o 0*^ -n/- V^ C^^' " * , -^b. ■x^ .^' ^0- '■r< ..^^ r^^' ^ '* , '^^. ^0^ .^^ ' "^^^i^' v" "'^^\'\ -x-^' .-^" .^ ■/- y^' ^.^v^ "^. "6 •/- >-. v^'% C .0^ .^^ '■K "oo'^ .c^-^- .^ % ■'^ '-/■ ,^N ■i' •■>- '0^ ..-^^^^ c ^ ■"O .^ '>'^^.. A< >^ V^ ^.vi::/ v\ 'ii'^'S. '*%% ■"ooX ^ '^/'" /i % /■' * v-^" ^ ^ .\ V*' , July 15 1.00 .26 .50 .26 .50 2.52 .39 .50 .39 .50 .39 .50 .39 .50 3.56 .65 .50 Aug. 15 f Oct. 15 J JSIov. 15 .65 .50- .65 Jan. 15 .50 Feb. 15 65 April 15 .50 Total 4.60 Equivalent in dol- -> lars at $1 = 4 ^ gold marka J $630,000,000 $890,000,000 $1,150,000,000 76 A REVISION OF THE TEEATY of which figures are likely to be exceeded, or even reached, in the near future), coal will yield cred- its of .48 milliard gold marks. In the Loucheur- Rathenau Agreement^ the value of deliveries in kind to France, including coal, over the next five years has been estimated at a possible total of 1.4 milliard gold marks per annum. If France re- ceives .4 milliard gold marks in coal, not more than 35 per cent of the balance will be credited in the Reparation account. If this were realized, the aggregate deliveries in kind might approach 1 mil- liard. But, for various reasons, political and eco- nomic, this figure is unlikely to be reached, and if as much as .75 milliards per annum is real- ized from coal and reconstruction deliveries, this ought to be considered a highly satisfactory re- sult. Now the payments were so arranged as to pre- sent no insuperable difficulties during 1921. The instalment of August 31, 1921 (which did not ex- ceed the sum which the Germans had themselves offered for immediate payment in their counter- proposal of April 1921) was duly paid, partly out of foreign balances accumulated before May 1 last, partly by selling out paper marks over the foreign exchanges, and partly by temporary ad- vances from an international group of bankers. The instalment of November 15, 1921, was covered * See Excursus III. BURDEN OF THE LONDON SETTLEMENT 77 by the value of deliveries of coal and other ma- terial subsequent to May 1, 1921. Even the in- stalments of January 15 and February 15, 1922, might be covered out of further deliveries, tempo- rary advances, and the foreign assets of German industrialists, if the German Government could get hold of them. But the payment of April 15, 1922, must present more difficulty ; whilst further instalments follow quickly on May 15, July 15, and August 15. Some time between February and August 1922 Germany will succumb to an in- evitable default. This is the maximum extent of our breathing space.^ That is to say, in so far as she depends for pay- ment (as in the long run she must do) on current income. If capital, non-recurrent resources be- come available, the above conclusion will require modification accordingly. Germany still has an important capital asset untouched — the property of her nationals now sequestered in the hands of the Enemy-Property Custodian in the United States, of which the value is rather more than 1 milliard gold marks. If this were to become avail- able for Reparation, directly or indirectly, default 'I first published this prediction in August 1921. As this book goes to press, the German Government have notified the Reparation Commission (December 15, 1921) that, having failed in their attempt to secure a foreign loan, they cannot find, apart from deliveries in kind, more than 150 or 200 million gold marks towards the instalments of January and February, 1922. 78 A REVISION OF THE TREATY could be delayed correspondingly.^ Similarly the grant to Germany of foreign credits on a substan- tial scale, even three-months' credits from bank- ers on the security of the Reichsbank's gold, would postpone the date a little, however useless in the long run. In reaching this conclusion, one can approach the problem from three points of view: (1) the problem of paying outside Germany, that is to say, the problem of exports and the balance of trade; (2) the problem of providing for payment by taxation, that is to say, the problem of the Budget; (3) the proportion of the sums demanded to the German national income. I will take them in turn, confining myself to what Germany can be expected to perform in the near future, to the ex- * The United States has the right to retain and liquidate all property, rights, and interests belonging to German nationals and lying within the territories, colonies, and possessions of the United States on January 10, 1920. The proceeds of such liquidation are at the disposal of the United States "in accordance with its laws and regulations," that is to say, at the disposal of Congress within the limitations of the Constitution, and may be applied by them in any of the three following ways: (1) the assets in ques- tion may be returned to their original German owners; (2) they may be applied to the discharge of claims by United States na- tionals with regard to their property, rights, and interests in German territory, or debts owing to them by German nationals, or to the payment of claims growing out of acts of the German Government after the United States entered the war, and also to the discharge of similar American claims in respect of those of Germany's Allies against whom the United States was at war; (3) they may be turned over to the Reparation Commission as a credit to Germany under this head. BFKDEN OP THE LONDON SETTLEMENT 79 elusion of what she might do in hypothetical cir- cumstances many years hence. (1) In order that Germany may be able to make payments abroad, it is necessary, not only that she should have exports, but that she should have a surplus of exports over imports. In 1920, the last complete year for which figures are available, so far from a surplus there was a deficit, the ex- ports being valued at about 5 milliard gold marks and the imports at 5.4 milliards. The figures for 1921 so far available indicate not an improvement but a deterioration. The myth that Germany is carrying on a vast and increasing export trade is so widespread, that the actual figures for the six months from May to October 1921, converted into gold marks, may be given with advantage : Million Paper Marks. MilUonGoId Marlss.' Imports. Exports. Imports. Exports. Excess of Imports. 1921, May 5,487 6,409 7,580 9,418 10,668 13,900 4,512 5,433 6,208 6,684 7,519 9,700 374.4 388.8 413.7 477.2 436.6 352.6 307.9 329.7 338.7 334.8 307.7 246.0 66.5 " June 59.1 « July 75.0 " August " September " October ^ 142.4 128.9 100.6 Total for six months . . 53,462 40,056 2443.3 1864.8 578.5 * The rates for conversion of paper marks into gold marks have been taken as follows: Niunber of paper marks per 100 gold marks in May, 1465.5; June, 1647.9; July, 1832; August, 1996.4; September, 2443.2; October, 3942.6 ^Provisional figures. 80 A KEVISION OF THE TREATY In respect of these six months Germany must make a fixed pajinent of 1000 million gold marks plus 26 per cent of the exports as above, namely 484.8 million gold marks, that is 1484.8 million gold marks altogether, which is equal to about 80 per cent of her exports ; whereas apart from any Reparation payments, she had a deficit on her for- eign trade at the rate of more than 1 milliard gold marks per annum. The bulk of Germany's imports are necessary either to her industries or to the food supply of the country. It is there- fore certain that with exports of (say) 6 milliards she could not cut her imports so low as to have the surplus of 3^2 milliards, which would be necessary to meet her Reparation liabilities. If, however, her exports were to rise to 10 milliards, her Repa- ration liabilities would become 4.6 milliards. Ger- many, to meet her liabilities, must therefore raise the gold-value of her exports to double what they were in 1920 and 1921 ivithout increasing her im- ports at all. I do not say that this is impossible, given time and an overwhelming motive, and with active as- sistance by the Allies to Germany's export in- dustries; but does any one think it practicable or likely in the actual circumstances of the case? And if Germany succeeded, would not this vast expansion of exports, unbalanced by imports, be considered by our manufacturers to be her crown- BURDEN OF THE LONDON SETTLEMENT 81 ing crime? That this should be the case even under the London Settlement of 1921 is a measure of the ludicrous folly of the figures given out in the British General Election of 1918, which were six times as high again. (2) Next there is the problem of the Budget. For Reparation payments are a liability of the German Government and must be covered by tax- ation. At this point it is necessary to introduce an assumption as to the relation between the gold mark and the paper mark. For whilst the liability is fixed in terms of gold marks, the revenue (or the bulk of it) is collected in terms of paper marks. The relation is a very fluctuating one, best meas- ured by the exchange value of the paper mark in terms of American gold dollars. This fluctuation is of more importance over short periods than in the long run. For in the long run all values in Germany, including the yield of taxation, will tend to adjust themselves to an appreciation or de- preciation in the value of the paper mark outside Germany. But the process may be a very slow one, and, over the period covered by a year's budget, unanticipated fluctuations in the ratio of the gold to the paper mark may upset entirely the financial arrangements of the German Treasury. This disturbance has of course occurred on an unprecedented scale during the latter half of 1921. Taxation in terms of paper marks, which was 82 A REVISION" OF THE TEEATY heavy when the dollar was worth 50 paper marks, becomes very inadequate when the dollar is worth 200 paper marks; but it is beyond the power of any Finance Minister to adjust taxation to such a situation quickly. In the first place, when the fall in the external value of the mark is proceeding rapidly, the corresponding fall in the internal value lags far behind. Until this adjustment has "taken place, which may occupy a considerable time before it is complete, the taxable capacity of the people, measured in gold, is less than it was before. But even then a further interval must elapse be- fore the gold-value of the yield of taxation col- lectible in paper marks can catch up. The ex- perience of the British Inland Revenue Depart- ment well shows that the yield of direct taxation must largely depend on the taxable assessments of the previous period. For these reasons the collapse of the mark ex- change must, if it persists, destroy beyond repair the Budget of 1921-22, and probably that of the first half of 1922-23 also. But I should be over- stating my argument if I were to base my con- clusions on the figures current at the end of 1921. In the shifting sands in which the mark is foun- dering it is difiicult to find for one 's argument any secure foothold. During the summer of 19^1 the gold mark was worth, in round figures, 20 paper marks. The in- BUKDEN OF THE LONDON SETTLEMENT 83 temal purcliasing power of the paper mark for the purposes of working-class consumption was still nearly double its corresponding value abroad, so that one could scarcely say that equilibrium had been established. Nevertheless, the position was very well adjusted compared with what it has since become. As I write (December 1921) the gold mark has been fluctuating between 45 and 60 paper marks, while the purchasing power of the paper mark inside Germany is for general purposes perhaps three times what it is outside Germany. Since my figures of Government revenue and expenditure are based on statements made in the summer of 1921, perhaps my best course is to take a figure of 20 paper marks to the gold mark. The effect of this will be to understate my argu- ment rather than the contrary. The reader must remember that, if the mark remains at its present exchange value long enough for internal values to adjust themselves to that rate, the items in the following account, the income and the outgoings and the deficit, will all tend to be multiplied three- fold. At this ratio (of 20 paper marks = 1 gold mark), a Eeparation liability of 3^2 milliard gold marks (assuming exports on the scale of 6 mil- liards) is equivalent to 70 milliard paper marks, and a liability of 4i/^ milliards (assuming exports 84 A EEVISION" OF THE TREATY of 10 milliards) is equivalent to 90 milliard paper marks. The German Budget for the financial year April 1, 1921, to March 31, 1922, provided for an expenditure of 93.5 milliards, exclusive of Repa- ration payments, and for a revenue of 59 mil- liards/ Thus the present Reparation demand would by itself absorb more than the whole of the existing revenue. Doubtless expenditure can be cut down, and revenue somewhat increased. But the Budget will not cover even the lower scale of the Reparation payments unless expenditure is halved and revenue doubled.^ ^ The ordinary revenue and expenditure were estimated to bal- ance at 48.48 milliard paper marks. The extraordinary expendi- ture was estimated at 59.68 milliards, making a total expendi- ture of 108.16 milliards. Included in this, however, were 14.6 milliards for various Keparation items. These are in respect of various pre-May 1, 1921, items and do not allow for payments under the London Settlement; but to avoid confusion I have deducted these from the estimate of expenditure as stated above. The extraordinary revenue was estimated at 10.5 milliards, mak- ing a total revenue of 58.98 milliards. ^ I have allowed nothing so far for the costs of the Armies of Occupation, which, under the letter of the Treaty, Germany is under obligation to pay in addition to the sums due for Repara- tion proper. As these charges rank in priority ahead of Repara- tion, and as the London Agreement does not deal with them, I think Germany is liable to be called on to pay these as they accrue in addition to the annuities fixed in the London Settle- ment. But I am doubtful whether the Allies intend in fact to demand this. Hitherto the expense of the Armies has been so great as to absorb virtually the whole of the receipts (see Ex- cursus V. below), having amounted by 'the middle of 1921 to about $1,000,000,000. In any case, it is now time that the agree- ment, signed at Paris in 1919 by Clemenceau, Lloyd George, and Wilson, should be brought into force, to the effect that the siun payable annually by Germany to cover the cost of occupation BUEDEN" OF THE LONDON" SETTLEMENT 85 If the German Budget for 1922-23 manages to balance, apart from any provision for Eeparation, this will represent a great effort and a consider- able achievement. Apart, however, from the tech- nical financial difficulties, there is a political and social aspect of the question which deserves at- tention here. The Allies deal with the established German Government, make bargains with them, and look to them for fulfilment. The Allies do not extract payment out of individual Germans direct; they put pressure on the transitory ab- straction called Government, and leave it to this to determine and to enforce which individuals are to pay, and how much. Since at the present time the German Budget is far from balancing even if there were no Eeparation payments at all, it is fair to say that not even a beginning has yet been made towards settling the problem of how the burden is to be distributed between different classes and different interests. Yet this problem is fundamental. Payment takes on a ditf erent aspect when, instead of being expressed in terms of milliards and as a liability of the transitory abstraction, it is translated into shall be limited to 240 million gold marks as soon as the Allies "are convinced that the conditions of disarmament by Germany- are being satisfactorily fulfilled." If we assume that this re- duced figure is brought into force, as it ought to be, the total burden on Germany for Reparation and Occupation comes, on the assumption of the lower figure for exports, to 3.8 milliard gold marks, that is, to 76 milliard paper marks. 