THE ECONOMIC CONSEQUENCES OF THE PEACE

by

JOHN MAYNARD KEYNES, C. B. Fellow of King's College, Cambridge

New YorkHarcourt, Brace and Howe

1920

PREFACE

The writer of this book was temporarily attached to the BritishTreasury during the war and was their official representative at theParis Peace Conference up to June 7, 1919; he also sat as deputy forthe Chancellor of the Exchequer on the Supreme Economic Council. Heresigned from these positions when it became evident that hope couldno longer be entertained of substantial modification in the draftTerms of Peace. The grounds of his objection to the Treaty, or ratherto the whole policy of the Conference towards the economic problems ofEurope, will appear in the following chapters. They are entirely of apublic character, and are based on facts known to the whole world. 

J. M. Keynes. King's College, Cambridge, November, 1919. 

CONTENTS

 I. INTRODUCTORY II. EUROPE BEFORE THE WARIII. THE CONFERENCE IV. THE TREATY V. REPARATION VI. EUROPE AFTER THE TREATYVII. REMEDIES

THE ECONOMIC CONSEQUENCES OF THE PEACE

CHAPTER I

INTRODUCTORY

The power to become habituated to his surroundings is a markedcharacteristic of mankind. Very few of us realize with conviction theintensely unusual, unstable, complicated, unreliable, temporary natureof the economic organization by which Western Europe has lived for thelast half century. We assume some of the most peculiar and temporary ofour late advantages as natural, permanent, and to be depended on, and welay our plans accordingly. On this sandy and false foundation we schemefor social improvement and dress our political platforms, pursue ouranimosities and particular ambitions, and feel ourselves with enoughmargin in hand to foster, not assuage, civil conflict in the Europeanfamily. Moved by insane delusion and reckless self-regard, the Germanpeople overturned the foundations on which we all lived and built. Butthe spokesmen of the French and British peoples have run the risk ofcompleting the ruin, which Germany began, by a Peace which, if it iscarried into effect, must impair yet further, when it might haverestored, the delicate, complicated organization, already shaken andbroken by war, through which alone the European peoples can employthemselves and live. 

In England the outward aspect of life does not yet teach us to feel orrealize in the least that an age is over. We are busy picking up thethreads of our life where we dropped them, with this difference only, that many of us seem a good deal richer than we were before. Where wespent millions before the war, we have now learnt that we can spendhundreds of millions and apparently not suffer for it. Evidently we didnot exploit to the utmost the possibilities of our economic life. Welook, therefore, not only to a return to the comforts of 1914, but to animmense broadening and intensification of them. All classes alike thusbuild their plans, the rich to spend more and save less, the poor tospend more and work less. 

But perhaps it is only in England (and America) that it is possible tobe so unconscious. In continental Europe the earth heaves and no one butis aware of the rumblings. There it is not just a matter of extravaganceor "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 whichsucceeded the Armistice an occasional visit to London was a strangeexperience. England still stands outside Europe. Europe's voicelesstremors do not reach her. Europe is apart and England is not of herflesh and body. But Europe is solid with herself. France, Germany, Italy, Austria and Holland, Russia and Roumania and Poland, throbtogether, and their structure and civilization are essentially one. Theyflourished together, they have rocked together in a war, which we, inspite of our enormous contributions and sacrifices (like though in aless degree than America), economically stood outside, and they may falltogether. In this lies the destructive significance of the Peace ofParis. If the European Civil War is to end with France and Italy abusingtheir momentary victorious power to destroy Germany and Austria-Hungarynow prostrate, they invite their own destruction also, being so deeplyand inextricably intertwined with their victims by hidden psychic andeconomic bonds. At any rate an Englishman who took part in theConference of Paris and was during those months a member of the SupremeEconomic Council of the Allied Powers, was bound to become, for him anew experience, a European in his cares and outlook. There, at the nervecenter of the European system, his British preoccupations must largelyfall away and he must be haunted by other and more dreadful specters. Paris was a nightmare, and every one there was morbid. A sense ofimpending catastrophe overhung the frivolous scene; the futility andsmallness of man before the great events confronting him; the mingledsignificance and unreality of the decisions; levity, blindness, insolence, confused cries from without, --all the elements of ancienttragedy were there. Seated indeed amid the theatrical trappings of theFrench Saloons of State, one could wonder if the extraordinary visagesof Wilson and of Clemenceau, with their fixed hue and unchangingcharacterization, were really faces at all and not the tragi-comic masksof some strange drama or puppet-show. 

The proceedings of Paris all had this air of extraordinary importanceand unimportance at the same time. The decisions seemed charged withconsequences to the future of human society; yet the air whispered thatthe word was not flesh, that it was futile, insignificant, of no effect, dissociated from events; and one felt most strongly the impression, described by Tolstoy in _War and Peace_ or by Hardy in _The Dynasts_, ofevents marching on to their fated conclusion uninfluenced and unaffectedby the cerebrations of Statesmen in Council:

 _Spirit of the Years_

 Observe that all wide sight and self-command Deserts these throngs now driven to demonry By the Immanent Unrecking. Nought remains But vindictiveness here amid the strong, And there amid the weak an impotent rage. 

 _Spirit of the Pities_

 Why prompts the Will so senseless-shaped a doing?

 _Spirit of the Years_

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

In Paris, where those connected with the Supreme Economic Council, received almost hourly the reports of the misery, disorder, and decayingorganization of all Central and Eastern Europe, allied and enemy alike, and learnt from the lips of the financial representatives of Germany andAustria unanswerable evidence, of the terrible exhaustion of theircountries, an occasional visit to the hot, dry room in the President'shouse, where the Four fulfilled their destinies in empty and aridintrigue, only added to the sense of nightmare. Yet there in Paris theproblems of Europe were terrible and clamant, and an occasional returnto the vast unconcern of London a little disconcerting. For in Londonthese questions were very far away, and our own lesser problems alonetroubling. London believed that Paris was making a great confusion ofits business, but remained uninterested. In this spirit the Britishpeople received the Treaty without reading it. But it is under theinfluence of Paris, not London, that this book has been written by onewho, though an Englishman, feels himself a European also, and, becauseof too vivid recent experience, cannot disinterest himself from thefurther unfolding of the great historic drama of these days which willdestroy great institutions, but may also create a new world. 

CHAPTER II

EUROPE BEFORE THE WAR

Before 1870 different parts of the small continent of Europe hadspecialized in their own products; but, taken as a whole, it wassubstantially self-subsistent. And its population was adjusted to thisstate of affairs. 

After 1870 there was developed on a large scale an unprecedentedsituation, and the economic condition of Europe became during the nextfifty years unstable and peculiar. The pressure of population on food, which had already been balanced by the accessibility of supplies fromAmerica, became for the first time in recorded history definitelyreversed. As numbers increased, food was actually easier to secure. Larger proportional returns from an increasing scale of productionbecame true of agriculture as well as industry. With the growth of theEuropean population there were more emigrants on the one hand to tillthe soil of the new countries, and, on the other, more workmen wereavailable in Europe to prepare the industrial products and capital goodswhich were to maintain the emigrant populations in their new homes, andto build the railways and ships which were to make accessible to Europefood and raw products from distant sources. Up to about 1900 a unit oflabor applied to industry yielded year by year a purchasing power overan increasing quantity of food. It is possible that about the year 1900this process began to be reversed, and a diminishing yield of Nature toman's effort was beginning to reassert itself. But the tendency ofcereals to rise in real cost was balanced by other improvements;and--one of many novelties--the resources of tropical Africa then forthe first time came into large employ, and a great traffic in oil-seedsbegan to bring to the table of Europe in a new and cheaper form one ofthe essential foodstuffs of mankind. In this economic Eldorado, in thiseconomic Utopia, as the earlier economists would have deemed it, most ofus were brought up. 

That happy age lost sight of a view of the world which filled withdeep-seated melancholy the founders of our Political Economy. Before theeighteenth century mankind entertained no false hopes. To lay theillusions which grew popular at that age's latter end, Malthus discloseda Devil. For half a century all serious economical writings held thatDevil in clear prospect. For the next half century he was chained up andout of sight. Now perhaps we have loosed him again. 

What an extraordinary episode in the economic progress of man that agewas which came to an end in August, 1914! The greater part of thepopulation, it is true, worked hard and lived at a low standard ofcomfort, yet were, to all appearances, reasonably contented with thislot. But escape was possible, for any man of capacity or character atall exceeding the average, into the middle and upper classes, for whomlife offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and mostpowerful monarchs of other ages. The inhabitant of London could order bytelephone, sipping his morning tea in bed, the various products of thewhole earth, in such quantity as he might see fit, and reasonably expecttheir early delivery upon his doorstep; he could at the same moment andby the same means adventure his wealth in the natural resources and newenterprises of any quarter of the world, and share, without exertion oreven trouble, in their prospective fruits and advantages; or be coulddecide to couple the security of his fortunes with the good faith of thetownspeople of any substantial municipality in any continent that fancyor information might recommend. He could secure forthwith, if he wishedit, cheap and comfortable means of transit to any country or climatewithout passport or other formality, could despatch his servant to theneighboring office of a bank for such supply of the precious metals asmight seem convenient, and could then proceed abroad to foreignquarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himselfgreatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. Theprojects and politics of militarism and imperialism, of racial andcultural rivalries, of monopolies, restrictions, and exclusion, whichwere to play the serpent to this paradise, were little more than theamusements of his daily newspaper, and appeared to exercise almost noinfluence at all on the ordinary course of social and economic life, theinternationalization of which was nearly complete in practice. 

It will assist us to appreciate the character and consequences of thePeace which we have imposed on our enemies, if I elucidate a littlefurther some of the chief unstable elements already present when warbroke out, in the economic life of Europe. 

I. _Population_

In 1870 Germany had a population of about 40, 000, 000. By 1892 thisfigure had risen to 50, 000, 000, and by June 30, 1914, to about68, 000, 000. In the years immediately preceding the war the annualincrease was about 850, 000, of whom an insignificant proportionemigrated. [1] This great increase was only rendered possible by afar-reaching transformation of the economic structure of the country. From being agricultural and mainly self-supporting, Germany transformedherself into a vast and complicated industrial machine, dependent forits working on the equipoise of many factors outside Germany as well aswithin. Only by operating this machine, continuously and at full blast, could she find occupation at home for her increasing population and themeans of purchasing their subsistence from abroad. The German machinewas like a top which to maintain its equilibrium must spin ever fasterand faster. 

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

To understand the present situation, we must apprehend with vividnesswhat an extraordinary center of population the development of theGermanic system had enabled Central Europe to become. Before the war thepopulation of Germany and Austria-Hungary together not onlysubstantially exceeded that of the United States, but was about equal tothat of the whole of North America. In these numbers, situated within acompact territory, lay the military strength of the Central Powers. Butthese same numbers--for even the war has not appreciably diminishedthem[2]--if deprived of the means of life, remain a hardly less dangerto European order. 

European Russia increased her population in a degree even greater thanGermany--from less than 100, 000, 000 in 1890 to about 150, 000, 000 at theoutbreak of war;[3] and in the year immediately preceding 1914 theexcess of births over deaths in Russia as a whole was at the prodigiousrate of two millions per annum. This inordinate growth in the populationof Russia, which has not been widely noticed in England, has beennevertheless one of the most significant facts of recent years. 

The great events of history are often due to secular changes in thegrowth of population and other fundamental economic causes, which, escaping by their gradual character the notice of contemporaryobservers, are attributed to the follies of statesmen or the fanaticismof atheists. Thus the extraordinary occurrences of the past two years inRussia, that vast upheaval of Society, which has overturned what seemedmost stable--religion, the basis of property, the ownership of land, aswell as forms of government and the hierarchy of classes--may owe moreto the deep influences of expanding numbers than to Lenin or toNicholas; and the disruptive powers of excessive national fecundity mayhave played a greater part in bursting the bonds of convention thaneither the power of ideas or the errors of autocracy. 

II. _Organization_

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

The interference of frontiers and of tariffs was reduced to a minimum, and not far short of three hundred millions of people lived within thethree Empires of Russia, Germany, and Austria-Hungary. The variouscurrencies, which were all maintained on a stable basis in relation togold and to one another, facilitated the easy flow of capital and oftrade to an extent the full value of which we only realize now, when weare deprived of its advantages. Over this great area there was an almostabsolute security of property and of person. 

These factors of order, security, and uniformity, which Europe had neverbefore enjoyed over so wide and populous a territory or for so long aperiod, prepared the way for the organization of that vast mechanism oftransport, coal distribution, and foreign trade which made possible anindustrial order of life in the dense urban centers of new population. This is too well known to require detailed substantiation with figures. But it may be illustrated by the figures for coal, which has been thekey to the industrial growth of Central Europe hardly less than ofEngland; the output of German coal grew from 30, 000, 000 tons in 1871 to70, 000, 000 tons in 1890, 110, 000, 000 tons in 1900, and 190, 000, 000 tonsin 1913. 

Round Germany as a central support the rest of the European economicsystem grouped itself, and on the prosperity and enterprise of Germanythe prosperity of the rest of the Continent mainly depended. Theincreasing pace of Germany gave her neighbors an outlet for theirproducts, in exchange for which the enterprise of the German merchantsupplied them with their chief requirements at a low price. 

The statistics of the economic interdependence of Germany and herneighbors are overwhelming. Germany was the best customer of Russia, Norway, Holland, Belgium, Switzerland, Italy, and Austria-Hungary; shewas the second best customer of Great Britain, Sweden, and Denmark; andthe third best customer of France. She was the largest source of supplyto Russia, Norway, Sweden, Denmark, Holland, Switzerland, Italy, Austria-Hungary, Roumania, and Bulgaria; and the second largest sourceof supply to Great Britain, Belgium, and France. 

In our own case we sent more exports to Germany than to any othercountry in the world except India, and we bought more from her than fromany other country in the world except the United States. 

There was no European country except those west of Germany which did notdo more than a quarter of their total trade with her; and in the case ofRussia, Austria-Hungary, and Holland the proportion was far greater. 

Germany not only furnished these countries with trade, but, in the caseof some of them, supplied a great part of the capital needed for theirown development. Of Germany's pre-war foreign investments, amounting inall to about $6, 250, 000, 000, not far short of $2, 500, 000, 000 wasinvested in Russia, Austria-Hungary, Bulgaria, Roumania, and Turkey. [4]And by the system of "peaceful penetration" she gave these countries notonly capital, but, what they needed hardly less, organization. The wholeof 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 thepopulation to support itself without the co-operation of externalfactors also and of certain general dispositions common to the whole ofEurope. Many of the circumstances already treated were true of Europe asa whole, and were not peculiar to the Central Empires. But all of whatfollows was common to the whole European system. 

III. _The Psychology of Society_

Europe was so organized socially and economically as to secure themaximum accumulation of capital. While there was some continuousimprovement in the daily conditions of life of the mass of thepopulation, Society was so framed as to throw a great part of theincreased income into the control of the class least likely to consumeit. The new rich of the nineteenth century were not brought up to largeexpenditures, and preferred the power which investment gave them to thepleasures of immediate consumption. In fact, it was precisely the_inequality_ of the distribution of wealth which made possible thosevast accumulations of fixed wealth and of capital improvements whichdistinguished that age from all others. Herein lay, in fact, the mainjustification of the Capitalist System. If the rich had spent their newwealth on their own enjoyments, the world would long ago have found sucha régime intolerable. But like bees they saved and accumulated, not lessto the advantage of the whole community because they themselves heldnarrower ends in prospect. 

The immense accumulations of fixed capital which, to the great benefitof mankind, were built up during the half century before the war, couldnever have come about in a Society where wealth was divided equitably. The railways of the world, which that age built as a monument toposterity, were, not less than the Pyramids of Egypt, the work of laborwhich was not free to consume in immediate enjoyment the full equivalentof its efforts. 

Thus this remarkable system depended for its growth on a double bluff ordeception. On the one hand the laboring classes accepted from ignoranceor powerlessness, or were compelled, persuaded, or cajoled by custom, convention, authority, and the well-established order of Society intoaccepting, a situation in which they could call their own very little ofthe cake that they and Nature and the capitalists were co-operating toproduce. And on the other hand the capitalist classes were allowed tocall the best part of the cake theirs and were theoretically free toconsume it, on the tacit underlying condition that they consumed verylittle of it in practice. The duty of "saving" became nine-tenths ofvirtue and the growth of the cake the object of true religion. Theregrew round the non-consumption of the cake all those instincts ofpuritanism which in other ages has withdrawn itself from the world andhas neglected the arts of production as well as those of enjoyment. Andso the cake increased; but to what end was not clearly contemplated. Individuals would be exhorted not so much to abstain as to defer, and tocultivate the pleasures of security and anticipation. Saving was for oldage or for your children; but this was only in theory, --the virtue ofthe cake was that it was never to be consumed, neither by you nor byyour children after you. 

In writing thus I do not necessarily disparage the practices of thatgeneration. In the unconscious recesses of its being Society knew whatit was about. The cake was really very small in proportion to theappetites of consumption, and no one, if it were shared all round, wouldbe much the better off by the cutting of it. Society was working notfor the small pleasures of to-day but for the future security andimprovement of the race, --in fact for "progress. " If only the cake werenot cut but was allowed to grow in the geometrical proportion predictedby Malthus of population, but not less true of compound interest, perhaps a day might come when there would at last be enough to go round, and when posterity could enter into the enjoyment of _our_ labors. Inthat day overwork, overcrowding, and underfeeding would have come to anend, and men, secure of the comforts and necessities of the body, couldproceed to the nobler exercises of their faculties. One geometricalratio might cancel another, and the nineteenth century was able toforget the fertility of the species in a contemplation of the dizzyvirtues of compound interest. 

There were two pitfalls in this prospect: lest, population tilloutstripping accumulation, our self-denials promote not happiness butnumbers; and lest the cake be after all consumed, prematurely, in war, the consumer of all such hopes. 

But these thoughts lead too far from my present purpose. I seek only topoint out that the principle of accumulation based on inequality was avital part of the pre-war order of Society and of progress as we thenunderstood it, and to emphasize that this principle depended on unstablepsychological conditions, which it may be impossible to recreate. Itwas not natural for a population, of whom so few enjoyed the comforts oflife, to accumulate so hugely. The war has disclosed the possibility ofconsumption to all and the vanity of abstinence to many. Thus the bluffis discovered; the laboring classes may be no longer willing to foregoso largely, and the capitalist classes, no longer confident of thefuture, may seek to enjoy more fully their liberties of consumption solong as they last, and thus precipitate the hour of their confiscation. 

IV. _The Relation of the Old World to the New_

The accumulative habits of Europe before the war were the necessarycondition of the greatest of the external factors which maintained theEuropean equipoise. 

Of the surplus capital goods accumulated by Europe a substantial partwas exported abroad, where its investment made possible the developmentof the new resources of food, materials, and transport, and at the sametime enabled the Old World to stake out a claim in the natural wealthand virgin potentialities of the New. This last factor came to be of thevastest importance. The Old World employed with an immense prudence theannual tribute it was thus entitled to draw. The benefit of cheap andabundant supplies resulting from the new developments which its surpluscapital had made possible, was, it is true, enjoyed and not postponed. But the greater part of the money interest accruing on these foreigninvestments was reinvested and allowed to accumulate, as a reserve (itwas then hoped) against the less happy day when the industrial labor ofEurope could no longer purchase on such easy terms the produce of othercontinents, and when the due balance would be threatened between itshistorical civilizations and the multiplying races of other climates andenvironments. Thus the whole of the European races tended to benefitalike from the development of new resources whether they pursued theirculture at home or adventured it abroad. 

Even before the war, however, the equilibrium thus established betweenold civilizations and new resources was being threatened. The prosperityof Europe was based on the facts that, owing to the large exportablesurplus of foodstuffs in America, she was able to purchase food at acheap rate measured in terms of the labor required to produce her ownexports, and that, as a result of her previous investments of capital, she was entitled to a substantial amount annually without any payment inreturn at all. The second of these factors then seemed out of danger, but, as a result of the growth of population overseas, chiefly in theUnited States, the first was not so secure. 

When first the virgin soils of America came into bearing, theproportions of the population of those continents themselves, andconsequently of their own local requirements, to those of Europe werevery small. As lately as 1890 Europe had a population three times thatof North and South America added together. But by 1914 the domesticrequirements of the United States for wheat were approaching theirproduction, and the date was evidently near when there would be anexportable surplus only in years of exceptionally favorable harvest. Indeed, the present domestic requirements of the United States areestimated at more than ninety per cent of the average yield of the fiveyears 1909-1913. [5] At that time, however, the tendency towardsstringency was showing itself, not so much in a lack of abundance as ina steady increase of real cost. That is to say, taking the world as awhole, there was no deficiency of wheat, but in order to call forth anadequate supply it was necessary to offer a higher real price. The mostfavorable factor in the situation was to be found in the extent to whichCentral and Western Europe was being fed from the exportable surplus ofRussia and Roumania. 

In short, Europe's claim on the resources of the New World was becomingprecarious; the law of diminishing returns was at last reassertingitself and was making it necessary year by year for Europe to offer agreater quantity of other commodities to obtain the same amount ofbread; and Europe, therefore, could by no means afford thedisorganization of any of her principal sources of supply. 

Much else might be said in an attempt to portray the economicpeculiarities of the Europe of 1914. I have selected for emphasis thethree or four greatest factors of instability, --the instability of anexcessive population dependent for its livelihood on a complicated andartificial organization, the psychological instability of the laboringand capitalist classes, and the instability of Europe's claim, coupledwith the completeness of her dependence, on the food supplies of the NewWorld. 

The war had so shaken this system as to endanger the life of Europealtogether. A great part of the Continent was sick and dying; itspopulation was greatly in excess of the numbers for which a livelihoodwas available; its organization was destroyed, its transport systemruptured, and its food supplies terribly impaired. 

It was the task of the Peace Conference to honor engagements and tosatisfy justice; but not less to re-establish life and to heal wounds. These tasks were dictated as much by prudence as by the magnanimitywhich the wisdom of antiquity approved in victors. We will examine inthe following chapters the actual character of the Peace. 

FOOTNOTES:

[1] In 1913 there were 25, 843 emigrants from Germany, of whom19, 124 went to the United States. 

[2] The net decrease of the German population at the end of1918 by decline of births and excess of deaths as compared with thebeginning of 1914, is estimated at about 2, 700, 000. 

[3] Including Poland and Finland, but excluding Siberia, Central Asia, and the Caucasus. 

[4] Sums of money mentioned in this book in terms of dollarshave been converted from pounds sterling at the rate of $5 to £1. 

[5] Even since 1914 the population of the United States hasincreased by seven or eight millions. As their annual consumption ofwheat per head is not less than 6 bushels, the pre-war scale ofproduction in the United States would only show a substantial surplusover present domestic requirements in about one year out of five. Wehave been saved for the moment by the great harvests of 1918 and 1919, which have been called forth by Mr. Hoover's guaranteed price. But theUnited States can hardly be expected to continue indefinitely to raiseby a substantial figure the cost of living in its own country, in orderto provide wheat for a Europe which cannot pay for it. 

CHAPTER III

THE CONFERENCE

In Chapters IV. And V. I shall study in some detail the economic andfinancial provisions of the Treaty of Peace with Germany. But it will beeasier to appreciate the true origin of many of these terms if weexamine here some of the personal factors which influenced theirpreparation. In attempting this task, I touch, inevitably, questions ofmotive, on which spectators are liable to error and are not entitled totake on themselves the responsibilities of final judgment. Yet, if Iseem in this chapter to assume sometimes the liberties which arehabitual to historians, but which, in spite of the greater knowledgewith which we speak, we generally hesitate to assume towardscontemporaries, let the reader excuse me when he remembers how greatly, if it is to understand its destiny, the world needs light, even if it ispartial and uncertain, on the complex struggle of human will andpurpose, not yet finished, which, concentrated in the persons of fourindividuals in a manner never paralleled, made them, in the first monthsof 1919, the microcosm of mankind. 

In those parts of the Treaty with which I am here concerned, the leadwas taken by the French, in the sense that it was generally they whomade in the first instance the most definite and the most extremeproposals. This was partly a matter of tactics. When the final result isexpected to be a compromise, it is often prudent to start from anextreme position; and the French anticipated at the outset--like mostother persons--a double process of compromise, first of all to suit theideas of their allies and associates, and secondly in the course of thePeace Conference proper with the Germans themselves. These tactics werejustified by the event. Clemenceau gained a reputation for moderationwith his colleagues in Council by sometimes throwing over with an air ofintellectual impartiality the more extreme proposals of his ministers;and much went through where the American and British critics werenaturally a little ignorant of the true point at issue, or where toopersistent criticism by France's allies put them in a position whichthey felt as invidious, of always appearing to take the enemy's part andto argue his case. Where, therefore, British and American interests werenot seriously involved their criticism grew slack, and some provisionswere thus passed which the French themselves did not take veryseriously, and for which the eleventh-hour decision to allow nodiscussion with the Germans removed the opportunity of remedy. 

But, apart from tactics, the French had a policy. Although Clemenceaumight curtly abandon the claims of a Klotz or a Loucheur, or close hiseyes with an air of fatigue when French interests were no longerinvolved in the discussion, he knew which points were vital, and thesehe abated little. In so far as the main economic lines of the Treatyrepresent an intellectual idea, it is the idea of France and ofClemenceau. 

Clemenceau was by far the most eminent member of the Council of Four, and he had taken the measure of his colleagues. He alone both had anidea and had considered it in all its consequences. His age, hischaracter, his wit, and his appearance joined to give him objectivityand a, defined outline in an environment of confusion. One could notdespise Clemenceau or dislike him, but only take a different view as tothe nature of civilized man, or indulge, at least, a different hope. 

The figure and bearing of Clemenceau are universally familiar. At theCouncil of Four he wore a square-tailed coat of very good, thick blackbroadcloth, and on his hands, which were never uncovered, gray suedegloves; his boots were of thick black leather, very good, but of acountry style, and sometimes fastened in front, curiously, by a buckleinstead of laces. His seat in the room in the President's house, wherethe regular meetings of the Council of Four were held (as distinguishedfrom their private and unattended conferences in a smaller chamberbelow), was on a square brocaded chair in the middle of the semicirclefacing the fireplace, with Signor Orlando on his left, the Presidentnext by the fireplace, and the Prime Minister opposite on the other sideof the fireplace on his right. He carried no papers and no portfolio, and was unattended by any personal secretary, though several Frenchministers and officials appropriate to the particular matter in handwould be present round him. His walk, his hand, and his voice were notlacking in vigor, but he bore nevertheless, especially after the attemptupon him, the aspect of a very old man conserving his strength forimportant occasions. He spoke seldom, leaving the initial statement ofthe French case to his ministers or officials; he closed his eyes oftenand sat back in his chair with an impassive face of parchment, his graygloved hands clasped in front of him. A short sentence, decisive orcynical, was generally sufficient, a question, an unqualifiedabandonment of his ministers, whose face would not be saved, or adisplay of obstinacy reinforced by a few words in a piquantly deliveredEnglish. [6] But speech and passion were not lacking when they werewanted, and the sudden outburst of words, often followed by a fit ofdeep coughing from the chest, produced their impression rather by forceand surprise than by persuasion. 

Not infrequently Mr. Lloyd George, after delivering a speech in English, would, during the period of its interpretation into French, cross thehearthrug to the President to reinforce his case by some _ad hominem_argument in private conversation, or to sound the ground for acompromise, --and this would sometimes be the signal for a generalupheaval and disorder. The President's advisers would press round him, amoment later the British experts would dribble across to learn theresult or see that all was well, and next the French would be there, alittle suspicious lest the others were arranging something behind them, until all the room were on their feet and conversation was general inboth languages. My last and most vivid impression is of such ascene--the President and the Prime Minister as the center of a surgingmob and a babel of sound, a welter of eager, impromptu compromises andcounter-compromises, all sound and fury signifying nothing, on what wasan unreal question anyhow, the great issues of the morning's meetingforgotten and neglected; and Clemenceau silent and aloof on theoutskirts--for nothing which touched the security of France wasforward--throned, in his gray gloves, on the brocade chair, dry in souland empty of hope, very old and tired, but surveying the scene with acynical and almost impish air; and when at last silence was restored andthe company had returned to their places, it was to discover that he haddisappeared. 

He felt about France what Pericles felt of Athens--unique value in her, nothing else mattering; but his theory of politics was Bismarck's. Hehad one illusion--France; and one disillusion--mankind, includingFrenchmen, and his colleagues not least. His principles for the peacecan be expressed simply. In the first place, he was a foremost believerin the view of German psychology that the German understands and canunderstand nothing but intimidation, that he is without generosity orremorse in negotiation, that there is no advantage be will not take ofyou, and no extent to which he will not demean himself for profit, thathe is without honor, pride, or mercy. Therefore you must never negotiatewith a German or conciliate him; you must dictate to him. On no otherterms will he respect you, or will you prevent him from cheating you. But it is doubtful how far he thought these characteristics peculiar toGermany, or whether his candid view of some other nations wasfundamentally different. His philosophy had, therefore, no place for"sentimentality" in international relations. Nations are real things, ofwhom you love one and feel for the rest indifference--or hatred. Theglory of the nation you love is a desirable end, --but generally to beobtained at your neighbor's expense. The politics of power areinevitable, and there is nothing very new to learn about this war or theend it was fought for; England had destroyed, as in each precedingcentury, a trade rival; a mighty chapter had been closed in the secularstruggle between the glories of Germany and of France. Prudence requiredsome measure of lip service to the "ideals" of foolish Americans andhypocritical Englishmen; but it would be stupid to believe that there ismuch room in the world, as it really is, for such affairs as the Leagueof Nations, or any sense in the principle of self-determination exceptas an ingenious formula for rearranging the balance of power in one'sown interests. 

These, however, are generalities. In tracing the practical details ofthe Peace which he thought necessary for the power and the security ofFrance, we must go back to the historical causes which had operatedduring his lifetime. Before the Franco-German war the populations ofFrance and Germany were approximately equal; but the coal and iron andshipping of Germany were in their infancy, and the wealth of France wasgreatly superior. Even after the loss of Alsace-Lorraine there was nogreat discrepancy between the real resources of the two countries. Butin the intervening period the relative position had changed completely. By 1914 the population of Germany was nearly seventy per cent in excessof that of France; she had become one of the first manufacturing andtrading nations of the world; her technical skill and her means for theproduction of future wealth were unequaled. France on the other hand hada stationary or declining population, and, relatively to others, hadfallen seriously behind in wealth and in the power to produce it. 

In spite, therefore, of France's victorious issue from the presentstruggle (with the aid, this time, of England and America), her futureposition remained precarious in the eyes of one who took the view thatEuropean civil war is to be regarded as a normal, or at least arecurrent, state of affairs for the future, and that the sort ofconflicts between organized great powers which have occupied the pasthundred years will also engage the next. According to this vision of thefuture, European history is to be a perpetual prize-fight, of whichFrance has won this round, but of which this round is certainly not thelast. From the belief that essentially the old order does not change, being based on human nature which is always the same, and from aconsequent skepticism of all that class of doctrine which the League ofNations stands for, the policy of France and of Clemenceau followedlogically. For a Peace of magnanimity or of fair and equal treatment, based on such "ideology" as the Fourteen Points of the President, couldonly have the effect of shortening the interval of Germany's recoveryand hastening the day when she will once again hurl at France hergreater numbers and her superior resources and technical skill. Hencethe necessity of "guarantees"; and each guarantee that was taken, byincreasing irritation and thus the probability of a subsequent_Revanche_ by Germany, made necessary yet further provisions to crush. Thus, as soon as this view of the world is adopted and the otherdiscarded, a demand for a Carthaginian Peace is inevitable, to the fullextent of the momentary power to impose it. For Clemenceau made nopretense of considering himself bound by the Fourteen Points and leftchiefly to others such concoctions as were necessary from time to timeto save the scruples or the face of the President. 

So far as possible, therefore, it was the policy of France to set theclock back and to undo what, since 1870, the progress of Germany hadaccomplished. By loss of territory and other measures her population wasto be curtailed; but chiefly the economic system, upon which shedepended for her new strength, the vast fabric built upon iron, coal, and transport must be destroyed. If France could seize, even in part, what Germany was compelled to drop, the inequality of strength betweenthe two rivals for European hegemony might be remedied for manygenerations. 

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

This is the policy of an old man, whose most vivid impressions and mostlively imagination are of the past and not of the future. He sees theissue in terms, of France and Germany not of humanity and of Europeancivilization struggling forwards to a new order. The war has bitten intohis consciousness somewhat differently from ours, and he neither expectsnor hopes that we are at the threshold of a new age. 

It happens, however, that it is not only an ideal question that is atissue. My purpose in this book is to show that the Carthaginian Peace isnot _practically_ right or possible. Although the school of thought fromwhich it springs is aware of the economic factor, it overlooks, nevertheless, the deeper economic tendencies which are to govern thefuture. The clock cannot be set back. You cannot restore Central Europeto 1870 without setting up such strains in the European structure andletting loose such human and spiritual forces as, pushing beyondfrontiers and races, will overwhelm not only you and your "guarantees, "but your institutions, and the existing order of your Society. 

By what legerdemain was this policy substituted for the Fourteen Points, and how did the President come to accept it? The answer to thesequestions is difficult and depends on elements of character andpsychology and on the subtle influence of surroundings, which are hardto detect and harder still to describe. But, if ever the action of asingle individual matters, the collapse of The President has been one ofthe decisive moral events of history; and I must make an attempt toexplain it. What a place the President held in the hearts and hopes ofthe world when he sailed to us in the _George Washington!_ What a greatman came to Europe in those early days of our victory!

In November, 1918, the armies of Foch and the words of Wilson hadbrought us sudden escape from what was swallowing up all we cared for. The conditions seemed favorable beyond any expectation. The victory wasso complete that fear need play no part in the settlement. The enemyhad laid down his arms in reliance on a solemn compact as to the generalcharacter of the Peace, the terms of which seemed to assure a settlementof justice and magnanimity and a fair hope for a restoration of thebroken current of life. To make assurance certain the President wascoming himself to set the seal on his work. 

When President Wilson left Washington he enjoyed a prestige and a moralinfluence throughout the world unequaled in history. His bold andmeasured words carried to the peoples of Europe above and beyond thevoices of their own politicians. The enemy peoples trusted him to carryout the compact he had made with them; and the Allied peoplesacknowledged him not as a victor only but almost as a prophet. Inaddition to this moral influence the realities of power were in hishands. The American armies were at the height of their numbers, discipline, and equipment. Europe was in complete dependence on the foodsupplies of the United States; and financially she was even moreabsolutely at their mercy. Europe not only already owed the UnitedStates more than she could pay; but only a large measure of furtherassistance could save her from starvation and bankruptcy. Never had aphilosopher held such weapons wherewith to bind the princes of thisworld. How the crowds of the European capitals pressed about thecarriage of the President! With what curiosity, anxiety, and hope wesought 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 ancientparent of his civilization and lay for us the foundations of the future. 

The disillusion was so complete, that some of those who had trusted mosthardly dared speak of it. Could it be true? they asked of those whoreturned from Paris. Was the Treaty really as bad as it seemed? What hadhappened to the President? What weakness or what misfortune had led toso extraordinary, so unlooked-for a betrayal?

Yet the causes were very ordinary and human. The President was not ahero or a prophet; he was not even a philosopher; but a generouslyintentioned man, with many of the weaknesses of other human beings, andlacking that dominating intellectual equipment which would have beennecessary to cope with the subtle and dangerous spellbinders whom atremendous clash of forces and personalities had brought to the top astriumphant masters in the swift game of give and take, face to face inCouncil, --a game of which he had no experience at all. 

We had indeed quite a wrong idea of the President. We knew him to besolitary and aloof, and believed him very strong-willed and obstinate. We did not figure him as a man of detail, but the clearness with whichhe had taken hold of certain main ideas would, we thought, incombination with his tenacity, enable him to sweep through cobwebs. Besides these qualities he would have the objectivity, the cultivation, and the wide knowledge of the student. The great distinction of languagewhich had marked his famous Notes seemed to indicate a man of lofty andpowerful imagination. His portraits indicated a fine presence and acommanding delivery. With all this he had attained and held withincreasing authority the first position in a country where the arts ofthe politician are not neglected. All of which, without expecting theimpossible, seemed a fine combination of qualities for the matter inhand. 

The first impression of Mr. Wilson at close quarters was to impair somebut not all of these illusions. His head and features were finely cutand exactly like his photographs, and the muscles of his neck and thecarriage of his head were distinguished. But, like Odysseus, thePresident looked wiser when he was seated; and his hands, though capableand fairly strong, were wanting in sensitiveness and finesse. The firstglance at the President suggested not only that, whatever else he mightbe, his temperament was not primarily that of the student or thescholar, but that he had not much even of that culture of the worldwhich marks M. Clemenceau and Mr. Balfour as exquisitely cultivatedgentlemen of their class and generation. But more serious than this, hewas not only insensitive to his surroundings in the external sense, hewas not sensitive to his environment at all. What chance could such aman have against Mr. Lloyd George's unerring, almost medium-like, sensibility to every one immediately round him? To see the British PrimeMinister watching the company, with six or seven senses not available toordinary men, judging character, motive, and subconscious impulse, perceiving what each was thinking and even what each was going to saynext, and compounding with telepathic instinct the argument or appealbest suited to the vanity, weakness, or self-interest of his immediateauditor, was to realize that the poor President would be playing blindman's buff in that party. Never could a man have stepped into the parlora more perfect and predestined victim to the finished accomplishments ofthe Prime Minister. The Old World was tough in wickedness anyhow; theOld World's heart of stone might blunt the sharpest blade of the bravestknight-errant. But this blind and deaf Don Quixote was entering a cavernwhere the swift and glittering blade was in the hands of the adversary. 

But if the President was not the philosopher-king, what was he? Afterall he was a man who had spent much of his life at a University. He wasby no means a business man or an ordinary party politician, but a man offorce, personality, and importance. What, then, was his temperament?

The clue once found was illuminating. The President was like aNonconformist minister, perhaps a Presbyterian. His thought and histemperament wore essentially theological not intellectual, with all thestrength and the weakness of that manner of thought, feeling, andexpression. It is a type of which there are not now in England andScotland such magnificent specimens as formerly; but this description, nevertheless, will give the ordinary Englishman the distinctestimpression of the President. 

With this picture of him in mind, we can return to the actual course ofevents. The President's program for the World, as set forth in hisspeeches and his Notes, had displayed a spirit and a purpose soadmirable that the last desire of his sympathizers was to criticizedetails, --the details, they felt, were quite rightly not filled in atpresent, but would be in due course. It was commonly believed at thecommencement of the Paris Conference that the President had thought out, with the aid of a large body of advisers, a comprehensive scheme notonly for the League of Nations, but for the embodiment of the FourteenPoints in an actual Treaty of Peace. But in fact the President hadthought out nothing; when it came to practice his ideas were nebulousand incomplete. He had no plan, no scheme, no constructive ideaswhatever for clothing with the flesh of life the commandments which hehad thundered from the White House. He could have preached a sermon onany of them or have addressed a stately prayer to the Almighty for theirfulfilment; but he could not frame their concrete application to theactual 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 onlywas he ill-informed--that was true of Mr. Lloyd George also--but hismind was slow and unadaptable. The President's slowness amongst theEuropeans was noteworthy. He could not, all in a minute, take in whatthe rest were saying, size up the situation with a glance, frame areply, and meet the case by a slight change of ground; and he wasliable, therefore, to defeat by the mere swiftness, apprehension, andagility of a Lloyd George. There can seldom have been a statesman of thefirst rank more incompetent than the President in the agilities of thecouncil chamber. A moment often arrives when substantial victory isyours if by some slight appearance of a concession you can save the faceof the opposition or conciliate them by a restatement of your proposalhelpful to them and not injurious to anything essential to yourself. ThePresident was not equipped with this simple and usual artfulness. Hismind was too slow and unresourceful to be ready with _any_ alternatives. The President was capable of digging his toes in and refusing to budge, as he did over Fiume. But he had no other mode of defense, and it neededas a rule but little manoeuvering by his opponents to prevent mattersfrom coming to such a head until it was too late. By pleasantness and anappearance of conciliation, the President would be manoeuvered off hisground, would miss the moment for digging his toes in, and, before heknew where he had been got to, it was too late. Besides, it isimpossible month after month in intimate and ostensibly friendlyconverse between close associates, to be digging the toes in all thetime. Victory would only have been possible to one who had always asufficiently lively apprehension of the position as a whole to reservehis fire and know for certain the rare exact moments for decisiveaction. And for that the President was far too slow-minded andbewildered. 

