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PREFACE

THE writer of this book was temporarily attached to the British Treasury during the war and was their official representative at the Paris Peace Conference up to June 7, 1919; he also sat as deputy for the Chancellor of the Exchequer on the Supreme Economic Council. He resigned from these positions when it became evident that hope could no longer be entertained of substantial modification in the draft Terms of Peace. The

grounds of his objection to the Treaty, or rather to the whole policy of the Conference towards the economic problems of Europe, will appear in the following chapters. They are entirely of a pub- lic character, and are based on facts known to the whole world.

J. M. K_NES. KXNe'S _ CxmnmD_,

No_em_H_', 1919.

Contents

Introduction to the Torehbook edition

by Robert Lekaehman ix

bm APT_R I

XNTRODUCTOKY 3

CHAPTER II

EtmoPz BEFOar.THE W_ 9

CHAPTER III

Till Co_t_sE_c_ 27

CHAPTER IV

Tml Ta_a._r 56

CHAPTER V

I_CPAJaATION 113

CWAPTER VI

Eum)Fg _ _ Tm_ 226

CHAPTER VII

mmmmm 252

THE ECONOMIC CONSEQUENCES OF THE PEACE

CHAPTER I

INTRODUCTORY

THE power to become habituated to his surround- ings is a marked characteristic of mankind. Very few of us realize with conviction the intensely un- usual, unstable, complicated, unreliable, temporary nature of the economic organization by which Western Europe has lived for the last half cen- tury. We assume some of the most peculiar and temporary of our late advantages as natural, per- manent, and to be depended on, and we lay our plans accordingly. On this sandy and false foun- dation we scheme for social improvement and dress our political platforms, pursue our animosi- ties and particular ambitions, and feel ourselves with enough margin in hand to foster, not assuage, civil conflict in the European fRm]ly. Moved by insane delusion and reckless self-regard, the Ger- man 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 im- pair yet further, when it might have restored, the

8

4 INTRODUCTORY

delicate, complicated organization, already shaken and broken by war, through which alone the Eu- ropean peoples can employ themselves and live.

In England the outward aspect of life does not yet teach us to feel or realize in the least that an age is over. We axe busy picking up the threads of our life where we dropped them, with this dif- ference 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 uncon- scious. In continental Europe the earth heaves and no one but is aware of the rumblings. There it is not just a matter of extravagance or "labor troubles"; but of life and death, of starvation and existence, and of the fearful convulsions of a dying civilization.

For one who spent in Paris the greater part of the six months which succeeded the Armistice an

INTRODUCTORY 5

occasional visit to London was a strange experi- ence. 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, Rus- sia and Roumania and Poland, throb together, and their structure and civilization are essentially one. They flourished together, they have rocked to- gether in a war, which we, in spite of our enor- mous 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 Italyabusingtheirmomentary victorious

power todestroyGermany and Austria-Hungary now prostrate,theyinvitetheirown destruction also,beingsodeeplyand inextricablyintertwined withtheirvictimsby hiddenpsychicand economic

bonds.At any ratean Englishmanwho tookpart intheConferenceofParisand was duringthose monthsa member oftheSupremeEconomicCoun- ciloftheAlliedPowers,was boundtobecome,for

him a new experience,a Europeaninhiscaresand outlook.There,atthenervecenteroftheEuro-

pean system,his Britishpreoccupationsmust largelyfallaway andhemustbehauntedby other

and more dreadfulspecters.Pariswas a night-

6 INTRODUCTORY

mare, and every one there was morbid. A sense

of impending catastrophe overhung the frivolous scene; the futility and smallness of man before the great events confronting him; the mingled significance and unreality of the decisions; levity, blindness, insolence, confused cries from without,

--all the elements of ancient tragedy were there. Seated indeed amid the theatrical trappings of the French Saloons of State, one could wonder if the extraordinary visages of Wilson and of Cle-

menceau, with their fixed hue and unchanging characterization, were really faces at all and not the tragi-comic masks of some strange drama or puppet-show.

The proceedings of Paris all had this air of extraordinary importance and unimportance at the same time. The decisions seemed charged

with consequences to the future of humau society; yet the air whispered that the word was not flesh, that it was futile, insignificant, of no effect, dis-

sociated 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:

8p/_/t of _ Ire_s

Observe that all wide sight and self-e__mrnand Deserts these throngs now driven to demonry

INTRODUCTORY 7

By the Immanent Unrecking. Nought remains But vindictiveness here amid the strong, And there amid the weak an impotent rage.

S_t of the P_t_e_

Why prompts the Will so senseless-shaped a doing !

Spirit o1' the Years

I have told thee that It works unwittingly, As one possessed not judging.

In Paris, where those connoted with the Su-

preme Economic Council received almost hourly the reports of the misery, disorder, and decaying organization of all Central and Eastern Europe,

allied and enemy alike, and learnt from the lips of the financial representatives of Germany and Austria unanswerable evidence of the terrible

exhaustion of their countries, an occasional visit to the hot, dry room in the President's house, where the Four fn]fined their destinies in empty

and arid intrigue, only added to the sense of night-

mare. Yet there in Paris the problems of Europe were terrible and olamant, and an occasional re- turn to the vast unconcern of London a little dis-

conoerting. For in London these questions were very far away, and our own lesser problems alone troubling. London believed that Paris was mak-

ing a great confusion of its business, but remained nnlnterested. In this spirit the British people re-

8 INTRODUCTORY

ceived the Treaty without reading it. But it is under the iufluence 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 dis- interest h_m_elf from the further unfolding of the great hist_rio drama of these days which will destroy great institutions, but may also create a new world.

CHAPTER H

EUROPE BEFORE THE WAR

BE_om_ 1870 different parts of the small continent of Europe had specialized in their own products; but, taken as a whole, it was substantially self-

subsistent. And its population was adjusted to this state of affairs.

After 1870 there was developed on a large scale

an unprecedented situation, and the economic con- dition of Europe bec_me during the next fifty

years unstable and peculiar. The pressure of pop- ulation on food, which had already been balanced

by the accessibility of supplies from America, be- came for the first time in recorded history defi- nitely reversed. As numbers increased, food was

actually easier to secure. Larger proportional re- turns from an increasing scale of production be- came 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 work-

men were available in Europe to prepare the in-

dustrial products and capital goods which were to maintain the emigrant populations in their new

homes, and to build the railways and ships which 9

10 EUROPE BEFORE THE WAR

were to make accessible to Europe food and raw products from distant sources. Up to about 1900 a unit of labor applied to industry yielded year by year a purchasing power over an increasing quantity of food. It is possible that about the year 1900 this process began to be reversed, and a diminishing yield of Nature to man's effort was beginning to reassert itself. But the tendency of cereals to rise in real cost was balanced by other improvements; and--one of many novelties--the resources of tropical Africa then for the first time came into large employ, and a great traffic in oil-seeds began to bring to the table of Europe in a new and cheaper form one of the essential foodstuffs of mankind. In this economic Eldo-

rado, in this economic Utopia, as the earlier econo- mists 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 halfa centuryallseriouseconomicalwrit-

ingsheldthatDevilin clearprospect.For the

nexthalfcenturyhe was chainedup and outof sight.Now perhapswe haveloosedhim again.

What an extraordinaryepisodeintheeconomic

EUROPE BEFORE THE WAR 11

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, conveni-

ences, comforts, and amenities beyond the com-

pass 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 substan-

tial 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 with- out passport or other formality, could despatch his servant to the neighboring office of a bank

12 EUROPE BEFORE THE WAR

for such supply of the precious metals as might seem convenient, and could then proceed abroad to

foreign quarters, without knowledge of their reli- gion, 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 re- garded this state of affairs as normal, certain, and

permanent, except in the direction of further im- provement, and any deviation from it as aberrant,

scandalous, and avoidable. The projects and poli- tics 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, .'.he internationalization

of which was nearly complete in practice. It will assist us to appreciate the character and

consequences of the Peace which we have imposed

on our enemies, if I elucidate a little further some of the chief unstable elements, already present when war broke out, in the economic life of

Europe.

I. Po_latio_

In 1870 Germany had a population of about 40,000,000. By 1892 this figure had risen to 50,-

EUROPE BEFORE THE WAR 13

000,000, and by June 30, 1914, to about 68,000,000. In the years immediately preceding the war the annual increase was about 850,000, of whom an insignificant proportion emigrated. 1 This great increase was only rendered possible by a far-reach- ing 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 main- tain its equilibrium must spin ever faster and faster.

In the Austro-Hungarian Empire, which grew from about 40,000,000 in 1890 to at least 50,000,000 at the outbreak of war, the same tendency was present in a less degree, the annual excess of births over deaths being about half a million, out of which, however, there was an annual emigration of some quarter of a million persons.

To understand the present situation, we must apprehend with vividness what an extraordinary

1 In 1913 there were 25,843 emigrants from Germany, of whom 19,124 went to the United StateL

1_ EUROPE BEFORE THE WAR

center of population the development of the Ger- manic system had enabled Central Europe to be- come. Before the war the population of Germany and Austria-Hungary together not only substan- tially 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 terri- tory, lay the military strength of the Central Powers. But these same numbersmfor even the

war has not appreciably diminished them 1--if de- prived of the means of life, remain a hardly less danger to European order.

European Russia increased her population in a degree even greater than Germany--from less than 100,000,000 in 1890 to about 150,000,000 at the outbreak of war; 2 and in the year immedi- ately preceding 1914 the excess of births over deaths in Russia as a whole was at the prodigious rate of two millions per annum. This inordinate growth in the population of Russia, which has not been widely noticed in England, has been nevertheless one of the most significant facts of recent years.

The great events of history are often due to secular changes in the growth of population and

x 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,?00,000.

2 Including Poland and Finland, but excluding Siberia, Central Asia, and the Caucasus.

EUROPE BEFORE THE WAR 15

other fundamental economic causes, which, escap-

ing by their gradual character the notice of con- temporary 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 hier- archy of classes--may owe more to the deep in-

fluences of expanding numbers than to Lenin or to Nicholas; and the disruptive powers of excessive

national fecundity may have played a greater part in bursting the bonds of convention than either the power of ideas or the errors of autocracy.

II. Organization

The delicate organization by which these peoples lived depended partly on factors internal to the system.

The interference of frontiers and of tariffs was

reduced to a minimnm_ and not far short of three

hundred millions of people lived within the three Empires of Russia, Germany, and Austria-Hun- gary. The various currencies, which were all maintained on a stable basis in relation to gold and to one another, facilitated the easy flow of

16 EUROPE BEFORE THE WAR

capital and of trade to an extent the full value of which we only realize now, when we are de- prived of its advantages. Over this great area there was an almost absolute security of property and of person.

These factors of order, security, and uniformity, which Europe had never before enjoyed over so wide and populous a territory or for so long a period, prepared the way for the organization of that vast mechanism of transport, coal distribu- tion, and foreign trade which made possible an industrial order of life in the dense urban centers

of new population. This is too well known to re- quire detailed substantiation with figures. But it may be illustrated by the figures for coal, which has been the key to the industrial growth of Cen- tral Europe hardly less than of England; the out- put of German coal grew from 30,000,000 tons in 1871 to 70,000,000 tons in 1890, 110,000,000 tons in 1900, and 190,000,000 tons in 1913.

Round Germany as a central support the rest of the European economic system grouped itself, and on the prosperity and enterprise of Germany the prosperity of the rest of the Continent mainly depended. The increasing pace of Germany gave her neighbors an outlet for their products, in ex- change for which the enterprise of the German merchant supplied them with their chief require- ments at a low price.

EUROPE BEFORE THE WAR 17

The statistics of the economic interdependence

of Germany and her neighbors are overwhelming. Germany was the best customer of Russia, Nor- way, Holland, Belgium, Switzerland, Italy, and Austria-Hungary; she was the second best custo- mer of Great Britain, Sweden, and Denmark; and the third best customer of France. She was the

largest source of supply to Russia, Norway, Swe- den, Denmark, Holland, Switzerland, Italy, Aus- tria-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 Ger- many than to any other country in the world ex- cept 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, sup-

plied a great part of the capital needed for their own development. Of Germany's pre-war foreign investments, amounting in all to about $6,250,000,-

000, not far short of $2,500,000,000 was invested

in Russia, Austria-Hungary, Bulgaria, Roumania,

18 EUROPE BEFORE THE WAR

and Turkey. I And by the system of "pea_ful penetration" she gave these countries not only capital, but, what they needed hardly less, organi- zation. 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 it- self without the co-opera,on of external factors

also and of certain general dispositions common to the whole of Europe. Many of the circum- stances already treated were true of Europe as a

whole, and were not peculiar to the Central Em- pires. But all of what follows was common to the whole European system.

"_. The Psychology of Sodety

Europe was so organized socially and economi- cally as to secure the maximum accumulation of capital. While there was some continuous im-

provement 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

1 Sums of money mentioned in this book in terms of dollars have been converted from pounds sterling at the rate of $5 to £1.

EUROPE BEFORE THE WAR 19

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 accumu- lations of fixed wealth and of capital improve- ments 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 r_ghne intolerable. But like bees they saved and accnmu- lated, not less to the advantage of the whole com- munity because they themselves held narrower ends in prospect.

The immense accnmulations 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 pos- terity, were, not less than the Pyramids of Egypt, the work of labor which was not free to consume in

_mmediate enjoyment the full equivalent of its efforts.

Thus this remarkable system depended for its growth on a double bluff or deception. On the one hand the laboring classes accepted from ignorance or powerlessness, or were compelled, persuaded, or cajoled by custom, convention, authority, and

20 EUROPE BEFORE THE WAR

the well-established order of Society into accept- ing, 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 under- lying 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 ex- horted 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 uncon- scious 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

EUROPE BEFORE THE WAR 21

much the better off by the cutting of it. Society

was working not for the small pleasures of to- day but for the future security and improvement of the race,--in fact for "progress." If only the cake were not cut but was allowed to grow in the

geometrical proportion predicted by Malthus of population, but not less true of compound inter-

est, perhaps a day might come when there would at last be enough to go round, and when posterity could enter into the enjoyment of our labors. In that day overwork, overcrowding, and underfeed- ing would have come to an end, and men, secure

of the comforts and necessities of the body, could proceed to the nobler exercises of their faculties. One geometrical ratio might cancel another, and

the nineteenth century was able to forget the fer- tility 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, prema- turely, in war, the consumer of all such hopes.

But these thoughts lead too far from my pres-

ent purpose. I seek only to point out that the principle of accumulation based on inequality was

a vital part of the pre-war order of Society and of

progress as we then understood it, and to em- phasize that this principle depended on unstable

22 EUROPE BEFORE THE WAR

psychological conditions, which it may be impos- sible to recreate. It was not natural for a popu- lation, of whom so few enjoyed the comforts of life, to accumulate so hugely. The war has dis* closed the possibility of consumption to all and the vanity of abstinence to many. Thus the blu_ is discovered; the laboring classes may be no longer willing to forego so largely, and the capital- ist classes, no longer confident of the future, may seek to enjoy more fully their liberties of con- sumption so long as they last, and thus precipi- tate 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 Euro-

pean equipoise. Of the surplus capital goods accumulated by

Europe a substantial part was exported abroad, where its investment made possible the develop- ment 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 _mmense prudence the annual tribute it

EUROPE BEFORE THE WAR 23

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 post- poned. But the greater part of the money inter- est accruing on these foreign investments was re- invested and allowed to accumulate, as a reserve (it was then hoped) against the less happy day when the industrial labor of Europe could no longer purchase on such easy terms the produce of other continents, and when the due balance would be threatened between its historical civilizations

and the multiplying races of other climates and environments. Thus the whole of the European races tended to benefit alike from the development of new resources whether they pursued their cul- ture at home or adventured it abroad.

Even before the war, however, the equilibrium thus established between old civilizations and new

resources was being threatened. The prosperity of Europe was based on the facts that, owing to the large exportable surplus of foodstuffs in America, she was able to purchase food at a ctmap rate measured in terms of the labor required to produce her own exports, and that, as a result of her previous investments of capital, she was en- titled 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

24 EUROPE BEFORE THE WAR

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 domes- tic requirements of the United States for wheat were approaching their production, and the date

was evidently near when there would be an ex- portable surplus only in years of exceptionally favorable harvest. Indeed, the present domestic

requirements of the United States are estimated at more than ninety per cent of the average yield

of the five years 1909-1913.1 At that time, how- ever, the tendency towards stringency was show- ing itself, not so much in a lack of abundance as in

a steady increase of real cost. That is to say, tak- ing the world as a whole, there was no deficiency of wheat, but in order to call forth an adequate

a Even since 1914 the population of the United States has in- creased by seven or eight millions. As their annual consumption of wheat per head is not less than 6 bushels, the pre-war scale of production in the United States would only show a substantial surplus over present domestic requirements in about one year out of five. We have been saved for the moment by the great harvests of 1918 and 1919, which have been called forth by Mr. Hoover's galaranteed 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.

EUROPE BEFORE THE WAR 25

supply it was necessary to offer a higher real price. The most favorable factor in the situation was to be found in the extent to which Central

and Western Europe was being fed from the exportable surplus of Russia and Roumania.

In short, Europe's claim on the resources of the New World was becoming precarious; the law

of diminishing returns was at last reasserting it- serf, and was making it necessary year by year for Europe to offer a greater quantity of other com- modities to obtain the same Amount of bread; and

Europe, therefore, could by no means afford the disorganization of any of her principal sources of supply.

Much else might be said in an attempt to por-

tray the economic peculiarities of the Europe of 1914. I have selected for emphasis the three or

four greatest factors of instability,--the insta- bility of an excessive population dependent for its livelihood on a complicated and artificial or-

ganization, the psychological instability of the la- boring 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 en- danger the life of Europe altogether. A great part of the Continent was sick and dying; its popu-

lation was greatly in excess of the numbers for

26 EUROPE BEFORE THE WAR

which a livelihood was available; its organization was destroyed, its transport system ruptured, and its food supplies terribly impaired.

It was the task of the Peace Conference to honor

engagements and to satisfy justice; but not less to re-establish life and to heal wounds. These

tasks were dictated as much by prudence as by the magnanimity which the wisdom of antiquity ap- proved in victors. We will examine in the follow- ing chapters the actual character of the Peace.

CHAPTER III

THE CONFERENCE

IN Chapters IV. and V. I shall study in some detail the economic and financial provisions of the Treaty of Peace with Germany. But it will be easier to appreciate the true origin of many of these terms if we examine here some of the

personal factors which influenced their prepara- tion. 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 some- times the liberties which are habitual to his-

torians, but which, in spite of the greater knowl- edge 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.

27

28 THE CONFERENCE

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 ex-

pected 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 col- leagues 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 criti- cism 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

THE CONFERENCE 29

no discussion with the Germans removed the op- portunity 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 mem- ber 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 out- line in an environment of confusion. One could

not despise Clemenceau or dislike him, but only take a different view as to the nature of

civilized man, or indulge, at least, a different hope.

The figure and bearing of Clemenceau are universally familiar. At the Council of Four he

wore a square-tailed coat of very good, thick black broadcloth, and on his hands, which were never uncovered, gray suede gloves; his boots were of thick black leather, very good, but

30 THE CONFERENCE

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 Presi- dent next by the fireplace, and the Prime Minister opposite on the other side of the fireplace on his right. He carried no papers and no portfolio, and was unattended by any personal secretary, though several French ministers and officials ap- propriate to the particular matter in hand would be present round him. His walk, his hand, and his voice were not lacking in vigor, but he bore nevertheless, especially after the attempt upon him, the aspect of a very old man conserving his strength for important occasions. He spoke sel- dom, leaving the initial statement of the French case to his ministers or officials; he closed his eyes often and sat back in his chair with an impassive face of parchment, his gray gloved hands clasped in front of him. A short sentence, decisive or cynical, was generally sufficient, a question, an unqualified abandonment of his ministers, whose face would not be saved, or a display of obstinacy reinforced by a few words in a piquantly delivered

THE CONFERENCE 31

EngUsh. 1 But speech and passion were not lack- ing when they were wanted, and the sudden ou_- burst of words, often followed by a fit of deep coughing from the chest, produced their impres- sion rather by force and surprise than by per- suasion.

Not infrequentlyMr. Lloyd George,afterde- liveringa speechin English,would,duringthe periodofitsinterpretationintoFrench,crossthe hearthrugtothePresidenttoreinforcehisease

by some o_ homin_ argumentinprivateconver- sation,or tosoundthegroundfora compromise, --and thiswould sometimesbe thesignalfora

generalupheavaland disorder.The President's adviserswouldpressroundhim,a moment later theBritishexpertswould dribbleacrosstolearn theresultor seethatallwas well,and nextthe

Frenchwouldbethere,a littlesuspiciouslestthe otherswere arrangingsomethingbehindthem, untilalltheroom were on theirfeetand conver-

sationwas generalinbothlanguages.My lastand

most vividimpressionis of such a scene the Presidentand thePrime Ministerasthecenterof

a surgingmob and a babelofsound,a welterof

eager,impromptucompromisesand counter-com-

x 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 Ozlando and the President had no direct means of com- munication.

32 THE CONFERENCE

promises, all sound and fury signifying nothing, on what was an unreal question anyhow, the great issues of the morning's meeting forgotten and neglected; and Clemenceau silent and aloof on the outskirts--for nothing which touched the security of France was forward--throned, in his gray gloves, on the brocade chair, dry in soul and empty of hope, very old and tired, but surveying the scene with a cynical and almost impish air; and when at last silence was restored and the com-

pany had returned to their places, it was to dis- cover that he had disappeared.

He felt about France what Pericles felt of

Athens--unique value in her, nothing else matter- ing; 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 ex- pressed simply. In the first place, he was a fore- most believer in the view of German psychology that the German understands and can understand

nothing but intimidation, that he is without gen- erosity or remorse in negotiation, that there is no advantage he will not take of you, and no extent to which he will not demean himself for profit, that he is without honor, pride, or mercy. Therefore you must never negotiate with a German or con- ciliate him; you must dictate to him. On no other terms will he respect you, or will you prevent him

THE CONFERENCE 33

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 inter- national relations. Nations are real things, of whom you love one and feel for the rest indiffer- enec or hatred. The glory of the nation you love is a desirable end,--but generally to be ob- tained at your neighbor's expense. The politics of power are inevitable, and there is nothing very new to learn about this war or the end it was

fought for; England had destroyed, as in each preceding century, a trade rival; a mighty chapter had been closed in the secular struggle between the glories of Germany and of France. Prudence required some measure of lip service to the "ideals" of foolish Americans and hypocritical Englishmen; but it would be stupid to believe tha_ 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

34 THE CONFERENCE

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 cf 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 produc- tion of future wealth were unequaled. France

on the other hand had a stationary or declining population, and, relatively to others, had fallen seriously behind in wealth and in the power to produce it.

In spite, therefore, of France's victorious issue

from the present struggle (with the aid, this time, of England and America), her future position re- mained precarious in the eyes of one who took

the view that European civil war is to be re-

gamed as a normal, or at least a recurrent, state of affairs for the future, and that the sort of con-

flicts between organized great powers which have

occupied the past hundred years will also engage the next. According to this vision of the future,

European history is to be a perpetual prize-

THE CONFERENCE 35

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 al- ways the same, and from a consequent skepticism of all that class of doctrine which the League of Nations stands for, the policy of France and of Clemenceau followed logically. For a Peace of magnanimity or of fair and equal treatment, based on such "ideology" as the Fourteen Points of the President, could only have the effect of shorten- ing the interval of Germany's recovery and has- tening the day when she will once again hurl at France her greater numbers and her superior re- sources and technical skill. Hence the necessity of "guarantees"; and each guarantee that was taken, by increasing irritation and thus the prob- ability 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 Cartha- ginian Peace is inevitable, to the full extent of the momentary power to impose it. For Clemenceau made no pretense of considering himself bound by the Fourteen Points and left chiefly to others such concoctions as were necessary from time to time to save the scruples or the face of the President.

So far as possible, therefore, it was the policy

36 THE CONFERENCE

of France to set the clock back and to undo what, since 1870, the progress of Germany had accom- plished. 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 com- pelled to drop, the inequality of strength between the two rivals for European hegemony might be remedied for many generations.

Hence sprang those cumulative provisions for the destruction of highly organized economic life which we shall examine in the next chapter.

This is the policy of an old man, whose most vivid impressions and most lively imagination are of the past and not of the future. He sees the issue in terms of France and Germany, not of humanity and of European civilization strug- gling 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

THE CONFERENCE 37

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 over- whelm not only you and your "guarantees," but your institutions, and the existing order of your

Society. By what legerdemain was this policy substi-

tuted 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 in- fluence of surroundings, which are hard to detect

and harder still to describe. But, if ever the ac- tion of a single individual matters, the collapse of The President has been one of the decisive moral

events of history; and I must make an attempt to

explain it. What a place the President held in

the hearts and hopes of the world when he sailed to us in the George Washington! What a great

man came to Europe in those early days of our

victory ! In November, 1918, the armies of Foch and the

words of Wilson had brought us sudden escape

from what was swallowing up all we cared for.

The conditions seemed favorable beyond any ex-

pectation. The victorywas so complete that fear

38 THE CONFERENCE

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 him- self to set the seal on his work.

When President Wilson left Washington he enjoyed a prestige and a moral influence through- out the world unequaled in history. His bold and measured words carried to the peoples of Europe above and beyond the voices of their own poli- ticians. 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. Eu- rope 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 Presi-

THE CONFERENCE 39

dent! With what curiosity, anxiety, and hope we sought a glimpse of the features and bearing of the man of destiny who, coming from the West, was to bring healing to the wounds of the ancient parent of his civilization and lay for us the foun- dations 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 in- tentioned 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 tri- umphant 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 Presi- dent. 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

40 THE CONFERENCE

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 objec- tivity, 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 com- manding delivery. With all this he had attained and held with increasing authority the first posi- tion in a country where the arts of the politician are not neglected. All of which, without expect- ing 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

THE CONFERENCE 41

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 environ- ment at all. What chance could such a man have

against Mr. Lloyd George's unerring, almost medium-like, sensibility to every one immediately round him? To see the British Prime Minister

watching the company, with six or seven senses not available to ordinary men, judging character, motive, and subconscious impulse, perceiving what each was thinking and even what each was going to say next, and compounding with tele- pathic instinct the argument or appeal best suited to the vanity, weakness, or self-interest of his immediate auditor, was to realize that the poor President would be playing blind man's buff in that party. Never could a man have stepped into the parlor a more perfect and predestined victim to the finished accomplishments of the Prime Minister. The Old World was tough in wicked- ness 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

42 THE CONFERENCE

was by no means a business man or an ordinary party politician, but a man of force, personality, and importance. What, then, was his tempera- ment?

The clue once found was illnminating. The President was like a Nonconformist minister, per- haps a Presbyterian. His thought and his tem- perament were essentially theological not intel- lectual, 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 for- merly; but this description, nevertheless, will give the ordinary Englishman the distinctest impres- sion of the President.

With this picture of him in mind, we can return to the actual course of events. The President's

program for the World, as set forth in his speeches and his Notes, had displayed a spirit and a pur- pose so admirable that the last desire of his sym- pathizers was to criticize details,--the details, they felt, were quite rightly not filled in at present, but would be in due course. It was commonly believed at the commencement of the Paris Con-

ference that the President had thought out, with the aid of a large body of advisers, a comprehen- sive 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 Presi-

THE CONFERENCE 43

dent 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 Presi- dent 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 con- ciliate them by a restatement of your proposal

44 THE CONFERENCE

helpful to them and not injurious to anything es-

sential 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 Flume. But he had no other mode of defense, and it needed as a rule but little manceuvering by his opponents to prevent matters

from coming to such a head until it was too late. By pleasantness and an appearance of concilia- tion, the President would be manceuvered 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 ex-

act moments for decisive action. And for that the President was far too slow-minded and bewil- dered.