86 A EEVISION" OF THE TREATY a demand for a definite sum from a specific in- dividual. This stage is not yet reached, and until it is reached the full intrinsic difficulty will not be felt. For at this stage the struggle ceases to be primarily one between the Allies and the Ger- man Government and becomes a struggle between different sections and classes of Germans. The struggle will be bitter and violent, for it will pre- sent itself to each of the contesting interests as an affair of life and death. The most powerful in- fluences and motives of self-interest and self-pres- ervation will be engaged. Conflicting conceptions of the end and nature of Society will be ranged in conflict. A Government which makes a serious attempt to cover its liabilities will inevitably fall from power. (3) What relation do the demands bear to the third test of capacity, the present income of the German people? A burden of 70 milliard paper marks (if we may, provisionally, adopt that figure as the basis of our calculations) amounts, since the population is now about 60 millions, to 1170 marks per head for every man, woman, and child. The great changes in money values have made it difficult, in all countries, to obtain estimates of the national income in terms of money under the new conditions. The Brussels Conference of 1920, on the basis of inquiries made in 1919 and at the beginning of 1920, estimated the German BUKDEN OF THE LONDON" SETTLEMENT 87 income per head at 3900 paper marks. This fig- ure may have been too low at the time, and, on account of the further depreciation of the mark, is certainly too low now. A writer in the Deutsche Allgemeine Zeitung (Feb. 14, 1921), working on the statistics of statutory deductions from wages and on income-tax, arrived at a figure of 2333 marks per head. This figure also is likely to be too low, partly because the statistics must mainly. refer to earlier dates Avhen the mark was less depreciated, and partly because all such sta- tistics necessarily suffer from evasions. At the other extreme lies the estimate of Dr. Albert Lansburgh, who, by implication {Die Bank, March 1921), estimated the income per head at 6570 marks.^ Another recent estimate is that of Dr. Arthur Heichen in the Pester Lloyd (June 5, 1921), who put the figure at 4450 marks. In a newspaper article published in various quarters in August 1921 I ventured to adopt the figure of 5000 marks as the nearest estimate I could make. In fixing on this figure I was influenced by the above estimates, and also by statistics as to the general level of salaries and wages. Since then ^ " This estimate is based on an average wage of about 800 paper marks monthly for male, and about 400 paper marks monthly for female, employees." Converting these figures at the rate of 12 paper marks equal to 1 gold mark, he arrived at an aggregate national income between 30 and 34 milliard gold marks. It is not easy to see how these wage estimates, even assuming their correctness, can lead to so high an aggregate figure. 88 A REVISION" OF THE TREATY I have looked into the matter further and am still of the opinion that this figure was high enough for that date. I am fortified in this conclusion by the result of inquiries which I addressed to Dr. Moritz Elsas of Frankfort-on-Main, on whose authority I quote the following figures. The best-known estimate of the German pre-war income is Helfferich's in his Deutschlands V olksivohlstand 1888-1913. In this volume he put the national income in 1913 at 40-41 milliard gold marks, plus 2l^ milliards for net income from nationalized concerns (rail- ways, post office, etc.), that it is say, an aggregate of 43 milliards or 642 marks per head. Start- ing from the figure of 41 milliards (since the na- tional services no longer produce a profit) and deducting 15 per cent for loss of territory, we have a figure of 34.85 milliards. What multiplier ought we to apply to this in order to arrive at the pres- ent income in terms of paper marks! In 1920 commercial employees obtained on the average in terms of marks ^2 times their pre-war income, whilst at that time workmen bad secured an in- crease in their nominal wages of 50 per cent more than this, that is to say, their wages were 6 to 8 times the pre-war figure. According to the Sta- tistischen Reichsamt (Wirtschaft und Statistik, Heft 4, Jahrgang 1) commercial employees at the beginning of 1921 earned, males 6 2-3 times and BUEDEN OF THE LONDON SETTLEMENT 89 females 10 times as much as in 1913.^ On the basis of the same proportion as in 1920 we arrive at an increase of 10 times in the nominal wages of workmen. The wages index number of the Frankfurter Zeitung for August 1921 estimates the wages per hour at 11 times the pre-war level, but, as the number of working hours has fallen from 10 to 8, these figures yield an increase of 8.8 times in the wage actually received. Since the wages of male commercial employees have in- creased less than this, since business profits in terms of paper marks only reach this figure of increase in exceptional cases, and since the in- come of the rentier, landlord, and professional classes has increased in a far lower proportion, an estimate of an 8-fold increase in the nominal income of the country as a whole at that date (August 1921) is likely to be an over-estimate rather than an under-estimate. This leads to an aggregate national income, on the basis of the Helfferich pre-war figures, of 278.80 milliard paper marks, and to an income of 4647 marks per head in August 1921. No allowance is made here for the loss by war of men in the prime of life, for the loss of ex- ternal income previously earned from foreign in- vestment and the mercantile marine, or for the in- * There are twice as many male commercial employees as there are female. 90 A EEVISION OF THE TREATY crease of officials. Against these omissions there may be set off the decrease of the army and the increased number of women employees. The extreme instability of economic conditions makes it almost impossible to conduct a direct sta- tistical inquiry into this problem at the present time. In such circumstances the general method of Dr. Elsas seems to me to be the best available. His results show that the figure taken above is of the right general dimensions and is not likely to be widely erroneous. It enables us, too, to put an upper limit of reasonable possibility on our figures. No one, I think, would maintain that in August 1921 nominal incomes in Germany aver- aged 10 times their pre-war level; and 10 times Helfferich's pre-war estimate comes to 6420 marks. No statistics of national incomes are very precise, but an assertion that in the middle of 1921 the German income per head per annum lay be- tween 4500 marks and 6500 marks, and that it was probably much nearer the lower than the higher of these figures, say 5000 marks, is about as near the truth as we shall get. In view of the instability of the mark, it is, of course, the case that such estimates do not hold good for any length of time and need constant re- vision. Nevertheless this fact does not upset the following calculation as much as might be sup- posed, because it operates to a certain extent on BUEDEN OF THE LONDON SETTLEMENT 91 both sides of the account. If the mark depreci- ates further, the average income per head in paper marks will tend to rise; but in this event the equivalent in paper marks of the Reparation liability will, since it is expressed in terms of gold marks, rise also. A real alleviation can only re- sult from a fall in the value of gold (i.e., a rise in world prices). To the taxation in respect of the Reparation charge there must be added the burden of Ger- many's own government, central and local. By the most extreme economies, short of repudiation of war loans and war pensions, this burden could hardly be brought below 1000 paper marks per head (at 20 paper marks = 1 gold mark), i.e., 60 milliards altogether, a figure greatly below the present expenditure. In the aggregate, there- fore, 2170 marks out of the average income of 5000 marks, or 43 per cent, would go in taxation. If exports rise to 10 milliards (gold) and the aver- age income to 6000 paper marks, the correspond- ing figures are 2500 marks and 42 per cent. There are circumstances in which a wealthy na- tion, impelled by overwhelming motives of self- interest, might support this burden. But the an- nual income of 5000 paper marks per head is equivalent in exchange value (at an exchange of 20 paper marks to 1 gold mark) to $62.50, and after deduction of taxation to about $35, that is 92 A REVISION OF THE TREATY to say to less than 10 cents a day, which in August 1921 was the equivalent in purchasing power in Germany of something between 20 cents and 25 cents in the United States.^ If Germany was given a respite, her income and with it her capacity would increase; but under her present burdens, which render saving impossible, a degradation of standards is more likely. Would the whips and scorpions of any Government recorded in history have been efficient to extract nearly half their income from a people so situated? For these reasons I conclude that whilst the Settlement of London granted a breathing space to the end of 1921, it can be no more permanent than its predecessors. EXCURSUS III THE WIESBADEN AGKEEMENT In the summer of 1921 much interest was excited by reports of confidential interviews between M. Loucheur and Herr Rathenau, the Ministers of Reconstruction in France and Germany respec- tively. An agreement was provisionally reached in August 1921 and was finally signed at Wies- baden on October 6, 1921^; but it does not come * For a full examination of the purchasing power of the paper mark inside Germany, see an article by M. Elsas in the Economic Journal, September 1921. ^ A summary of this Agreement and other papers relating to it are given in the Appendix No. 8. THE WIESBADEN AGREEMENT 93 into force until it has received the approval of the Reparation Connnission. This Commission, whilst approving the general principles underly- ing it, have referred it to the principal Allied Gov- ernments on the ground that it involves departures from the Treaty of Versailles beyond their own competence to authorize. The British delegate, Sir John Bradbury, has advised his Government that the Agreement should be approved subject to certain modifications which he sets forth; and his Report has been published/ The Wiesbaden Agreement is a complicated doc- ument. But the essence of it is easily explained. It falls into two distinct parts. First, it sets up a procedure by which private French firms can acquire from private German firms materials re- quired for reconstruction in France, without France having to make payment in cash. Sec- ondly, it provides that, whilst Germany is not to receive payment at once for any part of these goods, only a proportion of the sum due is credited to her immediately in the books of the Reparation Commission, the balance being advanced by her to France for the time being and only brought into the Reparation account at a later date. The first set of provisions has met with un- qualified approval from every one. An arrange- ment which may possibly stimulate payment of * See Appendix No. 8. 94 A KEVISION OF THE TEEATY Reparation in the form of actual materials for the reconstruction of the devastated districts sat- isfies convenience, economics, and sentiment in a peculiarly direct way. But such supplies were already arranged for under the Treaty, and the chief value of the new procedure lies in its re- placing the machinery of the Reparation Com- mission by direct negotiation between the French and German authorities.^ The second set of provisions is, however, of a different character, since it interferes with the existing agreements between the Allies themselves as to the order and proportions in which each is to share in the available receipts from Germany, and seeks to secure for France a larger share of the earlier payments than she would receive otherwise. A priority to France is, in my opin- ion, desirable; but such priority should be ac- corded as part of a general re-settlement of Repa- ration, in which Great Britain should waive her claim entirely. Further, the Agreement involves an act of doubtful good faith on the part of Ger- * Incidentally the Wiesbaden Agreement sets up a fairer pro- cedure for fixing the prices of supplies in kind than that con- templated in the Treaty. According to the Treaty the prices are fixed at the sole discretion of the Reparation Commission. In the Wiesbaden Agreement this duty is assigned to an Arbitral Com- mission consisting of a German representative, a French repre- sentative, and an impartial tliird who are to fix the prices, broadly speaking, on the basis of price existing in France in each quar- terly period subject to this price being not more than 5 per cent below the German price. THE WIESBADEN AGREEMENT 95 many. She has been protesting with great vehe- mence (and, I believe, with perfect truth) that the Decisions of London exact from her more than she can perform. But in such circumstances it is an act of impropriety for her to enter volun- tarily into an agreement which must have the effect, if it is operative, of further increasing her liabilities even beyond those against which she protests as impossible. Herr Rathenau may jus- tify his action by the arguments that this is a first step towards replacing the Decisions of Lon- don by more sensible arrangements, and also that, if he can placate Germany's largest and most urgent creditor in the shape of France, he has not much to fear from the others. M. Loucheur, on the other hand, may know as well as I do, though speaking otherwise, that the Decisions of London cannot be carried out, and that the time for a more realistic policy is at hand; he may even regard his interviews with Herr Rathenau as a foretaste of more intimate relationships be- tween business interests on the two sides of the Rhine. But these considerations, if we were to pursue them, would lead us to a different plane of argument. Sir John Bradbury in his Report ^ on the Agree- ment to the British Government has proposed certain modifications which would have the effect * See Appendix ^o. 8. 96 A REVISION OF THE TREATY of preserving the advantages of the first set of provisions, but of nullifying the latter so far as they could operate to the detriment of France's Allies. I consider, however, that exaggerated impor- tance has been attached to this topic, since the actual deliveries of goods made under the Wies- baden or similar agreements are not likely to be worth such large sums of money as are spoken of. Deliveries of coal, dyestuffs, and ships, dealt with in the Annexes to Part VIII. of the Treaty are specifically excluded from the operation of the Wiesbaden Agreement which is expressly limited to deliveries of plant and material, and these France undertakes to apply solely to the reconstitution of the devastated regions. The quantities of goods, which French firms and in- dividuals will be ready to order from Germany at the full market price, and which Germany can supply, for this limited purpose (so great a part of the cost of which is necessarily due to labor employed on the spot and not to materials capable of being imported from Germany), are not likely to amount, during the next five years, to a sum of money which the other Allies need grudge France as a priority claim. My other reserve relates to the supposed im- portance of the Wiesbaden Agreement as a prece- dent for similar arrangements with the other THE WIESBADEN AGREEMENT 97 Allies, and raises the general issue of the utility of arrangements for securing that Germany should pay in kind rather than in cash, for other purposes than those of the devastated areas. It is commonly believed that, if our demands on Germany are met by her delivering to us not cash but particular commodities selected by our- selves, we can thus avoid the competition of Ger- man products against our own in the markets of the world, which must result if we compel her to find foreign currency by selling goods abroad at whatever cut in price may be necessary to market them.