He did not remedy these defects by seeking aid from the collectivewisdom of his lieutenants. He had gathered round him for the economicchapters of the Treaty a very able group of business men; but they wereinexperienced in public affairs, and knew (with one or two exceptions)as little of Europe as he did, and they were only called in irregularlyas he might need them for a particular purpose. Thus the aloofness whichhad been found effective in Washington was maintained, and the abnormalreserve of his nature did not allow near him any one who aspired tomoral equality or the continuous exercise of influence. Hisfellow-plenipotentiaries were dummies; and even the trusted ColonelHouse, with vastly more knowledge of men and of Europe than thePresident, from whose sensitiveness the President's dullness had gainedso much, fell into the background as time went on. All this wasencouraged by his colleagues on the Council of Four, who, by thebreak-up of the Council of Ten, completed the isolation which thePresident's own temperament had initiated. Thus day after day and weekafter week, he allowed himself to be closeted, unsupported, unadvised, and alone, with men much sharper than himself, in situations of supremedifficulty, where be needed for success every description of resource, fertility, and knowledge. He allowed himself to be drugged by theiratmosphere, 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 followingsituation. The reader must remember that the processes which are herecompressed 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 generallyworking on the basis of a French or British draft. He had to take up, therefore, a persistent attitude of obstruction, criticism, andnegation, if the draft was to become at all in line with his own ideasand purpose. If he was met on some points with apparent generosity (forthere was always a safe margin of quite preposterous suggestions whichno one took seriously), it was difficult for him not to yield on others. Compromise was inevitable, and never to compromise on the essential, very difficult. Besides, he was soon made to appear to be taking theGerman part and laid himself open to the suggestion (to which he wasfoolishly and unfortunately sensitive) of being "pro-German. "

After a display of much principle and dignity in the early days of theCouncil of Ten, he discovered that there were certain very importantpoints in the program of his French, British, or Italian colleague, asthe case might be, of which he was incapable of securing the surrenderby the methods of secret diplomacy. What then was he to do in the lastresort? He could let the Conference drag on an endless length by theexercise of sheer obstinacy. He could break it up and return to Americain a rage with nothing settled. Or he could attempt an appeal to theworld over the heads of the Conference. These were wretchedalternatives, against each of which a great deal could be said. Theywere also very risky, --especially for a politician. The President'smistaken policy over the Congressional election had weakened hispersonal position in his own country, and it was by no means certainthat the American public would support him in a position ofintransigeancy. It would mean a campaign in which the issues would beclouded by every sort of personal and party consideration, and who couldsay if right would triumph in a struggle which would certainly not bedecided on its merits? Besides, any open rupture with his colleagueswould certainly bring upon his head the blind passions of "anti-German"resentment with which the public of all allied countries were stillinspired. They would not listen to his arguments. They would not be coolenough to treat the issue as one of international morality or of theright governance of Europe. The cry would simply be that, for varioussinister and selfish reasons, the President wished "to let the Hun off. "The almost unanimous voice of the French and British Press could beanticipated. Thus, if he threw down the gage publicly he might bedefeated. And if he were defeated, would not the final Peace be farworse than if he were to retain his prestige and endeavor to make it asgood as the limiting conditions of European politics would allow, him?But above all, if he were defeated, would he not lose the League ofNations? And was not this, after all, by far the most important issuefor the future happiness of the world? The Treaty would be altered andsoftened by time. Much in it which now seemed so vital would becometrifling, and much which was impracticable would for that very reasonnever happen. But the League, even in an imperfect form, was permanent;it was the first commencement of a new principle in the government ofthe world; Truth and Justice in international relations could not beestablished in a few months, --they must be born in due course by theslow gestation of the League. Clemenceau had been clever enough to letit be seen that he would swallow the League at a price. 

At the crisis of his fortunes the President was a lonely man. Caught upin the toils of the Old World, he stood in great need of sympathy, ofmoral support, of the enthusiasm of masses. But buried in theConference, stifled in the hot and poisoned atmosphere of Paris, no echoreached him from the outer world, and no throb of passion, sympathy, orencouragement from his silent constituents in all countries. He feltthat the blaze of popularity which had greeted his arrival in Europewas already dimmed; the Paris Press jeered at him openly; his politicalopponents at home were taking advantage of his absence to create anatmosphere against him; England was cold, critical, and unresponsive. Hehad so formed his _entourage_ that he did not receive through privatechannels the current of faith and enthusiasm of which the public sourcesseemed dammed up. He needed, but lacked, the added strength ofcollective faith. The German terror still overhung us, and even thesympathetic public was very cautious; the enemy must not be encouraged, our friends must be supported, this was not the time for discord oragitations, the President must be trusted to do his best. And in thisdrought the flower of the President's faith withered and dried up. 

Thus it came to pass that the President countermanded the _GeorgeWashington_, which, in a moment of well-founded rage, he had ordered tobe in readiness to carry him from the treacherous halls of Paris back tothe seat of his authority, where he could have felt himself again. Butas soon, alas, as be had taken the road of compromise, the defects, already indicated, of his temperament and of his equipment, were fatallyapparent. He could take the high line; he could practise obstinacy; hecould write Notes from Sinai or Olympus; he could remain unapproachablein the White House or even in the Council of Ten and be safe. But if heonce stepped down to the intimate equality of the Four, the game wasevidently up. 

Now it was that what I have called his theological or Presbyteriantemperament became dangerous. Having decided that some concessions wereunavoidable, he might have sought by firmness and address and the use ofthe financial power of the United States to secure as much as he couldof the substance, even at some sacrifice of the letter. But thePresident was not capable of so clear an understanding with himself asthis implied. He was too conscientious. Although compromises were nownecessary, he remained a man of principle and the Fourteen Points acontract absolutely binding upon him. He would do nothing that was nothonorable; he would do nothing that was not just and right; he would donothing that was contrary to his great profession of faith. Thus, without any abatement of the verbal inspiration of the Fourteen Points, they became a document for gloss and interpretation and for all theintellectual apparatus of self-deception, by which, I daresay, thePresident's forefathers had persuaded themselves that the course theythought it necessary to take was consistent with every syllable of thePentateuch. 

The President's attitude to his colleagues had now become: I want tomeet you so far as I can; I see your difficulties and I should like tobe able to agree to what you propose; but I can do nothing that is notjust and right, and you must first of all show me that what you wantdoes really fall within the words of the pronouncements which arebinding on me. Then began the weaving of that web of sophistry andJesuitical exegesis that was finally to clothe with insincerity thelanguage and substance of the whole Treaty. The word was issued to thewitches 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 towork, and produced many ingenious exercises which might have deceivedfor more than an hour a cleverer man than the President. 

Thus instead of saying that German-Austria is prohibited from unitingwith Germany except by leave of France (which would be inconsistent withthe principle of self-determination), the Treaty, with delicatedraftsmanship, states that "Germany acknowledges and will respectstrictly the independence of Austria, within the frontiers which may befixed in a Treaty between that State and the Principal Allied andAssociated Powers; she agrees that this independence shall beinalienable, except with the consent of the Council of the League ofNations, " which sounds, but is not, quite different. And who knows butthat the President forgot that another part of the Treaty provides thatfor 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 Customsfrontier, entrusts to Poland the control of the river and railwaysystem, and provides that "the Polish Government shall undertake theconduct of the foreign relations of the Free City of Danzig as well asthe diplomatic protection of citizens of that city when abroad. "

In placing the river system of Germany under foreign control, the Treatyspeaks of declaring international those "river systems which naturallyprovide more than one State with access to the sea, with or withouttranshipment from one vessel to another. "

Such instances could be multiplied. The honest and intelligible purposeof French policy, to limit the population of Germany and weaken hereconomic system, is clothed, for the President's sake, in the augustlanguage of freedom and international equality. 

But perhaps the most decisive moment, in the disintegration of thePresident's moral position and the clouding of his mind, was when atlast, to the dismay of his advisers, he allowed himself to be persuadedthat the expenditure of the Allied Governments on pensions andseparation allowances could be fairly regarded as "damage done to thecivilian population of the Allied and Associated Powers by Germanaggression by land, by sea, and from the air, " in a sense in which theother expenses of the war could not be so regarded. It was a longtheological struggle in which, after the rejection of many differentarguments, the President finally capitulated before a masterpiece of thesophist's art. 

At last the work was finished; and the President's conscience was stillintact. In spite of everything, I believe that his temperament allowedhim to leave Paris a really sincere man; and it is probable that to thisday he is genuinely convinced that the Treaty contains practicallynothing inconsistent with his former professions. 

But the work was too complete, and to this was due the last tragicepisode of the drama. The reply of Brockdorff-Rantzau inevitably tookthe line that Germany had laid down her arms on the basis of certainassurances, and that the Treaty in many particulars was not consistentwith these assurances. But this was exactly what the President could notadmit; in the sweat of solitary contemplation and with prayers to Godbe had done _nothing_ that was not just and right; for the President toadmit that the German reply had force in it was to destroy hisself-respect and to disrupt the inner equipoise of his soul; and everyinstinct of his stubborn nature rose in self-protection. In the languageof medical psychology, to suggest to the President that the Treaty wasan abandonment of his professions was to touch on the raw a Freudiancomplex. It was a subject intolerable to discuss, and every subconsciousinstinct plotted to defeat its further exploration. 

Thus it was that Clemenceau brought to success, what had seemed to be, afew months before, the extraordinary and impossible proposal that theGermans should not be heard. If only the President had not been soconscientious, if only he had not concealed from himself what he hadbeen doing, even at the last moment he was in, a position to haverecovered lost ground and to have achieved some very considerablesuccesses. But the President was set. His arms and legs had been splicedby the surgeons to a certain posture, and they must be broken againbefore they could be altered. To his horror, Mr. Lloyd George, desiringat the last moment all the moderation he dared, discovered that he couldnot in five days persuade the President of error in what it had takenfive months to prove to him to be just and right. After all, it washarder to de-bamboozle this old Presbyterian than it had been tobamboozle him; for the former involved his belief in and respect forhimself. 

Thus in the last act the President stood for stubbornness and a refusalof conciliations. 

FOOTNOTES:

[6] He alone amongst the Four could speak and understand bothlanguages, Orlando knowing only French and the Prime Minister andPresident only English; and it is of historical importance that Orlandoand the President had no direct means of communication. 

CHAPTER IV

THE TREATY

The thoughts which I have expressed in the second chapter were notpresent to the mind of Paris. The future life of Europe was not theirconcern; its means of livelihood was not their anxiety. Theirpreoccupations, good and bad alike, related to frontiers andnationalities, to the balance of power, to imperial aggrandizements, tothe future enfeeblement of a strong and dangerous enemy, to revenge, andto the shifting by the victors of their unbearable financial burdens onto the shoulders of the defeated. 

Two rival schemes for the future polity of the world took thefield, --the Fourteen Points of the President, and the Carthaginian Peaceof M. Clemenceau. Yet only one of these was entitled to take the field;for the enemy had not surrendered unconditionally, but on agreed termsas to the general character of the Peace. 

This aspect of what happened cannot, unfortunately, be passed over witha word, for in the minds of many Englishmen at least it has been asubject of very great misapprehension. Many persons believe that theArmistice Terms constituted the first Contract concluded between theAllied and Associated Powers and the German Government, and that weentered the Conference with our hands, free, except so far as theseArmistice Terms might bind us. This was not the case. To make theposition plain, it is necessary briefly to review the history, of thenegotiations which began with the German Note of October 5, 1918, andconcluded with President Wilson's Note of November 5, 1918. 

On October 5, 1918, the German Government addressed a brief Note to thePresident accepting the Fourteen Points and asking for Peacenegotiations. The President's reply of October 8 asked if he was tounderstand definitely that the German Government accepted "the termslaid down" in Fourteen Points and in his subsequent Addresses and "thatits object in entering into discussion would be only to agree upon thepractical details of their application. " He added that the evacuation ofinvaded territory must be a prior condition of an Armistice. On October12 the German Government returned an unconditional affirmative to thesequestions;-"its object in entering into discussions would be only toagree upon practical details of the application of these terms. " OnOctober 14, having received this affirmative answer, the President madea further communication to make clear the points: (1) that the detailsof the Armistice would have to be left to the military advisers of theUnited States and the Allies, and must provide absolutely against thepossibility of Germany's resuming hostilities; (2) that submarinewarfare must cease if these conversations were to continue; and (3) thathe required further guarantees of the representative character of theGovernment with which he was dealing. On October 20 Germany acceptedpoints (1) and (2), and pointed out, as regards (3), that she now had aConstitution and a Government dependent for its authority on theReichstag. On October 23 the President announced that, "having receivedthe solemn and explicit assurance of the German Government that itunreservedly accepts the terms of peace laid down in his Address to theCongress of the United States on January 8, 1918 (the Fourteen Points), and the principles of settlement enunciated in his subsequent Addresses, particularly the Address of September 27, and that it is ready todiscuss the details of their application, " he has communicated the abovecorrespondence to the Governments of the Allied Powers "with thesuggestion that, if these Governments are disposed to effect peace uponthe terms and principles indicated, " they will ask their militaryadvisers to draw up Armistice Terms of such a character as to "ensure tothe Associated Governments the unrestricted power to safeguard andenforce the details of the peace to which the German Government hasagreed. " At the end of this Note the President hinted more openly thanin that of October 14 at the abdication of the Kaiser. This completesthe preliminary negotiations to which the President alone was a party, adding without the Governments of the Allied Powers. 

On November 5, 1918, the President transmitted to Germany the reply hehad received from the Governments associated with him, and added thatMarshal Foch had been authorized to communicate the terms of anarmistice to properly accredited representatives. In this reply theAllied Governments, "subject to the qualifications which follow, declaretheir willingness to make peace with the Government of Germany on theterms of peace laid down in the President's Address to Congress ofJanuary 8, 1918, and the principles of settlement enunciated in hissubsequent Addresses. " The qualifications in question were two innumber. The first related to the Freedom of the Seas, as to which they"reserved to themselves complete freedom. " The second related toReparation and ran as follows:--"Further, in the conditions of peacelaid down in his Address to Congress on the 8th January, 1918 thePresident declared that invaded territories must be restored as well asevacuated and made free. The Allied Governments feel that no doubtought to be allowed to exist as to what this provision implies. By itthey understand that compensation will be made by Germany for all damagedone to the civilian population of the Allies and to their property bythe aggression of Germany by land, by sea, and from the air. "[7]

The nature of the Contract between Germany and the Allies resulting fromthis exchange of documents is plain and unequivocal. The terms of thepeace are to be in accordance with the Addresses of the President, andthe purpose of the Peace Conference is "to discuss the details of theirapplication. " The circumstances of the Contract were of an unusuallysolemn and binding character; for one of the conditions of it was thatGermany should agree to Armistice Terms which were to be such as wouldleave her helpless. Germany having rendered herself helpless in relianceon the Contract, the honor of the Allies was peculiarly involved infulfilling their part and, if there were ambiguities, in not using theirposition to take advantage of them. 

What, then, was the substance of this Contract to which the Allies hadbound themselves? An examination of the documents shows that, although alarge part of the Addresses is concerned with spirit, purpose, andintention, and not with concrete solutions, and that many questionsrequiring a settlement in the Peace Treaty are not touched on, nevertheless, there are certain questions which they settle definitely. It is true that within somewhat wide limits the Allies still had a freehand. Further, it is difficult to apply on a contractual basis thosepassages which deal with spirit, purpose, and intention;--every man mustjudge for himself whether, in view of them, deception or hypocrisy hasbeen practised. But there remain, as will be seen below, certainimportant issues on which the Contract is unequivocal. 

In addition to the Fourteen Points of January 18, 1918, the Addresses ofthe President which form part of the material of the Contract are fourin number, --before the Congress on February 11; at Baltimore on April 6;at Mount Vernon on July 4; and at New York on September 27, the last ofthese being specially referred to in the Contract. I venture to selectfrom these Addresses those engagements of substance, avoidingrepetitions, which are most relevant to the German Treaty. The parts Iomit add to, rather than detract from, those I quote; but they chieflyrelate to intention, and are perhaps too vague and general to beinterpreted contractually. [8]

_The Fourteen Points_. --(3). "The removal, so far as possible, of alleconomic barriers and the establishment of an equality of tradeconditions among _all_ the nations consenting to the Peace andassociating themselves for its maintenance. " (4). "Adequate guarantees_given and taken_ that national armaments will be reduced to the lowestpoint consistent with domestic safety. " (5). "A free, open-minded, andabsolutely impartial adjustment of all colonial claims, " regard beinghad 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 theirproperty by land, by sea, and from the air (quoted in full above). (8). The righting of "the wrong done to France by Prussia in 1871 in thematter of Alsace-Lorraine. " (13). An independent Poland, including "theterritories inhabited by indisputably Polish populations" and "assured afree and secure access to the sea. " (14). The League of Nations. 

_Before the Congress, February 11_. --"There shall be no annexations, _nocontributions, no punitive damages_. .. . Self-determination is not amere phrase. It is an imperative principle of action which statesmenwill henceforth ignore at their peril. .. . Every territorial settlementinvolved in this war must be made in the interest and for the benefit ofthe populations concerned, and not as a part of any mere adjustment orcompromise of claims amongst rival States. "

_New York, September 27_. --(1) "The impartial justice meted out mustinvolve no discrimination between those to whom we wish to be just andthose to whom we do not wish to be just. " (2) "No special or separateinterest of any single nation or any group of nations can be made thebasis of any part of the settlement which is not consistent with thecommon interest of all. " (3) "There can be no leagues or alliances orspecial covenants and understandings within the general and commonfamily of the League of Nations. " (4) "There can be no special selfisheconomic combinations within the League and no employment of any form ofeconomic boycott or exclusion, except as the power of economic penaltyby exclusion from the markets of the world may be vested in the Leagueof Nations itself as a means of discipline and control. " (5) "Allinternational agreements and treaties of every kind must be made knownin their entirety to the rest of the world. "

This wise and magnanimous program for the world had passed on November5, 1918 beyond the region of idealism and aspiration, and had becomepart of a solemn contract to which all the Great Powers of the world hadput their signature. But it was lost, nevertheless, in the morass ofParis;--the spirit of it altogether, the letter in parts ignored and inother parts distorted. 

The German observations on the draft Treaty of Peace were largely acomparison between the terms of this understanding, on the basis ofwhich the German nation had agreed to lay down its arms, and the actualprovisions of the document offered them for signature thereafter. TheGerman commentators had little difficulty in showing that the draftTreaty constituted a breach of engagements and of international moralitycomparable with their own offense in the invasion of Belgium. Nevertheless, the German reply was not in all its parts a document fullyworthy of the occasion, because in spite of the justice and importanceof much of its contents, a truly broad treatment and high dignify ofoutlook were a little wanting, and the general effect lacks the simpletreatment, with the dispassionate objectivity of despair which the deeppassions of the occasion might have evoked. The Allied governments gaveit, in any case, no serious consideration, and I doubt if anything whichthe German delegation could have said at that stage of the proceedingswould have much influenced the result. 

The commonest virtues of the individual are often lacking in thespokesmen of nations; a statesman representing not himself but hiscountry may prove, without incurring excessive blame--as history oftenrecords--vindictive, perfidious, and egotistic. These qualities arefamiliar in treaties imposed by victors. But the German delegation didnot succeed in exposing in burning and prophetic words the quality whichchiefly distinguishes this transaction from all its historicalpredecessors--its insincerity. 

This theme, however, must be for another pen than mine. I am mainlyconcerned in what follows, not with the justice of the Treaty, --neitherwith the demand for penal justice against the enemy, nor with theobligation of contractual justice on the victor, --but with its wisdomand with its consequences. 

I propose, therefore, in this chapter to set forth baldly the principaleconomic provisions of the Treaty, reserving, however, for the next mycomments on the Reparation Chapter and on Germany's capacity to meet thepayments there demanded from her. 

The German economic system as it existed before the war depended onthree main factors: I. Overseas commerce as represented by hermercantile marine, her colonies, her foreign investments, her exports, and the overseas connections of her merchants; II. The exploitation ofher coal and iron and the industries built upon them; III. Her transportand tariff system. Of these the first, while not the least important, was certainly the most vulnerable. The Treaty aims at the systematicdestruction of all three, but principally of the first two. 

I

(1) Germany has ceded to the Allies _all_ the vessels of her mercantilemarine exceeding 1600 tons gross, half the vessels between 1000 tons and1600 tons, and one quarter of her trawlers and other fishing boats. [9]The cession is comprehensive, including not only vessels flying theGerman flag, but also all vessels owned by Germans but flying otherflags, and all vessels under construction as well as those afloat. [10]Further, Germany undertakes, if required, to build for the Allies suchtypes of ships as they may specify up to 200, 000 tons[11] annually forfive years, the value of these ships being credited to Germany againstwhat is due from her for Reparation. [12]

Thus the German mercantile marine is swept from the seas and cannot berestored for many years to come on a scale adequate to meet therequirements of her own commerce. For the present, no lines will runfrom Hamburg, except such as foreign nations may find it worth while toestablish out of their surplus tonnage. Germany will have to pay toforeigners for the carriage of her trade such charges as they may beable to exact, and will receive only such conveniences as it may suitthem to give her. The prosperity of German ports and commerce can onlyrevive, it would seem, in proportion as she succeeds in bringing underher effective influence the merchant marines of Scandinavia and ofHolland. 

(2) Germany has ceded to the Allies "all her rights and titles over heroversea possessions. "[13] This cession not only applies to sovereigntybut extends on unfavorable terms to Government property, all of which, including railways, must be surrendered without payment, while, on theother hand, the German Government remains liable for any debt which mayhave been incurred for the purchase or construction of this property, orfor the development of the colonies generally. [14]

In distinction from the practice ruling in the case of most similarcessions in recent history, the property and persons of private Germannationals, as distinct from their Government, are also injuriouslyaffected. The Allied Government exercising authority in any formerGerman colony "may make such provisions as it thinks fit with referenceto the repatriation from them of German nationals and to the conditionsupon which German subjects of European origin shall, or shall not, beallowed to reside, hold property, trade or exercise a profession inthem. "[15] All contracts and agreements in favor of German nationals forthe construction or exploitation of public works lapse to the AlliedGovernments as part of the payment due for Reparation. 

But these terms are unimportant compared with the more comprehensiveprovision by which "the Allied and Associated Powers reserve the rightto retain and liquidate _all_ property, rights, and interests belongingat the date of the coming into force of the present Treaty to Germannationals, or companies controlled by them, " within the former Germancolonies. [16] This wholesale expropriation of private property is totake place without the Allies affording any compensation to theindividuals expropriated, and the proceeds will be employed, first, tomeet private debts due to Allied nationals from any German nationals, and second, to meet claims due from Austrian, Hungarian, Bulgarian, orTurkish nationals. Any balance may either be returned by the liquidatingPower direct to Germany, or retained by them. If retained, the proceedsmust be transferred to the Reparation Commission for Germany's credit inthe Reparation account. [17]

In short, not only are German sovereignty and German influenceextirpated from the whole of her former oversea possessions, but thepersons and property of her nationals resident or owning property inthose parts are deprived of legal status and legal security. 

(3) The provisions just outlined in regard to the private property ofGermans in the ex-German colonies apply equally to private Germanproperty in Alsace-Lorraine, except in so far as the French Governmentmay choose to grant exceptions. [18] This is of much greater practicalimportance than the similar expropriation overseas because of the farhigher value of the property involved and the closer interconnection, resulting from the great development of the mineral wealth of theseprovinces since 1871, of German economic interests there with those inGermany itself. Alsace-Lorraine has been part of the German Empire fornearly fifty years--a considerable majority of its population is Germanspeaking--and it has been the scene of some of Germany's most importanteconomic enterprises. Nevertheless, the property of those Germans whoreside there, or who have invested in its industries, is now entirely atthe disposal of the French Government without compensation, except in sofar as the German Government itself may choose to afford it. The FrenchGovernment is entitled to expropriate without compensation the personalproperty of private German citizens and German companies resident orsituated within Alsace-Lorraine, the proceeds being credited in partsatisfaction of various French claims. The severity of this provision isonly mitigated to the extent that the French Government may expresslypermit German nationals to continue to reside, in which case the aboveprovision is not applicable. Government, State, and Municipal property, on the other hand, is to be ceded to France without any credit beinggiven for it. This includes the railway system of the two provinces, together with its rolling-stock. [19] But while the property is takenover, liabilities contracted in respect of it in the form of publicdebts of any kind remain the liability of Germany. [20] The provincesalso return to French sovereignty free and quit of their share of Germanwar or pre-war dead-weight debt; nor does Germany receive a credit onthis account in respect of Reparation. 

(4) The expropriation of German private property is not limited, however, to the ex-German colonies and Alsace-Lorraine. The treatment ofsuch property forms, indeed, a very significant and material section ofthe Treaty, which has not received as much attention as it merits, although it was the subject of exceptionally violent objection on thepart of the German delegates at Versailles. So far as I know, there isno precedent in any peace treaty of recent history for the treatment ofprivate property set forth below, and the German representatives urgedthat the precedent now established strikes a dangerous and immoral blowat the security of private property everywhere. This is an exaggeration, and the sharp distinction, approved by custom and convention during thepast two centuries, between the property and rights of a State and theproperty and rights of its nationals is an artificial one, which isbeing rapidly put out of date by many other influences than the PeaceTreaty, and is inappropriate to modern socialistic conceptions of therelations between the State and its citizens. It is true, however, thatthe Treaty strikes a destructive blow at a conception which lies at theroot of much of so-called international law, as this has been expoundedhitherto. 

The principal provisions relating to the expropriation of German privateproperty situated outside the frontiers of Germany, as these are nowdetermined, are overlapping in their incidence, and the more drasticwould seem in some cases to render the others unnecessary. Generallyspeaking, however, the more drastic and extensive provisions are not soprecisely framed as those of more particular and limited application. They are as follows:--

(_a_) The Allies "reserve the right to retain and liquidate allproperty, rights and interests belonging at the date of the coming intoforce of the present Treaty to German nationals, or companies controlledby them, within their territories, colonies, possessions andprotectorates, including territories ceded to them by the presentTreaty. "[21]

This is the extended version of the provision which has been discussedalready in the case of the colonies and of Alsace-Lorraine. The value ofthe property so expropriated will be applied, in the first instance, tothe satisfaction of private debts due from Germany to the nationals ofthe Allied Government within whose jurisdiction the liquidation takesplace, and, second, to the satisfaction of claims arising out of theacts of Germany's former allies. Any balance, if the liquidatingGovernment elects to retain it, must be credited in the Reparationaccount. [22] It is, however, a point of considerable importance that theliquidating Government is not compelled to transfer the balance to theReparation Commission, but can, if it so decides, return the proceedsdirect to Germany. For this will enable the United States, if they sowish, to utilize the very large balances, in the hands of theirenemy-property custodian, to pay for the provisioning of Germany, without regard to the views of the Reparation Commission. 

These provisions had their origin in the scheme for the mutualsettlement of enemy debts by means of a Clearing House. Under thisproposal it was hoped to avoid much trouble and litigation by makingeach of the Governments lately at war responsible for the collection ofprivate _debts_ due from its nationals to the nationals of any of theother Governments (the normal process of collection having beensuspended by reason of the war), and for the distribution of the fundsso collected to those of its nationals who had _claims_ against thenationals of the other Governments, any final balance either way beingsettled in cash. Such a scheme could have been completely bilateral andreciprocal And so in part it is, the scheme being mainly reciprocal asregards the collection of commercial debts. But the completeness oftheir victory permitted the Allied Governments to introduce in their ownfavor many divergencies from reciprocity, of which the following are thechief: Whereas the property of Allied nationals within Germanjurisdiction reverts under the Treaty to Allied ownership on theconclusion of Peace, the property of Germans within Allied jurisdictionis to be retained and liquidated as described above, with the resultthat the whole of German property over a large part of the world can beexpropriated, and the large properties now within the custody of PublicTrustees and similar officials in the Allied countries may be retainedpermanently. In the second place, such German assets are chargeable, notonly with the liabilities of Germans, but also, if they run to it, with"payment of the amounts due in respect of claims by the nationals ofsuch Allied or Associated Power with regard to their property, rights, and interests in the territory of other Enemy Powers, " as, for example, Turkey, Bulgaria, and Austria. [23] This is a remarkable provision, which is naturally non-reciprocal. In the third place, any final balancedue to Germany on private account need not be paid over, but can be heldagainst the various liabilities of the German Government. [24] Theeffective operation of these Articles is guaranteed by the delivery ofdeeds, titles, and information. [25] In the fourth place, pre-warcontracts between Allied and German nationals may be canceled or revivedat the option of the former, so that all such contracts which are inGermany's favor will be canceled, while, on the other hand, she will becompelled to fulfil those which are to her disadvantage. 

(_b_) So far we have been concerned with German property within Alliedjurisdiction. The next provision is aimed at the elimination of Germaninterests in the territory of her neighbors and former allies, and ofcertain other countries. Under Article 260 of the Financial Clauses itis provided that the Reparation Commission may, within one year of thecoming into force of the Treaty, demand that the German Governmentexpropriate its nationals and deliver to the Reparation Commission "anyrights and interests of German nationals in any public utilityundertaking or in any concession[26] operating in Russia, China, Turkey, Austria, Hungary, and Bulgaria, or in the possessions or dependencies ofthese States, or in any territory formerly belonging to Germany or herallies, to be ceded by Germany or her allies to any Power or to beadministered by a Mandatory under the present Treaty. " This is acomprehensive description, overlapping in part the provisions dealt withunder (_a_) above, but including, it should be noted, the new States andterritories carved out of the former Russian, Austro-Hungarian, andTurkish Empires. Thus Germany's influence is eliminated and her capitalconfiscated in all those neighboring countries to which she mightnaturally look for her future livelihood, and for an outlet for herenergy, enterprise, and technical skill. 

The execution of this program in detail will throw on the ReparationCommission a peculiar task, as it will become possessor of a greatnumber of rights and interests over a vast territory owing dubiousobedience, disordered by war, disruption, and Bolshevism. The divisionof the spoils between the victors will also provide employment for apowerful office, whose doorsteps the greedy adventurers and jealousconcession-hunters of twenty or thirty nations will crowd and defile. 

Lest the Reparation Commission fail by ignorance to exercise its rightsto the full, it is further provided that the German Government shallcommunicate to it within six months of the Treaty's coming into force alist of all the rights and interests in question, "whether alreadygranted, contingent or not yet exercised, " and any which are not socommunicated within this period will automatically lapse in favor of theAllied Governments. [27] How far an edict of this character can be madebinding on a German national, whose person and property lie outside thejurisdiction of his own Government, is an unsettled question; but allthe countries specified in the above list are open to pressure by theAllied authorities, whether by the imposition of an appropriate Treatyclause or otherwise. 

(_c_) There remains a third provision more sweeping than either of theabove, neither of which affects German interests in _neutral_countries. The Reparation Commission is empowered up to May 1, 1921, todemand payment up to $5, 000, 000, 000 _in such manner as they may fix_, "whether in gold, commodities, ships, securities or otherwise. "[28] Thisprovision has the effect of intrusting to the Reparation Commission forthe period in question dictatorial powers over all German property ofevery description whatever. They can, under this Article, point to anyspecific business, enterprise, or property, whether within or outsideGermany, and demand its surrender; and their authority would appear toextend not only to property existing at the date of the Peace, but alsoto any which may be created or acquired at any time in the course of thenext eighteen months. For example, they could pick out--as presumablythey will as soon as they are established--the fine and powerful Germanenterprise in South America known as the _Deutsche UeberseeischeElektrizitätsgesellschaft_ (the D. U. E. G. ), and dispose of it to Alliedinterests. The clause is unequivocal and all-embracing. It is worthwhile to note in passing that it introduces a quite novel principle inthe collection of indemnities. Hitherto, a sum has been fixed, and thenation mulcted has been left free to devise and select for itself themeans of payment. But in this case the payees can (for a certainperiod) not only demand a certain sum but specify the particular kind ofproperty in which payment is to be effected. Thus the powers of theReparation Commission, with which I deal more particularly in the nextchapter, can be employed to destroy Germany's commercial and economicorganization as well as to exact payment. 

The cumulative effect of (_a_), (_b_), and (_c_) (as well as of certainother minor provisions on which I have not thought it necessary toenlarge) is to deprive Germany (or rather to empower the Allies so todeprive her at their will--it is not yet accomplished) of everything shepossesses outside her own frontiers as laid down in the Treaty. Not onlyare her oversea investments taken and her connections destroyed, but thesame process of extirpation is applied in the territories of her formerallies and of her immediate neighbors by land. 

(5) Lest by some oversight the above provisions should overlook anypossible contingencies, certain other Articles appear in the Treaty, which probably do not add very much in practical effect to those alreadydescribed, but which deserve brief mention as showing the spirit ofcompleteness in which the victorious Powers entered upon the economicsubjection of their defeated enemy. 

First of all there is a general clause of barrer and renunciation: "Interritory outside her European frontiers as fixed by the present Treaty, Germany renounces all rights, titles and privileges whatever in or overterritory which belonged to her or to her allies, and all rights, titlesand privileges whatever their origin which she held as against theAllied and Associated Powers. .. . "[29]

There follow certain more particular provisions. Germany renounces allrights and privileges she may have acquired in China. [30] There aresimilar provisions for Siam, [31] for Liberia, [32] for Morocco, [33] andfor Egypt. [34] In the case of Egypt not only are special privilegesrenounced, but by Article 150 ordinary liberties are withdrawn, theEgyptian Government being accorded "complete liberty of action inregulating the status of German nationals and the conditions under whichthey may establish themselves in Egypt. "

By Article 258 Germany renounces her right to any participation in anyfinancial or economic organizations of an international character"operating in any of the Allied or Associated States, or in Austria, Hungary, Bulgaria or Turkey, or in the dependencies of these States, orin the former Russian Empire. "

Generally speaking, only those pre-war treaties and conventions arerevived which it suits the Allied Governments to revive, and those inGermany's favor may be allowed to lapse. [35]

It is evident, however, that none of these provisions are of any realimportance, as compared with those described previously. They representthe logical completion of Germany's outlawry and economic subjection tothe convenience of the Allies; but they do not add substantially to hereffective disabilities. 

II

The provisions relating to coal and iron are more important in respectof their ultimate consequences on Germany's internal industrial economythan for the money value immediately involved. The German Empire hasbeen built more truly on coal and iron than on blood and iron. Theskilled exploitation of the great coalfields of the Ruhr, Upper Silesia, and the Saar, alone made possible the development of the steel, chemical, and electrical industries which established her as the firstindustrial nation of continental Europe. One-third of Germany'spopulation lives in towns of more than 20, 000 inhabitants, an industrialconcentration which is only possible on a foundation of coal and iron. In striking, therefore, at her coal supply, the French politicians werenot mistaking their target. It is only the extreme immoderation, andindeed technical impossibility, of the Treaty's demands which may savethe situation in the long-run. 

(1) The Treaty strikes at Germany's coal supply in four ways:--

(i. ) "As compensation for the destruction of the coal-mines in the northof France, and as part payment towards the total reparation due fromGermany for the damage resulting from the war, Germany cedes to Francein full and absolute possession, with exclusive rights of exploitation, unencumbered, and free from all debts and charges of any kind, thecoal-mines situated in the Saar Basin. "[36] While the administration ofthis district is vested for fifteen years in the League of Nations, itis to be observed that the mines are ceded to France absolutely. Fifteenyears hence the population of the district will be called upon toindicate by plebiscite their desires as to the future sovereignty of theterritory; and, in the event of their electing for union with Germany, Germany is to be entitled to repurchase the mines at a price payable ingold. [37]

The judgment of the world has already recognized the transaction of theSaar as an act of spoliation and insincerity. So far as compensation forthe destruction of French coal-mines is concerned, this is provided for, as we shall see in a moment, elsewhere in the Treaty. "There is noindustrial region in Germany, " the German representatives have saidwithout contradiction, "the population of which is so permanent, sohomogeneous, and so little complex as that of the Saar district. Amongmore than 650, 000 inhabitants, there were in 1918 less than 100 French. The Saar district has been German for more than 1, 000 years. Temporaryoccupation as a result of warlike operations on the part of the Frenchalways terminated in a short time in the restoration of the country uponthe conclusion of peace. During a period of 1048 years France haspossessed the country for not quite 68 years in all. When, on theoccasion of the first Treaty of Paris in 1814, a small portion of theterritory now coveted was retained for France, the population raised themost energetic opposition and demanded 'reunion with their Germanfatherland, ' to which they were 'related by language, customs, andreligion. ' After an occupation of one year and a quarter, this desirewas taken into account in the second Treaty of Paris in 1815. Since thenthe country has remained uninterruptedly attached to Germany, and owesits economic development to that connection. "

The French wanted the coal for the purpose of working the ironfields ofLorraine, and in the spirit of Bismarck they have taken it. Notprecedent, but the verbal professions of the Allies, have rendered itindefensible. [38]

(ii. ) Upper Silesia, a district without large towns, in which, however, lies one of the major coalfields of Germany with a production of about23 per cent of the total German output of hard coal, is, subject to aplebiscite, [39] to be ceded to Poland. Upper Silesia was never part ofhistoric Poland; but its population is mixed Polish, German, andCzecho-Slovakian, the precise proportions of which are disputed. [40]Economically it is intensely German; the industries of Eastern Germanydepend upon it for their coal; and its loss would be a destructive blowat the economic structure of the German State. [41]

With the loss of the fields of Upper Silesia and the Saar, the coalsupplies of Germany are diminished by not far short of one-third. 

(iii. ) Out of the coal that remains to her, Germany is obliged to makegood year by year the estimated loss which France has incurred by thedestruction and damage of war in the coalfields of her northernProvinces. In para. 2 of Annex V. To the Reparation Chapter, "Germanyundertakes to deliver to France annually, for a period not exceeding tenyears, an amount of coal equal to the difference between the annualproduction before the war of the coal-mines of the Nord and Pas deCalais, destroyed as a result of the war, and the production of themines of the same area during the year in question: such delivery not toexceed 20, 000, 000 tons in any one year of the first five years, and8, 000, 000 tons in any one year of the succeeding five years. "

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

(iv. ) The final provision relating to coal is part of the general schemeof the Reparation Chapter by which the sums due for Reparation are to bepartly paid in kind instead of in cash. As a part of the payment due forReparation, Germany is to make the following deliveries of coal orequivalent in coke (the deliveries to France being wholly additional tothe amounts available by the cession of the Saar or in compensation fordestruction in Northern France):--

(i. ) To France 7, 000, 000 tons annually for ten years;[42]

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

(iii. ) To Italy an annual quantity, rising by annual increments from4, 500, 000 tons in 1919-1920 to 8, 500, 000 tons in each of the six years, 1923-1924 to 1928-1929;

(iv. ) To Luxemburg, if required, a quantity of coal equal to thepre-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 probableoutput. The maximum pre-war figure was reached in 1913 with a total of191, 500, 000 tons. Of this, 19, 000, 000 tons were consumed at the mines, and on balance (_i. E. _ exports less imports) 33, 500, 000 tons wereexported, leaving 139, 000, 000 tons for domestic consumption. It isestimated that this total was employed as follows:--

 Railways 18, 000, 000 tons. Gas, water, and electricity 12, 500, 000 " Bunkers 6, 500, 000 " House-fuel, small industry and agriculture 24, 000, 000 " Industry 78, 000, 000 " ----------- 139, 000, 000 "

The diminution of production due to loss of territory is:--

 Alsace-Lorraine 3, 800, 000 tons. Saar Basin 13, 200, 000 " Upper Silesia 43, 800, 000 " ----------- 60, 800, 000 "

There would remain, therefore, on the basis of the 1913 output, 130, 700, 000 tons, or, deducting consumption at the mines themselves, (say) 118, 000, 000 tons. For some years there must be sent out of thissupply upwards of 20, 000, 000 tons to France as compensation for damagedone to French mines, and 25, 000, 000 tons to France, Belgium, Italy, andLuxemburg;[43] as the former figure is a maximum, and the latter figureis to be slightly less in the earliest years, we may take the totalexport to Allied countries which Germany has undertaken to provide as40, 000, 000 tons, leaving, on the above basis, 78, 000, 000 tons for herown use as against a pre-war consumption of 139, 000, 000 tons. 