He did not remedy these defects by seeking aid from the collective wisdom of his lieutenants. He

had gathered round him for the economic chap-

ters of the Treaty a very able group of business

men; but they were inexperienced in public af.

THE CONFERENCE 45

fairs, 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 Washing- ton was maintained, and the abnormal reserve of his nature did not allow near him any one who aspired to moral equality or the continuous exercise of influence. His fellow-plenipotentiaries were dummies; and even the trusted Colonel House, with vastly more knowledge of men and of Europe than the President, from whose sensitiveness the President's dullness had gained so much, fell into the background as time went on. All this was encouraged by his colleagues on the Council of Four, who, by the break-up of the Council of Ten, completed the isolation which the President's own temperament had initiated. Thus day after day and week after week, he allowed himself to be closeted, unsup- ported, unadvised, and alone, with men much sharper than himself, in situations of supreme difficulty, where he needed for success every de- scription of resource, fertility, and knowledge. He allowed himself to be drugged by their atmos- phere, 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

46 THE CONFERENCE

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, there- fore, 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 preposter- ous suggestions which no one took seriously), it was difficult for him not to yield on others. Com- promise 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 sensi- tive) of being "pro-German."

After a display of much principle and dignity in the early days of the Council of Ten, he dis- covered that there were certain very important points in the program of his French, British, or Italian colleague, as the case might be, of which he was incapable of securing the surrender by the methods of secret diplomacy. What then was he to do in the last resort? He could let the Con-

ference drag on an endless length by the exercise

THE CONFERENCE 47

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,--espe- cially for a politician. The President's mistaken policy over the Congressional election had weak- ened 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 intran- sigeancy. It would mean a campaign in which the issues would be clouded by every sort of per- sonal 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 cer- taiuly 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 unani- mous voice of the French and British Press could be ar_ticipated. Thus, if he threw down the gage

publicly he might be defeated. And if he were

48 THE CONFERENCE

defeated, would not the final Peace be far worse than if he were to retain his prestige and endeavor to make it as good as the limiting conditions of European politics would allow him? But above all, if he were defeated, would he not lose the League of Nations? And was not this, after all, by far the most important issue for the future happiness of the world? The Treaty would be altered and softened by time. Much in it which now seemed so vital would become trifling, and much which was impracticable would for that very reason never happen. But the League, even in an imperfect form, was permanent; it was the first commencement of a new principle in the govern- ment of the world; Truth and Justice in interna- tional 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 01d 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 pas- sion, sympathy, or encouragement from his silent constitutents in all countries. He felt that the

THE CONFERENCE 49

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 cre- ate 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 collec- tive faith. The German terror still overhung us, and even the sympathetic public was very cau-

tious; 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 coun-

termanded 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 compro- mise, the defects, already indicated, of his tem- perament and of his equipment, were fatally

apparent. He could take the high line; he could

practise obstinacy; he could write Notes from

50 THE CONFERENCE

Sinai or Olympus; he could remain unapproach- able 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 theologi- cal or Presbyterian temperament became danger- ous. 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 ot the

letter. But the President was not capable of so clear an understanding with himself as this im-

plied. He was too conscientious. Although com- promises were now necessary, he remained a man of principle and the Fourteen Points a contract

absolutely binding upon him. He would do noth- ing that was not honorable; he would do nothing

that was not just and right; he would do nothing that was contrary to his great profession of faith. Thus, without any abatement of the verbal inspira- tion of the Fourteen Points, they became a docu-

ment for gloss and interpretation and for all the

intellectual apparatus of self-deception, by which, I daresay, the President's forefathers had per- suaded themselves that the course they thought it

necessary to take was consistent with every syl- lable of the Pentateuch.

THE CONFERENCE 51

The President's attitude to his colleagues had now become: I want to meet you so far as I can; I see your clifficulties 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 ol 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 Presi- dent.

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 "Ger- many 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;

52 THE CONFERENCE

she agrees that this independence shah be in- alienable, 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 fron- tier, entrusts to Poland the control of the river and railway system, and provides that "the Po- lish 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 in- ternational 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 hon- est 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 in- ternational equality.

But perhaps the most decisive moment, in the

THE CONFERENCE 53

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 allow- ances could be fairly regarded as "damage done to the civilian population of the Allied and Asso- ciated 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 re- garded. It was a long theological struggle in which, after the rejection of many different argu- ments, the President finally capitulated before a masterpiece of the sophist's art.

At last the work was finished; and the Presi- dent's conscience was still intact. In spite of everything, I believe that his temperament al- lowed 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 as- surances. But this was exactly what the President could not a_]mlt; in the sweat of solitary contem-

54 THE CONFERENCE

plation and with prayers to God he had done moth- inff that was not just and right; for the President to aJm_t 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 abandon- ment 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 Presi- dent had not been so conscientious, if only he had not concealed from himself what he had been do-

ing, 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 Presi- dent 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, dis- covered 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

THE CONFERENCE 55

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.

CHAPTER IV

THE TREATY

THE thoughts which I have expressed in the second chapter were not present to the mind of

Paris. The future life of Europe was not their

concern; its means of livelihood was not their

,nxiety. Their preoccupations, good and bad

alike, related to frontiers and nationalities, to the

balance of power, to imperial aggrandizements,

to the future enfeeblement of a strong and dan-

gerous 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, unfor- tunately, 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 con-

TI-IE TREATY 57

stituted the first Contract concluded between the Allied and Associated Powers and the German

Government, _d 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 neces- sary briefly to review the history of the negotia- tions which began with the German Note of October 5, 1918, and concluded with President Wilson's Note of November 5, 1918.

On October 5, 1918, the German Government addressed a brief Note to the President accepting the Fourteen Points and asking for Peace nego- tiations. The President's reply of October 8 asked if he was to understand definitely that the German Government accepted "the terms laid down" in the Fourteen Points and in his subse-

quent Addresses and "that its object in entering into discussion would be only to agree upon the practical details of their application." He added that the evacuation of invaded territory must be a prior condition of an Armistice. On October 12 the German Government returned an uncondi-

tional affirmative to these questions ;--"its object in entering into discussions would be only to agree upon practical details of the application of these terms." On October 14, having received this affirmative answer, the President made a fur- ther eommunication to make clear the points:

58 THE TREATY

(1) that the details of the Armistice would have to be left to the military advisers of the United States and the Allies, and must provide absolutely against the possibility of Germany's resuming hostilities; (2) that submarine warfare must cease if these conversations were to continue; and

(3) that he required further guarantees of the representative character of the Government with which he was dealing. On October 20 Germany accepted points (1) and (2), and pointed out, as regards (3), that she now had a Constitution and a Government dependent for its authority on the Reichstag. On October 23 the President an- nounced that, "having received the solemn and explicit assurance of the German Government that it unreservedly accepts the terms of peace laid down in his Address to the Congress of the United States on January 8, 1918 (the Fourteen Points), and the principles of settlement enunci- ated in his subsequent Addresses, particularly the Address of September 27, and that it is ready to discuss the details of their application," he has communicated the above correspondence to the Governments of the Allied Powers "with the

suggestion that, ff these Governments are dis- posed to effect peace upon the terms and prin- ciples indicated," they will ask their military advisers to draw up Armistice Terms of such a character as to "ensure to the Associated Gov-

THE TREATY 59

ernments the unrestricted power to safeguard and enforce the details of the peace to which the German Government has agreed." At the end of this Note the President hinted more openly than in that of October 14 at the abdication of the Kai-

ser. This completes the preliminary negotiations to which the President alone was a party, acting without the Governments of the Allied Powers.

On November 5, 1918, the President trans- mitted to Germany the reply he had received from the Governments associated with him, and added that Marshal Foch had been authorized to com- municate the terms of an armistice to properly accredited representatives. In this reply the Allied Governments, "subject to the qualifications which follow, declare their willingness to make peace with the Government of Germany on the terms of peace laid down in the President's Address to Congress of January 8, 1918, and the principles of settlement enunciated in his sub- sequent Addresses." The qualifications in ques- tion 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 :--" Fur- ther, in the conditions of peace laid down in his Address to Congress on the 8th January, 1918, the President declared that invaded territories must be restored as well as evacuated and made

60 THE TREATY

free. The Allied Governments feel that no doubt

ought to be allowed to exist as to what this pro-

vision implies. By it they understand that com- pensation 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 bind-

Lug 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 help- less. Germany having rendered herself helpless in reliance on the Contract, the honor of the

Allies was peculiarly involved in fulfilling their

part and, if there were ambiguities, in not using their position to take advantage of them.

What, then, was the substance of this Contract to which the Allies had bound themselves? An

examination of the documents shows that, al- though a large part of the Addresses is concerned

1 The p_ecise force of this reservation is discussed in detail inChapter .

THE TREATY 61

with spirit, purpose, and intention, and not with concrete solutions, and that many questions re- quiring a settlement in the Peace Treaty are not touched on, nevertheless, there are certain ques- tions 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, decep- tion or hypocrisy has been practised. But there remain, as will be seen below, certain important issues on which the Contract is unequivocal.

In addition to the Fourteen Points of January 18, 1918, the Addresses of the President which form part of the material of the Contract are four in number,--before the Congress on Feb- ruary 11; at Baltimore on April 6; at Mount Vernon on July 4; and at New York on Septem- ber 27, the last of these being specially referred to in the Contract. I venture to select from these

Addresses those engagements of substance, avoid- in_ 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. 1

1 1 also omit those which have no special relevance to the t_er- man Settlement. The second of the Fourteen Points, which

62 THE TREATY

The Fourteen Points.--(3). "The removal, so far as possible, of all economic barriers and the

establishment of an equality of trade conditions Among a/l 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 ad- justment 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 !

r

sea, and from the air (quoted in full above). I (8). The righting of "the wrong done to France E by Prussia in 1871 in the matter of Alsace- Lorraine." (13). An independent Poland, in- eluding "the territories inhabited by indisputably Polish populations" and "assured a free and secure access to the sea." (14). The League of Nations.

Before the Congress, February //.--"There shall be no annexations, no contributions, no puni- tive damages.. Self-determination is not a

relates to the Freedom of the Seas, is omitted because the Alliea did not accept it. Any italics are mine.

THE TREATY 63

mere phrase. It is an imperative principle of action which statesmen will henceforth ignore at

their peril.. Every territorial settlement in- volved in this war must be made in the interest

and for the benefit of the populations concerned, and not as a part of any mere adjustment or

compromise of claims amongst rival States." New York, September 27.--(1) "The impartial

justice meted out must involve no discrimination

between those to whom we wish to be just and

those to whom we do not wish to be just." (2)

"No special or separate interest of any single

nation or any group of nations can be made the basis of any part of the settlement which is not consistent with the common interest of all."

(3) "There can be no leagues or alliances or

special covenants and understandings within the general and common family of the League of Nations." (4) "There can be no special selfish

economic combinations within the League and no

employment of any form of economic boycott or

exclusion, except as the power of economic penalty by exclusion from the markets of the

world may be vested in the League of Nations

itself as a means of discipline and control." (5) "All international agreements and treaties of

every kind must be made known in their entirety to the rest of the world."

This wise and magnanimous program for the

64 THE TREATY

world had passed on November 5, 1918, be- yond 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 dis- torted.

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 Ger- man commentators had little difficulty in showing that the draft Treaty constituted a breach of en- gagements and of international morality compa- rable with their own offense in the invasion of

Belgium. Nevertheless, the German reply was not in all its parts a document fully worthy of the occasion, because in spite of the justice and im- portance 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

THE TREATY 65

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 coun- try 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 burn-

ing and prophetic words the quality which chiefly distinguishes this transaction from all its his-

torical 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 com- ments on the Reparation Chapter and on Ger- many's capacity to meet the payments there de- manded from her.

The German economic system as it existed be- fore the war depended on three main factors:

I. Overseas commerce as represented by her mer-

66 THE TREATY

cantile marine, her colonies, her foreigm invest- ments, her exports, and the overseas connections of her merchants; II. The exploitation of her coal

and iron and the industries built upon them; HI. Her transport and tariff system. Of these the first, while not the least important, was certainly

the most vulnerable. The Treaty aims at the sys- tematic destruction of all three, but principally

of the first two. i

i

I l F

(1) Germany has ceded to the Allies all the

vessels of her mercantile marine exceeding 1600 tons gross, half the vessels between 1000 tons and

1600 tons, and one quarter of her trawlers and other fishing boats. 1 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. _ Further, Germany under-

takes, if required, to build for the Allies such types of ships as they may specify up to 200,000 tons _

annually for five years, the value of these ships being credited to Germany against what is due from her for Reparation.'

1 Part VIII. Annex III. (1). 2 Part VIII. Annex III. (3). a In the years before the war the average shipbuilding output of

Germany was about 350,000 tons annually, exclusive of warships. 6Part VIH. An.ex III. (5).

THE TREATY 67

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 re- quirements of her own commerce. For the pres- ent, 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 Hol- land.

(2) Germany has ceded to the Allies "all her rights and titles over her oversea possessions. ''1

This cession not only applies to sovereignty but extends on unfavorable terms to Government prop- erty, 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. _ In distinction from the practice ruling in the

case of most s;milar cessions in recent hiRtory, the

zArt. 119. 2 Arts.120 and 257.

68 THE TREATY

property and persons of private German nation- als, as distinct from their Government, are also injuriously affected. The Allied Government ex- ercising authority in any former German colony

"may make such provisions as it thinks fit with

reference to the repatriation from them of Ger-

man 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." 1 All contracts

and agreements in favor of German nationals for

the construction or exploitation of public works

lapse to the Allied Governments as part of the

payment due for Reparation.

But these terms are unimportant compared with the more comprehensive provision by which "the

Allied and Associated Powers reserve the right to retain and liquidate all property, rights, and interests belonging at the date of the coming into force of the present Treaty to German na-

tionals, or companies controlled by them," with- in the former German colonies. 2 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 1 Art. 122. 2Arts. 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 ]ass become situated by cession or mandation.

THE TREATY 69

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. 1 In short, not only are German sovereignty and

German influence extirpated from the whole of her

former oversea possessions, but the persons and property of her nationals resident or owning prop-

erty 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-Ger- man colonies apply equally to private German property in Alsace-Lorraine, except in so far as the French Government may choose to grant ex-

ceptions. 2 This is of much greater practical im- portance 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 eco- nomic interests there with those in Germany it-

self. Alsace-Lorraine has been part of the Ger-

a Art. 297 (h) and para. 4 of Annex f,o Part X. Section IV. Arts. 53 and 74.

70 THE TREATY

man Empire for nearly fifty years---a considerable majority of its population is German-speaMng-- and it has been the scene of some of Germany's most important economic enterprises. Neverthe- less, the property of those Germans who reside there, or who have invested in its industries, is now entirely at the disposal of the French Govern- ment without compensation, except in so far as the German Government itself may choose to afford it. The French Government is entitled to expro- priate without compensation the personal property of private German citizens and German compan- ies resident or situated within Alsace-Lorraine, the proceeds being credited in part satisfaction of various French claims. The severity of this pro- vision is only mitigated to the extent that the French Government may expressly permit Ger- man nationals to continue to reside, in which case the above provision is not applicable. Govern- ment, 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 sys- tem of the two provinces, together with its rolling- stock. 1 But while the property is taken over, li-

1 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 Geman 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 preo- edmat of State property generally.

THE TREATY 71

abilities contracted in respect of it in the form of

public debts of any kind remain the liability of Germany. 1 The provinces also return to French sovereignty free and quit of their share of Ger- man war or pre-war dead-weight debt; nor does

Germany receive a credit on this account in re- spect of Reparation.

(4) The expropriation of German private prop- erty is not limited, however, to the ex-German colonies and Alsace-Lorraine. The treatment of

such property forms, indeed, a very s_gnificant and material section of the Treaty, which has not received as much attention as it merits, although

it was the subject of exceptionally violent objec- tion on the part of the German delegates at Ver- sailles. So far as I know, there is no precedent

in any peace treaty of recent history for the treat- ment 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 every- where. This is an exaggeration, and the sharp

distinction, approved by custom and convention during the past two centuries, between the prop-

erty and rights of a State and the property a_d 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 inap-

1 Arts. 55 and 255. This follows the precedent of 1871.

t

72 THE TREATY F

propriate to modern socialistic conceptions of the

relations between the State and its citizens. It I is true, however, that the Treaty strikes a destruc- tive 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 expro- priation of German private property situated out- side 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 speak- ing, however, the more drastic and extensive pro- visions 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 belong- ing at the date of the coming into force of the present Treaty to German nationals, or companies controlled by them, within their territories, col- onies, possessions and protectorates, including ter- ritories ceded to them by the present Treaty." 1

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

'.ARC.297 (b).

THE TREATY 73

debts due from Germany to the nationals of the Allied Government within whose jurisdiction the

liquidation takes place, and, second, to the satis- faction of claims arising out of the acts of Ger-

many's former allies. Any balance, if the liquidating Government elects to retain it, must be credited in the Reparation account. 1 It is,

however, a point of considerable importance that the liquidating Government is not compelled to transfer the balance to the Reparation Commis- sion, but can, if it so decides, return the proceeds

direct to Germany. For this will enable the United States, if they so wish, to utilize the very large balances, in the hands of their enemy-prop-

erty 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 collec_

tion 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

1 Part X. Sections HI. and IV. and Art. 243.

74 THE TREATY

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 com- mercial debts. But the completeness of their vic- tory permitted the Allied Governments to intro- duce in their own favor many divergencies from reciprocity, of which the following are the chief: Whereas the property of Allied nationals within German jurisdiction reverts under the Treaty to A11ied 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 i German property over a large part of the world t 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 "pay- ment of the amounts due in respect of claims by the nationals of such Allied or Associated Power

with regard to their property, rights, and inter- ests in the territory of other Enemy Powers," as, for example, Turkey, Bulgaria, and Austria. 1

1 The interpretation of the words between inverted commas is a little dubious. The phrase is so wide as to seem to include

THE TREATY 75

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. 1

The effective operation of these Articles is guar-

anteed by the delivery of deeds, titles, and infor- mation. _ In the fourth place, pre-war contracts between Allied and German nationals may be can- celed or revived at the option of the former, so

that M1 such contracts which are in Germany's

favor will be canceled, while, on the other hand, she will be compelled to fulfil those which are to her disadvantage.

(b) So far we have been concerned with Ger- man property within Allied jurisdiction. The

next provision is aimed at the elimination of Ger- man interests in the territory of her neighbors

private debts. But in the final draft of the Treaty private debts are not explicitly referred to.

1 This provision is mitigated in the case of German property in Poland and the other new States, the proceeds of liquidation in these areas being payable direct to the owner (Art. 92).

2 Part X. Section IV. Annex, para. 10: "Germany will, within six months from the coming into force of the present Treaty, deliver to each Allied or Associated Power all securities, certifi- cates, 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 transac- tions concerning such property, rights, or interests effected since July 1, 1914"

76 THE TREATY

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 ex- propriate its nationals and deliver to the Repara- tion Commission "any rights and interests of German nationals in any public utility undertak- ing or in any concession 1 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 capita] confiscated in all those neighboring countries to I which she might naturally look for her future live- lihood, and for an outlet for her energy, enter- prise, and technical skill.

The execution of this program in detail will throw on the Reparation Commission a peculiar

1 "An F public utility undertaking or conce_ion" is g vague i_ phrase, the precise interpretation of which iJ not pl_0_vided f_,

THE TREATY 77

task, as it will become possessor of a great number of rights and interests over a vast terri- tory owing dubious obedience, disordered by war, disruption, and Bolshevism. The division of the spoils between the victors will also provide em- ployment 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 igno- rance to exercise its rights to the full, it is further provided that the German Government shall com- municate to it within six months of the Treaty's coming into force a list of all the rights and inter- ests in question, "whether already granted, con- tingent or not yet exercised," and any which are not so communicated within this period will auto- matically lapse in favor of the Allied Govern- ments. 1 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

1Art. 260,

78 THE TREATY

which affects German interests in neutral coun-

tries. The Reparation Commission is empowered up to May 1, 1921, to demand payment up to _5,000,000,000 i_ such manner as they _nay fix, "whether in gold, commodities, ships, securities or otherwise." 1 This provision has the effect of intrusting to the Reparation Commission for the period in question dictatorial powers over all Ger- man 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 estab-

lished-the fine and powerful German enterprise ,: in South America known as the Deutsche Ueber- i_

seeisehe Elektrizitiitsgesellsehaft (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 Ii 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 eas6 2 _'t. 235.

THE TREATY 79

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 ef- fected. Thus the powers of the Reparation Com-

mission, with which I deal more particularly in the next chapter, can be employed to destroy Ger- many's commercial and economic organization as

well as to exact payment. The cumulative effect of (a), (b), and (c) (as

well as of certain other minor provisions on which I have not thought it necessary to enlarge) is to

deprive Germany (or rather to empower the Allies so to deprive her at their will--it is not yet ac- complished) of everything she possesses outside her own frontiers as laid down in the Treaty.

Not only are her oversea investments taken and her connections destroyed, but the same process of extirpation is applied in the territories of her former allies and of her immediate neighbors by land.

(5) Lest by some oversight the above provisions should overlook any possible contingencies, cer- tain 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 complete- ness in which the victorious Powers entered upon the e_onomic subjection of their defeated enemy.

First of all there is a general clause of barrer

80 THE TREATY

and renunciation: "In territory outside her Euro- pean frontiers as fixed by the present Treaty, Germany renounces all rights, titles and privi- leges 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 Pow- ers . . . "_

There follow certain more particular provisions. Germany renounces all rights and privileges she may have acquired in China2 There are similar provisions for Siam, _ for Liberia," for Morocco, _ and for Egypt." 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 nation- als and the conditions under which they may estab- lish themselves in Egypt."

By Article 258 Germany renounces her right to any participation in any financial or economic or-

1Art. 118. 2 Arts. 129 and 132. 3 Arts. 135-137. 4 Arts. 135-140. 5 Art. 141 : "Germany renounces all rights, titles and privileges

eo._ferred on her by the General Act of Algeciras of April 7, 1906, and by the Franco-German Agreements, of Feb. 9, 1909, and Nov. 4, 1911.... "

6 Art. 148: "All treaties, agreements, arrangements and con- tracts concluded by Germany with Egypt are regarded as abroo gated from Aug. 4, 1914." Art. 153: "All property and posses- sions in Egypt of the German Empire and the German States patm to the Egyptian Government without payment."

THE TREATY 81

ganizations of an international character "oper-

ating 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 Ger-

many's favor may be allowed to lapse. 1

It is evident, however, that none of these pro-

visions 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 conse- quences on Germany's internal industrial econ-

omy than for the money value immediately in- volved. 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,

z Art. 289.

82 THE TREATY

and electrical industries which established her as

the first industrial nation of continental Europe. 0ne-third of Germany's population lives in towns

of more than 20,000 inhabitants, an industrial con- centration which is only possible on a foundation of coal and iron. In striking, therefore, at her

coal supply, the French politicians were not mis- taking their target. It is only the extreme im- moderation, 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 sup- ply 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 pos- session, with exclusive rights of exploitation, un- encumbered, and free from all debts and charges of any kind, the coal-mlnes situated in the Saar Basin." 1 While the administration of this dis-

trict is vested for fifteen years in the League of l_ations, 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

• Art. 45.

THE TREATY 83

event of their electing for union with Germany, Germany is to be entitled to repurchase the mines at a price payable in gold. 1

The judgment of the world has already recog- nized the transaction of the Saar as an act of

spoliation and insincerity. So far as compensa- tion 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 inhabi- tants, 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 restora- tion of the country upon the conclusion of peace. During a period of 1048 years France has pos-

sessed 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 popula- tion raised the most energetic opposition and de-

manded 'reunion with their German fatherland,' to which they were 'related by language, customs,

1 Part IV. Section IV. Annex, Chap. III.

84 TILE TREATY

and religion.'Afteran occupationof one year and a quarter,thisdesirewas takenintoaccount inthesecondTreatyofParisin1815. Sincethen the countryhas remained uninterruptedlyat-

tachedtoGermany,and owesitseconomicdevel- opmenttothatconnection." The Frenchwantedthecoalforthepurposeof

workingthe ironfieldsof Lorraine,and in the spiritofBismarcktheyhavetakenit.Not prece-

dent,buttheverbalprofessionsoftheAllies,have rendereditindefensible.I

(ii.)Upper Silesia,a districtwithoutlarge

towns,inwhich,however,liesone of themajor coalfields of Germany with a production of aboui 23 per cent of the total German output of hard coal, is, subject to a plebiscite, _ to be ceded to

1 " We take over the ownership of the Sarre mines, and in order not to be inconvenienced in the exploitation of these coal deposits, we constitute a distinct little estate for the 600,000 Germans who inhabit this coal basin, and in fifteen years we shall endeavor by a plebiscite to bring them to declare that they want to be French. We know what that means. During fifteen years we are going to work on them, to attack them from every point, till we obtain from them a declaration of love. It is evidently a less brutal proceeding than the coup de forve 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 years7" (M. Herv$ in La Vivtoire, May 31, 1919).

2 This plebiscite is the most important of the concessions ac- corded to Germany in the Allies' Final Note, and one for which Mr. Lloyd George, who never approved the Allies' policy on the

THE TREATY 85

Poland. Upper Silesia was never part of his- toric Poland; but its population is mixed Polish, German, and Czecho-Slovakian, the precise pro-

portions of which are disputed. 1 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. _

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 knowl- edge 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.

1 German authorities claim, not without contradiction, that to judge from the votes cast at elections, one-third of the popula- tion would elect in the Polish interest, and two-thirds in the German.

2 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 under- takes 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 ihall be available for sale to purchasers in Germany

86 THE TREATY

With the loss of the fields of Upper Silesia and the Saar, the coal supplies of Germany are dimin- ished by not far short of one-third.

(iii.) Out of the coal that remains to her, Ger- many 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 pare. 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 aun,_al production be- fore the war of the coal-mines of the Nord and

Pas de Calais, destroyed as a result of the war,

on terms as favorable as arc 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 arc essential to the economic life of Germany, Poland does not need them. Of Poland's pre-war annual demand of 10,500,000 tons, 6,800,000 tons were supplied by the indisputably Polish districts adjacent to Upper Silesia, 1,500,000 tons from Upper Silesia (out of a total Upper Silesian output of 43,500,000 tons), and the balance from what is now Czeeho-Slovakia. Even without rny supply from Upper Silesia and Czecho-Slovakia, Poland could probably meet her requirements by the fuller exploitation of her own coalfields which arc not yet scientifically developed, or from the deposits of Western Galicia which are now to be annexed to her.

THE TREATY 87

and the production of the mines of the same area during the year in question: such delivery not to exceed 20,000,000 tons in any one year of the first

five years, and 8,000,000 tons in any one year of the succeeding five years."

This is a reasonable provision if it stood by itself, and one which Germany should be able to fulfil if she were left her other resources to do it with.

(iv.) The final provision relating to coal is part of the general scheme of the Reparation Chapter by which the sums due for Reparation are to be

partly paid in kind instead of in cash. As a part of the payment due for Reparation, Germany is

to make the following deliveries of coal or 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 de-

struction in Northern France) :-- (i.) To France 7,000:000 tons annually for ten

years; _

(ii.) To Belgium 8,000,000 tons annually for ten years;

(iii.) To Italy an annual quantity, rising by an-

nual increments from 4,500,000 tons in 1919-1920 to 8,500,000 tons in each of the six years, 1923- 1924 to 1928-1929;

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.

88 THE TREATY

(iv.) To Luxemburg, if required, a quantity of

coal equal to the pre-war annual consumption of German coal in Luxemburg.

This amounts in all to an annual average of

about 25,000,000 tons.