^ Most suggestions in favor of our being paid in kind are too vague to be criticized. But they usu- ally suffer from the confusion of supposing that there is some advantage in our being jjaid di- rectly in kind even in the case of articles which Germany might be expected to export in any case. For example, the Annexes to the Treaty which deal with deliveries in kind chiefly relate to coal, dyestuffs, and ships. These certainly do not sat- isfy the criterion of not competing with our own products; and I see very little advantage, but on the other hand some loss and inconvenience, in the Allies' receiving these goods direct, instead * I return to the theoretical aspects of this question in Chap- ter VI. 98 A REVISION" OF THE TREATY of Germany's selling them in the best market and paying over the proceeds. In the case of coal in particular, it would be much better if Ger- many sold her output for cash in the best export markets, whether to France and Belgium or to the neighboring neutrals, and then paid the cash over to France and Belgium, than that coal should be delivered to the Allies for which the latter may have no immediate use, or by transport routes which are uneconomical, when neutrals need the coal and what the Allies really require is the equivalent cash. In some cases the Allies have re-sold the coal which Germany has delivered to them, — a procedure which, in the case of an ar- ticle for which freight charges cover so large a proportion of the whole value, involves a prepos- terous waste. If we try to stipulate the precise commodities in which Germany is to pay us, we shall not secure from her so large a contribution, as if we fix a reasonable sum which is within her capacity, and then leave her to find the money as best she can. If, moreover, the sum fixed is reasonable, the annual payments will not be so large, in propor- tion to the total volume of international trade, that Great Britain need be nervous lest the pay- ments upset the normal equilibrium of her eco- nomic life in any greater degree than is bound to result in any case from the gradual economic THE WIESBADEN AGREEMENT 99 recovery of so formidable a trade rival as pre- war Germany. Whilst I make these observations in the in- terests of scientific accuracy, I admit that proj- ects, for insisting on payment in kind may be very useful politically as a means of escaping out of our present impasse. In practice the value of such deliveries would turn out to be immensely less than the cash we are now demanding; but it may be easier to substitute deliveries of ma- terials in place of cash, which will in practice result in a great abatement of our demands, than to abate the latter in so many words. Moreover, protests, against leaving Germany free to pay us in cash by selling goods how and where she can, enlist on the side of revision all the latent Protectionist sentiment which still abounds. If Germany were to make a strenuous effort to pay us by exploiting the only method open to her, namely, by selling as many goods as possible at low prices all over the world, it would not be long before many minds would represent this effort as a plot to ruin us; and persons of this way of thinking will be most easily won over, if we describe a reduction in our demands, as a prohibition to Germany against developing a nefarious competitive trade. Such a way of ex- pressing a desirable change of policy combines, with a basis of truth, sufficient false doctrine to 100 A REVISION- OF THE TREATY enable The Times, for example, to recommend it in a leading article without feeling conscious of any intellectual inconsistency; and it furnishes what so many people are now looking for, namely, a pretext for behaving sensibly, without having to suffer the indignity and inconvenience of think- ing and speaking so too. Heaven forbid that I should discourage them! It is only too rarely that a good cause can summon to its assistance arguments sufficiently mixed to insure success. EXCURSUS IV THE MARK EXCHANGE The gold value of a country's inconvertible paper money may fall, either because the Government is spending more than it is raising by loans and taxes and is meeting the balance by issuing paper money, or because the country is under the obli- gation of paying increased sums to foreigners for the purchase of investments or in discharge of debts. Temporarily it may be affected by spec- ulation, that is to say by anticipation, whether well or ill founded, that one or other of the above influences will operate shortly; but the influence of speculation is generally much exaggerated, be- cause of the immense effect which it may exercise momentarily. Both influences can only operate through the balance of debts, due for immediate THE MARK EXCHANGE 101 payment, between the country in question and the rest of the world : the liability to make payments to foreigners operating on this directly; and the inflation of the currency operating on it indirectly, either because the additional paper money stim- ulates imports and retards exports, by increasing local purchasing power at the existing level of values or because the expectation that it will so act causes anticipatory speculation. The expan- sion of the currency can have no effect whatever on the exchanges until it reacts on imports and exports, or encourages speculation; and as the latter cancels out, sooner or later, the effect of currency expansion on the exchanges can only last by reacting on imports and exports. These principles can be applied without difficulty to the exchange value of the mark since 1920. At first the various influences were not all operating in the same direction. Currency inflation tended to depreciate the mark; so did foreign investment by Germans (the ''flight from the mark"); but investment by foreigners in German Bonds and German currency (an exact line between which and short-period speculation it is not easy to draw) operated sharply in the other direction. After the mark had fallen to such a level that more than 25 marks could be obtained for a dollar, numerous persons all over the world formed the opinion that there would be a reaction some day 102 A REVISION OF THE TREATY to the pre-war value, and that therefore a pur- chase of marks or mark Bonds would be a good investment. This investment proceeded on so vast a scale that it placed foreign currency at the disposal of Germany up to an aggregate value which has been estimated at from $800,000,000 to $1,000,000,000. These resources enabled Germany, partially at least, to replenish her food supplies and to restock her industries with raw materials, requirements involving an excess of imports over exports which could not otherwise have been paid for. In addition it even enabled individual Ger- mans to remove a part of their wealth from Ger- many for investment in other countries. Meanwhile currency inflation was proceeding. In the course of the year 1920 the note circula- tion of the Reichsbank approximately doubled, whilst on balance the exchange value of the mark had deteriorated only slightly as compared with the beginning of that year. Moreover, up to the end of 1920 and even dur- ing the first quarter of 1921 Germany had made no cash payments for Reparation and had even received cash (under the Spa Agreement) for a considerable part of her coal deliveries. After the middle of 1921, however, the various influences, which up to that time had partly bal- anced one another, began to work all in one direc- tion, that is to say, adversely to the value of THE MAKE EXCHANGE 103 the mark. Currency inflation continued, and dur- ing 1921 the note circulation of the Reichsbank was nearly trebled, bringing it up to nearly six times what it had been two years earlier. Im- ports steadily exceeded exports in value. Some foreign investors in marks began to take fright and, so far from increasing their holdings, sought to diminish them. And now at last the German Government was called on to make important cash payments on Reparation account. Sales of marks from Germany, instead of being absorbed by for- eign investors, had now to be made in competition with sales from these same investors. Naturally the mark collapsed. It had to fall to a value at which new buyers would come forward or at which sellers would hold off.^ There is no mystery here, nothing but what is easily explained. The credence attached to stories of a "German plot" to depreciate the mark wil- fully is further evidence of the overwhelming pop- ular ignorance of the influences governing the ex- changes, an ignorance already displayed, to the great pecuniary advantage of Germany, by the international craze to purchase mark notes. In its later stages the collapse has been mainly due to the necessity of paying money abroad in * Any one, who can fully persuade himsolf of the unalterable truth of the proposition that every day the sales of excliange must exactly equal the purchases, will have gone a long way towards understanding the secret of the exchanges. 104 A EEVISION" OF THE TREATY discharge of Reparation and in repaying foreign investors in marks, with the result that the fall in the external value of the mark has outstripped any figure which could be justified merely as a consequence of the present degree of currency inflation. Germany would require a much larger note issue than at present, if German internal prices were to become adjusted to gold prices at an exchange of more than 400 marks to the dol- lar.^ If, therefore, the other influences were to be removed, if, that is to say, the Reparation de- mands were revised and foreign investors were to take heart again, a sharp recovery might oc- cur. On the other hand, a serious attempt by Germany to meet the Reparation demands would cause the expenditure of her Government to ex- ceed its income by so great an amount, that cur- rency inflation and the internal price level would catch up in due course the external depreciation in the mark. In either event Germany is faced with an un- * Since there are about as many German Government Treasury Bills, payable at short notice, held by the public and the banks, other than the Reichsbank, as there are Rcichsbank notes, the note issue can be easily expanded as soon as the internal price level needs more legal tender currency to support it, even apart from new issues by the Government to meet the excess of their expenditure over their income. Do those, who would enforce on the German Government a cessation of "the printing press," intend that the outstanding Treasury Bills should be repudiated, if at their maturity the holders wish to be paid off in cash? There is no such easy solution of the overwhelming problems of German Public Finance. THE MAKK EXCHANGE 105 fortunate prospect. If the present exchange de- preciation persists and the internal price level becomes adjusted to it, the resulting redistribu- tion of wealth between different classes of the community will amount to a social catastrophe. If, on the other hand, there is a recovery in the exchange, the cessation of the existing artificial stimulus to industry and of the Stock Exchange boom based on the depreciatihg mark may lead to a financial catastrophe/ Those responsible for the financial policy of Germany have a problem of incomparable difficulty in front of them. Un- til the Reparation liability has been settled rea- sonably, it is scarcely worth the while of any one to trouble his head about a problem which is insoluble. Wlien stabilization has become a practicable policy, the wisest course will probably be to stabilize at whatever level prices and trade seem most nearly adjusted to at that date. * Furthermore, every improvement in the value of the mark increases the real burden of what Germany owes to foreign holders of marks and also the real burden of the Public Debt on the Exchequer. A rate of exchange exceeding 400 marks to the dollar has at least this advantage that it has reduced these two burdens to very moderate dimensions. CHAPTER IV The Repaeation Bill The Treaty of Versailles specified the classes of damage iii respect of which Germany was to pay Reparation. It made no attempt to assess the amount of this damage. This duty was assigned to the Reparation Commission, who were in- structed to notify their assessment to the German Government on or before May 1, 1921. An attempt was made during the Peace Con- ference to agree to a figure there and then for insertion in the Treaty. The American delegates in particular favored this course. But an agree- ment could not be reached. There was no rea- sonable figure which was not seriously inadequate to popular expectations in France and the British Empire.^ The highest figure to which the Ameri- cans would agree, namely, 140 milliard gold marks, was, as we shall see later, not much above the eventual assessment of the Reparation Com- mission; the lowest figure to which France and Great Britain would agree, namely, 180 milliard * A fairly adequate account of this controversy during the Peace Conference can be pieced together from the following pas- sages: Baruch, Making of Reparation and Economic Sections of the Treaty, pp. 45-55; Lamont, What really happened at Paris, pp. 262-265; Tardieu, The Truth about the Treaty, pp. 294-309. 106 THE REPARATION BILL 107 gold marks, was, as it has turned out, much above the amount to which they were entitled even un- der their own categories of claim.^ Between the date of the Treaty and the an- nouncement of its decision by the Reparation Com- mission, there was much controversy as to what this amount should be. I propose to review some of the details of this problem, because, if men are in any way actuated by veracity in interna- tional affairs, a just opinion about it is still rele- vant to the Reparation problem. The main contentions of The Economic Conse- quences of the Peace were these: (1) that the claims against Germany which the Allies were contemplating were impossible of payment; (2) that the economic solidarity of Europe was so close that the attempt to enforce these claims might ruin every one; (3) that the money cost of the damage done by the enemy in France and Belgium had been exaggerated; (4) that the in- clusion of pensions and allowances in our claims was a breach of faith; and (5) that our legitimate claim against Germany was within her capacity to pay. I have made some supplementary observations about (1) and (2) in Chapters III. and VI. I deal with (3) here and in Chapter V. with (4). These latter are still important. For, whilst time is so * For these figures see Tardieu, op. cit., p. 305. 108 A EEVISION" OF THE TREATY dealing with (1) and (2) that very few people now dispute them, the amount of our legitimate claim against Germany has not been brought into so sharp a focus by the pressure of events. Yet if my contention about this can be substantiated, the world will find it easier to arrange a practical settlement. The claims of justice in this connec- tion are generally thought to be opposed to those of possibility, so that even if the pressure of events drives us reluctantly to admit that the latter must prevail, the former will rest unsatis- fied. If, on the other hand, restricting ourselves to the devastations in France and Belgium, we can demonstrate that it is within the capacity of Germany to make full reparation, a harmony of sentiment and action can be established. "With this end in view it is necessary that I should take up again, in the light of the fuller information now available, the statements which I made in The Economic Consequences of the Peace (p. 120) to the effect that "the amount of the material damage done in the invaded dis- tricts has been the subject of enormous, if nat- ural, exaggeration." These statements have in- volved me in a charge, with which Frenchmen as eminent as M. Clemenceau ^ and M. Poincare have associated themselves, that I was actuated not * It is of these passages that M. Clemenceau wrote as follows in his preface to M. Tardieu's book: '"Fort en th^me d'^cono- miste, M. Keynes (qui ne fut pas seul, dans la Conference, ^ THE REPARATION BILL 109 by the truth but by a supposed hostility to France in speaking thus of the allegations of M. Klotz and M. Loucheur and some other Frenchmen. But I still urge on France that her cause may be served by accuracy and the avoidance of over- statement; that the damage she has suffered is more likely to be made good if the amount is possible than if it is impossible; and that, the more moderate her claims are, the more likely she is to win the support of the world in securing priority for them. M. Brenier, in particular, has conducted a widespread propaganda with the ob- ject of creating prejudice against my statistics. Yet to add a large number of noughts at the end of an estimate is not really an indication of no- bility of mind. Nor, in the long run, are those persons good advocates of France's cause who bring her name into contempt and her sincerity into doubt by using figures wildly. We shall never get to work with the restoration of Europe unless we can bring not only experts, but the public, to consider coolly what material damage France has professer cette opinion) combat, sans auciin management, Tabus des exigences des Allies' (lisez: 'de la France') et de ses n^go- ciateurg. . . . Ces reproches et tant d'autres d'une violence biutale, dont je n'auraia rien dit, si I'auteur, A, tous risques. n'eUt cru servir sa cause en lea livrant il la publicitS, font assez claire- ment voir jusqu'oti certains esprits s'etaient months.' (In the English edition, M. Tardieu has caused the words fort en thdme d'economiste to be translated by the words "with some knowledge of economics but neither imagination nor character" — ^which seems rather a free rendering.) 