This comparison, however, requires substantial modification to make itaccurate. On the one hand, it is certain that the figures of pre-waroutput cannot be relied on as a basis of present output. During 1918 theproduction was 161, 500, 000 tons as compared with 191, 500, 000 tons in1913; and during the first half of 1919 it was less than 50, 000, 000tons, exclusive of Alsace-Lorraine and the Saar but including UpperSilesia, corresponding to an annual production of about 100, 000, 000tons. [44] The causes of so low an output were in part temporary andexceptional but the German authorities agree, and have not beenconfuted, 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 beenshortened from 8-1/2 to 7 hours, and it is improbable that the powers ofthe Central Government will be adequate to restore them to their formerfigure. But in addition, the mining plant is in bad condition (due tothe lack of certain essential materials during the blockade), thephysical efficiency of the men is greatly impaired by malnutrition(which cannot be cured if a tithe of the reparation demands are to besatisfied, --the standard of life will have rather to be lowered), andthe casualties of the war have diminished the numbers of efficientminers. The analogy of English conditions is sufficient by itself totell us that a pre-war level of output cannot be expected in Germany. German authorities put the loss of output at somewhat above 30 percent, divided about equally between the shortening of the shift and theother economic influences. This figure appears on general grounds to beplausible, but I have not the knowledge to endorse or to criticize it. 

The pre-war figure of 118, 000, 000 tons net (_i. E. _ after allowing forloss of territory and consumption at the mines) is likely to fall, therefore, at least as low as to 100, 000, 000[45] tons, having regard tothe above factors. If 40, 000, 000 tons of this are to be exported to theAllies, there remain 60, 000, 000 tons for Germany herself to meet her owndomestic consumption. Demand as well as supply will be diminished byloss of territory, but at the most extravagant estimate this could notbe put above 29, 000, 000 tons. [46] Our hypothetical calculations, therefore, leave us with post-war German domestic requirements, on thebasis of a pre-war efficiency of railways and industry, of 110, 000, 000tons against an output rot exceeding 100, 000, 000 tons, of which40, 000, 000 tons are mortgaged to the Allies. 

The importance of the subject has led me into a somewhat lengthystatistical analysis. It is evident that too much significance must notbe attached to the precise figures arrived at, which are hypotheticaland dubious. [47] But the general character of the facts presents itselfirresistibly. Allowing for the loss of territory and the loss ofefficiency, Germany cannot export coal in the near future (and will evenbe dependent on her Treaty rights to purchase in Upper Silesia), if sheis to continue as an industrial nation. Every million tons she is forcedto export must be at the expense of closing down an industry. Withresults to be considered later this within certain limits is _possible_. But it is evident that Germany cannot and will not furnish the Allieswith a contribution of 40, 000, 000 tons annually. Those Allied Ministers, who have told their peoples that she can, have certainly deceived themfor the sake of allaying for the moment the misgivings of the Europeanpeoples as to the path along which they are being led. 

The presence of these illusory provisions (amongst others) in theclauses of the Treaty of Peace is especially charged with danger forthe future. The more extravagant expectations as to Reparationreceipts, by which Finance Ministers have deceived their publics, willbe heard of no more when they have served their immediate purpose ofpostponing the hour of taxation and retrenchment. But the coal clauseswill not be lost sight of so easily, --for the reason that it will beabsolutely vital in the interests of France and Italy that thesecountries should do everything in their power to exact their bond. As aresult of the diminished output due to German destruction in France, ofthe diminished output of mines in the United Kingdom and elsewhere, andof many secondary causes, such as the breakdown of transport and oforganization and the inefficiency of new governments, the coal positionof all Europe is nearly desperate;[48] and France and Italy, enteringthe scramble with certain Treaty rights, will not lightly surrenderthem. 

As is generally the case in real dilemmas, the French and Italian casewill possess great force, indeed unanswerable force from a certain pointof view. The position will be truly represented as a question betweenGerman industry on the one hand and French and Italian industry on theother. It may be admitted that the surrender of the coal will destroyGerman industry, but it may be equally true that its non-surrender willjeopardize French and Italian industry. In such a case must not thevictors with their Treaty rights prevail, especially when much of thedamage has been ultimately due to the wicked acts of those who are nowdefeated? Yet if these feelings and these rights are allowed to prevailbeyond what wisdom would recommend, the reactions on the social andeconomic life of Central Europe will be far too strong to be confinedwithin their original limits. 

But this is not yet the whole problem. If France and Italy are to makegood their own deficiencies in coal from the output of Germany, thenNorthern Europe, Switzerland, and Austria, which previously drew theircoal in large part from Germany's exportable surplus, must be starved oftheir supplies. Before the war 13, 600, 000 tons of Germany's coal exportswent to Austria-Hungary. Inasmuch as nearly all the coalfields of theformer Empire lie outside what is now German-Austria, the industrialruin of this latter state, if she cannot obtain coal from Germany, willbe complete. The case of Germany's neutral neighbors, who were formerlysupplied in part from Great Britain but in large part from Germany, will be hardly less serious. They will go to great lengths in thedirection of making their own supplies to Germany of materials which areessential to her, conditional on these being paid for in coal. Indeedthey are already doing so. [49] With the breakdown of money economy thepractice of international barter is becoming prevalent. Nowadays moneyin Central and South-Eastern Europe is seldom a true measure of value inexchange, and will not necessarily buy anything, with the consequencethat one country, possessing a commodity essential to the needs ofanother, sells it not for cash but only against a reciprocal engagementon the part of the latter country to furnish in return some article notless necessary to the former. This is an extraordinary complication ascompared with the former almost perfect simplicity of internationaltrade. But in the no less extraordinary conditions of to-day's industryit is not without advantages as a means of stimulating production. Thebutter-shifts of the Ruhr[50] show how far modern Europe hasretrograded in the direction of barter, and afford a picturesqueillustration of the low economic organization to which the breakdown ofcurrency and free exchange between individuals and nations is quicklyleading us. But they may produce the coal where other devices wouldfail. [51]

Yet if Germany can find coal for the neighboring neutrals, France andItaly may loudly claim that in this case she can and must keep hertreaty obligations. In this there will be a great show of justice, andit will be difficult to weigh against such claims the possible factsthat, while German miners will work for butter, there is no availablemeans of compelling them to get coal, the sale of which will bring innothing, and that if Germany has no coal to send to her neighbors shemay fail to secure imports essential to her economic existence. 

If the distribution of the European coal supplies is to be a scramble inwhich France is satisfied first, Italy next, and every one else takestheir chance, the industrial future of Europe is black and the prospectsof revolution very good. It is a case where particular interests andparticular claims, however well founded in sentiment or in justice, must yield to sovereign expediency. If there is any approximate truth inMr. Hoover's calculation that the coal output of Europe has fallen byone-third, a situation confronts us where distribution must be effectedwith even-handed impartiality in accordance with need, and no incentivecan be neglected towards increased production and economical methods oftransport. The establishment by the Supreme Council of the Allies inAugust, 1919, of a European Coal Commission, consisting of delegatesfrom Great Britain, France, Italy, Belgium, Poland, and Czecho-Slovakiawas a wise measure which, properly employed and extended, may prove ofgreat assistance. But I reserve constructive proposals for Chapter VII. Here I am only concerned with tracing the consequences, _perimpossibile_, of carrying out the Treaty _au pied de lettre_. [52]

(2) The provisions relating to iron-ore require less detailed attention, though their effects are destructive. They require less attention, because they are in large measure inevitable. Almost exactly 75 per centof the iron-ore raised in Germany in 1913 came from Alsace-Lorraine. [53]In this the chief importance of the stolen provinces lay. 

There is no question but that Germany must lose these ore-fields. Theonly question is how far she is to be allowed facilities for purchasingtheir produce. The German Delegation made strong efforts to secure theinclusion of a provision by which coal and coke to be furnished by themto France should be given in exchange for _minette_ from Lorraine. Butthey secured no such stipulation, and the matter remains at France'soption. 

The motives which will govern France's eventual policy are not entirelyconcordant. While Lorraine comprised 75 per cent of Germany's iron-ore, only 25 per cent of the blast furnaces lay within Lorraine and the Saarbasin together, a large proportion of the ore being carried into Germanyproper. Approximately the same proportion of Germany's iron and steelfoundries, namely 25 per cent, were situated in Alsace-Lorraine. Forthe moment, therefore, the most economical and profitable course wouldcertainly be to export to Germany, as hitherto, a considerable part ofthe 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 ownfrontiers. Much time must elapse before the plant and the skilled laborcould be developed within France, and even so she could hardly deal withthe ore unless she could rely on receiving the coal from Germany. Theuncertainty, too, as to the ultimate fate of the Saar will be disturbingto the calculations of capitalists who contemplate the establishment ofnew industries in France. 

In fact, here, as elsewhere, political considerations cut disastrouslyacross economic. In a régime of Free Trade and free economic intercourseit would be of little consequence that iron lay on one side of apolitical frontier, and labor, coal, and blast furnaces on the other. But as it is, men have devised ways to impoverish themselves and oneanother; and prefer collective animosities to individual happiness. Itseems certain, calculating on the present passions and impulses ofEuropean capitalistic society, that the effective iron output of Europewill be diminished by a new political frontier (which sentiment andhistoric justice require), because nationalism and private interest arethus allowed to impose a new economic frontier along the same lines. These latter considerations are allowed, in the present governance ofEurope, to prevail over the intense need of the Continent for the mostsustained and efficient production to repair the destructions of war, and to satisfy the insistence of labor for a larger reward. [54]

The same influences are likely to be seen, though on a lesser scale, inthe event of the transference of Upper Silesia to Poland. While UpperSilesia contains but little iron, the presence of coal has led to theestablishment of numerous blast furnaces. What is to be the fate ofthese? If Germany is cut off from her supplies of ore on the west, willshe export beyond her frontiers on the east any part of the little whichremains to her? The efficiency and output of the industry seem certainto diminish. 

Thus the Treaty strikes at organization, and by the destruction oforganization impairs yet further the reduced wealth of the wholecommunity. The economic frontiers which are to be established betweenthe coal and the iron, upon which modern industrialism is founded, willnot only diminish the production of useful commodities, but may possiblyoccupy an immense quantity of human labor in dragging iron or coal, asthe case may he, over many useless miles to satisfy the dictates of apolitical treaty or because obstructions have been established to theproper localization of industry. 

III

There remain those Treaty provisions which relate to the transport andthe tariff systems of Germany. These parts of the Treaty have not nearlythe importance and the significance of those discussed hitherto. Theyare pin-pricks, interferences and vexations, not so much objectionablefor their solid consequences, as dishonorable to the Allies in the lightof their professions. Let the reader consider what follows in the lightof the assurances already quoted, in reliance on which Germany laid downher arms. 

(i. ) The miscellaneous Economic Clauses commence with a number ofprovisions which would be in accordance with the spirit of the third ofthe Fourteen Points, --if they were reciprocal. Both for imports andexports, and as regards tariffs, regulations, and prohibitions, Germanybinds herself for five years to accord most-favored-nation treatment tothe Allied and Associated States. [55] But she is not entitled herself toreceive such treatment. 

For five years Alsace-Lorraine shall be free to export into Germany, without payment of customs duty, up to the average amount sent annuallyinto Germany from 1911 to 1913. [56] But there is no similar provisionfor German exports into Alsace-Lorraine. 

For three years Polish exports to Germany, and for five yearsLuxemburg's exports to Germany, are to have a similar privilege, [57]--but not German exports to Poland or to Luxemburg. Luxemburg also, whichfor many years has enjoyed the benefits of inclusion within the GermanCustoms Union, is permanently excluded from it henceforward. [58]

For six months after the Treaty has come into force Germany may notimpose duties on imports from the Allied and Associated States higherthan the most favorable duties prevalent before the war and for afurther two years and a half (making three years in all) thisprohibition continues to apply to certain commodities, notably to someof those as to which special agreements existed before the war, and alsoto wine, to vegetable oils, to artificial silk, and to washed or scouredwool. [59] This is a ridiculous and injurious provision, by which Germanyis prevented from taking those steps necessary to conserve her limitedresources for the purchase of necessaries and the discharge ofReparation. As a result of the existing distribution of wealth inGermany, and of financial wantonness amongst individuals, the offspringof uncertainty, Germany is threatened with a deluge of luxuries andsemi-luxuries from abroad, of which she has been starved for years, which would exhaust or diminish her small supplies of foreign exchange. These provisions strike at the authority of the German Government toensure economy in such consumption, or to raise taxation during acritical period. What an example of senseless greed overreaching itself, to introduce, after taking from Germany what liquid wealth she has anddemanding impossible payments for the future, a special andparticularized injunction that she must allow as readily as in the daysof her prosperity the import of champagne and of silk!

One other Article affects the Customs Régime of Germany which, if it wasapplied, would be serious and extensive in its consequences. The Allieshave reserved the right to apply a special customs régime to theoccupied area on the bank of the Rhine, "in the event of such a measurebeing necessary in their opinion in order to safeguard the economicinterests of the population of these territories. "[60] This provisionwas probably introduced as a possibly useful adjunct to the Frenchpolicy of somehow detaching the left bank provinces from Germany duringthe years of their occupation. The project of establishing anindependent Republic under French clerical auspices, which would act asa buffer state and realize the French ambition of driving Germany properbeyond the Rhine, has not yet been abandoned. Some believe that much maybe accomplished by a régime of threats, bribes, and cajolery extendedover a period of fifteen years or longer. [61] If this Article is actedupon, and the economic system of the left bank of the Rhine iseffectively severed from the rest of Germany, the effect would befar-reaching. But the dreams of designing diplomats do not alwaysprosper, and we must trust the future. 

(ii. ) The clauses relating to Railways, as originally presented toGermany, were substantially modified in the final Treaty, and are nowlimited to a provision by which goods, coming from Allied territory toGermany, or in transit through Germany, shall receive the most favoredtreatment as regards rail freight rates, etc. , applied to goods of thesame kind carried on _any_ German lines "under similar conditions oftransport, for example, as regards length of route. "[62] As anon-reciprocal provision this is an act of interference in internalarrangements which it is difficult to justify, but the practical effectof this, [63] and of an analogous provision relating to passengertraffic, [64] will much depend on the interpretation of the phrase, "similar conditions of transport. "[65]

For the time being Germany's transport system will be much moreseriously disordered by the provisions relating to the cession ofrolling-stock. Under paragraph 7 of the Armistice conditions Germany wascalled on to surrender 5000 locomotives and 150, 000 wagons, "in goodworking order, with all necessary spare parts and fittings. " Under theTreaty Germany is required to confirm this surrender and to recognizethe title of the Allies to the material. [66] She is further required, inthe case of railway systems in ceded territory, to hand over thesesystems complete with their full complement of rolling-stock "in anormal state of upkeep" as shown in the last inventory before November11, 1918. [67] That is to say, ceded railway systems are not to bear anyshare in the general depletion and deterioration of the Germanrolling-stock as a whole. 

This is a loss which in course of time can doubtless be made good. Butlack of lubricating oils and the prodigious wear and tear of the war, not compensated by normal repairs, had already reduced the Germanrailway system to a low state of efficiency. The further heavy lossesunder the Treaty will confirm this state of affairs for some time tocome, and are a substantial aggravation of the difficulties of the coalproblem and of export industry generally. 

(iii. ) There remain the clauses relating to the river system of Germany. These are largely unnecessary and are so little related to the supposedaims of the Allies that their purport is generally unknown. Yet theyconstitute an unprecedented interference with a country's domesticarrangements and are capable of being so operated as to take fromGermany all effective control over her own transport system. In theirpresent form they are incapable of justification; but some simplechanges might transform them into a reasonable instrument. 

Most of the principal rivers of Germany have their source or theiroutlet in non-German territory. The Rhine, rising in Switzerland, is nowa frontier river for a part of its course, and finds the sea in Holland;the Danube rises in Germany but flows over its greater length elsewhere;the Elbe rises in the mountains of Bohemia, now called Czecho-Slovakia;the Oder traverses Lower Silesia; and the Niemen now bounds the frontierof East Prussia and has its source in Russia. Of these, the Rhine andthe Niemen are frontier rivers, the Elbe is primarily German but in itsupper reaches has much importance for Bohemia, the Danube in its Germanparts appears to have little concern for any country but Germany, andthe Oder is an almost purely German river unless the result of theplebiscite is to detach all Upper Silesia. 

Rivers which, in the words of the Treaty, "naturally provide more thanone State with access to the sea, " properly require some measure ofinternational regulation and adequate guarantees against discrimination. This principle has long been recognized in the International Commissionswhich regulate the Rhine and the Danube. But on such Commissions theStates concerned should be represented more or less in proportion totheir interests. The Treaty, however, has made the internationalcharacter of these rivers a pretext for taking the river system ofGermany out of German control. 

After certain Articles which provide suitably against discrimination andinterference with freedom of transit, [68] the Treaty proceeds to handover the administration of the Elbe, the Oder, the Danube, and the Rhineto International Commissions. [69] The ultimate powers of theseCommissions are to be determined by "a General Convention drawn up bythe Allied and Associated Powers, and approved by the League ofNations. "[70] In the meantime the Commissions are to draw up their ownconstitutions and are apparently to enjoy powers of the most extensivedescription, "particularly in regard to the execution of works ofmaintenance, control, and improvement on the river system, the financialrégime, the fixing and collection of charges, and regulations fornavigation. "[71]

So far there is much to be said for the Treaty. Freedom of throughtransit is a not unimportant part of good international practice andshould be established everywhere. The objectionable feature of theCommissions lies in their membership. In each case the voting is soweighted as to place Germany in a clear minority. On the Elbe CommissionGermany has four votes out of ten; on the Oder Commission three out ofnine; on the Rhine Commission four out of nineteen; on the DanubeCommission, which is not yet definitely constituted, she will beapparently in a small minority. On the government of all these riversFrance and Great Britain are represented; and on the Elbe for someundiscoverable reason there are also representatives of Italy andBelgium. 

Thus the great waterways of Germany are handed over to foreign bodieswith the widest powers; and much of the local and domestic business ofHamburg, Magdeburg, Dresden, Stettin, Frankfurt, Breslan, and Ulm willbe subject to a foreign jurisdiction. It is almost as though the Powersof Continental Europe were to be placed in a majority on the ThamesConservancy or the Port of London. 

Certain minor provisions follow lines which in our survey of the Treatyare now familiar. Under Annex III. Of the Reparation Chapter Germany isto cede up to 20 per cent of her inland navigation tonnage. Over andabove this she must cede such proportion of her river craft upon theElbe, the Oder, the Niemen, and the Danube as an American arbitrator maydetermine, "due regard being had to the legitimate needs of the partiesconcerned, and particularly to the shipping traffic during the fiveyears preceding the war, " the craft so ceded to be selected from thosemost recently built. [72] The same course is to be followed with Germanvessels and tugs on the Rhine and with German property in the port ofRotterdam. [73] Where the Rhine flows between France and Germany, Franceis to have all the rights of utilizing the water for irrigation or forpower and Germany is to have none;[74] and all the bridges are to beFrench property as to their whole length. [75] Finally the administrationof the purely German Rhine port of Kehl lying on the eastern bank of theriver is to be united to that of Strassburg for seven years and managedby a Frenchman to be nominated by the new Rhine Commission. 

Thus the Economic Clauses of the Treaty are comprehensive, and littlehas been overlooked which might impoverish Germany now or obstruct herdevelopment in future. So situated, Germany is to make payments ofmoney, on a scale and in a manner to be examined in the next chapter. 

FOOTNOTES:

[7] The precise force of this reservation is discussed indetail in Chapter V. 

[8] I also omit those which have no special relevance to theGerman Settlement. The second of the Fourteen Points, which relates tothe Freedom of the Seas, is omitted because the Allies did not acceptit. Any italics are mine. 

[9] Part VIII. Annex III. (1). 

[10] Part VIII. Annex III. (3). 

[11] In the years before the war the average shipbuildingoutput of Germany was about 350, 000 tons annually, exclusive ofwarships. 

[12] Part VIII. Annex III. (5). 

[13] Art. 119. 

[14] Arts. 120 and 257. 

[15] Art. 122. 

[16] Arts. 121 and 297(b). The exercise or non-exercise of thisoption of expropriation appears to lie, not with the ReparationCommission, but with the particular Power in whose territory theproperty has become situated by cession or mandation. 

[17] Art. 297 (h) and para. 4 of Annex to Part X. Section IV. 

[18] Arts. 53 and 74. 

[19] In 1871 Germany granted France credit for the railways ofAlsace-Lorraine but not for State property. At that time, however, therailways were private property. As they afterwards became the propertyof the German Government, the French Government have held, in spite ofthe large additional capital which Germany has sunk in them, that theirtreatment must follow the precedent of State property generally. 

[20] Arts. 55 and 255. This follows the precedent of 1871. 

[21] Art. 297 (_b_). 

[22] Part X. Sections III. And IV. And Art. 243. 

[23] The interpretation of the words between inverted commas isa little dubious. The phrase is so wide as to seem to include privatedebts. But in the final draft of the Treaty private debts are notexplicitly referred to. 

[24] This provision is mitigated in the case of German propertyin Poland and the other new States, the proceeds of liquidation in theseareas being payable direct to the owner (Art. 92. )

[25] Part X. Section IV. Annex, para. 10: "Germany will, withinsix months from the coming into force of the present Treaty, deliver toeach Allied or Associated Power all securities, certificates, deeds, orother documents of title held by its nationals and relating to property, rights, or interests situated in the territory of that Allied orAssociated Power. .. . Germany will at any time on demand of any Allied orAssociated Power furnish such information as may be required with regardto the territory, rights, and interests of German nationals within theterritory of such Allied or Associated Power, or with regard to anytransactions concerning such property, rights, or interests effectedsince July 1, 1914. "

[26] "Any public utility undertaking or concession" is a vaguephrase, the precise interpretation of which is not provided for. 

[27] Art. 260. 

[28] Art. 235. 

[29] Art. 118. 

[30] Arts. 129 and 132. 

[31] Arts. 135-137. 

[32] Arts. 135-140. 

[33] Art. 141: "Germany renounces all rights, titles andprivileges conferred on her by the General Act of Algeciras of April 7, 1906, and by the Franco-German Agreements, of Feb. 9, 1909, and Nov. 4, 1911. .. . "

[34] Art. 148: "All treaties, agreements, arrangements andcontracts concluded by Germany with Egypt are regarded as abrogated fromAug. 4, 1914. " Art. 153: "All property and possessions in Egypt of theGerman Empire and the German States pass to the Egyptian Governmentwithout payment. "

[35] Art. 289. 

[36] Art. 45. 

[37] Part IV. Section IV. Annex, Chap. III. 

[38] "We take over the ownership of the Sarre mines, and inorder not to be inconvenienced in the exploitation of these coaldeposits, we constitute a distinct little estate for the 600, 000 Germanswho inhabit this coal basin, and in fifteen years we shall endeavor by aplebiscite to bring them to declare that they want to be French. We knowwhat that means. During fifteen years we are going to work on them, toattack them from every point, till we obtain from them a declaration oflove. It is evidently a less brutal proceeding than the _coup de force_which detached from us our Alsatians and Lorrainers. But if less brutal, it is more hypocritical. We know quite well between ourselves that it isan attempt to annex these 600, 000 Germans. One can understand very wellthe reasons of an economic nature which have led Clemenceau to wish togive us these Sarre coal deposits, but in order to acquire them must wegive ourselves the appearance of wanting to juggle with 600, 000 Germansin order to make Frenchmen of them in fifteen years?" (M. Hervé in _LaVictorie_, May 31, 1919). 

[39] This plebiscite is the most important of the concessionsaccorded to Germany in the Allies' Final Note, and one for which Mr. Lloyd George, who never approved the Allies' policy on the Easternfrontiers of Germany, can claim the chief credit. The vote cannot takeplace before the spring of 1920, and may be postponed until 1921. In themeantime the province will be governed by an Allied Commission. The votewill be taken by communes, and the final frontiers will be determined bythe Allies, who shall have regard, partly to the results of the vote ineach commune, and partly "to the geographical and economic conditions ofthe locality. " It would require great local knowledge to predict theresult. By voting Polish, a locality can escape liability for theindemnity, and for the crushing taxation consequent on voting German, afactor not to be neglected. On the other hand, the bankruptcy andincompetence of the new Polish State might deter those who were disposedto vote on economic rather than on racial grounds. It has also beenstated that the conditions of life in such matters as sanitation andsocial legislation are incomparably better in Upper Silesia than in theadjacent districts of Poland, where similar legislation is in itsinfancy. The argument in the text assumes that Upper Silesia will ceaseto be German. But much may happen in a year, and the assumption is notcertain. To the extent that it proves erroneous the conclusions must bemodified. 

[40] German authorities claim, not without contradiction, thatto judge from the votes cast at elections, one-third of the populationwould elect in the Polish interest, and two-thirds in the German. 

[41] It must not be overlooked, however, that, amongst theother concessions relating to Silesia accorded in the Allies' FinalNote, there has been included Article 90, by which "Poland undertakes topermit for a period of fifteen years the exportation to Germany of theproducts of the mines in any part of Upper Silesia transferred to Polandin accordance with the present Treaty. Such products shall be free fromall export duties or other charges or restrictions on exportation. Poland agrees to take such steps as may be necessary to secure that anysuch products shall be available for sale to purchasers in Germany onterms as favorable as are applicable to like products sold under similarconditions to purchasers in Poland or in any other country. " This doesnot apparently amount to a right of preemption, and it is not easy toestimate 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 herformer supplies from that source, the loss is limited to the effect onher balance of trade, and is without the more serious repercussions onher economic life which are contemplated in the text. Here is anopportunity for the Allies to render more tolerable the actual operationof the settlement. The Germans, it should be added, have pointed outthat the same economic argument which adds the Saar fields to Franceallots Upper Silesia to Germany. For whereas the Silesian mines areessential to the economic life of Germany, Poland does not need them. OfPoland's pre-war annual demand of 10, 500, 000 tons, 6, 800, 000 tons weresupplied by the indisputably Polish districts adjacent to Upper Silesia. 1, 500, 000 tons from Upper Silesia (out of a total Upper Silesian outputof 43, 500, 000 tons), and the balance from what is now Czecho-Slovakia. Even without any supply from Upper Silesia and Czecho-Slovakia, Polandcould probably meet her requirements by the fuller exploitation of herown coalfields which are not yet scientifically developed, or from thedeposits of Western Galicia which are now to be annexed to her. 

[42] France is also to receive annually for three years 35, 000tons of benzol, 60, 000 tons of coal tar, and 30, 000 tons of sulphate ofammonia. 

[43] The Reparation Commission is authorized under the Treaty(Part VIII Annex V. Para. 10) "to postpone or to cancel deliveries" ifthey consider "that the full exercise of the foregoing options wouldinterfere unduly with the industrial requirements of Germany. " In theevent of such postponements or cancellations "the coal to replace coalfrom destroyed mines shall receive priority over other deliveries. " Thisconcluding clause is of the greatest importance, if, as will be seen, itis physically impossible for Germany to furnish the full 45, 000, 000; forit means that France will receive 20, 000, 000 tons before Italy receivesanything. The Reparation Commission has no discretion to modify this. The Italian Press has not failed to notice the significance of theprovision, and alleges that this clause was inserted during the absenceof the Italian representatives from Paris (_Corriere della Sera_, July19, 1919). 

[44] It follows that the current rate of production in Germanyhas sunk to about 60 per cent of that of 1913. The effect on reserveshas naturally been disastrous, and the prospects for the coming winterare dangerous. 

[45] This assumes a loss of output of 15 per cent as comparedwith the estimate of 30 per cent quoted above. 

[46] This supposes a loss of 23 per cent of Germany'sindustrial undertaking and a diminution of 13 per cent in her otherrequirements. 

[47] The reader must he reminded in particular that the abovecalculations take no account of the German production of lignite, whichyielded in 1913 13, 000, 000 tons of rough lignite in addition to anamount converted into 21, 000, 000 tons of briquette. This amount oflignite, however, was required in Germany before the war _in additionto_ the quantities of coal assumed above. I am not competent to speak onthe extent to which the loss of coal can be made good by the extendeduse of lignite or by economies in its present employment; but someauthorities believe that Germany may obtain substantial compensation forher loss of coal by paying more attention to her deposits of lignite. 

[48] Mr. Hoover, in July, 1919, estimated that the coal outputof Europe, excluding Russia and the Balkans, had dropped from679, 500, 000 tons to 443, 000, 000 tons, --as a result in a minor degree ofloss of material and labor, but owing chiefly to a relaxation ofphysical effort after the privations and sufferings of the war, a lackof rolling-stock and transport, and the unsettled political fate of someof the mining districts. 

[49] Numerous commercial agreements during the war warearranged on these lines. But in the month of June, 1919, alone, minoragreements providing for payment in coal were made by Germany withDenmark, Norway, and Switzerland. The amounts involved were not large, but without them Germany could not have obtained butter from Denmark, fats and herrings from Norway, or milk and cattle from Switzerland. 

[50] "Some 60, 000 Ruhr miners have agreed to work extrashifts--so-called butter-shifts--for the purpose of furnishing coal forexport to Denmark hence butter will be exported in return. The butterwill benefit the miners in the first place, as they have workedspecially to obtain it" (_Kölnische Zeitung_, June 11, 1919). 

[51] What of the prospects of whisky-shifts in England?

[52] As early as September, 1919, the Coal Commission had toface the physical impracticability of enforcing the demands of theTreaty, and agreed to modify them as follows:--"Germany shall in thenext six months make deliveries corresponding to an annual delivery of20 million tons as compared with 43 millions as provided in the PeaceTreaty. If Germany's total production exceeds the present level of about108 millions a year, 60 per cent of extra production, up to 128millions, shall be delivered to the Entente and 50 per cent of any extrabeyond that, until the figure provided in the Peace Treaty is reached. If the total production falls below 108 millions the Entente willexamine the situation, after hearing Germany, and take account of it. "

[53] 21, 136, 265 tons out of a total of 28, 607, 903 tons. Theloss of iron-ore in respect of Upper Silesia is insignificant. Theexclusion of the iron and steel of Luxemburg from the German CustomsUnion is, however, important, especially when this loss is added to thatof Alsace-Lorraine. It may be added in passing that Upper Silesiaincludes 75 per cent of the zinc production of Germany. 

[54] In April, 1919, the British Ministry of Munitionsdespatched an expert Commission to examine the conditions of the ironand steel works in Lorraine and the occupied areas of Germany. TheReport states that the iron and steel works in Lorraine, and to a lesserextent in the Saar Valley, are dependent on supplies of coal and cokefrom Westphalia. It is necessary to mix Westphalian coal with Saar coalto obtain a good furnace coke. The entire dependence of all the Lorraineiron and steel works upon Germany for fuel supplies "places them, " saysthe Report, "in a very unenviable position. "

[55] Arts. 264, 265, 266, and 267. These provisions can only beextended beyond five years by the Council of the League of Nations. 

[56] Art. 268 (_a_). 

[57] Art. 268 (_b_) and (_c_). 

[58] The Grand Duchy is also deneutralized and Germany bindsherself to "accept in advance all international arrangements which maybe concluded by the Allied and Associated Powers relating to the GrandDuchy" (Art. 40). At the end of September, 1919, a plebiscite was heldto determine whether Luxemburg should join the French or the BelgianCustoms Union, which decided by a substantial majority in favour of theformer. The third alternative of the maintenance of the union withGermany was not left open to the electorate. 

[59] Art. 269. 

[60] Art. 270. 

[61] The occupation provisions may be conveniently summarizedat this point. German territory situated west of the Rhine, togetherwith the bridge-heads, is subject to occupation for a period of fifteenyears (Art. 428). If, however, "the conditions of the present Treaty arefaithfully carried out by Germany, " the Cologne district will beevacuated after five years, and the Coblenz district after ten years(Art. 429). It is, however, further provided that if at the expirationof fifteen years "the guarantees against unprovoked aggression byGermany are not considered sufficient by the Allied and AssociatedGovernments, the evacuation of the occupying troops may be delayed tothe extent regarded as necessary for the purpose of obtaining therequired guarantees" (Art. 429); and also that "in case either duringthe occupation or after the expiration of the fifteen years, theReparation Commission finds that Germany refuses to observe the whole orpart of her obligations under the present Treaty with regard toReparation, the whole or part of the areas specified in Article 429 willbe re-occupied immediately by the Allied and Associated Powers" (Art. 430). Since it will be impossible for Germany to fulfil the whole of herReparation obligations, the effect of the above provisions will be inpractice that the Allies will occupy the left bank of the Rhine just solong as they choose. They will also govern it in such manner as they maydetermine (_e. G. _ not only as regards customs, but such matters as therespective authority of the local German representatives and the AlliedGoverning Commission), since "all matters relating to the occupation andnot provided for by the present Treaty shall be regulated by subsequentagreements, which Germany hereby undertakes to observe" (Art. 432). Theactual Agreement under which the occupied areas are to be administeredfor the present has been published as a White Paper [Cd. 222]. Thesupreme authority is to be in the hands of an Inter-Allied RhinelandCommission, consisting of a Belgian, a French, a British, and anAmerican member. The articles of this Agreement are very fairly andreasonably drawn. 

[62] Art. 365. After five years this Article is subject torevision by the Council of the League of Nations. 

[63] The German Government withdrew, as from September 1, 1919, all preferential railway tariffs for the export of iron and steel goods, on the ground that these privileges would have been more thancounterbalanced by the corresponding privileges which, under thisArticle of the Treaty, they would have been forced to give to Alliedtraders. 

[64] Art. 367. 

[65] Questions of interpretation and application are to bereferred to the League of Nations (Art. 376). 

[66] Art. 250. 

[67] Art 371. This provision is even applied "to the lines offormer Russian Poland converted by Germany to the German gage, suchlines being regarded as detached from the Prussian State System. "

[68] Arts. 332-337. Exception may be taken, however, to thesecond paragraph of Art. 332, which allows the vessels of other nationsto trade between German towns but forbids German vessels to tradebetween non-German towns except with special permission; and Art. 333, which prohibits Germany from making use of her river system as a sourceof revenue, may be injudicious. 

[69] The Niemen and the Moselle are to be similarly treated ata later date if required. 

[70] Art. 338. 

[71] Art. 344. This is with particular reference to the Elbeand the Oder; the Danube and the Rhine are dealt with in relation to theexisting Commissions. 

[72] Art. 339. 

[73] Art. 357. 

[74] Art. 358. Germany is, however, to be allowed some paymentor credit in respect of power so taken by France. 

[75] Art. 66. 

CHAPTER V

REPARATION

I. _Undertakings given prior to the Peace Negotiations_

The categories of damage in respect of which the Allies were entitled toask for Reparation are governed by the relevant passages in PresidentWilson's Fourteen Points of January 8, 1918, as modified by the AlliedGovernments in their qualifying Note, the text of which the Presidentformally communicated to the German Government as the basis of peace onNovember 5, 1918. These passages have been quoted in full at thebeginning of Chapter IV. That is to say, "compensation will be made byGermany for all damage done to the civilian population of the Allies andto their property by the aggression of Germany by land, by sea, and fromthe air. " The limiting quality of this sentence is reinforced by thepassage in the President's speech before Congress on February 11, 1918(the terms of this speech being an express part of the contract with theenemy), that there shall be "no contributions" and "no punitivedamages. "

It has sometimes been argued that the preamble to paragraph 19[76] ofthe Armistice Terms, to the effect "that any future claims and demandsof the Allies and the United States of America remain unaffected, " wipedout all precedent conditions, and left the Allies free to make whateverdemands they chose. But it is not possible to maintain that this casualprotective phrase, to which no one at the time attached any particularimportance, did away with all the formal communications which passedbetween the President and the German Government as to the basis of theTerms of Peace during the days preceding the Armistice, abolished theFourteen Points, and converted the German acceptance of the ArmisticeTerms into unconditional surrender, so far as it affects the FinancialClauses. It is merely the usual phrase of the draftsman, who, about torehearse a list of certain claims, wishes to guard himself from theimplication that such list is exhaustive. In any case, this contentionis disposed of by the Allied reply to the German observations on thefirst draft of the Treaty, where it is admitted that the terms of theReparation Chapter must be governed by the President's Note of November5. 

Assuming then that the terms of this Note are binding, we are left toelucidate the precise force of the phrase--"all damage done to thecivilian population of the Allies and to their property by theaggression of Germany by land, by sea, and from the air. " Few sentencesin history have given so much work to the sophists and the lawyers, aswe shall see in the next section of this chapter, as this apparentlysimple and unambiguous statement. Some have not scrupled to argue thatit covers the entire cost of the war; for, they point out, the entirecost of the war has to be met by taxation, and such taxation is"damaging to the civilian population. " They admit that the phrase iscumbrous, and that it would have been simpler to have said "all loss andexpenditure of whatever description"; and they allow that the apparentemphasis of damage to the persons and property of _civilians_ isunfortunate; 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 naturalmeaning and the emphasis on civilian damages as distinct from militaryexpenditure generally; it must also be remembered that the context ofthe term is in elucidation of the meaning of the term "restoration" inthe President's Fourteen Points. The Fourteen Points provide for damagein invaded territory--Belgium, France, Roumania, Serbia, and Montenegro(Italy being unaccountably omitted)--but they do not cover losses at seaby submarine, bombardments from the sea (as at Scarborough), or damagedone by air raids. It was to repair these omissions, which involvedlosses to the life and property of civilians not really distinguishablein kind from those effected in occupied territory, that the SupremeCouncil of the Allies in Paris proposed to President Wilson theirqualifications. At that time--the last days of October, 1918--I do notbelieve that any responsible statesman had in mind the exaction fromGermany of an indemnity for the general costs of the war. They soughtonly to make it clear (a point of considerable importance to GreatBritain) that reparation for damage done to non-combatants and theirproperty was not limited to invaded territory (as it would have been bythe Fourteen Points unqualified), but applied equally to _all_ suchdamage, whether "by land, by sea, or from the air" It was only at alater stage that a general popular demand for an indemnity, coveringthe full costs of the war, made it politically desirable to practisedishonesty and to try to discover in the written word what was notthere. 

What damages, then, can be claimed from the enemy on a strictinterpretation of our engagements?[77] In the case of the United Kingdomthe bill would cover the following items:--

(a) Damage to civilian life and property by the acts of an enemyGovernment including damage by air raids, naval bombardments, submarinewarfare, and mines. 

(b) Compensation for improper treatment of interned civilians. 

It would not include the general costs of the war, or (_e. G. _) indirectdamage due to loss of trade. 

The French claim would include, as well as items corresponding to theabove:--

(c) Damage done to the property and persons of civilians in the wararea, and by aerial warfare behind the enemy lines. 

(d) Compensation for loot of food, raw materials, live-stock, machinery, household effects, timber, and the like by the enemy Governments ortheir nationals in territory occupied by them. 

(e) Repayment of fines and requisitions levied by the enemy Governmentsor their officers on French municipalities or nationals. 

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

In addition to the above there is a further item of more doubtfulcharacter, namely--

(g) The expenses of the Relief Commission in providing necessary foodand clothing to maintain the civilian French population in theenemy-occupied districts. 

The Belgian claim would include similar items. [78] If it were arguedthat in the case of Belgium something more nearly resembling anindemnity for general war costs can be justified, this could only be onthe ground of the breach of International Law involved in the invasionof Belgium, whereas, as we have seen, the Fourteen Points include nospecial demands on this ground. [79] As the cost of Belgian Belief under(g), as well as her general war costs, has been met already by advancesfrom the British, French, and United States Governments, Belgium wouldpresumably employ any repayment of them by Germany in part discharge ofher debt to these Governments, so that any such demands are, in effect, an addition to the claims of the three lending Governments. 