These figures have to be examined in relation to Germany's probable output. The maximum

pre-war figure was reached in 1913 with a total

of 191,500,000 tons. Of this, 19,000,000 tons were consumed at the mines, and on balance (i.e. ex-

ports less imports) 33,500,000 tons were exported, leaving 139,000,000 tons for domestic consump-

tion. It is estimated that this total was employed as follows :-

Railways .................. 18,000,000 tons. Gas, water, and electricity... 12,500,000 " Bunkers ................... 6,500,000 " tIousc-fuel, small industry

and agriculture .......... 24,000,000 " Industry .................. 78,000,000 "

139,000,000 "

The diminution of produotion due to loss of

territory is :m

Alsace-Lorraine ............ 3,800,000 tons. Saar Basin ................ 13,200,000 " Upper Silesia .............. 43,800,000 "

60,800#00 "

THE TREATY 89

There would remain, therefore, on the basis of the 1913 output, 130,700,000 tons, or, deducting consnmption at the mines themselves, (say) 118,- 000,000 tons. For some years there must be sent out of this supply upwards of 20,000,000 tons to France as compensation for damage done to French mines, and 25,000,000 tons to France, Bel- gium, Italy, and Luxemburg; 1 as the former fig- ure is a maximum, and the latter figure is to be slightly less in the earliest years, we may take the total export to Allied countries which Germany has undertaken to provide as 40,000,000 tons, leav- ing, on the above basis, 78,000,000 tons for her own use as against a pre-war consumption of 139,- 000,000 tons.

This comparison, however, requires substantial modification to make it accurate. On the one

hand, it is certain that the figures of pre-war output cannot be relied on as a basis of present output. During 1918 the production was

1 The Reparation Commission is authorized under the Treaty (Part VIII. Annex V. para. 10) "to postpone or to cancel de- liveries" 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 cancella- tions "the coal to replace coal from destroyed mines shall receive priority over other deliveries." This concluding clause is of the f_oeatest importance, if, as will be seen, it is physically impossible

r Germany to furnish the full 45,000,000; for it means that France will receive 20,000,000 tons before Italy receives anything. The Reparation Commission has no discretion to modify this. The Italian Press has not failed to notice the significance of the provision, and alleges that this clause was inserted during the almenes of the Italian repre_mtatives from Paris ((7o_v_ d_l_ 8_, July 19, 1919).

90 THE TREATY

161,500,000 tons as compared with 191,500,000 tons in 1913; and during the first half of 1919 it was less than 50,000,000 tons, exclusive of

Alsace-Lorraine and the Saar but including Upper

Silesia, corresponding to an annual production of about 100,000,000 tons? 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 8½ to 7 hours, and it is im-

probable that the powers of the Central Govern-

ment 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 low-

ered), and the casualties of the war have dimin-

ished 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

x It follows that the current rate of production in Germany has sunk to about 60 per cent of that of 1913. The effect on reserves has naturally been disastrous, and the prospects for the coming winter are dangerous.

THE TREATY 91

loss of output at somewhat above 30 per cent, divided about equally between the shortening of the shift and the other economic influences. This

figure appears on general grounds to be plausible, but I have not the knowledge to endorse or to criticize it.

The pre-war figure of 118,0009000 tons net (i.e. after allowing for loss of territory and consump- tion at the mines) is likely to fall, therefore, at least as low as to 100,000,0001 tons, having regard to the above factors. If 40,000,000 tons of this are to be exported to the Allies, there remain 60,000,000 tons for Germany herself to meet her own domestic consumption. Demand as well as supply will be diminished by loss of terri- tory, but at the most extravagant estimate this could not be put above 29,000,000 tons? Our hypothetical calculations, therefore, leave us with post-war German domestic requirements, on the basis of a pre-war efficiency of railways and industry, of 110,000,000 tons against an output not exceeding 100,000,000 tons, of which 40,000,000 tons are mortgaged to the Allies.

The importance of the subject has led me into a somewhat lengthy statistical analysis. It is evi- dent that too much significance must not be at-

1This assumes a loss of output of 15 per cent as compared with the estimate of 30 per cent quoted above.

2 This supposes a loss of 25 per cent of Germany's industrial undertaking and a diminution of 13 per cent in her other requirements.

92 THE TREATY

tached to the precise figures arrived at, which

are hypothetical and dubious? 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 pos-

sible. But it is evident that Germany cannot and will not furnish the Allies with a contribution of

40,000,000 tons annually. Those Allied Ministers,

who have told their peoples that she can, have

certainly deceived them for the sake of allaying

for the moment the misgivings of the European

peoples as to the path along which they are being led.

The presence of these illusory provisions

(amongst others) in the clauses of the Treaty

of Peace is especially charged with danger for

1 The reader must be reminded in particular that the above calculations take no account of the German production of lignite, which yielded in 1913 13,000,000 tons of rough lignite in addi- tion to an amount converted into 21,000,000 tons of briquette. This amount of lignite, however, was required in Germany before the war _ addi_io_t 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.

THE TREATY 93

the future. The more extravagant expectations as to Reparation receipts, by which Finance Min- isters have deceived their publics, will be heard of no more when they have served their immedi-

ate 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 King- dom and elsewhere, and of many secondary causes, such as the breakdown of transport and of

organization and the inefficiency of new govern- ments, the coal position of all Europe is nearly desperate; 1 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

1 Mr. Hoover, in July, 1919, estimated that the coal output of Europe, excluding Russia and the Balkans, had dropped from 679,500,000 tons to 443,000,000 tons,--as a result in a minor degree of loss of material and labor, but owing chiefly to a relaxation of physical effort after the privations and sufferings of the war, a lack of rolling-stock and transport, and the unsettled political fate of some of the mining districts.

94 THE TREATY

as a question between German industry on %he 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 jeopar- dize French and Italian industry. In such a case must not the victors with their Treaty rights pre- vail, 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 orig- inal limits.

But this is not yet the whole problem. If France and Italy are to make good their own deficiencies in coal from the output of Germany, then Northern Europe, Switzerland, and Austria, which previously drew their coal in large part from Germany's exportable surplus, must be starved of their supplies. Before the war 13,600,- 000 tons of Germany's coal exports went to Aus- tria-Hungary. Inasmuch as nearly all the coal- fields of the former Empire lie outside what is now German-Austria, the industrial ruin of this latter state, if she cannot obtain coal from Ger- many, will be complete. The case of Germany's neutral neighbors, who were formerly supplied in

THE TREATY 95

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. 1 With the breakdown of money econ- omy the practice of international barter is becom- ing 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 ex- traordinary complication as compared with the former almost perfect simplicity of international trade. But in the no less extraordinary condi- tions of to-day's industry it is not without ad- vantages as a means of stimulating production. The butter-shifts of the Ruhr 2 show how far rood-

1Numerous commercial agreements during the war were ar- ranged 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 Thc 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.

2 " Some 60,000 Ruhr miners have agreed to work extra shifts --so-called butter-shifts---for the purpose of furnishing coal for

96 THE TREATY

ern Europe has retrograded in the direction of barter, and afford a picturesque illustration of the low economic organization to which the break- down of currency and free exchange between in- dividuals and nations is quickly leading us. But they may produce the coal where other devices wouldfail. _

Yet ifGermany canfindcoalfortheneighbor- ingneutrals,Franceand Italymay loudlyclaim thatinthiscaseshecanand must keephertreaty obligations.In thistherewillbe a greatshow

ofjustice,and itwillbe difficulttoweigh against suchclaimsthepossiblefactsthat,whileGerman minerswillwork forbutter,thereisno available means of compellingthem to get coal,the sale ofwhich willbringinnothing,and thatifGer-

many has no coalto sendtoher neighborsshe may failtosecureimportsessentialtoher eco- nomicexistence.

If thedistributionof theEuropean coalsup- pliesistobe a scrambleinwhichFranceissat-

isfiedfirst,Italynext,and everyone elsetakes theirchance,theindustrialfutureof Europe is

blackand theprospectsofrevolutionverygood. Itisa casewhere particularinterestsand par-

_ort to Denmark,whencebutterwillbe exportedinreturn. ebutterwillbenefittheminersinthefirstplace,astheyhave

worked specially to obtain it" (K6l_dsche Zeitu_g, June 11, 1919_.

1What of the prospects of whisky-shifts in EnglandY

THE TREATY 97

ticular claims, however well founded in sentiment or in justice, must yield to sovereign expediency.

If there is any approximate truth in Mr. Hoover's calculation that the coal output of Europe has fallen by one-third, a situation confronts us where distribution must be effected with even-handed

impartiality in accordance with need, and no in- centive can be neglected towards increased pro- duction and economical methods of transport.

The establishment by the Supreme Council of

the Allies in August, 1919, of a European Coal Commission, consisting of delegates from Great Britain, France, Italy, Belgium, Poland, and

Czecho-Slovakia was a wise measure which, prop-

erly employed and extended, may prove of great

assistance. But I reserve constructive proposals for Chapter VII. Here I am only concerned with

tracing the consequences, per impossibile, of carrying out the Treaty au pied de lettre. 1

(2) The provisions relating to iron-ore require

less detailed attention, though their effects are

1 As early as September, 1919, the Coal Commission had to face the physical impracticability of enforcing the demands of the Treaty, and agreed to modify them as follows:--" Germany shall in the next six months make deliveries corresponding to an an- nual delivery of 20 million tons as compared with 43 millions as provided in the Peace Treaty. If Germany's total production exceeds the present level of about 108 millions a year, 60 per cent of the extra production, up to 128 millions, shall be delivered to the Entente and 50 per cent of any extra beyond that, until the figure provided in the Peace Tre_tty is reached. If the total production falls below 108 millions the Entente will examine the situation, after hearing Germany, and take account of it."

98 THE TREATY

destructive. They require less attention, because they are in large measure inevitable. Almost ex- actly 75 per cent of the iron-ore raised in Germany in 1913 came from Alsace-Lorraine. 1 In this the

chief importance of the stolen provinces lay. There is no question but that Germany must

lose these ore-fields. The only question is how far she is to be allowed facilities for purchasing their produce. The German Delegation made strong efforts to secure the inclusion of a pro- vision 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 even- tual policy are not entirely concordant. While Lorraine comprised 75 per cent of Germany's iron-ore, only 25 per cent of the blast furnaces lay within Lorraine and the Saar basin together, a large proportion of the ore being carried into Germany proper. Approximately the same pro- portion of Germany's iron and steel foundries, namely 25 per cent, were situated in Alsace-Lor-

121,136,265tons out of a total of 28,607,903 tons. The loss of iron-ore in respect of Upper Silesia is insignificant. The ex- clusion of the iron and steel of Luxemburg frem the German Customs Union is, however, important, especially when this loss is added to that of Alsace-Lorraine. It may be added in passing that Upper Silesia includes 75 per cent of the zinc production of Germany.

THE TREATY 99

raine. For the moment, therefore, the most eco- nomical and profitable course would certainly be to export to Germany, as hitherto, a considerable part of the output of the mines.

On the other hand, France, having recovered the deposits of Lorraine, may be expected to aim at replacing as far as possible the industries, which Germany had based on them, by industries situated within her own frontiers. Much time

must elapse before the plant and the skilled labor could be developed within France, and even so she could hardly deal with the ore unless she could rely on receiving the coal from Germany. The uncertainty, too, as to the ultimate fate of the Saar will be disturbing to th: calculations of capi- talists who contemplate the establishment of new industries in France.

In fact, here, as elsewhere, political considera- tions cut disastrously across economic. In a r_gime of Free Trade and free economic inter- course it would be of little consequence that iron lay on one side of a political frontier, and labor, coal, and blast furnaces on the other. But as it is, men have devised ways to impoverish them- selves and one another; and prefer collective ani- mosities to individual happiness. It seems cer- tain, calculating on the present passions and im- pulses of European capitalistic society, that the

effective iron output of Europe will be dimin-

100 THE TREATY

ished 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 sus-

tained and efficient production to repair the de-

structions of war, and to satisfy the insistence

of labor for a larger reward. 1 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 fur-

naces. What is to be the fate of these? If Ger-

many is cut off from her supplies of ore on the

west, will she export beyond her frontiers on the

east any part of the little which remains to her ?

The efficiency and output of the industry seem certain to diminish.

Thus the Treaty strikes at organization, and by the destruction of organization impairs yet

]n April, 1919, the British Ministry of _iunitions 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 Ssar coal to obtain a good furnace coke. The entire dependence of all the Lorraine iron and steel works upon Ger- many for fuel supplies "places them," says the Report, "in a very unenviable position."

THE TREATY 101

further the reduced wealth of the whole commun-

ity. The economic frontiers which are to be estab- lished between the coal and the iron, upon which modern industrialism is founded, will not only diminish the production of useful commodities, but may possibly occupy an immense quantity of human labor in dragging iron or coal, as the case may be, over many useless miles to satisfy the dictates of a political treaty or because ob- structions have been established to the proper localization of industry.

III

There remain those Treaty provisions which relate to the transport and the tariff systems of Germany. These parts of the Treaty have not nearly the importance and the significance of those discussed hitherto. They are pin-pricks, interferences and vexations, not so much objec- tionable for their solid consequences, as dishon- orable to the Allies in the light of their profes- sions. Let the reader consider what follows in

the light of the assurances already quoted, in reliance on which Germany laid down her arms.

(i.) The miscellaneous Economic Clauses com-

mence with a number of provisions which would be in accordance with the spirit of the third of the Fourteen Points_--if they were reciprocal.

102 THE TREATY

Both for imports and exports, and as regards tariffs, regulations, and prohibitions, Germany binds herself for five years to accord most- favored-nation treatment to the Allied and Associ- ated States? But she is not entitled herself receive such treatment.

For five years Alsace-Lorraine shall be free to export into Germany, without payment of cus- toms duty, up to the average amount sent annu- ally into Germany from 1911 to 1913.2 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 Ger- many, are to have a similar privilege,_--but not German exports to Poland or to Luxemburg. Luxemburg also, which for many years has en- joyed the benefits of inclusion within the German Customs Union, is permanently excluded from it henceforward."

1 Arts. 264, 265, 266, and 267. These provisions can only be extended beyond five years by the Council of the League ofNations.

Art. 268 (a). SArt. 268 (b) and (c). 4 The Grand Duchy is also deneutralized and Germany binds

herself to "accept in advance all international arrangements which may be concluded by the Allied and Associated Powers relating to the Grand Duchy" (Art. 40). At the end of Sep- tember, 1919, a plebiscite was held to determine whether Lux- emburg should join the French or the Belgian Customs Union, which decided by a subst,qntia! majority in favor of the former. The third alternative of the maintenance of the union with Ger- many waa not left open to the electorate.

THE TREATY 103

For six months after the Treaty has come into force Germany may not impose duties on imports from the Allied and Associated States higher than the most favorable duties prevalent before the war; and for a further two years and a half (mak- ing 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? This is a ridiculous and injurious provision, by which Germany is preven_,ed 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 dis- tribution 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 dlm_nish 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

1 Art. 269

104 THE TREATY

the future, a special and particularized injunction that she must allow as readily as in the days of

her prosperity the import of champagne and of silk !

One other Article affects the Customs R_gime

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 r_gime 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 safe- guard the economic interests of the population of

these territories." 1 This provision was probably

introduced as a possibly useful adjunct to the

French policy of somehow detaching the left

bank provinces from Germany during the years

of their occupation. The project of establishing

an independent Republic under French clerical

auspices, which would act as a buffer state and

realize the French ambition of driving Germany

proper beyond the Rhine, has not yet been aban-

doned. Some believe that much may be accom-

plished by a r_gime of threats, bribes, and

cajolery extended over a period of fifteen years

or longer. _ If this Article is acted upon, and the

1 Art. 270. The occupation provisions may be conveniently summarized

at this point. German territory situated west of the Rhine, together with the bridge-heads, is subject to occupation for a period of fifteen years (Art. 428). If, however, "the conditions of the present Treaty are faithfully carried out by Germany,"

THE TREATY 105

economic system of the left bank of the Rhine is effectively severed from the rest of Germany, the effect would be far-reaching. But the dreams of designing diplomats do not always prosper, and we must trust the future.

(ii.) The clauses relating to Railways, as origi- naUy 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 Ger- many, shall receive the most favored treatment as

the Cologne district will be evacuated after five years, and the Coblenz district after ten years (Art. 429). It is, however, further provided that if at the expiration of fifteen years "the guarantees against unprovoked aggression by Germany are not considered sufficient by the Allied and Associated Governments, the evacuation of the occupying troops may be delayed to the extent regarded as necessary for the purpose of obtaining the required guarantees" (Art. 429); and also that "in case either during the occupation or after the expiration of the fifteen years, the Reparation Commission finds that Germany refuses to ob- serve 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_)eeupied immediately by the Allied and Associated Powers " (Art. 430). Since it will be impossible for Germany to fulfil the whole of her Reparation obligations, the effect of the above provisions will be in practice that the Allies will occupy the left bank of the Rhine just so long as they choose. They will also govern it in such manner as they may determine (e.g. not only as regards customs, but such matters as the respective authority of the local German representatives and the Allied Governing Commission), since "all matters relating to the occupation and not provided for by the present Treaty shall be regulated by subsequent agreements, which Germany hereby undertakes to observe" (Art. 432). The actual Agreement under which the occupied areas are to be ad- ministered 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.

106 THE TREATY

regards rail freight rates, etc., applied to goods of the same kind carried on any German lines "under similar conditions of transport, for ex- ample, as regards length of route. ''1 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," and of an analogous provision relating to passenger traffic,_ will much depend on the interpretation of the phrase, "similar conditions of transport." '

For the time being Germany's transport system will be much more seriously disordered by the pro- visions relating to the cession of rolling-stock. Under paragraph 7 of the Armistice conditions Germany was called on to surrender 5000 loco- motives and 150,000 wagons, "in good working order, with all necessary spare parts and fittings." Under the Treaty Germany is required to con- firm this surrender and to recognize the title of the Allies to the material. _ She is further re-

quired, in the case of railway systems in ceded

xArt, 365. After five years this Article is subject to revision by the Council of the League of Nations.

2The German Government withdrew, as from September 1, 1919, all preferential railway tariffs for the export of iron and steel goods, on the ground that these privileges would have been more than counterbalancedby the correspondingprivileges which, under this Article of the Treaty, they would have been forced to give to Allied traders.

3Art. 367. 4 Questions of interpretation and application are to be referred

to the League of Nations (Art. 376). 5 Art. 250.

THE TREATY 107

territory, to hand over these systems complete with their full complement of rolling-stock "in

; a normal state of upkeep" as shown in the last : inventory before November 11, 1918.1 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 doubt-

: less 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 aggra-

_ ration of the difficulties of the coal problem and

of export industry generally.

(iii.) There remain the clauses relating to the

river system of Germany. These are largely un- necessary and are so little related to the supposed aims of the Allies that their purport is generally

unIrnown. Yet they constitute an unprecedented

interference with a country's domestic arrange-

ments, 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

1 Art. 371. This provision is even applied "to the lines of former Russian Poland converted by Germany to the German gage, such lines being regarded as detached from the Prussian State System,"

108 THE TREATY

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 terri-

tory. The Rhine, rising in Switzerland, is now a frontier river for a part of its course, and finds the sea in Holland; the Danube rises in Germany but flows over its greater length elsewhere; the Elbe rises in the mountains of Bohemia, now called Czecho-Slovakia; the 0der 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, "nat- urally provide more than one State with access to the sea," properly require some measure of international regulation and adequate guarantees against discrimination. This principle has long been recognized in the International Commissions which regulate the Rhine and the Danube. But on such Commissions the States concerned should

THE TREATY 109

be represented more or less in proportion to their interests. The Treaty, however, has made the in- ternational 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 free- dom of transit/the Treaty proceeds to hand over the admluistration of the Elbe, the Oder, the Danube, and the Rhine to International Commis- sions. 2 The ultimate powers of these Commis- sions are to be determined by "a General Con- vention drawn up by the Allied and Associated Powers, and approved by the League of Na- tions." s In the meantime the Commissions are

to draw up their own constitutions and are ap- parently to enjoy powers of the most extensive description, "particularly in regard to the execu- tion of works of maintenance, control, and im- provement on the river system, the financial r_gime, the fixing and collection of charges, and regulations for navigation." 4

xArts. 332-337. Exception may be taken, however,to.the second paragraph of Art. 332, which allows the vessels of other nations to trade between German towns but forbids German vessels to trade between non-German to-ms except with special permission; and Art. 333, which prohibits Germany from making use of her river system as a source of revenue, may be injudicious.

2The Niemen and the l_Ioselle are to be similarly treated at a later date if required.

aArt. 338. 4 Art. 344. This is with particular reference to the Elbe and

the Oder; the Danube and the Rhine are dealt with in relation tO the existinjz Commissions.

11o THE TREATY

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 fea- ture 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 Com- mission 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 Bel- gium.

Thus the great waterways of Germany are handed over to foreign bodies with the widest powers; and much of the local and domestic busi- ness 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. Un-

der Annex HI. of the Reparation Chapter Ger-

THE TREATY 111

many is to cede up to 20 per cent of her inland

navigation tonnage. Over and above this she

must cede such proportion of her river craft upon the Elbe, the 0der, 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 ship-

ping traffic during the five years preceding the war," the craft so ceded to be selected from those most recently built? The same course is to be followed with German vessels and tugs on the

Rhine and with German property in the port of Rotterdam? Where the Rhine flows bctween

France and Germany, France is to have all the

: rights of utilizing the water for irrigation or for : power and Germany is to have none; 8 and all the

bridges are to be French property as to their

whole length? Finally the administration of the

purely German Rhine port of Kehl lying on the eastern bank of the river is to be united to that

of Strassburg for seven years and managed by a Frenchman to be nominated by the new Rhine Commission.

Thus the Economic Clauses of the Treaty are

comprehensive, and little has been overlooked

1 Art. 339. Ar_. 357.

8 Art, 358. Germany is, however, to be allowed some payment or credit in respect of power so taken by France.

4 Art, 66.

112 THE TREATY

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.

CHAPTER V

REPARATION

I. U_dertakmgs given prior to the Peace

Negotiations

T_ categories of damage in respect of which the

Allies were entitled to ask for Reparation are

governed by the relevant passages in Presi-

dent Wilson's Fourteen Points of January 8,

1918, as modified by the Allied Governments in

their qualifying Note, the text of which the Presi-

dent formally communicated to the German Gov-

ernment as the basis of peace on November

5, 1918. These passages have been quoted in full at the beginning of Chapter IV. That is to

say, "compensation will be made by Germany for

all damage done to the civilian population of the

Allies and to their property by the aggression of

Germany by land, by sea, and from the air." The

limiting quality of this sentence is reinforced by

the passage in the President's speech before Con-

gress on February 11, 1918 (the terms of this

speech being an express part of the contract with

the enemy), that there shall be "no contribu-

tions" and "no punitive damages." 118

114 REPARATION

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 re-

main unaffected," wiped out all precedent con- ditions, and left the Allies free to make what- ever demands they chose. But it is not possible to maintain that this casual protective phrase, to which no one at the time attached any par- ticular importance, did away with all the for- mal 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 sur-

render, so far as it affects the Financial Clauses. It is merely the usual phrase of the draftsman, who, about to rehearse a list of certain claims, wishes to guard himself from the implication that such list is exhaustive. In any case, this conten-

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 d_mage done. Whilst Armistice lasts, no public securities shall be removed by the enemy which can serve as a pledge to the Allies for recovery or reparation of war losses. Immediate resti- tution 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, touch- ing 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 si_mture of peace."

REPARATION 115

tion 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 i the Reparation Chapter must be governed by the

President's Note of November 5. : Assuming then that the terms of this Note

are binding, we are left to elucidate the precise :_ force of the phrasc "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 sec- tion of this chapter, as this apparently simple and

l 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

i 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 "al?

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

116 REPARATION

on civilian damages as distinct from military ex- penditure generally; it must also be remembered that the context of the term is in elucidation of

tho 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 Mon- tenegro (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 distinguish- able in kind from those effected in occupied terri- tory, that the Supreme Council of the Allies in Paris proposed to President Wilson their quali- fications. At that time--the last days of October, 1918--I do not believe that any responsible states- man 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 a/l 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, cover-

REPARATION 117

ing 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 he claimed from the enemy on a strict interpretation of our engage- ments T1 In the case of the United Kingdom the bill would cover the following items :w

(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 war- fare behind the enemy lines.

(d) Compensation for loot of food, raw ma- terials, live-stock, machinery, household effects, timber, and the like by the enemy Governments

1It is to benoticed,in passing,thattheycontainnothingwhich limitsthedamageto damageinflictedcontraryto the recognized rulesof warfare. Thatis to say, it is permissibleto include claimsarisingout of the legitimatecaptureof a merchantman at sea,as well as the costsof illegalsubmarinewarfare.

118 REPARATION

or their nationals in territory occupied by them. (e) Repayment of fines and requisitions levied

by the enemy Governments or their officers on French municipalities or nationals.

(f) Compensation to French nationals deported or compelled to do forced labor.

In addition to the above there is a further item

of more doubtful character, namely-- (g) The expenses of the Relief Commission in

providing necessary food and clothing to maintain

the civilian French population in the enemy-occu- pied districts.

The Belgian claim would include similar items. 1

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 Interna- tional Law involved in the invasion of Belgium, whereas, as we have seen, the Fourteen Points

include no special demands on this ground3 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, Belgillm would presumably

I Mark-paper or mark_redits owned in ex_ceupied 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.

s A special claim on behalf of Belgium was actually included in the Peace Treaty, and was accepted by the German repre_nta_ tivee without demur.

REPARATION 119

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 addi- tion to the claims of the three lending Govern- ments.

The claims of the other Allies would be com-

piled on similar lines. But in their case the ques-

tion arises more acutely how far Germany can be made contingently liable for damage done, not by herself, but by her co-belligerents, Austria-

Hungary, Bulgaria, and Turkey. This is one of the many questions to which the Fourteen Points give no clear answer; on the one hand, they cover

explicitly in Point 11 damage done to Roumania, Serbia, and Montenegro, without qualification as

to the nationality of the troops inflicting the dam- age; 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 con-

trary to the general intention of their engage- ments.

As between the Allies themselves the case im

120 REPARATION

quite different. It would be an act of gross un- fairness 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 aggre- gate 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 ques- tion of her contingent liability for her allies becomes academic. Prudent and honorable states-

manship 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 o_m guess for what it is

worth, prefacing it with the following observa- tions.

The amount of the material damage done in

the invaded districts has been the subject of enor-

mous, if natural, exaggeration. A journey through the devastated areas of France is im-

pressive to the eye and the imagination beyond

REPARATION 121

description. During the winter of 1918-19, before Nature had cast over the scene her ameliorat-

ing mantle, the horror and desolation of war was made visible to sight on an extraordinary scale of blasted grandeur. The completeness of the de- struction was evident. For mile after mile noth-

ing was left. No building was habitable and no field fit for the plow. The sameness was also striking. One devastated area was exactly like another--a heap of rubble, a morass of shell-holes, and a tangle of wire? The amount of human labor which would be required to restore such a countryside seemed incalculable; and to the re- turned traveler any number of milliards of dol- lars was inadequate to express in matter the de- struction 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 smM1 country, and in its case the actual area of devastation is a small proportion of the whole.

x To the British observer, one scene, however, stood out distinguished from the rest--the field of Ypres. In that deso- late and ghostly spot, the natural color and humors of the landscape and the climate seemed designed to express to the traveler the memories of the ground. A visitor to the salient early in November, 1918, when a few German bodies still added a touch of realism and human horror, aT,d the great struggle wu not yet certainly ended, could feel there, as nowhere else, the present outrage of war, and at the same time the tragic and senti- mental purification which to the future _'ill in some degree transform its harMmess.