110 A EEVISION OF THE TREATY suffered and what material resources of repara- tion Germany commands. The Times, in a lead- ing article which accompanied some articles by M. Brenier (December 4, 1920), wrote with an air of noble contempt — "Mr. Keynes treats their losses as matter for statistics." But chaos and poverty will continue as long as we insist on treat- ing statistics as an emotional barometer and as a convenient vehicle of sentiment. In the follow- ing examination of figures let us agree that we are employing them to measure facts and not as a literary expression of love or hate. Leaving on one side for the present the items of pensions and allowances and loans to Belgium, let us examine the data relating to the material damage in Northern France. The claims made by the French Government did not vary very much from the spring of 1919, when the Peace Conference was sitting, do^vn to the spring of 1921, when the Reparation Commission was de- ciding its assessment, though the fluctuations in the value of the franc over that period cause some confusion. Early in 1919 M. Dubois, speak- ing on behalf of the Budget Commission of the Chamber, gave the figure of 65 milliard francs "as a minimum," and on February 17, 1919, M. Loucheur, speaking before the Senate as Minister of Industrial Reconstruction, estimated the cost at 75 milliards at the prices then prevailing. On THE REPARATION BILL 111 September 5, 1919, M. Klotz, addressing the Cham- ber as Minister of Finance, put the total French claims for damage to property (presumably in- clusive of losses at sea, etc.) at 134 milliards. In July 1920 M. Dubois, by that time President of the Reparation Commission, in a Report for the Brussels and Spa Conferences, put the figure at 62 milliards on the basis of pre-war prices.^ In January 1921 M. Doumer, speaking as Finance Minister, put the figure at 110 milliards. The actual claim which the French Government sub- mitted to the Reparation Commission in April 1921 was for 127 milliard paper francs at current prices.^ By that time the exchange value of the franc, and also its purchasing power, had con- siderably depreciated, and, allowing for this, there is not so great a discrepancy as appears at first sight between the above estimates. For the assessment of the Reparation Commis- sion it was necessary to convert this claim from paper francs into gold marks. The rate to be adopted for this purpose was the subject of acute controversy. On the basis of the actual rate of * At about the same date, the German Indemnity Commission {Eeichsentschddigungskommission) estimated the cost at 7228 million gold marks, also on the basis of pre-war prices; that is to say, at about one-seventli of M. Dubois' estimate. ' The details of this claim, so far as they have been published, are given in Appendix No. 3. The above figure comprises the items for Industrial Damages, Damage to Houses, Furniture and Fittings, Unbuilt-on Land, State Property, and Public Works. 112 A KEVISION OF THE TREATY exchange prevailing at that date (April 1921) the gold mark was worth about 3.25 paper francs. The French representatives claimed that this de- preciation was temporary and that a permanent settlement ought not to be based on it. They asked, therefore, for a rate of about frs. 1.50 or frs. 1.75 to the gold mark.^ The question was eventually submitted to the arbitration of Mr. Boyden, the American member of the Reparation Commission, who, like most arbitrators, took a middle course and decided that 2.20 paper francs should be deemed equivalent to 1 gold mark.^ He would probably have found it difficult to give a reason for this decision. As regards that part of the claim which was in respect of pensions, a fore- cast of the gold value of the franc, however im- practicable, was relevant. But as regards that part which was in respect of material damage, no such adjustment was necessary ^ ; for the French claim had been drawn up on the basis of the cur- rent costs of reconstruction, the gold equivalent of which need not be expected to rise with an increase in the gold value of the franc, an im- * See M. Loucheur's speech in the French Chamber, May 20, 1921. ^ For this rate to be justified the exchange value of the franc in New York must rise to about 11 cents. * M. Loucheur's statement to the French Chamber implied that the rate of conversion was applicable to material damage as well as to pensions, and 1 have assumed this in what follows; but precise official information is lacking. THE EEPAKATION BILL 113 provement in the exchacge being balanced sooner or later by a fall in franc prices. It might have been proper to make allowance for any premium existing, at the date of the assessment, on the internal purchasing power of the franc over that of its external exchange-equivalent in gold. But in April 1921 the franc was not far from its proper ''purchasing power parity," and I calculate that on this basis it would have been approximately ac- curate to have equated the gold mark with 3 paper francs. The rate of 2.20 had the effect, therefore, of inflating the French claim against Germany very materially. At this rate the claim of 127 milliard paper francs for material damage was equivalent to 57.7 milliard gold marks, of which the chief items were as follows: Francs (paper), millions. Marks (Cold), millious. Industrial damages 38,882 36,892 25,119 21,671 1,958 2.583 17,673 16,768 11,417 9 850 Furniture and fittings Unbuilt-on land State property 890 Public works 1 174 Total 127,105 57 772 This total is one which I believe to be a vast, indeed a fantastic, exaggeration beyond anything which it would be possible to justify under cross- 114 A EEVISION^ OF THE TREATY examination. At the date when I wrote The Eco- nomic Consequences of the Peace, exact statistics as to the damage done were not available, and it was only possible to fix a maximum limit to a reasonable claim, having regard to the pre-war wealth of the invaded districts. Now, however, much more detail is available with which to check the claim. The following particulars are quoted from a statement made by M. Briand in the French Sen- ate on April 6, 1921, supplemented by an official memorandum published a few days later, and rep- resent the position at about that date : ^ * The figures of damage done, given by M. Briand, are generally speaking rather lower than those given ten months earlier (in June 1920) in a report by M. Tardieu in his capacity as President of the Comitg des Regions Devastees. But the difference is not very material. For purposes of comparison, I give M. Tardieu's figures below together with those of the amount of reconstruction completed at that earlier date: Destroyed. Repaired. Houses totally destroyed.. 319,269 2,000 Houses partially destroyed 313,675 182,000 Railway lines 5,534 kilos. 4,042 kilos. Canals 1,596 •' 784 " Roads 39,000 " 7,548 " Bridges, embankments, etc. 4,785 " 3,424 " Destroyed. ^'^X^,/j;*'°' Leveled. Plowed. A.rfllilp l9,r)d (hectares) 3,200,000 2,900,000 1,700,000 1,150,000 rw„_x„-„-^ Reconstructed Under uesrroyea. ^^^^ working, reconstruction. Factories and works 11,500 3,540 3,812 A much earlier estimate is that made by M. Dubois for the Budget Commission of the French Chamber and published as Parliamentary Paper No. 5432 of the Session of 1918. THE REPAEATION^ BILL 115 (1) The population inhabiting the devastated districts in April 1921 was 4,100,000, as compared with 4,700,000 in 1914. (2) Of the cultivable land 95 per cent of the surface had been releveled and 90 per cent had been plowed and was producing crops. (3) 293,733 houses were totally destroyed, in replacement of which 132,000 provisional dwell- ings of different kinds had been erected. (4) 296,502 houses were partially destroyed, of which 281,300 had been repaired. (5) Fifty per cent of the factories were again working. (6) Out of 2404 kilometers of railway destroyed, practically the whole had been reconstructed. It seems, therefore, that, apart from refurnish- ing and from the rebuilding of houses and fac- tories, the greater part of which had still to be accomplished, the bulk of the devastation was al- ready made good out of the daily labor of France within two years of the Peace Conference, before Germany had paid anything. This is a great achievement, — one more demon- stration of the riches accruing to France from the patient industry of peasants, which makes her one of the rich countries of the world, in spite of the corrupt Parisian finance which for a generation past has wasted the savings of her investors. When we look at Northern France we see what 116 A KEVISION OF THE TREATY honest Frenchmen can accomplish/ But when we turn to the money claims which are based on this, we are back in the atmosphere of Parisian finance, — so grasping, faithless, and extravagantly *A more recent estimate (namely, for July 1, 1921) has beea given, presumably from official sources, by M. Fournier-Sarlov&ze, Deputy for the Oise. The following are some of his figures: Inhabited Houses At the Armistice: Totally destroyed 289,147 Badly injured 164,317 Partially injured 258,419 By July 1921 : Entirely rebuilt 118,863 Temporarily repaired 182,694 Public Buildings Churches. Municipal Buildings. Schools. Post Offices. Hospitals. Destroyed .... Damaged Restored Te mporarily patched up . . 1,407 2,079 1,214 1,097 1,415 2,154 322 931 2,243 3,153 720 2,093 171 271 53 196 30 197 28 128 Cultivated Land Acres. At the Armistice: Totally destroyed 4,653,516 By July 1921 : Leveled 4,067,408 Plowed 3,528,950 LrvE Stock Cattle Horses, donkeys, and mules Sheep and goats Pigs 1914. 890,084 412,730 958,308 357,003 Nov. 1918. July 1921 57,500 32,600 69,100 25,000 478,000 235,400 276,700 169,000 THE REPAKATION BILL 117 unveracious as to defeat in the end its own ob- jects. For let US compare some of these items of dev- astation with the claims lodged. (1) 293,733 houses were totally destroyed and 296,502 were partially destroyed. Since nearly all the latter have been repaired, we shall not be underestimating the damage in assuming, for the purposes of a rough comparison, that, on the aver- age, the damaged houses were half destroyed, which gives us altogether the equivalent of 442,- 000 houses totally destroyed. Turning back, we find that the French Government's claim for dam- age to houses was 16,768 million gold marks, that is to say $4,192,000,000. Dividing this sum by the number of houses, we find an average claim of $9,480, per house ! ^ This is a claim for what were chiefly peasants' and miners' cottages and the ten- ements of small country towns. M. Tardieu has quoted M. Loucheur as saying that the houses in the Lens-Courrieres district were worth 5000 francs ($1000) a-piece before the war, but would cost 15,000 francs to rebuild after the war, which sounds not at all unreasonable. In April 1921 the cost of building construction in Paris (which had been a good deal higher some months before) was estimated to be, in terms of paper francs, * Even if we assumed that every house which had been injured at all was totally destroyed, the figure would work out at about ^7,000. 118 A EEVISION OF THE TEEATY three and a half times the pre-war figure/ But even if we take the cost in francs at five times the pre-war figure, namely 25,000 paper francs per house, the claim lodged by the French Government is still three and a half times the truth. I fancy that the discrepancy, here and also under other heads, may be partly explained by the inclusion in the official French claim of indirect damages, namely, for loss of rent — perte de loyer. It does not appear what attitude the Reparation Commis- sion took up towards indirect pecuniary and busi- ness losses arising in the devastated districts out of the war. But I do not think that such claims are admissible under the Treaty. Such losses, real though they were, were not essentially different from analogous losses occurring in other areas, and indeed throughout the territory of the Allies. * M. Brenier, who has spent much time criticizing me, quotes with approval (The Times, January 24, 1921) a French architect as estimating the cost of reconstruction at an average of $2,500 per house, and quotes also, without dissent, a German estimate that the pre-war average was $1,200. He also states, in the same article, that the munber of houses destroyed was 304,191 and the number damaged 290,425, or 594,616 in all. Having pointed out the importance of not overlooking sentiment in these questions, he then multiplies $2,500, not by the number of houses but by the number of the population, and arrives at an answer of $3,750,000,000. What is one to reply to sentimental multiplica- tion? What is the courteous retort to controversy on these lines? (His other figures are clearly such a mass of misprints, muddled arithmetic, confusion between hectares and acres and the like, that, whilst an attack could easily make a devastated area of them, it would be unfair to base any serious criticism on this well-intentioned farrago As a writer on these topics, M. Brenier is about of the caliber of M. Kaphael-Georges Levy.) THE KEPARATION BILL 119 The maximum claim, however, on this head would not go far towards justifying the above figure, and we can allow a considerable margin of error for such additional items without impairing the conclusion that the claim is exaggerated. In The Economic Consequences of the Peace (p. 127) I estimated that $1,250,000,000 might be a fair es- timate for damage to house property; and I still think that this was about right. (2) This claim for damage to houses is ex- clusive of furniture and fittings, which are the subject of a separate claim, namely, for 11,417 million gold marks, or about $2,850,000,000. To check this figure let us assume that the whole of the furniture and fittings were destroyed, not only where the houses were destroyed, but also in every case where a house was damaged. This is an overstatement, but we may set it oif against the fact that in a good many cases the furniture may have been looted and not recovered by restitution (a large amount has, in fact, been recovered in this way), although the structure of the house was not damaged at all. The total number of houses damaged or destroyed was 590,000. Dividing this into $2,850,000,000, we have an average of nearly $5,000 per house — an average valuation of the furniture and fittings in each peasant's or col- lier's house of nearly $5,000! I hesitate to guess how great an overstatement shows itself here. 120 A KEYISION" OF THE TREATY (3) The largest claim of all, however, is for ''industrial damages," namely, 17,673 million gold marks, or about $4,400,000,000. In 1919 M. I.ou- cheur estimated the cost of reconstruction of the coal mines at 2000 million francs, that is $400,- 000,000 at the par of exchange/ As the pre-war value of all the coal mines in Great Britain was estimated at only $650,000,000, and as the pre- war output of the British mines was fifteen times that of the invaded districts of France, this figure seems high.- But even if we accept it, there is still four thousand million dollars to account for. The great textile industries of Lille and Roubaix were robbed of their raw material, but their plant was not seriously injured, as is shown by the fact that in 1920 the woolen industry of these districts was already employing 93.8 per cent and the cot- ton industry 78.8 per cent of their pre-war per- sonnel. At Tourcoing 55 factories out of 57 were in operation, and at Roubaix 46 out of 48.