The claims of the other Allies would be compiled on similar lines. Butin their case the question arises more acutely how far Germany can bemade contingently liable for damage done, not by herself, but by herco-belligerents, Austria-Hungary, Bulgaria, and Turkey. This is one ofthe many questions to which the Fourteen Points give no clear answer; onthe one hand, they cover explicitly in Point 11 damage done to Roumania, Serbia, and Montenegro, without qualification as to the nationality ofthe troops inflicting the damage; on the other hand, the Note of theAllies speaks of "German" aggression when it might have spoken of theaggression of "Germany and her allies. " On a strict and literalinterpretation, I doubt if claims lie against Germany for damagedone, --_e. G. _ by the Turks to the Suez Canal, or by Austrian submarinesin the Adriatic. But it is a case where, if the Allies wished to straina point, they could impose contingent liability on Germany withoutrunning seriously contrary to the general intention of theirengagements. 

As between the Allies themselves the case is quite different. It wouldbe an act of gross unfairness and infidelity if France and Great Britainwere to take what Germany could pay and leave Italy and Serbia to getwhat they could out of the remains of Austria-Hungary. As amongst theAllies themselves it is clear that assets should be pooled and sharedout in proportion to aggregate claims. 

In this event, and if my estimate is accepted, as given below, thatGermany's capacity to pay will be exhausted by the direct and legitimateclaims which the Allies hold against her, the question of her contingentliability for her allies becomes academic. Prudent and honorablestatesmanship 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 amountto? No figures exist on which to base any scientific or exact estimate, and I give my own guess for what it is worth, prefacing it with thefollowing observations. 

The amount of the material damage done in the invaded districts has beenthe subject of enormous, if natural, exaggeration A journey through thedevastated areas of France is impressive to the eye and the imaginationbeyond description. During the winter of 1918-19, before Nature hadcast over the scene her ameliorating mantle, the horror and desolationof war was made visible to sight on an extraordinary scale of blastedgrandeur. The completeness of the destruction was evident. For mileafter mile nothing was left. No building was habitable and no field fitfor the plow. The sameness was also striking. One devastated area wasexactly like another--a heap of rubble, a morass of shell-holes, and atangle of wire. [80] The amount of human labor which would be required torestore such a countryside seemed incalculable; and to the returnedtraveler any number of milliards of dollars was inadequate to express inmatter the destruction thus impressed upon his spirit. Some Governmentsfor a variety of intelligible reasons have not been ashamed to exploitthese feelings a little. 

Popular sentiment is most at fault, I think, in the case of Belgium. Inany event Belgium is a small country, and in its case the actual area ofdevastation is a small proportion of the whole. The first onrush of theGermans in 1914 did some damage locally; after that the battle-line inBelgium did not sway backwards and forwards, as in France, over a deepbelt of country. It was practically stationary, and hostilities wereconfined to a small corner of the country, much of which in recent timeswas backward, poor, and sleepy, and did not include the active industryof the country. There remains some injury in the small flooded area, thedeliberate damage done by the retreating Germans to buildings, plant, and transport, and the loot of machinery, cattle, and other movableproperty. But Brussels, Antwerp, and even Ostend are substantiallyintact, 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 passthrough and from end to end of the devastated area of Belgium almostbefore he knows it; whereas the destruction in France is on a differentkind of scale altogether. Industrially, the loot has been serious andfor the moment paralyzing; but the actual money cost of replacingmachinery mounts up slowly, and a few tens of millions would havecovered the value of every machine of every possible description thatBelgium ever possessed. Besides, the cold statistician must not overlookthe fact that the Belgian people possess the instinct of individualself-protection unusually well developed; and the great mass of Germanbank-notes[81] held in the country at the date of the Armistice, showsthat certain classes of them at least found a way, in spite of all theseverities and barbarities of German rule, to profit at the expense ofthe invader. Belgian claims against Germany such as I have seen, amounting to a sum in excess of the total estimated pre-war wealth ofthe whole country, are simply irresponsible. [82]

It will help to guide our ideas to quote the official survey of Belgianwealth, published in 1913 by the Finance Ministry of Belgium, which wasas follows:

 Land $1, 320, 000, 000 Buildings 1, 175, 000, 000 Personal wealth 2, 725, 000, 000 Cash 85, 000, 000 Furniture, etc 600, 000, 000 -------------- $5, 905, 000, 000

This total yields an average of $780 per inhabitant, which Dr. Stamp, the highest authority on the subject, is disposed to consider as _primafacie_ too low (though he does not accept certain much higher estimateslately current), the corresponding wealth per head (to take Belgium'simmediate neighbors) being $835 for Holland, $1, 220 for Germany, and$1, 515 for France. [83] A total of $7, 500, 000, 000, giving an average ofabout $1, 000 per head, would, however, be fairly liberal. The officialestimate of land and buildings is likely to be more accurate than therest. On the other hand, allowance has to be made for the increasedcosts of construction. 

Having regard to all these considerations, I do not put the money valueof the actual _physical_ loss of Belgian property by destruction andloot above $750, 000, 000 _as a maximum_, and while I hesitate to put yetlower an estimate which differs so widely from those generally current, I shall be surprised if it proves possible to substantiate claims evento this amount. Claims in respect of levies, fines, requisitions, and soforth might possibly amount to a further $500, 000, 000. If the sumsadvanced to Belgium by her allies for the general costs of the war areto be included, a sum of about $1, 250, 000, 000 has to be added (whichincludes 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 accountof the immensely deeper area of country over which the battle swayedfrom time to time. It is a popular delusion to think of Belgium as theprincipal victim of the war; it will turn out, I believe, that takingaccount of casualties, loss of property and burden of future debt, Belgium has made the least relative sacrifice of all the belligerentsexcept the United States. Of the Allies, Serbia's sufferings and losshave been proportionately the greatest, and after Serbia, France. Francein all essentials was just as much the victim of German ambition as wasBelgium, and France's entry into the war was just as unavoidable. France, in my judgment, in spite of her policy at the Peace Conference, a policy largely traceable to her sufferings, has the greatest claims onour generosity. 

The special position occupied by Belgium in the popular mind is due, ofcourse, to the fact that in 1914 her sacrifice was by far the greatestof any of the Allies. But after 1914 she played a minor rôle. Consequently, by the end of 1918, her relative sacrifices, apart fromthose sufferings from invasion which cannot be measured in money, hadfallen behind, and in some respects they were not even as great, forexample, as Australia's. I say this with no wish to evade theobligations towards Belgium under which the pronouncements of ourresponsible statesmen at many different dates have certainly laid us. Great Britain ought not to seek any payment at all from Germany forherself until the just claims of Belgium have been fully satisfied. Butthis is no reason why we or they should not tell the truth about theamount. 

While the French claims are immensely greater, here too there has beenexcessive exaggeration, as responsible French statisticians havethemselves pointed out. Not above 10 per cent of the area of France waseffectively occupied by the enemy, and not above 4 per cent lay withinthe area of substantial devastation. Of the sixty French towns having apopulation exceeding 35, 000, only two were destroyed--Reims (115, 178)and St. Quentin (55, 571); three others were occupied--Lille, Roubaix, and Douai--and suffered from loot of machinery and other property, butwere not substantially injured otherwise. Amiens, Calais, Dunkerque, andBoulogne suffered secondary damage by bombardment and from the air; butthe value of Calais and Boulogne must have been increased by the newworks of various kinds erected for the use of the British Army. 

The _Annuaire Statistique de la France, 1917_, values the entire houseproperty of France at $11, 900, 000, 000 (59. 5 milliard francs). [84] Anestimate current in France of $4, 000, 000, 000 (20 milliard francs) forthe destruction of house property alone is, therefore, obviously wide ofthe mark. [85] $600, 000, 000 at pre-war prices, or say $1, 250, 000, 000 atthe present time, is much nearer the right figure. Estimates of thevalue 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 toput the damage on this head as high as $500, 000, 000. Farm Capital forthe whole of France has not been put by responsible authorities above$2, 100, 000, 000. [86] There remain the loss of furniture and machinery, the damage to the coal-mines and the transport system, and many otherminor items. But these losses, however serious, cannot be reckoned invalue by hundreds of millions of dollars in respect of so small a partof France. In short, it will be difficult to establish a bill exceeding$2, 500, 000, 000 for _physical and material_ damage in the occupied anddevastated areas of Northern France. [87] I am confirmed in this estimateby the opinion of M. René Pupin, the author of the most comprehensiveand scientific estimate of the pre-war wealth of France, [88] which I didnot come across until after my own figure had been arrived at. Thisauthority estimates the material losses of the invaded regions at from$2, 000, 000, 000 to $3, 000, 000, 000 (10 to 15 milliards), [89] between whichmy own figure falls half-way. 

Nevertheless, M. Dubois, speaking on behalf of the Budget Commission ofthe Chamber, has given the figure of $13, 000, 000, 000 (65 milliardfrancs) "as a minimum" without counting "war levies, losses at sea, theroads, or the loss of public monuments. " And M. Loucheur, the Ministerof Industrial Reconstruction, stated before the Senate on the 17thFebruary, 1919, that the reconstitution of the devastated regions wouldinvolve an expenditure of $15, 000, 000, 000 (75 milliard francs), --morethan double M. Pupin's estimate of the entire wealth of theirinhabitants. But then at that time M. Loucheur was taking a prominentpart in advocating the claims of France before the Peace Conference, and, like others, may have found strict veracity inconsistent with thedemands of patriotism. [90]

The figure discussed so far is not, however, the totality of the Frenchclaims. There remain, in particular, levies and requisitions on theoccupied areas and the losses of the French mercantile marine at seafrom the attacks of German cruisers and submarines. Probably$1, 000, 000, 000 would be ample to cover all such claims; but to be on thesafe side, we will, somewhat arbitrarily, make an addition to the Frenchclaim of $1, 500, 000, 000 on all heads, bringing it to $4, 000, 000, 000 inall. 

The statements of M. Dubois and M. Loucheur were made in the earlyspring of 1919. A speech delivered by M. Klotz before the French Chambersix months later (Sept. 5, 1919) was less excusable. In this speech theFrench Minister of Finance estimated the total French claims for damageto property (presumably inclusive of losses at sea, etc. , but apart frompensions and allowances) at $26, 800, 000, 000 (134 milliard francs), ormore than six times my estimate. Even if my figure prove erroneous, M. Klotz's can never have been justified. So grave has been the deceptionpractised on the French people by their Ministers that when theinevitable enlightenment comes, as it soon must (both as to their ownclaims and as to Germany's capacity to meet them), the repercussionswill strike at more than M. Klotz, and may even involve the order ofGovernment and Society for which he stands. 

British claims on the present basis would be practically limited tolosses by sea--losses of hulls and losses of cargoes. Claims would lie, of course, for damage to civilian property in air raids and bybombardment from the sea, but in relation to such figures as we are nowdealing with, the money value involved is insignificant, --$25, 000, 000might cover them all, and $50, 000, 000 would certainly do so. 

The British mercantile vessels lost by enemy action, excluding fishingvessels, numbered 2479, with an aggregate of 7, 759, 090 tons gross. [91]There is room for considerable divergence of opinion as to the properrate 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 canbe replaced by any other which better authorities[92] may prefer, theaggregate claim is $1, 150, 000, 000. To this must be added the loss ofcargoes, the value of which is almost entirely a matter of guesswork. Anestimate of $200 per ton of shipping lost may be as good anapproximation as is possible, that is to say $1, 550, 000, 000, making$2, 700, 000, 000 altogether. 

An addition to this of $150, 000, 000, to cover air raids, bombardments, claims of interned civilians, and miscellaneous items of everydescription, should be more than sufficient, --making a total claim forGreat Britain of $2, 850, 000, 000. It is surprising, perhaps, that themoney value of Great Britain's claim should be so little short of thatof France and actually in excess of that of Belgium. But, measuredeither by pecuniary loss or real loss to the economic power of thecountry, the injury to her mercantile marine was enormous. 

There remain the claims of Italy, Serbia, and Roumania for damage byinvasion and of these and other countries, as for example Greece, [93]for losses at sea. I will assume for the present argument that theseclaims rank against Germany, even when they were directly caused not byher but by her allies; but that it is not proposed to enter any suchclaims on behalf of Russia. [94] Italy's losses by invasion and at seacannot be very heavy, and a figure of from $250, 000, 000 to $500, 000, 000would be fully adequate to cover them. The losses of Serbia, althoughfrom a human point of view her sufferings were the greatest of all, [95]are not measured _pecuniarily_ by very great figures, on account of herlow economic development. Dr. Stamp (_loc. Cit. _) quotes an estimate bythe Italian statistician Maroi, which puts the national wealth of Serbiaat $2, 400, 000, 000 or $525 per head, [96] and the greater part of thiswould be represented by land which has sustained no permanentdamage. [97] In view of the very inadequate data for guessing at morethan the _general magnitude_ of the legitimate claims of this group ofcountries, I prefer to make one guess rather than several and to put thefigure for the whole group at the round sum of $1, 250, 000, 000. 

We are finally left with the following--

 Belgium $ 2, 500, 000, 000[98] France 4, 000, 000, 000 Great Britain 2, 850, 000, 000 Other Allies 1, 250, 000, 000 --------------- Total $10, 600, 000, 000

I need not impress on the reader that there is much guesswork in theabove, and the figure for France in particular is likely to becriticized. But I feel some confidence that the _general magnitude_, asdistinct from the precise figures, is not hopelessly erroneous; and thismay be expressed by the statement that a claim against Germany, based onthe interpretation of the pre-Armistice engagements of the AlliedPowers which is adopted above, would assuredly be found to exceed$8, 000, 000, 000 and to fall short of $15, 000, 000, 000. 

This is the amount of the claim which we were entitled to present to theenemy. For reasons which will appear more fully later on, I believe thatit would have been a wise and just act to have asked the GermanGovernment at the Peace Negotiations to agree to a sum of$10, 000, 000, 000 in final settlement, without further examination ofparticulars. This would have provided an immediate and certain solution, and would have required from Germany a sum which, if she were grantedcertain indulgences, it might not have proved entirely impossible forher to pay. This sum should have been divided up amongst the Alliesthemselves on a basis of need and general equity. 

But the question was not settled on its merits. 

II. _The Conference and the Terms of the Treaty_

I do not believe that, at the date of the Armistice, responsibleauthorities in the Allied countries expected any indemnity from Germanybeyond the cost of reparation for the direct material damage which hadresulted from the invasion of Allied territory and from the submarinecampaign. At that time there were serious doubts as to whether Germanyintended to accept our terms, which in other respects were inevitablyvery severe, and it would have been thought an unstatesmanlike act torisk a continuance of the war by demanding a money payment which Alliedopinion was not then anticipating and which probably could not besecured in any case. The French, I think, never quite accepted thispoint of view; but it was certainly the British attitude; and in thisatmosphere the pre-Armistice conditions were framed. 

A month later the atmosphere had changed completely. We had discoveredhow hopeless the German position really was, a discovery which some, though not all, had anticipated, but which no one had dared reckon on asa certainty. It was evident that we could have secured unconditionalsurrender if we had determined to get it. 

But there was another new factor in the situation which was of greaterlocal importance. The British Prime Minister had perceived that theconclusion of hostilities might soon bring with it the break-up of thepolitical _bloc_ upon which he was depending for his personalascendency, and that the domestic difficulties which would be attendanton demobilization, the turn-over of industry from war to peaceconditions, the financial situation, and the general psychologicalreactions of men's minds, would provide his enemies with powerfulweapons, if he were to leave them time to mature. The best chance, therefore, of consolidating his power, which was personal and exercised, as such, independently of party or principle, to an extent unusual inBritish politics, evidently lay in active hostilities before theprestige of victory had abated, and in an attempt to found on theemotions of the moment a new basis of power which might outlast theinevitable reactions of the near future. Within a brief period, therefore, after the Armistice, the popular victor, at the height of hisinfluence and his authority, decreed a General Election. It was widelyrecognized at the time as an act of political immorality. There were nogrounds of public interest which did not call for a short delay untilthe issues of the new age had a little defined themselves and until thecountry had something more specific before it on which to declare itsmind and to instruct its new representatives. But the claims of privateambition determined otherwise. 

For a time all went well. But before the campaign was far advancedGovernment candidates were finding themselves handicapped by the lack ofan effective cry. The War Cabinet was demanding a further lease ofauthority on the ground of having won the war. But partly because thenew issues had not yet defined themselves, partly out of regard for thedelicate balance of a Coalition Party, the Prime Minister's futurepolicy was the subject of silence or generalities. The campaign seemed, therefore, to fall a little flat. In the light of subsequent events itseems improbable that the Coalition Party was ever in real danger. Butparty managers are easily "rattled. " The Prime Minister's more neuroticadvisers told him that he was not safe from dangerous surprises, and thePrime Minister lent an ear to them. The party managers demanded more"ginger. " The Prime Minister looked about for some. 

On the assumption that the return of the Prime Minister to power was theprimary consideration, the rest followed naturally. At that juncturethere was a clamor from certain quarters that the Government had givenby no means sufficiently clear undertakings that they were not going "tolet the Hun off. " Mr. Hughes was evoking a good deal of attention by hisdemands for a very large indemnity, [99] and Lord Northcliffe was lendinghis powerful aid to the same cause. This pointed the Prime Minister toa stone for two birds. By himself adopting the policy of Mr. Hughes andLord Northcliffe, he could at the same time silence those powerfulcritics and provide his party managers with an effective platform cry todrown the increasing voices of criticism from other quarters. 

The progress of the General Election of 1918 affords a sad, dramatichistory of the essential weakness of one who draws his chief inspirationnot from his own true impulses, but from the grosser effiuxions of theatmosphere which momentarily surrounds him. The Prime Minister's naturalinstincts, as they so often are, were right and reasonable. He himselfdid not believe in hanging the Kaiser or in the wisdom or thepossibility of a great indemnity. On the 22nd of November he and Mr. Bonar Law issued their Election Manifesto. It contains no allusion ofany kind either to the one or to the other but, speaking, rather, ofDisarmament and the League of Nations, concludes that "our first taskmust be to conclude a just and lasting peace, and so to establish thefoundations of a new Europe that occasion for further wars may be forever averted. " In his speech at Wolverhampton on the eve of theDissolution (November 24), there is no word of Reparation or Indemnity. On the following day at Glasgow, Mr. Bonar Law would promise nothing. "We are going to the Conference, " he said, "as one of a number ofallies, and you cannot expect a member of the Government, whatever hemay think, to state in public before he goes into that Conference, whatline he is going to take in regard to any particular question. " But afew days later at Newcastle (November 29) the Prime Minister was warmingto his work: "When Germany defeated France she made France pay. That isthe principle which she herself has established. There is absolutely nodoubt about the principle, and that is the principle we should proceedupon--that Germany must pay the costs of the war up to the limit of hercapacity to do so. " But he accompanied this statement of principle withmany "words of warning" as to the practical difficulties of the case:"We have appointed a strong Committee of experts, representing everyshade of opinion, to consider this question very carefully and to adviseus. 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 payin such a way as to wreck our industries. " At this stage the PrimeMinister sought to indicate that he intended great severity, withoutraising excessive hopes of actually getting the money, or committinghimself to a particular line of action at the Conference. It wasrumored that a high city authority had committed himself to the opinionthat Germany could certainly pay $100, 000, 000, 000 and that thisauthority for his part would not care to discredit a figure of twicethat sum. The Treasury officials, as Mr. Lloyd George indicated, took adifferent view. He could, therefore, shelter himself behind the widediscrepancy between the opinions of his different advisers, and regardthe precise figure of Germany's capacity to pay as an open question inthe 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 wassupposed to represent Labor, shouted from a platform, "I am for hangingthe Kaiser. "

On December 6, the Prime Minister issued a statement of policy and aimsin which he stated, with significant emphasis on the word _European_, that "All the European Allies have accepted the principle that theCentral Powers must pay the cost of the war up to the limit of theircapacity. "

But it was now little more than a week to Polling Day, and still he hadnot said enough to satisfy the appetites of the moment. On December 8, the _Times_, providing as usual a cloak of ostensible decorum for thelesser restraint of its associates, declared in a leader entitled"Making Germany Pay, " that "The public mind was still bewildered by thePrime Minister's various statements. " "There is too much suspicion, "they added, "of influences concerned to let the Germans off lightly, whereas the only possible motive in determining their capacity to paymust be the interests of the Allies. " "It is the candidate who dealswith the issues of to-day, " wrote their Political Correspondent, "whoadopts Mr. Barnes's phrase about 'hanging the Kaiser' and plumps for thepayment of the cost of the war by Germany, who rouses his audience andstrikes the notes to which they are most responsive. "

On December 9, at the Queen's Hall, the Prime Minister avoided thesubject. But from now on, the debauchery of thought and speechprogressed hour by hour. The grossest spectacle was provided by Sir EricGeddes in the Guildhall at Cambridge. An earlier speech in which, in amoment of injudicious candor, he had cast doubts on the possibility ofextracting from Germany the whole cost of the war had been the object ofserious suspicion, and he had therefore a reputation to regain. "We willget out of her all you can squeeze out of a lemon and a bit more, " thepenitent shouted, "I will squeeze her until you can hear the pipssqueak"; his policy was to take every bit of property belonging toGermans in neutral and Allied countries, and all her gold and silver andher jewels, and the contents of her picture-galleries and libraries, tosell the proceeds for the Allies' benefit. "I would strip Germany, " hecried, "as she has stripped Belgium. "

By December 11 the Prime Minister had capitulated. His Final Manifestoof Six Points issued on that day to the electorate furnishes amelancholy comparison with his program of three weeks earlier. I quoteit 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 thepowerful governors of England, who but a little while before had spokennot ignobly of Disarmament and a League of Nations and of a just andlasting peace which should establish the foundations of a new Europe. 

On the same evening the Prime Minister at Bristol withdrew in effect hisprevious reservations and laid down four principles to govern hisIndemnity Policy, of which the chief were: First, we have an absoluteright to demand the whole cost of the war; second, we propose to demandthe whole cost of the war; and third, a Committee appointed by directionof the Cabinet believe that it can be done. [100] Four days later he wentto the polls. 

The Prime Minister never said that he himself believed that Germanycould pay the whole cost of the war. But the program became in themouths of his supporters on the hustings a great deal more thanconcrete. The ordinary voter was led to believe that Germany couldcertainly be made to pay the greater part, if not the whole cost of thewar. Those whose practical and selfish fears for the future the expensesof the war had aroused, and those whose emotions its horrors haddisordered, were both provided for. A vote for a Coalition candidatemeant the Crucifixion of Anti-Christ and the assumption by Germany ofthe British National Debt. 

It proved an irresistible combination, and once more Mr. George'spolitical instinct was not at fault. No candidate could safely denouncethis program, and none did so. The old Liberal Party, having nothingcomparable to offer to the electorate, was swept out of existence. [101]A new House of Commons came into being, a majority of whose members hadpledged themselves to a great deal more than the Prime Minister'sguarded promises. Shortly after their arrival at Westminster I asked aConservative friend, who had known previous Houses, what he thought ofthem. "They are a lot of hard-faced men, " he said, "who look as if theyhad done very well out of the war. "

This was the atmosphere in which the Prime Minister left for Paris, andthese the entanglements he had made for himself. He had pledged himselfand his Government to make demands of a helpless enemy inconsistent withsolemn engagements on our part, on the faith of which this enemy hadlaid down his arms. There are few episodes in history which posteritywill have less reason to condone, --a war ostensibly waged in defense ofthe sanctity of international engagements ending in a definite breach ofone of the most sacred possible of such engagements on the part ofvictorious champions of these ideals. [102]

Apart from other aspects of the transaction, I believe that thecampaign for securing out of Germany the general costs of the war wasone of the most serious acts of political unwisdom for which ourstatesmen have ever been responsible. To what a different future Europemight have looked forward if either Mr. Lloyd George or Mr. Wilson hadapprehended that the most serious of the problems which claimed theirattention were not political or territorial but financial and economic, and that the perils of the future lay not in frontiers or sovereigntiesbut in food, coal, and transport. Neither of them paid adequateattention to these problems at any stage of the Conference. But in anyevent the atmosphere for the wise and reasonable consideration of themwas hopelessly befogged by the commitments of the British delegation onthe question of Indemnities. The hopes to which the Prime Minister hadgiven rise not only compelled him to advocate an unjust and unworkableeconomic basis to the Treaty with Germany, but set him at variance withthe President, and on the other hand with competing interests to thoseof France and Belgium. The clearer it became that but little could beexpected from Germany, the more necessary it was to exercise patrioticgreed and "sacred egotism" and snatch the bone from the juster claimsand greater need of France or the well-founded expectations of Belgium. Yet the financial problems which were about to exercise Europe could notbe solved by greed. The possibility of _their_ cure lay in magnanimity. 

Europe, if she is to survive her troubles, will need so much magnanimityfrom America, that she must herself practice it. It is useless for theAllies, hot from stripping Germany and one another, to turn for help tothe United States to put the States of Europe, including Germany, on totheir feet again. If the General Election of December, 1918, had beenfought on lines of prudent generosity instead of imbecile greed, howmuch better the financial prospect of Europe might now be. I stillbelieve that before the main Conference, or very early in itsproceedings, the representatives of Great Britain should have entereddeeply, with those of the United States, into the economic and financialsituation as a whole, and that the former should have been authorized tomake concrete proposals on the general lines (1) that all inter-alliedindebtedness be canceled outright; (2) that the sum to be paid byGermany be fixed at $10, 000, 000, 000; (3) that Great Britain renounce allclaim to participation in this sum and that any share to which sheproves entitled be placed at the disposal of the Conference for thepurpose of aiding the finances of the New States about to beestablished; (4) that in order to make some basis of credit immediatelyavailable an appropriate proportion of the German obligationsrepresenting the sum to be paid by her should be guaranteed by allparties to the Treaty; and (5) that the ex-enemy Powers should also beallowed, with a view to their economic restoration, to issue a moderateamount of bonds carrying a similar guarantee. Such proposals involved anappeal to the generosity of the United States. But that was inevitable;and, in view of her far less financial sacrifices, it was an appealwhich could fairly have been made to her. Such proposals would have beenpracticable. There is nothing in them quixotic or Utopian. And theywould have opened up for Europe some prospect of financial stability andreconstruction. 

The further elaboration of these ideas, however, must be left to ChapterVII. , and we must return to Paris. I have described the entanglementswhich Mr. Lloyd George took with him. The position of the FinanceMinisters of the other Allies was even worse. We in Great Britain hadnot based our financial arrangements on any expectations of anindemnity. Receipts from such a source would have been more or less inthe nature of a windfall; and, in spite of subsequent developments, there was an expectation at that time of balancing our budget by normalmethods. But this was not the case with France or Italy. Their peacebudgets made no pretense of balancing and had no prospects of doing so, without some far-reaching revision of the existing policy. Indeed, theposition was and remains nearly hopeless. These countries were headingfor national bankruptcy. This fact could only be concealed by holdingout the expectation of vast receipts from the enemy. As soon as it wasadmitted that it was in fact impossible to make Germany pay the expensesof both sides, and that the unloading of their liabilities upon theenemy was not practicable, the position of the Ministers of Finance ofFrance and Italy became untenable. 

Thus a scientific consideration of Germany's capacity to pay was fromthe outset out of court. The expectations which the exigencies ofpolitics had made it necessary to raise were so very remote from thetruth that a slight distortion of figures was no use, and it wasnecessary to ignore the facts entirely. The resulting unveracity wasfundamental. On a basis of so much falsehood it became impossible toerect any constructive financial policy which was workable. For thisreason amongst others, a magnanimous financial policy was essential. Thefinancial position of France and Italy was so bad that it was impossibleto make them listen to reason on the subject of the German Indemnity, unless one could at the same time point out to them some alternativemode of escape from their troubles. [103] The representatives of theUnited States were greatly at fault, in my judgment, for having noconstructive proposals whatever to offer to a suffering and distractedEurope. 

It is worth while to point out in passing a further element in thesituation, namely, the opposition which existed between the "crushing"policy of M. Clemenceau and the financial necessities of M. Klotz. Clemenceau's aim was to weaken and destroy Germany in every possibleway, and I fancy that he was always a little contemptuous about theIndemnity; he had no intention of leaving Germany in a position topractise a vast commercial activity. But he did not trouble his head tounderstand either the indemnity or poor M. Klotz's overwhelmingfinancial difficulties. If it amused the financiers to put into theTreaty some very large demands, well there was no harm in that; but thesatisfaction of these demands must not be allowed to interfere with theessential requirements of a Carthaginian Peace. The combination of the"real" policy of M. Clemenceau on unreal issues, with M. Klotz's policyof pretense on what were very real issues indeed, introduced into theTreaty a whole set of incompatible provisions, over and above theinherent impracticabilities of the Reparation proposals. 

I cannot here describe the endless controversy and intrigue between theAllies themselves, which at last after some months culminated in thepresentation to Germany of the Reparation Chapter in its final form. There can have been few negotiations in history so contorted, somiserable, so utterly unsatisfactory to all parties. I doubt if any onewho took much part in that debate can look back on it without shame. Imust be content with an analysis of the elements of the final compromisewhich is known to all the world. 

The main point to be settled was, of course, that of the items for whichGermany could fairly be asked to make payment. Mr. Lloyd George'selection pledge to the effect that the Allies were _entitled_ to demandfrom Germany the entire costs of the war was from the outset clearlyuntenable; or rather, to put it more impartially, it was clear that topersuade the President of the conformity of this demand with ourpro-Armistice engagements was beyond the powers of the most plausible. The actual compromise finally reached is to be read as follows in theparagraphs of the Treaty as it has been published to the world. 

Article 231 reads: "The Allied and Associated Governments affirm andGermany accepts the responsibility of Germany and her allies for causingall the loss and damage to which the Allied and Associated Governmentsand their nationals have been subjected as a consequence of the warimposed upon them by the aggression of Germany and her allies. " This isa well and carefully drafted Article; for the President could read it asstatement of admission on Germany's part of _moral_ responsibility forbringing about the war, while the Prime Minister could explain it as anadmission of _financial_ liability for the general costs of the war. Article 232 continues: "The Allied and Associated Governments recognizethat the resources of Germany are not adequate, after taking intoaccount permanent diminutions of such resources which will result fromother provisions of the present Treaty, to make complete reparation forall such loss and damage. " The President could comfort himself that thiswas no more than a statement of undoubted fact, and that to recognizethat Germany _cannot_ pay a certain claim does not imply that she is_liable_ to pay the claim; but the Prime Minister could point out thatin the context it emphasizes to the reader the assumption of Germany'stheoretic liability asserted in the preceding Article. Article 232proceeds: "The Allied and Associated Governments, however, require, andGermany undertakes, that _she will make compensation for all damage doneto the civilian population of the Allied and Associated Powers and totheir property_ during the period of the belligerency of each as anAllied or Associated Power against Germany _by such aggression by land, by sea, and from the air_, and in general all damage as defined in AnnexI. Hereto. "[104] The words italicized being practically a quotation fromthe pre-Armistice conditions, satisfied the scruples of the President, while the addition of the words "and in general all damage as defined inAnnex I. Hereto" gave the Prime Minister a chance in Annex I. 

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

A great part of Annex I. Is in strict conformity with the pre-Armisticeconditions, or, at any rate, does not strain them beyond what is fairlyarguable. Paragraph 1 claims damage done for injury to the persons ofcivilians, or, in the case of death, to their dependents, as a directconsequence 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 orto honor towards civilians in occupied or invaded territory; Paragraph8, for forced labor exacted by the enemy from civilians; Paragraph 9, for damage done to property "with the exception of naval and militaryworks or materials" as a direct consequence of hostilities; andParagraph 10, for fines and levies imposed by the enemy upon thecivilian population. All these demands are just and in conformity withthe Allies' rights. 

Paragraph 4, which claims for "damage caused by any kind of maltreatmentof prisoners of war, " is more doubtful on the strict letter, but may bejustifiable under the Hague Convention and involves a very small sum. 

In Paragraphs 5, 6, and 7, however, an issue of immensely greatersignificance is involved. These paragraphs assert a claim for the amountof the Separation and similar Allowances granted during the war by theAllied Governments to the families of mobilized persons, and for theamount of the pensions and compensations in respect of the injury ordeath of combatants payable by these Governments now and hereafter. Financially this adds to the Bill, as we shall see below, a very largeamount, indeed about twice as much again as all the other claims addedtogether. 

The reader will readily apprehend what a plausible case can be made outfor the inclusion of these items of damage, if only on sentimentalgrounds. It can be pointed out, first of all, that from the point ofview of general fairness it is monstrous that a woman whose house isdestroyed should be entitled to claim from the enemy whilst a womanwhose husband is killed on the field of battle should not be soentitled; or that a farmer deprived of his farm should claim but that awoman deprived of the earning power of her husband should not claim. Infact the case for including Pensions and Separation Allowances largelydepends on exploiting the rather _arbitrary_ character of the criterionlaid down in the pre-Armistice conditions. Of all the losses caused bywar some bear more heavily on individuals and some are more evenlydistributed over the community as a whole; but by means of compensationsgranted by the Government many of the former are in fact converted intothe latter. The most logical criterion for a limited claim, fallingshort of the entire costs of the war, would have been in respect ofenemy acts contrary to International engagements or the recognizedpractices of warfare. But this also would have been very difficult toapply and unduly unfavorable to French interests as compared withBelgium (whose neutrality Germany had guaranteed) and Great Britain (thechief sufferer from illicit acts of submarines). 

In any case the appeals to sentiment and fairness outlined above arehollow; for it makes no difference to the recipient of a separationallowance or a pension whether the State which pays them receivescompensation on this or on another head, and a recovery by the State outof indemnity receipts is just as much in relief of the general taxpayeras a contribution towards the general costs of the war would have been. But the main consideration is that it was too late to consider whetherthe pre-Armistice conditions were perfectly judicious and logical or toamend them; the only question at issue was whether these conditions werenot in fact limited to such classes of direct damage to civilians andtheir property as are set forth in Paragraphs 1, 2, 3, 8, 9, and 10 ofAnnex I. If words have any meaning, or engagements any force, we had nomore right to claim for those war expenses of the State, which arose outof Pensions and Separation Allowances, than for any other of the generalcosts of the war. And who is prepared to argue in detail that we wereentitled to demand the latter?

What had really happened was a compromise between the Prime Minister'spledge to the British electorate to claim the entire costs of the warand the pledge to the contrary which the Allies had given to Germany atthe Armistice. The Prime Minister could claim that although he had notsecured the entire costs of the war, he had nevertheless secured animportant contribution towards them, that he had always qualified hispromises by the limiting condition of Germany's capacity to pay, andthat the bill as now presented more than exhausted this capacity asestimated by the more sober authorities. The President, on the otherhand, had secured a formula, which was not too obvious a breach offaith, and had avoided a quarrel with his Associates on an issue wherethe appeals to sentiment and passion would all have been against him, inthe event of its being made a matter of open popular controversy. Inview of the Prime Minister's election pledges, the President couldhardly hope to get him to abandon them in their entirety without astruggle in public; and the cry of pensions would have had anoverwhelming popular appeal in all countries. Once more the PrimeMinister had shown himself a political tactician of a high order. 

A further point of great difficulty may be readily perceived between thelines of the Treaty It fixes no definite sum as representing Germany'sliability. This feature has been the subject of very generalcriticism, --that it is equally inconvenient to Germany and to the Alliesthemselves that she should not know what she has to pay or they whatthey are to receive. The method, apparently contemplated by the Treaty, of arriving at the final result over a period of many months by anaddition of hundreds of thousands of individual claims for damage toland, farm buildings, and chickens, is evidently impracticable; and thereasonable course would have been for both parties to compound for around sum without examination of details. If this round sum had beennamed in the Treaty, the settlement would have been placed on a morebusiness-like basis. 

But this was impossible for two reasons. Two different kinds of falsestatements had been widely promulgated, one as to Germany's capacity topay, the other as to the amount of the Allies' just claims in respect ofthe devastated areas. The fixing of either of these figures presented adilemma. A figure for Germany's prospective capacity to pay, not toomuch in excess of the estimates of most candid and well-informedauthorities, would have fallen hopelessly far short of popularexpectations both in England and in France. On the other hand, adefinitive figure for damage done which would not disastrouslydisappoint the expectations which had been raised in France and Belgiummight have been incapable of substantiation under challenge, [105] andopen to damaging criticism on the part of the Germans, who were believedto have been prudent enough to accumulate considerable evidence as tothe extent of their own misdoings. 

By far the safest course for the politicians was, therefore, to mentionno figure at all; and from this necessity a great deal of thecomplication of the Reparation Chapter essentially springs. 

The reader may be interested, however, to have my estimate of the claimwhich can in fact be substantiated under Annex I. Of the ReparationChapter. In the first section of this chapter I have already guessed theclaims other than those for Pensions and Separation Allowances at$15, 000, 000, 000 (to take the extreme upper limit of my estimate). Theclaim for Pensions and Separation Allowances under Annex I. Is not to bebased on the _actual_ cost of these compensations to the Governmentsconcerned, but is to be a computed figure calculated on the basis of thescales in force in France at the date of the Treaty's coming intooperation. This method avoids the invidious course of valuing anAmerican or a British life at a higher figure than a French or anItalian. The French rate for Pensions and Allowances is at anintermediate rate, not so high as the American or British, but above theItalian, the Belgian, or the Serbian. The only data required for thecalculation are the actual French rates and the numbers of men mobilizedand of the casualties in each class of the various Allied Armies. Noneof these figures are available in detail, but enough is known of thegeneral level of allowances, of the numbers involved, and of thecasualties 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 ofPensions and Allowances is as follows:

 British Empire $ 7, 000, 000, 000[106] France 12, 000, 000, 000[106] Italy 2, 500, 000, 000 Others (including United States) 3, 500, 000, 000 --------------- Total $ 25, 000, 000, 000

I feel much more confidence in the approximate accuracy of the totalfigure[107] than in its division between the different claimants. Thereader will observe that in any case the addition of Pensions andAllowances enormously increases the aggregate claim, raising it indeedby nearly double. Adding this figure to the estimate under other heads, we have a total claim against Germany of $40, 000, 000, 000. [108] I believethat this figure is fully high enough, and that the actual result mayfall somewhat short of it. [109] In the next section of this chapter therelation of this figure to Germany's capacity to pay will be examined. It is only necessary here to remind the reader of certain otherparticulars of the Treaty which speak for themselves:

1. Out of the total amount of the claim, whatever it eventually turnsout to be, a sum of $5, 000, 000, 000 must be paid before May 1, 1921. Thepossibility of this will be discussed below. But the Treaty itselfprovides certain abatements. In the first place, this sum is to includethe expenses of the Armies of Occupation since the Armistice (a largecharge of the order of magnitude of $1, 000, 000, 000 which under anotherArticle of the Treaty--No. 249--is laid upon Germany). [110] But further, "such supplies of food and raw materials as may be judged by theGovernments of the Principal Allied and Associated Powers to beessential to enable Germany to meet her obligations for Reparation mayalso, with the approval of the said Governments, be paid for out of theabove sum. "[111] This is a qualification of high importance. The clause, as it is drafted, allows the Finance Ministers of the Allied countriesto hold out to their electorates the hope of substantial payments at anearly date, while at the same time it gives to the Reparation Commissiona discretion, which the force of facts will compel them to exercise, togive back to Germany what is required for the maintenance of hereconomic existence. This discretionary power renders the demand for animmediate payment of $5, 000, 000, 000 less injurious than it wouldotherwise be, but nevertheless it does not render it innocuous. In thefirst place, my conclusions in the next section of this chapter indicatethat this sum cannot be found within the period indicated, even if alarge proportion is in practice returned to Germany for the purpose ofenabling her to pay for imports. In the second place, the ReparationCommission can only exercise its discretionary power effectively bytaking charge of the entire foreign trade of Germany, together with theforeign exchange arising out of it, which will be quite beyond thecapacity of any such body. If the Reparation Commission makes anyserious attempt to administer the collection of this sum of$5, 000, 000, 000 and to authorize the return to Germany of a part it, thetrade of Central Europe will be strangled by bureaucratic regulation inits most inefficient form. 