122 REPARATION

The first onrush of the Germans in 1914 did some

damage locally; after that the battle-line in Bel- gium did not sway backwards and forwards, as in France, over a deep belt of country. It was prac- tically 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 retreat- ing Germans to buildings, plant, and transport, and the loot of machinery, cattle, and other mov- able property. But Brussels, Antwerp, and even Ostend are substantially intact, and the great bulk of the land, which is Belgium's chief wealth, is

nearly as well cultivated as before. The traveler by motor can pass through and from end to end of the devastated area of Belgium almost before he knows it; whereas the destruction in France is on a different kind of scale altogether. Indus- trially, the loot has been serious and for the mo- ment paralyzing; but the actual money cost of replacing machinery mounts up slowly, and a few tens ef millions would have covered the value

of every machine of every possible description that Belgium ever possessod. 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

REPARATION 123

great mass of German bank-notes 1 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 Ger- man 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. _

It will help to guide our ideas to quote the

1 These notes, estimated to amount to no less than six thou- sand 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 Confer- ence held, however, that Reparation proper must take precedence of the adjustment of improvident banking transactions effected at an excessive rate of exchange. The possession by the Belgian Government of this great mass of German currency, in addition to an amount of nearly two thousand million marks held by the French Government which they similarly exchanged for the benefit of the population of the invaded areas and of Alsace-Lorraine, is a serious aggravation of the exchange position of the mark. It will certainly be desirable for the Belgian and German Govern- ments to come to some arrangement as to its disposal, though this is rendered difficult by the prior lien held by the Reparation Com- mission over all German assets available for such purposes.

2 It should be added, in fairness, that the very high claims put forward on behalf of Belgium generally include not only de- vastation 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.

12_ REPARATION

official survey of Belgian wealth, published in 1913 by the Finance Ministry of Belgium, which was as follows:

Land ........................ $1,320,000,000 Buildings .................... 1,175,000,000 Personal wealth .............. 2,725,000,000 Cash ........................ 85,000,000 Furniture, ete ................ 600,000,000

$5,905,000,000

This total yields an average of $780 per inhab- itant, 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 correspond-

ing wealth per head (to take Belgium's immedi- ate neighbors) being $835 for Holland, $1,220 for

Germany, and $1,515 for France. 1 A total of $7,-

500,000,000, giving an average of about $1,000 per head, would, however, be fairly liberal. The

official estimate of land and buildings is likely to be more accurate than the rest. On the other

hand, allowance has to be made for the increased costs of construction.

Having regard to all these considerations, I do

not put the money value of the actual physical loss

1 "The Wealth and Income of the Chief Powers," by J. C. Stamp (Journal of the Royal l_tatistical Society, July, 1919).

REPARATION 125

of Belgian property by destruction and loot above $750,000,000 as a maximum, and while I hesitate to put yet lower an estimate which differs so widely from those generally current, I shall be surprised if it proves possible to substantiate claims even to this amount. Claims in respect of levies, fines, requisitions, and so forth might possi- bly amount to a further $500,000,000. If the sums advanced to Belgium by her allies for the general costs of the war are to be included, a sum of about $1,250,000,000 has to be added (which includes the cost of relief), bringing the total to $2,500,000,000.

The destruction in France was on an altogether more significant scale, not only as regards the length of the battle line, but also on account of the immensely deeper area of country over which the battle swayed from time to time. It is a popular delusion to think of Belgium as the prin- cipal victim of the war; it will turn out, I be- lieve, that taking account of casualties, loss of property and burden of future debt, Belgium has made the least relative sacrifice of all the belliger- ents except the United States. Of the Allies, Ser- bia's sufferings and loss have been proportion- ately 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 unavoid- able. France, in my judgment, in spite of her

120 REPARATION

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 r61e. Consequently, by the end of 1918, her relative sacrifices, apart from those suffer- ings from invasion which cannot be measured in

money, had fallen behind, and in some respects

they were not even as great, for example, as Aus-

tralia's. I say this with no wish to evade the

obligations towards Belgium under which the

pronouncements of our responsible statesmen at

many di_erent 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 the_'e has been excessive exaggeration,

as responsible French statisticians have them-

selves pointed out. Not above 10 per cent of

the area of France was effectively occupied by

the enemy, and not above 4 per cent lay within

the area of substantial devastation. Of the sixty

French towns having a population exceeding 35,-

REPARATION 127

000, only two were destroyed--Reims (115,178) and St. Quentin (55,571) ; three others were occu-

pied-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 secon-

dary damage by bombardment and from the air; but the value of Calais and Boulogne must have

been increased by the new works of various kinds erected for the use of the British Army.

The Annuaire Statistique de la France, 1917,

values the entire house property of France at $11,-

900,000,000 (59.5 milliard francs). 1 An estimate current in France of $4,000,000,000 (20 milliard

francs) for the destruction of house property alone

is, therefore, obviously wide of the markY $600,- 000,000 at pre-war prices, or say $1,250,000,000 at

the present time, is much nearer the right figure. Estimates of the value of the land of France

(apart from buildings) vary from $12,400,000,000

to $15,580,000,000, so that it would be extravagant

to put the damage on this head as high as $500,-

000,000. Farm Capital for the whole of France

has not been put by responsible authorities above

$2,100,000,0002 There remain the loss of furni-

ture and machinery, the damage to the coal-mines 1 Other estimates vary from $12,100,000,000 to $13,400,000,000.

See Stamp, loc cir. This was clearly and courageously pointed out by M. Charles

Gide in L'E_tion for February, 1919. a For details of these and other figures, see Stamp, /oc. c/t.

128 REPARATION

and the transport system, and many other minor

items. But these losses, however serious, cennot

be reckoned in value by hundreds of millions of dollars in respect of so small a part of France.

In short, it will be difficult to establish a bill ex-

ceeding $2,500,000,000 for physical and _naterial

damage in the occupied and devastated areas of Northern France. 1 I am confirmed in this esti-

1 Even when the extent of the material damage has been es- tablished, it will be exceedingly difficult to put a price on it, which must largely depend on the period over which restoration tB spread, and the methods adopted. It would be impossible to make the damage good in a year or two at any price, and an attempt to do so at a rate which was excessive in relation to the amount of labor and materials at hand might force prices up to almost any level. We must, I think, assume a cost of labor and ma- terials about equal to that current in the world generally. In point of fact, however, we may safely assume that literal res- toration will never be attempted. Indeed, it would be very waste- ful 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 enrich- ment as a whole. The first breeze of this controversy has al- ready blo_-a 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 wa6 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 else- where, 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.

REPARATION 129

mate by the opinion of M. Ren_ Pupin, the author of the most comprehensive and scientific estimate of the pre-war wealth of France, 1 which I did not

come across until after my own figure had been arrived at. This authority estimates the material losses of the invaded regions at from $2,000,000,-

000 to $3,000,000,000 (10 to 15 milliards),2 between

which my own figure falls half-way. Nevertheless, M. Dubois, speaking on behalf

of the Budget Commission of the Chamber, has

given the figure of $13,000,000,000 (65 milliard francs) "as a minimum" without counting "war

levies, losses at sea, the roads, or the loss of pub- lic monuments." And M. Loucheur, the Minis- ter of Industrial Reconstruction, stated before the Senate on the 17th February, 1919, that the re-

constitution of the devastated regions would in- volve an expenditure of $15,000,000,000 (75 mil- liard francs) ,--more than double M. Pupin's esti-

z La Rivhe_se de la Franve deva_t la Guerre, published in 1916. eRe, rue Bleue, February 3, 1919. This is quoted in a very

valuable selection of French estimates and expressions of opinion, forming chapter iv. of La Liquidation financi_re de la Guerre, by tL Charriaut and R. Hacault. The general magnitude of my estimate is further confirmed by the extent of the repairs already effected, as set forth in a speech delivered by M. Tardieu on October 10, 1919, in which he said: "On September 16 last, of 2246 kilometres of railway track destroyed, 2016 had been repaired; of 1075 kilometres of canal, 700; of 1160 construc- tions, such as bridges and tunnels, which had been bloom 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 reeultivated, 200,000 hectares of which are now ready to be sown. Finally, more than 10,000,000 m_tres of barbed wire had been removed."

130 REPARATION

mate 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. 1

The figure discussed so far is not, however, the totality of the French claims. There remain, in particular, levies and requisitions on the occupied areas and the losses of the French mercantile marine at sea from the attacks of German cruisers

and submarines. Probably $1,000,000,000 would be ample to cover all such claims ; but to be on the safe side, we will, somewhat arbitrarily, make an addition to the French claim of $1,500,000,000 on all heads, bringing it to $4,000,000,000 in all.

The statements of M. Dubois and M. Loucheur

were made in the early spring of 1919. A speech delivered by M. Klotz before the French Cham- ber six months later (Sept. 5, 1919) was less excusable. In this speech the French Minister of Finance estimated the total French claims for

damage to property (presumably inclusive of losses at sea, etc., but apart from pensions and allowances) at $26,800,000,000 (134 milliard francs), or more than six times my estimate.

1 Some of these estimates include allowance for contingent and immaterial damage as well as for direct material injury.

REPARATION 181

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 seanlosses 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 insiguificant,-- $25,000,000 might cover them all, and $50,000,000 would certainly do so.

The British mercantile vessels lost by enemy action, excluding fishing vessels, numbered 2479, with an aggregate of 7,759,090 tons gross? There is room for considerable divergence of opinion as to the proper rate to take for replacement cost; at the figure of $150 per gross ton, which with the rapid growth of shipbuilding may soon be too high but can be replaced by any other which better au-

1 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.

132 REPAltATION

thorities 1 may prefer, the aggregate claim is $1,150,000,000. To this must be added the loss of cargoes, the value of which is almost entirely a matter of guesswork. An estimate of $200 per ton of shipping lost may be as good an approximation as is possible, that is to say $1,550,000,000, making $2,700,000,000 altogether.

An addition to this of $150,000,000, to cover air raids, bombardments, claims of interned civil- ians, and miscellaneous items of every descrip- tion, should be more than su_cient,--making a total claim for Great Britain of $2,850,000,000. It is surprising, perhaps, that the money value of Great Britain's claim should be so little short of

that of France and actually in excess of that of Belgium. But, measured either by pecuniary loss or real loss to the economic power of the country, the injury to her mercantile marine was enormous.

There remain the claims of Italy, Serbia, and Roumania for damage by invasion and of these and other countries, as for example Greece, 2 for losses at sea. I will assume for the present argu-

1 The fact that no separate allowance is made in the above for the sinking of 675 fishing vessels of 71,765 tons gro_s, or for the 1885 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.

The losses of the Greek mercantile marine were excessively high, as a result of the dangers of the Mediterranean; but they were largery incurred on the service of the other Allies, who paid for them directly or indirectly. The claims of Greece for mari- time lo_es incurred on the service of her own nationals would not be very considerable.

REPARATION 1_

ment that these cla_m_ 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. 1

Italy's losses by invasion and at sea cannot be very heavy, and a figure of from $250,000,000 to

$500,000,000 would bo fully adequate to cover them. The losses of Serbia, although from a human point of view her sufferings were the greatest of all/ are not measured pecuniarily by very great figures, on account of her low economic

development. Dr. Stamp (loc. cit.) quotes an es- timate by the Italian statistician Maroi, which puts the national wealth of Serbia at $2,400,000,000 or $525 per head/and the greater part of this would

1 There is a reservation in the Peace Treaty on this question. "The Allied and Associated Powers formally reserve the right of Russia to obtain from Germany restitution and reparation based on the principles of the present Treaty" (Art. 116).

Dr. Diouritch in his " Economic and Statistical Survey of the Southern Slav Nations" (Journal of Royal Statistical Society, May, 1919), quotes some extraordinary figures of the loss of life: "According to the official returns, the number of those fallen in battle or died in captivity up to the last Serbian offensive, amounted to 320,000, which means that one half of Serbia's male opulatlon, from 18 to 60 years of age, perished outright in the uropean 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 in- terned in enemy camps are estimated at 50,000. During the two Serbian retreats and during the Albanian retreat the losses among children and young people are estimated at 200,000. Lastly, during over three years of enemy occupation, the losses in lives owing to the lack of proper food and medical attention are estimated at 250,000." Altogether, he puts the losses in life at above 1,000,000, or more than one-third of the population of Old Serbia.

s Come si valoola e a quanto ammo_;ta la rivhezza d'Italia • dells altre ff_nvipali nazioni, published in 1919.

184 REPARATION

be represented by land which has sustained no

permanent damage. 1 In view of the very inade- quate data for guessing at more than the general

_nagnit_de of the legitimate claims of this group

of countries, I prefer to make one guess rather than several and to put the figure for the whole

group at the round sum of $1,250,000,000.

We are finally left with the following--

Belgium .................... $ 2,500,000,000 2 France ..................... 4,000,000,000 Great Britain ............... 2,850,000,000 Other Allies ................. 1,250,000,000

Total ................... $10,600,000,000

I need not impress on the reader that there is

much guesswork in the above, and the figure for France in particular is likely to be criticized.

But I feel some confidence that the general _nag-

nitude, as distinct from the precise fi_o_res, 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

1 Very large claims put forward by the Serbian authorities in- elude many hypothetical items of indirect and non-material damage; but these, however real, are not admissible under our present formula.

3Assuming that in her case $1,250,000,000 are included for the general expenses of the war defrayed out of loans made to Belgium by her allies.

REPARATION 185

engagements of the Allied Powers which is adopted above, would assuredly be found to ex- ceed $8,000,000,000 and to fall short of $15,000,- 000,000.

This is the amount of the claim which we were

entitled to present to the enemy. For reasons which will appear more fully later on, I believe that it would have been a wise and just act to have asked the German Government at the Peace

Negotiations to agree to a snm of $10,000,000,000 in final settlement, without further examination of particulars. This would have provided an im- mediate and certain solution, and would have re- quired 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.

H. The Conference and the Terms of the Treaty

I do not believe that, at the date of the Armis- tice, responsible authorities in the Allied countries expected any indemnity from Germany beyond the cost of reparation for the direct material dam- age which had resulted from the invasion of Allied territory and from the submarine campaign. At

136 REPARATION

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 demand- ing 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 at- mosphere the pre-Armistice conditions were framed.

A month later'the atmosphere had changed com- pletely. 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 uncondi-

tional surrender if we had determined to get it. But there was another new factor in the situa-

tion which was of greater local importance. The British Prime Minister had perceived that the conclusion of hostilities might soon bring with it the break-up of the political bloc upon which he was depending for his personal ascendency, and that the domestic difficulties which would be at-

tendant on demobilization, the turn-over of in- dustry from war to peace conditions, the financial situation, and the general psychological reactions

i

REPARATION 187

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 con- solidating his power, which was personal and

exercised, as such, independently of party or prin- ciple, to an extent unusual in British politics, evi- dently 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 reac- tions of the near future. Within a brief period, therefore, after the Armistice, the popular vic-

tor, at the height of his influence and his au- thority, decreed a General Election. It was widely recognized at the time as an act of political immorality. There were no grounds of pub-

lic interest which did not call for a short delay until the issues of the new age had a little de-

fined themselves and until the country had some- thing 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 cam-

paign was far advanced Government candidates

were finding themselves handicapped by the lack of an effective cry. The War Cabinet was de-

manding a further lease of authority on the

ground of having won the war. But partly be-

138 REPARATION

cause the new issues had not yet defined them- selves, partly out of regard for the delicate bal- ance of a Coalition Party, the Prime Minister's future policy was the subject of silence or gen- eralities. 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 Min- ister lent an ear to them. The party managers demanded more "ginger." The Prime Minister looked about for some.

On the assumption that the return of the Prime Minister to power was the primary consideration, the rest followed naturally. At that juncture there was a clamor from certain quarters that the Government had given by no means sufficiently clear undertakings that they were not going "to let the Hun off." Mr. Hughes was evoking a good deal of attention by his demands for a very large indemnity, 1 and Lord Northcliffe was lend-

1It must be said to Mr. Hughes' honor that he apprehended from the first the hearing 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 engage- merits, 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.

REPARATION 139

hag 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 s_me 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 e_uxions of the atmosphere wMch mo- mentarily 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 pos- sibility of a great indemnity. On the 22nd of November he and Mr. Bonar Law issued their Election Manifesto. It contains no allusion of

any kind either to the one or to the other, but, speaking, rather, of Disarmament and the League of Nations, concludes that "our first task

must be to conclude a just and lasting peace, and so to establish the foundations of a new Europe that occasion for further wars may be for ever averted." In his speech at Wolverhampton on the eve of the Dissolution (November 24), there is no word of Reparation or Indemnity. On the

140 REPARATION

following day at Glasgow, Mr. Bonar Law would

promise nothing. "We are going to the Confer- ence," he said, "as one of a number of allies, and you cannot expect a member of the Govern-

ment, whatever he may think, to state in public before he goes into that Conference, what line he is going to take in regard to any particular question." But a few days later at Newcastle

(November 29) the Prime Minister was warming to his work: "When Germany defeated France she made France pay. That is the principle which she herseff has established. There is abso-

lutely no doubt about the principle, and that is the principle we should proceed upon--that Ger-

many must pay the costs of the war up to the hmit of her capacity to do so." But he accom- panied this statement of principle with many "words of warning" as to the practical difficulties

of the case: "We have appointed a strong Com- mittee 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 Min- ister sought to indicate that he intended great

severity, without raising excessive hopes of ac-

tually getting the money, or committing himself

REPARATION 141

to a particular line of action at the Confer- ence. It was rumored that a high city authority had committed himseff to the opinion that Ger-

many could certainly pay $100,000,000,000 and that this authority for his part would not care to discredit a figure of twice that snm_ The Treasury officials, as Mr. Lloyd George indicated_ took a different view. He could, therefore, shelter

himself behind the wide discrepancy between the

opinions of his different advisers, and regard the precise figure of Germany's capacity to pay as an open question in the treatment of which he must do his best for his country's interests. As

to our engagements under the Fourteen Points he was always silent.

On November 30, Mr. Barnes, a member of the War Cabinet, in which he was supposed to represent Labor, shouted from a platform, "I am

for hanging the Kaiser." On December 6, the Prime Minister issued

a statement of policy and aims in which he stated, with significant emphasis on the word

European, that "All the European Allies have accepted the principle that the Central Powers must pay the cost of the war up to the limit of

their capacity." But it was now little more than a week to Poll-

ing Day, and still he had not said enough to sat- isfy the appetites of the moment. On December

142 ]REPARATION

8,. the Times, providing as usual a cloak of os- tensible decorum for the lesser restraint of its associates, declared in a leader entitled "Mak- ing Germany Pay," that "The public mind was still bewildered by the Prime Minister's various statements." "There is too much suspi- cion," they added, "of influences concerned to let the Germans off lightly, whereas the only pos- sible motive in determining their capacity to pay must be the interests of the Allies." "It is the

candidate who deals with the issues of to-day," wrote their Political Correspondent, "who adopts Mr. Barnes's phrase about 'hanging the Kaiser' and plumps for the payment of the cost of the war by Germany, who rouses his audience and strikes the notes to which they are most respon- sive. ' '

On December 9, at the Queen's Hall, the Prime Minister avoided the subject. But from now on, the debauchery of thought and speech progressed hour by hour. The grossest spectacle was pro- vided by Sir Erie Geddes in the Guildhall at

Cambridge. An earlier speech in which, in a moment of injudicious candor, he had cast doubts

on the possibility of extracting from Germany the whole cost of the war had been the object of serious suspicion, and he had therefore a repu- tation to regain. "We will get out of her all you can squeeze out of a lemon and a bit more," the

REPARATION 14_

penitent shouted, "I will squeeze her until you

can hear the pips squeak"; his policy was to take every bit of property belonging to Germans in neutral and Allied countries, and all her gold and silver and her jewels, and the contents of her

picture-galleries and libraries, to sell the proceeds for the Allies' benefit. "I would strip Germany," he cried, "as she has stripped Belgium."

By December 11 the Prime Minister had capitu- lated. His Final Manifesto of Six Points issued

on that day to the electorate furnishes a melan-

choly comparison with his program of three weeks earlier. I quote it in full:

"1. Trial of the Kaiser. 2. Punishment of those responsible for atrocities. 3. Fullest Indemnities from Germany. 4. Britain for the British, socially and industrially. 5. Rehabilitation of those broken in the war.

6. A happier country for all."

Here is food for the cynic. To this concoction

of greed and sentiment, prejudice and deception, three weeks of the platform had reduced the

powerful governors of England, who but a little while before had spoken not ignobly of Disarma- ment and a League of Nations and of a just and lasting peace which should establish the founda-

_ons of a new Europe.

On the same evening the Prime ]_finister at Bristol withdrew in effect his previous reserva-

144 REPARATION

tions 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. I Four days later he went to the

polls. The Prime Minister never said that he himself

believed that Germany could pay the whole cost

of the war. But the program became in the mouths of his supporters on the hustings a great deal more than concrete. The ordinary voter was

led to believe that Germany could certainly be made to pay the greater part, if not the whole

cost of the war. Those whose practical and selfish fears for the future the expenses of the war had aroused, and those whose emotions its horrors had disordered, were both provided for. A vote for a Coalition candidate meant the Crucifixion

of Anti-Christ and the assumption by Germany of the British National Debt.

It proved an irresistible combination, and once more Mr. George's political instinct was not at

fault. No candidate could safely denounce this

program, and none did so. The old Liberal Party,

t The whole cost of the war has been estimated at from $120,- 000,000,000 upwards. This would mean an annual payment for interest (apart from sinking fund) of $6,000,000,000. Could any expert Committee have reported that Germany can pay thissum!

REPARATION 145

having nothing comparable to offer to the elec- torate, was swept out of existence? 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 entangle- ments he had made for himself. He had pledged himself and his Government to make demands of

a helpless enemy inconsistent with solemn en- gagements on our part, on the faith of which this enemy had laid down his arms. There are few

episodes in history which posterity will have less reason to condone,--a war ostensibly waged in defense of the sanctity of international engage-

ments ending in a definite breach of one of the most sacred possible of such engagements on the part of the victorious champions of these ideals. _

1 But unhappily they did not go down with their flags flying very gloriously. For one reason or another their leaders main- rained 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 dis- honor of the whole proc_-_lings.

2 Only after the most painful consideration have I written these words. The almost complete absence of protest from the leading Stateamen of England makes one feel that one must have made

146 REPARATION

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 respon- sible. 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 Presi- dent, and on the other hand with competing inter- ests to those of France and Belgium. The clearer it bec_me that but little could be expected from Germany, the more necessary it was to exercise

some mistake. But I believe that I know all the facts, and I can discover no such mistake. In any case, I have set forth all the relevant engagements in Chapter IV. and at the beginning of this chapter, so tl_t the reader can form his own judgm_at_

REPARATION 147

patriotic greed and "sacred egotism" and snatch the bone from the juster claims and greater need of France or the well-founded expectations of Belginm. Yet the financial problems which were about to exercise Europe could not be solved by greed. The possibility of their cure lay in mag- nanimity.

Europe, if she is to survive her troubles, will need so much magnanimity from America, that she must herself practice it. It is useless for the Allies, hot from stripping Germany and one an- other, 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 De- cember, 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 representa- tives 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 for- mer should have been authorized to make concrete

proposals on the general lines (1) that all inter- allied indebtedness be canceled outright; (2) that the sum to be paid by Germany be fixed at $10,000,000,000; (3) that Great Britain renounce all claim to participation in this sum and that any share to which she proves entitled be placed

148 REPARATION

at the disposal of the Conference for the pur- pose 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 ap- propriate 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 restora- tion, to issue a moderate amount of bonds carry- ing 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 pro- posals would have been practicable. There is

nothing in them quixotic or Utopian. And they would have opened up for Europe some prospect of financial stability and reconstruction.

The further elaboration of these ideas, however, must be left to Chapter VII., and we must return to Paris. I have described the entanglements which Mr. Lloyd George took with him. The po- sition of the Finance Ministers of the other Allies was even worse. We in Great Britain had not

based our financial arrangements on any expecta- tion 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 developments9

REPARATION 1_9

there was an expectation at that time of balancing our budget by normal methods. But this was not the ease with France or Italy. Their peace budg- ets made no pretense of balancing and had no prospects of doing so, without some far-reaching revision of the existing policy. Indeed, the posi- tion 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 re- mote 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 impos-

150 REPARATION

sible 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 alterna-

tive mode of escape from their troubles. 1 The representatives of the United States were greatly at fault, in my judgment, for having no construc- tive 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 op-

position which existed between the "crushing" policy of M. Clemenceau and the financial necessi- ties 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 leav-

ing Germany in a position to practise a vast com- mercial 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 re-

1 In conversRtion with Frenchmen who were private persons and quite unaffected by political considerations, this aspect be- came 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, other- wise, what is to happen to FranceT"

REPARATION 151

quirements of a Carthaginian Peace. The combi- nation of the "real" policy of M. Clemenceau on unreal issues, with M. Klotz's policy of pretense on what were very real issues indeed, introduced into the Treaty a whole set of incompatible provisions, over and above the inherent impracticabilities of the Reparation proposals.

I cannot here describe the endless controversy and intrigue between the Allies themselves, which at last after some months culminated in the pres- entation to Germany of the Reparation Chapter in its final form. There can have been few nego- tiations in history so contorted, so miserable, so utterly unsatisfactory to all parties. I doubt if any one who took much part in that debate can look back on it without shame. I must be content

with an analysis of the elements of the final com- promise 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 elec- tion pledge to the effect that the Allies were en- titled 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 engage- ments was beyond the powers of the most plaus- ible. The actual compromise finally reached is to

152 REPARATION

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 re- sponsibility of Germany and her allies for caus- ing 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 gen- eral costs of the war. Article 232 continues : "The

Allied and Associated Governments recognize that the resources of Germany are not adequate, after taking into account permanent diminutions of

such resources which will result from other pro- visions of the present Treaty, to make complete reparation for all such loss and damage." The President could comfort himself that this was no

more than a statement of undoubted fact, and that to recognize that Germany cannot pay a cer- tain claim does not imply that she is liable to pay the claim; but the Prime Minister could point out that in the context it emphasizes to the reader the assumption of Germany's theoretic liability as-

REPARATION 153

serted in the preceding Article. Article 232 pro- ceeds: "The Allied and Associated Governments, however, require, and Germany undertakes, that she will make compensation for all damage done to the civilia_ population of the Allied and Associ- ated Powers and to their property during the period of the belligerency of each as an Allied or Associated Power against Germany by such ag- gression by land, by sea, and from the air, and in general all damage as defined in Annex I. hereto." 1 The words italicized being practically a quotation from the pre-Armistice conditions, satisfied the scruples of the President, while the addition of the words "and in general all damage as defined in Annex I. hereto" gave the Prime Minister a chance in Annex I.

So far, however, all this is only a matter of words, of virtuosity in draftsmanship, which does no one any harm, and which probably seemed much more important at the time than it ever will again between now and Judgment Day. For substance we must turn to Annex I.

A great part of Annex I. is in strict conformity with the pre-Armistice conditions, or, at any rate, does not strain them beyond what i_ fairly argu- able. Paragraph 1 claims damage done for in-

A further paragraph claims the war costs of Belgium "in accordance with Germany's pledges, already given, as to com- pleto restoration for Belgium."

154 REPARATION

jury to the persons of civilians, or, in the case of death, to their dependents, as a direct consequence of acts of war; Paragraph 2, for acts of cruelty, violence, or maltreatment on the part of the enemy

towards civilian victims; Paragraph 3, for enemy

acts injurious to health or capacity to work or to honor towards civilians in occupied or invaded ter- ritory; Paragraph 8, for forced labor exacted by

the enemy from civilians; Paragraph 9, for dam- age done to property "with the exception of naval and military works or materials" as a direct con-

sequence 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 in-

volves 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 dur- ing the war by the Allied Governments to the

families of mobilized persons, and for the amount

of the pensions and compensations in respect of the injury or death of combatants payable by these

Governments now and hereafter. Financially this

REPARATION 155

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 plaus- ible 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 de- prived 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 de- pends 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 engage- ments or the recognized practices of warfare. But this also would have been very difficult to

156 REPARATION

apply and unduly unfavorable to French interests as compared with Belgium (whose neutrality Ger- many had guaranteed) and Oreat Britain (the chief sufferer from illicit acts of submarines).