^ Altogether 11,500 industrial establishments *.M. Tardieu states that, on account of the subsequent rise in prices, M. Loucheur's estimate has proved, in terms of paper francs, to be inadequate. But this is allowed for by my having converted paper francs into dollars at the par of exchange. " Tlie Lens coal mines, which were the object of most complete desti-uction, comprised 29 pits, and had, in 1913, 16,000 workmen with an output of 4 million tons. * I take these figures from M. Tardieu, who argues, most il- luminatingly, in alternate chapters, according to his thesis for the time being, that reconstruction has hardly begun, and that it is nearly finished. THE EEPARATION BILL 121 are said to have been interfered with, but this in- cludes every village workshop, and about three- quarters of them employed less than 20 persons. Half of them were at work again by the spring of 1921. Wliat is the average claim made on their behalf? Deducting the coal mines as above and dividing the total claim by 11,500, we reach an average figure of nearly $35,000. The exaggera- tion seems prima facie on as high a scale as in the case of houses and furniture. (4) The remaining item of importance is for unbuilt-on land. The claim under this head is for 9850 million gold marks, or about $2,460,000,000. M. Tardieu (op. cit., p. 347) quotes Mr. Lloyd George as follows, in the course of a discussion during the Peace Conference in which he was pointing out the excessive character of the French claims: '*If you had to spend the money which you ask for the reconstruction of the devastated regions of the North of France, I assert that you could not manage to spend it. Besides, the land is still there. Although it has been badly up- heaved in parts, it has not disappeared. Even if you put the Chemin des Dames up to auction, you would find buyers." Mr. Lloyd George's view has been justified by events. In April 1921 the French Prime Minister was able to tell his Senate that 95 per cent of the cultivable land had been releveled and that 90 per cent had been 122 A REVISION OF THE TREATY plowed and was producing crops. Some go so far as to maintain that the fertility of the soil has been actually improved by the disturbance of its surface and by its lying fallow for several years. But apart from its having proved easier than was anticipated to make good this category of dam- age, the total cultivated area (excluding wood- land) of the whole of the eleven Departments af- fected was about 6,650,000 acres, of which 270,000 acres were in the "zone of destruction," 2,000,000 acres in the ''zone of trenches and bombardment," and 4,200,000 acres in the "zone of simple occu- pation." The claim, therefore, averaged over the ivhole area, works out at about $370 per acre and, averaged over the first two categories above, at more than $1000 per acre. This claim, though it is described as being in respect of unbuilt-on land, probably includes farm buildings (other than houses), implements, live stock, and the growing crops of August 1914. As experience has proved that the permanent qualities of the land have only been seriously impaired over a small area, these latter items should probably constitute the major part of the claim. We have also to allow for de- struction of woodlands. But even with high esti- mates for each of these items, I do not see how we could reach a total above a third of the amount actually claimed. These arguments are not exact, but they are THE KEPARATION BILL TZ6 sufficiently so to demonstrate that the claim sent in to the Reparation Commission is untenable. I believe that it is at least four times the truth. But it is possible that I have overlooked some items of claim, and it is better in discussions of this kind to leave a wide margin for possible error. I assert, therefore, that on the average the claim is not less than two or three times the truth. I have spent much time over the French claim, because it is the largest, and because more par- ticulars are available about it than about the claims of the other Allies. On the face of it, the Belgian claim is open to the same criticism as the French. But in this claim a larger part is played by levies on the civilian population and personal injuries to civilians. The material damage, how- ever, was on a very much smaller scale than in France. Belgian industry is already working at its pre-war efficiency, and the amount of recon- struction still to be made good is not on a great scale. The Belgian Minister for Home Affairs stated in Parliament in February 1920 that at the date of the Armistice 80,000 houses and 1100 public buildings had been destroyed. This sug- gests that the Belgian claim on this head ought to be about a quarter of the French claim ; but in view of the greater wealth of the invaded dis- tricts of France, the Belgian loss is probably de- cidedly less than a quarter of the French loss. 124 A KEVISION OF THE TREATY The claim, actually submitted by Belgium, for property, shipping, civilians and prisoners (that is to say, the aggregate claim apart from pensions and allowances) amounted to 34,254 million Bel- gian francs. Inasmuch as the Belgian Ministry of Finance, in an official survey published in 1913, estimate the entire wealth of the country at 29,525 million Belgian francs, it is evident that, even allowing for the diminished value of the Bel- gian franc, which is our measuring rod, this claim is very grossly excessive. I should guess that the degree of exaggeration is quite as great as in the case of France. The British Empire claim is, apart from pen- sions and allowances, almost entirely in respect of shipping losses. The tonnage lost and dam- aged is definitely known. The value of the car- goes carried is a matter of difficult guesswork. On the basis of an average of $150 for the hull and $200 for the cargo per gross ton lost, I estimated the claim in The Economic Consequences of the Peace (p. 132) at $2,700,000,000. The actual claim lodged was for $3,835,000,000. Much de- pends on the date at which the cost of replacement is calculated. Most of the tonnage was in fact replaced out of vessels the building of which com- menced before the end of the war or shortly after- wards, and thus cost a much higher price than prevailed in, e.g., 1921. But even so the claim THE REPAEATION" BILL 125 lodged is very high. It seems to be based on an estimate of $500 per gross ton lost for hull and cargo together, any excess in this being set off against the fact that no separate allowance is made for vessels damaged or molested, but not sunk. This figure is the highest for which any sort of plausible argument could be adduced, rather than a judicial estimate. I adhere to the estimate which I gave in The Econofnic Conse- quences of the Peace. I forbear to examine the claims of the other Allies. The details, so far as they have been pub- lished, are given in Appendix No. 3. The observations made above relate to the claims for material damage and do not bear on those for pensions and allowances, which are, nevertheless, a very large item. These latter are to be calculated, according to the Treaty, in the case of pensions ''as being the capitalized cost at the date of coming into force of the Treaty, on the basis of the scales in force in France at such date," and in the case of allowances made during hostilities to the dependents of mobilized persons "on the basis of the average scale for such pay- ments in force in France" during each year. That is to say, the French Army scale is to be ap- plied all round ; and the result, given the numbers affected, should be a calculable figure, in which there should be little room for serious error. The c/ 126 A EEVISION" OF THE TREATY actual claims were as follows in milliard gold marks : ^ Milliard marks (gold). France 33 British Empire 37 Italy 17 Belgium 1 Japan 1 Roumania 4 93 This does not include Serbia, for which a sepa- rate figure is not available, or the United States. The total would work out, therefore, at about 100 milliard gold marks.- Wliat does the aggregate of the claims work out at under all heads, and what relation does this total bear to the final assessment of the Repara- tion Commission? As the claims are stated in a variety of national currencies, it is not quite a simple matter to reach a total. In the following table French francs are converted into gold marks at 2.20 (the rate adopted by the Commission as explained above), sterling approximately at par * Francs are here converted at 2.20 to the gold mark and the f sterling at the ratio of 1:20. ^ This is exactly the figure of the estimate which I gave in The Economic Consequences of the Peace (p. 160). But I there added: "I feel much more confidence in the approximate accuracy of the total figure than its division between the diff'erent claimants." This proviso was necessary, as I had over-estimated the claims of France and under-estimated those of the British Empire and of Italy. THE KEPAKATION BILL 127 (on the analogy of the rate for francs), Belgian francs at the same rate as French francs, Italian lire at twice this rate, Serbian dinars at four times this rate, and Japanese yen at par. Milliard marks (gold). France 99 British Empire 54 Italy 27 Belgium 161^ Japan 1^ Jugo-Slavia 91/^ Koumania 14 Greece 2 2231/2 There are omitted from this table Poland and Czecho-Slovakia, of which the claims are probably inadmissible, the United States, which submitted no claim, and certain minor claimants shown in Appendix No. 3. In round figures, therefore, we may put the claims as lodged before the Keparations Commis- sion at about 225 milliard gold marks, of which 95 milliards was in respect of pensions and allow- ances, and 130 milliards for claims under other heads. The Eeparation Commission in announcing its decision did not particularize as between different claimants or as between different heads of claim, 128 A REVISION OF THE TREATY and merely stated a lump sum figure. Their fig- ure was 132 milliards ; that is to say, about 58 per cent of the sums claimed. This decision was in no way concerned with Germany's capacity to pay, and was simply an assessment, intended to be judicial, as to the sum justly due under the heads of claim established by the Treaty of Versailles. The decision was unanimous, but only in face of sharp differences of opinion. It is not suitable or in accordance with decency to set up a body of interested representatives to give a judicial de- cision in their own case. This arrangement was an offspring of the assumption which runs through the Treaty that the Allies are incapable of doing wrong, or even of partiality. Nothing has been published in England about the discussions which led up to this conclusion. But M. Poincare, at one time President of the Reparation Commission and presumably well-in- formed about its affairs, has lifted a corner of the veil in an article published in the Revue des Deux Mondes for May 15, 1921. He there divulges the fact that the final result was a compromise be- tween the French and the British representatives, the latter of whom endeavored to fix the figure at 104 milliards, and defended this adjudication with skilful and even passionate advocacy.^ * "Elle avait ^t6 le r^sultat d'un compromis assez pSnible entre la delegu^ francais, I'honorable M. Dubois, et le repr^sentant anglais, Sir John Bradbury, depuis lors d^missionnaire, qui vou- THE REPARATION BILL 129 "Wlieii the decision of the Reparation Commis- sion was first announced, and was found to abate so largely the claims lodged with it, I hailed it, led away a little perhaps by its very close agree- ment with my own predictions, as a great triumph for justice in international affairs. So, in a meas- ure, I still think it. The Reparation Commission went a considerable way in disavowing the verac- ity of the claims of the Allied Governments. In- deed, their reduction of the claims for items other than pensions and allowances must have been very great since the claims for pensions, being capable of more or less exact calculation,^ can hardly have been subject to an initial error of anything ap- proaching 42 per cent. If, for example, they re- duced the claim for pensions and allowances from 95 to 80 milliards, they must have reduced the other claims from 130 milliards to 52 milliards, that is to say, by 60 per cent. Yet even so, on the data now available, I do not believe that their adjudication could be maintained before an im- partial tribunal. The figure of 104 milliards, at- tributed by M. Poincare to Sir John Bradbury, is probably the nearest we shaU get to a strictly im- partial assessment. lait 8'en tenir au chiflFre de cent quatre milliards et qui avait d^fendu la tliSse du gouvernement britannique avec une habiletfi paasionnee." * The chief question of legitimate controversy in this connec- tion was that of the rate of exchange for converting paper francs into gold marks. 130 A KEVISION OF THE TREATY To complete our summary of the facts two par- ticulars must be added. (1) The total, as assessed by the Reparation Commission, comprehends the total claim against Germany and her Allies. It includes, that is to say, the damage done by the armies of Austria-Hungary, Turkey, and Bul- garia, as well as by those of Germany. Pay- ments, if any, made by Germany's Allies must, presumably, be deducted from the sum due. But Annex I. of the Reparation Chapter of the Treaty of Versailles is so drafted as to render Germany liable for the whole amount. (2) This total is ex- clusive of the sum due under the Treaty for the reimbursement of sums lent to Belgium by her Allies during the war. At the date of the London Agreement (May 1921) Germany's liability under this head was provisionally estimated at 3 mil- liard gold marks. But it had not then been de- cided at what rate these loans, which were made in terms of dollars, sterling, and francs, should be converted into gold marks. The question was referred for arbitration to Mr. Boyden, the United States Delegate on the Reparation Com- mission, and at the end of September 1921 he an- nounced his decision to the effect that the rate of conversion should be based on the rate of ex- change prevailing at the date of the Armistice. Including interest at 5 per cent, as provided by the Treaty, I estimate that this liability amounts PAYMENTS PEIOK TO MAY 1921 131 at the end of 1921 to about 6 milliard gold marks, of which slightly more than a third is due to Great Britain and slightly less than a third each to France and the United States respectively. I take, therefore, as my final conclusion that the best available estimate of the sum due from Germany, under the strict letter of the Treaty of Versailles, is 110 milliard gold marks, which may be divided between the main categories of claim in the proportions — 74 milliards for pensions and allowances, 30 milliards for direct damage to the property and persons of civilians, and 6 milliards for war debt incurred by Belgium. This total is more than Germany can pay. But the claim exclusive of pensions and allowances should be within her capacity. The inclusion of a demand for pensions and allowances was the subject of a long struggle and a bitter controversy in Paris. I have argued that those were right who maintained that this demand was inconsistent with the terms on which Germany surrendered at the Armistice. I return to this subject in the next chapter. EXCUESUS V EECEIPTS AND EXPENSES PRIOR TO MAT 1, 1921 The provision in the Treaty of Versailles that Germany, subject to certain deductions, was to 132 A EEVISION OF THE TREATY pay $5000 millions (gold) before May 1, 1921, was so remarkably wide of facts and possibilities, that for some time past no one has said much about this offspring of the unimaginative imag- inations of Paris. As it was totally abandoned by the London Agreement of May 5, 1921, there is no need to return to what is an obsolete controversy. But it is interesting to record what payments Ger- many did actually effect during the transitional period. The following details are from a statement pub- lished by the British Treasury in August 1921 : Approximate Statement by the Reparation Commis- sion OF Deliveries made by Germany from No- vember 11, 1918, TO April 30, 1921 Gold Marks. Eeeeipts in cash 99,334,000 Deliveries in kind: Ships 270,331,000 Coal 437,160,000 Dyestuffs 36,823,000 Other deliveries 937,040,000 1,780,688,000 Immovable property and assets not yet encashed 2,754,104,000 4,534,792,000 say $1,130,000,000 The immovable property consists chiefly of the Saar coalfields surrendered to France, State prop- PAYMENTS PRIOR TO MAY 1921 133 erty in Sclileswig surrendered to Denmark, and State property (with certain exceptions) in the territory transferred to Poland. The whole of the cash, two-thirds of the ships, and a quarter of the dyestuffs accrued to Great Britain. A share of the ships and dyestuffs, the Saar coalfields, the bulk of the coal and of the '* other deliveries," including valuable materials left behind by the German Army, accrued to France. Some ships, a proportion of the coal and other deliveries, and the compensation, payable by Denmark in respect of Sclileswig, fell to Belgium. Italy obtained a portion of the coal and ships and some other trifles. The value of German State property in Poland could not be transferred to any one but Poland. But the sums thus received were not available for Reparation. There had to be deducted from them (1) the sums returned to Germany under the Spa Agreement, namely 360,000,000 gold marks,^ and (2) the costs of the Armies of Occupation. In September 1921 the Reparation Commission published an approximate estimate, as follows, of the cost of occupation of German territory by the Allied Armies from the Armistice until May 1, 1921: * Made iip of about £5,500,000 advanced by Great Britain, 772,000.000 francs by France, 96,000,000 francs by Belgium, 147,000,000 lire by Italy, and 56,000,000 francs by Luxembourg. 