2. In addition to the early payment in cash or kind of a sum of$5, 000, 000, 000, Germany is required to deliver bearer bonds to a furtheramount of $10, 000, 000, 000, or, in the event of the payments in cash orkind before May 1, 1921, available for Reparation, falling short of$5, 000, 000, 000 by reason of the permitted deductions, to such furtheramount as shall bring the total payments by Germany in cash, kind, andbearer bonds up to May 1, 1921, to a figure of $15, 000, 000, 000altogether. [112] These bearer bonds carry interest at 2-1/2 per cent perannum from 1921 to 1925, and at 5 per cent _plus_ 1 per cent foramortization thereafter. Assuming, therefore, that Germany is not ableto provide any appreciable surplus towards Reparation before 1921, shewill have to find a sum of $375, 000, 000 annually from 1921 to 1925, and$900, 000, 000 annually thereafter. [113]

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

4. Germany's liability, however, is not limited to $25, 000, 000, 000, andthe Reparation Commission is to demand further instalments of bearerbonds until the total enemy liability under Annex I. Has been providedfor. On the basis of my estimate of $40, 000, 000, 000 for the totalliability, which is more likely to be criticized as being too low thanas being too high, the amount of this balance will be $15, 000, 000, 000. Assuming interest at 5 per cent, this will raise the annual payment to$2, 150, 000, 000 without allowance for amortization. 

5. But even this is not all. There is a further provision of devastatingsignificance. Bonds representing payments in excess of $15, 000, 000, 000are not to be issued until the Commission is satisfied that Germany canmeet the interest on them. But this does not mean that interest isremitted in the meantime. As from May 1, 1921, interest is to be debitedto Germany on such part of her outstanding debt as has not been coveredby payment in cash or kind or by the issue of bonds as above, [114] and"the rate of interest shall be 5 per cent unless the Commission shalldetermine at some future time that circumstances justify a variation ofthis rate. " That is to say, the capital sum of indebtedness is rollingup all the time at compound interest. The effect of this provisiontowards increasing the burden is, on the assumption that Germany cannotpay very large sums at first, enormous. At 5 per cent compound interesta capital sum doubles itself in fifteen years. On the assumption thatGermany cannot pay more than $750, 000, 000 annually until 1936 (_i. E. _ 5per cent interest on $15, 000, 000, 000) the $25, 000, 000, 000 on whichinterest is deferred will have risen to $50, 000, 000, 000, carrying anannual interest charge of $2, 500, 000, 000. That is to say, even ifGermany pays $750, 000, 000 annually up to 1936, she will nevertheless oweus 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 onwardsshe will have to pay to us $3, 250, 000, 000 annually in order to keep pacewith the interest alone. At the end of any year in which she pays lessthan this sum she will owe more than she did at the beginning of it. Andif she is to discharge the capital sum in thirty years from 1930, _i. E. _in forty-eight years from the Armistice, she must pay an additional$650, 000, 000 annually, making $3, 900, 000, 000 in all. [115]

It is, in my judgment, as certain as anything can be, for reasons whichI will elaborate in a moment, that Germany cannot pay anythingapproaching this sum. Until the Treaty is altered, therefore, Germanyhas in effect engaged herself to hand over to the Allies the whole ofher surplus production in perpetuity. 

6. This is not less the case because the Reparation Commission has beengiven discretionary powers to vary the rate of interest, and to postponeand even to cancel the capital indebtedness. In the first place, some ofthese powers can only be exercised if the Commission or the Governmentsrepresented on it are _unanimous_. [116] But also, which is perhaps moreimportant, it will be the _duty_ of the Reparation Commission, untilthere has been a unanimous and far-reaching change of the policy whichthe Treaty represents, to extract from Germany year after year themaximum sum obtainable. There is a great difference between fixing adefinite sum, which though large is within Germany's capacity to pay andyet to retain a little for herself, and fixing a sum far beyond hercapacity, which is then to be reduced at the discretion of a foreignCommission acting with the object of obtaining each year the maximumwhich the circumstances of that year permit. The first still leaves herwith some slight incentive for enterprise, energy, and hope. The latterskins her alive year by year in perpetuity, and however skilfully anddiscreetly the operation is performed, with whatever regard for notkilling the patient in the process, it would represent a policy which, if it were really entertained and deliberately practised, the judgmentof men would soon pronounce to be one of the most outrageous acts of acruel victor in civilized history. 

There are other functions and powers of high significance which theTreaty accords to the Reparation Commission. But these will be mostconveniently dealt with in a separate section. 

III. _Germany's Capacity to pay_

The forms in which Germany can discharge the sum which she has engagedherself to pay are three in number--

1. Immediately transferable wealth in the form of gold, ships, andforeign securities;

2. The value of property in ceded territory, or surrendered under theArmistice;

3. Annual payments spread over a term of years, partly in cash andpartly in materials such as coal products, potash, and dyes. 

There is excluded from the above the actual restitution of propertyremoved from territory occupied by the enemy, as, for example, Russiangold, Belgian and French securities, cattle, machinery, and works ofart. In so far as the actual goods taken can be identified and restored, they must clearly be returned to their rightful owners, and cannot bebrought into the general reparation pool. This is expressly provided forin Article 238 of the Treaty. 

1. _Immediately Transferable Wealth_

(_a_) _Gold_. --After deduction of the gold to be returned to Russia, theofficial holding of gold as shown in the Reichsbank's return of the 30thNovember, 1918, amounted to $577, 089, 500. This was a very much largeramount than had appeared in the Reichsbank's return prior to thewar, [117] and was the result of the vigorous campaign carried on inGermany during the war for the surrender to the Reichsbank not only ofgold coin but of gold ornaments of every kind. Private hoards doubtlessstill exist, but, in view of the great efforts already made, it isunlikely that either the German Government or the Allies will be able tounearth them. The return can therefore be taken as probably representingthe maximum amount which the German Government are able to extract fromtheir people. In addition to gold there was in the Reichsbank a sum ofabout $5, 000, 000 in silver. There must be, however, a furthersubstantial amount in circulation, for the holdings of the Reichsbankwere as high as $45, 500, 000 on the 31st December, 1917, and stood atabout $30, 000, 000 up to the latter part of October, 1918, when theinternal run began on currency of every kind. [118] We may, therefore, take a total of (say) $625, 000, 000 for gold and silver together at thedate of the Armistice. 

These reserves, however, are no longer intact. During the long periodwhich elapsed between the Armistice and the Peace it became necessaryfor the Allies to facilitate the provisioning of Germany from abroad. The political condition of Germany at that time and the serious menaceof Spartacism rendered this step necessary in the interests of theAllies themselves if they desired the continuance in Germany of a stableGovernment to treat with. The question of how such provisions were to bepaid for presented, however, the gravest difficulties. A series ofConferences was held at Trèves, at Spa, at Brussels, and subsequently atChâteau Villette and Versailles, between representatives of the Alliesand of Germany, with the object of finding some method of payment aslittle injurious as possible to the future prospects of Reparationpayments. The German representatives maintained from the outset that thefinancial exhaustion of their country was for the time being so completethat a temporary loan from the Allies was the only possible expedient. This the Allies could hardly admit at a time when they were preparingdemands for the immediate payment by Germany of immeasurably largersums. But, apart from this, the German claim could not be accepted asstrictly accurate so long as their gold was still untapped and theirremaining foreign securities unmarketed. In any case, it was out of thequestion to suppose that in the spring of 1919 public opinion in theAllied countries or in America would have allowed the grant of asubstantial loan to Germany. On the other hand, the Allies werenaturally reluctant to exhaust on the provisioning of Germany the goldwhich seemed to afford one of the few obvious and certain sources forReparation. Much time was expended in the exploration of all possiblealternatives; but it was evident at last that, even if German exportsand saleable foreign securities had been available to a sufficientvalue, they could not be liquidated in time, and that the financialexhaustion of Germany was so complete that nothing whatever wasimmediately available in substantial amounts except the gold in theReichsbank. Accordingly a sum exceeding $250, 000, 000 in all out of theReichsbank gold was transferred by Germany to the Allies (chiefly to theUnited States, Great Britain, however, also receiving a substantial sum)during the first six months of 1919 in payment for foodstuffs. 

But this was not all. Although Germany agreed, under the first extensionof the Armistice, not to export gold without Allied permission, thispermission could not be always withheld. There were liabilities of theReichsbank accruing in the neighboring neutral countries, which couldnot be met otherwise than in gold. The failure of the Reichsbank to meetits liabilities would have caused a depreciation of the exchange soinjurious to Germany's credit as to react on the future prospects ofReparation. In some cases, therefore, permission to export gold wasaccorded to the Reichsbank by the Supreme Economic Council of theAllies. 

The net result of these various measures was to reduce the gold reserveof 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 lattersum for Reparation purposes. It amounts, however, as it is, to lessthan 4 per cent of the Reichsbank's Note Issue, and the psychologicaleffect of its total confiscation might be expected (having regard to thevery large volume of mark notes held abroad) to destroy the exchangevalue of the mark almost entirely. A sum of $25, 000, 000, $50, 000, 000, oreven $100, 000, 000 might be taken for a special purpose. But we mayassume that the Reparation Commission will judge it imprudent, havingregard to the reaction on their future prospects of securing payment, toruin the German currency system altogether, more particularly becausethe French and Belgian Governments, being holders of a very large volumeof mark notes formerly circulating in the occupied or ceded territory, have a great interest in maintaining some exchange value for the mark, quite apart from Reparation prospects. 

It follows, therefore, that no sum worth speaking of can be expected inthe form of gold or silver towards the initial payment of $5, 000, 000, 000due by 1921. 

(_b_) _Shipping_. --Germany has engaged, as we have seen above, tosurrender to the Allies virtually the whole of her merchant shipping. Aconsiderable part of it, indeed, was already in the hands of the Alliesprior to the conclusion of Peace, either by detention in their ports orby the provisional transfer of tonnage under the Brussels Agreement inconnection with the supply of foodstuffs. [119] Estimating the tonnage ofGerman shipping to be taken over under the Treaty at 4, 000, 000 grosstons, and the average value per ton at $150 per ton, the total moneyvalue involved is $600, 000, 000. [120]

(_c_) _Foreign Securities_. --Prior to the census of foreign securitiescarried out by the German Government in September, 1916, [121] of whichthe exact results have not been made public, no official return of suchinvestments was ever called for in Germany, and the various unofficialestimates are confessedly based on insufficient data, such as theadmission of foreign securities to the German Stock Exchanges, thereceipts of the stamp duties, consular reports, etc. The principalGerman estimates current before the war are given in the appendedfootnote. [122] This shows a general consensus of opinion among Germanauthorities 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 wouldprobably 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, whichbetween them constitute a considerable part of the world, have beensequestrated by Public Trustees, Custodians of Enemy Property, andsimilar officials, and are not available for Reparation except in so faras they show a surplus over various private claims. Under the scheme fordealing with enemy debts outlined in Chapter IV. , the first charge onthese assets is the private claims of Allied against German nationals. It is unlikely, except in the United States, that there will be anyappreciable surplus for any other purpose. 

(ii. ) Germany's most important fields of foreign investment before thewar were not, like ours, oversea, but in Russia, Austria-Hungary, Turkey, Roumania, and Bulgaria. A great part of these has now becomealmost valueless, at any rate for the time being; especially those inRussia and Austria-Hungary. If present market value is to be taken asthe test, none of these investments are now saleable above a nominalfigure. Unless the Allies are prepared to take over these securitiesmuch above their nominal market valuation, and hold them for futurerealization, there is no substantial source of funds for immediatepayment in the form of investments in these countries. 

(iii. ) While Germany was not in a position to realize her foreigninvestments during the war to the degree that we were, she did sonevertheless in the case of certain countries and to the extent thatshe was able. Before the United States came into the war, she isbelieved to have resold a large part of the pick of her investments inAmerican securities, although some current estimates of these sales (afigure of $300, 000, 000 has been mentioned) are probably exaggerated. Butthroughout the war and particularly in its later stages, when herexchanges were weak and her credit in the neighboring neutral countrieswas becoming very low, she was disposing of such securities as Holland, Switzerland, and Scandinavia would buy or would accept as collateral. Itis reasonably certain that by June, 1919, her investments in thesecountries had been reduced to a negligible figure and were far exceededby her liabilities in them. Germany has also sold certain overseassecurities, such as Argentine cedulas, for which a market could befound. 

(iv. ) It is certain that since the Armistice there has been a greatflight abroad of the foreign securities still remaining in privatehands. This is exceedingly difficult to prevent. German foreigninvestments are as a rule in the form of bearer securities and are notregistered. They are easily smuggled abroad across Germany's extensiveland frontiers, and for some months before the conclusion of peace itwas certain that their owners would not be allowed to retain them if theAllied Governments could discover any method of getting hold of them. These factors combined to stimulate human ingenuity, and the effortsboth of the Allied and of the German Governments to interfereeffectively with the outflow are believed to have been largely futile. 

In face of all these considerations, it will be a miracle if muchremains for Reparation. The countries of the Allies and of the UnitedStates, the countries of Germany's own allies, and the neutral countriesadjacent to Germany exhaust between them almost the whole of thecivilized world; and, as we have seen, we cannot expect much to beavailable for Reparation from investments in any of these quarters. Indeed there remain no countries of importance for investments exceptthose of South America. 

To convert the significance of these deductions into figures involvesmuch guesswork. I give the reader the best personal estimate I can formafter pondering the matter in the light of the available figures andother relevant data. 

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

As regards (ii. )--according to a census taken by the Austrian Ministryof Finance on the 31st December, 1912, the nominal value of theAustro-Hungarian securities held by Germans was $986, 500, 000. Germany'spre-war investments in Russia outside Government securities have beenestimated at $475, 000, 000, which is much lower than would be expected, and in 1906 Sartorius v. Waltershausen estimated her investments inRussian 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 modestestimate. A Roumanian estimate, published at the time of that country'sentry 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 inGovernment securities. An association for the defense of Frenchinterests in Turkey, as reported in the _Temps_ (Sept. 8, 1919), hasestimated the total amount of German capital invested in Turkey at about$295, 000, 000, of which, according to the latest Report of the Council ofForeign Bondholders, $162, 500, 000 was held by German nationals in theTurkish External Debt. No estimates are available to me of Germany'sinvestments in Bulgaria. Altogether I venture a deduction of$2, 500, 000, 000 in respect of this group of countries as a whole. 

Resales and the pledging as collateral of securities during the warunder (iii. ) I put at $500, 000, 000 to $750, 000, 000, comprisingpractically all Germany's holding of Scandinavian, Dutch, and Swisssecurities, a part of her South American securities, and a substantialproportion of her North American securities sold prior to the entry ofthe United States into the war. 

As to the proper deduction under (iv. ) there are naturally no availablefigures. For months past the European press has been full of sensationalstories of the expedients adopted. But if we put the value of securitieswhich have already left Germany or have been safely secreted withinGermany itself beyond discovery by the most inquisitorial and powerfulmethods at $500, 000, 000, we are not likely to overstate it. 

These various items lead, therefore, in all to a deduction of a roundfigure of about $5, 000, 000, 000, and leave us with an amount of$1, 250, 000, 000 theoretically still available. [123]

To some readers this figure may seem low, but let them remember that itpurports to represent the remnant of _saleable_ securities upon whichthe German Government might be able to lay hands for public purposes. Inmy own opinion it is much too high, and considering the problem by adifferent method of attack I arrive at a lower figure. For leaving outof account sequestered Allied securities and investments in Austria, Russia, etc. , what blocks of securities, specified by countries andenterprises, can Germany possibly still have which could amount to asmuch as $1, 250, 000, 000? I cannot answer the question. She has someChinese Government securities which have not been sequestered, a fewJapanese perhaps, and a more substantial value of first-class SouthAmerican properties. But there are very few enterprises of this classstill in German hands, and even _their_ value is measured by one or twotens of millions, not by fifties or hundreds. He would be a rash man, inmy judgment, who joined a syndicate to pay $500, 000, 000 in cash for theunsequestered remnant of Germany's overseas investments. If theReparation Commission is to realize even this lower figure, it isprobable that they will have to nurse, for some years, the assets whichthey take over, not attempting their disposal at the present time. 

We have, therefore, a figure of from $500, 000, 000 to $1, 250, 000, 000 asthe maximum contribution from Germany's foreign securities. 

Her immediately transferable wealth is composed, then, of--

(_a_) Gold and silver--say $300, 000, 000. 

(_b_) Ships--$600, 000, 000. 

(_c_) Foreign securities--$500, 000, 000 to $1, 250, 000, 000. 

Of the gold and silver, it is not, in fact, practicable to take anysubstantial part without consequences to the German currency systeminjurious to the interests of the Allies themselves. The contributionfrom all these sources together which the Reparation Commission can hopeto secure by May, 1921, may be put, therefore, at from $1, 250, 000, 000 to$1, 750, 000, 000 _as a maximum_. [124]

2. _Property in ceded Territory or surrendered under the Armistice_

As the Treaty has been drafted Germany will not receive importantcredits available towards meeting reparation in respect of her propertyin ceded territory. 

_Private_ property in most of the ceded territory is utilized towardsdischarging private German debts to Allied nationals, and only thesurplus, if any, is available towards Reparation. The value of suchproperty in Poland and the other new States is payable direct to theowners. 

_Government_ property in Alsace-Lorraine, in territory ceded to Belgium, and in Germany's former colonies transferred to a Mandatory, is to beforfeited without credit given. Buildings, forests, and other Stateproperty which belonged to the former Kingdom of Poland are also to besurrendered without credit. There remain, therefore, Governmentproperties, other than the above, surrendered to Poland, Governmentproperties in Schleswig surrendered to Denmark, [125] the value of theSaar coalfields, the value of certain river craft, etc. , to besurrendered under the Ports, Waterways, and Railways Chapter, and thevalue of the German submarine cables transferred under Annex VII. Of theReparation Chapter. 

Whatever the Treaty may say, the Reparation Commission will not secureany cash payments from Poland. I believe that the Saar coalfields havebeen 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 inrespect of private property, is probably a liberal estimate. 

Then remains the value of material surrendered under the Armistice. Article 250 provides that a credit shall be assessed by the ReparationCommission for rolling-stock surrendered under the Armistice as well asfor certain other specified items, and generally for any material sosurrendered for which the Reparation Commission think that credit shouldbe given, "as having non-military value. " The rolling-stock (150, 000wagons and 5, 000 locomotives) is the only very valuable item. A roundfigure of $250, 000, 000, for all the Armistice surrenders, is probablyagain a liberal estimate. 

We have, therefore, $400, 000, 000 to add in respect of this heading toour figure of $1, 250, 000, 000 to $1, 750, 000, 000 under the previousheading. This figure differs from the preceding in that it does notrepresent cash capable of benefiting the financial situation of theAllies, but is only a book credit between themselves or between them andGermany. 

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, underArticle 251 of the Treaty, is the cost of the Armies of Occupation bothduring the Armistice and after the conclusion of Peace. The aggregate ofthis figure up to May, 1921, cannot be calculated until the rate ofwithdrawal is known which is to reduce the _monthly_ cost from thefigure exceeding $100, 000, 000, which prevailed during the first part of1919, to that of $5, 000, 000, which is to be the normal figureeventually. 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, 000still in hand. 

Out of this, and out of exports of goods, and payments in kind under theTreaty prior to May, 1921 (for which I have not as yet made anyallowance), the Allies have held out the hope that they will allowGermany to receive back such sums for the purchase of necessary food andraw materials as the former deem it essential for her to have. It is notpossible at the present time to form an accurate judgment either as tothe money-value of the goods which Germany will require to purchase fromabroad in order to re-establish her economic life, or as to the degreeof liberality with which the Allies will exercise their discretion. Ifher stocks of raw materials and food were to be restored to anythingapproaching their normal level by May, 1921, Germany would probablyrequire foreign purchasing power of from $500, 000, 000 to $1, 000, 000, 000at least, in addition to the value of her current exports. While this isnot likely to be permitted, I venture to assert as a matter beyondreasonable dispute that the social and economic condition of Germanycannot possibly permit a surplus of exports over imports during theperiod prior to May, 1921, and that the value of any payments in kindwith which she may be able to furnish the Allies under the Treaty in theform of coal, dyes, timber, or other materials will have to be returnedto her to enable her to pay for imports essential to her existence. [126]

The Reparation Commission can, therefore, expect no addition from othersources to the sum of from $500, 000, 000 to $1, 000, 000, 000 with which wehave hypothetically credited it after the realization of Germany'simmediately transferable wealth, the calculation of the credits due toGermany under the Treaty, and the discharge of the cost of the Armies ofOccupation. As Belgium has secured a private agreement with France, theUnited States, and Great Britain, outside the Treaty, by which she is toreceive, towards satisfaction of her claims, the _first_ $500, 000, 000available for Reparation, the upshot of the whole matter is that Belgiummay _possibly_ get her $500, 000, 000 by May, 1921, but none of the otherAllies are likely to secure by that date any contribution worth speakingof. At any rate, it would be very imprudent for Finance Ministers to laytheir plans on any other hypothesis. 

3. _Annual Payments spread over a Term of Years_

It is evident that Germany's pre-war capacity to pay an annual foreigntribute has not been unaffected by the almost total loss of hercolonies, her overseas connections, her mercantile marine, and herforeign properties, by the cession of ten per cent of her territory andpopulation, of one-third of her coal and of three-quarters of her ironore, by two million casualties amongst men in the prime of life, by thestarvation of her people for four years, by the burden of a vast wardebt, by the depreciation of her currency to less than one-seventh itsformer value, by the disruption of her allies and their territories, byRevolution at home and Bolshevism on her borders, and by all theunmeasured ruin in strength and hope of four years of all-swallowing warand final defeat. 

All this, one would have supposed, is evident. Yet most estimates of agreat indemnity from Germany depend on the assumption that she is in aposition to conduct in the future a vastly greater trade than ever shehas had in the past. 

For the purpose of arriving at a figure it is of no great consequencewhether payment takes the form of cash (or rather of foreign exchange)or is partly effected in kind (coal, dyes, timber, etc. ), ascontemplated by the Treaty. In any event, it is only by the export ofspecific commodities that Germany can pay, and the method of turning thevalue of these exports to account for Reparation purposes is, comparatively, a matter of detail. 

We shall lose ourselves in mere hypothesis unless we return in somedegree to first principles, and, whenever we can, to such statistics asthere are. It is certain that an annual payment can only be made byGermany over a series of years by diminishing her imports and increasingher exports, thus enlarging the balance in her favor which is availablefor effecting payments abroad. Germany can pay in the long-run in goods, and in goods only, whether these goods are furnished direct to theAllies, or whether they are sold to neutrals and the neutral credits soarising are then made over to the Allies. The most solid basis forestimating the extent to which this process can be carried is to befound, therefore, in an analysis of her trade returns before the war. Only on the basis of such an analysis, supplemented by some general dataas to the aggregate wealth-producing capacity of the country, can arational guess be made as to the maximum degree to which the exports ofGermany could be brought to exceed her imports. 

In the year 1913 Germany's imports amounted to $2, 690, 000, 000, and herexports to $2, 525, 000, 000, exclusive of transit trade and bullion. Thatis to say, imports exceeded exports by about $165, 000, 000. On theaverage of the five years ending 1913, however, her imports exceeded herexports by a substantially larger amount, namely, $370, 000, 000. Itfollows, therefore, that more than the whole of Germany's pre-warbalance for new foreign investment was derived from the interest on herexisting foreign securities, and from the profits of her shipping, foreign banking, etc. As her foreign properties and her mercantilemarine are now to be taken from her, and as her foreign banking andother miscellaneous sources of revenue from abroad have been largelydestroyed, it appears that, on the pre-war basis of exports and imports, Germany, so far from having a surplus wherewith to make a foreignpayment, would be not nearly self-supporting. Her first task, therefore, must be to effect a readjustment of consumption and production to coverthis deficit. Any further economy she can effect in the use of importedcommodities, and any further stimulation of exports will then beavailable for Reparation. 

Two-thirds of Germany's import and export trade is enumerated underseparate headings in the following tables. The considerations applyingto the enumerated portions may be assumed to apply more or less to theremaining one-third, which is composed of commodities of minorimportance individually. 

 -----------------------------------------+---------+--------------- | Amount: | Percentage of German Exports, 1913 | Million | Total Exports | Dollars | -----------------------------------------+---------+--------------- Iron goods (including tin plates, etc. ) | 330. 65 | 13. 2 Machinery and parts (including | | motor-cars) | 187. 75 | 7. 5 Coal, coke, and briquettes | 176. 70 | 7. 0 Woolen goods (including raw and | | combed wool and clothing) | 147. 00 | 5. 9 Cotton goods (including raw cotton, | | yarn, and thread) | 140. 75 | 5. 6 +---------+--------------- | 982. 85 | 39. 2 +---------+--------------- Cereals, etc. (including rye, oats, | | wheat, hops) | 105. 90 | 4. 1 Leather and leather goods | 77. 35 | 3. 0 Sugar | 66. 00 | 2. 6 Paper, etc. | 65. 50 | 2. 6 Furs | 58. 75 | 2. 2 Electrical goods (installations, | | machinery, lamps, cables) | 54. 40 | 2. 2 Silk goods | 50. 50 | 2. 0 Dyes | 48. 80 | 1. 9 Copper goods | 32. 50 | 1. 3 Toys | 25. 75 | 1. 0 Rubber and rubber goods | 21. 35 | 0. 9 Books, maps, and music | 18. 55 | 0. 8 Potash | 15. 90 | 0. 6 Glass | 15. 70 | 0. 6 Potassium chloride | 14. 55 | 0. 6 Pianos, organs, and parts | 13. 85 | 0. 6 Raw zinc | 13. 70 | 0. 5 Porcelain | 12. 65 | 0. 5 +---------+--------------- | 711. 70 | 67. 2 +---------+--------------- Other goods, unenumerated | 829. 60 | 32. 8 +---------+--------------- Total |2, 524. 15 | 100. 0 -----------------------------------------+---------+---------------

 -----------------------------------------+---------+--------------- | Amount: | Percentage of German Imports, 1913 | Million | Total Imports | Dollars | -----------------------------------------+---------+--------------- I. Raw materials:-- | | Cotton | 151. 75 | 5. 6 Hides and skins | 124. 30 | 4. 6 Wool | 118. 35 | 4. 4 Copper | 83. 75 | 3. 1 Coal | 68. 30 | 2. 5 Timber | 58. 00 | 2. 2 Iron ore | 56. 75 | 2. 1 Furs | 46. 75 | 1. 7 Flax and flaxseed | 46. 65 | 1. 7 Saltpetre | 42. 75 | 1. 6 Silk | 39. 50 | 1. 5 Rubber | 36. 50 | 1. 4 Jute | 23. 50 | 0. 9 Petroleum | 17. 45 | 0. 7 Tin | 14. 55 | 0. 5 Phosphorus chalk | 11. 60 | 0. 4 Lubricating oil | 11. 45 | 0. 4 +---------+--------------- | 951. 90 | 35. 3 +---------+--------------- II. Food, tobacco, etc. :-- | | Cereals, etc. (wheat, barley, | | bran, rice, maize, oats, rye, | | clover) | 327. 55 | 12. 2 Oil seeds and cake, etc. | | (including palm kernels, copra, | | cocoa, beans) | 102. 65 | 3. 8 Cattle, lamb fat, bladders | 73. 10 | 2. 8 Coffee | 54. 75 | 2. 0 Eggs | 48. 50 | 1. 8 Tobacco | 33. 50 | 1. 2 Butter | 29. 65 | 1. 1 Horses | 29. 05 | 1. 1 Fruit | 18. 25 | 0. 7 Fish | 14. 95 | 0. 6 Poultry | 14. 00 | 0. 5 Wine | 13. 35 | 0. 5 +---------+--------------- | 759. 30 | 28. 3 -----------------------------------------+---------+---------------

 -----------------------------------------+---------+--------------- | Amount: | Percentage of German Imports, 1913 | Million | Total Imports | Dollars | -----------------------------------------+---------+--------------- III. Manufactures:-- | | Cotton yarn and thread and | | cotton goods | 47. 05 | 1. 8 Woolen yarn and woolen | | goods | 37. 85 | 1. 4 Machinery | 20. 10 | 0. 7 +---------+--------------- | 105. 00 | 3. 9 +---------+--------------- IV. Unenumerated | 876. 40 | 32. 5 +---------+--------------- Total |2, 692. 60 | 100. 0 -----------------------------------------+---------+---------------

These tables show that the most important exports consisted of:--

 (1) Iron goods, including tin plates (13. 2 per cent), (2) Machinery, etc. (7. 5 per cent), (3) Coal, coke, and briquettes (7 per cent), (4) Woolen goods, including raw and combed wool (5. 9 per cent), and (5) Cotton goods, including cotton yarn and thread and raw cotton (5. 6 per cent), these five classes between them accounting for 39. 2 per cent. Of thetotal exports. It will be observed that all these goods are of a kind inwhich before the war competition between Germany and the United Kingdomwas very severe. If, therefore, the volume of such exports to overseasor European destinations is very largely increased the effect uponBritish export trade must be correspondingly serious. As regards two ofthe categories, namely, cotton and woolen goods, the increase of anexport trade is dependent upon an increase of the import of the rawmaterial, since Germany produces no cotton and practically no wool. These trades are therefore incapable of expansion unless Germany isgiven facilities for securing these raw materials (which can only be atthe expense of the Allies) in excess of the pre-war standard ofconsumption, and even then the effective increase is not the gross valueof the exports, but only the difference between the value of themanufactured exports and of the imported raw material. As regards theother three categories, namely, machinery, iron goods, and coal, Germany's capacity to increase her exports will have been taken from herby the cessions of territory in Poland, Upper Silesia, andAlsace-Lorraine. As has been pointed out already, these districtsaccounted for nearly one-third of Germany's production of coal. But theyalso supplied no less than three-quarters of her iron-ore production, 38per cent of her blast furnaces, and 9. 5 per cent of her iron and steelfoundries. Unless, therefore, Alsace-Lorraine and Upper Silesia sendtheir iron ore to Germany proper, to be worked up, which will involve anincrease in the imports for which she will have to find payment, so farfrom any increase in export trade being possible, a decrease isinevitable. [127]

Next on the list come cereals, leather goods, sugar, paper, furs, electrical goods, silk goods, and dyes. Cereals are not a net export andare far more than balanced by imports of the same commodities. Asregards sugar, nearly 90 per cent of Germany's pre-war exports came tothe United Kingdom. [128] An increase in this trade might be stimulatedby a grant of a preference in this country to German sugar or by anarrangement by which sugar was taken in part payment for the indemnityon the same lines as has been proposed for coal, dyes, etc. Paperexports also might be capable of some increase. Leather goods, furs, andsilks depend upon corresponding imports on the other side of theaccount. Silk goods are largely in competition with the trade of Franceand Italy. The remaining items are individually very small. I have heardit suggested that the indemnity might be paid to a great extent inpotash and the like. But potash before the war represented 0. 6 per centof Germany's export trade, and about $15, 000, 000 in aggregate value. Besides, France, having secured a potash field in the territory whichhas been restored to her, will not welcome a great stimulation of theGerman exports of this material. 

An examination of the import list shows that 63. 6 per cent are rawmaterials and food. The chief items of the former class, namely, cotton, wool, copper, hides, iron-ore, furs, silk, rubber, and tin, could not bemuch reduced without reacting on the export trade, and might have to beincreased if the export trade was to be increased. Imports of food, namely, wheat, barley, coffee, eggs, rice, maize, and the like, presenta different problem. It is unlikely that, apart from certain comforts, the consumption of food by the German laboring classes before the warwas in excess of what was required for maximum efficiency; indeed, itprobably fell short of that amount. Any substantial decrease in theimports of food would therefore react on the efficiency of theindustrial population, and consequently on the volume of surplus exportswhich they could be forced to produce. It is hardly possible to insiston a greatly increased productivity of German industry if the workmenare to be underfed. But this may not be equally true of barley, coffee, eggs, and tobacco. If it were possible to enforce a régime in which forthe future no German drank beer or coffee, or smoked any tobacco, asubstantial saving could be effected. Otherwise there seems little roomfor any significant reduction. 

The following analysis of German exports and imports, according todestination and origin, is also relevant. From this it appears that ofGermany's exports in 1913, 18 per cent went to the British Empire, 17per cent to France, Italy, and Belgium, 10 per cent to Russia andRoumania, and 7 per cent to the United States; that is to say, more thanhalf of the exports found their market in the countries of the Ententenations. Of the balance, 12 per cent went to Austria-Hungary, Turkey, and Bulgaria, and 35 per cent elsewhere. Unless, therefore, the presentAllies are prepared to encourage the importation of German products, asubstantial increase in total volume can only be effected by thewholesale swamping of neutral markets. 

 GERMAN TRADE (1913) ACCORDING TO DESTINATION AND ORIGIN. 

 ----------------------+--------------------+-------------------- | Destination of | Origin of | Germany's Exports | Germany's Imports ----------------------+--------------------+-------------------- | Million Per cent | Million Per cent | Dollars | Dollars Great Britain | 359. 55 14. 2 | 219. 00 8. 1 India | 37. 65 1. 5 | 135. 20 5. 0 Egypt | 10. 85 0. 4 | 29. 60 1. 1 Canada | 15. 10 0. 6 | 16. 00 0. 6 Australia | 22. 10 0. 9 | 74. 00 2. 8 South Africa | 11. 70 0. 5 | 17. 40 0. 6 | ------ ---- | ------ ---- Total: British Empire | 456. 95 18. 1 | 491. 20 18. 2 | | France | 197. 45 7. 8 | 146. 05 5. 4 Belgium | 137. 75 5. 5 | 86. 15 3. 2 Italy | 98. 35 3. 9 | 79. 40 3. 0 U. S. A. | 178. 30 7. 1 | 427. 80 15. 9 Russia | 220. 00 8. 7 | 356. 15 13. 2 Roumania | 35. 00 1. 4 | 19. 95 0. 7 Austria-Hungary | 276. 20 10. 9 | 206. 80 7. 7 Turkey | 24. 60 1. 0 | 18. 40 0. 7 Bulgaria | 7. 55 0. 3 | 2. 00 . .. Other countries | 890. 20 35. 3 | 858. 70 32. 0 | ------ ---- | ------ ---- | 2, 522. 35 100. 0 | 2, 692. 60 100. 0 ----------------------+--------------------+--------------------

The above analysis affords some indication of the possible magnitude ofthe maximum modification of Germany's export balance under theconditions which will prevail after the Peace. On the assumptions (1)that we do not specially favor Germany over ourselves in supplies ofsuch raw materials as cotton and wool (the world's supply of which islimited), (2) that France, having secured the iron-ore deposits, makes aserious attempt to secure the blast-furnaces and the steel trade also, (3) that Germany is not encouraged and assisted to undercut the iron andother trades of the Allies in overseas market, and (4) that asubstantial preference is not given to German goods in the BritishEmpire, it is evident by examination of the specific items that not muchis practicable. 

Let us run over the chief items again: (1) Iron goods. In view ofGermany's loss of resources, an increased net export seems impossibleand 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, 000tons is the maximum possible export with a problematic (and in fact)impossible increase to 40, 000, 000 tons at some future time; even on thebasis of 20, 000, 000 tons we have virtually no increase of value, measured in pre-war prices;[129] whilst, if this amount is exacted, there must be a decrease of far greater value in the export ofmanufactured articles requiring coal for their production. (4) Woolengoods. An increase is impossible without the raw wool, and, havingregard to the other claims on supplies of raw wool, a decrease islikely. (5) Cotton goods. The same considerations apply as to wool. (6)Cereals. There never was and never can be a net export. (7) Leathergoods. The same considerations apply as to wool. 

We have now covered nearly half of Germany's pre-war exports, and thereis no other commodity which formerly represented as much as 3 per centof her exports. In what commodity is she to pay? Dyes?--their totalvalue in 1913 was $50, 000, 000. Toys? Potash?--1913 exports were worth$15, 000, 000. And even if the commodities could be specified, in whatmarkets are they to be sold?--remembering that we have in mind goods tothe value not of tens of millions annually, but of hundreds of millions. 

On the side of imports, rather more is possible. By lowering thestandard of life, an appreciable reduction of expenditure on importedcommodities may be possible. But, as we have already seen, many largeitems are incapable of reduction without reacting on the volume ofexports. 

Let us put our guess as high as we can without being foolish, andsuppose that after a time Germany will be able, in spite of thereduction of her resources, her facilities, her markets, and herproductive power, to increase her exports and diminish her imports so asto improve her trade balance altogether by $500, 000, 000 annually, measured in pre-war prices. This adjustment is first required toliquidate the adverse trade balance, which in the five years before thewar averaged $370, 000, 000; but we will assume that after allowing forthis, 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 figureof $500, 000, 000. Having regard to the political, social, and humanfactors, as well as to the purely economic, I doubt if Germany could bemade to pay this sum annually over a period of 30 years; but it wouldnot be foolish to assert or to hope that she could. 

Such a figure, allowing 5 per cent for interest, and 1 per cent forrepayment of capital, represents a capital sum having a present value ofabout $8, 500, 000, 000. [130]

I reach, therefore, the final conclusion that, including all methods ofpayment--immediately transferable wealth, ceded property, and an annualtribute--$10, 000, 000, 000 is a safe maximum figure of Germany's capacityto pay. In all the actual circumstances, I do not believe that she canpay as much. Let those who consider this a very low figure, bear in mindthe following remarkable comparison. The wealth of France in 1871 wasestimated at a little less than half that of Germany in 1913. Apart fromchanges in the value of money, an indemnity from Germany of$2, 500, 000, 000 would, therefore, be about comparable to the sum paid byFrance in 1871; and as the real burden of an indemnity increases morethan in proportion to its amount, the payment of $10, 000, 000, 000 byGermany would have far severer consequences than the $1, 000, 000, 000 paidby France in 1871. 

There is only one head under which I see a possibility of adding to thefigure reached on the line of argument adopted above; that is, if Germanlabor is actually transported to the devastated areas and there engagedin the work of reconstruction. I have heard that a limited scheme ofthis kind is actually in view. The additional contribution thusobtainable depends on the number of laborers which the German Governmentcould contrive to maintain in this way and also on the number which, over a period of years, the Belgian and French inhabitants wouldtolerate in their midst. In any case, it would seem very difficult toemploy on the actual work of reconstruction, even over a number ofyears, imported labor having a net present value exceeding (say)$1, 250, 000, 000; and even this would not prove in practice a net additionto the annual contributions obtainable in other ways. 

A capacity of $40, 000, 000, 000 or even of $25, 000, 000, 000 is, therefore, not within the limits of reasonable possibility. It is for those whobelieve that Germany can make an annual payment amounting to hundreds ofmillions sterling to say _in what specific commodities_ they intend thispayment to be made and _in what markets_ the goods are to be sold. Untilthey proceed to some degree of detail, and are able to produce sometangible argument in favor of their conclusions, they do not deserve tobe believed. [131]

I make three provisos only, none of which affect the force of myargument for immediate practical purposes. 

_First_: if the Allies were to "nurse" the trade and industry of Germanyfor a period of five or ten years, supplying her with large loans, andwith ample shipping, food, and raw materials during that period, building up markets for her, and deliberately applying all theirresources and goodwill to making her the greatest industrial nation inEurope, if not in the world, a substantially larger sum could probablybe extracted thereafter; for Germany is capable of very greatproductivity. 

_Second_: whilst I estimate in terms of money, I assume that there is norevolutionary change in the purchasing power of our unit of value. Ifthe value of gold were to sink to a half or a tenth of its presentvalue, the real burden of a payment fixed in terms of gold would bereduced proportionately. If a sovereign comes to be worth what ashilling is worth now, then, of course, Germany can pay a larger sumthan I have named, measured in gold sovereigns. 

_Third_: I assume that there is no revolutionary change in the yield ofNature and material to man's labor. It is not _impossible_ that theprogress of science should bring within our reach methods and devices bywhich the whole standard of life would be raised immeasurably, and agiven volume of products would represent but a portion of the humaneffort which it represents now. In this case all standards of "capacity"would be changed everywhere. But the fact that all things are _possible_is no excuse for talking foolishly. 

It is true that in 1870 no man could have predicted Germany's capacityin 1910. We cannot expect to legislate for a generation or more. Thesecular changes in man's economic condition and the liability of humanforecast to error are as likely to lead to mistake in one direction asin another. We cannot as reasonable men do better than base our policyon the evidence we have and adapt it to the five or ten years over whichwe may suppose ourselves to have some measure of prevision; and we arenot at fault if we leave on one side the extreme chances of humanexistence and of revolutionary changes in the order of Nature or ofman's relations to her. The fact that we have no adequate knowledge ofGermany's capacity to pay over a long period of years is nojustification (as I have heard some people claim that, it is) for thestatement that she can pay $50, 000, 000, 000. 