In any case the appeals to sentiment and fair- ness outlined above are hollow; for it makes

no difference to the recipient of a separation al- lowance 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 en-

gagements any force, we had no more right to claim for those war expenses of the State, which arose out of Pensions and Separation Allow-

ances, 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

REPARATION 157

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 se- cured the entire costs of the war, he had never- theless 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 be- ing 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 read-

ily perceived between the lines of the Treaty. It fixes no definite sum as representing Germany's liability. This feature has been the subject of

158 REPARATION

very general criticism,--that it is equally incon- venient 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, ap- parently contemplated by the Treaty, of arriving

at the final result over a period of many months by an addition of hundreds of thousands of indi- vidual claims for damage to land, farm buildings,

and chickens, is evidently impracticable; and the reasonable course would have been for both par- ties to compound for a round sum without exami- nation of details. If this round sum had been

named in the Treaty, the settlement would have been placed on a more business-like basis.

But this was impossible for two reasons. Two

different kinds of false statements had been widely promulgated, one as to Germany's capacity to pay, the other as to the amount of the Allies' just claims iu 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 es- timates of most candid and well-informed authori-

ties, 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 disap- point the expectations which had been raised in

France and Belgium might have been incapable of

REPARATION 159

substantiation under challenge, 1 and open to dam- aging 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 sub- stantiated under Annex I. of the Reparation Chap- ter. In the first section of this chapter ;[ have

already guessed the claims other than those for Pensions and Separation Allowances at $15,000,- 000,000 (to take the extreme upper limit of my

estimate). The claim for Pensions and Separa- tion Allowances under Annex I. is not to be based

on the act_ 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 com-

ing into operation. This method avoids the in-

vidious course of valuing an American or a British life at a higher figure than a French or

1 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 clai_

160 REPARATION

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 re- quired for the calculation are the actual French rates and the numbers of men mobilized and of the casualties in each class of the various Allied

Armies. None of these figures are available in detail, but enough is known of the general level of allowances, of the numbers involved, and of the casualties suffered to allow of an estimate

which may not be very wide of the mark. My guess as to the amount to be added in respect of Pensions and Allowances is as follows:

British Empire .............. $ 7,000,000,0001 France ..................... 12,000,000,0001 Italy ....................... 2,500,000,000 Others (including United States) 3,500,000,000

Total ................... $25,000,000,000

I feel much more confidence in the approximate accuracy of the total figure 2 than in its division between the different claimants. The reader will

observe that in any case the addition of Pensions

1 M. Klotz has estimated the French claims on this head at $15,000,000,000 (75 milliard francs, made up of 13 milliard for allowances, 60 for pensions, and 2 for widows). If this figure is correct, the others should probably be scaled up also.

That is to say, I claim for the aggregate figure an accuracy within 25 per cent.

REPARATION 161

and Allowances enormously increases the aggre- gate claim, raising it indeed by nearly double. Adding this figure to the estimate under other

heads, we have a total claim against Germany of $40,000,000,000.1 I believe that this figure is fully high enough, and that the actual result may fall somewhat short of it. 2 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, what-

ever it eventually turns out to be, a sum of $5,000,- 000,000 must be paid before May 1, 1921. The

possibility of this will be discussed below. But the Treaty itself provides certain abatements. In the first place, this sum is to include the expenses

1 In his speech of September 5, 1919, addressed to the French Chamber, M. Klotz estimated the total Allied claims against Ger- many under the Treaty at $75,000,000,000, which would ac- cumulate at interest until 1921, and be paid off thereafter by 34 annual instalments of about $5,000,000,000 each, of which France would receive about $2,750,000,000 annually. "The general effect of the statement (that France would receive from Germany this annual payment) proved," it is reported, "appreci- ably 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.

2As a matter of subjective judgment, I estimate for this figure an accuracy of 10 per cent in deficiency and 20 per cent in excess, i.e. that the result will lie between $32,900,000,000 and $44,000,000,000.

162 REPARATION

of the Armies of Occupation since the Armistice (a large charge of the order of magnitude of $1,000,000,000 which under another Article of the Treaty--No. 249--is laid upon Germany). 1 But further, "such supplies of food and raw ma- terials as may be judged by the Governments of the Principal Allied and Associated Powers to be essential to enable Germany to meet her obliga- tions for Reparation may also, with the approval of the said Governments, be paid for out of the above sum." _ This is a qualification of high im- portance. The clause, as it is drafted, allows the Finance Ministers of the Allied countries to hold

out to their electorates the hope of substantial

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, there- fore, 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 them- selves to limit the sum payable annually by Germany to cover the cost of occupation to $60,000,000 "as soon as the Allied and Associated Powers concerned are convinced that the conditions of disarmament by Germany are being satisfactorily fulfilled." The word which I have italicized is a little significant. The three Power_ reserve to themselves the liberty to modify this arrangement at any time if they agree that it is necessary.

s Art. 235. The force of this Article is somewhat strengthened by Article 251, by virtue of which dispensations may also be granted for "other payments" as well as for food and raw material.

REPARATION 163

payments at an early date, while at the same time it gives to the Reparation Commission a discre- tion, which the force of facts will compel them to exercise, to give back to Germany what is required for the maintenance of her economic existence.

This discretionary power renders the demand for an immediate payment of $5,000,000,000 less in- jurious than it would otherwise be, but neverthe- less 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 pro- portion 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 effec- tively by taking charge of the entire foreign trade of Germany, together with the foreign ex- change arising out of it, which will be quite beyond the capacity of any such body. If the Reparation Commission makes any serious attempt to ad- minister the collection of this sum of $5,000,000,- 000 and to authorize 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 $5,000,000,000, Germany is re- quired to deliver bearer bonds to a further amount

164 REPARATION

of $10,000,000,000, or, in the event of the payments in cash or kind before May 1, 1921, available for Reparation, falling short of $5,000,000,000 by rea- son of the permitted deductions, to such further amount as shall bring the total payments by Germany in cash, kind, and bearer bonds up to May 1, 1921, to a figure of $15,000,000,000 alto- gether. 1 These bearer bonds carry interest at 2_ per cent per annum from 1921 to 1925, and at 5 per cent plus 1 per cent for amortization there- after. Assuming, therefore, that Germany is not able to provide any appreciable surplus towards Reparation before 1921, she will have to find a sum of $375,000,000 annually from 1921 to 1925, and $900,000,000 annually thereafter2

3. As soon as the Reparation Commission is satisfied that Germany can do better than this, 5 per cent bearer bonds are to be issued for a fur- ther $10,000,000,000, the rate of amortization being determined by the Commission hereafter. This would bring the annual payment to $1,400,000,000 without allowing anything for the discharge of the capital of the last $10,000,000,000.

4. Germany's liability, however, is not limited

1This is the effectof Para. 12 (c) of AnnexIL of the Repara- tion Chapter,leavingminor complicationson one side. The Treaty fixesthe paymentsin terms of gold marks, whichare convertedin the aboveat the rate of 20 to $5.

2If, perimpossibilv,Germanydischarged$2,500,000,000in cash or kindby 1921,her annualpaymentswouldbe at the rateof $312,500,000from1921to 1925andof $750,000,000thereafter.

REPARATION 165

to $25,000,000,000, and the Reparation Commis- sion 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 esti- mate of $40,000,000,000 for the total liability, which is more likely to be criticized as being too

low than as being too high, the amount of this balance will be $15,000,000,000. Assuming inter-

est at 5 per cent, this will raise the annual pay- ment to $2,150,000,000 without allowance for amortization.

5. But even this is not all. There is a further

provision of devastating significance. Bonds rep-

resenting payments in excess of $15,000,000,000 are not to be issued until the Commission is satis-

fied that Germany can meet the interest on them. But this does not mean that interest is remitted

in the meantime. As from May 1, 1921, interest is to be debited to Germany on such part of her

outstanding debt as has not been covered by pay- ment in cash or kind or by the issue of bonds as

above, 1 and"the rate of interest shall be 5 per cent unless the Commission shall determine at some

future time that circumstances justify a variation

x Para. 16 of Annex II. of the Reparation Chapter. There is also an obscure provision by which interest may be charged "on sums arising out of material damage as from November 11, 1918, up to May 1, 1921." This seems to differentiate damage to prop- erty from damage to the person in favor of the former. It does not affect Pensions and Allowances, the cost of which is capitalized as at the date of the coming into force of the Treaty.

166 REPARATION

of this rate." That is to say, the capital sum of indebtedness is rolling up all the time at com- pound interest. The effect of this provision towards increasing the burden is, on the assump- tion that Germany cannot pay very large sums at first, enormous. At 5 per cent compound inter- est a capital sum doubles itself in fifteen years. On the assumption that Germany cannot pay more than $750,000,000 annually until 1936 (i.e. 5 per cent interest on $15,000,000,000) the $25,000,000,- 000 on which interest is deferred will have risen to

$50,000,000,000, carrying an annual interest charge of $2,500,000,000. That is to say, even if Germany pays $750,000,000 annually up to 1936, she will nevertheless owe us at that date more than half

as much again as she does now ($65,000,000,000 as compared with $40,000,000,000). From 1936 on- wards she will have to pay to us $3,250,000,000 an- nually 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 $650,000,000 annually, making $3,900,000,000 in all. 1

1 On the assumption which no one supports and even the most optimistic fear to be unplausible, that Germany can pay the full charge for interest and sinking fund from thv outsc$, the annual payment would amount to $2,400,000,000.

REPARATION 167

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 ap-

proaching 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 Repara-

tion Commission has been given discretionary powers to vary the rate of interest, and to post-

pone and even to cancel the capital indebtedness. In the first place, some of these powers can only be exercised if the Commission or the Govern-

ments represented on it are unanimous. 1 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 discre- tion of a foreign Commission acting with the oh-

1 Under Para. 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 Art. 234, the C_mmission may not cancel any part of the indebtedness without the specific authority of _l the Governments represented on the Commissioa.

168 REPARATION

ject of obtaining each year the maximum which the circumstances of that year permit. The first still leaves her with some slight incentive for en-

terprise, energy, and hope. The latter skins her alive year by year in perpetuity, and however skil- fully 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 prac- tised, the judgment of men would soon pronounce to be one of the most outrageous acts of a cruel

victor in civilized history. There are other functions and powers of high

significance which the Treaty accords to the Repa- ration Commission. But these will be most con-

veniently dealt with in a separate section.

1TL 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 i

REPARATION 169

restitution of property removed from territory occupied by the enemy, as, for example, Russian

gold, Belgian and French securities, cattle, ma- chinery, and works of art. In so far as the actual

goods taken can be identified and restored, they

must clearly be returned te their rightful owners, and cannot be brought into the general reparation peel. This is expressly provided for in Article

238 of the Treaty.

1. Immediately Transferable Wealth

(a) Gold.--After deduction of the gold to be

returned to Russia, the official holding of gold as shown in the Reichsbank's return of the 30th

November, 1918, amounted to $577,089,500. This

was a very much larger amount than had ap- peared in the Reichsbank's return prior to the war/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 there-

fore be taken as probably representing the maxi- mum amount which the German Government are

able to extract from their people. In addition to 1 On July 23, 1914, the amount was $339,000,000.

170 REPARATION

gold there was in the Reichsbank a sum of about $5,000,000 in silver. There must be, however, a further substantial amount in circulation, for the

holdings of the Reichsbank were as high as $45,- 500,000 on the 31st December, 1917, and stood at about $30,000,000 up to the latter part of October,

1918, when the internal run began on currency of every kind. 1 We may, therefore, take a total of (say) $625,000,000 for gold and silver together at the date of the Armistice.

These reserves, however, are no longer intact.

During the long period which elapsed between the Armistice and the Peace it became necessary for the Allies to facihtate the provisioning of Ger- many from abroad. The political condition of Ger-

many at that time and the serious menace of

Spartaeism rendered this step necessary in the interests of the Allies themselves if they desired the continuance in Germany of a stable Govern- ment to treat with. The question of how such

provisions were to be paid for presented, how- ever, the gravest difficulties. A series of Confer-

ences was held at TrOves, at Spa, at Brussels, and subsequently at Chateau Villette and Versailles,

x 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 e_cizm_ position as a whole.

REPARATION 171

between representatives of the Allies and of Ger- many, with the object of finding some method of payment as little injurious as possible to the fu- ture prospects of Reparation payments. The Ger- man 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 expedi- ent. This the Allies could hardly admi_ at a time when they were preparing demands for the im- mediate 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 sup- pose 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 provision- ing 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 Ger-

172 REPARATION

many was so complete that nothing whatever was immediately available in substantial amounts

except the gold in the Reichsbank. Accordingly a sum exceeding $250,000,000 in all out of the

Reichsbank gold was transferred by Germany to the Allies (chiefly to the United States, Great

Britain, however, also receiving a substantial sum) during the first six months of 1919 in pay- ment 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 acerning in the neighboring neutral countries, which could not be met otherwise than in gold. The failure of the Reichsbank to meet its liabilities would have

caused a depreciation of the exchange so injurious to Germany's credit as to react on the future

prospects of Reparatiou. In some cases, there- fore, permission to export gold was accorded to

the Reichsbank by the Supreme Economic Coun- cil of the Allies.

The net result of these various measures was to

reduce the gold reserve of the Reichsbank by more

than half, the figures falling from $575,000,000 to $275,000,000 in September, 1919.

It would be possible under the Treaty to take

the whole of this latter sum for Reparation put-

REPARATION 173

poses. It amounts, however, as it is, to less than 4 per cent of the Reiehsbank'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 de- stroy the exchange value of the mark almost en- tirely. A sum of $25,000,000, $50,000,000, or even $100,000,000 might be taken for a special purpose. But we may assume that the Reparation Com- mission 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 speak- ing of can be expected in the form of gold or silver towards the initial payment of $5,000,000,- 000 due by 1921.

(b) Shipping.--Germany has engaged, as we have seen above, to surrender to the Allies vir- tually the whole of her merchant shipping. A con- siderable 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 Brus-

174 REPARATION

sels Agreement in connection with the supply of

foodstuffs. 1 Estimating the tonnage of German shipping to be taken over under the Treaty at 4,000,000 gross tons, and the average value per ton at $150 per ton, the total money value involved

is $600,0OO,OOO.3 (c) Foreign Securities.--Prior to the census of

foreign securities carried out by the German Gov- ernment in September, 1916;" of which the exact

1 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 reluc- tance of the Germans to agree to this was productive of long and dangerous delays in the supply of food, but the abortive Confer- enees of TrOves and Spa (January 16, February 14-16, and March 4-5, 1919) were at last followed by the Agreement of Brussels (March 14, 1919). The unwillingness of the Germans to con- elude was mainly due to the lack of any absolute guarantee on the part of the Allies that, if they surrendered the ships, they would get the food. But assuming reasonable good faith on the part of the latter (their behavior in respeet 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 Germahy itself. Up to June 30, 1919, 176 German ships of 1,025,388 gross tonnage had been surrendered to the Allies in accordance with the Brussels Agreement.

The amount of tonnage transferred may be rather greater and the value per ton rather less. The aggregate value involved is not likely, however, to be less than $500,000,000 or greater than $750,O00,000.

8 This census was carried out by virtue of a Decree of August 23, 1916. On March 22, 1917, the German Government acquired complete control over the utilization of foreign securities in Ger- man possession; and in May, 1917, it began to exercise these powers for the mobilization of certain Swedish, Danish, and

securities.

REPARATION 175

results have not been made public, no official re- turn 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 esti- mates current before the war are given in the appended footnote. 1 This shows a general con-

sensus of opinion among German authorities that their net foreign investments were upwards of $6,250,000,000. I take this figure as the basis of

my calculations, although I believe it to be an

exaggeration; $5,000,000,000 would probably be a safer figure.

Deductions from this aggregate total have to : be made under four heads.

(i.) Investments in Allied countries and in the United States, which between them constitute a

1 1892. Sehmoller ..................... $2,500,000,000 1892. Christians ..................... 3,250,000,000 1893-t. Koch ........................ 3,000,000,000 1905. v. Halle ....................... 4,000,000,000 • 1913. Helfferich ...................... 5,000,000,000 t 1914. Ballod ........................ 6,250,000,000

: 1914. Pistorius ...................... 6,250,000,000 1919. Hans David ................... 5,250,000,000

• Plus $2,500,000,000 for investments other than securities. t Net investments, i.e. after allowance for property in Ger-

many owned abroad. This may also be tbe case with some of the other estimates.

$ This estimate, given in the Weltwirtschaftszeitung (June 13, 1919), is an estimate of the value of Germany's foreign invest- menta as at the outbreak of war.

176 REPARATION

considerable part of the world, have been seques- trated by Public Trustees, Custodians of Enemy Property, and similar officials, and are not avail- able for Reparation except in so far as they show a surplus over various private claims. Under the scheme for dealing with enemy debts outlined in Chapter IV'., the first charge on these assets is the private claims of Allied against German nationals. It is unlikely, except in the United States, that there will be any appreciable surplus for any other purpose.

(ii.) Germany's most important fields of foreign investment before the war were not, like ours, oversea, but in Russia, Austria-Hungary, Tur- key, 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 i 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 securi- ties much above their nominal market valuation, and hold them for future realization, there is no substantial source of funds for immediate pay- ment in the form of investments in these coun- tries.

(iii.) While Germany was not in a position to realize her foreign investments during the war to the degree that we were, she did so nevertheless

REPARATION 177

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 esti- mates of these sales (a figure of $300,000,000 has been mentioned) are probably exaggerated. But throughout the war and particularly in its later stages, when her exchanges were weak and her credit in the neighboring neutral countries was be- coming very low, she was disposing of such se- curities as Holland, Switzerland, and Scandinavia would buy or would accept as collateral. It is reasonably certain that by June, 1919, her invest- ments in these countries had been reduced to a

negligible figure and were far exceeded by her liabilities in them. Germany has also sold cer- tain overseas securities, such as Argentine cedu- las, 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 se- curities 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 con- clusion of peace it was certain that their owners would not be allowed to retain them if the Allied

178 REPARATION

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 inter-

fere effectively with the outflow are believed to have been largely futile.

In face of all these considerations, it will be a miracle if much remains for Reparation. The countries of the Allies and of the United States, the countries of Germany's own allies, and the neutral countries adjacent to Germany exhaust between them almost the whole of the civilized

world; and, as we have seen, we cannot expect much to be available for Reparation from invest- ments in any of these quarters. Indeed there re- main no countries of importance for investments

except those of South America. w To convert the significance of these deductions

into figures involves much guesswork. I give the reader the best personal estimate I can form after pondering the matter in the light of the available figures and other relevant data.

I put the deduction under (i.) at $1,500,000,000, of which $500,000,000 may be ultimately available after meeting private debts, etc.

As regards (ii.)--according to a census taken by the Austrian Ministry of Finance on the 31st December, 1912, the nominal value of the Austro-

Hungarian securities held by Germans was $986_-

REPARATION 179

500,000. Germany's pre-war investments in Rus- sia outside Government securities have been esti-

mated at $475,000,000, which is much lower than would be expected, and in 1906 Sartorius v. Wal- tershausen estimated her investments in Russian Government securities at $750,000,000. This gives a total of $1,225,000,000, which is to some extent borne out by the figure of $1,000,000,000 given in 1911 by Dr. Ischchanian as a deliberately modest estimate. A Roumanian estimate, published at the time of that country's entry in the war, gave the value of Germany's investments in Roumania at $20,000,000 to $22,000,000, of which $14,000,000 to $16,000,000 were in Government securities. An association for the defense of French interests in

Turkey, as reported in the Temps (Sept. 8, 1919), has estimated the total amount of German capital

invested in Turkey at about $295,000,000, of which, according to the latest Report of the Council of Foreign Bondholders, $162,500,000 was held by German nationals in the Turkish External Debt. No estimates are available to me of Germany's

investments in Bulgaria. Altogether I venture a deduction of $2,500,000,000 in respect of this group of countries as a whole.

Resales and the pledging as collateral of se- curities during the war under (iii.) I put at $500,- 000,000 to $750,000,000, comprising practically all Germany's holding of Scandinavian, Dutch, and

180 REPARATION

Swiss securities,a partof her South American

securities,and a substantialproportionof her NorthAmericansecuritiessoldpriortotheentry oftheUnitedStatesintothewar.

As totheproperdeductionunder(iv.)thereare

naturallyno availablefigures.For months past theEuropean presshas been fullof sensational

storiesoftheexpedientsadopted.But ifwe put the valueof securitieswhich have alreadyleft Germany or have been safelysecretedwithin

Germany itselfbeyond discoveryby the most inquisitorialand powerful methods at $500,- 0(D,000,we arenot likelytooverstateit.

These variousitemslead,therefore,in allto

a deductionofa roundfigureofabout$5,000,0(D,-

(DO,and leaveuswithan amountof$1,250,000,000 theoreticallystillavailable.I

To some readersthisfiguremay seem low,but letthem remember thatitpurportsto represent

the remnant of saleablesecuritiesupon which

the German Government might be ableto lay hands for publicpurposes.In my own opinion itismuch toohigh,and consideringtheproblem by a differentmethod of attackI arriveata

lowerfigure.For leavingoutofaccountseques- teredAlliedsecuritiesand investmentsin Aus-

tria,Russia,etc.,what blocksofsecurities,speci-

1 1 have made no deduction for securities in the ownership of Alsace-Lorrainers and others who have now ceased to be German n_tion_la

REPARATION 181

fled by countries and enterprises, can Germany possibly still have which could amount to as much as $1,250,000,0007 I cannot answer the question. She has some Chinese Government securities

which have not been sequestered, a few Japanese perhaps, and a more substantial value of first-class South American properties. But there are very few enterprises of this class still in German hands, and even their value is measured by one or two tens of millions, not by fifties or hundreds. He would be a rash man, in my judgment, who joined a syndicate to pay $500,000,000 in cash for the un- sequestered remnant of Germany's overseas in- vestments. If the Reparation Commission is to realize even this lower figure, it is probable that they will have to nurse, for some years, the assets which they take over, not attempting their dis- posal at the present time.

We have, therefore, a figure of from $500,000,- 000 to $1,250,000,000 as the maximum contribu- tion from Germany's foreign securities.

Her immediately transferable wealth is com- posed, then, of-

(a) Gold and silver--say $300,000,000. (b) Ships--N600,000,000. (c) Foreign securities---N500,000,000 to $1,250,-

000,000.

Of the gold and silver, it is not, in fact, practi- cable to take any substantial part without con-

182 REPARATION

sequences to the German currency system injuri- ous to the interests of the Allies themselves. The

contribution from all these sources together which the Reparation Commission can hope to secure

by May, 1921, may be put, therefore, at from $1,250,000,000 to $1,750,000,000 as a maxim_. 1

2. Property in ceded Territory or s_rrendered under the, Armistice

As the Treaty has been drafted Germany will

not receive important credits available towards

meeting reparation in respect of her property in

ceded territory.

Private property in most of the ceded territory

is utilized towards discharging private German debts to Allied nationals, and only the surplus, if any, is available towards Reparation. The value

of such property in Poland and the other new States is payable direct to the owners.

Government property in Alsace-Lorraine, in territory ceded to Belginm, and in Germany's

former colonies transferred to a Mandatory, is

1 In all these estimates, I am conscious of being driven by a fear of overstating the ease against the Treaty, of giving figures in excess of my own real judgment. There is a great difference between putting down on paper fancy estimates of Germany's resources and actually extracting contributions in the form of cash. I do not myself believe that the Reparation Commission will secure real resources from the above items by May, 1921, even as great as the lower of the two figures given above.

REPARATION 183

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 prop- erties in Schleswig surrendered to Denmark, 1 the value of the Saar coalfields, the value of certain river craft, etc., to be surrendered under the Ports, Waterways, and Railways Chapter, and the value of the German submarine cables transferred

under Annex VII. of the Reparation Chapter. Whatever the Treaty may say, the Reparation

Commission will not secure any cash payments from Poland. I believe that the Saar coalfields

have been valued at from $75,000,000 to $100,000,- 000. A round figure of $150,000,000 for all the above items, excluding any surplus available in respect of private property, is probably a liberal estimate.

There remains the value of material surren-

dered under the Armistice. Article 250 provides

1The Treaty (see Art. 114) leaves it very dubious how far the Danish Government is under an obligation to make payments to the Reparation Commission in respect of its acquisition of Schleswig. They might, for instance, arrange for various off- sets such as the value of the mark notes held by the inhabitants of ceded areas. In any case the amount of money involved is quite small. The Danish Government is raising a loan for $33,- 000,000 (kr. 120,000,000) for the joint purposes of "taking over Schleswig's share of the German debt, for buying German public property, for helping the Schleswig population, and for settling the currency question."

184 REPARATION

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 surren- dered for which the Reparation Commission think

that credit should be given, "as having non-mili-

tary value." The rolling-stock (150,000 wagons and 5,000 locomotives) is the only very valuable item. A round figure of $250,000,000, for all the Armistice surrenders, is probably again a liberal estimate.

We have, therefore, $400,000,000 to add in re-

spect of this heading to our figure of $1,250,000,-

000 to $1,750,000,000 under the previous heading. This figure differs from the preceding in that it

does not represent cash capable of benefiting the financial situation of the Allies, but is only a book credit between themselves or between them and

Germany.

The total of $1,650,000,000 to $2,150,000,000 now

reached is not, however, available for Reparation. The first charge upon it, under Article 251 of the

Treaty, is the cost of the Armies of Occupation both during the Armistice and after the conclu-

sion of Peace. The aggregate of this figure up to May, 1921, cannot be calculated until the rate of withdrawal is known which is to reduce the

monthly cost from the figure exceeding $100,000,-

000, which prevailed during the first part of 1919,

REPARATION 185

to that of $5,000,000, which is to be the normal figure eventually. I estimate, however, that this aggregate may be about $1,000,000,000. This leaves us with from $500,000,000 to $1,000,000,000 still in hand.

Out of this, and out of exports of goods, and payments in kind under the Treaty prior to May, 1921 (for which I have not as yet made any allow- ance), 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 approach- ing their normal level by May, 1921, Germany would probably require foreign purchasing power of from $500,000,000 to $1,000,000,000 at least, in addition to the value of her current exports.

While this is not likely to be permitted, I ven- ture to assert as a matter beyond reasonable dis- pute that the social and economic condition of Germany c_muot possibly permit a surplus of ex- ports over imports during the period prior to

186 REPARATION

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. 1

The Reparation Commission can, therefore, ex- pect no addition from other sources to the sum of from $500,000,000 to $1,000,000,000 with which we have hypothetically credited it after the reali- zation of Germany's _mmediately transferable wealth, the calculation of the credits due to Ger- many 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 satis- faction of her claims, the first $500,000,000 avail- able for Reparation, the upshot of the whole mat- ter is that Belgium may possibly get her $500,- 000,000 by May, 1921, but none of the other Allies are likely to secure by that date any contribution worth speaking of. At any rate, it would be very imprudent for Finance Ministers to lay their plans on any other hypothesis.

t Here again my own judgment would carry me much further and I should doubt the possibility of Germsny's exports equal- ing her imports during this period. But the statement in the tsxt goes far enough for the purpose of my argument.