134 A EEVISION OF THE TREATY United States Great Britain France Belgium .... Italy Total cost. $278,067,610 £52,881,298 Frs. 2,304,850,470 Frs. 378,731,390 Frs. 15,207,717 Cost per man per day. $4.50 14s. Frs. 15.25 Frs. 16.50 Frs. 22 The conversion of these sums into gold marks raises the usual controversy as to the rates at which conversion is to be effected. The total was estimated, however, at three milliard gold marks,^ of which one milliard was owed to the United States, one milliard to France, 900 millions to Great Britain, 175 millions to Belgium, and 5 millions to Italy. On May 1, 1921, France had about 70,000 soldiers on the Rhine, Great Britain about 18,000, and the United States a trifling num- ber. The net result of the transitional period was, therefore, as follows: (1) Putting on one side State property trans- ferred to Poland, the whole of the transferable * The German authorities have published a somewhat higher figure. According to a memorandum submitted to the Reichstag in September 1921 by their Finance Minister, the costs of the Armies of Occupation and the Rhine Provinces Commission up to the end of March 1921 were mks. 3,936,954,542 (gold), in respect of expenditure met in the first instance by the occupying Powers, and subsequently recoverable from Germany, plus mks. 7,313,911,829 (paper), in respect of expenditure directly met by tJie German authorities. PAYMENTS PEIOR TO MAY 1921 135 wealth obtained from Germany in the two and a half years following the Armistice under all the rigors of the Treaty, designed as they were to extract every available liquid asset, just about covered the costs of collection, that is to say, the expenses of the Armies of Occupation, and left nothing over for Reparation. (2) But as the United States has not yet been paid the milliard owing to her for her Army, the other Allies have received between them on bal- ance a surplus of about one milliard. This sur- plus was not divided amongst them equally. Great Britain had received 450-500 million gold marks less than her expenses, Belgium 300-350 million more than her expenses, and France 1000-1200 millions more than her expenses.^ Under the strict letter of the Treaty those Al- lies who had received less than their share might have claimed to be paid the difference in cash by those who had received more. This situation and the allocation of the milliard paid by Germany between May and August 1921 were the subject of the Financial Agreement provisionally signed at Paris on August 13, 1921. This Agreement chiefly consisted of concessions to France, partly by Belgium, who agreed in effect to a partial post- ^ I do not vouch for the accuracy of these figures, which are rough estimates of my own on the basis of incomplete published information. . 136 A REVISION OF THE TREATY ponement of her priority charge on two milliards out of the first sums received from Germany for Eeparation, and partly by Great Britain, who ac- cepted for the purposes of internal accounting amongst the Allies themselves a lower value for the coal delivered by Germany than the value fixed by the Treaty/ In view of these concessions about future payment, the first milliard in cash, received after May 1, 1921, was divided between Great Britain and Belgium, the former receiving 450 million gold marks in discharge of the balance still due to her in respect of the costs of occupa- tion, and the balance falling to the latter as a fur- ther instalment of her agreed priority charge. This Agreement was represented in the French press as laying new burdens upon France, or at least as withdrawing existing rights from her. But this was not the case. The Agreement was directed throughout to moderating the harshness with which the letter of the Treaty and the ar- rangements of Spa would have operated against France.- * On the other hand Great Britain's view was adopted as to the valuation of shipping. * In view of the political difficulties in which this Agreement involved M. Briand's Cabinet, the matter was apparently adjusted by Great Britain and Belgium receiving their quotas as above, "subject to adjustment of the final settlement" of the questions dealt with in the Agreement. The net result on September 30, 1921, was tliat, including the above simi. Great Britain had been repaid £5,445,000 in respect of the Spa coal advances, and had also received, or was in course of collecting, about £43,000,000 PAYMENTS PKIOR TO MAY 1921 137 The actual value of these deliveries is a strik- ing example of how far the value of deliverable articles falls below the estimates which used to be current. The Reparation Commission have stated that the credit which Germany will receive in re- spect of her Mercantile Marine will amount to about 755 million gold marks. This figure is low, partly because many of the ships were disposed of after the slump in tonnage.^ Nevertheless, this was one of the tangible assets of great value, which it was customary at one time to invoke in answer to those who disputed Germany's capacity to make vast payments. What does it amount to in rela- tion to the bill against her? The bill is 138 mil- liard gold marks, on which interest at 6 per cent for one year is 8280 million gold marks. That is to say, Germany's Mercantile Marine in its en- tirety, of which the surrender humbled so much pride and engulfed so vast an effort, would about meet a month's charges. towards the expenses of the Army of Occupation (approximately £50,000,000 ) . Thus, as the result of three years' Reparations, Great Britain's costs of collection had been about £7,000,000 more than her receipts. * To value these ships at what they fetched during the aliunp, yet to value Germany's liability for submarine destruction at what the ships cost to replace during the boom, appears to be unjust. My estimate (in The Economio Consequences of the Peace, p. 174) of the value of the ships to be delivered was $600,000,000. 138 A KEVISION OF THE TREATY EXCUESUS VI THE DIVISION OF RECEIPTS AMONGST THE ALLIES The Allied Governments took advantage of the Spa meeting (July 1920) to settle amongst them- selves a Reparation question which had given much trouble in Paris and had been left unsolved ^ — namely, the proportions in which the Repara- tion receipts are to be divided between the various Allied claimants.^ The Treaty provides that the receipts from Germany will be divided by the Allies "in proportions which have been deter- mined upon by them in advance, on a basis of gen- eral equity and of the rights of each." The failure, described by M. Tardieu, to reach an agreement in Paris, rendered the tense of this provision inaccurate, but at Spa it was settled as follows : France 52 per cent. British Empire ^ 22 Italy 10 Belgium 8 " Japan and Portugal . . % of 1 per cent each ; 'M. Tardieu {The Truth about the Treaty, pp. 346-348) has given an account of the abortive discussion of this question at the Peace Conference. 'ITie French obtained at Spa a ratio very slightly more favorable to themselves than that which they had claimed and Mr. Lloyd George had rejected at Paris. ' For a summary of the text of this Agreement see Appendix No. I. • At the conference of Dominion Prime Ministers in July 1921 THE DIVISION OF THE RECEIPTS 139 the remaining 6Yz per cent being reserved for the Serbo-Croat-Slovene State and for Greece, Ru- mania, and other Powers not signatories of the Spa Agreement/ This settlement represented some concession on the part of Great Britain, whose proportionate claim was greatly increased by the inclusion of pensions beyond what it would have been on the basis of Reparation proper; and the proportion claimed by Mr. Lloyd George in Paris was prob- ably nearer the truth (namely that the French and British shares should be in the proportion 5 to 3). I estimate that France 45 per cent, British Empire 33 per cent, Italy 10 per cent, Belgium 6 per cent, and the rest 6 per cent would have been more exactly in accordance with the claims of each under the Treaty. In view of all the facts, how- ever, the Spa division may be held to have done substantial justice on the whole. At the same time the priority to Belgium to the extent of $500,000,000 was confirmed; and it was this share was further divided aa follows between the constituent portions of the Empire: United Kingdom 86.85 Minor colonies 80 Canada 4.35 Australia 4 35 New Zealand 1.75 South 2Vfrica CO Newfoundland 10 India 1.20 ' The Spa Agreement also made provision that half the receipts from Bulgaria and from the constituent parts of the former Austro-Hungarian Empire should be divided in the above propor- tions, and tliat, of the other half, 40 per cent should go to Italy and 60 per cent to Greece, Rumania, and Jugoslavia. 140 A KEVISION OF THE TEEATY agreed that the loans made to Belgium during the war by the other Allies, for which Germany is liable under Article 232 ^ of the Treaty, should be dealt with out of the moneys next received. These loans, including interest, will amount by the end of 1921 to something in the neighborhood of $1,500,000,000, of which $550,000,000 will be due to Great Britain, $500,000,000 to France, and $450,000,000 to the United States. Under the Spa Agreement, therefore, sums re- ceived from Germany in cash, and credits in re- spect of deliveries in kind were to be applied to the discharge of her obligations in the following order : 1. The cost of the Armies of Occupation, esti- mated at $750,000,000 up to May 1, 1921. 2. Advances to Germany for food purchases un- der the Spa Agreement, say $90,000,000. 3. Belgian priority of $500,000,000. 4. Repayment of Allied advances to Belgium, say $1,500,000,000. This amounts to about $2,850,000,000 altogether, of which I estimate that about $750,000,000 is due to France, $850,000,000 to Great Britain, $550,- * "Germany undertakes ... to make reimbursement of all sums which Belgium has borrowed from the Allies and Associated Governments up to November 11, 1918, together with interest at the rate of 5 per cent per annum on such sums." The priority for this repayment arranged at Spa is a little different from the procedure contemplated in the Treaty, which provided for repay- ment not later than May 1, 1926. THE DIVISION OF THE RECEIPTS 141 000,000 to Belgium, and $700,000,000 to the United States. Very few people, I think, have appreciated how large a sum is due to the United States under the strict letter of the Agreement. Since France has already received almost two-thirds of her share as above, whilst Belgium has had about one-third, Great Britain less than one-third, and the United States nothing, it follows that, even on the most favorable hypothesis as to Germany's impending payments, comparatively small sums are strictly due to France in the near future. The Financial Agreement of August 13, 1921, was aimed at modifying the harshness of these priority provisions towards France.^ The details of this Agreement have not yet been published, but it is said to make a somewhat different provision from that contemplated at Spa for the repayment of Allied war advances to Belgium. The reception of this Agreement by the French public was a good illustration of the effect of keeping people in the dark. The effect of the Spa Agreement had never been understood in France, with the result that the August Financial Agree- ment, which much improved France's position, was believed to interfere seriously with her ex- isting rights. M. Doumer never had the pluck to tell his public the truth, although, if he had, it * See above, p. 135. 142 A REVISION OF THE TREATY would have been clear that, in signing the Agree- ment provisionally, he was acting in the interests of his country. The mention of the United States invites atten- tion to the anomalous position of that country under the Peace Treaty. Her failure to ratify the Treaty forfeits none of her rights under it, either in respect of her share of the costs of the Army of Occupation (which, however, is offset to a small extent by the German ships she has re- tained), or in respect of the repayment of her war advances to Belgium.^ It follows that the United States is entitled, on the strict letter, to a con- siderable part of the cash receipts from Germany in the near future. There is, however, a possible offset to these claims which has been mentioned already (p. 78) but must not be overlooked here. Under the Treaty, private German property in an Allied country is, in the case of countries adopting the Clearing House Scheme, applied in the first in- stance to debts owing from German nationals to the nationals of the Allied country in question, and ' Article 1 of the Treaty of Peace between Germany and the United States, signed on August 25, 1921, and since ratified, expressly stipulates that Germany undertakes to accord to the United States all the rights, privileges, indemnities, reparations, and advantages specified in the joint resolution of Congress of July 2, 1921, "Including all the rigiita and advantages stipulated for the benefit of the United States under the Treaty of Versailles which the United States shall enjoy notwithstanding the fact that such Treaty has not been ratified by the United States." THE DIVISION OF THE RECEIPTS 143 the balance, if any, is retained for Reparation. What is to happen in the case of similar German assets in the United States is still undetermined. The surplus assets, the value of which may be about $300,000,000,' will be retained, until Con- gress determines otherwise, by the Enemy Prop- erty Custodian. There have been negotiations from time to time for a loan in favor of Germany on the security of these assets, but the legal posi- tion has rendered progress impossible. At any rate this important German asset is still under American control. * According to a statement publislied in Washington in August 1921 the Custodian had in his hands German property to the value of $314,179,463. CHAPTER V The Legality of the Claim foe Pensions "The application of morals to international politics is more a thing to be desired than a thing which has been in operation. Also, when 1 am made a participant in crime along with many millions of other people, I more or less shrug my shoulders." — Letter from a friendly critic to the author of The Economic Con- sequences of the Peace. We have seen in the preceding chapter that the claim for Pensions and Allowances is nearly- double that for Devastation, so that its inclusion in the Allies' demands nearly trebles the bill. It makes the difference between a demand which can be met and a demand which cannot be met. There- fore it is important. In The Economic Consequences of the Peace I gave reasons for the opinion that this claim was contrary to our engagements and an act of inter- national immorality. A good deal has been writ- ten about it since then, but I cannot admit that my conclusion has been seriously disputed. Most American writers accept it ; most French writers ignore it; and most English writers try to show, not that the balance of evidence is against me, but that there are a few just plausible, or just not- negligible, observations to be made on the other 144 LEGALITY OF THE CLAIM FOR PENSIONS 145 side. Their contention is that of the Jesuit pro- fessors of Probabilism in the seventeenth century, namely that the Allies are justified unless it is ab- solutely certain that they are wrong, and that any probability in their favor, however small, is enough to save them from mortal sin. But most people in the countries of Germany's former enemies are not ready to excite themselves very much, even if my view is accepted. The pas- sage at the head of this chapter describes a com- mon attitude. International politics is a scoun- drel's game and always has been, and the private citizen can scarcely feel himself personally re- sponsible. If our enemy breaks the rules, his ac- tion may furnish us with an appropriate oppor- tunity for expressing our feelings; but this must not be taken to commit us to a cool opinion that such things have never happened before and must never happen again. Sensitive and honorable pa- triots do not like it, but they ''more or less shrug" their shoulders. There is some common sense in this. I cannot deny it. International morality, interpreted as a crude legalism, might be very injurious to the world. It is at least as true of these vast-scale transactions, as of private affairs, that we judge wrongly if we do not take into account everything. And it is superficial to appeal, the other way round, to the principles which do duty when 146 A KEVISION OF THE TREATY Propaganda is blistering herd emotion with its brew of passion, sentiment, self-interest, and moral fiddlesticks. But whilst I see that nothing rare has happened and that men's motives are much as usual, I do still think that this particular act was an excep- tionally mean one, made worse by hypocritical professions of moral purpose. My object in re- turning to it is partly historical and partly prac- tical. New material of high interest is available to instruct us about the course of events. And if for practical reasons we can agree to drop this claim, we shall make a settlement easier. Those who think that it was contrary to the Allies' engagements to charge pensions against the enemy base this opinion on the terms notified to the German Government by President Wilson, with the authority of the Allies, on November 5, 1918, subject to which Germany accepted the Armistice conditions.