Why has the world been so credulous of the unveracities of politicians?If an explanation is needed, I attribute this particular credulity tothe following influences in part. 

In the first place, the vast expenditures of the war, the inflation ofprices, and the depreciation of currency, leading up to a completeinstability of the unit of value, have made us lose all sense of numberand magnitude in matters of finance. What we believed to be the limitsof possibility have been so enormously exceeded, and those who foundedtheir expectations on the past have been so often wrong, that the man inthe street is now prepared to believe anything which is told him withsome show of authority, and the larger the figure the more readily heswallows it. 

But those who look into the matter more deeply are sometimes misled by afallacy, much more plausible to reasonableness. Such a one might basehis conclusions on Germany's total surplus of annual productivity asdistinct from her export surplus. Helfferich's estimate of Germany'sannual increment of wealth in 1913 was $2, 000, 000, 000 to $2, 125, 000, 000(exclusive of increased money value of existing land and property). Before the war, Germany spent between $250, 000, 000 and $500, 000, 000 onarmaments, with which she can now dispense. Why, therefore, should shenot pay over to the Allies an annual sum of $2, 500, 000, 000? This putsthe crude argument in its strongest and most plausible form. 

But there are two errors in it. First of all, Germany's annual savings, after what she has suffered in the war and by the Peace, will fall farshort of what they were before, and, if they are taken from her year byyear in future, they cannot again reach their previous level. The lossof Alsace-Lorraine, Poland, and Upper Silesia could not be assessed interms of surplus productivity at less than $250, 000, 000 annually. Germany is supposed to have profited about $500, 000, 000 per annum fromher ships, her foreign investments, and her foreign banking andconnections, all of which have now been taken from her. Her saving onarmaments is far more than balanced by her annual charge for pensionsnow estimated at $1, 250, 000, 000, [132] which represents a real loss ofproductive capacity. And even if we put on one side the burden of theinternal debt, which amounts to 24 milliards of marks, as being aquestion of internal distribution rather than of productivity, we muststill allow for the foreign debt incurred by Germany during the war, theexhaustion of her stock of raw materials, the depletion of herlive-stock, the impaired productivity of her soil from lack of manuresand of labor, and the diminution in her wealth from the failure to keepup many repairs and renewals over a period of nearly five years. Germanyis not as rich as she was before the war, and the diminution in herfuture savings for these reasons, quite apart from the factorspreviously 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 thanthe $500, 000, 000 at which we arrived on other grounds as the maximum ofher annual payments. But even if the rejoinder be made, that we have notyet allowed for the lowering of the standard of life and comfort inGermany which may reasonably be imposed on a defeated enemy, [133] thereis still a fundamental fallacy in the method of calculation. An annualsurplus available for home investment can only be converted into asurplus available for export abroad by a radical change in the kind ofwork performed. Labor, while it may be available and efficient fordomestic services in Germany, may yet be able to find no outlet inforeign trade. We are back on the same question which faced us in ourexamination of the export trade--in _what_ export trade is German laborgoing to find a greatly increased outlet? Labor can only he divertedinto new channels with loss of efficiency, and a large expenditure ofcapital. The annual surplus which German labor can produce for capitalimprovements at home is no measure, either theoretically or practically, of the annual tribute which she can pay abroad. 

IV. _The Reparation Commission_. 

This body is so remarkable a construction and may, if it functions atall, exert so wide an influence on the life of Europe, that itsattributes deserve a separate examination. 

There are no precedents for the indemnity imposed on Germany under thepresent Treaty; for the money exactions which formed part of thesettlement after previous wars have differed in two fundamental respectsfrom this one. The sum demanded has been determinate and has beenmeasured in a lump sum of money; and so long as the defeated party wasmeeting the annual instalments of cash no consequential interference wasnecessary. 

But for reasons already elucidated, the exactions in this case are notyet determinate, and the sum when fixed will prove in excess of what canbe paid in cash and in excess also of what can be paid at all. It wasnecessary, therefore, to set up a body to establish the bill of claim, to fix the mode of payment, and to approve necessary abatements anddelays. It was only possible to place this body in a position to exactthe utmost year by year by giving it wide powers over the internaleconomic life of the enemy countries, who are to be treated henceforwardas bankrupt estates to be administered by and for the benefit of thecreditors. In fact, however, its powers and functions have been enlargedeven beyond what was required for this purpose, and the ReparationCommission has been established as the final arbiter on numerouseconomic and financial issues which it was convenient to leave unsettledin the Treaty itself. [134]

The powers and constitution of the Reparation Commission are mainly laiddown in Articles 233-241 and Annex II. Of the Reparation Chapter of theTreaty with Germany. But the same Commission is to exercise authorityover Austria and Bulgaria, and possibly over Hungary and Turkey, whenPeace is made with these countries. There are, therefore, analogousarticles _mutatis mudandis_ in the Austrian Treaty[135] and in theBulgarian Treaty. [136]

The principal Allies are each represented by one chief delegate. The delegates of the United States, Great Britain, France, andItaly take part in all proceedings; the delegate of Belgium in allproceedings except those attended by the delegates of Japan or theSerb-Croat-Slovene State; the delegate of Japan in all proceedingsaffecting maritime or specifically Japanese questions; and thedelegate of the Serb-Croat-Slovene State when questions relating toAustria, Hungary, or Bulgaria are under consideration. Other alliesare to be represented by delegates, without the power to vote, whenever their respective claims and interests are under examination. 

In general the Commission decides by a majority vote, except in certainspecific cases where unanimity is required, of which the most importantare the cancellation of German indebtedness, long postponement of theinstalments, and the sale of German bonds of indebtedness. TheCommission is endowed with full executive authority to carry out itsdecisions. It may set up an executive staff and delegate authority toits officers. The Commission and its staff are to enjoy diplomaticprivileges, and its salaries are to be paid by Germany, who will, however, have no voice in fixing them, If the Commission is to dischargeadequately its numerous functions, it will be necessary for it toestablish a vast polyglot bureaucratic organization, with a staff ofhundreds. To this organization, the headquarters of which will be inParis, 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 againstthe enemy Powers by an examination in detail of the claims of each ofthe Allies under Annex I. Of the Reparation Chapter. This task must becompleted by May, 1921. It shall give to the German Government and toGermany's allies "a just opportunity to be heard, but not to take anypart whatever in the decisions of the Commission. " That is to say, theCommission will act as a party and a judge at the same time. 

2. Having determined the claim, it will draw up a schedule of paymentsproviding for the discharge of the whole sum with interest within thirtyyears. From time to time it shall, with a view to modifying the schedulewithin the limits of possibility, "consider the resources and capacityof Germany . .. Giving her representatives a just opportunity to be heard. "

"In periodically estimating Germany's capacity to pay, the Commissionshall examine the German system of taxation, first, to the end that thesums for reparation which Germany is required to pay shall become acharge upon all her revenues prior to that for the service or dischargeof any domestic loan, and secondly, so as to satisfy itself that, ingeneral, the German scheme of taxation is fully as heavy proportionatelyas that of any of the Powers represented on the Commission. "

3. Up to May, 1921, the Commission has power, with a view to securingthe payment of $5, 000, 000, 000, to demand the surrender of any piece ofGerman property whatever, wherever situated: that is to say, "Germanyshall pay in such installments and in such manner, whether in gold, commodities, ships, securities, or otherwise, as the ReparationCommission may fix. "

4. The Commission will decide which of the rights and interests ofGerman nationals in public utility undertakings operating in Russia, China, Turkey, Austria, Hungary, and Bulgaria, or in any territoryformerly belonging to Germany or her allies, are to be expropriated andtransferred to the Commission itself; it will assess the value of theinterests so transferred; and it will divide the spoils. 

5 The Commission will determine how much of the resources thus strippedfrom Germany must be returned to her to keep enough life in her economicorganization to enable her to continue to make Reparation payments infuture. [137]

6. The Commission will assess the value, without appeal or arbitration, of the property and rights ceded under the Armistice, and under theTreaty, --roiling-stock, the mercantile marine, river craft, cattle, theSaar mines, the property in ceded territory for which credit is to begiven, and so forth. 

7. The Commission will determine the amounts and values (within certaindefined limits) of the contributions which Germany is to make in kindyear by year under the various Annexes to the Reparation Chapter. 

8. The Commission will provide for the restitution by Germany ofproperty which can be identified. 

9. The Commission will receive, administer, and distribute all receiptsfrom Germany in cash or in kind. It will also issue and market Germanbonds of indebtedness. 

10. The Commission will assign the share of the pre-war public debt tobe taken over by the ceded areas of Schleswig, Poland, Danzig, and UpperSilesia. The Commission will also distribute the public debt of the lateAustro-Hungarian Empire between its constituent parts. 

11. The Commission will liquidate the Austro-Hungarian Bank, and willsupervise the withdrawal and replacement of the currency system of thelate Austro-Hungarian Empire. 

12. It is for the Commission to report if, in their judgment, Germany isfalling short in fulfillment of her obligations, and to advise methodsof coercion. 

13. In general, the Commission, acting through a subordinate body, willperform the same functions for Austria and Bulgaria as for Germany, andalso, presumably, for Hungary and Turkey. [138]

There are also many other relatively minor duties assigned to theCommission. The above summary, however, shows sufficiently the scope andsignificance of its authority. This authority is rendered of far greatersignificance by the fact that the demands of the Treaty generally exceedGermany's capacity. Consequently the clauses which allow the Commissionto make abatements, if in their judgment the economic conditions ofGermany require it, will render it in many different particulars thearbiter of Germany's economic life. The Commission is not only toinquire into Germany's general capacity to pay, and to decide (in theearly years) what import of foodstuffs and raw materials is necessary;it is authorized to exert pressure on the German system of taxation(Annex II. Para. 12(_b_))[139] and on German internal expenditure, witha view to insuring that Reparation payments are a first charge on thecountry's entire resources; and it is to decide on the effect on Germaneconomic life of demands for machinery, cattle, etc. , and of thescheduled deliveries of coal. 

By Article 240 of the Treaty Germany expressly recognizes the Commissionand its powers "as the same may be constituted by the Allied andAssociated Governments, " and "agrees irrevocably to the possession andexercise by such Commission of the power and authority given to it underthe present Treaty. " She undertakes to furnish the Commission with allrelevant information. And finally in Article 241, "Germany undertakes topass, issue, and maintain in force any legislation, orders, and decreesthat may be necessary to give complete effect to these provisions. "

The comments on this of the German Financial Commission at Versailleswere hardly an exaggeration:--"German democracy is thus annihilated atthe very moment when the German people was about to build it up after asevere struggle--annihilated by the very persons who throughout the warnever tired of maintaining that they sought to bring democracy to us. .. . Germany is no longer a people and a State, but becomes a mere tradeconcern placed by its creditors in the hands of a receiver, without itsbeing granted so much as the opportunity to prove its willingness tomeet its obligations of its own accord. The Commission, which is to haveits permanent headquarters outside Germany, will possess in Germanyincomparably greater rights than the German Emperor ever possessed, theGerman people under its régime would remain for decades to come shornof all rights, and deprived, to a far greater extent than any people inthe days of absolutism, of any independence of action, of any individualaspiration in its economic or even in its ethical progress. "

In their reply to these observations the Allies refused to admit thatthere was any substance, ground, or force in them. "The observations ofthe German Delegation, " they pronounced, "present a view of thisCommission so distorted and so inexact that it is difficult to believethat the clauses of the Treaty have been calmly or carefully examined. It is not an engine of oppression or a device for interfering withGerman sovereignty. It has no forces at its command; it has no executivepowers within the territory of Germany; it cannot, as is suggested, direct or control the educational or other systems of the country. Itsbusiness is to ask what is to be paid; to satisfy itself that Germanycan pay; and to report to the Powers, whose delegation it is, in caseGermany makes default, If Germany raises the money required in her ownway, the Commission cannot order that it shall be raised in some otherway; if Germany offers payment in kind, the Commission may accept suchpayment, but, except as specified in the Treaty itself, the Commissioncannot require such a payment. "

This is not a candid statement of the scope and authority of theReparation Commission, as will be seen by a comparison of its terms withthe summary given above or with the Treaty itself. Is not, for example, the statement that the Commission "has no forces at its command" alittle difficult to justify in view of Article 430 of the Treaty, whichruns:--"In case, either during the occupation or after the expiration ofthe fifteen years referred to above, the Reparation Commission findsthat Germany refuses to observe the whole or part of her obligationsunder the present Treaty with regard to Reparation, the whole or part ofthe areas specified in Article 429 will be reoccupied immediately by theAllied and Associated Powers"? The decision, as to whether Germany haskept her engagements and whether it is possible for her to keep them, isleft, it should be observed, not to the League of Nations, but to theReparation Commission itself; and an adverse ruling on the part of theCommission is to be followed "immediately" by the use of armed force. Moreover, the depreciation of the powers of the Commission attempted inthe Allied reply largely proceeds from the assumption that it is quiteopen to Germany to "raise the money required in her own way, " in whichcase it is true that many of the powers of the Reparation Commissionwould not come into practical effect; whereas in truth one of the mainreasons for setting up the Commission at all is the expectation thatGermany will not be able to carry the burden nominally laid upon her. 

 * * * * *

It is reported that the people of Vienna, hearing that a section of theReparation Commission is about to visit them, have decidedcharacteristically to pin their hopes on it. A financial body canobviously take nothing from them, for they have nothing; therefore thisbody must be for the purpose of assisting and relieving them. Thus dothe Viennese argue, still light-headed in adversity. But perhaps theyare right. The Reparation Commission will come into very close contactwith the problems of Europe; and it will bear a responsibilityproportionate to its powers. It may thus come to fulfil a very differentrôle from that which some of its authors intended for it. Transferred tothe League of Nations, an appanage of justice and no longer of interest, who knows that by a change of heart and object the Reparation Commissionmay not yet be transformed from an instrument of oppression and rapineinto an economic council of Europe, whose object is the restoration oflife and of happiness, even in the enemy countries?

_V_. _The German Counter-Proposals_

The German counter-proposals were somewhat obscure, and also ratherdisingenuous. It will be remembered that those clauses of the ReparationChapter which dealt with the issue of bonds by Germany produced on thepublic mind the impression that the Indemnity had been fixed at$25, 000, 000, 000, or at any rate at this figure as a minimum. The GermanDelegation set out, therefore, to construct their reply on the basis ofthis figure, assuming apparently that public opinion in Allied countrieswould not be satisfied with less than the appearance of $25, 000, 000, 000;and, as they were not really prepared to offer so large a figure, theyexercised their ingenuity to produce a formula which might berepresented to Allied opinion as yielding this amount, whilst reallyrepresenting a much more modest sum. The formula produced wastransparent to any one who read it carefully and knew the facts, and itcould hardly have been expected by its authors to deceive the Alliednegotiators. The German tactic assumed, therefore, that the latter weresecretly as anxious as the Germans themselves to arrive at a settlementwhich bore some relation to the facts, and that they would therefore bewilling, in view of the entanglements which they had got themselves intowith their own publics, to practise a little collusion in drafting theTreaty, --a supposition which in slightly different circumstances mighthave had a good deal of foundation. As matters actually were, thissubtlety did not benefit them, and they would have done much better witha straightforward and candid estimate of what they believed to be theamount of their liabilities on the one hand, and their capacity to payon the other. 

The German offer of an alleged sum of $25, 000, 000, 000 amounted to thefollowing. In the first place it was conditional on concessions in theTreaty insuring that "Germany shall retain the territorial integritycorresponding to the Armistice Convention, [140] that she shall keep hercolonial possessions and merchant ships, including those of largetonnage, that in her own country and in the world at large she shallenjoy the same freedom of action as all other peoples, that all warlegislation shall be at once annulled, and that all interferences duringthe war with her economic rights and with German private property, etc. , shall be treated in accordance with the principle of reciprocity";--thatis to say, the offer is conditional on the greater part of the rest ofthe Treaty being abandoned. In the second place, the claims are not toexceed a maximum of $25, 000, 000, 000, of which $5, 000, 000, 000 is to bedischarged by May 1, 1926; and no part of this sum is to carry interestpending the payment of it. [141] In the third place, there are to beallowed as credit against it (amongst other things): (_a_) the value ofall deliveries under the Armistice, including military material (_e. G. _Germany's navy); (_b_) the value of all railways and State property inceded territory; (_c_) the _pro rata_ share of all ceded territory inthe German public debt (including the war debt) and in the Reparationpayments which this territory would have had to bear if it had remainedpart of Germany; and (_d_) the value of the cession of Germany's claimsfor sums lent by her to her allies in the war. [142]

The credits to be deducted under (_a_), (_b_), (_c_), and (_d_) might bein excess of those allowed in the actual Treaty, according to a roughestimate, by a sum of as much as $10, 000, 000, 000, although the sum to beallowed 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 ofall deduct $10, 000, 000, 000 claimed for offsets which the Treaty does notallow, and then halve the remainder in order to obtain the present valueof a deferred payment on which interest is not chargeable. This reducesthe offer to $7, 500, 000, 000, as compared with the $40, 000, 000, 000 which, according to my rough estimate, the Treaty demands of her. 

This in itself was a very substantial offer--indeed it evoked widespreadcriticism in Germany--though, in view of the fact that it wasconditional on the abandonment of the greater part of the rest of theTreaty, it could hardly be regarded as a serious one. [143] But theGerman Delegation would have done better if they had stated in lessequivocal language how far they felt able to go. 

In the final reply of the Allies to this counter-proposal there is oneimportant provision, which I have not attended to hitherto, but whichcan be conveniently dealt with in this place. Broadly speaking, noconcessions were entertained on the Reparation Chapter as it wasoriginally drafted, but the Allies recognized the inconvenience of the_indeterminacy_ of the burden laid upon Germany and proposed a method bywhich the final total of claim might be established at an earlier datethan May 1, 1921. They promised, therefore, that at any time within fourmonths of the signature of the Treaty (that is to say, up to the end ofOctober, 1919), Germany should be at liberty to submit an offer of alump sum in settlement of her whole liability as defined in the Treaty, and within two months thereafter (that is to say, before the end of1919) the Allies "will, so far as may be possible, return their answersto any proposals that may be made. "

This offer is subject to three conditions. "Firstly, the Germanauthorities will be expected, before making such proposals, to conferwith 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 matterssettled beyond discussion. "

The offer, as made, does not appear to contemplate any opening up of theproblem of Germany's capacity to pay. It is only concerned with theestablishment of the total bill of claims as defined in theTreaty--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 barequestions of fact, namely, the amount of the liabilities, and they aresusceptible of being treated in this way. "

If the promised negotiations are really conducted on these lines, theyare not likely to be fruitful. It will not be much easier to arrive atan agreed figure before the end of 1919 that it was at the time of theConference; and it will not help Germany's financial position to knowfor certain that she is liable for the huge sum which on any computationthe Treaty liabilities must amount to. These negotiations do offer, however, an opportunity of reopening the whole question of theReparation payments, although it is hardly to be hoped that at so veryearly a date, public opinion in the countries of the Allies has changedits mood sufficiently. [144]

 * * * * *

I cannot leave this subject as though its just treatment wholly dependedeither on our own pledges or on economic facts. The policy of reducingGermany to servitude for a generation, of degrading the lives ofmillions of human beings, and of depriving a whole nation of happinessshould be abhorrent and detestable, --abhorrent and detestable, even ifit were possible, even if it enriched ourselves, even if it did not sowthe decay of the whole civilized life of Europe. Some preach it in thename of Justice. In the great events of man's history, in the unwindingof the complex fates of nations Justice is not so simple. And if itwere, nations are not authorized, by religion or by natural morals, tovisit on the children of their enemies the misdoings of parents or ofrulers. 

FOOTNOTES:

[76] "With reservation that any future claims and demands ofthe Allies and the United States of America remain unaffected, thefollowing financial conditions are required: Reparation for damage done. Whilst Armistice lasts, no public securities shall be removed by theenemy which can serve as a pledge to the Allies for recovery orreparation of war losses. Immediate restitution of cash deposit inNational Bank of Belgium, and, in general, immediate return of alldocuments, of specie, stock, shares, paper money, together with plantfor issue thereof, touching public or private interests in invadedcountries. Restitution of Russian and Roumanian gold yielded to Germanyor taken by that Power. This gold to be delivered in trust to the Alliesuntil signature of peace. "

[77] It is to be noticed, in passing, that they contain nothingwhich limits the damage to damage inflicted contrary to the recognizedrules of warfare. That is to say, it is permissible to include claimsarising out of the legitimate capture of a merchantman at sea, as wellas the costs of illegal submarine warfare. 

[78] Mark-paper or mark-credits owned in ex-occupied territoryby Allied nationals should be included, if at all, in the settlement ofenemy debts, along with other sums owed to Allied nationals, and not inconnection with reparation. 

[79] A special claim on behalf of Belgium was actually includedIn the Peace Treaty, and was accepted by the German representativeswithout demur. 

[80] To the British observer, one scene, however, stood outdistinguished from the rest--the field of Ypres. In that desolate andghostly spot, the natural color and humors of the landscape and theclimate seemed designed to express to the traveler the memories of theground. A visitor to the salient early in November, 1918, when a fewGerman bodies still added a touch of realism and human horror, and thegreat struggle was not yet certainly ended, could feel there, as nowhereelse, the present outrage of war, and at the same time the tragic andsentimental purification which to the future will in some degreetransform its harshness. 

[81] These notes, estimated to amount to no less than sixthousand million marks, are now a source of embarrassment and greatpotential loss to the Belgian Government, inasmuch as on their recoveryof the country they took them over from their nationals in exchange forBelgian notes at the rate of Fr. 120 = Mk. 1. This rate of exchange, beingsubstantially in excess of the value of the mark-notes at the rate ofexchange current at the time (and enormously in excess of the rate towhich the mark notes have since fallen, the Belgian franc being nowworth more than three marks), was the occasion of the smuggling ofmark-notes into Belgium on an enormous scale, to take advantage of theprofit obtainable. The Belgian Government took this very imprudent step, partly because they hoped to persuade the Peace Conference to make theredemption of these bank-notes, at the par of exchange, a first chargeon German assets. The Peace Conference held, however, that Reparationproper must take precedence of the adjustment of improvident bankingtransactions effected at an excessive rate of exchange. The possessionby the Belgian Government of this great mass of German currency, inaddition to an amount of nearly two thousand million marks held by theFrench Government which they similarly exchanged for the benefit of thepopulation of the invaded areas and of Alsace-Lorraine, is a seriousaggravation of the exchange position of the mark. It will certainly bedesirable for the Belgian and German Governments to come to somearrangement as to its disposal, though this is rendered difficult by theprior lien held by the Reparation Commission over all German assetsavailable for such purposes. 

[82] It should be added, in fairness, that the very high claimsput forward on behalf of Belgium generally include not only devastationproper, but all kinds of other items, as, for example, the profits andearnings which Belgians might reasonably have expected to earn if therehad been no war. 

[83] "The Wealth and Income of the Chief Powers, " by J. C. Stamp(_Journal of the Royal Statistical Society_, July, 1919). 

[84] Other estimates vary from $12, 100, 000, 000 to$13, 400, 000, 000. See Stamp, _loc. Cit. _

[85] This was clearly and courageously pointed out by M. Charles Gide in _L'Emancipation_ for February, 1919. 

[86] For details of these and other figures, see Stamp, _loc. Cit. _

[87] Even when the extent of the material damage has beenestablished, it will be exceedingly difficult to put a price on it, which must largely depend on the period over which restoration isspread, and the methods adopted. It would be impossible to make thedamage good in a year or two at any price, and an attempt to do so at arate which was excessive in relation to the amount of labor andmaterials at hand might force prices up to almost any level. We must, Ithink, assume a cost of labor and materials about equal to that currentin the world generally. In point of fact, however, we may safely assumethat literal restoration will never be attempted. Indeed, it would bevery wasteful to do so. Many of the townships were old and unhealthy, and many of the hamlets miserable. To re-erect the same type of buildingin the same places would be foolish. As for the land, the wise coursemay be in some cases to leave long strips of it to Nature for many yearsto come. An aggregate money sum should be computed as fairlyrepresenting the value of the material damage, and France should be leftto expend it in the manner she thinks wisest with a view to her economicenrichment as a whole. The first breeze of this controversy has alreadyblown through France. A long and inconclusive debate occupied theChamber during the spring of 1919, as to whether inhabitants of thedevastated area receiving compensation should be compelled to expend itin restoring the identical property, or whether they should be free touse it as they like. There was evidently a great deal to be said on bothsides; in the former case there would be much hardship and uncertaintyfor owners who could not, many of them, expect to recover the effectiveuse of their property perhaps for years to come, and yet would not befree to set themselves up elsewhere; on the other hand, if such personswere allowed to take their compensation and go elsewhere, thecountryside of Northern France would never be put right. Nevertheless Ibelieve that the wise course will be to allow great latitude and leteconomic motives take their own course. 

[88] _La Richesse de la France devant la Guerre_, published in1916. 

[89] _Revue Bleue_, February 3, 1919. This is quoted in a veryvaluable selection of French estimates and expressions of opinion, forming chapter iv. Of _La Liquidation financière de la Guerre_, by H. Charriaut and R. Hacault. The general magnitude of my estimate isfurther confirmed by the extent of the repairs already effected, as setforth in a speech delivered by M. Tardieu on October 10, 1919, in whichhe said: "On September 16 last, of 2246 kilomètres of railway trackdestroyed, 2016 had been repaired; of 1075 kilomètres of canal, 700; of1160 constructions, such as bridges and tunnels, which had been blownup, 588 had been replaced; of 550, 000 houses ruined by bombardment, 60, 000 had been rebuilt; and of 1, 800, 000 hectares of ground rendereduseless by battle, 400, 000 had been recultivated, 200, 000 hectares ofwhich are now ready to be sown. Finally, more than 10, 000, 000 mètres ofbarbed wire had been removed. "

[90] Some of these estimates include allowance for contingentand immaterial damage as well as for direct material injury. 

[91] A substantial part of this was lost in the service of theAllies; this must not be duplicated by inclusion both in their claimsand in ours. 

[92] The fact that no separate allowance is made in the abovefor the sinking of 675 fishing vessels of 71, 765 tons gross, or for the1855 vessels of 8, 007, 967 tons damaged or molested, but not sunk, may beset off against what may be an excessive figure for replacement cost. 

[93] The losses of the Greek mercantile marine were excessivelyhigh, as a result of the dangers of the Mediterranean; but they werelargely incurred on the service of the other Allies, who paid for themdirectly or indirectly. The claims of Greece for maritime lossesincurred on the service of her own nationals would not be veryconsiderable. 

[94] There is a reservation in the Peace Treaty on thisquestion. "The Allied and Associated Powers formally reserve the rightof Russia to obtain from Germany restitution and reparation based on theprinciples of the present Treaty" (Art. 116). 

[95] Dr. Diouritch in his "Economic and Statistical Survey ofthe Southern Slav Nations" (_Journal of Royal Statistical Society_, May, 1919), quotes some extraordinary figures of the loss of life: "Accordingto the official returns, the number of those fallen in battle or died incaptivity up to the last Serbian offensive, amounted to 320, 000, whichmeans that one half of Serbia's male population, from 18 to 60 years ofage, perished outright in the European War. In addition, the SerbianMedical Authorities estimate that about 300, 000 people have died fromtyphus among the civil population, and the losses among the populationinterned in enemy camps are estimated at 50, 000. During the two Serbianretreats and during the Albanian retreat the losses among children andyoung people are estimated at 200, 000. Lastly, during over three yearsof enemy occupation, the losses in lives owing to the lack of properfood and medical attention are estimated at 250, 000. " Altogether, heputs the losses in life at above 1, 000, 000, or more than one-third ofthe population of Old Serbia. 

[96] _Come si calcola e a quanto ammonta la richezza d'Italia edelle altre principali nazioni_, published in 1919. 

[97] Very large claims put forward by the Serbian authoritiesinclude many hypothetical items of indirect and non-material damage; butthese, however real, are not admissible under our present formula. 

[98] Assuming that in her case $1, 250, 000, 000 are included forthe general expenses of the war defrayed out of loans made to Belgium byher allies. 

[99] It must be said to Mr. Hughes' honor that he apprehendedfrom the first the bearing of the pre-Armistice negotiations on ourright to demand an indemnity covering the full costs of the war, protested against our ever having entered into such engagements, andmaintained loudly that he had been no party to them and could notconsider himself bound by them. His indignation may have been partly dueto the fact that Australia, not having been ravaged, would have noclaims at all under the more limited interpretation of our rights. 

[100] The whole cost of the war has been estimated at from$120, 000, 000, 000 upwards. This would mean an annual payment for interest(apart from sinking fund) of $6, 000, 000, 000. Could any expert Committeehave reported that Germany can pay this sum?

[101] But unhappily they did not go down with their flagsflying very gloriously. For one reason or another their leadersmaintained substantial silence. What a different position in thecountry's estimation they might hold now if they had suffered defeatamidst firm protests against the fraud, chicane, and dishonor of thewhole proceedings. 

[102] Only after the most painful consideration have I writtenthese words. The almost complete absence of protest from the leadingStatesmen of England makes one feel that one must have made somemistake. But I believe that I know all the facts, and I can discover nosuch mistake. In any case I have set forth all the relevant engagementsin Chapter IV. And at the beginning of this chapter, so that the readercan form his own judgment. 

[103] In conversation with Frenchmen who were private personsand quite unaffected by political considerations, this aspect becamevery clear. You might persuade them that some current estimates as tothe amount to be got out of Germany were quite fantastic. Yet at the endthey would always come back to where they had started: "But Germany_must_ pay; for, otherwise, what is to happen to France?"

[104] A further paragraph claims the war costs of Belgium "inaccordance with Germany's pledges, already given, as to completerestoration for Belgium. "

[105] The challenge of the other Allies, as well as the enemy, had to be met; for in view of the limited resources of the latter, theother Allies had perhaps a greater interest than the enemy in seeingthat no one of their number established an excessive claim. 

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

[107] That is to say, I claim for the aggregate figure anaccuracy within 25 per cent. 

[108] In his speech of September 5, 1919, addressed to theFrench Chamber, M. Klotz estimated the total Allied claims againstGermany under the Treaty at $75, 000, 000, 000, which would accumulate atinterest until 1921, and be paid off thereafter by 34 annualinstallments of about $5, 000, 000, 000 each, of which France would receiveabout $2, 750, 000, 000 annually. "The general effect of the statement(that France would receive from Germany this annual payment) proved, " itis reported, "appreciably encouraging to the country as a whole, and wasimmediately reflected in the improved tone on the Bourse and throughoutthe business world in France. " So long as such statements can beaccepted in Paris without protest, there can be no financial or economicfuture for France, and a catastrophe of disillusion is not far distant. 

[109] As a matter of subjective judgment, I estimate for thisfigure an accuracy of 10 per cent in deficiency and 20 per cent inexcess, _i. E. _ that the result will lie between $32, 000, 000, 000 and$44, 000, 000, 000. 

[110] Germany is also liable under the Treaty, as an additionto her liabilities for Reparation, to pay all the costs of the Armies ofOccupation _after_ Peace is signed for the fifteen subsequent years ofoccupation. So far as the text of the Treaty goes, there is nothing tolimit the size of these armies, and France could, therefore, byquartering the whole of her normal standing army in the occupied area, shift the charge from her own taxpayers to those of Germany, --though inreality any such policy would be at the expense not of Germany, who byhypothesis is already paying for Reparation up to the full limit of hercapacity, but of France's Allies, who would receive so much less inrespect of Reparation. A White Paper (Cmd. 240) has, however, beenissued, in which is published a declaration by the Governments of theUnited States, Great Britain, and France engaging themselves to limitthe sum payable annually by Germany to cover the cost of occupation to$60, 000, 000 "as soon as the Allied and Associated Powers _concerned_ areconvinced that the conditions of disarmament by Germany are beingsatisfactorily fulfilled. " The word which I have italicized is a littlesignificant. The three Powers reserve to themselves the liberty tomodify this arrangement at any time if they agree that it is necessary. 

[111] Art. 235. The force of this Article is somewhatstrengthened by Article 251, by virtue of which dispensations may alsobe granted for "other payments" as well as for food and raw material. 

[112] This is the effect of Para. 12 (_c_) of Annex II. Of theReparation Chapter, leaving minor complications on one side. The Treatyfixes the payments in terms of _gold marks_, which are converted in theabove rate of 20 to $5. 

[113] If, _per impossibile_, Germany discharged $2, 500, 000, 000in cash or kind by 1921, her annual payments would be at the rate of$312, 500, 000 from 1921 to 1925 and of $750, 000, 000 thereafter. 

[114] Para. 16 of Annex II. Of The Reparation Chapter. There isalso an obscure provision by which interest may be charged "on sumsarising out of _material damage_ as from November 11, 1918, up to May 1, 1921. " This seems to differentiate damage to property from damage to theperson in favor of the former. It does not affect Pensions andAllowances, the cost of which is capitalized as at the date of thecoming into force of the Treaty. 

[115] On the assumption which no one supports and even the mostoptimistic fear to be unplausible, that Germany can pay the full chargefor interest and sinking fund _from the outset_, the annual paymentwould amount to $2, 400, 000, 000. 

[116] Under Para. 13 of Annex II. Unanimity is required (i. )for any postponement beyond 1930 of installments due between 1921 and1926, and (ii. ) for any postponement for more than three years ofinstalments due after 1926. Further, under Art. 234, the Commission maynot cancel any part of the indebtedness without the specific authorityof _all_ the Governments represented on the Commission. 

[117] On July 23, 1914, the amount was $339, 000, 000. 

[118] Owing to the very high premium which exists on Germansilver coin, as the combined result of the depreciation of the mark andthe appreciation of silver, it is highly improbable that it will bepossible to extract such coin out of the pockets of the people. But itmay gradually leak over the frontier by the agency of privatespeculators, and thus indirectly benefit the German exchange position asa whole. 

[119] The Allies made the supply of foodstuffs to Germanyduring the Armistice, mentioned above, conditional on the provisionaltransfer to them of the greater part of the Mercantile Marine, to beoperated by them for the purpose of shipping foodstuffs to Europegenerally, and to Germany in particular. The reluctance of the Germansto agree to this was productive of long and dangerous delays in thesupply of food, but the abortive Conferences of Trèves and Spa (January16, February 14-16, and March 4-5, 1919) were at last followed by theAgreement of Brussels (March 14, 1919). The unwillingness of the Germansto conclude was mainly due to the lack of any absolute guarantee on thepart of the Allies that, if they surrendered the ships, they would getthe food. But assuming reasonable good faith on the part of the latter(their behavior in respect of certain other clauses of the Armistice, however, had not been impeccable and gave the enemy some just groundsfor suspicion), their demand was not an improper one; for without theGerman ships the business of transporting the food would have beendifficult, if not impossible, and the German ships surrendered or theirequivalent were in fact almost wholly employed in transporting food toGermany itself. Up to June 30, 1919, 176 German ships of 1, 025, 388 grosstonnage had been surrendered, to the Allies in accordance with theBrussels Agreement. 

[120] The amount of tonnage transferred may be rather greaterand the value per ton rather less. The aggregate value involved is notlikely, however, to be less than $500, 000, 000 or greater than$750, 000, 000. 

[121] This census was carried out by virtue of a Decree ofAugust 23, 1918. On March 22, 1917, the German Government acquiredcomplete control over the utilization of foreign securities in Germanpossession; and in May, 1917, it began to exercise these powers for themobilization of certain Swedish, Danish, and Swiss securities. 

[122] 1892. Schmoller $2, 500, 000, 000 1892. Christians 3, 250, 000, 000 1893-4. Koch 3, 000, 000, 000 1905. V. Halle 4, 000, 000, 000[A] 1913. Helfferich 5, 000, 000, 000[B] 1914. Ballod 6, 250, 000, 000 1914. Pistorius 6, 250, 000, 000 1919. Hans David 5, 250, 000, 000[C]

[A] Plus $2, 500, 000 for investments other than securities. 

[B] Net investments, _i. E. _ after allowance for property inGermany owned abroad. This may also be the case with some of the otherestimates. 

[C] This estimate, given in the _Weltwirtschaftszeitung_ (June13, 1919), is an estimate of the value of Germany's foreign investmentsas at the outbreak of war. 

[123] I have made no deduction for securities in the ownershipof Alsace-Lorrainers and others who have now ceased to be Germannationals. 

[124] In all these estimates, I am conscious of being driven bya fear of overstating the case against the Treaty, of giving figures inexcess of my own real judgment. There is a great difference betweenputting down on paper fancy estimates of Germany's resources andactually extracting contributions in the form of cash. I do not myselfbelieve that the Reparation Commission will secure real resources fromthe above items by May, 1921, even as great as the _lower_ of the twofigures given above. 

[125] The Treaty (see Art. 114) leaves it very dubious how farthe Danish Government is under an obligation to make payments to theReparation Commission in respect of its acquisition of Schleswig. Theymight, for instance, arrange for various offsets such as the value ofthe mark notes held by the inhabitants of ceded areas. In any case theamount of money involved is quite small. The Danish Government israising a loan for $33, 000, 000 (kr. 120, 000, 000) for the joint purposesof "taking over Schleswig's share of the German debt, for buying Germanpublic property, for helping the Schleswig population, and for settlingthe currency question. "

[126] Here again my own judgment would carry me much furtherand I should doubt the possibility of Germany's exports equaling herimports during this period. But the statement in the text goes farenough for the purpose of my argument. 

[127] It has been estimated that the cession of territory toFrance, apart from the loss of Upper Silesia, may reduce Germany'sannual pre-war production of steel ingots from 20, 000, 000 tons to14, 000, 000 tons, and increase France's capacity from 5, 000, 000 tons to11, 000, 000 tons. 

[128] Germany's exports of sugar in 1913 amounted to 1, 110, 073tons of the value of $65, 471, 500, of which 838, 583 tons were exported tothe United Kingdom at a value of $45, 254, 000. These figures were inexcess of the normal, the average total exports for the five yearsending 1913 being about $50, 000, 000. 

[129] The necessary price adjustment, which is required, onboth sides of this account, will be made _en bloc_ later. 

[130] If the amount of the sinking fund be reduced, and theannual payment is continued over a greater number of years, the presentvalue--so powerful is the operation of compound interest--cannot bematerially increased. A payment of $500, 000, 000 annually _inperpetuity_, assuming interest, as before, at 5 per cent, would onlyraise the present value to $10, 000, 000, 000. 

[131] As an example of public misapprehension on economicaffairs, the following letter from Sir Sidney Low to _The Times_ of the3rd December, 1918, deserves quotation: "I have seen authoritativeestimates which place the gross value of Germany's mineral and chemicalresources as high as $1, 250, 000, 000, 000 or even more; and the Ruhr basinmines alone are said to be worth over $225, 000, 000, 000. It is certain, at any rate, that the capital value of these natural supplies is muchgreater than the total war debts of all the Allied States. Why shouldnot some portion of this wealth be diverted for a sufficient period fromits present owners and assigned to the peoples whom Germany hasassailed, deported, and injured? The Allied Governments might justlyrequire Germany to surrender to them the use of such of her mines, andmineral 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 meanswe could obtain sufficient compensation from Germany without undulystimulating her manufactures and export trade to our detriment. " It isnot clear why, if Germany has wealth exceeding $1, 250, 000, 000, 000. SirSidney Low is content with the trifling sum of $500, 000, 000 to$1, 000, 000, 000 annually. But his letter is an admirable _reductio adabsurdum_ of a certain line of thought. While a mode of calculation, which estimates the value of coal miles deep in the bowels of the earthas high as in a coal scuttle, of an annual lease of $5000 for 999 yearsat $4, 995, 000 and of a field (presumably) at the value of all the cropsit 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 ofAlsace-Lorraine and Upper Silesia should be more than sufficient to paythe entire costs of the war and reparation together. In point of fact, the _present_ market value of all the mines in Germany of every kind hasbeen estimated at $1, 500, 000, 000, or a little more than one-thousandthpart of Sir Sidney Low's expectations. 