REPARATION 187

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 un- affected 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 peo- ple 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 dis- ruption of her allies and their territories, by Revolution at home and Bolshevism on her bor-

ders, 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 Ger- many 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,

188 REPARATION

etc.), as contemplated by the Treaty. In any event, it is only by the export of specific commodi- ties 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 hypothesi_ un- less 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 enlar_ng the balance in her favor

which is available for effecting payments abroad. Germany can pay in the long-run in goods, and

in goods only, whether these goods are furnished direct to the Allies, or whether they are sold to neutrals and the neutral credits so arising are then made over to the Allies. The most solid

basis for estimating the extent to which this process can be carried is to be found, therefore, in an analysis of her trade returns before the war.

Only on the basis of such an analysis, supple- mented 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

I_EPARATION 189

to $2,690,000,000 and her exports to $2,525,000,000, exclusive of transit trade and bulUon. That is

to say, imports exceeded exports by about $165,- 000,000. On the average of the five years ending 1913, however, her imports exceeded her exports by a substantially larger amount, namely, $370,-

000,000. It follows, therefore, that more than the whole of Germany's pre-war balance for new for- eign investment was derived from the interest

on her existing foreign securities, and from the profits of her shipping, foreign banMug, 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 rev- enue from abroad have been largely destroyed,

it appears that, on the pre-war basis of exports and imports, Germany, so far from having a sur-

plus 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 stimu- lation of exports will then be available for Repa- ration.

Two-thirds of Germany's import and export trade is enumerated under separate headings in

the following tables. The considerations apply- bag to the enumerated portions may be assumed

190 REPARATION

to apply more or less to the remaining one-third, which is composed of commodities of minor im-

portance individually.

Amount:

German Exports, 1913 Million Percentage of Dollars Total Exports

Iron goods (including tin plates, etc. ) 330.65 13.2 Machinery and parts (including

motor-cars) .................... 187.75 7.5 Coal, coke, and briquettes .......... 176.70 7.0 Woolen goods (including raw and

combed wool and clothing) ........ 147.00 5.9 Cotton goods (including raw cotton,

yarn, and thread) ............... 140.75 5.6

982.85 39.2

Cereals, etc. (including rye, oats, wheat, hops) .................... 105.90 4.1

Leather and leather goods .......... 77.35 3.0 Sugar ........................... 66.00 2.6 Paper, etc ......................... 65.50 2.6 Furs ............................. 58.75 2.2 Electrical goods (installations, ma-

chinery, lamps, cables) ........... 54.40 2.2 Silk goods ........................ 50.50 2.0 Dyes ............................. 48.80 1.9 Copper goods ...................... 32.50 1.3 Toys ............................. 25.75 1.0 Rubber and rubber goods ........... 21.35 0.9 Books, maps, and music ........... 18.55 0.8 Potash ........................... 15.90 0.6 Glass 15.70 0.6 Potassium chloride ................ 14.55 0.6 Pianos, organs, and parts .......... 13.85 0.6 Raw zinc ......................... 13.70 0.5 Porcelain ........................ 12.65 0.5

711.70 67.2

Other goods, unenumerated ..... 829.60 32.8

Total ................. 2,524.15 100.0

REPARATION 191

Amount : Percentage of German Imports, 1913 Million

Dollars Total Imports

I. Raw materials:-- Cotton .................... 151.75 5.6 Hides and skins ............ 124.30 4.6 Wool ..................... 118.35 4.4 Copper .................... 83.75 3.1 Coal ...................... 68.30 2.5 Timber .................... 58.00 2.2 Iron ore ................... 56.75 2.1 Furs ...................... 46.75 1.7 Flax and flaxseed .......... 46.65 1.7 Saltpetre .................. 42.75 1.6 Silk ...................... 39.50 1.5 Rubber ................... 36.50 1.4 Jute ..................... 23.50 0.9 Petroleum ................ 17.45 0.7 Tin ...................... 14.55 0.5 Phosphorus chalk ......... 11.60 0.4 Lubricating oil ........... 11.45 0.4

951.90 35.3

II. Food, tobacco, etc.:-- Cereals, etc. (wheat, barle

bran, rice, maize, oats, rye, clover ) .................. 327.55 12.2

Oil seeds and cake, etc. (in- cluding palm kernels, copra, cocoa boans I ............. 102.65 3.8

Cattle, lamb fat, bladders .. 73.10 2.8 Coffee ..................... 54.75 2.0 Eggs ...................... 48.50 1.8 Tobacco ................... 33.50 1.2 Butter .................... 29.65 1.1 Horses .................... 29.05 1.1 Fruit ...................... 18.25 0.7 Fish ..................... 14.95 0.6 Poultry 14.00 0.5 Wine ..................... 13.35 0.5

759.30 28.3

192 REPARATION

Amount: Percentage of German Imports, 1913 Million Total ImportsDollars

III. Manufactures:-- Cotton yarn and thread and

cotton goods ............. 47.05 1.8 Woolen yarn and woolen

goods ................... 37.85 1.4 Machinery ................ 20.10 0.7

105.00 3.9

IV. Unenumerated ............... 876.40 32.5

Total ................. 2,692.60 100.0

These tables show that the most important exports consisted of :--

(1) Iron goods, including tin plates (13.2 per cent),

(2) Machinery, etc. (7.5 per cent), (3) Coal, coke, and briquettes (7 per cent), (4) Woolen goods, including raw and combed

wool (5.9 per cent), and (5) Cotton goods, including cotton yarn and

thread and raw cotton (5:6 per cent), these five classes between them accounting for 39.2 per cent. of the total exports. It will be observed that all these goods are of a kind in which before the war competition between Ger- many and the United Kingdom was very severe. If, therefore, the volume of such exports to over- seas or European destinations is very largely in-

REPARATION 193

creased the effect upon British export trade must be correspondingly serious. As regards two of the categories, namely, cotton and woolen goods, the increase of an export trade is dependent

upon an increase of the import of the raw ma- terial, 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 ex-

cess 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 be- tween 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 _lsaee-Lorraine. As has been pointed out al-

ready, these districts accounted for nearly one- third of Germany's production of coal. But they

also supplied no less than three-quarters of her iron-ore production, 38 per cent of her blast fur-

naces, and 9.5 per cent of her iron and steel foundries. Unless, therefore, Alsace-Lorraine

and Upper Silesia send their iron ore to Ger- many proper, to be worked up, which will involve

an increase in the imports for which she will

I

194 REPARATION

have to find payment, so far from any increase in export trade being possible, a decrease is in- evitable. 1

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 com- modifies. As regards sugar, nearly 90 per cent of Germany's pre-war exports came to the United Kingdom. _ An increase in this trade might be stimulated by a grant of a preference in this coun- try 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

It has been estimated that the cession of territory to France, apart from the loss of Upper Silesia, may reduce Germany's annual pre-war production of steel ingots from 20,000,000 tons to 14,000,000 tons, and increase France's capacity from 5,000,000 tons to II,000,000 tons.

2Germafiy's exports of sugar in 1913 amounted to I,II0,073 tons of the value of $65,471,500, of which 838,583 tons were ex- ported to the United Kingdom at a value of $45,254,000. These figures were in excess of the normal, the average total exports for the five years ending 1913 being about _0,000,000.

REPARATION 195

represented 0.6 per cent of Germany's export trade, and about $15,000,000 in aggregate value. Besides, France, having secured a potash field in the territory which has been restored to her, will not welcome a great stimulation of the German exports of this material.

An examlnation of the import list shows that 63.6 per cent are raw materials and food. The chief items of the former class, namely, cotton, wool, copper, hides, iron-ore, furs, silk, rubber, and tin, could not be much reduced without reacting on the export trade, and might have to be increased if the export trade was to be in- creased. Imports of food, namely, wheat, barley, coffee, eggs, rice, maize, and the like, present a different problem. It is unlikely that, apart from certain comforts, the consumption of food by the German laboring classes before the war was in excess of what was required for maximum efficiency; indeed, it probably fell short of that amount. Any substantial decrease in the imports of food would therefore react on the efficiency of the industrial population, and consequently on the volume of surplus exports which they could be forced to produce. It is hardly possible to insist on a greatly increased productivity of Ger- man industry if the workmen are to be under- fed. But this may not be equally true of barley, coffee, eggs, and tobacco. If it were possible to

196 REPARATION

enforce a r_gime in which for the future no Ger- man drank beer or coffee, or smoked any tobacco, a substantial saving could be effected. 0therwlse there seems little room for any significant re- duction.

The following analysis of German exports and imports, according to destination and origin, is also relevant. From this it appears that of Ger-

many's exports in 1913, 18 per cent went to the British Empire, 17 per cent to France, Italy, and Belgium, 10 per cent to Russia and Roumania,

and 7 per cent to the United States; that is to say, more than half of the exports found their market in the countries of the Entente nations.

Of the balance, 12 per cent went to Austria-

Hungary, Turkey, and Bulgaria, and 35 per cent elsewhere. Unless, therefore, the present Allies

are prepared to encourage the importation of German products, a substantial increase in total

volume can only be effected by the wholesale swamping of neutral markets.

REPARATION 197

GEgKA_ TSADE (1913) ACCORDING TO DESTINATION AND ORIGIN

!

Destination of Origin of I Germany's Exports Germany's Imports

Million Million Per cent Per cent Dollars Dollars

Great Britain ......... 359.55 14.2 219.00 8.1 India ................ 37.65 1.5 135.20 5.0 Egypt ................ 10.85 0.4 29.60 1.1 Canada ............... 15.10 0.6 16.00 0.6 Australia ............. 22.10 0.9 74.00 2.8 South Africa .......... 11.70 0.5 17.40 0.6

Total: British Empire 456.95 18.1 491.20 18.2

France ............... 197.45 7.8 146.05 5.4 Belgium .............. 137.75 5.5 86.15 3.2 Italy ............... 98.35 3.9 79.40 3.0 U. S. A ............... 178.30 7.1 427.80 15.9 Russia ............... 220.00 8.7 356.15 13.2 Roumania ........... 35.00 1.4 19.95 0.7 Austria-Hungary ..... 276.20 10.9 206.80 7.7 Turkey .............. 24.60 1.0 18.40 0.7 Bulgaria ............. 7.55 0.3 2.00 Other countries ....... 890.20 35.3 858.70 32".0

2,522.35 100.0 2,692.60 100.O

The above analysis affords some indication of the possible magnitude of the maximum modifica- tion of Germany's export balance under the condi- tions which will prevail after the Peace. On the assumptions (1) that we do not specially favor Germany over ourselves in supplies of such raw materials as cotton and wool (the world's supply of which is limited), (2) that France, having se- cured the iron-ore deposits, makes a serious at-

198 REPARATION

tempt to secure the blast-furnaces and the steel trade also, (3) that Germany is not encouraged and assisted to undercut the iron and other trades

of the Allies in overseas market, and (4) that a substantial preference is not given to German goods in the British Empire, it is evident by examination of the specific items that not much is practicable.

Let us run over the chief items again: (1) Iron goods. In view of Germany's loss of resources, an increased net export seems impossible and a large decrease probable. (2) Machinery. Some increase is possible. (3) Coal and coke. The value of Germany's net export before the war was $110,000,000; the Allies have agreed that for the time being 20,000,000 tons is the maximum pos- sible export with a problematic (and in fact) impossible increase to 40,000,000 tons at some future time; even on the basis of 20,000,000 tons we have virtually no increase of value, measured in pre-war prices; 1 whilst, if this amount is exacted, there must be a decrease of far greater value in the export of manufactured articles re- quiring coal for their production. (4) Woolen goods. An increase is impossible without the raw wool, and, having regard to the other claims on supplies of raw wool, a decrease is likely. (5)

1 The necessary price adjustment, which is required, on both sides of this account, will be made e_ blo_ later.

REPARATION 199

Cotton goods. The same considerations apply as to wool. (6) Cereals. There never was and never can be a net export. (7) Leather goods. The

same considerations apply as to wool. We have now covered nearly half of Germany's

pre-war exports, and there is no other commodity

which formerly represented as much as 3 per cent of her exports. In what commodity is she to pay? Dyes ?--their total value in 1913 was $50,000,000.

Toys? Potash ?--1913 exports were worth $15,- 000,000. And even ff 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 hun- dreds of millions.

On the side of imports, rather more is possible.

By lowering the standard of life, an appreciable reduction of expenditure on imported commodi-

ties 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 Ger- many will be able, in spite of the reduction of her

resources, her facilities, her markets, and her

productive power, to increase her exports and dlm_ish her imports so as to improve her trade

balance altogether by $500,000,000 annually, meas- ured in pre-war prices. This adjustment is first

2O0 REPARATION

requiredto liquidatethe adversetradebalance, which in the five years before the war averaged $370,000,000; but we will assume that after allow- ing for this, she is left with a favorable trade balance of $250,000,000 a year. Doubling this to allow for the rise in pre-war prices, we have a figure of $500,000,000. Having regard to the political, social, and human factors, as well as to the purely economic, I doubt if Germany could be made to pay this sum annually over a period of 30 years; but it would not be foolish to assert or to hope that she could.

Such a figure, allowing 5 per cent for interest, and 1 per cent for repayment of capital, repre- sents a capital sum having a present value of about $8,500,000,000.*

I reach, therefore, the final conclusion that, in- cluding all methods of payment--immediately transferable wealth, ceded property, and an an- nual tribute--S10,000,000,000 is a safe maximum figure of Germany's capacity to pay. In all the actual circumstances, I do not believe that she can pay as much. Let those who consider this a very low figure, bear in mind the following re- markable comparison. The wealth of France in

x 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---_n- not be materially increased. A payment of $500,000,000 anmmlly _n perpetuity, assuming interest, as before, _t 5 per cent, would only raise the present value to $10,000,000,000.

REPARATION 201

1871 was estimated at a little less than half that

of Germany in 1913. Apart from changes in the value of money, an indemnity from Germany of $2,500,000,000 would, therefore, be about compara- ble to the sum paid by France in 1871; and as the real burden of an indemnity increases more than in proportion to its amount, the payment of $10,000,000,000 by Germany would have far se- verer consequences than the $1,000,000,000 paid by France in 1871.

There is only one head under which I see a possibility of adding to the figure reached on the line of argument adopted above; that is, if Ger- man labor is actually transported to the devas- tated areas and there engaged in the work of reconstruction. I have heard that a limited

scheme of this kind is actually in view. The addi- tional contribution thus obtainable depends on the number of laborers which the German Govern-

ment could contrive to maintain in this way and also on the number which, over a period of years, the Belgian and French inhabitants would toler- ate 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, im- ported labor having a net present value exceed- ing (say) $1,250,000,000; and even this would not prove in practice a net addition to the annual con-

tributions obtainable in other ways.

202 REPARATION

A capacity of $40,000,000,000 or even of $25,- 000,000,000 is, therefore, not within the ]imlts of reasonable possibility. It is for those who be-

here that Germany can make an annual payment amounting to hundreds of millions sterling to say in what specific commodities they intend this pay- ment 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

arg_lment in favor of their conclusions, they do not deserve to be believed. 1

1 As an example of public misapprehension on economle affairs, the following letter from Sir Sidney Low to The Times of the 3rd December, 1918, deserves quotation: "I have seen authoritative estimates which place the gross value of Ger- many's mineral and chemical resources as high as $1,250,000,- 000,000 or even more; and the Ruhr basin mines alone are said to be worth over $225,000,000,000. It is certain, at any rate, that the capital value of these natural sup- plies is much greater than the total war debts of all the Allied States. Why should not some portion of this wealth be diverted for a sufficient period from its present owners and assigned to the peoples whom Germany has assailed, deported, and injuredT The Allied Governments might justly require Germany to sur- render to them the use of such of her mines and mineral deposits as would yield, say, from $500,000,000 to $1,000,000,000 annually for the next 30, 40, or 50 years. By this means we could obtain su_cient compensation from Germany without unduly stimulating her manufactures and export trade to our detriment" It is not clear why, if Germany has wealth exceeding $1,250,000,000,000, Sir Sidney Low is content with the trifling sum of $500,000,000 to $1,000,000,000 annually. But his letter is an admirable ¢e- ductio ad ahsurdum of a certain line of thought. While a mode of calculation, which estimates the value of coal miles deep in the bowels of the earth as high as in a coal scuttle, of an annual lease of $5000 for 999 years at $4,995,000 and of a field (presum- ably) at the value of all the crops it will grow to the end of recorded time, opens up great possibilities, it is also double- edged. If Germany's total resources are worth $1,250,000,000,000, those she will part with in the cession of Alsace_Lorraine and Upper Silesia should be more than sufficient to pay the entire

REPARATION 203

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 substan-

tially 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 redueed proportionately. If a sovereign comes to be

worth what a shilling is worth now, then, of

course, Germany can pay a larger sum than I have

named, measured in gold sovereigns. Third: I assume that there is no revolutionary

(_hange in the yield of Nature and material to

costs of the war and reparation together. In point of fact, the present market value of all the mines in Germany of every kind has been estimated at $1,500,000,000, or a little more than one- thousandth part of Sir Sidney Low's expectationJ,

204 REPARATION

man's labor. It is not impossible that the prog- ress 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 por- tion 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 fool- ishly.

It is true that in 1870 no man could have pre- dicted Germany's capacity in 1910. We can- not expect to legislate for a generation or more. The secular changes in man's economic condition and the liability of human forecast to error are as likely to lead to mistake in one direction as in another. We cannot as reasonable men do

better than base our policy on the evidence we have and adapt it to the five or ten years over which we may suppose ourselves to have some measure of prevision; and we are not at fault if we leave on one side the extreme chances of

human existence and of revolutionary changes in the order of Nature or of man's relations to her.

The fact that we have no adequate knowledge of Germany's capacity to pay over a long period of years is no justification (as I have heard some people claim that it is) for the statement that she can pay $50,000,000,000.

REPARATION 205

Why has the world been so credulous of the unveracities of politicians? If an explanation is needed, I attribute this particular credulity to the following influences in part.

In the first place, the vast expenditures of the war, the inflation of prices, and the depreciation of currency, leading up to a complete instability of the unit of value, have made us lose all sense of number and magnitude in matters of finance. What we believed to be the limits of possibility have been so enormously exceeded, and those who founded their expectations on the past have been so often wrong, that the man in the street is now prepared to believe anything which is told him with some show of authority, and the larger the figure the more readily he swallows it.

But those who look into the matter more deeply are sometimes misled by a fallacy, much more plausible to reasonableness. Such a one might base his conclusions on Germany's total surplus of annual productivity as distinct from her export surplus. Helfferich's estimate of Germany's an- num increment of wealth in 1913 was $2,000,000,- 000 to $2,125,000,000 (exclusive of increased money value of existing land and property). Be- fore the war, Germany spent between $250,000,000 and $500,000,000 on armaments, with which she can now dispense. Why, therefore, should she not pay over to the Allies an annua] sum of $2,500,-

206 REPARATION

000,0007 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 suf- fered 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 can- not again reach their previous level. The loss of Alsace-Lorraine, Poland, and Upper Silesia could not be assessed in terms of surplus productivity at less than $250,000,000 annually. Germany is supposed to have profited about $500,000,000 per annum from her ships, her foreign investments, and her foreign banking and connections, all of which have now been taken from her. Her sav-

ing on armaments is far more than balanced by her annual charge for pensions now estimated at $1,250,000,000,1 which represents a real loss of productive capacity. And even if we put on one side the burden of the internal debt, which

amounts to 24 milliards of marks, as being a question of internal distribution rather than of

productivity, we must still allow for the foreign debt incurred by Germany during the war, the ex- haustion of her stock of raw materials, the deple- tion of her live-stock, the impaired productivity of

1 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,

REPARATION 2O7

her soil from lack of manures and of labor, and the diminution in her wealth from the failure

to keep up many repairs and renewals over a period of nearly five years. Germany is not as rich as she was before the war, and the diminution in her future savings for these reasons, quite apart from the factors previously allowed for, could hardly be put at less than ten per cent, that is $200,000,000 annually.

These factors have already reduced Germany's annual surplus to less than the $500,000,000 at which we arrived on other grounds as the maxi- mum 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 com- fort in Germany which may reasonably be im- posed on a defeated enemy/there is still a funda- mental fallacy in the method of calculation. An annual surplus available for home investment can only be converted into a surplus available for ex- port abroad by a radical change in the kind of work performed. Labor, while it may be avail-

• 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 servi- tude. It is, however, generally supposed that if the whole of a man's surplus production is taken from him, his efficiency and his industry are diminished. The entrepreneur and the inventor will not contrive, the trader and the shopkeeper will not save, the laborer will not toil, if the fruits of their industry are set aside, not for the benefit of their children, their old age, their pride, or their position, but for the enjoyment of a foreign conqueror.

208 REPARATION

able and efficient for domestic services in Ger-

many, may yet be able to find no outlet in foreign trade. We are back on the same question which faced us in our examination of the export trade-- in what export trade is German labor going to find a greatly increased outlet? Labor can only be diverted into new channels with loss of effi-

ciency, and a large expenditure of capital. The annual surplus which German labor can produce for capital improvements at home is no measure, either theoretically or practically, of the annual tribute which she can pay abroad.

IV. The Reparabion Commission.

This body is so remarkable a construction and may, if it functions at all, exert so wide an influ- ence on the life of Europe, that its attributes de- serve a separate examination.

There are no precedents for the indemnity im- posed on Germany under the present Treaty; for the money exactions which formed part of the set- tlement after previous wars have differed in two fundamental respects from this one. The sum de- manded has been determinate and has been meas-

ured in a lump sum of money; and so long as the defeated party was meeting the annual in- stalments of cash no consequential interference was necessary.

REPARATION 209

But for reasons already elucidated, the exac- tions 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 neces- sary 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 Repara- t-ion 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? The powers and constitution of the Repara-

tion Commission are mainly laid down in Articles

1 In the course of the compromises and delays of the Conference, there were many questions on which, in order to reach any con- clusion 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 settle- ment, 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 Commis- sion,--in spite of its being an executive body composed of inter- ested parties.

210 REPARATION

233-241 and .4nnex II. of the Reparation Chapter

of the Treaty with Germany. But the same Com- mission 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 1 and in the Bulgarian Treaty.'

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 dele- gates 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 Bul- garia are under consideration. Other allies are to be represented by delegates, without the power

1 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 powerB ex- cept such as the main Commission may delegate.

2 Bulgaria is to pay an indemnity of $450,000,000 by half- yearly instalments, beginning July 1, 1920. These sums will be collected, on behalf of the Reparation Commission, by an Inter- Ally Commission of Control, with its seat at Sofia. In some respects the Bulgarian Inter-Ally Commission appears to have powers and authority independent of the Reparation Commission, but it is to act, nevertheless, as the agent of the latter, and is authorized to tender advice to the Reparation Commission as to, for eT_mple, the reduction of the half-yearly _e_ta

REPARATION 211

to vote, whenever their respective claims and in- terests are under examination.

In general the Cor,_mlssion decides by a major- it_r vote, except in certain specific cases where unanimity is required, of which the most impor- tant are the cancellation of German indebtedness,

long postponement of the instalments, and the sale of German bonds of indebtedness. The Com-

mission is endowed with full executive authority

to carry out its decisions. It may set up an ex-

ecutive staff and delegate authority to its officers. The Commission and its staff are to enjoy diplo- matic 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 bu- reaucratic organization, with a staff of hundreds. To this organization, the headquarters of which will be in Paris, the economic destiny of Central

Europe is to be entrusted. Its main functions are as follows :--

1. The Commission will determine the precise

figure of the claim against the enemy Powers by an exsm_nation in detail of the clMms of each of

the k]lles under Annex I. of the Reparation Chap-

ter. 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,

212 REPARATION

but not to take any part whatever in the decisions of the Commission." That is to say, the Commis-

sion 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 dis- charge of the whole slim 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 capac- ity 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 domes- tic 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 Com- mission."

3. Up to May, 1921, the Commission has power, with a view to securing the payment of $5,000,000,-

000, to demand the surrender of any piece of German property whatever, wherever situated: that is to say, "Germany shall pay in such instal-

ments and in such manner, whether in gold, oom-

REPARATION 213

modifies, ships, securities, or otherwise, as the Reparation Commission may fix."

4. The Commission will decide which of the rights and interests of German nationals in public utility undertakings operating in Russia, China,

_ Turkey, Austria, Hungary, and Bulgaria, or in any territory formerly belonging to Germany or

her allies, are to be expropriated and transferred

to the Commission itself; it will assess the value

of the interests so transferred; and it will divide the spoils.

5. The Commission will determine how much of the resources thus stripped from Germany must be returned to her to keep enough life in

: her economic organization to enable her to con- tinue to make Reparation payments in future. 1

6. The Commission will assess the value, with-

out 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

1 Under the Treaty this is the function of any body appointed for tl:e purpose by the principal Allied and Associated Govern- ments, and not necessarily of the Reparation Commission. But it may be presumed that no second body will be establiabed for this _d parlmSe.

214 REPARATION

year by year under the various Annexes to the Reparation Chapter.

8. The Commission will provide for the res- titution 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 Up- per Silesia. The Commission will also distribute the public debt of the late Austro-Hungarian Em-

pire between its constituent parts. 11. The Commission will liquidate the Austro-

Hungarian Bank, and will supervise the with-

drawal 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 ful- filment of her obligations, and to advise methods of coercion.

13. In general, the Commission, acting through a subordinate body, will perform the same func-

tions for Austria and Bulgaria as for Germany,

and also, presumably, for Hungary and Turkey.' 1 At the date of writing no treaties with these countries lmve

been drafted. It is possible that Turkey might be dealt with by a separate Commission.

REPARATION 215

There are also many other relatively minor duties assigned to the Commission. The above

snmmary, 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 differ-

ent particulars the arbiter of Germany's economic life. The Commission is not only to inquire into Germany's general capacity to pay, and to de- cide (in the early years) what import of food-

stuffs and raw materials is necessary; it is author- ized to exert pressure on the German system of

taxation (Annex II. para. 12(5)) 1 and on German internal expenditure, with a view to insuring that Reparation payments are a first charge on the

country's entire resources; and it is to decide on the effect on German economic life of demands

for machinery, cattle, etc., and of the scheduled deliveries of coal.

By Article 240 of the Treaty Germany ex- pressly recognizes the Commission and its powers

1This appears to me to be in effect the position (if this paragraph means anything at alll, in spite of the following dis- claimer of such intentions in the Allies' reply:--" Nor does Para- graph 12 (hi of Annex II. give the Commission powers to pre- scribe or enforce taxes or to dictate the character of the German budget."

216 REPARATION

"as the same may be constituted by the Allied and Associated Governments," and "agrees ir- revocably 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 in-

formation. And finally in Article 241, "Ger- many 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 exagger- ation :m,,German democracy is thus annihilated at the very moment when the German people was about to build it up after a severe struggle kannihilated by the very persons who through- out 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 willing- ness 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 Oe_rrnanEmperor ever possessed; the German peo-

REPARATION 217

pie under its r_gime would remain for dec_les 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, "pre- sent a view of this Commission so distorted and so inexact that it is di_eult to believe that the

clauses of the Treaty have been calmly or care- fully examined. It is not an engine of oppres- sion 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 Ger- many 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

218 REPARATION

itself, the Commission cannot require such a pay* ment."

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 Repara- tion Commission finds that Germany refuses to observe the whole or part of her obligations under the present Treaty with regard to Repara- tion, 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 ]eft, it should be observed, not to the League of Nations, but to the Reparation Commission itself; and an adverse ruling on the part of the Commission is to be followed "imme- diately" 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 Oer- many to "raise the money required in her own way," in which case it is true that many of the

REPARATION 219

powers of the Reparation Commission would not come into practical effect; whereas in truth one

of the main reasons for setting up the Commis- sion 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, hear- ing that a section of the Reparation Commission is about to visit them, have decided character-

istically 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 respon-

sibility proportionate to its powers. It may thus come to fulfil a very different r61e from that which Some of its authors intended for it. Transferred

to the League of Nations, an appanage of justice and no longer of interest, who knows that by a

change of heart and object the Reparation Com-

mission may not yet be transformed from an in- strument of oppression and rapine into an eco- nomic council of Europe, whose object is the res- toration of life and of happiness, even in the

enemy colmtries ?