^ The contrary opinion that the Allies were fully entitled to charge pensions if they considered it expedient to do so, has been supported by two distinct lines of argument : first that the Armistice conditions of November 11, 1918, were not subject to President Wilson's noti- fication of November 5, 1918, but superseded it, * I have given the exact text of the relevant passages In The Economic Consequences of the Peace, chapter v. LEGALITY OF THE CLAIM FOR PENSIONS 147 more particularly regarding Reparation; and al- ternatively that the wording of President Wilson's notification properly understood does not exclude Pensions. The first line of argument was adopted by M. Klotz and the French Government during the Peace Conference, and has been approved more recently by M. Tardieu.^ It was repudiated by the whole of the American Delegation at Paris, and never definitely supported by the British Govern- ment. Responsible writers about the Treaty, other than French, have not admitted it.^ It was also explicitly abandoned by the Peace Confer- ence itself in its reply to the German observa- tions on the first draft of the Treaty. The sec- ond line of argument was that of the British Gov- ernment during the Peace Conference, and it was an argument on these lines which finally converted President Wilson. I will deal with the two argu- ments in turn. 1. Various persons have published particulars, formerly confidential, which allow us to recon- > The Truth about the Treaty, p. 208. * E.g., The History of the Peace Conference of Paris, published under the auspices of the Institute of International Affairs de- livers judgment as followa (vol. ii., p. 43) : "It is this statement then {i.e., President Wilson's notification of Nov. 5, 1918) which must be taken as the ruling document in any discussion as to what the Allies were entitled to claim by way of reparation in the Treaty of Peace, and it is difficult to interpret it otherwise than as a deliberate limitation of their undoubted right to recover the whole of their war costs." 148 A REVISION OF THE TEEATY struct the course of the discussions about the Armistice. These begin with the examination of the Armistice Terms by the Allied Council of War on November 1, 1918/ The first point which emerges is that the reply ' The following particulars are taken from Les Negociations Secretes et les Quatre Armistices avec pieces justificatives by "Mermeix," published at Paris by Ollendorff, 1921. This remark- able volume has not received the attention it deserves. The greater part of it consists of a verbatim transcript of the secret Proccs Verbaux of those meetings of the Supreme Council of the Allies which were concerned with the Armistice Terms. On the face of it this disclosure is authentic and is corroborated in part by M. Tardieu. There are many passages of extraordinary in- terest on points not connected with my present topic, as for example the discussion of the question whether the Allies should insist on the surrender of the German fleet if the Germans made trouble about it. Marshal Foch emerges from this record very honorably, as determined that nothing unnecessary should be de- manded of the enemy, and that no blood should be spilt for a vain or trifling object. Sir Douglas Haig was of the same opinion. In reply to Col. House, Foch spoke thus: "If they accept the terms of the Armistice we are imposing on them, it is a capitula- tion. Such a capitulation gives us everything we could get from the greatest victory. In such circumstances I cannot admit that I have the right to risk the life of a single man more." Aud again on October 31: "If our conditions are accepted we can wish for nothing better. We make war only to attain our ends, and we do not want to prolong it uselessly." In reply to a proposal by Mr. Balfour that the Germans in evacuating the East should leave one-third of their arms behind them, Foch observed: "The intrusion of all these clauses makes our document chimerical, since the greater part of the conditions are incapable of being executed. We should do well to be sparing with these um'ealizable injunctions." Towards Austria also he was humane and feared the prolongation of the blockade which the politicians were pro- posing. "I intervene," he said on October 31, 1918, "in a matter which is not a military one strictly speaking. We are to main- tain the blockade until Peace, that is to cay until we have made a new Austria. That may take a long time; which means a country condemned to famine and perhaps impelled to anarchy." .\ LEGALITY OF THE CLAIM FOR PENSIONS 149 of the Allied Governments to President Wilson (which afterwards furnished the text of his noti- fication of Nov. 5, 1918, addressed to Germany), defining their interpretation of the references to Reparation in the Fourteen Points, was drawn up and approved at the smne session of the Supreme Council (that of November 1, 2) which drew up the relevant clauses of the Armistice Terms ; and that the Allies did not finally approve the reply to President Wilson until after that they had ap- proved that very draft of the Armistice Terms which, according to the French contention, super- seded and negatived the terms outlined in the reply to President Wilson/ The record of the proceedings of the Supreme Council (as now disclosed) lends no support to the existence in their minds of the duplicity which the French contention attributes to them. On the other hand, it makes it clear that the Council did not intend the references to Reparation in the Armistice Terms to modify in any way their reply to the President. The record, in so far as it is relevant to this point, may be summarized as follows : ^ M. Cle- meneeau called attention to the absence of any ref- erence in the first draft of the Armistice Terms to the restitution of stolen property or to repa- * This is corroborated by M. Tardieu, op. cit., p. 71. • See Mermeix, op. cit., pp. 226-250. 150 A KEVISION" OF THE TREATY ration. Mr. Lloyd George replied that there ought to be some reference to restitution, but that reparation was a Peace condition rather than an Armistice condition. M. Hymans agreed with Mr. Lloyd George. MM. Sounino and Orlando went further and thought that neither had any place in the Armistice Terms but were ready to accept the Lloyd George-Hymans compromise of including Restitution but not Reparation. The discussion w^as postponed for M. Hymans to draft a formula. On its resumption next day, it was M. Clemenceau who produced a formula consist- ing of the three words Reparation des dommages. M. Hymans, M. Sonnino, and Mr. Bonar Law all expressed doubt whether this was in place in the Armistice Terms. M. Clemenceau replied that he only wanted to mention the principle, and that French public opinion would be surprised if there was no reference to it. Mr. Bonar Law ob- jected: ''It is already mentioned in our letter to President Wilson which he is about to communi- cate to Germany. It is useless to repeat it."^ This observation met with no contradiction, but it was agreed on sentimental grounds and for the satisfaction of public opinion to add M. Clemen- ceau 's three words. The Council then passed on ' This very important remark by Mr. Bonar Law is also quoted by M. Tardieu (op. cit., p. 70) and is therefore of undoubted authenticity. LEGALITY OF THE CLAIM FOK PENSIONS 151 to other topics. At the last moment, as they were about to disperse, M. Klotz slipped in the words : "It would be prudent to put at the head of the financial questions a clause reserving the future claims of the Allies, and I propose to you the wording 'without prejudice to any subsequent claims and demands on the part of the Allies.' " ^ It does not seem to have occurred to any of those present that this text could be deemed of mate- rial importance or otherwise than as protecting the Allies from the risk of being held to have sur- rendered any existing claims through failure to mention them in this document; and it was ac- cepted without discussion. M. Klotz afterwards boasted that by this little device he had abolished the Fourteen Points, so far as they affected Repa- ration and Finance (although the very same meet- ing of the Allies had despatched a Note to Presi- dent Wilson accepting them), and had secured to the Allies the right to demand from Germany the whole cost of the War. But I think the world will decide that the Supreme Council was right in attaching to these words no particular impor- tance. Personal pride in so smart a trick has led M. Klotz, and his colleague M. Tardieu, to per- * "II serait prudent de mettre en tete des questions financiferes une clause reservant les revendications futures des Allies et je voua propose le texte suivant: 'Sous reserve de toutes revendica- tions et reclamations ult6rieures de la part des Allies.' " 152 A REVISION OF THE TEEATY sist too long with a contention which decent per- sons have now abandoned. There was an episode Avhich has lately come to light connected with this passage which may be recounted as illustrating the pitfalls of the world. As M. Klotz only introduced his form of words as the Council was breaking up, it is likely that no undue attention was concentrated on it. But ill-fortune may dog any one, and the same state of affairs seems to have led to one of the scribes getting the words down wrong. Instead of re- vendication which means demand, the word renon- ciation which means concession got written in the text handed to the Germans for signature.^ This word was not so suitable. But M. Klotz suffered less inconvenience from this mistake than might have been expected; since at the Peace Confer- ence no one noticed that the French text of the Armistice Agreement as officially circulated, which M. Klotz used in arguing before the Reparation Committee, agreed in its w^ording with what he had intended it to be and not with the text which Germany had actually signed. Nevertheless it is the word renonciation which is still to be found in the official texts of the British and German Gov- ernments.^ ' That is to say, this text ran, "Sous reserve de toute renoncia- tion et reclamation ult^rieure," instead of "Sous reserve de toutes revendications et reclamations ulterieures." ' I record this episode as an historical curiosity. In my opinion LEGALITY OF THE CLAIM FOE PENSIONS 153 2. The other line of argument raises more subtle intellectual issues and is not a mere matter of prestidigitation. If it be granted that our rights are governed by the terms of the Note addressed tc Germany by President Wilson in the name of the Allies on November 5, 1918, the question de- pends on the interpretation of these terms. As Mr. Baruch and M. Tardieu have now published between them the greater part of the official re- ports (including very secret documents) bearing on the discussion of this problem during the Peace Conference, we are in a better position than be- fore to assess the value of the Allies' case. The pronouncements by the President which were to form the basis of Peace provided that there should be *'no contributions" and "^no puni- tive damages," but the invaded territories of Bel- gium, France, Rumania, Serbia, and Montenegro were to be restored. This did not cover losses from submarines or from air raids. Accordingly the Allied Governments, when they accepted the it makes no material diflference to the argument whether the text runs "revendications et reclamations" or "renonciation et recla- mation"; for I regard either form of words as merely a protective phrase. But the plausibility of M. Klotz's position is decidedly weakened (if so weak a case is capable of further weakening) if it is the latter phrase which is authentic. The Editor of the Institute of International Affairs' History of the Pence Confer' ence of Paris, who was the first to discover and publish the discrepancy in question (vol. v., pp. 370-372), takes the view that the question of which text is used makes a material difference to the value of M. Klotz's argument. 154 A REVISIOISr OF THE TEEATY President's formulas, embodied a reservation, on the point as to what ''restoration" covered, in the following sentence: "By it (i.e., restoration of invaded territory) they understand that compen- sation will be made by Germany for all damage done to the civilian population of the Allies and to their property by the aggression of Germany by land, by sea, and from the air." The natural meaning and object of these words, which, the reader must remember, are introduced as an interpretation of the phrase "restoration of invaded territory," is to assimilate submarine and cruiser aggression by sea and aeroplane and airship aggression by air to military aggression by land, which, in all the circumstances, was a rea- sonable extension of the phrase, provided it was duly notified beforehand. The Allies rightly ap- prehended that, if they accepted the phrase as it stood, "restoration of invaded territory" might be limited to damage resulting from military ag- gression by land. This interpretation of the reservation of the Allied Governments, namely that it assimilated offensive action by sea or air to offensive action by land, but that "restoration of invaded terri- tory" could not possibly include pensions and separation allowances, was adopted by the Amer- ican Delegation at Paris. They construed the German liability to be in respect of the "direct LEGALITY OF THE CLAIM FOR PENSIONS 155 physical damage to property of non-military char- acter and direct physical injury to civilians ^^ caused by such aggression; the only further lia- bility which they admitted being under a differ- ent part of the President's pronouncements, namely, those relating to breaches of International law, such as the breach of the Treaty of Neutral- ity in favor of Belgium, and the illegal treatment of prisoners of war. I doubt if any one would ever have challenged this interpretation if the British Prime Minister had not won a General Election by promises to extract from Germany more than this interpreta- tion could justify,' and if the French Government also had not raised unjustifiable expectations. These promises were made recklessly. But it was not easy for their authors to admit, so soon after they had been given, that they were contrary to our engagements. The discussion opened with the delegations, other than the American, claiming that we had not committed ourselves to anything w^iich precluded our demanding from Germany all the loss and damage, direct and indirect, which had resulted * Baruch, op. cit., p .10. » As Mr. Baruch puts it (op. cit., p. 4) : "At an election held after the Armistice and agreement as to the basic terms of peace, the English people, by an overwhelming majority, returned to power their f'rime Minister on the basis of an increase in the severity of these terms of the peace, ebpecially those of repara,- tion." (The italics are mine.) 156 A KEVISION OF THE TREATY from the war. "One of the Allies," says Mr. Baruch, ''went even further, and made claim for loss and damage resulting from the fact that the Armistice was concluded so unexpectedly that the termination of hostilities involved it in financial losses." Various arguments were employed in the early stages, the British delegates to the Reparation Committee of the Peace Conference, namely, Mr. Hughes, Lord Sumner and Lord Cunliffe, sup- porting the demand for complete war costs and not merely reparation for damage. They urged (1) that one of the principles enunciated by Presi- dent Wilson was that each item of the Treaty should be just, and that it was in accordance with the general principles of justice to throw on Ger- many the whole costs of the war; and (2) that Great Britain's war costs had resulted from Ger- many's breach of the Treaty of Neutrality of Bel- gium, and that therefore Great Britain (but not necessarily, on this argument, all the other Al- lies) was entitled to complete repayment in ac- cordance with the general principles of Interna- tional law. These general arguments were, I think, overwhelmed by