[132] The conversion at par of 5, 000 million marks overstates, by reason of the existing depreciation of the mark, the present moneyburden of the actual pensions payments, but not, in all probability, thereal loss of national productivity as a result of the casualtiessuffered in the war. 

[133] It cannot be overlooked, in passing, that in its resultson a country's surplus productivity a lowering of the standard of lifeacts both ways. Moreover, we are without experience of the psychology ofa white race under conditions little short of servitude. It is, however, generally supposed that if the whole of a man's surplus production istaken from him, his efficiency and his industry are diminished, Theentrepreneur and the inventor will not contrive, the trader and theshopkeeper will not save, the laborer will not toil, if the fruits oftheir industry are set aside, not for the benefit of their children, their old age, their pride, or their position, but for the enjoyment ofa foreign conqueror. 

[134] In the course of the compromises and delays of theConference, there were many questions on which, in order to reach anyconclusion at all, it was necessary to leave a margin of vagueness anduncertainty. The whole method of the Conference tended towardsthis, --the Council of Four wanted, not so much a settlement, as atreaty. On political and territorial questions the tendency was to leavethe final arbitrament to the League of Nations. But on financial andeconomic questions, the final decision has generally be a left with theReparation Commission, --in spite of its being an executive body composedof interested parties. 

[135] The sum to be paid by Austria for Reparation is left tothe absolute discretion of the Reparation Commission, no determinatefigure of any kind being mentioned in the text of the Treaty Austrianquestions are to be handled by a special section of the ReparationCommission, but the section will have no powers except such as the mainCommission may delegate. 

[136] Bulgaria is to pay an indemnity of $450, 000, 000 byhalf-yearly instalments, beginning July 1, 1920. These sums will becollected, on behalf of the Reparation Commission, by an Inter-AllyCommission of Control, with its seat at Sofia. In some respects theBulgarian Inter-Ally Commission appears to have powers and authorityindependent of the Reparation Commission, but it is to act, nevertheless, as the agent of the latter, and is authorized to tenderadvice to the Reparation Commission as to, for example, the reduction ofthe half-yearly instalments. 

[137] Under the Treaty this is the function of any bodyappointed for the purpose by the principal Allied and AssociatedGovernments, and not necessarily of the Reparation Commission. But itmay be presumed that no second body will be established for this specialpurpose. 

[138] At the date of writing no treaties with these countrieshave been drafted. It is possible that Turkey might be dealt with by aseparate Commission. 

[139] This appears to me to be in effect the position (if thisparagraph means anything at all), in spite of the following disclaimerof such intentions in the Allies' reply:--"Nor does Paragraph 12(b) ofAnnex II. Give the Commission powers to prescribe or enforce taxes or todictate the character of the German budget. "

[140] Whatever that may mean. 

[141] Assuming that the capital sum is discharged evenly over aperiod as short as thirty-three years, this has the effect of _halving_the burden as compared with the payments required on the basis of 5 percent interest on the outstanding capital. 

[142] I forbear to outline the further details of the Germanoffer as the above are the essential points. 

[143] For this reason it is not strictly comparable with myestimate 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 whenthe rest of the Treaty has come into effect. 

[144] Owing to delays on the part of the Allies in ratifyingthe Treaty, the Reparation Commission had not yet been formallyconstituted by the end of October, 1919. So far as I am aware, therefore, nothing has been done to make the above offer effective. But, perhaps in view of the circumstances, there has been an extension of thedate. 

CHAPTER VI

EUROPE AFTER THE TREATY

This chapter must be one of pessimism. The Treaty includes no provisionsfor the economic rehabilitation of Europe, --nothing to make the defeatedCentral Empires into good neighbors, nothing to stabilize the new Statesof Europe, nothing to reclaim Russia; nor does it promote in any way acompact of economic solidarity amongst the Allies themselves; noarrangement was reached at Paris for restoring the disordered financesof France and Italy, or to adjust the systems of the Old World and theNew. 

The Council of Four paid no attention to these issues, being preoccupiedwith others, --Clemenceau to crush the economic life of his enemy, LloydGeorge to do a deal and bring home something which would pass muster fora week, the President to do nothing that was not just and right. It isan extraordinary fact that the fundamental economic problems of a Europestarving and disintegrating before their eyes, was the one question inwhich it was impossible to arouse the interest of the Four. Reparationwas their main excursion into the economic field, and they settled itas a problem of theology, of polities, of electoral chicane, from everypoint of view except that of the economic future of the States whosedestiny they were handling. 

I leave, from this point onwards, Paris, the Conference, and the Treaty, briefly to consider the present situation of Europe, as the War and thePeace have made it; and it will no longer be part of my purpose todistinguish between the inevitable fruits of the War and the avoidablemisfortunes of the Peace. 

The essential facts of the situation, as I see them, are expressedsimply. Europe consists of the densest aggregation of population in thehistory of the world. This population is accustomed to a relatively highstandard of life, in which, even now, some sections of it anticipateimprovement rather than deterioration. In relation to other continentsEurope is not self-sufficient; in particular it cannot feed Itself. Internally the population is not evenly distributed, but much of it iscrowded into a relatively small number of dense industrial centers. Thispopulation secured for itself a livelihood before the war, without muchmargin of surplus, by means of a delicate and immensely complicatedorganization, of which the foundations were supported by coal, iron, transport, and an unbroken supply of imported food and raw materialsfrom other continents. By the destruction of this organization and theinterruption of the stream of supplies, a part of this population isdeprived of its means of livelihood. Emigration is not open to theredundant surplus. For it would take years to transport them overseas, even, which is not the case, if countries could be found which wereready to receive them. The danger confronting us, therefore, is therapid depression of the standard of life of the European populations toa point which will mean actual starvation for some (a point alreadyreached in Russia and approximately reached in Austria). Men will notalways die quietly. For starvation, which brings to some lethargy and ahelpless despair, drives other temperaments to the nervous instabilityof hysteria and to a mad despair. And these in their distress mayoverturn the remnants of organization, and submerge civilization itselfin their attempts to satisfy desperately the overwhelming needs of theindividual. This is the danger against which all our resources andcourage and idealism must now co-operate. 

On the 13th May, 1919, Count Brockdorff-Rantzau addressed to the PeaceConference of the Allied and Associated Powers the Report of the GermanEconomic Commission charged with the study of the effect of theconditions of Peace on the situation of the German population. "In thecourse of the last two generations, " they reported, "Germany has becometransformed from an agricultural State to an industrial State. So longas she was an agricultural State, Germany could feed forty millioninhabitants. As an industrial State she could insure the means ofsubsistence for a population of sixty-seven millions; and in 1913 theimportation of foodstuffs amounted, in round figures, to twelve milliontons. Before the war a total of fifteen million persons in Germanyprovided for their existence by foreign trade, navigation, and the use, directly or indirectly, of foreign raw material. " After rehearsing themain relevant provisions of the Peace Treaty the report continues:"After this diminution of her products, after the economic depressionresulting from the loss of her colonies, her merchant fleet and herforeign investments, Germany will not he in a position to import fromabroad an adequate quantity of raw material. An enormous part of Germanindustry will, therefore, be condemned inevitably to destruction. Theneed of importing foodstuffs will increase considerably at the same timethat the possibility of satisfying this demand is as greatly diminished. In a very short time, therefore, Germany will not be in a position togive bread and work to her numerous millions of inhabitants, who areprevented from earning their livelihood by navigation and trade. Thesepersons should emigrate, but this is a material impossibility, all themore because many countries and the most important ones will oppose anyGerman immigration. To put the Peace conditions into execution wouldlogically involve, therefore, the loss of several millions of persons inGermany. This catastrophe would not be long in coming about, seeing thatthe health of the population has been broken down during the War by theBlockade, and during the Armistice by the aggravation of the Blockade offamine. No help, however great, or over however long a period it werecontinued, could prevent those deaths _en masse_. " "We do not know, andindeed we doubt, " the report concludes, "whether the Delegates of theAllied and. Associated Powers realize the inevitable consequences whichwill take place if Germany, an industrial State, very thickly populated, closely bound up with the economic system of the world, and under thenecessity of importing enormous quantities of raw material andfoodstuffs, suddenly finds herself pushed back to the phase of herdevelopment, which corresponds to her economic condition and the numbersof her population as they were half a century ago. Those who sign thisTreaty 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 leastas true of the Austrian, as of the German, settlement. This is thefundamental problem in front of us, before which questions ofterritorial adjustment and the balance of European power areinsignificant. Some of the catastrophes of past history, which havethrown back human progress for centuries, have been due to the reactionsfollowing on the sudden termination, whether in the course of nature orby the act of man, of temporarily favorable conditions which havepermitted the growth of population beyond what could be provided forwhen the favorable conditions were at an end. 

The significant features of the immediate situation can be grouped underthree heads: first, the absolute falling off, for the time being, inEurope's internal productivity; second, the breakdown of transport andexchange by means of which its products could be conveyed where theywere most wanted; and third, the inability of Europe to purchase itsusual supplies from overseas. 

The decrease of productivity cannot be easily estimated, and may be thesubject of exaggeration. But the _primâ facie_ evidence of it isoverwhelming, and this factor has been the main burden of Mr. Hoover'swell-considered warnings. A variety of causes have produced it;--violentand prolonged internal disorder as in Russia and Hungary; the creationof new governments and their inexperience in the readjustment ofeconomic relations, as in Poland and Czecho-Slovakia; the lossthroughout the Continent of efficient labor, through the casualties ofwar or the continuance of mobilization; the falling-off in efficiencythrough continued underfeeding in the Central Empires; the exhaustion ofthe soil from lack of the usual applications of artificial manuresthroughout the course of the war; the unsettlement of the minds of thelaboring classes on the above all (to quote Mr. Hoover), "there is agreat fundamental economic issues of their lives. But relaxation ofeffort as the reflex of physical exhaustion of large sections of thepopulation from privation and the mental and physical strain of thewar. " Many persons are for one reason or another out of employmentaltogether. According to Mr. Hoover, a summary of the unemploymentbureaus in Europe in July, 1919, showed that 15, 000, 000 families werereceiving unemployment allowances in one form or another, and were beingpaid in the main by a constant inflation of currency. In Germany thereis the added deterrent to labor and to capital (in so far as theReparation terms are taken literally), that anything, which they mayproduce beyond the barest level of subsistence, will for years to comebe taken away from them. 

Such definite data as we possess do not add much, perhaps, to thegeneral picture of decay. But I will remind the reader of one or two ofthem. The coal production of Europe as a whole is estimated to havefallen off by 30 per cent; and upon coal the greater part of theindustries of Europe and the whole of her transport system depend. Whereas before the war Germany produced 85 per cent of the total foodconsumed by her inhabitants, the productivity of the soil is nowdiminished by 40 per cent and the effective quality of the live-stock by55 per cent. [145] Of the European countries which formerly possessed alarge exportable surplus, Russia, as much by reason of deficienttransport as of diminished output, may herself starve. Hungary, apartfrom her other troubles, has been pillaged by the Romanians immediatelyafter harvest. Austria will have consumed the whole of her own harvestfor 1919 before the end of the calendar year. The figures are almost toooverwhelming to carry conviction to our minds; if they were not quite sobad, our effective belief in them might be stronger. 

But even when coal can be got and grain harvested, the breakdown of theEuropean railway system prevents their carriage; and even when goods canbe manufactured, the breakdown of the European currency system preventstheir sale. I have already described the losses, by war and under theArmistice surrenders, to the transport system of Germany. But even so, Germany's position, taking account of her power of replacement bymanufacture, is probably not so serious as that of some of herneighbors. In Russia (about which, however, we have very little exact oraccurate information) the condition of the rolling-stock is believed tobe altogether desperate, and one of the most fundamental factors in herexisting economic disorder. And in Poland, Roumania, and Hungary theposition is not much better. Yet modern industrial life essentiallydepends on efficient transport facilities, and the population whichsecured its livelihood by these means cannot continue to live withoutthem. The breakdown of currency, and the distrust in its purchasingvalue, is an aggravation of these evils which must be discussed in alittle more detail in connection with foreign trade. 

What then is our picture of Europe? A country population able to supportlife on the fruits of its own agricultural production but without theaccustomed surplus for the towns, and also (as a result of the lack ofimported materials and so of variety and amount in the saleablemanufactures of the towns) without the usual incentives to market foodin return for other wares; an industrial population unable to keep itsstrength for lack of food, unable to earn a livelihood for lack ofmaterials, and so unable to make good by imports from abroad the failureof productivity at home. Yet, according to Mr. Hoover, "a rough estimatewould indicate that the population of Europe is at least 100, 000, 000greater than can be supported without imports, and must live by theproduction and distribution of exports. "

The problem of the re-inauguration of the perpetual circle of productionand exchange in foreign trade leads me to a necessary digression on thecurrency situation of Europe. 

Lenin is said to have declared that the best way to destroy theCapitalist System was to debauch the currency. By a continuing processof inflation, governments can confiscate, secretly and unobserved, animportant part of the wealth of their citizens. By this method they notonly confiscate, but they confiscate _arbitrarily_; and, while theprocess impoverishes many, it actually enriches some. The sight of thisarbitrary rearrangement of riches strikes not only at security, but atconfidence in the equity of the existing distribution of wealth. Thoseto whom the system brings windfalls, beyond their deserts and evenbeyond their expectations or desires, become "profiteers, ", who are theobject of the hatred of the bourgeoisie, whom the inflationism hasimpoverished, not less than of the proletariat. As the inflationproceeds and the real value of the currency fluctuates wildly frommonth to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterlydisordered as to be almost meaningless; and the process ofwealth-getting degenerates into a gamble and a lottery. 

Lenin was certainly right. There is no subtler, no surer means ofoverturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side ofdestruction, and does it in a manner which not one man in a million isable to diagnose. 

In the latter stages of the war all the belligerent governmentspractised, from necessity or incompetence, what a Bolshevist might havedone from design. Even now, when the war is over, most of them continueout of weakness the same malpractices. But further, the Governments ofEurope, being many of them at this moment reckless in their methods aswell as weak, seek to direct on to a class known as "profiteers" thepopular indignation against the more obvious consequences of theirvicious methods. These "profiteers" are, broadly speaking, theentrepreneur class of capitalists, that is to say, the active andconstructive element in the whole capitalist society, who in a period ofrapidly rising prices cannot help but get rich quick whether they wishit or desire it or not. If prices are continually rising, even traderwho has purchased for stock or owns property and plant inevitably makesprofits. By directing hatred against this class, therefore, the EuropeanGovernments are carrying a step further the fatal process which thesubtle mind of Lenin had consciously conceived. The profiteers are aconsequence and not a cause of rising prices. By combining a popularhatred of the class of entrepreneurs with the blow already given tosocial security by the violent and arbitrary disturbance of contract andof the established equilibrium of wealth which is the inevitable resultof inflation, these Governments are fast rendering impossible acontinuance of the social and economic order of the nineteenth century. But they have no plan for replacing it. 

We are thus faced in Europe with the spectacle of an extraordinaryweakness on the part of the great capitalist class, which has emergedfrom the industrial triumphs of the nineteenth century, and seemed avery few years ago our all-powerful master. The terror and personaltimidity of the individuals of this class is now so great, theirconfidence in their place in society and in their necessity to thesocial organism so diminished, that they are the easy victims ofintimidation. This was not so in England twenty-five years ago, anymore than it is now in the United States. Then the capitalists believedin themselves, in their value to society, in the propriety of theircontinued existence in the full enjoyment of their riches and theunlimited exercise of their power. Now they tremble before everyinsult;--call them pro-Germans, international financiers, or profiteers, and they will give you any ransom you choose to ask not to speak of themso harshly. They allow themselves to be ruined and altogether undone bytheir own instruments, governments of their own making, and a press ofwhich they are the proprietors. Perhaps it is historically true that noorder of society ever perishes save by its own hand. In the complexerworld of Western Europe the Immanent Will may achieve its ends moresubtly and bring in the revolution no less inevitably through a Klotz ora George than by the intellectualisms, too ruthless and self-consciousfor us, of the bloodthirsty philosophers of Russia. 

The inflationism of the currency systems of Europe has proceeded toextraordinary lengths. The various belligerent Governments, unable, ortoo timid or too short-sighted to secure from loans or taxes theresources they required, have printed notes for the balance. In Russiaand Austria-Hungary this process has reached a point where for thepurposes of foreign trade the currency is practically valueless. ThePolish mark can be bought for about three cents and the Austrian crownfor less than two cents, but they cannot be sold at all. The German markis worth less than four cents on the exchanges. In most of the othercountries of Eastern and South-Eastern Europe the real position isnearly as bad. The currency of Italy has fallen to little more than ahalt of its nominal value in spite of its being still subject to somedegree of regulation; French currency maintains an uncertain market; andeven sterling is seriously diminished in present value and impaired inits future prospects. 

But while these currencies enjoy a precarious value abroad, they havenever entirely lost, not even in Russia, their purchasing power at home. A sentiment of trust in the legal money of the State is so deeplyimplanted in the citizens of all countries that they cannot but believethat some day this money must recover a part at least of its formervalue. To their minds it appears that value is inherent in money assuch, and they do not apprehend that the real wealth, which this moneymight have stood for, has been dissipated once and for all. Thissentiment is supported by the various legal regulations with which theGovernments endeavor to control internal prices, and so to preserve somepurchasing power for their legal tender. Thus the force of lawpreserves a measure of immediate purchasing power over some commoditiesand the force of sentiment and custom maintains, especially amongstpeasants, a willingness to hoard paper which is really worthless. 

The presumption of a spurious value for the currency, by the force oflaw expressed in the regulation of prices, contains in itself, however, the seeds of final economic decay, and soon dries up the sources ofultimate supply. If a man is compelled to exchange the fruits of hislabors for paper which, as experience soon teaches him, he cannot use topurchase what he requires at a price comparable to that which he hasreceived for his own products, he will keep his produce for himself, dispose of it to his friends and neighbors as a favor, or relax hisefforts in producing it. A system of compelling the exchange ofcommodities at what is not their real relative value not only relaxesproduction, but leads finally to the waste and inefficiency of barter. If, however, a government refrains from regulation and allows matters totake their course, essential commodities soon attain a level of priceout of the reach of all but the rich, the worthlessness of the moneybecomes apparent, and the fraud upon the public can be concealed nolonger. 

The effect on foreign trade of price-regulation and profiteer-huntingas 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 thatprices inside and outside the country lose their normal adjustment. Theprice of imported commodities, when converted at the current rate oexchange, is far in excess of the local price, so that many essentialgoods will not be imported at all by private agency, and must beprovided by the government, which, in re-selling the goods below costprice, plunges thereby a little further into insolvency. The breadsubsidies, now almost universal throughout Europe, are the leadingexample of this phenomenon. 

The countries of Europe fall into two distinct groups at the presenttime as regards their manifestations of what is really the same evilthroughout, according as they have been cut off from internationalintercourse by the Blockade, or have had their imports paid for out ofthe resources of their allies. I take Germany as typical of the first, and France and Italy of the second. 

The note circulation of Germany is about ten times[146] what it wasbefore the war. The value of the mark in terms of gold is aboutone-eighth of its former value. As world-prices in terms of gold aremore than double what they were, it follows that mark-prices insideGermany ought to be from sixteen to twenty times their pre-war level ifthey are to be in adjustment and proper conformity with prices outsideGermany. [147] But this is not the case. In spite of a very great rise inGerman prices, they probably do not yet average much more than fivetimes their former level, so far as staple commodities are concerned;and it is impossible that they should rise further except with asimultaneous and not less violent adjustment of the level of moneywages. The existing maladjustment hinders in two ways (apart from otherobstacles) that revival of the import trade which is the essentialpreliminary of the economic reconstruction of the country. In the firstplace, imported commodities are beyond the purchasing power of the greatmass of the population, [148] and the flood of imports which might havebeen expected to succeed the raising of the blockade was not in factcommercially possible. [149] In the second place, it is a hazardousenterprise for a merchant or a manufacturer to purchase with a foreigncredit material for which, when he has imported it or manufactured it, he will receive mark currency of a quite uncertain and possiblyunrealizable value. This latter obstacle to the revival of trade is onewhich easily escapes notice and deserves a little attention. It isimpossible at the present time to say what the mark will be worth interms of foreign currency three or six months or a year hence, and theexchange market can quote no reliable figure. It may be the case, therefore, that a German merchant, careful of his future credit andreputation, who is actually offered a short period credit in terms ofsterling or dollars, may be reluctant and doubtful whether to accept it. He will owe sterling or dollars, but he will sell his product for marks, and his power, when the time comes, to turn these marks into thecurrency in which he has to repay his debt is entirely problematic. Business loses its genuine character and becomes no better than aspeculation in the exchanges, the fluctuations in which entirelyobliterate the normal profits of commerce. 

There are therefore three separate obstacles to the revival of trade: amaladjustment between internal prices and international prices, a lackof individual credit abroad wherewith to buy the raw materials needed tosecure the working capital and to re-start the circle of exchange, and adisordered currency system which renders credit operations hazardous orimpossible 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 thantwo-thirds its former value; that is to say, the value of the franc hasnot fallen in proportion to the increased volume of the currency. [150]This apparently superior situation of France is due to the fact thatuntil 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 andthe United States. This has allowed a want of equilibrium betweenexports and imports to be established, which is becoming a very seriousfactor, now that the outside assistance is being gradually discontinued. The internal economy of France and its price level in relation to thenote circulation and the foreign exchanges is at present based on anexcess of imports over exports which cannot possibly continue. Yet it isdifficult to see how the position can be readjusted except by a loweringof the standard of consumption in France, which, even if it is onlytemporary, will provoke a great deal of discontent. [151]

The situation of Italy is not very different. There the note circulationis five or six times its pre-war level, and the exchange value of thelira in terms of gold about half its former value. Thus the adjustmentof the exchange to the volume of the note circulation has proceededfurther in Italy than in France. On the other hand, Italy's "invisible"receipts, from emigrant remittances and the expenditure of tourists, have been very injuriously affected; the disruption of Austria hasdeprived her of an important market; and her peculiar dependence onforeign shipping and on imported raw materials of every kind has laidher open to special injury from the increase of world prices. For allthese reasons her position is grave, and her excess of imports asserious a symptom as in the case of France. [152]

The existing inflation and the maladjustment of international trade areaggravated, both in France and in Italy, by the unfortunate budgetaryposition of the Governments of these countries. 

In France the failure to impose taxation is notorious. Before the warthe aggregate French and British budgets, and also the average taxationper head, were about equal; but in France no substantial effort has beenmade to cover the increased expenditure. "Taxes increased in GreatBritain during the war, " it has been estimated, "from 95 francs per headto 265 francs, whereas the increase in France was only from 90 to 103francs. " The taxation voted in France for the financial year ending June30, 1919, was less than half the estimated normal _post-bellum_expenditure. The normal budget for the future cannot be put below$4, 400, 000, 000 (22 milliard francs), and may exceed this figure; buteven for the fiscal year 1919-20 the estimated receipts from taxationdo not cover much more than half this amount. The French Ministry ofFinance have no plan or policy whatever for meeting this prodigiousdeficit, except the expectation of receipts from Germany on a scalewhich the French officials themselves know to be baseless. In themeantime they are helped by sales of war material and surplus Americanstocks and do not scruple, even in the latter half of 1919, to meet thedeficit by the yet further expansion of the note issue of the Bank ofFrance. [153]

The budgetary position of Italy is perhaps a little superior to that ofFrance. Italian finance throughout the war was more enterprising thanthe French, and far greater efforts were made to impose taxation and payfor the war. Nevertheless Signor Nitti, the Prime Minister, in a letteraddressed to the electorate on the eve of the General Election (Oct. , 1919), thought it necessary to make public the following desperateanalysis of the situation:--(1) The State expenditure amounts to aboutthree times the revenue. (2) All the industrial undertakings of theState, including the railways, telegraphs, and telephones, are being runat a loss. Although the public is buying bread at a high price, thatprice represents a loss to the Government of about a milliard a year. (3) Exports now leaving the country are valued at only one-quarter orone-fifth of the imports from abroad. (4) The National Debt isincreasing by about a milliard lire per month. (5) The militaryexpenditure for one month is still larger than that for the first yearof the war. 

But if this is the budgetary position of France and Italy, that of therest of belligerent Europe is yet more desperate. In Germany the totalexpenditure of the Empire, the Federal States, and the Communes in1919-20 is estimated at 25 milliards of marks, of which not above 10milliards are covered by previously existing taxation. This is withoutallowing anything for the payment of the indemnity. In Russia, Poland, Hungary, or Austria such a thing as a budget cannot be seriouslyconsidered to exist at all. [154]

Thus the menace of inflationism described above is not merely a productof the war, of which peace begins the cure. It is a continuingphenomenon of which the end is not yet in sight. 

All these influences combine not merely to prevent Europe fromsupplying immediately a sufficient stream of exports to pay for thegoods she needs to import, but they impair her credit for securing theworking capital required to re-start the circle of exchange and also, byswinging the forces of economic law yet further from equilibrium ratherthan towards it, they favor a continuance of the present conditionsinstead of a recovery from them. An inefficient, unemployed, disorganized Europe faces us, torn by internal strife and internationalhate, fighting, starving, pillaging, and lying. What warrant is therefor a picture of less somber colors?

I have paid little heed in this book to Russia, Hungary, orAustria. [155] There the miseries of life and the disintegration ofsociety are too notorious to require analysis; and these countries arealready experiencing the actuality of what for the rest of Europe isstill in the realm of prediction. Yet they comprehend a vast territoryand a great population, and are an extant example of how much man cansuffer and how far society can decay. Above all, they are the signal tous of how in the final catastrophe the malady of the body passes overinto malady of the mind. Economic privation proceeds by easy stages, andso long as men suffer it patiently the outside world cares little. Physical efficiency and resistance to disease slowly diminish, [156] butlife proceeds somehow, until the limit of human endurance is reached atlast and counsels of despair and madness stir the sufferers from thelethargy which precedes the crisis. Then man shakes himself, and thebonds of custom are loosed. The power of ideas is sovereign, and helistens to whatever instruction of hope, illusion, or revenge is carriedto him on the air. As I write, the flames of Russian Bolshevism seem, for the moment at least, to have burnt themselves out, and the peoplesof Central and Eastern Europe are held in a dreadful torpor. The latelygathered harvest keeps off the worst privations, and Peace has beendeclared at Paris. But winter approaches. Men will have nothing to lookforward to or to nourish hopes on. There will be little fuel to moderatethe rigors of the season or to comfort the starved bodies of thetown-dwellers. 

But who can say how much is endurable, or in what direction men willseek at last to escape from their misfortunes?

FOOTNOTES:

[145] Professor Starling's _Report on Food Conditions inGermany_. (Cmd. 280. )

[146] Including the _Darlehenskassenscheine_ somewhat more. 

[147] Similarly in Austria prices ought to be between twentyand thirty times their former level. 

[148] One of the moat striking and symptomatic difficultieswhich faced the Allied authorities in their administration of theoccupied areas of Germany during the Armistice arose out of the factthat even when they brought food into the country the inhabitants couldnot afford to pay its cost price. 

[149] Theoretically an unduly low level of home prices shouldstimulate exports and so cure itself. But in Germany, and still more inPoland and Austria, there is little or nothing to export. There must beimports _before_ there can be exports. 

[150] Allowing for the diminished value of gold, the exchangevalue of the franc should be less than 40 per cent of its previousvalue, instead of the actual figure of about 60 per cent, if the fallwere proportional to the increase in the volume of the currency. 

[151] How very far from equilibrium France's internationalexchange now is can be seen from the following table:

 Excess of Monthly Imports Exports Imports Average $1, 000 $1, 000 $1, 000

 1913 140, 355 114, 670 25, 685 1914 106, 705 81, 145 25, 560 1918 331, 915 69, 055 262, 860 Jan. -Mar. 1919 387, 140 66, 670 320, 470 Apr. -June 1919 421, 410 83, 895 337, 515 July 1919 467, 565 123, 675 343, 890

These figures have been converted, at approximately par rates, but thisis roughly compensated by the fact that the trade of 1918 and 1919 hasbeen valued at 1917 official rates. French imports cannot possiblycontinue at anything approaching these figures, and the semblance ofprosperity based on such a state of affairs is spurious. 

[152] The figures for Italy are as follows:

 Excess of Monthly Imports Exports Imports Average $1, 000 $1, 000 $1, 000

 1913 60, 760 41, 860 18, 900 1914 48, 720 36, 840 11, 880 1918 235, 025 41, 390 193, 635 Jan. -Mar. 1919 229, 240 38, 685 191, 155 Apr. -June 1919 331, 035 69, 250 261, 785 July-Aug. 1919 223, 535 84, 515 139, 020

[153] In the last two returns of the Bank of France availableas I write (Oct. 2 and 9, 1919) the increases in the note issue on theweek amounted to $93, 750, 000 and $94, 125, 000 respectively. 

[154] On October 3, 1919, M. Bilinski made his financialstatement to the Polish Diet. He estimated his expenditure for the nextnine months at rather more than double his expenditure for the past ninemonths, and while during the first period his revenue had amounted toone-fifth of his expenditure, for the coming months he was budgeting forreceipts equal to one-eighth of his outgoings. The _Times_ correspondentat Warsaw reported that "in general M. Bilinski's tone was optimisticand appeared to satisfy his audience. "

[155] The terms of the Peace Treaty imposed on the AustrianRepublic bear no relation to the real facts of that State's desperatesituation. The _Arbeiter Zeitung_ of Vienna on June 4, 1919, commentedon them as follows: "Never has the substance of a treaty of peace sogrossly betrayed the intentions which were said to have guided itsconstruction as is the case with this Treaty . .. In which every provisionis permeated with ruthlessness and pitilessness, in which no breath ofhuman sympathy can be detected, which flies in the face of everythingwhich binds man to man, which is a crime against humanity itself, against a suffering and tortured people. " I am acquainted in detail withthe Austrian Treaty and I was present when some of its terms were beingdrafted, but I do not find it easy to rebut the justice of thisoutburst. 

[156] For months past the reports of the health conditions inthe Central Empires have been of such a character that the imaginationis dulled, and one almost seems guilty of sentimentality in quotingthem. But their general veracity is not disputed, and I quote the threefollowing, that the reader may not be unmindful of them: "In the lastyears of the war, in Austria alone at least 35, 000 people died oftuberculosis, in Vienna alone 12, 000. Today we have to reckon with anumber of at least 350, 000 to 400, 000 people who require treatment fortuberculosis. .. . As the result of malnutrition a bloodless generation isgrowing up with undeveloped muscles, undeveloped joints, and undevelopedbrain" (_Neue Freie Presse_, May 31, 1919). The Commission of Doctorsappointed by the Medical Faculties of Holland, Sweden, and Norway toexamine the conditions in Germany reported as follows in the SwedishPress in April, 1919: "Tuberculosis, especially in children, isincreasing in an appalling way, and, generally speaking, is malignant. In the same way rickets is more serious and more widely prevalent. It isimpossible to do anything for these diseases; there is no milk for thetuberculous, and no cod-liver oil for those suffering from rickets. .. . Tuberculosis is assuming almost unprecedented aspects, such as havehitherto only been known in exceptional cases. The whole body isattacked simultaneously, and the illness in this form is practicallyincurable. .. . Tuberculosis is nearly always fatal now among adults. Itis the cause of 90 per cent of the hospital cases. Nothing can be doneagainst it owing to lack of food-stuffs. .. . It appears in the mostterrible forms, such as glandular tuberculosis, which turns intopurulent dissolution. " The following is by a writer in the _VossischeZeitung_, June 5, 1919, who accompanied the Hoover Mission to theErzgebirge: "I visited large country districts where 90 per cent of allthe children were ricketty and where children of three years are onlybeginning to walk. .. . Accompany me to a school in the Erzgebirge. Youthink it is a kindergarten for the little ones. No, these are childrenof seven and eight years. Tiny faces, with large dull eyes, overshadowedby huge puffed, ricketty foreheads, their small arms just skin and bone, and above the crooked legs with their dislocated joints the swollen, pointed stomachs of the hunger oedema. .. . 'You see this child here, ' thephysician in charge explained; 'it consumed an incredible amount ofbread, and yet did not get any stronger. I found out that it hid all thebread it received underneath its straw mattress. The fear of hunger wasso deeply rooted in the child that it collected stores instead of eatingthe food: a misguided animal instinct made the dread of hunger worsethan the actual pangs. '" Yet there are many persons apparently in whoseopinion justice requires that such beings should pay tribute until theyare 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 havecriticized the work of Paris, and have depicted in somber colors thecondition and the prospects of Europe. This is one aspect of theposition and, I believe, a true one. But in so complex a phenomenon theprognostics do not all point one way; and we may make the error ofexpecting consequences to follow too swiftly and too inevitably fromwhat perhaps are not _all_ the relevant causes. The blackness of theprospect itself leads us to doubt its accuracy; our imagination isdulled rather than stimulated by too woeful a narration, and our mindsrebound from what is felt "too bad to be true. " But before the readerallows himself to be too much swayed by these natural reflections, andbefore I lead him, as is the intention of this chapter, towards remediesand ameliorations and the discovery of happier tendencies, let himredress the balance of his thought by recalling two contrasts--Englandand Russia, of which the one may encourage his optimism too much, butthe other should remind him that catastrophes can still happen, andthat modern society is not immune from the very greatest evils. 

In the chapters of this book I have not generally had in mind thesituation or the problems of England. "Europe" in my narration mustgenerally be interpreted to exclude the British Isles. England is in astate of transition, and her economic problems are serious. We may be onthe eve of great changes in her social and industrial structure. Some ofus may welcome such prospects and some of us deplore them. But they areof a different kind altogether from those impending on Europe. I do notperceive in England the slightest possibility of catastrophe or anyserious likelihood of a general upheaval of society. The war hasimpoverished us, but not seriously;--I should judge that the real wealthof the country in 1919 is at least equal to what it was in 1900. Ourbalance of trade is adverse, but not so much so that the readjustment ofit need disorder our economic life. [157] The deficit in our Budget islarge, but not beyond what firm and prudent statesmanship could bridge. The shortening of the hours of labor may have somewhat diminished ourproductivity. But it should not be too much to hope that this is afeature of transition, and no due who is acquainted with the Britishworkingman can doubt that, if it suits him, and if he is in sympathy andreasonable contentment with the conditions of his life, he can produceat least as much in a shorter working day as he did in the longer hourswhich prevailed formerly. The most serious problems for England havebeen brought to a head by the war, but are in their origins morefundamental. The forces of the nineteenth century have run their courseand are exhausted. The economic motives and ideals of that generation nolonger 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 oneelement. The other is that on which I have enlarged in Chapter II. ;--theincrease in the real cost of food and the diminishing response of natureto any further increase in the population of the world, a tendency whichmust be especially injurious to the greatest of all industrialcountries and the most dependent on imported supplies of food. 

But these secular problems are such as no age is free from. They are ofan altogether different order from those which may afflict the peoplesof Central Europe. Those readers who, chiefly mindful of the Britishconditions with which they are familiar, are apt to indulge theiroptimism, and still more those whose immediate environment is American, must cast their minds to Russia, Turkey, Hungary, or Austria, where themost dreadful material evils which men can suffer--famine, cold, disease, war, murder, and anarchy--are an actual present experience, ifthey are to apprehend the character of the misfortunes against thefurther extension of which it must surely be our duty to seek theremedy, if there is one. 

What then is to be done? The tentative suggestions of this chapter mayappear to the reader inadequate. But the opportunity was missed at Parisduring the six months which followed the Armistice, and nothing we cando now can repair the mischief wrought at that time. Great privation andgreat risks to society have become unavoidable. All that is now open tous is to redirect, so far as lies in our power, the fundamental economictendencies which underlie the events of the hour, so that they promotethe re-establishment of prosperity and order, instead of leading usdeeper into misfortune. 

We must first escape from the atmosphere and the methods of Paris. Thosewho controlled the Conference may bow before the gusts of popularopinion, but they will never lead us out of our troubles. It is hardlyto be supposed that the Council of Four can retrace their steps, even ifthey wished to do so. The replacement of the existing Governments ofEurope is, therefore, an almost indispensable preliminary. 

I propose then to discuss a program, for those who believe that thePeace of Versailles cannot stand, under the following heads:

1. The Revision of the Treaty. 

2. The settlement of inter-Ally indebtedness. 

3. An international loan and the reform of the currency. 

4. The relations of Central Europe to Russia. 

1. _The Revision of the Treaty_

Are any constitutional means open to us for altering the Treaty?President Wilson and General Smuts, who believe that to have secured theCovenant of the League of Nations outweighs much evil in the rest of theTreaty, have indicated that we must look to the League for the gradualevolution of a more tolerable life for Europe. "There are territorialsettlements, " General Smuts wrote in his statement on signing the PeaceTreaty, "which will need revision. There are guarantees laid down whichwe all hope will soon be found out of harmony with the new peacefultemper and unarmed state of our former enemies. There are punishmentsforeshadowed over most of which a calmer mood may yet prefer to pass thesponge of oblivion. There are indemnities stipulated which cannot beenacted without grave injury to the industrial revival of Europe, andwhich it will be in the interests of all to render more tolerable andmoderate. .. . I am confident that the League of Nations will yet provethe path of escape for Europe out of the ruin brought about by thiswar. " Without the League, President Wilson informed the Senate when hepresented the Treaty to them early in July, 1919, ". .. Long-continuedsupervision of the task of reparation which Germany was to undertake tocomplete within the next generation might entirely break down;[158] thereconsideration and revision of administrative arrangements andrestrictions which the Treaty prescribed, but which it recognized mightnot provide lasting advantage or be entirely fair if too long enforced, would be impracticable. "

Can we look forward with fair hopes to securing from the operation ofthe League those benefits which two of its principal begetters thusencourage us to expect from it? The relevant passage is to be found inArticle XIX. Of the Covenant, which runs as follows:

 "The Assembly may from time to time advise the reconsideration by Members of the League of treaties which have become inapplicable and the consideration of international conditions whose continuance might endanger the peace of the world. "

But alas! Article V. Provides that "Except where otherwise expresslyprovided in this Covenant or by the terms of the present Treaty, decisions at any meeting of the Assembly or of the Council shall requirethe agreement of all the Members of the League represented at themeeting. " Does not this provision reduce the League, so far as concernsan early reconsideration of any of the terms of the Peace Treaty, into abody merely for wasting time? If all the parties to the Treaty areunanimously of opinion that it requires alteration in a particularsense, it does not need a League and a Covenant to put the businessthrough. 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 thepublic opinion of the world, and the view of the majority will carrydecisive weight in practice, even though constitutionally it is of noeffect. Let us pray that this be so. Yet the League in the hands of thetrained European diplomatist may become an unequaled instrument forobstruction and delay. The revision of Treaties is entrusted primarily, not to the Council, which meets frequently, but to the Assembly, whichwill meet more rarely and must become, as any one with an experience oflarge Inter-Ally Conferences must know, an unwieldy polyglot debatingsociety in which the greatest resolution and the best management mayfail altogether to bring issues to a head against an opposition in favorof the _status quo_. There are indeed two disastrous blots on theCovenant, --Article V. , which prescribes unanimity, and themuch-criticized Article X. , by which "The Members of the Leagueundertake to respect and preserve as against external aggression theterritorial integrity and existing political independence of all Membersof the League. " These two Articles together go some way to destroy theconception of the League as an instrument of progress, and to equip itfrom the outset with an almost fatal bias towards the _status quo_. Itis these Articles which have reconciled to the League some of itsoriginal opponents, who now hope to make of it another Holy Alliance forthe perpetuation of the economic ruin of their enemies and the Balanceof Power in their own interests which they believe themselves to haveestablished by the Peace. 

But while it would be wrong and foolish to conceal from ourselves in theinterests of "idealism" the real difficulties of the position in thespecial matter of revising treaties, that is no reason for any of us todecry the League, which the wisdom of the world may yet transform into apowerful instrument of peace, and which in Articles XI. -XVII. [159] hasalready accomplished a great and beneficent achievement. I agree, therefore, that our first efforts for the Revision of the Treaty must bemade through the League rather than in any other way, in the hope thatthe force of general opinion and, if necessary, the use of financialpressure and financial inducements, may be enough to prevent arecalcitrant minority from exercising their right of veto. We must trustthe new Governments, whose existence I premise in the principal Alliedcountries, to show a profounder wisdom and a greater magnanimity thantheir predecessors. 

We have seen in Chapters IV. And V. That there are numerous particularsin which the Treaty is objectionable. I do not intend to enter here intodetails, or to attempt a revision of the Treaty clause by clause. Ilimit myself to three great changes which are necessary for the economiclife of Europe, relating to Reparation, to Coal and Iron, and toTariffs. 

_Reparation_. --If the sum demanded for Reparation is less than what theAllies are entitled to on a strict interpretation of their engagements, it is unnecessary to particularize the items it represents or to heararguments about its compilation. I suggest, therefore, the followingsettlement:--

(1) The amount of the payment to be made by Germany in respect ofReparation and the costs of the Armies of Occupation might be fixed at$10, 000, 000, 000. 

(2) The surrender of merchant ships and submarine cables under theTreaty, of war material under the Armistice, of State property in cededterritory, of claims against such territory in respect of public debt, and of Germany's claims against her former Allies, should be reckoned asworth the lump sum of $2, 500, 000, 000, without any attempt being made toevaluate them item by item. 

(3) The balance of $7, 500, 000, 000 should not carry interest pending itsrepayment, and should be paid by Germany in thirty annual instalments of$250, 000, 000, beginning in 1923. 

(4) The Reparation Commission should be dissolved, or, if any dutiesremain for it to perform, it should become an appanage of the League ofNations and should include representatives of Germany and of the neutralStates. 

(5) Germany would be left to meet the annual instalments in such manneras she might see fit, any complaint against her for non-fulfilment ofher obligations being lodged with the League of Nations. That is to say, there would be no further expropriation of German private propertyabroad, except so far as is required to meet private German obligationsout of the proceeds of such property already liquidated or in the handsof Public Trustees and Enemy Property Custodians in the Allied countriesand in the United States; and, in particular, Article 260 (whichprovides for the expropriation of German interests in public utilityenterprises) would be abrogated. 

(6) No attempt should be made to extract Reparation payments fromAustria. 

_Coal and Iron_. --(1) The Allies' options on coal under Annex V. Shouldbe abandoned, but Germany's obligation to make good France's loss ofcoal through the destruction of her mines should remain. That is to say, Germany should undertake "to deliver to France annually for a period notexceeding ten years an amount of coal equal to the difference betweenthe annual production before the war of the coal mines of the Nord andPas de Calais, destroyed as a result of the war, and the production ofthe mines of the same area during the years in question; such deliverynot to exceed twenty million tons in any one year of the first fiveyears, and eight million tons in any one year of the succeeding fiveyears. " This obligation should lapse, nevertheless, in the event of thecoal districts of Upper Silesia being taken from Germany in the finalsettlement consequent on the plebiscite. 

(2) The arrangement as to the Saar should hold good, except that, on theone hand, Germany should receive no credit for the mines, and, on theother, should receive back both the mines and the territory withoutpayment and unconditionally after ten years. But this should beconditional on France's entering into an agreement for the same periodto supply Germany from Lorraine with at least 50 per cent of theiron-ore which was carried from Lorraine into Germany proper before thewar, in return for an undertaking from Germany to supply Lorraine withan amount of coal equal to the whole amount formerly sent to Lorrainefrom Germany proper, after allowing for the output of the Saar. 

(3) The arrangement as to Upper Silesia should hold good. That is tosay, a plebiscite should be held, and in coming to a final decision"regard will be paid (by the principal Allied and Associated Powers) tothe wishes of the inhabitants as shown by the vote, and to thegeographical and economic conditions of the locality. " But the Alliesshould declare that in their judgment "economic conditions" require theinclusion of the coal districts in Germany unless the wishes of theinhabitants are decidedly to the contrary. 

(4) The Coal Commission already established by the Allies should becomean appanage of the League of Nations, and should be enlarged to includerepresentatives of Germany and the other States of Central and EasternEurope, of the Northern Neutrals, and of Switzerland. Its authorityshould be advisory only, but should extend over the distribution of thecoal supplies of Germany, Poland, and the constituent parts of theformer Austro-Hungarian Empire, and of the exportable surplus of theUnited Kingdom. All the States represented on the Commission shouldundertake to furnish it with the fullest information, and to be guidedby its advice so far as their sovereignty and their vital interestspermit. 

_Tariffs_. --A Free Trade Union should be established under the auspicesof the League of Nations of countries undertaking to impose noprotectionist tariffs[160] whatever against the produce of other membersof the Union, Germany, Poland, the new States which formerly composedthe Austro-Hungarian and Turkish Empires, and the Mandated States shouldbe compelled to adhere to this Union for ten years, after which timeadherence would be voluntary. The adherence of other States would bevoluntary from the outset. But it is to be hoped that the UnitedKingdom, 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 herterritory, we avoid the perpetual friction and opportunity of improperpressure arising out of Treaty clauses which are impossible offulfilment, and we render unnecessary the intolerable powers of theReparation Commission. 

By a moderation of the clauses relating directly or indirectly to coal, and by the exchange of iron-ore, we permit the continuance of Germany'sindustrial life, and put limits on the loss of productivity which wouldbe brought about otherwise by the interference of political frontierswith the natural localization of the iron and steel industry. 

By the proposed Free Trade Union some part of the loss of organizationand economic efficiency may be retrieved, which must otherwise resultfrom the innumerable new political frontiers now created between greedy, jealous, immature, and economically incomplete nationalist States. Economic frontiers were tolerable so long as an immense territory wasincluded in a few great Empires; but they will not be tolerable when theEmpires of Germany, Austria-Hungary, Russia, and Turkey have beenpartitioned between some twenty independent authorities. A Free TradeUnion, comprising the whole of Central, Eastern, and South-EasternEurope, Siberia, Turkey, and (I should hope) the United Kingdom, Egypt, and India, might do as much for the peace and prosperity of the world asthe League of Nations itself. Belgium, Holland, Scandinavia, andSwitzerland might be expected to adhere to it shortly. And it would begreatly to be desired by their friends that France and Italy also shouldsee their way to adhesion. 

It would be objected, I suppose, by some critics that such anarrangement might go some way in effect towards realizing the formerGerman dream of Mittel-Europa. If other countries were so foolish as toremain outside the Union and to leave to Germany all its advantages, there might be some truth in this. But an economic system, to whichevery one had the opportunity of belonging and which gave specialprivilege to none, is surely absolutely free from the objections of aprivileged and avowedly imperialistic scheme of exclusion anddiscrimination. Our attitude to these criticisms must be determined byour whole moral and emotional reaction to the future of internationalrelations and the Peace of the World. If we take the view that for atleast a generation to come Germany cannot be trusted with even a modicumof prosperity, that while all our recent Allies are angels of light, allour recent enemies, Germans, Austrians, Hungarians, and the rest, arechildren of the devil, that year by year Germany must be keptimpoverished and her children starved and crippled, and that she must beringed round by enemies; then we shall reject all the proposals of thischapter, and particularly those which may assist Germany to regain apart of her former material prosperity and find a means of livelihoodfor the industrial population of her towns. But if this view of nationsand of their relation to one another is adopted by the democracies ofWestern Europe, and is financed by the United States, heaven help usall. If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay forvery long that final civil war between the forces of Reaction and thedespairing convulsions of Revolution, before which the horrors of thelate German war will fade into nothing, and which will destroy, whoeveris victor, the civilization and the progress of our generation. Eventhough the result disappoint us, must we not base our actions on betterexpectations, and believe that the prosperity and happiness of onecountry promotes that of others, that the solidarity of man is not afiction, and that nations can still afford to treat other nations asfellow-creatures?

Such changes as I have proposed above might do something appreciable toenable the industrial populations of Europe to continue to earn alivelihood. But they would not be enough by themselves. In particular, France would be a loser on paper (on paper only, for she will neversecure the actual fulfilment of her present claims), and an escape fromher embarrassments must be shown her in some other direction. I proceed, therefore, to proposals, first, for the adjustment of the claims ofAmerica and the Allies amongst themselves; and second, for the provisionof sufficient credit to enable Europe to re-create her stock ofcirculating capital. 

2. _The Settlement of Inter-Ally Indebtedness_

In proposing a modification of the Reparation terms, I have consideredthem so far only in relation to Germany. But fairness requires that sogreat a reduction in the amount should be accompanied by a readjustmentof its apportionment between the Allies themselves, The professionswhich our statesmen made on every platform during the war, as well asother considerations, surely require that the areas damaged by theenemy's invasion should receive a priority of compensation. While thiswas one of the ultimate objects for which we said we were fighting, wenever included the recovery of separation allowances amongst our waraims. I suggest, therefore, that we should by our acts prove ourselvessincere and trustworthy, and that accordingly Great Britain should waivealtogether her claims for cash payment in favor of Belgium, Serbia, andFrance. The whole of the payments made by Germany would then be subjectto the prior charge of repairing the material injury done to thosecountries and provinces which suffered actual invasion by the enemy; andI believe that the sum of $7, 500, 000, 000 thus available would beadequate to cover entirely the actual costs of restoration. Further, itis only by a complete subordination of her own claims for cashcompensation that Great Britain can ask with clean hands for a revisionof the Treaty and clear her honor from the breach of faith for which shebears the main responsibility, as a result of the policy to which theGeneral Election of 1918 pledged her representatives. 

With the Reparation problem thus cleared up it would be possible tobring forward with a better grace and more hope of success two otherfinancial proposals, each of which involves an appeal to the generosityof the United States. 

The first is for the entire cancellation of Inter-Ally indebtedness(that is to say, indebtedness between the Governments of the Allied andAssociated countries) incurred for the purposes of the war. Thisproposal, which has been put forward already in certain quarters, is onewhich I believe to be absolutely essential to the future prosperity ofthe world. It would be an act of far-seeing statesmanship for the UnitedKingdom and the United States, the two Powers chiefly concerned, toadopt it. The sums of money which are involved are shown approximatelyin the following table:--[161]

 -----------------+------------+------------+-----------+---------- Loans to | By United | By United | By France | Total | States | Kingdom | | -----------------+------------+------------+-----------+---------- | Million | Million | Million | Million | Dollars | Dollars | Dollars | Dollars | | | | United Kingdom | 4, 210 | 0 | 0 | 4, 210 France | 2, 750 | 2, 540 | 0 | 5, 200 Italy | 1, 625 | 2, 335 | 175 | 4, 135 Russia | 190 | 2, 840[162]| 800 | 3, 830 Belgium | 400 | 490[163]| 450 | 1, 340 Serbia and | | | | Jugo-Slavia | 100 | 100[163]| 100 | 300 Other Allies | 175 | 395 | 250 | 820 | ----- | ----- | ----- | ------ Total | 9, 450[164]| 8, 700 | 1, 775 | 19, 925 | | | | -----------------+------------+------------+-----------+----------

Thus the total volume of Inter-Ally indebtedness, assuming that loansfrom 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 Kingdomhas lent about twice as much as she has borrowed. France has borrowedabout three times as much as she has lent. The other Allies have beenborrowers only. 

If all the above Inter-Ally indebtedness were mutually forgiven, thenet result on paper (_i. E. _ assuming all the loans to be good) would bea surrender by the United States of about $10, 000, 000, 000 and by theUnited Kingdom of about $4, 500, 000, 000. France would gain about$3, 500, 000, 000 and Italy about $4, 000, 000, 000. But these figuresoverstate the loss to the United Kingdom and understate the gain toFrance; for a large part of the loans made by both these countries hasbeen to Russia and cannot, by any stretch of imagination, be consideredgood. If the loans which the United Kingdom has made to her Allies arereckoned to be worth 50 per cent of their full value (an arbitrary butconvenient assumption which the Chancellor of the Exchequer has adoptedon more than one occasion as being as good as any other for the purposesof an approximate national balance sheet), the operation would involveher neither in loss nor in gain. But in whatever way the net result iscalculated on paper, the relief in anxiety which such a liquidation ofthe position would carry with it would be very great. It is from theUnited States, therefore, that the proposal asks generosity. 

Speaking with a very intimate knowledge of the relations throughout thewar between the British, the American, and the other Allied Treasuries, I believe this to be an act of generosity for which Europe can fairlyask, provided Europe is making an honorable attempt in otherdirections, not to continue war, economic or otherwise, but to achievethe economic reconstitution of the whole Continent, The financialsacrifices of the United States have been, in proportion to her wealth, immensely less than those of the European States. This could hardly havebeen otherwise. It was a European quarrel, in which the United StatesGovernment could not have justified itself before its citizens inexpending the whole national strength, as did the Europeans. After theUnited States came into the war her financial assistance was lavish andunstinted, and without this assistance the Allies could never have wonthe war, [165] quite apart from the decisive influence of the arrival ofthe American troops. Europe, too, should never forget the extraordinaryassistance afforded her during the first six months of 1919 through theagency of Mr. Hoover and the American Commission of Relief. Never was anobler work of disinterested goodwill carried through with more tenacityand sincerity and skill, and with less thanks either asked or given. The ungrateful Governments of Europe owe much more to the statesmanshipand insight of Mr. Hoover and his band of American workers than theyhave yet appreciated or will ever acknowledge. The American ReliefCommission, and they only, saw the European position during those monthsin its true perspective and felt towards it as men should. It was theirefforts, their energy, and the American resources placed by thePresident at their disposal, often acting in the teeth of Europeanobstruction, which not only saved an immense amount of human suffering, but averted a widespread breakdown of the European system. [166]

But in speaking thus as we do of American financial assistance, wetacitly assume, and America, I believe, assumed it too when she gave themoney, that it was not in the nature of an investment. If Europe isgoing to repay the $10, 000, 000, 000 worth of financial assistance whichshe has had from the United States with compound interest at 5 per cent, the matter takes on quite a different complexion. If America's advancesare to be regarded in this light, her relative financial sacrifice hasbeen very slight indeed. 

Controversies as to relative sacrifice are very barren and very foolishalso; for there is no reason in the world why relative sacrifice shouldnecessarily be equal, --so many other very relevant considerations beingquite different in the two cases. The two or three facts following areput forward, therefore, not to suggest that they provide any compellingargument for Americans, but only to show that from his own selfish pointof view an Englishman is not seeking to avoid due sacrifice on hiscountry's part in making the present suggestion. (1) The sums which theBritish Treasury borrowed from the American Treasury, after the lattercame into the war, were approximately offset by the sums which Englandlent to her other Allies _during the same period_ (i. E. Excluding sumslent before the United States came into the war); so that almost thewhole of England's indebtedness to the United States was incurred, noton her own account, but to enable her to assist the rest of her Allies, who were for various reasons not in a position to draw their assistancefrom the United States direct. [167] (2) The United Kingdom has disposedof about $5, 000, 000, 000 worth of her foreign securities, and in additionhas incurred foreign debt to the amount of about $6, 000, 000, 000. TheUnited States, so far from selling, has bought back upwards of$5, 000, 000, 000, and has incurred practically no foreign debt. (3) Thepopulation of the United Kingdom is about one-half that of the UnitedStates, the income about one-third, and the accumulated wealth betweenone-half and one-third. The financial capacity of the United Kingdom maytherefore be put at about two-fifths that of the United States. Thisfigure enables us to make the following comparison:--Excluding loans toAllies in each case (as is right on the assumption that these loans areto be repaid), the war expenditure of the United Kingdom has been aboutthree times that of the United Sates, or in proportion to capacitybetween seven and eight times. 

Having cleared this issue out of the way as briefly as possible, I turnto the broader issues of the future relations between the parties to thelate war, by which the present proposal must primarily be judged. 

Failing such a settlement as is now proposed, the war will have endedwith a network of heavy tribute payable from one Ally to another. Thetotal amount of this tribute is even likely to exceed the amountobtainable from the enemy; and the war will have ended with theintolerable result of the Allies paying indemnities to one anotherinstead of receiving them from the enemy. 

For this reason the question of Inter-Allied indebtedness is closelybound up with the intense popular feeling amongst the European Allies onthe question of indemnities, --a feeling which is based, not on anyreasonable calculation of what Germany can, in fact, pay, but on awell-founded appreciation of the unbearable financial situation in whichthese countries will find themselves unless she pays. Take Italy as anextreme example. If Italy can reasonably be expected to pay$4, 000, 000, 000, surely Germany can and ought to pay an immeasurablyhigher figure. Or if it is decided (as it must be) that Austria can paynext to nothing, is it not an intolerable conclusion that Italy shouldbe loaded with a crushing tribute, while Austria escapes? Or, to put itslightly differently, how can Italy be expected to submit to payment ofthis great sum and see Czecho-Slovakia pay little or nothing? At theother end of the scale there is the United Kingdom. Here the financialposition is different, since to ask us to pay $4, 000, 000, 000 is a verydifferent proposition from asking Italy to pay it. But the sentiment ismuch the same. If we have to be satisfied without full compensation fromGermany, how bitter will be the protests against paying it to theUnited States. We, it will be said, have to be content with a claimagainst the bankrupt estates of Germany, France, Italy, and Russia, whereas the United States has secured a first mortgage upon us. The caseof France is at least as overwhelming. She can barely secure fromGermany the full measure of the destruction of her countryside. Yetvictorious France must pay her friends and Allies more than four timesthe indemnity which in the defeat of 1870 she paid Germany. The hand ofBismarck was light compared with that of an Ally or of an Associate. Asettlement of Inter-Ally indebtedness is, therefore, an indispensablepreliminary to the peoples of the Allied countries facing, with otherthan a maddened and exasperated heart, the inevitable truth about theprospects of an indemnity from the enemy. 

It might be an exaggeration to say that it is impossible for theEuropean Allies to pay the capital and interest due from them on thesedebts, but to make them do so would certainly be to impose a crushingburden. They may be expected, therefore, to make constant attempts toevade or escape payment, and these attempts will be a constant source ofinternational friction and ill-will for many years to come. A debtornation does not love its creditor, and it is fruitless to expectfeelings of goodwill from France, Italy, and Russia towards thiscountry or towards America, if their future development is stifled formany years to come by the annual tribute which they must pay us. Therewill be a great incentive to them to seek their friends in otherdirections, and any future rupture of peaceable relations will alwayscarry with it the enormous advantage of escaping the payment of externaldebts, if, on the other hand, these great debts are forgiven, a stimuluswill be given to the solidarity and true friendliness of the nationslately associated. 

The existence of the great war debts is a menace to financial stabilityeverywhere. There is no European country in which repudiation may notsoon become an important political issue. In the case of internal debt, however, there are interested parties on both sides, and the question isone of the internal distribution of wealth. With external debts this isnot so, and the creditor nations may soon find their interestinconveniently bound up with the maintenance of a particular type ofgovernment or economic organization in the debtor countries. Entanglingalliances or entangling leagues are nothing to the entanglements of cashowing. 

The final consideration influencing the reader's attitude to thisproposal must, however, depend on his view as to the future place in theworld's progress of the vast paper entanglements which are our legacyfrom war finance both at home and abroad. The war has ended with everyone owing every one else immense sums of money. Germany owes a large sumto the Allies, the Allies owe a large sum to Great Britain, and GreatBritain owes a large sum to the United States. The holders of war loanin every country are owed a large sum by the State, and the State in itsturn is owed a large sum by these and other taxpayers. The wholeposition is in the highest degree artificial, misleading, and vexatious. We shall never be able to move again, unless we can free our limbs fromthese paper shackles. A general bonfire is so great a necessity thatunless we can make of it an orderly and good-tempered affair in which noserious 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 regardsinternal debt, I am one of those who believe that a capital levy for theextinction of debt is an absolute prerequisite of sound finance ineveryone of the European belligerent countries. But the continuance on ahuge scale of indebtedness between Governments has special dangers ofits own. 

Before the middle of the nineteenth century no nation owed payments to aforeign nation on any considerable scale, except such tributes as wereexacted under the compulsion of actual occupation in force and, at onetime, by absentee princes under the sanctions of feudalism. It is truethat the need for European capitalism to find an outlet in the New Worldhas led during the past fifty years, though even now on a relativelymodest scale, to such countries as Argentine owing an annual sum to suchcountries as England. But the system is fragile; and it has onlysurvived because its burden on the paying countries has not so far beenoppressive, because this burden is represented by real assets and isbound up with the property system generally, and because the sumsalready lent are not unduly large in relation to those which it is stillhoped to borrow. Bankers are used to this system, and believe it to be anecessary part of the permanent order of society. They are disposed tobelieve, therefore, by analogy with it, that a comparable system betweenGovernments, on a far vaster and definitely oppressive scale, represented by no real assets, and less closely associated with theproperty system, is natural and reasonable and in conformity with humannature. 

I doubt this view of the world. Even capitalism at home, which engagesmany local sympathies, which plays a real part in the daily process ofproduction, and upon the security of which the present organization ofsociety largely depends, is not very safe. But however this may be, willthe discontented peoples of Europe be willing for a generation to comeso to order their lives that an appreciable part of their daily producemay be available to meet a foreign payment, the reason of which, whetheras between Europe and America, or as between Germany and the rest ofEurope, does not spring compellingly from their sense of justice orduty?

On the one hand, Europe must depend in the long run on her own dailylabor and not on the largesse of America; but, on the other hand, shewill not pinch herself in order that the fruit of her daily labor may goelsewhere. In short, I do not believe that any of these tributes willcontinue to be paid, at the best, for more than a very few years. Theydo 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 generosityagree together, and the policy which will best promote immediatefriendship between nations will not conflict with the permanentinterests of the benefactor. [168]

3. _An International Loan_

I pass to a second financial proposal. The requirements of Europe are_immediate_. The prospect of being relieved of oppressive interestpayments to England and America over the whole life of the next twogenerations (and of receiving from Germany some assistance year by yearto the costs of restoration) would free the future from excessiveanxiety. But it would not meet the ills of the immediate present, --theexcess of Europe's imports over her exports, the adverse exchange, andthe disorder of the currency. It will be very difficult for Europeanproduction to get started again without a temporary measure of externalassistance. I am therefore a supporter of an international loan in someshape or form, such as has been advocated in many quarters in France, Germany, and England, and also in the United States. In whatever way theultimate responsibility for repayment is distributed, the burden offinding the immediate resources must inevitably fall in major part uponthe United States. 

The chief objections to all the varieties of this species of projectare, I suppose, the following. The United States is disinclined toentangle herself further (after recent experiences) in the affairs orEurope, and, anyhow, has for the time being no more capital to spare forexport on a large scale. There is no guarantee that Europe will putfinancial assistance to proper use, or that she will not squander it andbe in just as bad case two or three years hence as she is in now;--M. Klotz will use the money to put off the day of taxation a little longer, Italy and Jugo-Slavia will fight one another on the proceeds, Polandwill devote it to fulfilling towards all her neighbors the military rôlewhich France has designed for her, the governing classes of Roumaniawill divide up the booty amongst themselves. In short, America wouldhave postponed her own capital developments and raised her own cost ofliving in order that Europe might continue for another year or two thepractices, the policy, and the men of the past nine months. And as forassistance to Germany, is it reasonable or at all tolerable that theEuropean Allies, having stripped Germany of her last vestige of workingcapital, in opposition to the arguments and appeals of the Americanfinancial representatives at Paris, should then turn to the UnitedStates for funds to rehabilitate the victim in sufficient measure toallow the spoliation to recommence in a year or two?

There is no answer to these objections as matters are now. If I hadinfluence at the United States Treasury, I would not lend a penny to asingle one of the present Governments of Europe. They are not to betrusted with resources which they would devote to the furtherance ofpolicies in repugnance to which, in spite of the President's failure toassert either the might or the ideals of the people of the UnitedStates, the Republican and the Democratic parties are probably united. But if, as we must pray they will, the souls of the European peoplesturn away this winter from the false idols which have survived the warthat created them, and substitute in their hearts for the hatred and thenationalism, which now possess them, thoughts and hopes of the happinessand solidarity of the European family, --then should natural piety andfilial love impel the American people to put on one side all the smallerobjections of private advantage and to complete the work, that theybegan in saving Europe from the tyranny of organized force, by savingher from herself. And even if the conversion is not fully accomplished, and some parties only in each of the European countries have espoused apolicy of reconciliation, America can still point the way and hold upthe hands of the party of peace by having a plan and a condition onwhich she will give her aid to the work of renewing life. 

The impulse which, we are told, is now strong in the mind of the UnitedStates to be quit of the turmoil, the complication, the violence, theexpense, and, above all, the unintelligibility of the European problems, is easily understood. No one can feel more intensely than the writerhow natural it is to retort to the folly and impracticability of theEuropean statesmen, --Rot, then, in your own malice, and we will go ourway--

 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 andstill means to her, what Europe, the mother of art and of knowledge, inspite of everything, still is and still will be, will she not rejectthese counsels of indifference and isolation, and interest herself inwhat may prove decisive issues for the progress and civilization of allmankind?

Assuming then, if only to keep our hopes up, that America will beprepared to contribute to the process of building up the good forces ofEurope, 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 allschemes for an international loan are much the same, The countries in aposition to lend assistance, the neutrals, the United Kingdom, and, forthe greater portion of the sum required, the United States, must provideforeign purchasing credits for all the belligerent countries ofcontinental Europe, allied and ex-enemy alike. The aggregate sumrequired might not be so large as is sometimes supposed. Much might bedone, perhaps, with a fund of $1, 000, 000, 000 in the first instance. Thissum, even if a precedent of a different kind had been established by thecancellation of Inter-Ally War Debt, should be lent and should beborrowed with the unequivocal intention of its being repaid in full. With this object in view, the security for the loan should be the bestobtainable, and the arrangements for its ultimate repayment as completeas possible. In particular, it should rank, both for payment of interestand discharge of capital, in front of all Reparation claims, allInter-Ally War Debt, all internal war loans, and all other Governmentindebtedness of any other kind. Those borrowing countries who will beentitled to Reparation payments should be required to pledge all suchreceipts to repayment of the new loan. And all the borrowing countriesshould be required to place their customs duties on a gold basis and topledge such receipts to its service. 

Expenditure out of the loan should be subject to general, but notdetailed, supervision by the lending countries. 

If, in addition to this loan for the purchase of food and materials, aguarantee fund were established up to an equal amount, namely$1, 000, 000, 000 (of which it would probably prove necessary to find onlya part in cash), to which all members of the League of Nations wouldcontribute according to their means, it might be practicable to baseupon it a general reorganization of the currency. 

In this manner Europe might be equipped with the minimum amount ofliquid resources necessary to revive her hopes, to renew her economicorganization, and to enable her great intrinsic wealth to function forthe benefit of her workers. It is useless at the present time toelaborate such schemes in further detail. A great change is necessary inpublic opinion before the proposals of this chapter can enter the regionof practical politics, and we must await the progress of events aspatiently as we can. 

4. _The Relations of Central Europe to Russia_

I have said very little of Russia in this book. The broad character ofthe situation there needs no emphasis, and of the details we know almostnothing authentic. But in a discussion as to how the economic situationof Europe can be restored there are one or two aspects of the Russianquestion which are vitally important. 

From the military point of view an ultimate union of forces betweenRussia and Germany is greatly feared in some quarters. This would bemuch more likely to take place in the event of reactionary movementsbeing successful in each of the two countries, whereas an effectiveunity of purpose between Lenin and the present essentially middle-classGovernment of Germany is unthinkable. On the other hand, the same peoplewho fear such a union are even more afraid of the success of Bolshevism;and yet they have to recognize that the only efficient forces forfighting it are, inside Russia, the reactionaries, and, outside Russia, the established forces of order and authority in Germany. Thus theadvocates of intervention in Russia, whether direct or indirect, are atperpetual cross-purposes with themselves. They do not know what theywant; or, rather, they want what they cannot help seeing to beincompatibles. This is one of the reasons why their policy is soinconstant and so exceedingly futile. 

The same conflict of purpose is apparent in the attitude of the Councilof the Allies at Paris towards the present Government of Germany. Avictory of Spartacism in Germany might well he the prelude to Revolutioneverywhere: it would renew the forces of Bolshevism in Russia, andprecipitate the dreaded union of Germany and Russia; it would certainlyput an end to any expectations which have been built on the financialand economic clauses of the Treaty of Peace. Therefore Paris does notlove Spartacus. But, on the other hand, a victory of reaction in Germanywould 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 itsspiritual home in Brandenburg, drawing to itself all the military talentand all the military adventurers, all those who regret emperors and hatedemocracy, in the whole of Eastern and Central and South-Eastern Europe, a power which would be geographically inaccessible to the militaryforces of the Allies, might well found, at least in the anticipations ofthe timid, a new Napoleonic domination, rising, as a phoenix, from theashes of cosmopolitan militarism. So Paris dare not love Brandenburg. The argument points, then, to the sustentation of those moderate forcesof order, which, somewhat to the world's surprise, still manage tomaintain themselves on the rock of the German character. But the presentGovernment of Germany stands for German unity more perhaps than foranything else; the signature of the Peace was, above all, the pricewhich some Germans thought it worth while to pay for the unity which wasall that was left them of 1870. Therefore Paris, with some hopes ofdisintegration across the Rhine not yet extinguished, can resist noopportunity of insult or indignity, no occasion of lowering theprestige or weakening the influence of a Government, with the continuedstability of which all the conservative interests of Europe arenevertheless bound up. 

The same dilemma affects the future of Poland in the rôle which Francehas cast for her. She is to be strong, Catholic, militarist, andfaithful, the consort, or at least the favorite, of victorious France, prosperous and magnificent between the ashes of Russia and the ruin ofGermany. Roumania, if only she could he persuaded to keep up appearancesa little more, is a part of the same scatter-brained conception. Yet, unless her great neighbors are prosperous and orderly, Poland is aneconomic impossibility with no industry but Jew-baiting. And when Polandfinds that the seductive policy of France is pure rhodomontade and thatthere is no money in it whatever, nor glory either, she will fall, aspromptly as possible, into the arms of somebody else. 

The calculations of "diplomacy" lead us, therefore, nowhere. Crazydreams and childish intrigue in Russia and Poland and thereabouts arethe favorite indulgence at present of those Englishmen and Frenchmen whoseek excitement in its least innocent form, and believe, or at leastbehave as if foreign policy was of the same _genre_ as a cheapmelodrama. 

Let us turn, therefore, to something more solid. The German Governmenthas announced (October 30, 1919) its continued adhesion to a policy ofnon-intervention in the internal affairs of Russia, "not only onprinciple, but because it believes that this policy is also justifiedfrom a practical point of view. " Let us assume that at last we alsoadopt the same standpoint, if not on principle, at least from apractical point of view. What are then the fundamental economic factorsin the future relations of Central to Eastern Europe?

Before the war Western and Central Europe drew from Russia a substantialpart of their imported cereals. Without Russia the importing countrieswould have had to go short. Since 1914 the loss of the Russian supplieshas been made good, partly by drawing on reserves, partly from thebumper harvests of North America called forth by Mr. Hoover's guaranteedprice, but largely by economies of consumption and by privation. After1920 the need of Russian supplies will be even greater than it wasbefore the war; for the guaranteed price in North America will have beendiscontinued, the normal increase of population there will, as comparedwith 1914, have swollen the home demand appreciably, and the soil ofEurope will not yet have recovered its former productivity. If trade isnot resumed with Russia, wheat in 1920-21 (unless the seasons arespecially bountiful) must be scarce and very dear. The blockade ofRussia, lately proclaimed by the Allies, is therefore a foolish andshort-sighted proceeding; we are blockading not so much Russia asourselves. 

The process of reviving the Russian export trade is bound in any case tobe a slow one. The present productivity of the Russian peasant is notbelieved to be sufficient to yield an exportable surplus on the pre-warscale. The reasons for this are obviously many, but amongst them areincluded the insufficiency of agricultural implements and accessoriesand the absence of incentive to production caused by the lack ofcommodities in the towns which the peasants can purchase in exchange fortheir produce. Finally, there is the decay of the transport system, which hinders or renders impossible the collection of local surpluses inthe big centers of distribution. 

I see no possible means of repairing this loss of productivity withinany reasonable period of time except through the agency of Germanenterprise and organization. It is impossible geographically and formany other reasons for Englishmen, Frenchmen, or Americans to undertakeit;--we have neither the incentive nor the means for doing the work on asufficient scale. Germany, on the other hand, has the experience, theincentive, and to a large extent the materials for furnishing theRussian peasant with the goods of which be has been starved for thepast five years, for reorganizing the business of transport andcollection, and so for bringing into the world's pool, for the commonadvantage, the supplies from which we are now so disastrously cut off. It is in our interest to hasten the day when German agents andorganizers will be in a position to set in train in every Russianvillage the impulses of ordinary economic motive. This is a processquite independent of the governing authority in Russia; but we maysurely predict with some certainty that, whether or not the form ofcommunism represented by Soviet government proves permanently suited tothe Russian temperament, the revival of trade, of the comforts of lifeand of ordinary economic motive are not likely to promote the extremeforms of those doctrines of violence and tyranny which are the childrenof war and of despair. 

Let us then in our Russian policy not only applaud and imitate thepolicy of non-intervention which the Government of Germany hasannounced, but, desisting from a blockade which is injurious to our ownpermanent interests, as well as illegal, let us encourage and assistGermany to take up again her place in Europe as a creator and organizerof wealth for her Eastern and Southern neighbors. 

There are many persons in whom such proposals will raise strongprejudices. I ask them to follow out in thought the result of yieldingto these prejudices. If we oppose in detail every means by which Germanyor Russia can recover their material well-being, because we feel anational, racial, or political hatred for their populations or theirGovernments, we must be prepared to face the consequences of suchfeelings. Even if there is no moral solidarity between thenearly-related races of Europe, there is an economic solidarity which wecannot disregard. Even now, the world markets are one. If we do notallow Germany to exchange products with Russia and so feed herself, shemust inevitably compete with us for the produce of the New World. Themore successful we are in snapping economic relations between Germanyand Russia, the more we shall depress the level of our own economicstandards and increase the gravity of our own domestic problems. This isto put the issue on its lowest grounds. There are other arguments, whichthe most obtuse cannot ignore, against a policy of spreading andencouraging further the economic ruin of great countries. 

 * * * * *

I see few signs of sudden or dramatic developments anywhere. Riots andrevolutions there may be, but not such, at present, as to havefundamental significance. Against political tyranny and injusticeRevolution is a weapon. But what counsels of hope can Revolution offerto sufferers from economic privation, which does not arise out of theinjustices of distribution but is general? The only safeguard againstRevolution in Central Europe is indeed the fact that, even to the mindsof men who are desperate, Revolution offers no prospect of improvementwhatever. There may, therefore, be ahead of us a long, silent process ofsemi-starvation, and of a gradual, steady lowering of the standards oflife and comfort. The bankruptcy and decay of Europe, if we allow it toproceed, will affect every one in the long-run, but perhaps not in a waythat is striking or immediate. 

This has one fortunate side. We may still have time to reconsider ourcourses and to view the world with new eyes. For the immediate futureevents are taking charge, and the near destiny of Europe is no longer inthe hands of any man. The events of the coming year will not be shapedby the deliberate acts of statesmen, but by the hidden currents, flowingcontinually beneath the surface of political history, of which no onecan predict the outcome. In one way only can we influence these hiddencurrents, --by setting in motion those forces of instruction andimagination which change _opinion_. The assertion of truth, theunveiling of illusion, the dissipation of hate, the enlargement andinstruction 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 ofour fortunes. The reaction from the exertions, the fears, and thesufferings of the past five years is at its height. Our power of feelingor caring beyond the immediate questions of our own material well-beingis temporarily eclipsed. The greatest events outside our own directexperience and the most dreadful anticipations cannot move us. 

 In each human heart terror survives The ruin it has gorged: the loftiest fear All that they would disdain to think were true: Hypocrisy and custom make their minds The fanes of many a worship, now outworn. They dare not devise good for man's estate, And yet they know not that they do not dare. The good want power but to weep barren tears. The powerful goodness want: worse need for them. The wise want love; and those who love want wisdom; And all best things are thus confused to ill. Many are strong and rich, and would be just, But live among their suffering fellow-men As if none felt: they know not what they do. 

We have been moved already beyond endurance, and need rest. Never in thelifetime of men now living has the universal element in the soul of manburnt so dimly. 

For these reasons the true voice of the new generation has not yetspoken, and silent opinion is not yet formed. To the formation of thegeneral opinion of the future I dedicate this book. 

THE END

FOOTNOTES:

[157] The figures for the United Kingdom are as follows:

 Net Excess of Monthly Imports Exports Imports Average $1, 000 $1, 000 $1, 000

 1913 274, 650 218, 850 55, 800 1914 250, 485 179, 465 71, 020 Jan. -Mar. 1919 547, 890 245, 610 302, 280 April-June 1919 557, 015 312, 315 244, 700 July-Sept. 1919 679, 635 344, 315 335, 320

But this excess is by no means so serious as it looks; for with thepresent high freight earnings of the mercantile marine the various"invisible" exports of the United Kingdom are probably even higher thanthey were before the war, and may average at least $225, 000, 000 monthly. 

[158] President Wilson was mistaken in suggesting that thesupervision of Reparation payments has been entrusted to the League ofNations. As I pointed out in Chapter V. , whereas the League is invokedin regard to most of the continuing economic and territorial provisionsof the Treaty, this is not the case as regards Reparation, over theproblems and modifications of which the Reparation Commission is supremewithout appeal of any kind to the League of Nations. 

[159] These Articles, which provide safeguards against theoutbreak of war between members of the League and also between membersand non-members, are the solid achievement of the Covenant. TheseArticles make substantially less probable a war between organized GreatPowers such as that of 1914. This alone should commend the League to allmen. 

[160] It would be expedient so to define a "protectionisttariff" as to permit (_a_) the total prohibition of certain imports;(_b_) the imposition of sumptuary or revenue customs duties oncommodities not produced at home; (_c_) the imposition of customs dutieswhich did not exceed by more than five per cent a countervailing exciseon similar commodities produced at home; (_d_) export duties. Further, special exceptions might be permitted by a majority vote of thecountries entering the Union. Duties which had existed for five yearsprior to a country's entering the Union might be allowed to disappeargradually by equal instalments spread over the five years subsequent tojoining the Union. 

[161] The figures in this table are partly estimated, and areprobably not completely accurate in detail; but they show theapproximate figures with sufficient accuracy for the purposes of thepresent argument. The British figures are taken from the White Paper ofOctober 23, 1919 (Cmd. 377). In any actual settlement, adjustments wouldbe required in connection with certain loans of gold and also in otherrespects, and I am concerned in what follows with the broad principleonly. The total excludes loans raised by the United Kingdom on themarket in the United States, and loans raised by France on the market inthe United Kingdom or the United States, or from the Bank of England. 

[162] This allows nothing for interest on the debt since theBolshevik Revolution. 

[163] No interest has been charged on the advances made tothese countries. 

[164] The actual total of loans by the United States up to dateis very nearly $10, 000, 000, 000, but I have not got the latest details. 

[165] The financial history of the six months from the end ofthe summer of 1916 up to the entry of the United States into the war inApril, 1917, remains to be written. Very few persons, outside thehalf-dozen officials of the British Treasury who lived in daily contactwith the immense anxieties and impossible financial requirements ofthose days, can fully realize what steadfastness and courage wereneeded, and how entirely hopeless the task would soon have becomewithout the assistance of the United States Treasury. The financialproblems from April, 1917, onwards were of an entirely different orderfrom those of the preceding months. 

[166] Mr. Hoover was the only man who emerged from the ordealof Paris with an enhanced reputation. This complex personality, with hishabitual air of weary Titan (or, as others might put it, of exhaustedprize-fighter), his eyes steadily fixed on the true and essential factsof the European situation, imported into the Councils of Paris, when hetook part in them, precisely that atmosphere of reality, knowledge, magnanimity, and disinterestedness which, if they had been found inother quarters also, would have given us the Good Peace. 

[167] Even after the United States came into the war the bulkof Russian expenditure in the United States, as well as the whole ofthat Government's other foreign expenditure, had to be paid for by theBritish Treasury. 

[168] It is reported that the United States Treasury has agreedto fund (_i. E. _ to add to the principal sum) the interest owing them ontheir loans to the Allied Governments during the next three years. Ipresume that the British Treasury is likely to follow suit. If the debtsare to be paid ultimately, this piling up of the obligations at compoundinterest makes the position progressively worse. But the arrangementwisely offered by the United States Treasury provides a due interval forthe calm consideration of the whole problem in the light of theafter-war position as it will soon disclose itself.