2'20 REPARATION

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 impres- sion that the Indemnity had been fixed at $25,000,- 000,000. or at any rate at this figure as a minimum. The German Delegation set out, therefore, to con- struct their reply on the basis of this figure, as- suming apparently that public opinion in Allied countries would not be satisfied with less than

the appearance of $25,000,000,000; and, as they were not really prepared to offer so large a fig- ure, they exercised their ingenuity to produce a formula which might be represented to Allied opinion as yielding this amount, whilst really rep- resenting a much more modest sum. The for- mula produced was transparent to any one who read it carefully and knew the facts, and it could hardly have been expected by its authors to deceive the Allied negotiators. The German tactic assumed, therefore, that the latter were secretly as anxious as the Germans themselves to arrive at a settlement which bore some relation

to the facts, and that they would therefore be will- ing, in view of the entanglements which they had got themselves into with their own publics, to prae,- tise a little collusion in drafting the Treaty_--_

REPARATION 221

supposition which in slightly different circum- stances might have had a good deal of foundation. As matters actually were, this subtlety did not benefit them, and they would have done much bet- ter with a straightforward and candid estimate of what they believed to be the amount of their liabilities on the one hand, and their capacity to pay on the other.

The German offer of an alleged sum of $25,000,- 000,000 _nounted to the following. In the first place it was conditional on concessions in the Treaty insuring that "Germany shall retain the territorial integrity corresponding to the Armis- tice Convention/ 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 prop- erty, 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 maximnm of $25,- 000,000,000, of which $5,000,000,000 is to be dis- charged by May 1, 1926; and no part of this sum is to carry interest pending the payment of

1 WhLtev_ that may mean.

222 REPARATION

it. t In the third place, there are to be allowed as

oredlts against it (amongst other things) : (a) the value of all deliveries under the Armistice, in- cluding military material (e.g. Germany's navy) ;

(b) the value of all railways and State property in ceded territory; (e) the pro rata share of all

ceded territory in the German public debt (in- cluding the war debt) and in the Reparation pay- ments 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. _

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 estlmate,

by a sum of as much as $10,000,000,000, although the sum to be allowed under (d) can hardly be calculated.

If, therefore, we are to estimate the real value

of the German offer of $25,000,000,000 on the basis laid down by the Treaty, we must first of

all deduct $10,000,000,000 clalmed 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

t Assuming that the capital sum is discharged evenly over a period as short as thirty-three years, this has the effect of halv4_g the burden as compared with the payments required on the basis of 5 per cent interest on the outstanding capital.

I forbear to outline further details of the German offer as the above are the essential points.

REPARATION 223

chargeable.Thisreducestheofferto$7,500,000,- 000,ascomparedwiththe$40,000,000,000which, accordingtomy rough estimate,the Treatyde- mands ofher.

Thisinitselfwas a verysubstantialoffer--in- deed itevokedwidespreadcriticismin Germany

--though,inview of thefactthatitwas condi- tionalon the abandonmentof the greaterpart

of therestoftheTreaty,itcouldhardlybe re- gardedas a seriousone.I But theGerman Dele-

gationwouldhavedone betteriftheyhad stated inlessequivocallanguagehow fartheyfeltable togo.

In thefinalreplyoftheAlliestothiscounter- proposalthereisone importantprovision,which I have not attendedto hitherto,but which can

beconvenientlydealtwithinthisplace.Broadly speaking,no concessionswere entertainedon the

ReparationChapterasitwas originallydrafted, buttheAlliesrecognizedtheinconvenienceofthe {¢_etermi_mcyoftheburdenlaidupon Germany

and proposeda method by which thefinaltotal ofclaimmight be establishedatan earlierdate

thanMay 1,1921.They promised,therefore,that atany timewithinfourmonths ofthesignature

of the Treaty (that is to say, up to the end of ,

t 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.

224 REPARATION

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, be- fore the end of 1919) the Allies "will, so far as may be possible, return their answers to any pro- posals 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 con- template any opening up of the problem of Ger- many's capacity to pay. It is only concerned with the establishment of the total bill of claims

as defined in the Treaty--whether (e.g.) it is $35,000,000,000, $40,000,000,000, or $50,000,000,000. "The questions," the Allies' reply adds, "are bare questions of fact, namely, the amount of the liabilities, and they are susceptible of being treated in this way."

If the promised negotiations are really con- ducted 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

REPARATION 225

not help Germany's financial position to know for cer_in 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. 1

I c_nnot leave this subject as though its just

treatment wholly depended either on our own pledges or on economic facts. The policy of re- ducing Germany to servitude for a generation, of degrading the lives of milfions of human beings,

and of depriving a whole nation of happiness should be abhorrent and detestable,--abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the

decay of the whole civilized life of Europe. Some preach it in the name of Justice. In the great

events of man's history, in the unwinding of the complex fates of nations Justice is not so simple.

And if it were, nations are not authorized, by religion or by natural morals, to visit on the chil-

dren of their enemies the misdoings of parents or of rulers.

a 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 effec- tive. But, perhaps, in view of the circumstances, there has been an extension of the date.

CHAPTER VI

EUROPE AFTER THE TREATY

THIS chapter must be one of pessimism. The Treaty includes no provisions for the economic re- habilitation of Europe,--nothing to make the de- feated Central Empires into good neighbors, noth- ing to stabilize the new States of Europe, nothing to reclaim Russia; nor does it promote in any way a compact of economic solidarity amongst the Allies themselves; no arrangement was reached at Paris for restoring the disordered finances of France and Italy, or to adjust the sys- tems of the Old World and the New.

The Council of Four paid no attention to these issues, being preoccupied with others,--Clemen- ceau 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 Presi- dent to do nothing that was not just and right. It is an extraordinary fact that the fundamental economic problems of a Europe starving and dis- integrating before their eyes, was the one ques- tion in which it was impossible to arouse the in- terest of the Four. Reparation was their main

excursion into the economic field, and they settled 226

EUROPE AFTER THE TREATY 227

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 Con- ference, 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 inevi- table fruits of the War and the avoidable misfor- tunes 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 his- tory 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 particu- lar it cannot feed itself. Internally the population is not evenly distributed, but much of it is crowded into a relatively small number of dense industrial centers. This population secured for itself a live- lihood before the war, without much margin of surplus, by means of a delicate and immensely complicated organization, of which the founda- tions were supported by coal, iron, transport, and an unbroken supply of imported food and raw materials from other continents. By the de-

228 EUROPE AFTER THE TREATY

struction of this organization and the interruption of the stream of supplies, a part of this population is deprived of its means of livelihood. Emigra- tion 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 de- pression of the standard of life of the European populations to a point which will mean actual star- vation 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 de- spair, drives other temperaments to the nervous instability of hysteria and to a mad despair. And these in their distress may overturn the remnants of organization, and submerge civilization itself in their attempts to satisfy desperately the over- whelming needs of the individual. This is the danger against which all our resources and cour- age and idealism must now co-operate.

On the 13th May, 1919, Count Brockdorff-Rant- zau 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,

EUROPE AFTER THE TREATY 229

"Germany has become transformed from an agri- cultural State to an industrial State. So long as she was an agricultural State, Germany could feed forty million inhabitants. As an industrial State she could insure the means of subsistence for a

population of sixty-seven millions ; and in 1913 the importation of foodstuffs amounted, in round fig- ures, to twelve million tons. Before the war a total of fifteen million persons in Germany pro- vided for their existence by foreign trade, naviga- tion, and the use, directly or indirectly, of foreign raw material." After rehearsing the main rele- vant provisions of the Peace Treaty the report continues: "After this diminution of her prod- ucts, 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 quan- tity of raw material. An enormous part of Ger- man industry will, therefore, be condemned in- evitably 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 per- sons should emigrate, but this is a material ira-

230 EUROPE AFTER THE TREATY

possibility, all the more because many countries and the most important ones will oppose any Ger- man 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 Block- ade, and during the Armistice by the aggravation of the Blockade of famine. No help, however great, or over however long a period it were con- tinued, could prevent these deaths e_ masse." "We do not know, and indeed we doubt," the report concludes, "whether the Delegates of the Allied and Associated Powers realize the in-

evitable consequences which will take place if Ger- many, an industrial State, very thickly populated, closely bound up with the economic system of the world, and under the necessity of importing enor- mous quantities of raw material and foodstuffs, suddenly finds herself pushed back to the phase of her development, which corresponds to her eco- nomic condition and the numbers of her popu- lation 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,

EUROPE AFTER THE TREATY 231

as of the German, settlement. This is the funda- mental problem in front of us, before which ques- tions 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 termina- tion, whether in the course of nature or by the act of man, of temporarily favorable conditions which have permitted the growth of population beyond what could be provided for when the favorable conditions were at an end.

The significant features of the immediate situa- tion can be grouped under three heads: first, the absolute falling off, for the time being, in Europe's internal productivity; second, the break- down 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 over- seas.

The decrease of productivity cannot be easily estimated, and may be the subject of exaggeration. But the prim_ facie evidence of it is overwhelm- ing, and this factor has been the main burden of Mr. Hoover's well-considered warnings. A va- riety of causes have produced it ;--violent and prolonged internal disorder as in Russia and Hun- gary; thecreationofnew governmentsand their

232 EUROPE AFTER THE TREATY

inexperience in the readjustment of economic rela- tions, as in Poland and Czecho-Slovalda; the loss throughout the Continent of efficient labor, through the casualties of war or the continuance of mobilization; the falling-off in efficiency through continued underfeeding in the Central Empires; the exhaustion of the soil from lack of the usual applications of artificial manures throughout the course of the war; the unsettle- ment of the minds of the laboring classes on the above all (to quote Mr. Hoover), "there is a great fundamental economic issues of their lives. But

relaxation of effort as the reflex of physical ex- haustion 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. Accord- ing to Mr. Hoover, a summary of the unemploy- ment bureas in Europe in July, 1919, showed that 15,000,000 families were receiving unemployment allowances in one form or another, and were being paid in the main by a constant inflation of cur- rency. In Germany there is the added deterrent

to labor and to capital (in so far as the Repara- tion 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

EUROPE AFTER THE TREATY 233

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 de-

pend. Whereas before the war Germany pro- duced 85 per cent of the total food consumed by

her inhabitants, the productivity of the soil is now diminished by 40 per cent and the effective quality

of the live-stock by 55 per cent. 1 Of the European countries which formerly possessed a large ex-

portable 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 har-

vested, 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

Professor Starling's Relgo_t o_ Food C'o_d_t{o_ in German. [Cmd._so.]

284 EUROPE AFTER THE TREATY

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 replace- ment by manufacture, is probably not so serious as that of some of her neighbors. In Russia (about which, however, we have very little exact or accurate information) the condition of the roll- ing-stock is believed to be altogether desperate, and one of the most fundamental factors in her

existing economic disorder. And in Poland, Rou- mania, and Hungary the position is not much better. Yet modern industrial life essentially de-

pends 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 coun-

try 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 manufac- tures of the towns) without the usual incentives to market food in return for other wares; an in-

dustrial population unable to keep its strength for

EUROPE AFTER THE TREATY 285

lack of food, unable to earn a livelihood for lack

of materials, and so unable to make good by im- ports from abroad the failure of productivity at home. Yet, according to Mr. Hoover, "a rough estimate would indicate that the population of Europe is at least 100,000,000 greater than can be supported without imports, and must live by the production and distribution of exports."

The problem of the re-inauguration of the per- petual circle of production and exchange in for- eign 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 infla- tion, governments can confiscate, secretly and un- observed, 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 confi- dence in the equity of the existing distribution of wealth. Those to whom the system brings wind- falls, 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 proceedv

236 EUROPE AFTER THE TREATY

and the real value of the currency fluctuates wildly from month to month, all permanent relations be- tween debtors and creditors, which form the ulti- mate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gRmble 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 belliger-

ent governments practised, from necessity or in- competence, 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 reck- less in their methods as well as weak, seek to di- rect on to a class known as "profiteers" the popu- lar indignation against the more obvious conse- quences of their vicious methods. These "profi- teers" are, broadly speaking, the entrepreneur class of capitalists, that is to say, the active and constructive element in the whole capitalist so-

ciety, who in a period of rapidly rising pricea

EUROPE AFTER THE TREATY 237

cannot help but get rich quick whether they wish it or desire it or not. If prices are continually rising, every trader who has purchased for stock or owns property and plant inevitably makes

profits. By directing hatred against this class,

therefore, the European Governments are carry- ing 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 comb_uing 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 estab-

lished equilibrium of wealth which is the inevi- table result of inflation, these Governments are

fast rendering impossible a continuance of the social and economic order of the uineteenth

century. But they have no plan for replac- ing it.

We are thus faced in Europe with the spectacle

of an extraordlnRry 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 plaee in society and in their necessity to the social organism so diminished,

that they are the easy victims of intimidation.

238 EUROPE AFTER THE TREATY

Tiffs was not so in England twenty-five years ago9 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 un|imlted exercise of their power. Now they tremble before every insult ;--call them

pro-Germans, international financiers, or profi- teers, 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 alto-

gether undone by their own instruments, govern- ments of their own making, and a press of which

they are the proprietors. Perhaps it is histori°

cally trne that no order of society ever perishes save by its own hand. In the eomplexer 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

EUROPE AFTER THE TREATY 239

for the purposes of foreign trade the currency is

practically valueless. The Polish mark can be bought for about three cents and the Austrian crown for less than two cents, but they cannot be sold at all. The German mark is worth less than

four cents on the exchanges. In most of the other countries of Eastern and South-Eastern Europe

the real position is nearly as bad. The currency of Italy has fallen to httle more than a half of its

nominal value in spite of its being still subject to

some degree of regulation; French currency main- tains an uncertain market; and even sterling is

seriously diminished in present value and im- paired 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 m_nds 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 Gov- ernments endeavor to control internal prices, and

so to preserve some purchasing power for their

240 EUROPE AFTER THE TREATY

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 worth- less.

The presumption of a spurious value for the currency, by the force of law expressed in the regulation of prices, contains in itself, however, the seeds of final economic decay, and soon dries up the sources of ultimate supply. If a man is compelled to exchange the fruits of his labors for paper which, as experience soon teaches him, he cannot use to purchase what he requires at a price comparable to that which he has received for his own products, he will keep his produce for him- self, dispose of it to his friends and neighbors as a favor, or relax his efforts in producing it. A system of compelling the exchange of commodities at what is not their real relative value not only relaxes production, but leads finally to the waste and inefficiency of barter. If, however, a govern- ment 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

EUROPE AFTER THE TREATY 241

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 lead- ing example of this phenomenon.

The countries of Europe fall into two distinct

groups at the present time as regards their mani- festations of what is really the same evil through-

out, 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 1 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 fol-

I Including the Darleh_mmko_er.sche_z_ somewhat more.

242 EUROPE AFTER THE TREATY

lows 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 con- formity with prices outside Germany. 1 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 adjust-

ment 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/ and the flood of imports which might have been ex-

pected to succeed the raising of the blockade was not in fact commercially possible3 In the second

place, it is a hazardous enterprise for a merchant

or a manufacturer to purchase with a foreign

zSimilarly in Austria prices ought to be between twenty and thirty times their former level.

One of the most striking and symptomatic difficulties which faced the Allied authorities in their administration of the occu- pied areas of Germany during the Armistice arose out of the fact that even when they brought food into the country the inhabit- ants could not afford to pay its cost price.

8 Theoretizally an unduly low level of home prices should stimu- late 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.

EUROPE AFTER THE TREATY 243

credit material for which, when he has imported it or manufactured it, he will receive mark cur-

rency of a quite uncertain and possibly unrealiz- able value. This latter obstacle to the revival of

trade is one which easily escapes notice and de-

serves a little attention. It is impossible at the present time to say what the mark will be worth in terins 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, there-

fore, that a German merchant, careful of his fu-

ture credit and reputation, who is actually offered a short period credit in terms of sterling or dol- lars, 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 specula-

tion in the exchanges, the fluctuations in which entirely obliterate the normal profits of com- merce.

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 dis-

244 EUROPE AFTER THE TREATY

ordered currency system which renders credit

operations hazardous or impossible quite apart from the ordinary risks of commerce.

The note circulation of France is more than six

times its pre-war level. The exchange value of

the franc in terms of gold is a little less than two- thirds its former value; that is to say, the value of the franc has not fallen in proportion to the

increased volume of the currency. 1 This ap-

parently 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 im-

ports to be established, which is becoming a very serious factor, now that the outside assistance

is being gradually discontinued. The internal economy of France and its price level in relation

to the note circulation and the foreign exchanges

is at present based on an excess of imports over exports which cannot possibly continue. Yet it is difficult to see how the position can be re-

adjusted except by a lowering of the standard of consnmption in France, which, even if it is

2Allowing for the diminished value of gold, the exchange value of the franc should be less than 40 per cent of ira previous value, instead of the actual figure of about 60 per cent, if the fall were proportional to the increase in the volume of the currenc 7.

EUROPE AFTER THE TREATY 245

only temporary, will provoke a great deal of dis- content. 1

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 fur- ther in Italy than in France. On the other hand,

Italy's "invisible" receipts, from emigrant remit-

tances and the expenditure of tourists, have been very injuriously affected; the disruption of Aus-

tria 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 posi-

1 How very far from equilibrium France's international ex- change now is can be seen from the following table:

Excess o! Monthly Imports Exports Imports Average $1,000 $1,0OO $1,000

1913 140,355 114,670 25,685 1914 106,705 81,145 25,560 1918 331,915 69,055 262,860

Jan.-Mar. 1919 38?,140 66,670 320,470 Apr.-June 1919 421,410 83,895 337,515

July 1919 467,565 123,675 343,890

These figures have been converted at approximately par rates, but this is roughly compensated by the fact that the trade of 1918 and 1919 has been valued at 1917 official rates. French imports rAnnot possibly continue at anything approaching these figures, and the semblance of prosperity based on such a state of a_'airs is spurious.

246 EUROPE AFTER THE TREATY

tion is grave, and her excess of imports as serious a symptom as in the case of France. 1

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 sub- stantial effort has been made to cover the in-

creased expenditure. "Taxes increased in Great Britain during the war," it has been estimated, "from 95 francs per head to 265 francs, whereas the increase in France was only from 90 to 103 francs." The taxation voted in France for the

financial year ending June 30, 1919, was less than half the estimated normal post-bell_m expendi- ture. The normal budget for the future cannot be put below $4,400,000,000 (22 milliard francs), and may exceed this figure; but even for the fiscal year 1919-20 the estimated receipts from taxation

1The figures for Italy are as follows: Exeeas of

Monthly Imports Exports Imports Average $1,000 $1,000 $1,000

1913 60,760 41,860 18,900 1914 48,720 36,840 11,880 1918 235,025 41,390 193,635

Jan.-Mar. 1919 229,240 38,085 191,155 Apr.--June 1919 331,035 69,250 261,785 July-Aug. 1919 223,535 84,515 139,020

EUROPE AFTER THE TREATY 247

do not cover much more than half this amount.

The French Ministry of Finance have no plan or policy whatever for meeting this prodigious defi- cit, except the expectation of receipts from Ger- many on a scale which the French officials them-

selves 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. 1

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. Neverthe- less Signor Nitti, the Prime Minister, in a letter addressed to the electorate on the eve of the Gen-

eral Election (Oct., 1919), thought it necessary

to make public the following desperate analysis of the situation:--(1) The State expendi_re amounts to about three times the revenue. (2)

All the industrial undertakings of the State, in-

cluding the railways, telegraphs, and telephones,

are being run at a loss. Although the public is

buying bread at a high price, that price represents

z In the last two returns of the Bank of France available as I write (Oct. 2 and 9, 1919) the increases in the note issue on th,, week amounted to $_93,75_,000 and $94,125,000 respectively.

248 EUROPE AFTER THE TREATY

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 im- ports 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 mil-

liards 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. 1 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 phe-

nomenon of which the end is not yet in sight. All these influences combine not merely to pre-

1 On October 3, 1919, M. Bilinski made his financial statement to the Polish Diet. He estimated his expenditure for the next nine months at rather more than double his expenditure for the past nine months, and white 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 outgeinge. The Times correspondent at Warsaw reported that "in general M. Bilinski's tone was optimistic and appeared to _atisfy his audience "1

EUROPE AFTER THE TREATY 249

vent Europe from supplying immediately a suffi-

cient 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 equilib-

rium rather than towards it, they favor a con- tinuance of the present conditions instead of a

recovery from them. An ine_cient, unemployed, disorganized Europe faces us, torn by internal strife and international hate, fighting, starving,

pillaging, and lying. What warrant is there for a picture of less somber colors T

I have paid little heed in this book to Russia,

Hungary, or Austria.* There the miseries of life and the disintegration of society are too notorious

to require analysis; and these countries are al° ready 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

* The terms of the Peace Treaty imposed on the Austrian Re- public bear no relation to the real facts of that State's desperate situation. The Arbeit_f Zeitung of Vienna on June 4, 1919, com- mented 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 ruth- lessness 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 juso tt_ of this outburst.

250 EUROPE AFTER THE TREATY

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. Eco-

nomic 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, 1 but life proceeds some-

1 For months past the reports of the health conditions in the Central Empires have been of such a character that the imagina- tion 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. May 31, 1919). The Commission of Doctors appointed by the Medical Faculties of Holland, Sweden, and Norway to examine the conditions in Germany reported as follows in the Swedish Press in April, 1919: "Tuberculosis, espe- cially in children, is increasing in an appalling way, and, gen- erally speaking, is malignant. In the same way rickets is more serious and more widely prevalent. It is impossible to do any- thing for these diseases; there is no milk for the tuberculous, and no cod-liver oil for those suffering from rickets .... Tuber- culosis 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 prac- tically incurable .... Tuberculosis is nearly always fatal now among adults. It is the cause of 90 per cent of the hospital eases. Nothing can be done against it owing to lack of food- stuffs .... It appears in the most terrible forms, such as glandular tuberculosis, which turns into purulent dissolution." The following is by a writer in the Vossischc Zeitung, June 5, 1919, who accompanied the Hoover Mission to the Erzgebirge: "I visited large country districts where 90 per cent of all the children were ricketty and where children of three years are only beginning to walk .... Accompany me to a school in the Erzgebirge. You think it is a kindergarten for the little ones. _o, these are children of seven and eight years. Tiny faces, with

EUROPE AFTER THE TREATY 251

how, until the l{m]t of human endurance is reached at last and counsels of despair and mad-

ness 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 Rus-

sian Bolshevism seem, for the moment at least, to have burnt themselves out, and the peoples of

Central and Eastern Europe are held in a dread-

ful torpor. The lately gathered harvest keeps off the worst privations, and Peace has been de-

clared at Paris. But winter approaches. Men will have nothing to look forward to or to nourish hopes on. There will be little fuel to moderate

the rigors of the season or to comfort the starved bodies of the town-dwellers.

But who can say how much is endurable, or in what direction men will seek at last to escape from their misfortunes?

large dull eyes, overshadowed by huge puffed, ricketty foreheads, their small arms just skin and bone, and above the crooked legs with their dislocated joints the swollen, pointed stomachs of the hunger edema .... ' 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 m, eh beings should pay tribute until they are forty or fifty years of age in relief of the British taxpayer.

CHAPTER VII

REMEDIES

IT is difficult to maintain true perspective in large affairs. I have criticized the work of Paris, and

have depicted in somber colors the condition and

the prospects of Europe. This is one. aspect of the position and, I believe, a true one. But in so

complex a phenomenon the prognostics do not all point one way; and we may make the error of

expecting consequences to follow too swiftly

and too inevitably from what perhaps are not the relevant causes. The blackness of the

prospect itself leads us to doubt its accuracy; our imagination is dulled rather than stimu-

lated by too woeful a narration, and our minds rebound from what is felt "too bad to bc true."

But before the reader allows himself to be too

much swayed by these natural reflections, and before I lead him, as is the intention of this

chapter, towards remedies and ameliorations and

the discovery of happier tendencies, let him re-

dress 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 _52

REMEDIES 253

still happen, and that modern society is not im- mune from the very greatest evils.

In the chapters of this book I have not gen- erally 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 indus- trial structure. Some of us may welcome such prospects and some of us deplore them. But they are of a different kind altogether from those im- pending on Europe. I do not perceive in Eng- land 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

1 The figures for the United Kingdom are as follows:

Net Exce_ of Monthly Imports Exports Imports Average $1,000 $1,000 $1,000

1913 274,650 218,850 55,800 1914 250,485 179,465 71,0'20

Jan.-Mar. 1919 547,890 245,610 302,280 April-June 1919 557,015 312,315 244,700 July--Sept. 1919 679,635 344,315 335,320

But this excess is by no means so serious as it looks; for with the present high freight-earnin_ of the mercantile marine the

254 REMEDIES

our Budget is large, but not beyond what firm and

prudent statesmanship could bridge. The short- ening of the hours of labor may have somewhat diminished our productivity. But it should not be too much to hope that this is a feature of transi- tion, and no one who is acquainted with the British workingman can doubt that, if it suits

him, and if he is in sympathy and reasonable contentment with the conditions of his life, he can

produce at least as much in a shorter working day as he did in the longer hours which prevailed formerly. The most serious problems for Eng-

land 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 _.; --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 tend- ency which must be especially injurious to the

various "invisible " exports of the United Kingdom are probably even higher than they were before the war, and may average at least $225,000,000 monthly.

REMEDIES 255

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 optlmism, and still more those whose immediate environ-

ment is American, must east 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 sug- gestions 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 priva- tion and great risks to society have become un- avoidable. All that is now open to us is to re-

direct, so far as lies in our power, the fundamental economic tendencies which underlie the events of

the hour, so that they promote the re-establish-

256 REMEDIES

ment of prosperity and order, instead of leading us deeper into misfortune.

We must first escape from the atmosphere and the methods of Paris. Those who controlled the

Conference may bow before the gusts of popular opinion, but they will never lead us out of our troubles. It is hardly to be supposed that the Council of Four can retrace their steps, even if they wished to do so. The replacement of the existing Governments of Europe is, therefore, an almost indispensable preliminary.

I propose then to discuss a program, for those who believe that the Peace of Versailles

cannot stand, under the following heads: 1. The Revision of the Treaty. 2. The settlement of inter-Ally indebtedness. 3. An international loan and the reform of the

currency. 4. The relations of Central Europe to Russia.

1. The Revision of the Treaty

Are any constitutional means open to us for altering the Treaty? President Wilson and Gen- eral 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.

REMEDIES 257

"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 peace- ful 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 indem- nities 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; 1 the reconsideration and revision of administrative arrangements and

1 President Wilson was mistaken in suggesting that the super- vision of Reparation payments has been entrusted to the League of Nations. As I pointed out in Chapter V., whereas the League is invoked in regard to most of the continuing economic and ter- ritorial provisions of the Treaty, this is not the case as regards Reparation, over the problems and modifications of which the Reparation Commiuion is supreme without appeal of any kind to the League of Nations.