the speeches made on be- half of the American delegates by Mr. John Fos- ter Dulles. The following are extracts from what he said: "If it is in accordance with our senti- ment that the principles of reparation be severe, LEGALITY OF THE CLAIM FOE PENSIONS 157 and in accord with our material interest that these principles be all inclusive, why, in defiance of these motives, have we proposed reparation in certain limited ways only? It is because, gentlemen, we do not regard ourselves as free. We are not here to consider as a novel proposal what repa- ration the enemy should in justice pay; we have not before us a blank page upon which we are free to write what we will. We have before us a page, it is true; but one which is already filled with writing, and at the bottom are the signatures of Mr. Wilson, of Mr. Orlando, of M. Clemenceau, and of Mr. Lloyd George. You are all aware, I am sure, of the writing to which I refer : it is the agreed basis of peace with Germany." Mr. Dulles then recapitulated the relevant passages and continued: ''Can there be any question that this agreement does constitute a limitation? It is perfectly obvious that it was recognized at the time of the negotiations in October and Novem- ber 1918 that the reparation then specified for would limit the Associated Governments as to the reparation which they could demand of the enemy as a condition of peace. The whole purpose of Germany was to ascertain the maximum which would be demanded of her in the terms of peace, and the action of the Allies in especially stipulat- ing at that time, for an enlargement of the orig- inal proposal respecting reparation is explicable 158 A REVISION" OF THE TREATY only on the theory that it was understood that once an agreement was concluded they would no longer be free to specify the reparation which. Germany must make. We have thus agreed that we would give Germany peace if she would do certain specified things. Is it now open to us to say, 'Yes, but before you get peace you must do other and further things'? We have said to Ger- many, ' You may have peace if among other things you perform certain acts of reparation which will cost you, say, ten million dollars.' Are we not now clearly precluded from saying, 'You can have peace provided you perform other acts of repara- tion which will bring your total liability to many times that which was originally stipulated'? No; irrespective of the justice of the enemy making the latter reparation, it is now too late. Our bar- gain has been struck for better or for worse; it remains only to give it a fair construction and practical application." It is a shameful memory that the British dele- gates never withdrew their full demands, to which they were still adhering when, in March 1921, the question was taken out of their hands by the Su- preme Council. The American Delegation cabled to the President, who was then at sea, for support in maintaining their position, to which he replied that the American Delegation should dissent, and if necessary dissent publicly, from a procedure LEGALITY OF THE CLAIM FOR PENSIONS 159 which ''is clearly inconsistent with what we de- liberately led the enemy to expect and cannot now honorably alter simply because we have the power. ' ' ^ After this the discussions entered on a new phase. The British and French Prime Ministers abandoned the contentions of their delegates, ad- mitted the binding force of the words contained in their Note of November 5, 1918, and settled down to extract some meaning from these words which would compose their differences and satisfy their constituents. What constituted "damage done to the civilian population"? Could not this be made to cover military pensions and the sepa- ration allowances which had been made to the civilian dependents of soldiers? If so, the bill against Germany could be raised to a high enough figure to satisfy nearly every one. It was pointed out, however, as Mr. Baruch records, "that finan- cial loss resulting from the absence of a wage- earner did not cause any more 'damage to the civilian population' than did an equal financial loss involved in the payment of taxes to provide military equipment and like war costs." In fact, a separation allowance or a pension was simply one of many general charges on the Exchequer arising out of the costs of the war. If such charges were to be admitted as civilian damage, * Baruch, op. cit., p. 25. 160 A KEVISION OF THE TREATY it was a very short step back to the claim for the entire costs of the war, on the ground that these costs must fall on the taxpayer who, generally speaking, was a civilian. The sophistry of the argument became exposed by pushing it to its log- ical conclusion. Nor was it clear how pensions and allowances could be covered by words which were themselves an interpretation of the phrase, '^ restoration of invaded territory." And the President's conscience, though very desirous by now to be converted (for he had on hand other controversies with his colleagues which interested him more than this one) remained unconvinced. The American delegates have recorded that the final argument which overbore the last scruples of the President was contained in a Memorandum prepared by General Smuts ^ on March 31, 1919. ' This Memorandum, which has been published in extenso by Mr. Baruch {op. cit., p. 29 seq.), belonged to the category of most secret documents. It has been given to the world by itself without tho accompanying circimistances which, without justifying its arguments (on which indeed no further light could bo thrown beyond what we already have in the narrative of Mr. Baruch), might yet throw light on individual motives. 1 agree with the comment made by The Economist (Oct. 22, 1921) in reviewing Vol. IV. of the History of the Peace Conference of Paris (pub- lished under the auspices of the Institute of International Af- fairs), which has reprinted this Memorandum, that "a very seri- ous injustice will be done to the reputation of General Smuts if this document continues to be repi-oduced and circulated without any explanation of the circumstances in which it was prepared." Nevertheless it is well that the world should have this document, and it must take its place in a story which is more important to the world than the motives and reputations of Individual actors in it. LEGALITY OF THE CLAIM FOR PENSIONS 161 Briefly, this argument was, that a soldier becomes a civilian again after his discharge, and that, therefore, a wound, the effects of which persist after he has left the Army, is damage done to a civilian/ This is the argument by which "dam- age done to the civilian population" came to in- clude damage done to soldiers. This is the argument on which, in the end, our case was based ! For at this straw the President's conscience clutched, and the matter was settled. It had been settled in the privacy of the Four. I will give the final scene in the words of Mr. Lamont, one of the American delegates : ^ *'I well remember the day upon which President Wilson determined to support the inclusion of pensions in the Separation Bill. Some of us were gathered in his library in ^ The following is the salient passage of the Memorandum: "After the soldier's discharge as unfit he rejoins the civilian population, and as for the future he cannot (in whole or in part) earn his own livelihood, he is suflFering damage as a member of the civilian population, for which the German Government are again liable to make compensation. In other words, the pension for disablement which he draws from the French Government la really a liability of the German Government, which they must under the above reservation make good to the French Govern- ment. It could not be argued that as he was disabled while a soldier he does not suffer damage as a civilian after his discharge if he is unfit to do his ordinary work. He does literally suffer as civiliaji after his discharge, and his pension is intended to make good this damage, and is therefore a liability of the German Government." • What Really Happened at Paris, p. 272, 162 A REVISION OF THE TREATY the Place des Etats Unis, having been sum- moned by him to discuss this particular ques- tion of pensions. We explained to him that we couldn't find a single lawyer in the Amer- ican Delegation that would give an opinion in favor of including pensions. All the logic was against it. 'Logic! logic!' exclaimed the President, *I don't care a damn for logic. I am going to include pensions ! ' " ^ Well! perhaps I was too near these things at the time and have become touched in the emo- tions, but I cannot "more or less shrug my shoul- ders." Whether or not that is the appropriate gesture, I have here set forth, for the inspection of Englishmen and our Allies, the moral basis on which two-thirds of our claims against Germany rest. ' Mr. Lamont adds that "it was not a contempt of logic, but simply an impatience of technicality; a determination to brush aside verbiage and get at the root of things. There was not one of us in the room whose heart did not beat with a like feeling/' These words not merely reflect a little naively the modern oppor- tunist's impatience of legality and respect for the ^ait accompli, but also recall the atmosphere of exhaustion and the longing of everyone to be finished, somehow, with this dreadful controversy, which for months had outraged at the same time the intellects and the consciences of most of the participators. Yet, even so, to their lasting credit, the American Delegation had stood firm for the law, and it was the President, and he alone, who capitu- lated to the lying exigencies of politics. CHAPTER VI V Reparation, Inter- Ally Debt, and International Trade It is fashionable at the present time to urge a reduction of the Allies' claims on Germany and of America's claims on the Allies, on the ground that, as such payments can only be made in goods, insistence on these claims will be positively in- jurious to the claimants. That it is in the self-interest of the Allies and of America to abate their respective demands, I hold to be true. But it is better not to use bad arguments, and the suggestion that it is neces- sarily injurious to receive goods for nothing is not plausible or correct. I seek in this chapter to disentangle the true from the false in the now popular belief that there is something harmful in compelling Germany (or Europe) to "fling goods at us." The argument is a little intricate and the reader must be patient. 1. It does not make very much difference whether the debtor country pays by sending goods direct to the creditor or by selling them elsewhere 163 164 A REVISION" OP THE TREATY and remitting cash. In either case the goods come on to the world market and are sold competitively or cooperatively in relation to the industries of the creditor, as the case may be, this distinction depending on the nature of the goods rather than on the market in which they are sold. 2. It is not much use to earmark non-competi- tive goods against the payment of the debt, so long as competitive goods are being sold by the debtor country in some other connection, e.g., to pay for its own imports. This is simply to bury one's head in the sand. For example, out of the aggregate of goods which Germany would natu- rally export in the event of her exports being forcibly stimulated, it might be possible to pick out a selection of non-competitive goods; but it would not affect the situation in the slightest de- gree to pretend that it was these particular goods, and not the others, which were paying the debt. It is therefore useless to prescribe that Germany shall pay in certain specified commodities if these are commodities which she would export in any case, and useless, equally, to forbid her to pay in certain specified commodities, if that merely means that she will export these commodities to some other market to pay for her imports gen- erally. No expedient on our part for making Ger- many pay us, or on America's part for making us pay her, in the shape of particular commodities REPARATION, INTER-ALLY DEBT, ETC. 165 affects the position, except in so far as it modifies the form of the paying country's exports as a whole. 3. On the other hand, it does us no harm to re- ceive for nothing the proceeds of goods, even when they are sold competitively, if these goods would be sold on the world's market in any case. 4. If the result of pressing the debtor country to pay is to cause it to offer competitive goods at a lower price than it would otherwise, the par- ticular industries in the creditor country which produce these goods are bound to suffer, even though there are balancing advantages for the creditor country as a whole. 5. In so far as the payments made by the debtor country accrue, not to the country with which the debtor's goods are competing, but to a third party, clearly there are no balancing advantages to offset the direct disadvantages under 4. 6. The answer to the question, whether the bal- ancing advantages to the creditor country as a w^hole outweigh the injury to particular industries within that country, depends on the length of the period over which the creditor country can rea- sonably expect to go on receiving the payments. At first the injury to the industries which suffer from the competition and to those employed in them is likely to outweigh the benefit of the pay- ments received. But, as in the course of time the 166 A EEVISION OF THE TREATY capital and labor are absorbed in other directions, a balance of advantage may accrue. The application of these general principles to the particular case of ourselves and Germany is easy. Germany's exports are so preponderantly competitive with ours, that, if her exports are forcibly stimulated, it is certain that she will have to sell goods against us. This is not altered by the fact that it is possible to pick out a few ex- ports or potential exports, such as potash or sugar, which are not competitive. If Germany is to have a large surplus of exports over imports, she must increase her competitive sales. In the Economic Consequences of the Peace (pp. 175- 185) I demonstrated this at some length on the basis of pre-war statistics. I showed not only that the goods she must sell, but the markets she must sell them in, were largely competitive with our own. The statistics of post-war trade show tliat the former argument still holds good. The following table shows the proportions in which her export trade was divided between the prin- cipal articles of export, (1) in 1913, (2) in the first nine months of 1920 (the latest period for which I have figures in this precise form), and (3) in the four months June to September 1921, these last figures representing, I think, a not ex- actly comparable classification, and being provi- sional only: REPARATION, INTER-ALLY DEBT, ETC. 167 German Exports. Iron and steel goods Machinery (including motor cars) Chemicals and dies Fuel Paper goods Electrical goods kSilk goods Cotton goods Woolen goods Glass Leather goods Copper goods I'ercentage of Total Exports. 1913. 13.2 7.5 4 7 2.5 2 2 5.5 6 .5 3 L5 1920 (Jan.-Sept.) 20 12 13 6.5 4 3.5 3 3 2.5 2 1.5 1921 (June-Sept.) 22 17 9.5 ? 3.5 ? 15 2 4 ? It is clear, therefore, that, though raw mate- rials other than coal, such as potash, sugar, and timber may yield a trifle, Germany can only com- pass an export trade of great value by exporting iron and steel goods, chemicals, dyes, textiles, and coal, for these are the only export articles of which she can produce great quantities. It is also clear that there have been no very marked changes in the proportionate importance of the different export trades since the war, except that the exchange position has somewhat stimulated, relatively to the others, those export lines, such as iron goods, machinery, chemicals, dyes, and glass, which do not involve much importation of raw materials. To compel Germany to pay a large indemnity 168 A REVISION OF THE TREATY is therefore the same thing as to compel her to expand some or all of the above-mentioned ex- ports to a greater extent than she would do other- wise. The only way in which she can effect this expansion is by offering the goods at a lower price than that at which other countries care to offer them ; putting herself in a position to offer them cheap, partly by the German working classes low- ering their standard of life without reducing their efficiency in the same degree, and partly by German export industries being subsidized, di- rectly or indirectly, at the expense of the rest of the community. These facts, formerly overlooked, are now, per- haps, exaggerated by popular opinion. For Prin- ciple (3), enunciated above, requires attention. