silver
coin, as the combined result of the depreciation of the mark and
the appreciation of silver, it is highly improbable that it will
be possible to extract such coin out of the pockets of the
people. But it may gradually leak over the frontier by the agency
of private speculators, and thus indirectly benefit the German
exchange position as a whole.
44. The Allies made the supply of foodstuffs to Germany during
the armistice, mentioned above, conditional on the provisional
transfer to them of the greater part of the mercantile marine, to
be operated by them for the purpose of shipping foodstuffs to
Europe generally, and to Germany in particular. The reluctance of
the Germans to agree to this was productive of long and dangerous
delays in the supply of food, but the abortive conferences of
Trèves and Spa (16 January, 14-16 February,and 4-5 March 1919)
were at last followed by the agreement of Brussels (14 March
1919). The unwillingness of the Germans to conclude was mainly
due to the lack of any absolute guarantee on the part of the
Allies that, if they surrendered the ships, they would get the
food. But assuming reasonable good faith on the part of the
latter (their behaviour in respect of certain other clauses of
the armistice, however, had not been impeccable and gave the
enemy some just grounds for suspicion), their demand was not an
improper one; for without the German ships the business of
transporting the food would have been difficult, if not
impossible, and the German ships surrendered or their equivalent
were in fact almost wholly employed in transporting food to
Germany itself. Up to 30 June 1919, 176 German ships of 1,025,388
gross tonnage had been surrendered to the Allies in accordance
with the Brussels agreement.
45. The amount of tonnage transferred may be rather greater and
the value per ton rather less. The aggregate value involved is
not likely, however, to be less than £3100 million or greater than
£3150 million.
46. This census was carried out by virtue of a decree of 23
August 1916. On 22 March 1917, the German government acquired
complete control over the utilisation of foreign securities in
German possession; and in May 1917 it began to exercise these
powers for the mobilisation of certain Swedish, Danish, and Swiss
securities.
47. £3 (million)
1892. Schmoller 500
1892. Christians 650
1893-4. Koch 600
1905. v. Halle 800(†)
1913. Helfferich 1,000(‡)
1914. Ballod 1,250
1914. Pistorius 1,250
1919. Hans David 1,050()
† Plus £3500 million for investments other than securities.
‡ Net investments, i.e. after allowance for property in Germany
owned abroad. This may also be the case with some of the other
estimates.
This estimate, given in Weltwirtschaftszeitung (13 June 1919),
is an estimate of the value of Germany's foreign investments as
at the outbreak of war.
48. I have made no deduction for securities in the ownership of
Alsace-Lorrainers and others who have now ceased to be German
nationals.
49. In all these estimates I am conscious of being driven, by a
fear of overstating the case against the treaty, into giving
figures in excess of my own real judgment. There is a great
difference between putting down on paper fancy estimates of
Germany's resources and actually extracting contributions in the
form of cash. I do not myself believe that the reparation
commission will secure real resources from the above items by May
1921 even as great as the lower of the two figures given above.
50. The treaty (see article 114) leaves it very dubious how far
the Danish government is under an obligation to make payments to
the reparation commission in respect of its acquisition of
Schleswig. They might, for instance, arrange for various offsets
such as the value of the mark-notes held by the inhabitants of
ceded areas. In any case the amount of money involved is quite
small. The Danish government is raising a loan for £36,600,000
(kr. 120,000,000) for the joint purposes of 'taking over
Schleswig's share of the German debt, for buying German public
property, for helping the Schleswig population, and for settling
the currency question'.
51. Here again my own judgment would carry me much further and I
should doubt the possibility of Germany's exports equalling her
imports during this period. But the statement in the text goes
far enough for the purpose of my argument.
52. It has been estimated that the cession of territory to
France, apart from the loss of Upper Silesia, may reduce
Germany's annual pre-war production of steel ingots from 20
million tons to 14 million tons, and increase France's capacity
from 5 million tons to 11 million tons.
53. Germany's exports of sugar in 1913 amounted to 1,110,073 tons
of the value of £313,094,300, of which 838,583 tons were exported
to the United Kingdom at a value of £39,050,800. These figures
were in excess of the normal, the average total exports for the
five years ending 1913 being about £310 million.
54. The necessary price adjustment which is required on both
sides of this account will be made en bloc later.
55. If the amount of the sinking fund be reduced, and the annual
payment is continued over a greater number of years, the present
value -- so powerful is the operation of compound interest --
cannot be materially increased. A payment of £3100 million
annually in perpetuity, assuming interest, as before, at 5%,
would only raise the present value to £32,000 million.
56. As an example of public misapprehension on economic affairs,
the following letter from Sir Sidney Low to The Times of 3
December 1918 deserves quotation: 'I have seen authoritative
estimates which place the gross value of Germany's mineral and
chemical resources as high as £3250,000 million sterling or even
more; and the Ruhr basin mines alone are said to be worth over
£345,000 million. It is certain, at any rate, that the capital
value of these natural supplies is much greater than the toil war
debts of all the Allied states. Why should not some portion of
this wealth be diverted for a sufficient period from its present
owners and assigned to the peoples whom Germany has assailed,
deported, and injured? The Allied governments might justly
require Germany to surrender to them the use of such of her mines
and mineral deposits as would yield, say, from 100 to 200
millions annually for the next 30, 40, or 50 years. By this means
we could obtain sufficient compensation from Germany without
unduly stimulating her manufactures and export trade to our
detriment.' It is not clear why, if Germany has wealth exceeding
£3250,000 million sterling, Sir Sidney Low is content with the
trifling sum of 100 to 200 millions annually. But his letter is
an admirable reductio ad absurdum of a certain line of thought.
While a mode of calculation which estimates the value of coal
miles deep in the bowels of the earth as high as in a coal
scuttle, of an annual lease of £31,000 for 999 years at £3999,000
and of a field (presumably) at the value of all the crops it will
grow to the end of recorded time, opens up great possibilities,
it is also double-edged. If Germany's total resources are worth
£3250,000 million, those she will part with in the cession of
Alsace-Lorraine and Upper Silesia should be more than sufficient
to pay the entire costs of the war and reparation together. In
point of fact, the present market value of all the mines in
Germany of every kind has been estimated at £3300 million, or a
little more than one-thousandth part of Sir Sidney Low's
expectations.
57. The conversion at par of 5,000 million marks overstates by
reason of the existing depreciation of the mark, the present
money burden of the actual pensions payments, but not, in all
probability, the real loss of national productivity as a result
of the casualties suffered in the war.
58. It cannot be overlooked, in passing, that in its results on a
country's surplus productivity a lowering of the standard of life
acts both ways. Moreover, we are without experience of the
psychology of a white race under conditions little short of
servitude. It is, however, generally supposed that if the whole
of a man's surplus production is taken from him, his efficiency
and his industry are diminished. The entrepreneur and the
inventor will not contrive, the trader and shopkeeper will not
save, the labourer will not toil, if the fruits of their industry
are set aside, not for the benefit of their children, their old
age, their pride, or their position, but for the enjoyment of a
foreign conqueror.
59. In the course of the compromises and delays of the
conference, there were many questions on which, in order to reach
any conclusion at all, it was necessary to leave a margin of
vagueness and uncertainty. The whole method of the conference
tended towards this -- the Council of Four wanted, not so much a
settlement, as a treaty. On political and territorial questions
the tendency was to leave the final arbitrament to the League of
Nations. But on financial and economic questions the final
decision has generally been left with the reparation commission,
in spite of its being an executive body composed of interested
parties.
60. The sum to be paid by Austria for reparation is left to the
absolute discretion of the reparation commission, no determinate
figure of any kind being mentioned in the text of the treaty.
Austrian questions are to be handled by a special section of the
reparation commission, but the section will have no powers except
such as the main commission may delegate.
61. Bulgaria is to pay an indemnity of £390 million by half-yearly
instalments, beginning 1 July 1920. These sums will be collected,
on behalf of the reparation commission, by an inter-Ally
commission of control, with its seat at Sofia. In some respects
the Bulgarian inter-Ally commission appears to have powers and
authority independent of the reparation commission, but it is to
act, nevertheless, as the agent of the later, and is authorised
to tender advice to the reparation commission as to, for example,
the reduction of the half-yearly instalments.
62. Under the treaty this is the function of any body appointed
for the purpose by the principal Allied and Associated
governments, and not necessarily of the reparation commission.
But it may be presumed that no second body will be established
for this special purpose.
63. At the date of writing no treaties with these countries have
been drafted. It is possible that Turkey might be dealt with by a
separate commission.
64. This appears to me to be in effect the position (if this
paragraph means anything at all), in spite of the following
disclaimer of such intentions in the Allies' reply: 'Nor does
paragraph 12 (b) of annex II give the commission powers to
prescribe or enforce taxes or to dictate the character of the
German budget.'
65. Whatever that may mean.
66. Assuming that the capital sum is discharged evenly over a
period as short as thirty-three years, this has the effect of
halving the burden as compared with the payments required on the
basis of 5% interest on the outstanding capital.
67. I forbear to outline further details of the German offer as
the above are the essential points.
68. For this reason it is not strictly comparable with my
estimate of Germany's capacity in an earlier section of this
chapter, which estimate is on the basis of Germany's condition as
it will be when the rest of the treaty has come into effect.
69. Owing to delays on the part of the Allies in ratifying the
treaty, the reparation commission had not yet been formally
constituted by the end of October 1919. So far as I am aware,
therefore, nothing has been done to make the above offer
effective. But perhaps, in view of the circumstances, there has
been an extension of the date.
Chapter 6: Europe After the Treaty
This chapter must be one of pessimism. The treaty includes no
provisions for the economic rehabilitation of Europe -- nothing
to make the defeated Central empires into good neighbours,
nothing to stabilise the new states of Europe, nothing to reclaim
Russia; nor does it promote in any way a compact of economic
solidarity amongst the Allies themselves; no arrangement was
reached at Paris for restoring the disordered finances of France
and Italy, or to adjust the systems of the Old World and the New.
The Council of Four paid no attention to these issues, being
preoccupied with others -- Clemenceau to crush the economic life
of his enemy, Lloyd George to do a deal and bring home something
which would pass muster for a week, the President to do nothing
that was not just and right. It is an extraordinary fact that the
fundamental economic problem of a Europe starving and
disintegrating before their eyes, was the one question in which
it was impossible to arouse the interest of the Four. Reparation
was their main excursion into the economic field, and they
settled it as a problem of theology, of politics, of electoral
chicane, from every point of view except that of the economic
future of the states whose destiny they were handling.
I leave, from this point onwards, Paris, the conference, and
the treaty, briefly to consider the present situation of Europe,
as the war and the peace have made it; and it will no longer be
part of my purpose to distinguish between the inevitable fruits
of the war and the avoidable misfortunes of the peace.
The essential facts of the situation, as I see them, are
expressed simply. Europe consists of the densest aggregation of
population in the history of the world. This population is
accustomed to a relatively high standard of life, in which, even
now, some sections of it anticipate improvement rather than
deterioration. In relation to other continents Europe is not
self-sufficient; in particular it cannot feed itself. Internally
the population is not evenly distributed, but much of it is
crowded into a relatively small number of dense industrial
centres. This population secured for itself a livelihood before
the war, without much margin of surplus, by means of a delicate
and immensely complicated organisation, of which the foundations
were supported by coal, iron, transport, and an unbroken supply
of imported food and raw materials from other continents. By the
destruction of this organisation and the interruption of the
stream of supplies, a part of this population is deprived of its
means of livelihood. Emigration is not open to the redundant
surplus. For it would take years to transport them overseas,
even, which is not the case, if countries could be found which
were ready to receive them. The danger confronting us, therefore,
is the rapid depression of the standard of life of the European
populations to a point which will mean actual starvation for some
(a point already reached in Russia and approximately reached in
Austria). Men will not always die quietly. For starvation, which
brings to some lethargy and a helpless despair, drives other
temperaments to the nervous instability of hysteria and to a mad
despair. And these in their distress may overturn the remnants of
organisation, and submerge civilisation itself in their attempts
to satisfy desperately the overwhelming needs of the individual.
This is the danger against which all our resources and courage
and idealism must now co-operate.
On 13 May 1919 Count Brockdorff-Rantzau addressed to the
peace conference of the Allied and Associated Powers the Report
of the German economic commission charged with the study of the
effect of the conditions of peace on the situation of the German
population. 'In the course of the last two generations,' they
reported, 'Germany has become transformed from an agricultural
state to an industrial state. So long as she was an agricultural
state, Germany could feed 40 million inhabitants. As an
industrial state she could ensure the means of subsistence for a
population of 67 millions; and in 1913 the importation of
foodstuffs amounted, in round figures, to 12 million tons. Before
the war a total of 15 million persons in Germany provided for
their existence by foreign trade, navigation, and the use,
directly or indirectly, of foreign raw material.' After
rehearsing the main relevant provisions of the peace treaty the
report continues: 'After this diminution of her products, after
the economic depression resulting from the loss of her colonies,
her merchant fleet and her foreign investments, Germany will not
be in a position to import from abroad an adequate quantity of
raw material. An enormous part of German industry will,
therefore, be condemned inevitably to destruction. The need of
importing foodstuffs will increase considerably at the same time
that the possibility of satisfying this demand is as greatly
diminished. In a very short time, therefore, Germany will not be
in a position to give bread and work to her numerous millions of
inhabitants, who are prevented from earning their livelihood by
navigation and trade. These persons should emigrate, but this is
a material impossibility, all the more because many countries and
the most important ones will oppose any German immigration. To
put the peace conditions into execution would logically involve,
therefore, the loss of several millions of persons in Germany.
This catastrophe would not be long in coming about, seeing that
the health of the population has been broken down during the war
by the blockade, and during the armistice by the aggravation of
the blockade of famine. No help, however great, or over however
long a period it were continued, could prevent these deaths en
masse.' 'We do not know, and indeed we doubt,' the Report
concludes, 'whether the delegates of the Allied and Associated
Powers realise the inevitable consequences which will take place
if Germany, an industrial state, very thickly populated, closely
bound up with the economic system of the world, and under the
necessity of importing enormous quantities of raw material and
foodstuffs, suddenly finds herself pushed back to the phase of
her development which corresponds to her economic condition and
the numbers of her population as they were half a century ago.
Those who sign this treaty will sign the death sentence of many
millions of German men, women and children.'
I know of no adequate answer to these words. The indictment
is at least as true of the Austrian, as of the German,
settlement. This is the fundamental problem in front of us,
before which questions of territorial adjustment and the balance
of European power are insignificant. Some of the catastrophes of
past history, which have thrown back human progress for
centuries, have been due to the reactions following on the sudden
termination, whether in the course of Nature or by the act of
man, of temporarily favourable conditions which have permitted
the growth of population beyond what could be provided for when
the favourable conditions were at an end.
The significant features of the immediate situation can be
grouped under three heads: first, the absolute falling off, for
the time being, in Europe's internal productivity; second, the
breakdown of transport and exchange by means of which its
products could be conveyed where they were most wanted; and
third, the inability of Europe to purchase its usual supplies
from overseas.
The decrease of productivity cannot be easily estimated, and
may be the subject of exaggeration. But the prima facie evidence
of it is overwhelming, and this factor has been the main burden
of Mr Hoover's well-considered warnings. A variety of causes have
produced it: violent and prolonged internal disorder as in Russia
and Hungary; the creation of new governments and their
inexperience in the readjustment of economic relations, as in
Poland and Czechoslovakia; the loss throughout the continent of
efficient labour, through the casualties of war or the
continuance of mobilisation; the falling off in efficiency
through continued underfeeding in the Central empires; the
exhaustion of the soil from lack of the usual applications of
artificial manures throughout the course of the war; the
unsettlement of the minds of the labouring classes on the
fundamental economic issues of their lives. But above all (to
quote Mr Hoover), 'there is a great relaxation of effort as the
reflex of physical exhaustion of large sections of the population
from privation and the mental and physical strain of the war'.
Many persons are for one reason or another out of employment
altogether. According to Mr Hoover, a summary of the unemployment
bureaux in Europe in July 1919 showed that 15 million families
were receiving unemployment allowances in one form or another,
and were being paid in the main by a constant inflation of
currency. In Germany there is the added deterrent to labour and
to capital (in so far as the reparation terms are taken
literally), that anything which they may produce beyond the
barest level of subsistence will for years to come be taken away
from them.
Such definite data as we possess do not add much, perhaps, to
the general picture of decay. But I will remind the reader of one
or two of them. The coal production of Europe as a whole is
estimated to have fallen off by 30 per cent; and upon coal the
greater part of the industries of Europe and the whole of her
transport system depend. Whereas before the war Germany produced
85 per cent of the total food consumed by her inhabitants, the
productivity of the soil is now diminished by 40 per cent and the
effective quality of the livestock by 55 per cent.(1*) Of the
European countries which formerly possessed a large exportable
surplus, Russia, as much by reason of deficient transport as of
diminished output, may herself starve. Hungary, apart from her
other troubles, has been pillaged by the Roumanians immediately
after harvest. Austria will have consumed the whole of her own
harvest for 1919 before the end of the calendar year. The figures
are almost too overwhelming to carry conviction to our minds; if
they were not quite so bad, our effective belief in them might be
stronger.
But even when coal can be got and grain harvested, the
breakdown of the European railway system prevents their carriage;
and even when goods can be manufactured, the breakdown of the
European currency system prevents their sale. I have already
described the losses, by war and under the armistice surrenders,
to the transport system of Germany. But even so, Germany's
position, taking account of her power of replacement by
manufacture, is probably not so serious as that of some of her
neighbours. In Russia (about which, however, we have very little
exact or accurate information) the condition of the rolling-stock
is believed to be altogether desperate, and one of the most
fundamental factors in her existing economic disorder. And in
Poland, Roumania, and Hungary the position is not much better.
Yet modern industrial life essentially depends on efficient
transport facilities, and the population which secured its
livelihood by these means cannot continue to live without them.
The breakdown of currency, and the distrust in its purchasing
value, is an aggravation of these evils which must be discussed
in a little more detail in connection with foreign trade.
What then is our picture of Europe? A country population able
to support life on the fruits of its own agricultural production
but without the accustomed surplus for the towns, and also (as a
result of the lack of imported materials and so of variety and
amount in the saleable manufactures of the towns) without the
usual incentives to market food in return for other wares; an
industrial population unable to keep its strength for lack of
food, unable to earn a livelihood for lack of materials, and so
unable to make good by imports from abroad the failure of
productivity at home. Yet, according to Mr Hoover, 'a rough
estimate would indicate that the population of Europe is at least
100 million greater than can be supported without imports, and
must live by the production and distribution of exports '.
The problem of the re-inauguration of the perpetual circle of
production and exchange in foreign trade leads me to a necessary
digression on the currency situation of Europe.
Lenin is said to have declared that the best way to destroy
the capitalist system was to debauch the currency. By a
continuing process of inflation, governments can confiscate,
secretly and unobserved, an important part of the wealth of their
citizens. By this method they not only confiscate, but they
confiscate arbitrarily; and, while the process impoverishes many,
it actually enriches some. The sight of this arbitrary
rearrangement of riches strikes not only at security, but at
confidence in the equity of the existing distribution of wealth.
Those to whom the system brings windfalls, beyond their deserts
and even beyond their expectations or desires, become
'profiteers,' who are the object of the hatred of the
bourgeoisie, whom the inflationism has impoverished, not less
than of the proletariat. As the inflation proceeds and the real
value of the currency fluctuates wildly from month to month, all
permanent relations between debtors and creditors, which form the
ultimate foundation of capitalism, become so utterly disordered
as to be almost meaningless; and the process of wealth-getting
degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer
means of overturning the existing basis of society than to
debauch the currency. The process engages all the hidden forces
of economic law on the side of destruction, and does it in a
manner which not one man in a million is able to diagnose.
In the latter stages of the war all the belligerent
governments practised, from necessity or incompetence, what a
Bolshevist might have done from design. Even now, when the war is
over, most of them continue out of weakness the same
malpractices. But further, the governments of Europe, being many
of them at this moment reckless in their methods as well as weak,
seek to direct on to a class known as 'profiteers' the popular
indignation against the more obvious consequences of their
vicious methods. These 'profiteers' are, broadly speaking, the
entrepreneur class of capitalists, that is to say, the active and
constructive element in the whole capitalist society, who in a
period of rapidly rising prices cannot but get rich quick whether
they wish it or desire it or not. If prices are continually
rising, every trader who has purchased for stock or owns property
and plant inevitably makes profits. By directing hatred against
this class, therefore, the European governments are carrying a
step further the fatal process which the subtle mind of Lenin had
consciously conceived. The profiteers are a consequence and not a
cause of rising prices. By combining a popular hatred of the
class of entrepreneurs with the blow already given to social
security by the violent and arbitrary disturbance of contract and
of the established equilibrium of wealth which is the inevitable
result of inflation, these governments are fast rendering
impossible a continuance of the social and economic order of the
nineteenth century. But they have no plan for replacing it.
We are thus faced in Europe with the spectacle of an
extra-ordinary weakness on the part of the great capitalist
class, which has emerged from the industrial triumphs of the
nineteenth century, and seemed a very few years ago our
all-powerful master. The terror and personal timidity of the
individuals of this class is now so great, their confidence in
their place in society and in their necessity to the social
organism so diminished, that they are the easy victims of
intimidation. This was not so in England twenty-five years ago,
any more than it is now in the United States. Then the
capitalists believed in themselves, in their value to society, in
the propriety of their continued existence in the full enjoyment
of their riches and the unlimited exercise of their power. Now
they tremble before every insult -- call them pro-Germans,
international financiers, or profiteers, and they will give you
any ransom you choose to ask not to speak of them so harshly.
They allow themselves to be ruined and altogether undone by their
own instruments, governments of their own making, and a Press of
which they are the proprietors. Perhaps it is historically true
that no order of society ever perishes save by its own hand. In
the complexer world of Western Europe the Immanent Will may
achieve its ends more subtly and bring in the revolution no less
inevitably through a Klotz or a George than by the
intellectualisms, too ruthless and self-conscious for us, of the
bloodthirsty philosophers of Russia.
The inflationism of the currency systems of Europe has
proceeded to extraordinary lengths. The various belligerent
governments, unable or too timid or too short-sighted to secure
from loans or taxes the resources they required, have printed
notes for the balance. In Russia and Austria-Hungary this process
has reached a point where for the purposes of foreign trade the
currency is practically valueless. The Polish mark can be bought
for about 1 1/2d and the Austrian crown for less than 1d, but
they cannot be sold at all. The German mark is worth less than 2d
on the exchanges. In most of the other countries of Eastern and
south-eastern Europe the real position is nearly as bad. The
currency of Italy has fallen to little more than a half of its
nominal value in spite of its being still subject to some degree
of regulation; French currency maintains an uncertain market; and
even sterling is seriously diminished in present value and
impaired in its future prospects.
But while these currencies enjoy a precarious value abroad,
they have never entirely lost, not even in Russia, their
purchasing power at home. A sentiment of trust in the legal money
of the state is so deeply implanted in the citizens of all
countries that they cannot but believe that some day this money
must recover a part at least of its former value. To their minds
it appears that value is inherent in money as such, and they do
not apprehend that the real wealth which this money might have
stood for has been dissipated once and for all. This sentiment is
supported by the various legal regulations with which the
governments endeavour to control internal prices, and so to
preserve some purchasing power for their legal tender. Thus the
force of law preserves a measure of immediate purchasing power
over some commodities and the force of sentiment and custom
maintains, especially amongst peasants, a willingness to hoard
paper which is really worthless.
The preservation of a spurious value for the currency, by the
force of law expressed in the regulation of prices, contains in
itself, however, the seeds of final economic decay, and soon
dries up the sources of ultimate supply. If a man is compelled to
exchange the fruits of his labours for paper which, as experience
soon teaches him, he cannot use to purchase what he requires at a
price comparable to that which he has received for his own
products, he will keep his produce for himself, dispose of it to
his friends and neighbours as a favour, or relax his efforts in
producing it. A system of compelling the exchange of commodities
at what is not their real relative value not only relaxes
production, but leads finally to the waste and inefficiency of
barter. If, however, a government refrains from regulation and
allows matters to take their course, essential commodities soon
attain a level of price out of the reach of all but the rich, the
worthlessness of the money becomes apparent, and the fraud upon
the public can be concealed no longer.
The effect on foreign trade of price-regulation and
profiteer-hunting as cures for inflation is even worse. Whatever
may be the case at home, the currency must soon reach its real
level abroad, with the result that prices inside and outside the
country lose their normal adjustment. The price of imported
commodities, when converted at the current rate of exchange, is
far in excess of the local price, so that many essential goods
will not be imported at all by private agency, and must be
provided by the government, which, in re-selling the goods below
cost price, plunges thereby a little further into insolvency. The
bread subsidies now almost universal throughout Europe are the
leading example of this phenomenon.
The countries of Europe fall into two distinct groups at the
present time as regards their manifestations of what is really
the same evil throughout, according as they have been cut off
from international intercourse by the blockade, or have had their
imports paid for out of the resources of their allies. I take
Germany as typical of the first, and France and Italy of the
second.
The note circulation of Germany is about ten times(2*) what
it was before the war. The value of the mark in terms of gold is
about one-eighth of its former value. As world prices in terms of
gold are more than double what they were, it follows that mark
prices inside Germany ought to be from sixteen to twenty times
their pre-war level if they are to be in adjustment and proper
conformity with prices outside Germany.(3*) But this is not the
case. In spite of a very great rise in German prices, they
probably do not yet average much more than five times their
former level, so far as staple commodities are concerned; and it
is impossible that they should rise further except with a
simultaneous and not less violent adjustment of the level of
money-wages. The existing maladjustment hinders in two ways
(apart from other obstacles) that revival of the import trade
which is the essential preliminary of the economic reconstruction
of the country. In the first place, imported commodities are
beyond the purchasing power of the great mass of the
population,(4*) and the flood of imports which might have been
expected to succeed the raising of the blockade was not in fact
commercially possible.(5*) In the second place, it is a hazardous
enterprise for a merchant or a manufacturer to purchase with a
foreign credit material for which, when he has imported it or
manufactured it, he will receive mark currency of a quite
uncertain and possibly unrealisable value. This latter obstacle
to the revival of trade is one which easily escapes notice and
deserves a little attention. It is impossible at the present time
to say what the mark will be worth in terms of foreign currency
three or six months or a year hence, and the exchange market can
quote no reliable figure. It may be the case, therefore, that a
German merchant, careful of his future credit and reputation, who
is actually offered a short-period credit in terms of sterling or
dollars, may be reluctant and doubtful whether to accept it. He
will owe sterling or dollars, but he will sell his product for
marks, and his power, when the time comes, to turn these marks
into the currency in which he has to repay his debt is entirely
problematic. Business loses its genuine character and becomes no
better than a speculation in the exchanges, the fluctuations in
which entirely obliterate the normal profits of commerce.
There are therefore three separate obstacles to the revival
of trade: a maladjustment between internal prices and
international prices, a lack of individual credit abroad
wherewith to buy the raw materials needed to secure the working
capital and to re-start the circle of exchange, and a disordered
currency system which renders credit operations hazardous or
impossible quite apart from the ordinary risks of commerce.
The note circulation of France is more than six times its
prewar level. The exchange value of the franc in terms of gold is
a little less than two-thirds its former value; that is to say,
the value of the franc has not fallen in proportion to the
increased volume of the currency.(6*) This apparently superior
situation of France is due to the fact that until recently a very
great part of her imports have not been paid for, but have been
covered by loans from the governments of Great Britain and the
United States. This has allowed a want of equilibrium between
exports and imports to be established, which is becoming a very
serious factor, now that the outside assistance is being
gradually discontinued.(7*) The internal economy of France and
its price level in relation to the note circulation and the
foreign exchanges is at present based on an excess of imports
over exports which cannot possibly continue. Yet it is difficult
to see how the position can be readjusted except by a lowering of
the standard of consumption in France, which, even if it is only
temporary, will provoke a great deal of discontent.
The situation of Italy is not very different. There the note
circulation is five or six times its pre-war level, and the
exchange value of the lira in terms of gold about half its former
value. Thus the adjustment of the exchange to the volume of the
note circulation has proceeded further in Italy than in France.
On the other hand, Italy's 'invisible' receipts, from emigrant
remittances and the expenditure of tourists, have been very
injuriously affected; the disruption of Austria has deprived her
of an important market; and her peculiar dependence on foreign
shipping and on imported raw materials of every kind has laid her
open to special injury from the increase of world prices. For all
these reasons her position is grave, and her excess of imports as
serious a symptom as in the case of France.(8*)
The existing inflation and the maladjustment of international
trade are aggravated, both in France and in Italy, by the
unfortunate budgetary position of the governments of these
countries.
In France the failure to impose taxation is notorious. Before
the war the aggregate French and British budgets, and also the
average taxation per head, were about equal; but in France no
substantial effort has been made to cover the increased
expenditure. 'Taxes increased in Great Britain during the war',
it has been estimated, 'from 95 francs per head to 265 francs,
whereas the increase in France was only from 90 to 103 francs.'
The taxation voted in France for the financial year ending 30
June 1919 was less than half the estimated normal post bellum
expenditure. The normal budget for the future cannot be put below
£3880 million (22 milliard francs), and may exceed this figure;
but even for the fiscal year 1919-20 the estimated receipts from
taxation do not cover much more than half this amount. The French
Ministry of Finance have no plan or policy whatever for meeting
this prodigious deficit, except the expectation of receipts from
Germany on a scale which the French officials themselves know to
be baseless. In the meantime they are helped by sales of war
material and surplus American stocks and do not scruple, even in
the latter half of 1919, to meet the deficit by the yet further
expansion of the note issue of the Bank of France.(9*)
The budgetary position of Italy is perhaps a little superior
to that of France. Italian finance throughout the war was more
enterprising than the French, and far greater efforts were made
to impose taxation and pay for the war. Nevertheless, Signor
Nitti, the Prime Minister, in a letter addressed to the
electorate on the eve of the General Election (October 1919),
thought it necessary to make public the following desperate
analysis of the situation: (1) The state expenditure amounts to
about three times the revenue; (2) all the industrial
undertakings of the state, including the railways, telegraphs,
and telephones, are being run at a loss. Although the public is
buying bread at a high price, that price represents a loss to the
government of about a milliard a year; (3) exports now leaving
the country are valued at only one-quarter or one-fifth of the
imports from abroad; (4) the national debt is increasing by about
a milliard lire per month; (5) the military expenditure for one
month is still larger than that for the first year of the war.
But if this is the budgetary position of France and Italy,
that of the rest of belligerent Europe is yet more desperate. In
Germany the total expenditure of the empire, the federal states,
and the communes in 1919-20 is estimated at 25 milliards of
marks, of which not above 10 milliards are covered by previously
existing taxation. This is without allowing anything for the
payment of the indemnity. In Russia, Poland, Hungary, or Austria
such a thing as a budget cannot be seriously considered to exist
at all.(10*)
Thus the menace of inflationism described above is not merely
a product of the war, of which peace begins the cure. It is a
continuing phenomenon of which the end is not yet in sight.
All these influences combine not merely to prevent Europe
from supplying immediately a sufficient stream of exports to pay
for the goods she needs to import, but they impair her credit for
securing the working capital required to re-start the circle of
exchange and also, by swinging the forces of economic law yet
further from equilibrium rather than towards it, they favour a
continuance of the present conditions instead of a recovery from
them. An inefficient, unemployed, disorganised Europe faces us,
torn by internal strife and international hate, fighting,
starving, pillaging, and lying. What warrant is there for a
picture of less sombre colours?
I have paid little heed in this book to Russia, Hungary, or
Austria.(11*) There the miseries of life and the disintegration
of society are too notorious to require analysis; and these
countries are already experiencing the actuality of what for the
rest of Europe is still in the realm of prediction. Yet they
comprehend a vast territory and a great population, and are an
extant example of how much man can suffer and how far society can
decay. Above all, they are the signal to us of how in the final
catastrophe the malady of the body passes over into malady of the
mind. Economic privation proceeds by easy stages, and so long as
men suffer it patiently the outside world cares little. Physical
efficiency and resistance to disease slowly diminish,(12*) but
life proceeds somehow, until the limit of human endurance is
reached at last and counsels of despair and madness stir the
sufferers from the lethargy which precedes the crisis. Then man
shakes himself, and the bonds of custom are loosed. The power of
ideas is sovereign, and he listens to whatever instruction of
hope, illusion, or revenge is carried to him on the air. As I
write, the flames of Russian Bolshevism seem, for the moment at
least, to have burnt themselves out, and the peoples of Central
and Eastern Europe are held in a dreadful torpor. The lately
gathered harvest keeps off the worst privations, and peace has
been declared at Paris. But winter approaches. Men will have
nothing to look forward to or to nourish hopes on. There will be
little fuel to moderate the rigours of the season or to comfort
the starved bodies of the town-dwellers.
But who can say how much is endurable, or in what direction
men will seek at last to escape from their misfortunes?
NOTES:
1. Professor Starling's Report on Food Conditions in Germany
(Cmd. 280).
2. Including the Darlehenskassenscheine somewhat more.
3. Similarly in Austria prices ought to be between twenty and
thirty times their former level.
4. One of the most striking and symptomatic difficulties which
faced the Allied authorities in their administration of the
occupied areas of Germany during the armistice arose out of the
fact that even when they brought food into the country the
inhabitants could not afford to pay its cost price.
5. Theoretically an unduly low level of home prices should
stimulate exports and so cure itself. But in Germany, and still
more in Poland and Austria, there is little or nothing to export.
There must be imports before there can be exports.
6. Allowing for the diminished value of gold, the exchange value
of the franc should be less than forty per cent of its previous
value, instead of the actual figure of about sixty per cent if
the fall were proportional to the increase in the volume of the
currency.
7. How very far from equilibrium France's international exchange
now is can be seen from the following table:
Monthly Imports Exports Excess of imports
average (£31,000) (£31,000) (£31,000)
1913 28,071 22,934 5,137
1914 21,341 16,229 5,112
1918 66,383 13,811 52,572
Jan-Mar 1919 77,428 13,334 64,094
Apr-June 1919 84,282 16,779 67,503
July 1919 93,513 24,735 68,778
These figures have been converted at approximately par rates,
but this is roughly compensated by the fact that the trade of
1918 and 1919 has been valued at 1917 official rates. French
imports cannot possibly continue at anything approaching these
figures, and the semblance of prosperity based on such a state of
affairs is spurious.
8. The figures for Italy are as follows:
Monthly Imports Exports Excess of imports
average (£31,000) (£31,000) (£31,000)
1913 12,152 8,372 3,780
1914 9,744 7,368 2,376
1918 47,005 8,278 38,727
Jan-Mar 1919 45,848 7,617 38,231
Apr-June 1919 66,207 13,850 52,357
July-Aug 1919 44,707 16,903 27,804
9. In the last two returns of the Bank of France available as I
write (2 and 9 October 1919) the increases in the note issue on
the week amounted to £318,750,000 and £318,825,000 respectively.
10. On 3 October 1919 M. Bilinski made his financial statement to
the Polish Diet. He estimated his expenditure for the next nine
months at rather more than double his expenditure for the past
nine months, and while during the first period his revenue had
amounted to one-fifth of his expenditure, for the coming months
he was budgeting for receipts equal to one-eighth of his
outgoings. The Times correspondent at Warsaw reported that 'in
general M. Bilinski's tone was optimistic and appeared to satisfy
his audience'!
11. The terms of the peace treaty imposed on the Austrian
republic bear no relation to the real facts of that state's
desperate situation. The Arbeiter Zeitung of Vienna on 4 June
1919 commented on them as follows: 'Never has the substance of a
treaty of peace so grossly betrayed the intentions which were
said to have guided its construction as is the case with this
treaty... in which every provision is permeated with ruthlessness
and pitilessness, in which no breath of human sympathy can be
detected, which flies in the face of everything which binds man
to man, which is a crime against humanity itself, against a
suffering and tortured people.' I am acquainted in detail with
the Austrian treaty and I was present when some of its terms were
being drafted, but I do not find it easy to rebut the justice of
this outburst.
12. For months past the reports of the health conditions in the
Central empires have been of such a character that the
imagination is dulled, and one almost seems guilty of
sentimentality in quoting them. But their general veracity is not
disputed, and I quote the three following, that the reader may
not be unmindful of them: 'In the last years of the war, in
Austria alone at least 35,000 people died of tuberculosis, in
Vienna alone 12,000. To-day we have to reckon with a number of at
least 350,000 to 400,000 people who require treatment for
tuberculosis... As the result of malnutrition a bloodless
generation is growing up with undeveloped muscles, undeveloped
joints, and undeveloped brain' (Neue Freie Presse, 31 May 1919).
The commission of doctors appointed by the medical faculties of
Holland, Sweden, and Norway to examine the conditions in Germany
reported as follows in the Swedish Press in April 1919:
'Tuberculosis, especially in children, is increasing in an
appalling way, and, generally speaking, is malignant. In the same
way rickets is more serious and more widely prevalent. It is
impossible to do anything for these diseases; there is no milk
for the tuberculous, and no cod-liver oil for those suffering
from rickets... Tuberculosis is assuming almost unprecedented
aspects, such as have hitherto only been known in exceptional
cases. The whole body is attacked simultaneously, and the illness
in this form is practically incurable... Tuberculosis is nearly
always fail now among adults. It is the cause of ninety per cent
of the hospital cases. Nothing can be done against it owing to
lack of foodstuffs... It appears in the most terrible forms, such
as glandular tuberculosis, which turns into purulent
dissolution.' The following is by a writer in the Vossische
Zeitung, 5 June 1919, who accompanied the Hoover mission to the
Erzgebirge: 'I visited large country districts where ninety per
cent of all the children were rickety and where children of three
years are only beginning to walk... Accompany me to a school in
the Erzgebirge. You think it is a kindergarten for the little
ones. No, these are children of seven and eight years. Tiny
faces, with large dull eyes, overshadowed by huge puffed, rickety
foreheads, their small arms just skin and bone, and above the
crooked legs with their dislocated joints the swollen, pointed
stomachs of the hunger oedema... "You see this child here," the
physician in charge explained; "it consumed an incredible amount
of bread, and yet did not get any stronger. I found out that it
hid all the bread it received underneath its straw mattress. The
fear of hunger was so deeply rooted in the child that it
collected stores instead of eating the food: a misguided animal
instinct made the dread of hunger worse than the actual pangs".'
Yet there are many persons apparently in whose opinion justice
requires that such beings should pay tribute until they are forty
or fifty years of age in relief of the British taxpayer.
Chapter 7: Remedies
It is difficult to maintain true perspective in large
affairs. I have criticised the work of Paris, and have depicted
in sombre colours the condition and the prospects of Europe. This
is one aspect of the position and, I believe, a true one. But in
so complex a phenomenon the prognostics do not all point one way;
and we may make the error of expecting consequences to follow too
swiftly and too inevitably from what perhaps are not all the
relevant causes. The blackness of the prospect itself leads us to
doubt its accuracy; our imagination is dulled rather than
stimulated by too woeful a narration, and our minds rebound from
what is felt 'too bad to be true'. But before the reader allows
himself to be too much swayed by these natural reflections, and
before I lead him, as is the intention of this chapter, towards
and ameliorations remedies and the discovery of happier
tendencies, let him redress the balance of his thought by
recalling two contrasts -- England and Russia, of which the one
may encourage his optimism too much, but the other should remind
him that catastrophes can still happen, and that modern society
is not immune from the very greatest evils.
In the chapters of this book I have not generally had in mind
the situation or the problems of England. 'Europe' in my
narration must generally be interpreted to exclude the British
Isles. England is in a state of transition, and her economic
problems are serious. We may be on the eve of great changes in
her social and industrial structure. Some of us may welcome such
prospects and some of us deplore them. But they are of a
different kind altogether from those impending on Europe. I do
not perceive in England the slightest possibility of catastrophe
or any serious likelihood of a general upheaval of society. The
war has impoverished us, but not seriously -- I should judge that
the real wealth of the country in 1919 is at least equal to what
it was in 1900. Our balance of trade is adverse, but not so much
so that the readjustment of it need disorder our economic
life.(1*) The deficit in our budget is large, but not beyond what
firm and prudent statesmanship could bridge. The shortening of
the hours of labour may have somewhat diminished our
productivity. But it should not be too much to hope that this is
a feature of transition, and no one who is acquainted with the
British working man can doubt that, if it suits him, and if he is
in sympathy and reasonable contentment with the conditions of his
life, he can produce at least as much in a shorter working day as
he did in the longer hours which prevailed formerly. The most
serious problems for England have been brought to a head by the
war, but are in their origins more fundamental. The forces of the
nineteenth century have run their course and are exhausted. The
economic motives and ideals of that generation no longer satisfy
us: we must find a new way and must suffer again the malaise, and
finally the pangs, of a new industrial birth. This is one
element. The other is that on which I have enlarged in chapter 2
-- the increase in the real cost of food and the diminishing
response of Nature to any further increase in the population of
the world, a tendency which must be especially injurious to the
greatest of all industrial countries and the most dependent on
imported supplies of food.
But these secular problems are such as no age is free from.
They are of an altogether different order from those which may
afflict the peoples of Central Europe. Those readers who, chiefly
mindful of the British conditions with which they are familiar,
are apt to indulge their optimism, and still more those whose
immediate environment is American, must cast their minds to
Russia, Turkey, Hungary, or Austria, where the most dreadful
material evils which men can suffer -- famine, cold, disease,
war, murder, and anarchy -- are an actual present experience, if
they are to apprehend the character of the misfortunes against
the further extension of which it must surely be our duty to seek
the remedy, if there is one.
What then is to be done? The tentative suggestions of this
chapter may appear to the reader inadequate. But the opportunity
was missed at Paris during the six months which followed the
armistice, and nothing we can do now can repair the mischief
wrought at that time. Great privation and great risks to society
have become unavoidable. All that is now open to us is to
redirect, so far as lies in our power, the fundamental economic
tendencies which underlie the events of the hour, so that they
promote the re-establishment of prosperity and order, instead of
leading us deeper into misfortune.
We must first escape from the atmosphere and the methods of
Paris. Those who controlled the conference may bow before the
gusts of popular opinion, but they will never lead us out of our
troubles. It is hardly to be supposed that the Council of Four
can retrace their steps, even if they wished to do so. The
replacement of the existing governments of Europe is, therefore,
an almost indispensable preliminary.
I propose then to discuss a programme, for those who believe
that the Peace of Versailles cannot stand, under the following
heads:
I. The revision of the treaty.
II. The settlement of inter-Ally indebtedness.
III. An international loan and the reform of the currency.
IV. The relations of Central Europe to Russia.
I. THE REVISION OF THE TREATY
Are any constitutional means open to us for altering the
treaty? President Wilson and General Smuts, who believe that to
have secured the covenant of the League of Nations outweighs much
evil in the rest of the treaty, have indicated that we must look
to the League for the gradual evolution of a more tolerable life
for Europe. 'There are territorial settlements', General Smuts
wrote in his statement on signing the peace treaty, 'which will
need revision. There are guarantees laid down which we all hope
will soon be found out of harmony with the new peaceful temper
and unarmed state of our former enemies. There are punishments
foreshadowed over most of which a calmer mood may yet prefer to
pass the sponge of oblivion. There are indemnities stipulated
which cannot be enacted without grave injury to the industrial
revival of Europe, and which it will be in the interests of all
to render more tolerable and moderate... I am confident that the
League of Nations will yet prove the path of escape for Europe
out of the ruin brought about by this war.' Without the League,
President Wilson informed the Senate when he presented the treaty
to them early in July 1919, '... long-continued supervision of
the task of reparation which Germany was to undertake to complete
within the next generation might entirely break down;(2*) the
reconsideration and revision of administrative arrangements and
restrictions which the treaty prescribed, but which it recognised
might not provide lasting advantage or be entirely fair if too
long enforced, would be impracticable.'
Can we look forward with fair hopes to securing from the
operation of the League those benefits which two of its principal
begetters thus encourage us to expect from it? The relevant
passage is to be found in article XIX of the covenant, which runs
as follows: 'The assembly may from time to time advise the
reconsideration by members of the League of treaties which have
become inapplicable and the consideration of international
conditions whose continuance might endanger the peace of the
world.'
But alas! Article V provides that 'Except where otherwise
expressly provided in this covenant or by the terms of the
present treaty, decisions at any meeting of the assembly or of
the council shall require the agreement of all the members of the
League represented at the meeting.' Does not this provision
reduce the League, so far as concerns an early reconsideration of
any of the terms of the peace treaty, into a body merely for
wasting time? If all the parties to the treaty are unanimously of
opinion that it requires alteration in a particular sense, it
does not need a League and a covenant to put the business
through. Even when the assembly of the League is unanimous it can
only 'advise' reconsideration by the members specially affected.
But the League will operate, say its supporters, by its
influence on the public opinion of the world, and the view of the
majority will carry decisive weight in practice, even though
constitutionally it is of no effect. Let us pray that this be so.
Yet the League in the hands of the trained European diplomatist
may become an unequalled instrument for obstruction and delay.
The revision of treaties is entrusted primarily, not to the
council, which meets frequently, but to the assembly, which will
meet more rarely and must become, as any one with an experience
of large inter-Ally conferences must know, an unwieldy polyglot
debating society in which the greatest resolution and the best
management may fail altogether to bring issues to a head against
an opposition in favour of the status quo. There are indeed two
disastrous blots on the covenant -- article V, which prescribes
unanimity, and the much-criticised article X, by which 'The
members of the League undertake to respect and preserve as
against external aggression the territorial integrity and
existing political independence of all members of the League.'
These two articles together go some way to destroy the conception
of the League as an instrument of progress, and to equip it from
the outset with an almost fatal bias towards the status quo. It
is these articles which have reconciled to the League some of its
original opponents, who now hope to make of it another Holy
Alliance for the perpetuation of the economic ruin of their
enemies and the balance of power in their own interests which
they believe themselves to have established by the peace.
But while it would be wrong and foolish to conceal from
ourselves in the interests of 'idealism' the real difficulties of
the position in the special matter of revising treaties, that is
no reason for any of us to decry the League, which the wisdom of
the world may yet transform into a powerful instrument of peace,
and which in articles XI-XVII(3*) has already accomplished a
great and beneficent achievement. I agree, therefore, that our
first efforts for the revision of the treaty must be made through
the League rather than in any other way, in the hope that the
force of general opinion, and if necessary, the use of financial
pressure and financial inducements, may be enough to prevent a
recalcitrant minority from exercising their right of veto. We
must trust the new governments, whose existence I premise in the
principal Allied countries, to show a profounder wisdom and a
greater magnanimity than their predecessors.
We have seen in chapters 4 and 5 that there are numerous
particulars in which the treaty is objectionable. I do not intend
to enter here into details, or to attempt a revision of the
treaty clause by clause. I limit myself to three great changes
which are necessary for the economic life of Europe, relating to
reparation, to coal and iron, and to tariffs.
Reparation. If the sum demanded for reparation is less than
what the Allies are entitled to on a strict interpretation of
their engagements, it is unnecessary to particularise the items
it represents or to hear arguments about its compilation. I
suggest, therefore, the following settlement:
(1) The amount of the payment to be made by Germany in
respect of reparation and the costs of the armies of occupation
might be fixed at £32,000 million.
(2) The surrender of merchant ships and submarine cables
under the treaty, of war material under the armistice, of state
property in ceded territory, of claims against such territory in
respect of public debt, and of Germany's claims against her
former Allies, should be reckoned as worth the lump sum of £3500
million, without any attempt being made to evaluate them item by
item.
(3) The balance of £31,500 million should not carry interest
pending its repayment, and should be paid by Germany in thirty
annual instalments of £350 million, beginning in 1923.
(4) The reparation commission should be dissolved or, if any
duties remain for it to perform, it should become an appanage of
the League of Nations and should include representatives of
Germany and of the neutral states.
(5) Germany would be left to meet the annual instalments in
such manner as she might see fit, any complaint against her for
non-fulfilment of her obligations being lodged with the League of
Nations. That is to say, there would be no further expropriation
of German private property abroad, except so far as is required
to meet private German obligations out of the proceeds of such
property already liquidated or in the hands of public trustees
and enemy-property custodians in the Allied countries and in the
United States; and, in particular, article 260 (which provides
for the expropriation of German interests in public utility
enterprises) would be abrogated.
(6) No attempt should be made to extract reparation payments
from Austria.
Coal and iron. (1) The Allies' options on coal under annex V
should be abandoned, but Germany's obligation to make good
France's loss of coal through the destruction of her mines should
remain. That is to say, Germany should undertake 'to deliver to
France annually for a period not exceeding ten years an amount of
coal equal to the difference between the annual production before
the war of the coal-mines of the Nord and Pas de Calais,
destroyed as a result of the war, and the production of the mines
of the same area during the years in question; such delivery not
to exceed 20 million tons in any one year of the first five
years, and 8 million tons in any one year of the succeeding five
years.' This obligation should lapse, nevertheless, in the event
of the coal districts of Upper Silesia being taken from Germany
in the final settlement consequent on the plebiscite.
(2) The arrangement as to the Saar should hold good, except
that, on the one hand, Germany should receive no credit for the
mines, and, on the other, should receive back both the mines and
the territory without payment and unconditionally after ten
years. But this should be conditional on France's entering into
an agreement for the same period to supply Germany from Lorraine
with at least 50% of the iron ore which was carried from Lorraine
into Germany proper before the war, in return for an undertaking
from Germany to supply Lorraine with an amount of coal equal to
the whole amount formerly sent to Lorraine from Germany proper,
after allowing for the output of the Saar.
(3) The arrangement as to Upper Silesia should hold good.
That is to say, a plebiscite should be held, and in coming to a
final decision 'regard will be paid (by the principal Allied and
Associated Powers) to the wishes of the inhabitants as shown by
the vote, and to the geographical and economic conditions of the
locality'. But the Allies should declare that in their judgment
'economic conditions' require the inclusion of the coal districts
in Germany unless the wishes of the inhabitants are decidedly to
the contrary.
(4) The coal commission already established by the Allies
should become an appanage of the League of Nations, and should be
enlarged to include representatives of Germany and the other
states of Central and Eastern Europe, of the northern neutrals,
and of Switzerland. Its authority should be advisory only, but
should extend over the distribution of the coal supplies of
Germany, Poland, and the constituent parts of the former
Austro-Hungarian empire, and of the exportable surplus of the
United Kingdom. All the states represented on the commission
should undertake to furnish it with the fullest information, and
to be guided by its advice so far as their sovereignty and their
vital interests permit.
Tariffs. A free trade union should be established under the
auspices of the League of Nations of countries undertaking to
impose no protectionist tariffs(4*) whatever against the produce
of other members of the union. Germany, Poland, the new states
which formerly composed the Austro-Hungarian and Turkish empires,
and the mandated states should be compelled to adhere to this
union for ten years, after which time adherence would be
voluntary. The adherence of other states would be voluntary from
the outset. But it is to be hoped that the United Kingdom, at any
rate, would become an original member.
By fixing the reparation payments well within Germany's
capacity to pay, we make possible the renewal of hope and
enterprise within her territory, we avoid the perpetual friction
and opportunity of improper pressure arising out of treaty
clauses which are impossible of fulfilment, and we render
unnecessary the intolerable powers of the reparation commission.
By a moderation of the clauses relating directly or
indirectly to coal, and by the exchange of iron ore, we permit
the continuance of Germany's industrial life, and put limits on
the loss of productivity which would be brought about otherwise
by the interference of political frontiers with the natural
localisation of the iron and steel industry.
By the proposed free trade union some part of the loss of
organisation and economic efficiency may be retrieved which must
otherwise result from the innumerable new political frontiers now
created between greedy, jealous, immature, and economically
incomplete, nationalist states. Economic frontiers were tolerable
so long as an immense territory was included in a few great
empires; but they will not be tolerable when the empires of
Germany, Austria-Hungary, Russia, and Turkey have been
partitioned between some twenty independent authorities. A free
trade union, comprising the whole of Central, Eastern, and
south-Eastern Europe, Siberia, Turkey, and (I should hope) the
United Kingdom, Egypt, and India, might do as much for the peace
and prosperity of the world as the League of Nations itself.
Belgium, Holland, Scandinavia, and Switzerland might be expected
to adhere to it shortly. And it would be greatly to be desired by
their friends that France and Italy also should see their way to
adhesion.
It would be objected, I suppose, by some critics that such an
arrangement might go some way in effect towards realising the
former German dream of Mittel-Europa. If other countries were so
foolish as to remain outside the union and to leave to Germany
all its advantages, there might be some truth in this. But an
economic system, to which everyone had the opportunity of
belonging and which gave special privilege to none, is surely
absolutely free from the objections of a privileged and avowedly
imperialistic scheme of exclusion and discrimination. Our
attitude to these criticisms must be determined by our whole
moral and emotional reaction to the future of international
relations and the peace of the world. If we take the view that
for at least a generation to come Germany cannot be trusted with
even a modicum of prosperity, that while all our recent allies
are angels of light, all our recent enemies, Germans, Austrians,
Hungarians, and the rest, are children of the devil, that year by
year Germany must be kept impoverished and her children starved
and crippled, and that she must be ringed round by enemies; then
we shall reject all the proposals of this chapter, and
particularly those which may assist Germany to regain a part of
her former material prosperity and find a means of livelihood for
the industrial population of her towns. But if this view of
nations and of their relation to one another is adopted by the
democracies of Western Europe, and is financed by the United
States, heaven help us all. If we aim deliberately at the
impoverishment of Central Europe, vengeance, I dare predict, will
not limp. Nothing can then delay for very long that final civil
war between the forces of reaction and the despairing convulsions
of revolution, before which the horrors of the late German war
will fade into nothing, and which will destroy, whoever is
victor, the civilisation and the progress of our generation. Even
though the result disappoint us, must we not base our actions on
better expectations, and believe that the prosperity and
happiness of one country promotes that of others, that the
solidarity of man is not a fiction, and that nations can still
afford to treat other nations as fellow-creatures?
Such changes as I have proposed above might do something
appreciable to enable the industrial populations of Europe to
continue to earn a livelihood. But they would not be enough by
themselves. In particular, France would be a loser on paper (on
paper only, for she will never secure the actual fulfilment of
her present claims), and an escape from her embarrassments must
be shown her in some other direction. I proceed, therefore, to
proposals, first, for the adjustment of the claims of America and
the Allies amongst themselves; and second, for the provision of
sufficient credit to enable Europe to re-create her stock of
circulating capital.
II. THE SETTLEMENT OF INTER-ALLY INDEBTEDNESS
In proposing a modification of the reparation terms, I have
considered them so far only in relation to Germany. But fairness
requires that so great a reduction in the amount should be
accompanied by a readjustment of its apportionment between the
Allies themselves. The professions which our statesmen made on
every platform during the war, as well as other considerations,
surely require that the areas damaged by the enemy's invasion
should receive a priority of compensation. While this was one of
the ultimate objects for which we said we were fighting, we never
included the recovery of separation allowances amongst our war
aims. I suggest, therefore, that we should by our acts prove
ourselves sincere and trustworthy, and that accordingly Great
Britain should waive altogether her claims for cash payment, in
favour of Belgium, Serbia, and France. The whole of the payments
made by Germany would then be subject to the prior charge of
repairing the material injury done to those countries and
provinces which suffered actual invasion by the enemy; and I
believe that the sum of £31,500 million thus available would be
adequate to cover entirely the actual costs of restoration.
Further, it is only by a complete subordination of her own claims
for cash compensation that Great Britain can ask with clean hands
for a revision of the treaty and clear her honour from the breach
of faith for which she bears the main responsibility, as a result
of the policy to which the General Election of 1918 pledged her
representatives.
With the reparation problem thus cleared up it would be
possible to bring forward with a better grace and more hope of
success two other financial proposals, each of which involves an
appeal to the generosity of the United States.
Loans to By United States By United Kingdom By France Total
Million £3 Million £3 Million £3 Million
£3
United Kingdom 842 -- -- 842
France 550 508 -- 1,058
Italy 325 467 35 827
Russia 38 568(5*) 160 766
Belgium 80 98(6*) 90 268
Serbia and
Jugoslavia 20 202 20 60
Other Allies 35 79 50 164
Total 1,900(7*) 1,740 355 3,995
The first is for the entire cancellation of inter-Ally
indebtedness (that is to say, indebtedness between the
governments of the Allied and Associated countries) incurred for
the purposes of the war. This proposal, which has been put
forward already in certain quarters, is one which I believe to be
absolutely essential to the future prosperity of the world. It
would be an act of farseeing statesmanship for the United Kingdom
and the United States, the two Powers chiefly concerned, to adopt
it. The sums of money which are involved are shown approximately
in the above table.(8*)
Thus the total volume of inter-Ally indebtedness, assuming
that loans from one Ally are not set off against loans to
another, is nearly £34,000 million. The United States is a lender
only. The United Kingdom has lent about twice as much as she has
borrowed. France has borrowed about three times as much as she
has lent. The other Allies have been borrowers only.
If all the above inter-Ally indebtedness were mutually
forgiven, the net result on paper (i.e. assuming all the loans to
be good) would be a surrender by the United States of about
£32,000 million and by the United Kingdom of about £3900 million.
France would gain about £3700 million and Italy about £3800
million. But these figures overstate the loss to the United
Kingdom and understate the gain to France; for a large part of
the loans made by both these countries has been to Russia and
cannot, by any stretch of imagination, be considered good. If the
loans which the United Kingdom has made to her allies are
reckoned to be worth 5o % of their full value (an arbitrary but
convenient assumption which the Chancellor of the Exchequer has
adopted on more than one occasion as being as good as any other
for the purposes of an approximate national balance sheet), the
operation would involve her neither in loss nor in gain. But in
whatever way the net result is calculated on paper, the relief in
anxiety which such a liquidation of the position would carry with
it would be very great. It is from the United States, therefore,
that the proposal asks generosity.
Speaking with a very intimate knowledge of the relations
throughout the war between the British, the American, and the
other Allied treasuries, I believe this to be an act of
generosity for which Europe can fairly ask, provided Europe is
making an honourable attempt in other directions not to continue
war, economic or otherwise, but to achieve the economic
reconstitution of the whole continent. The financial sacrifices
of the United States have been, in proportion to her wealth,
immensely less than those of the European states. This could
hardly have been otherwise. It was a European quarrel, in which
the United States government could not have justified itself
before its citizens in expending the whole national strength, as
did the Europeans. After the United States came into the war her
financial assistance was lavish and unstinted, and without this
assistance the Allies could never have won the war,(9*) quite
apart from the decisive influence of the arrival of the American
troops. Europe, too, should never forget the extraordinary
assistance afforded her during the first six months of 1919
through the agency of Mr Hoover and the American commission of
relief. Never was a nobler work of disinterested goodwill carried
through with more tenacity and sincerity and skill, and with less
thanks either asked or given. The ungrateful governments of
Europe owe much more to the statesmanship and insight of Mr
Hoover and his band of American workers than they have yet
appreciated or will ever acknowledge. The American relief
commission, and they only, saw the European position during those
months in its true perspective and felt towards it as men should.
It was their efforts, their energy, and the American resources
placed by the President at their disposal, often acting in the
teeth of European obstruction, which not only saved an immense
amount of human suffering, but averted a widespread breakdown of
the European system.(10*)
But in speaking thus as we do of American financial
assistance, we tacitly assume, and America, I believe, assumed it
too when she gave the money, that it was not in the nature of an
investment. If Europe is going to repay the £32,000 million worth
of financial assistance which she has had from the United States
with compound interest at 5%, the matter takes on quite a
different complexion. If America's advances are to be regarded in
this light, her relative financial sacrifice has been very slight
indeed.
Controversies as to relative sacrifice are very barren and
very foolish also; for there is no reason in the world why
relative sacrifice should necessarily be equal -- so many other
very relevant considerations being quite different in the two
cases. The two or three facts following are put forward,
therefore, not to suggest that they provide any compelling
argument for Americans, but only to show that from his own
selfish point of view an Englishman is not seeking to avoid due
sacrifice on his country's part in making the present suggestion.
(1) The sums which the British Treasury borrowed from the
American Treasury, after the latter came into the war, were
approximately offset by the sums which England lent to her other
allies during the same period (i.e. excluding sums lent before
the United States came into the war); so that almost the whole of
England's indebtedness to the United States was incurred, not on
her own account, but to enable her to assist the rest of her
allies, who were for various reasons not in a position to draw
their assistance from the United States direct.(11*) (2) The
United Kingdom has disposed of about £31,000 million worth of her
foreign securities, and in addition has incurred foreign debt to
the amount of about £31,200 million. The United States, so far
from selling, has bought back upwards of £31,000 million, and has
incurred practically no foreign debt. (3) The population of the
United Kingdom is about one-half that of the United States, the
income about one-third, and the accumulated wealth between
one-half and one-third. The financial capacity of the United
Kingdom may therefore be put at about two-fifths that of the
United States. This figure enables us to make the following
comparison: Excluding loans to allies in each case (as is right
on the assumption that these loans are to be repaid), the war
expenditure of the United Kingdom has been about three times that
of the United States, or in proportion to capacity between seven
and eight times.
Having cleared this issue out of the way as briefly as
possible, I turn to the broader issues of the future relations
between the parties to the late war, by which the present
proposal must primarily be judged.
Failing such a settlement as is now proposed, the war will
have ended with a network of heavy tribute payable from one Ally
to another. The total amount of this tribute is even likely to
exceed the amount obtainable from the enemy; and the war will
have ended with the intolerable result of the Allies paying
indemnities to one another instead of receiving them from the
enemy.
For this reason the question of inter-Allied indebtedness is
closely bound up with the intense popular feeling amongst the
European Allies on the question of indemnities -- a feeling which
is based, not on any reasonable calculation of what Germany can,
in fact, pay, but on a well-founded appreciation of the
unbearable financial situation in which these countries will find
themselves unless she pays. Take Italy as an extreme example. If
Italy can reasonably be expected to pay £3800 million, surely
Germany can and ought to pay an immeasurably higher figure. Or if
it is decided (as it must be) that Austria can pay next to
nothing, is it not an intolerable conclusion that Italy should be
loaded with a crushing tribute, while Austria escapes ? Or, to
put it slightly differently, how can Italy be expected to submit
to payment of this great sum and see Czechoslovakia pay little or
nothing? At the other end of the scale there is the United
Kingdom. Here the financial position is different, since to ask
us to pay £3800 million is a very different proposition from
asking Italy to pay it. But the sentiment is much the same. If we
have to be satisfied without full compensation from Germany, how
bitter will be the protests against paying it to the United
States. We, it will be said, have to be content with a claim
against the bankrupt estates of Germany, France, Italy, and
Russia, whereas the United States has secured a first mortgage
upon us. The case of France is at least as overwhelming. She can
barely secure from Germany the full measure of the destruction of
her countryside. Yet victorious France must pay her friends and
allies more than four times the indemnity which in the defeat of
1870 she paid Germany. The hand of Bismarck was light compared
with that of an Ally or of an associate. A settlement of
inter-Ally indebtedness is, therefore, an indispensable
preliminary to the peoples of the Allied countries facing, with
other than a maddened and exasperated heart, the inevitable truth
about the prospects of an indemnity from the enemy.
It might be an exaggeration to say that it is impossible for
the European Allies to pay the capital and interest due from them
on these debts, but to make them do so would certainly be to
impose a crushing burden. They may be expected, therefore, to
make constant attempts to evade or escape payment, and these
attempts will be a constant source of international friction and
ill-will for many years to come. A debtor nation does not love
its creditor, and it is fruitless to expect feelings of goodwill
from France, Italy and Russia towards this country or towards
America, if their future development is stifled for many years to
come by the annual tribute which they must pay us. There will be
a great incentive to them to seek their friends in other
directions, and any future rupture of peaceable relations will
always carry with it the enormous advantage of escaping the
payment of external debts. If, on the other hand, these great
debts are forgiven, a stimulus will be given to the solidarity
and true friendliness of the nations lately associated.
The existence of the great war debts is a menace to financial
stability everywhere. There is no European country in which
repudiation may not soon become an important political issue. In
the case of internal debt, however, there are interested parties
on both sides, and the question is one of the internal
distribution of wealth. With external debts this is not so, and
the creditor nations may soon find their interest inconveniently
bound up with the maintenance of a particular type of government
or economic organisation in the debtor countries. Entangling
alliances or entangling leagues are nothing to the entanglements
of cash owing.
The final consideration influencing the reader's attitude to
this proposal must, however, depend on his view as to the future
place in the world's progress of the vast paper entanglements
which are our legacy from war finance both at home and abroad.
The war has ended with everyone owing everyone else immense sums
of money. Germany owes a large sum to the Allies; the Allies owe
a large sum to Great Britain; and Great Britain owes a large sum
to the United States. The holders of war loan in every country
are owed a large sum by the state; and the state in its turn is
owed a large sum by these and other taxpayers. The whole position
is in the highest degree artificial, misleading, and vexatious.
We shall never be able to move again, unless we can free our
limbs from these paper shackles. A general bonfire is so great a
necessity that unless we can make of it an orderly and
good-tempered affair in which no serious injustice is done to
anyone, it will, when it comes at last, grow into a conflagration
that may destroy much else as well. As regards internal debt, I
am one of those who believe that a capital levy for the
extinction of debt is an absolute prerequisite of sound finance
in every one of the European belligerent countries. But the
continuance on a huge scale of indebtedness between governments
has special dangers of its own.
Before the middle of the nineteenth century no nation owed
payments to a foreign nation on any considerable scale, except
such tributes as were exacted under the compulsion of actual
occupation in force and, at one time, by absentee princes under
the sanctions of feudalism. It is true that the need for European
capitalism to find an outlet in the New World has led during the
past fifty years, though even now on a relatively modest scale,
to such countries as Argentina owing an annual sum to such
countries as England. But the system is fragile; and it has only
survived because its burden on the paying countries has not so
far been oppressive, because this burden is represented by real
assets and is bound up with the property system generally, and
because the sums already lent are not unduly large in relation to
those which it is still hoped to borrow. Bankers are used to this
system, and believe it to be a necessary part of the permanent
order of society. They are disposed to believe, therefore, by
analogy with it, that a comparable system between governments, on
a far vaster and definitely oppressive scale, represented by no
real assets, and less closely associated with the property
system, is natural and reasonable and in conformity with human
nature.
I doubt this view of the world. Even capitalism at home,
which engages many local sympathies, which plays a real part in
the daily process of production, and upon the security of which
the present organisation of society largely depends, is not very
safe. But however this may be, will the discontented peoples of
Europe be willing for a generation to come so to order their
lives that an appreciable part of their daily produce may be
available to meet a foreign payment the reason for which, whether
as between Europe and America, or as between Germany and the rest
of Europe, does not spring compellingly from their sense of
justice or duty?
On the one hand, Europe must depend in the long run on her
own daily labour and not on the largesse of America; but, on the
other hand, she will not pinch herself in order that the fruit of
her daily labour may go elsewhere. In short, I do not believe
that any of these tributes will continue to be paid, at the best,
for more than a very few years. They do not square with human
nature or agree with the spirit of the age.
If there is any force in this mode of thought, expediency and
generosity agree together, and the policy which will best promote
immediate friendship between nations will not conflict with the
permanent interests of the benefactor.(12*)
III. AN INTERNATIONAL LOAN
I pass to a second financial proposal. The requirements of
Europe are immediate. The prospect of being relieved of
oppressive interest payments to England and America over the
whole life of the next two generations (and of receiving from
Germany some assistance year by year to the costs of restoration)
would free the future from excessive anxiety. But it would not
meet the ills of the immediate present -- the excess of Europe's
imports over her exports, the adverse exchange, and the disorder
of the currency. It will be very difficult for European
production to get started again without a temporary measure of
external assistance. I am therefore a supporter of an
international loan in some shape or form, such as has been
advocated in many quarters in France, Germany, and England, and
also in the United States. In whatever way the ultimate
responsibility for repayment is distributed, the burden of
finding the immediate resources must inevitably fall in major
part upon the United States.
The chief objections to all the varieties of this species of
project are, I suppose, the following. The United States is
disinclined to entangle herself further (after recent
experiences) in the affairs of Europe, and, anyhow, has for the
time being no more capital to spare for export on a large scale.
There is no guarantee that Europe will put financial assistance
to proper use, or that she will not squander it and be in just as
bad case two or three years hence as she is in now: M. Klotz will
use the money to put off the day of taxation a little longer,
Italy and Jugoslavia will fight one another on the proceeds,
Poland will devote it to fulfilling towards all her neighbours
the military role which France has designed for her, the
governing classes of Roumania will divide up the booty amongst
themselves. In short, America would have postponed her own
capital developments and raised her own cost of living in order
that Europe might continue for another year or two the practices,
the policy, and the men of the past nine months. And as for
assistance to Germany, is it reasonable or at all tolerable that
the European Allies, having stripped Germany of her last vestige
of working capital, in opposition to the arguments and appeals of
the American financial representatives at Paris, should then turn
to the United States for funds to rehabilitate the victim in
sufficient measure to allow the spoliation to recommence in a
year or two?
There is no answer to these objections as matters are now. If
I had influence at the United States Treasury, I would not lend a
penny to a single one of the present governments of Europe. They
are not to be trusted with resources which they would devote to
the furtherance of policies in repugnance to which, in spite of
the President's failure to assert either the might or the ideals
of the people of the United States, the Republican and the
Democratic parties are probably united. But if, as we must pray
they will, the souls of the European peoples turn away this
winter from the false idols which have survived the war that
created them, and substitute in their hearts, for the hatred and
the nationalism which now possess them, thoughts and hopes of the
happiness and solidarity of the European family -- then should
natural piety and filial love impel the American people to put on
one side all the smaller objections of private advantage and to
complete the work that they began in saving Europe from the
tyranny of organised force, by saving her from herself. And even
if the conversion is not fully accomplished, and some parties
only in each of the European countries have espoused a policy of
reconciliation, America can still point the way and hold up the
hands of the party of peace by having a plan and a condition on
which she will give her aid to the work of renewing life.
The impulse which, we are told, is now strong in the mind of
the United States to be quit of the turmoil, the complication,
the violence, the expense, and, above all, the unintelligibility
of the European problems, is easily understood. No one can feel
more intensely than the writer how natural it is to retort to the
folly and impracticability of the European statesmen -- Rot,
then, in your own malice, and we will go our way --
Remote from Europe; from her blasted hopes;
Her fields of carnage, and polluted air.
But if America recalls for a moment what Europe has meant to
her and still means to her, what Europe, the mother of art and of
knowledge, in spite of everything, still is and still will be,
will she not reject these counsels of indifference and isolation,
and interest herself in what may prove decisive issues for the
progress and civilisation of all mankind?
Assuming then, if only to keep our hopes up, that America
will be prepared to contribute to the process of building up the
good forces of Europe, and will not, having completed the
destruction of an enemy, leave us to our misfortunes, what form
should her aid take?
I do not propose to enter on details. But the main outlines
of all schemes for an international loan are much the same. The
countries in a position to lend assistance, the neutrals, the
United Kingdom and, for the greater portion of the sum required,
the United States, must provide foreign purchasing credits for
all the belligerent countries of continental Europe, Allied and
ex-enemy alike. The aggregate sum required might not be so large
as is sometimes supposed. Much might be done, perhaps, with a
fund of £3200 million in the first instance. This sum, even if a
precedent of a different kind had been established by the
cancellation of inter-Ally war debt, should be lent and should be
borrowed with the unequivocal intention of its being repaid in
full. With this object in view, the security for the loan should
be the best obtainable, and the arrangements for its ultimate
repayment as complete as possible. In particular, it should rank,
both for payment of interest and discharge of capital, in front
of all reparation claims, all inter-Ally war debt, all internal
war loans, and all other government indebtedness of any other
kind. Those borrowing countries who will be entitled to
reparation payments should be required to pledge all such
receipts to repayment of the new loan. And all the borrowing
countries should be required to place their customs duties on a
gold basis and to pledge such receipts to its service.
Expenditure out of the loan should be subject to general, but
not detailed, supervision by the lending countries.
If, in addition to this loan for the purchase of food and
materials, a guarantee fund were established up to an equal
amount, namely £3200 million (of which it would probably prove
necessary to find only a part in cash), to which all members of
the League of Nations would contribute according to their means,
it might be practicable to base upon it a general reorganisation
of the currency.
In this manner Europe might be equipped with the minimum
amount of liquid resources necessary to revive her hopes, to
renew her economic organisation, and to enable her great
intrinsic wealth to function for the benefit of her workers. It
is useless at the present time to elaborate such schemes in
further detail. A great change is necessary in public opinion
before the proposals of this chapter can enter the region of
practical politics, and we must await the progress of events as
patiently as we can.
IV. THE RELATIONS OF CENTRAL EUROPE TO RUSSIA
I have said very little of Russia in this book. The broad
character of the situation there needs no emphasis, and of the
details we know almost nothing authentic. But in a discussion as
to how the economic situation of Europe can be restored there are
one or two aspects of the Russian question which are vitally
important.
From the military point of view an ultimate union of forces
between Russia and Germany is greatly feared in some quarters.
This would be much more likely to take place in the event of
reactionary movements being successful in each of the two
countries, whereas an effective unity of purpose between Lenin
and the present essentially middle-class government of Germany is
unthinkable. On the other hand, the same people who fear such a
union are even more afraid of the success of Bolshevism; and yet
they have to recognise that the only efficient forces for
fighting it are, inside Russia, the reactionaries, and, outside
Russia, the established forces of order and authority in Germany.
Thus the advocates of intervention in Russia, whether direct or
indirect, are at perpetual cross-purposes with themselves. They
do not know what they want; or, rather, they want what they
cannot help seeing to be incompatibles. This is one of the
reasons why their policy is so inconstant and so exceedingly
futile.
The same conflict of purpose is apparent in the attitude of
the council of the Allies at Paris towards the present government
of Germany. A victory of Spartacism in Germany might well be the
prelude to revolution everywhere: it would renew the forces of
Bolshevism in Russia, and precipitate the dreaded union of
Germany and Russia; it would certainly put an end to any
expectations which have been built on the financial and economic
clauses of the treaty of peace. Therefore Paris does not love
Spartacus. But, on the other hand, a victory of reaction in
Germany would be regarded by everyone as a threat to the security
of Europe, and as endangering the fruits of victory and the basis
of the peace. Besides, a new military power establishing itself
in the East, with its spiritual home in Brandenburg, drawing to
itself all the military talent and all the military adventurers,
all those who regret emperors and hate democracy, in the whole of
Eastern and Central and south-eastern Europe, a power which would
be geographically inaccessible to the military forces of the
Allies, might well found, at least in the anticipations of the
timid, a new Napoleonic domination, rising, as a phoenix, from
the ashes of cosmopolitan militarism. So Paris dare not love
Brandenburg. The argument points, then, to the sustentation of
those moderate forces of order which, somewhat to the world's
surprise, still manage to maintain themselves on the rock of the
German character. But the present government of Germany stands
for German unity more perhaps than for anything else; the
signature of the peace was, above all, the price which some
Germans thought it worth while to pay for the unity which was all
that was left them of 1870. Therefore Paris, with some hopes of
disintegration across the Rhine not yet extinguished, can resist
no opportunity of insult or indignity, no occasion of lowering
the prestige or weakening the influence of a government with the
continued stability of which all the conservative interests of
Europe are nevertheless bound up.
The same dilemma affects the future of Poland in the role
which France has cast for her. She is to be strong, Catholic,
militarist, and faithful, the consort, or at least the favourite,
of victorious France, prosperous and magnificent between the
ashes of Russia and the ruin of Germany. Roumania, if only she
could be persuaded to keep up appearances a little more, is a
part of the same scatter-brained conception. Yet, unless her
great neighbours are prosperous and orderly, Poland is an
economic impossibility with no industry but Jew-baiting. And when
Poland finds that the seductive policy of France is pure
rhodomontade and that there is no money in it whatever, nor
glory either, she will fall, as promptly as possible, into the
arms of somebody else.