258 REMEDIES

restrictions which the Treaty prescribed, but

which it recognized might not provide lasting ad- vantage or be entirely fair if too long enforced,

would be impracticable." Can we look forward with fair hopes to secur-

ing 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 en- danger 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 reconsidera-

tion 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

REMEDIES 259

the business through. Even when the Assembly of the League is unanimous it can only "advise"

reconsideration by the members specially affected. But the League will operate, say its supporters,

by its influence on the public opinion of the world, and the view of the majority will carry decisive

weight in practice, even though constitutionally it is of no effect. Let us pray that this be so. Yet the League in the hands of the trained European

diplomatist may become an unequaled instrument for obstruction and delay. The revision of

Treaties is entrusted primarily, not to the Coun- cil, which meets frequently, but to the Assembly, which will meet more rarely and must become, as

any one with an experience of large Inter-Ally Conferences must know, an unwieldy polyglot

debating society in which the greatest resolution and the best management may fail altogether to

bring issues to a head against an opposition in favor of the status quo. There are indeed two disastrous blots on the Covenant,mArticle V.,

which prescribes unanimity, and the much-criti-

cized Article X., by which "The Members of the

League undertake to respect and preserve as against external aggression the territorial integ-

rity 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

260 REMEDIES

to equip it from the outset with an almost fatal bias towards the status q_o. 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 con- ceal 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 instrnment of peace, and which in Articles XI.- XVII. 1 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 gen- eral opinion and, if necessary, the use of finan- cial 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 z These Articles, which provide safeguards against the outbreak

of war between members of the League and also between members and non-members, are the solid achievement of the Covenant. These Articles make substantially less probable a war between organized Great Powers such as that of 1914. This alone ahould commend the League to all men.

REMEDIES 261

in the principal Allied countries, to show a pro- founder wisdom and a greater magnanimity than their predecessors.

We have seen in Chapters IV. and V. that there are numerous particulars in which the Treaty is objectionable. I do not intend to enter here into details, or to attempt a revision of the Treaty clause by clause. I limit myself to three great changes which are necessary for the eco- nomic life of Europe, relating to Reparation, to Coal and Iron, and to Tariffs.

Reparation.--If the sum demanded for Repara- tion is less than what the Allies are entitled to

on a strict interpretation of their engagements, it is unnecessary to particularize the items it repre- sents or to hear arguments about its compila- tion. I suggest, therefore, the following settle- ment :--

(1) The amount of the payment to be made by Germany in respect of Reparation and the costs of the Armies of Occupation might be fixed at $10,000,000,000.

(2) The surrender of merchant ships and sub- marine cables under the Treaty, of war material under the Armistice, of State property in ceded territory, of claims against such territory in respect of public debt, and of Germany's claims against her former Allies, should be reckoned as worth the lump sum of $2,500,000,000, without any

262 REMEDIES

attempt being made to evaluate them item by item.

(3) The balance of $7,500,000,000 should not carry interest pending its repayment, and should be paid by Germany in thirty annual instalments of $250,000,000, beginning in 1923.

(4) The Reparation Commission should be dis- solved, 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 prop- erty 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 Cus- todians in the Allied countries and in the United

States; and, in particular, Article 260 (which pro- vides for the expropriation of German interests in public utility enterprises) would be abrogated.

(6) No attempt should be made to extract Repa- ration payments from Austria.

Coal and Iron.--(1) The Allies' options on coal under Annex V. should be abandoned, but (]or-

REMEDIES 263

many's obligation to make good France's loss of coal through the destruction of her mines should remain. That is to say, Germany should under- take "to deliver to France annually for a period not exceeding ten years an amount of coal equal to the difference between the annual production before the war of the coal mines of the Nord and

Pas de Calais, destroyed as a result of the war, and the production of the mines of the same area during the years in question; such delivery not to exceed twenty million tons in any one year of the first five years, and eight million tons in any one year of the succeeding five years." This obliga- tion should lapse, nevertheless, in the event of the coal districts of Upper Silesia being taken from Germany in the final settlement consequent on the plebiscite.

(2) The arrangement as to the Saar should hold good, except that, on the one hand, Germany should receive no credit for the mines, and, on the

other, should receive back both the mines and the territory without payment and unconditionally after ten years. But this should be conditional on France's entering into an agreement for the same period to supply Germany from Lorraine with at least 50 per cent of the iron-ore which was carried from Lorraine into Germany proper be- fore the war, in return for an undertaking from Germany to supply Lorraine with an amount of

264 REMEDIES

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 Asso- ciated Powers) to the wishes of the inhabitants as shown by the vote, and to the geographical and economic conditions of the locality." But the A|]ies should declare that in their judgment "eco- nomic 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 became an appanage of the League of Nations, and should be enlarged to in- clude representatives of Germany and the other States of Central and Eastern Europe, of the Northern Neutrals, and of Switzerland. Its au- thority should be advisory only, but should extend over the distribution of the coal supplies of Ger- many, Poland, and the constituent parts of the former Austro-Hungarian Empire, and of the ex- portable surplus of the United Kingdom. All the States represented on the Commission should undertake to furnish it with the fullest informa-

tion, and to be guided by its advice so far as their sovereignty and their vital interests permit.

REMEDIES 265

Taril_s.--A Free Trade Union should be estab-

lished under the auspices of the League of Na- tions of countries undertaking to impose no pro-

tectionist tariffs _ whatever against the produce of other members of the Union. Germany, Poland,

the new States which formerly composed the Aus- tro-Hungarian and Turkish Empires, and the Mandated States should be compelled to adhere

to this Union for ten years, after which time ad- herence 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 terri-

tory, we avoid the perpetual friction and oppor- tunity of improper pressure arising out of Treaty clauses which are impossible of fulfilment, and we

render unnecessary the intolerable powers of the Reparation Commission.

1 It would be expedient so to define a "protectionist tariff" as to permit (al the total prohibition of certain imports; ( b } the imposition of sumptuary or revenue customs duties on commodi- ties not produced at home; (el the imposition of customs duties which did not exceed by more than five per cent a countervailing excise on similar commodities produced at home; (d} export duties. Further, special exceptions might be permitted by a majority vote of the countries entering the Union. Duties which had existed for five years prior to a country's entering the Union might be allowed to disappear gradually by equal instalments spread over the five years subsequent to joining the Unto_

266 REMEDIES

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 in- dustrial life, and put limits on the loss of produc- tivity which would be brought about otherwise by the interference of political frontiers with the natural localization of the iron and steel industry.

By the proposed Free Trade Union some part of the loss of organization and economic efficiency may be retrieved, which must otherwise result from the innumerable new political frontiers now created between greedy, jealous, immature, and economically incomplete nationalist States. Eco- nomic frontiers were tolerable so long as an im- mense territory was included in a few great Em- pires; 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, EgTpt, and India, might do as much for the peace and pros- perity of the world as the League of Nations it- self. Belgium, Holland, Scandinavia, and Swit- zerland 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.

REMEDIES 267

It would be objected, I suppose, by some critics that such an arrangement might go some way in effect towards realizing the former German dream of Mittel-Europa. If other countries were so fool- ish as to remain outside the Union and to leave to

Germany all its advantages, there might be some truth in this. But an economic system, to which every one had the opportunity of belonging and which gave special privilege to none, is surely ab- solutely free from the objections of a privileged and avowedly imperialistic scheme of exclusion and discrimination. Our attitude to these criti-

cisms 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 as- sist Germany to regain a part of her former ma- terial prosperity and find a means of livelihood for the industrial population of her towns. But if this _iew of nations and of their relatien to one

268 REMEDIES

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 de- lay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation. Even though the result disappoint us, must we not base our actions on better expectations, and believe that the pros- perity and happiness of one country promotes that of others, that the solidarity of man is not a fic- tion, and that nations can still afford to treat other nations as fellow-creaturesT

Such changes as I have proposed above might do something appreciable to enable the industrial populations of Europe to continue to earn a liveli- hood. But they would not be enough by them- selves. 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 suit-

REMEDIES 269

cient credit to enable Europe to re-create her stock of circulating capital.

2. The Settlement of Inter-Ally Indebtedness

In proposing a modification of the Reparation terms, I have considered them so far only in rela- tion to Germany. But fairness requires that so great a reduction in the amount should be accom- panied by a readjustment of its apportionment between the Allies themselves. The professions which our statesmen made on every platform dur- ing the war, as well as other considerations, surely require that the areas damaged by the enemy's invasion should receive a priority of compensa- tion. While this was one of the ultimate objects for which we said we were fighting, we never in- cluded 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 pay- ment in favor of Belgium, Serbia, and France. The whole of the payments made by Germany would then be subject to the prior charge of re- pairing the material injury done to those coun- tries and provinces which suffered actual invasion by the enemy; and I believe that the sum of $7,500,000,000 thus available would be adequate to

270 REMEDIES

cover entirely the actual costs of restoration. Further, it is only by a complete subordination of her own claims for cash compensation that Great Britain can ask with clean hands for a revision of

the Treaty and clear her honor from the breach of faith for which she bears the main responsi- bility, as a result of the policy to which the Gen- eral Election of 1918 pledged her representa- tives.

With the Reparation problem thus cleared up it would be possible to bring forward with a better grace and more hope of success two other financial proposals, each of which involves an appeal to the generosity of the United States.

The first is for the entire cancellation of Inter-

Ally indebtedness (that is to say, indebtedness be- tween the Governments of the Allied and Associ-

ated countries) incurred for the purposes of the war. This proposal, which has been put forward already in certain quarters, is one which I believe to be absolutely essential to the future prosperity of the world. It would be an act of far-seeing statesmanship for the United Kingdom and the United States, the two Powers chiefly concerned, to adopt it. The sums of money which are in- volved are shown approximately in the following table :___1

I The figures in this table are partly estimated, and are prob- ably not completely accurate in detail; but they show the ap-

REMEDIES 271

By United By United By France Total Loq_s to States Kingdom

Million Million Million Million Dollars Dollars Dollars Dollars

United Kingdom.. 4,210 .... 4,210

France ..... 2,750 2,540 ........ 5,290 Italy ...... 1,625 2,337, 175 4,135 Russia . 190 2,840 1 800 3,830 Belgium 400 490 i 450 1,340 Serbia and

Jugo*Slavia 100 100 • 100 300 Other Allies. 175 395 250 820

Total ..... 9,450 _ 8,700 1,775 19,92"5

Thus the total volume of Inter-Ally indebted- ness, assuming that loans from one Ally are not set off against loans to another, is nearly $20,000,- 000,000. The United States is a lender only. The United Kingdom has lent about twice as much as she has borrowed. France has borrowed about three times as much as she has lent. The other

Allies have been borrowers only. If all the above Inter-Ally indebtedness were

proximate figures with sufficient accuracy for the purposes of the present argument. The British figures are taken from the White Paper of October 23, 1919 (Cmd. 377). In any actual settlement, adjustments would be required in connection with certain loans of gold and also in other respects, and I am con- cerned in what follows with the broad principle only. The total excludes loans raised by the United Kingdom on the market in the United States, and loans raised by France on the market in the United Kingdom or the United States, or from the Bank of England.

1 This allows nothing for interest on the debt since the Bol- shevik Revolution.

2 No interest has been charged on the advances made to these countries.

8 The actual total of loans by the United States up to date is very nearly $10,000,000,000, but I have not got the latest details.

272 REMEDIES

mutually forgiven, the net result on paper (i.e. assuming all the loans to be good) would be a sur- render by the United States of about $10,000,- 000,000 and by the United Kingdom of about $4,500,000,000. France would gain about $3,500,- 000,000 and Italy about $4,000,000,000. But these figures overstate the loss to the United Kingdom and understate the gain to France; for a large part of the loans made by both these countries has been to Russia and cannot, by any stretch of imagination, be considered good. If the loans which the United Kingdom has made to her Allies are reckoned to be worth 50 per cent of their full value (an arbitrary but convenient assumption which the Chancellor of the Exchequer has adopted on more than one occasion as being as good as any other for the purposes of an approxi- mate 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 liquida- tion of the position would carry with it would be very great. It is from the United States, there- fore, 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

REMEDIES 273

an honorable attempt in other directions, not to continue war, economic or otherwise, but to achieve the economic reeonstitution of the whole Continent. The financial sacrifices of the United

States have been, in proportion to her wealth, im- mensely 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 assist- ance the Allies could never have won the war, 1 quite apart from the decisive influence of the ar- rival of the American troops. Europe, too, should never forget the extraordinary assistance af- forded her during the first six months of 1919 through the agency of Mr. Hoover and the Ameri- can Commission of Relief. Never was a nobler

work of disinterested goodwill carried through with more tenacity and sincerity and skill, and

1 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 finan- cial requirements of those days, can fully realize what stcad- fastness 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.

274 REMEDIES

with less thanks either asked or given. The un- grateful 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 Ameri- can resources placed by the President at their dis- posal, often acting in the teeth of European ob- struction, which _ot only saved an immense amount of human suffering, but averted a widespread breakdown of the European sys- tem. 1

But in speaking thus as we do of American financial assistance, we tacitly assume, and Amer- ica, I believe, assumed it too when she gave the money, that it was not in the nature of an invest- ment. If Europe is going to repay the $10,000,- 000,000 worth of financial assistance which she has had from the United States with compound inter- est at 5 per cent, the matter takes on quite a dif-

1 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 disinterest- edness which, if they had been found in other quarters also, would have given us the Good Peace.

REMEDIES 275

ferentcomplexion.IfAmerica'sadvancesareto beregardedinthislight,herrelativefinancialsac-

rificehasbeenveryslightindeed. Controversiesas to relativesacrificearevery

barrenand very foolishalso;for thereisno

reasonintheworldwhy relativesacrificeshould necessarilybe equal,msomany othervery rele-

vant considerationsbeingquitedifferentin the two cases.The two or threefactsfollowingare put forward,therefore,not tosuggestthatthey

provideany compellingargumentforAmericans, butonlytoshowthatfromhisown selfishpointof view an Englishmanisnot seekingtoavoiddue

sacrificeonhiscountry'spartinmakingthepres- entsuggestion.(1)The sums whichtheBritish TreasuryborrowedfromtheAmericanTreasury,

afterthelattercame intothewar,were approxi- matelyoffsetby thesums whichEnglandlentto her other Allies during the sa_ne period (i.e. ex- cluding sums lent before the United States came into the war); so that almost the whole of Eng- land's indebtedness to the United States was in-

curred, not on her own account, but to enable her to assist the rest of her Allies, who were for vari- ous reasons not in a position to draw their assist- ance from the United States direct: (2) The

1 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.

276 REMEDIES

United Kingdom has disposed of about $5,000,- 000,000 worth of her foreign securities, and in ad- dition has incurred foreign debt to the amount of about $6,000,000,000. The United States, so far from selUng, has bought back upwards of $5,000,- 000,000, and has incurred practically no foreign debt. (3) The population of the United Kingdom is about one-half that of the United States, the income about one-third, and the accumulated wealth between one-half and one-third. The

financial capacity of the United Kingdom may therefore be put at about two-fifths that of the United States. This figure enables us to make the following comparison :--Excluding loans to Allies in each case (as is right on the assumption that these loans are to be repaid), the war expendi- ture of the United Kingdom has been about three times that of the United Sates, or in proportion to capacity between seven and eight times.

Having cleared this issue out of the way as briefly as possible, I turn to the broader issues of the future relations between the parties to the late war, by which the present proposal must pri- marily 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 ex-

REMEDIES 277

ceed 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 in- debtedness 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 un-

less she pays. Take Italy as an extreme example. If Italy can reasonably be expected to pay $4,000,- 000,000, surely Germany can and ought to pay an immeasurably higher figure. Or if it is decided (as it must be) that Austria can pay next to noth- ing, is it not an intolerable conclusion that Italy should be loaded with a crushing tribute, while Austria escapes? Or, to put it slightly differ- ently, how can Italy be expected to submit to pay- ment of this great sum and see Czecho-Slovakia pay little or nothing? At the other end of the scale there is the United Kingdom. Here the finan- cial position is different, since to ask us to pay $4,000,000,000 is a very different proposition from asking Italy to pay it. But the sentiment is much the same. If we have to be satisfied without full

compensation from Germany, how bitter will be

278 REMEDIES

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 Ger- many, France, Italy, and Russia, whereas the United States has secured a first mortgage upon us. The case of France is at least as overwhelm-

ing. She can barely secure from Germany the full measure of the destruction of her countryside. Yet victorious France must pay her friends and hllies 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 exasper-

ated heart, the inevitable truth about the pros- pects 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 con- stant 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 feel-

ings of goodwill from France, Italy, and Russia

REMEDIES 279

towardsthiscountryortowardsAmerica,iftheir

futuredevelopmentisstifledformany yearsto come by theannualtributewhichtheymust pay us. Therewillbea greatincentivetothemtoseek theirfriendsinotherdirections,and any future

ruptureofpeaceablerelationswillalwayscarry

withittheenormousadvantageof escapingthe paymentofexternaldebts.If,on theotherhand, thesegreatdebtsareforgiven,a stimuluswillbe giventothesolidarityand truefriendlinessofthe

nationslatelyassociated.

The existenceofthegreatwar debtsisamenace to financialstabilityeverywhere.There isno European countryinwhich repudiationmay not soonbecomean importantpoliticalissue.In the

caseof internaldebt,however,thereare inter-

estedpartieson both sides,and thequestionis one oftheinternaldistributionofwealth.With

externaldebtsthisisnot so,and the creditor

nationsmay soon findtheirinterestinconveni-

entlybound up withthemaintenanceofa particu- lartypeofgovernmentor economicorganization inthedebtorcountries.Entanglingalliancesor

entanglingleaguesare nothingtothe entangle- mentsofcashowing.

The finalconsiderationinfluencingthereader's attitudetothisproposalmust,however,dependon

hisviewastothefutureplaceintheworld'sprog-

ressof thevastpaper entanglementswhich are

280 REMEDIES

our legacy from war finance both at home and abroad. The war has ended with every one owing every one else immense sums of money. Ger- many 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 arti- ficial, misleading, and vexatious. We shall never be able to move again, unless we can free our limbs from these paper shackles. A general bon- fire is so great a necessity that unless we can make of it an orderly and good-tempered affair in which no serious injustice is done to any one, it will, when it comes at last, grow into a conflagration that may destroy much else as well. As regards internal debt, I am one of those who believe that a capital levy for the extinction of debt is an abso- lute 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

REMEDIES 281

in force and, at one time, by absentee princes under the sanctions of feudalism. It is true that

the need for European capitalism to find an outlet in the New World has led during the past fifty years, though even now on a relatively modest scale, to such countries as Argentine owing an an- nual sum to such countries as England. But the system is fragile; and it has only survived be- cause its burden on the paying countries has not

so far been oppressive, because this burden is rep- resented by real assets and is bound up with the property system generally, and because the snms 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 anal- ogy with it, that a comparable system between Governments, on a far vaster and definitely op- pressive 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 pro- duction, and upon the security of which the pres- ent organization of society largely depends, is not very safe. But however this may be, will the dis-

282 REMEDIES

contented peoples of Europe be willing for a generation to come so to order their lives that an appreciable part of their daily produce may be available to meet a foreign payment, the reason of which, whether as between Europe and America, or as between Germany and the rest of Europe, does not spring compellingly from their sense of justice or duty?

On the one hand, Europe must depend in the long run on her own daily labor and not on the largesse of America; but, on the other hand, she will not pinch herself in order that the fruit of her daily labor may go elsewhere. In short, I do not believe that any of these tributes will continue to be paid, at the best, for more than a very few years. They do not square with human nature or agree with the spirit of the age.

If there is any force in this mode of thought, expediency and generosity agree together, and the policy which will best promote immediate friend- ship between nations will not conflict with the per- manent interests of the benefactor. 1

a 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 pro- gressively worse. But the arrangement wisely offered by the United States Treasury provides a due interval for the calm con- sideration of the whole problem in the light of the after-war pos|tion as it will soon disclose itself.

REMEDIES 283

3. A_t I_ter_ational Loa_

I pass to a second financial proposal. The re- quirements of Europe are immediatv. The pros- pect of being relieved of oppressive interest pay- ments 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,Bthe 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 in- ternational 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 responsi- bility 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 her- self further (after recent experiences) in the af- fairs of Europe, and, anyhow, has for the time being no more capital to spare for export on a

284 REMEDIES

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 ease two or three years hence as she is in now;--M. Klotz will use the money to put off the day of taxation a Uttle longer, Italy and Jugo-Slavia will fight one another on the proceeds, Poland will de- vote it to fulfilling towards all her neighbors the military r61e 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 develop- ments 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 Ger- many, 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 finan- cial 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

REMEDIES 285

they would devote to the furtherance of poUcies 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 naturalpietyand filialloveimpeltheAmerican peopletoputononesideallthesmallerobjections ofprivateadvantageand to completethework,

that they began in saving Europe from the tyrannyof organizedforce,by savingher from herself.And eveniftheconversionisnotfully

accomplished,and somepartiesonlyineachofthe European countrieshave espouseda policyof

reconciliation,Americacanstillpointtheway and holdup thehandsofthepartyofpeaceby having a planand a conditiononwhichshewillgiveher

aidtothework ofrenewinglife. The impulsewhich,we aretold,isnow strong

in the mind of the United States to be quit of the turmoil, the complication, the violence, the ex- pense, and, above all, the n_iutelligibRity of the European problems, is easily understood. No one

286 REMEDIES

can feel more intensely than the writer how natu- ral it is to retort to the folly and impracticability of the European statesmen,taRot, then, in your own too lice, 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 civiliza- tion of all mRn_ndT

Assumiug 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 posi- tion 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

REMEDIES 287

of continental Europe, allied and ex-enemy alike. The aggregate sam required might not be so large

as is sometimes supposed. Much might be done, perhaps, with a fund of $1,000,000,000 in the first instance. This sum, even if a precedent of a dif- ferent kind had been established by the cancella-

tion of Inter-Mly War Debt, should be lent and should be borrowed with the unequivocal inten- tion 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 ulti-

mate repayment as complete as possible. In par- ticular, it should r_n_, both for payment of in- terest and discharge of capital, in front of all Reparation claims, all Inter-Ally War Debt, all

internal war loans, and all other Government in- debtedness of any other kind. Those borrowing countries who will be entitled to Reparation pay-

ments should be required to pledge all such re- ceipts 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 tiffs loan for the purchase of

food and materials, a guarantee fund were estab- lished up to an equal amount, namely $1,000,-

288 REMEDLES

000,000 (of which it would probably prove neoes- sary to find only a part in cash), to which all members of the League of Nations would con- tribute according to their means, it might be prae- ticable to base upon it a general reorganization of the currency.

In this manner Europe might be equipped with the minimum omount of liquid resources neces- sary to revive her hopes, to renew her economic organization, and to enable her great intrinsic wealth to function for the benefit of her workers.

It is useless at the present t_me to elaborate such schemes in further detail. A great change is necessary in public opinion before the proposals of this chapter can enter the region of practical politics, and we must await the progress of events as patiently as we can.

4. The Relations of Central Europe to Russia

I have said very little of Russia in this book. The broad character of the situation there needs

no emphasis, and of the details we know almost nothing authentic. But in a discussion as to how the economic situation of Europe can be restored there are one or two aspects of the Russian ques- tion which are vitally important.

From the military point of view an ultimata nn_on of forces between Russia and Germany is

REMEDIES 289

greatly feared in some quarters. This would be much more likely to take place in the event of re- actionary movements being successful in each of the two countries, whereas an effective nnity of purpose between Lenin and the present essentially middle-class Government of Germany is unthink- able. On the other hand, the same people who fear such a union are even more afraid of the suc-

cess of Bolshevism; and yet they have to recog- nize that the only efficient forces for fighting it are, inside Russia, the reactionaries, and, outside Russia, the established forces of order and author- ity in Germany. Thus the advocates of interven- tion 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 to-

wards 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 ex- pectations which have been built on the financial and economic clauses of the Treaty of Peace.

290 REMEDIES

Therefore Paris does not love Spartacus. But, on the other hand, a victory of reaction in Germany would be regarded by every one as a threat to the security of Europe, and as endangering the fruits of victory and the basis of the Peace. Besides, a new military power establishing itself in the East, with its spiritual home in Brandenburg, drawing to itself all the military talent and all the military adventurers, all those who regret emperors and hate democracy, in the whole of Eastern and Cen- tral and South-Eastern Europe, a power which would be geographically inaccessible to the mili- tary forces of the Allies, might well found, at least in the anticipations of the timid, a new Napoleonic domination, rising, as a phoeniY, 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 Gov- ernment of Germany stands for German unity more perhaps than for anything else; the signa- ture 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 disin- tegration across the Rhine not yet extinguished, can resist no opportunity of insult or indignity, no

REMEDIES 291

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 r61e which France has east for her. She is

to be strong, Catholic, militarist, and faithful, the consort, or at least the favorite, of victorious France, prosperous and magnificent between the ashes of Russia and the ruin of Germany. Rou- mania, if only she could be persuaded to keep up appearances a little more, is a part of the same scatter-brained conception. Yet, unless her great neighbors are prosperous and orderly, Poland is an economic impossibility with no industry but Jew-baiting. And when Poland finds that the se- ductive 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, there- fore, nowhere. Crazy dreams and childish in- trigue in Russia and Poland and thereabouts are the favorite indulgence at present of those Eng- lishmen and Frenchmen who seek excitement in

its least innocent form, and believe, or at least be- have as if foreign policy was of the same genre as a cheap melodrama.

Let us turn, therefore, to something more solid.

292 R_M'I_,DIES

The German Government has announced (October 30, 1919) its continued adhesion to a policy of non-intervention in the internal affairs of Russia, "not only on principle, but because it believes that this policy is also justified from a practical point of view." Let us assume that at last we also

adopt the same standpoint, ff 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 EuropeT Before the war Western and Central Europe

drew from Russia a substantial part of their im- ported 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 bllmper harvests of North America called forth by Mr. Hoover's guaranteed price, but largely by economies of consumption and by pri- vation. 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 apprechbly, and the soil of Europe will not yet have recovered its former productivity. If trade is not resumed with Russia, wheat in 1920-21 (unless the seasons are specially bountiful) must be source and very dear.

REMEDIES 293

The blockade of Russia, lately proclaimed by the All_es, 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 imple- ments 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 sur- pluses in the big centers of distribution.

I see no possible means of repairing this loss of productivity within any reasonable period of time except through the agency of German enterprise and organization. It is impossible geographi- cally and for many other reasons for English- men, 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 incen- tive, and to a large extent the materials for fur- nishing the Russian peasant with the goods of

294 REMEDIES

which he has been starved for the past five years, for reorganizing the business of transport and collection, and so for bringing into the world's pool, for the common advantage, the supplies from which we are now so disastrously cut off. It is in our interest to hasten the day when German agents and organizers will be in a position to set in train in every Russian village the impulses of ordinary economic motive. This is a process quite independent of the governing authority in Russia; but we may surely predict with some certainty that, whether or not the form of communism rep- resented by Soviet government proves perma- nently suited to the Russian temperament, the revival of trade, of the comforts of life and of

ordinary economic _otive are not likely to pro- mote the extreme forms of those doctrines of vio-

lence and tyranny which are the children of war and of despair.

Let us then in our Russian policy not only ap- plaud and imitate the policy of non-intervention which the Government of Germany has an- nounced, but, desisting from a blockade which is injurious to our own permanent interests, as well as illegal, let us encourage and assist Germany to take up again her place in Europe as a creator and organizer of wealth for her Eastern and Southern neighbors.

There are many persons in whom such pro-

REMEDIES 295

posals 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 na- tional, racial, or political hatred for their popula- tions 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 soli- darity which we cannot disregard. Even now, the world markets are one. If we do not allow Ger-

many to exchange products with Russia and so feed herself, she must inevitably compete with us for the produce of the New World. The more sue- cessful we are in snapping economic relations be- tween Germany and Russia, the more we shall de- press 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 develop- ments anywhere. Riots and revolutions there may be, but not such, at present, as to have funda- mental significance. Against political tyranny

296 REMEDIES

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 bank-

ruptcy and decay of Europe, if we allow it to pro- ceed, will affect every one in the long-run, but perhaps not in a way that is striking or im- mediate.

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 in- fluence these hidden currents,--by setting in mo- tion those forces of instruction and imagination which change open, on. The assertion of truth, the unveiling of illusion, the dissipation of hate, the

REMEDIES 297

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 ques- tions of our own material well-being is tempo- rarily eclipsed. The greatest events outside our

own direct experience and the most dreadful an- ticipations 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.

298 REMEDIES

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 gen- eral opinion of the future I dedicate this book.

THE END

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