The calculations of 'diplomacy' lead us, therefore, nowhere.
Crazy dreams and childish intrigue in Russia and Poland and
thereabouts are the favourite indulgence at present of those
Englishmen and Frenchmen who seek excitement in its least
innocent form, and believe, or at least behave as if foreign
policy was of the same genre as a cheap melodrama.
Let us turn, therefore, to something more solid. The German
government has announced (30 October 1919) its continued adhesion
to a policy of non-intervention in the internal affairs of
Russia, 'not only on principle, but because it believes that this
policy is also justified from a practical point of view'. Let us
assume that at last we also adopt the same standpoint, if not on
principle, at least from a practical point of view. What are then
the fundamental economic factors in the future relations of
Central to Eastern Europe?
Before the war Western and Central Europe drew from Russia a
substantial part of their imported cereals. Without Russia the
importing countries would have had to go short. Since 1914 the
loss of the Russian supplies has been made good, partly by
drawing on reserves, partly from the bumper harvests of North
America called forth by Mr Hoover's guaranteed price, but largely
by economies of consumption and by privation. After 1920 the need
of Russian supplies will be even greater than it was before the
war; for the guaranteed price in North America will have been
discontinued, the normal increase of population there will, as
compared with 1914, have swollen the home demand appreciably, and
the soil of Europe will not yet have recovered its former
productivity. If trade is not resumed with Russia, wheat in
1920-1 (unless the seasons are specially bountiful) must be
scarce and very dear. The blockade of Russia lately proclaimed by
the Allies is therefore a foolish and short-sighted proceeding;
we are blockading not so much Russia as ourselves.
The process of reviving the Russian export trade is bound in
any case to be a slow one. The present productivity of the
Russian peasant is not believed to be sufficient to yield an
exportable surplus on the pre-war scale. The reasons for this are
obviously many, but amongst them are included the insufficiency
of agricultural implements and accessories and the absence of
incentive to production caused by the lack of commodities in the
towns which the peasants can purchase in exchange for their
produce. Finally, there is the decay of the transport system,
which hinders or renders impossible the collection of local
surpluses in the big centres of distribution.
I see no possible means of repairing this loss of
productivity within any reasonable period of time except through
the agency of German enterprise and organisation. It is
impossible geographically and for many other reasons for
Englishmen, Frenchmen, or Americans to undertake it; we have
neither the incentive nor the means for doing the work on a
sufficient scale. Germany, on the other hand, has the experience,
the incentive, and to a large extent the materials for furnishing
the Russian peasant with the goods of which he has been starved
for the past five years, for reorganising the business of
transport and collection, and so for bringing into the world's
pool, for the common advantage, the supplies from which we are
now so disastrously cut off. It is in our interest to hasten the
day when German agents and organisers will be in a position to
set in train in every Russian village the impulses of ordinary
economic motive. This is a process quite independent of the
governing authority in Russia; but we may surely predict with
some certainty that, whether or not the form of communism
represented by Soviet government proves permanently suited to the
Russian temperament, the revival of trade, of the comforts of
life and of ordinary economic motive are not likely to promote
the extreme forms of those doctrines of violence and tyranny
which are the children of war and of despair.
Let us then in our Russian policy not only applaud and
imitate the policy of non-intervention which the government of
Germany has announced, but, desisting from a blockade which is
injurious to our own permanent interests, as well as illegal, let
us encourage and assist Germany to take up again her place in
Europe as a creator and organiser of wealth for her eastern and
southern neighbours.
There are many persons in whom such proposals will raise
strong prejudices. I ask them to follow out in thought the result
of yielding to these prejudices. If we oppose in detail every
means by which Germany or Russia can recover their material
well-being, because we feel a national, racial, or political
hatred for their populations or their governments, we must be
prepared to face the consequences of such feelings. Even if there
is no moral solidarity between the nearly related races of
Europe, there is an economic solidarity which we cannot
disregard. Even now, the world markets are one. If we do not
allow Germany to exchange products with Russia and so feed
herself, she must inevitably compete with us for the produce of
the New World. The more successful we are in snapping economic
relations between Germany and Russia, the more we shall depress
the level of our own economic standards and increase the gravity
of our own domestic problems. This is to put the issue on its
lowest grounds. There are other arguments, which the most obtuse
cannot ignore, against a policy of spreading and encouraging
further the economic ruin of great countries.
I see few signs of sudden or dramatic developments anywhere.
Riots and revolutions there may be, but not such, at present, as
to have fundamental significance. Against political tyranny and
injustice revolution is a weapon. But what counsels of hope can
revolution offer to sufferers from economic privation which does
not arise out of the injustices of distribution but is general?
The only safeguard against revolution in Central Europe is indeed
the fact that, even to the minds of men who are desperate,
revolution offers no prospect of improvement whatever. There may,
therefore, be ahead of us a long, silent process of
semi-starvation, and of a gradual, steady lowering of the
standards of life and comfort. The bankruptcy and decay of
Europe, if we allow it to proceed, will affect everyone in the
long run, but perhaps not in a way that is striking or immediate.
This has one fortunate side. We may still have time to
reconsider our courses and to view the world with new eyes. For
the immediate future events are taking charge, and the near
destiny of Europe is no longer in the hands of any man. The
events of the coming year will not be shaped by the deliberate
acts of statesmen, but by the hidden currents, flowing
continually beneath the surface of political history, of which no
one can predict the outcome. In one way only can we influence
these hidden currents -- by setting in motion those forces of
instruction and imagination which change opinion. The assertion
of truth, the unveiling of illusion, the dissipation of hate, the
enlargement and instruction of men's hearts and minds, must be
the means.
In this autumn of 1919 in which I write, we are at the dead
season of our fortunes. The reaction from the exertions, the
fears, and the sufferings of the past five years is at its
height. Our power of feeling or caring beyond the immediate
questions of our own material well-being is temporarily eclipsed.
The greatest events outside our own direct experience and the
most dreadful anticipations cannot move us.
In each human heart terror survives
The ruin it has gorged: the loftiest fear
All that they would disdain to think were true:
Hypocrisy and custom make their minds
The fanes of many a worship, now outworn.
They dare not devise good for man's estate,
And yet they know not that they do not dare.
The good want power but to weep barren tears.
The powerful goodness want: worse need for them.
The wise want love; and those who love want wisdom;
And all best things are thus confused to ill.
Many are strong and rich, and would be just,
But live among their suffering fellow-men
As if none felt: they know not what they do.
We have been moved already beyond endurance, and need rest.
Never in the lifetime of men now living has the universal element
in the soul of man burnt so dimly.
For these reasons the true voice of the new generation has
not yet spoken, and silent opinion is not yet formed. To the
formation of the general opinion of the future I dedicate this
book.
NOTES:
1. The figures for the United Kingdom are as follows:
Monthly Net imports Exports Excess of imports
average (£31,000) (£31,000) (£31,000)
1913 54,930 43,770 11,160
1914 50,097 35,893 14,204
Jan-Mar. 1919 109,578 49,122 60,456
April-June 1919 111,403 62,463 48,940
July-Sept 1919 135,927 68,863 67,064
But this excess is by no means so serious as it looks; for
with the present high freight earnings of the mercantile marine
the various 'invisible' exports of the United Kingdom are
probably even higher than they were before the war, and may
average at least £345 million monthly.
2. President Wilson was mistaken in suggesting that the
supervision of reparation payments has been entrusted to the
League of Nations. As I pointed out in chapter 5, whereas the
League is invoked in regard to most of the continuing economic
and territorial provisions of the treaty, this is not the case as
regards reparation, over the problems and modifications of which
the reparation commission is supreme, without appeal of any kind
to the League of Nations.
3. These articles, which provide safeguards against the outbreak
of war between members of the League and also between members and
non-members, are the solid achievement of the covenant. These
articles make substantially less probable a war between organised
Great Powers such as that of 1914. This alone should commend the
League to all men.
4. It would be expedient so to define a 'protectionist tariff' as
to permit (a) the total prohibition of certain imports; (b) the
imposition of sumptuary or revenue customs duties on commodities
not produced at home; (c) the imposition of customs duties which
did not exceed by more than 5% a countervailing excise on similar
commodities produced at home; (d) export duties. Further, special
exceptions might be permitted by a majority vote of the countries
entering the union. Duties which had existed for five years prior
to a country's entering the union might be allowed to disappear
gradually by equal instalments spread over the five years
subsequent to joining the union.
5. This allows nothing for interest on the debt since the
Bolshevik Revolution.
6. No interest has been charged on the advances made to these
countries.
7. The actual total of loans by the United States up to date is
very nearly £32,000 million, but I have not got the latest
details.
8. The figures in this table are partly estimated, and are
probably not completely accurate in detail; but they show the
approximate figures with sufficient accuracy for the purposes of
the present argument. The British figures are taken from the
White Paper of 23 October 1919 (Cmd. 377). In any actual
settlement, adjustments would be required in connection with
certain loans of gold and also in other respects, and I am
concerned in what follows with the broad principle only. The sums
advanced by the United States and France, which are in terms of
dollars and francs respectively, have been converted at
approximately par rates. The total excludes loans raised by the
United Kingdom on the market in the United States, and loans
raised by France on the market in the United Kingdom or the
United States, or from the Bank of England.
9. The financial history of the six months from the end of the
summer of 1916 up to the entry of the United States into the war
in April 1917 remains to be written. Very few persons, outside
the half-dozen officials of the British Treasury who lived in
daily contact with the immense anxieties and impossible financial
requirements of those days, can fully realise what steadfastness
and courage were needed, and how entirely hopeless the task would
soon have become without the assistance of the United States
Treasury. The financial problems from April 1917 onwards were of
an entirely different order from those of the preceding months.
10. Mr Hoover was the only man who emerged from the ordeal of
Paris with an enhanced reputation. This complex personality, with
his habitual air of weary Titan (or, as others might put it, of
exhausted prize-fighter), his eyes steadily fixed on the true and
essential facts of the European situation, imported into the
councils of Paris, when he took part in them, precisely that
atmosphere of reality, knowledge, magnanimity, and
disinterestedness which, if they had been found in other quarters
also, would have given us the Good Peace.
11. Even after the United States came into the war the bulk of
Russian expenditure in the United States, as well as the whole of
that government's other foreign expenditure, had to be paid for
by the British Treasury.
12. It is reported that the United States Treasury has agreed to
fund (i.e. to add to the principal sum) the interest owing them
on their loans to the Allied governments during the next three
years. I presume that the British Treasury is likely to follow
suit. If the debts are to be paid ultimately, this piling up of
the obligations at compound interest makes the position
progressively worse. But the arrangement wisely offered by the
United States Treasury provides a due interval for the calm
consideration of the whole problem in the light of the after-war
position as it will soon disclose itself.
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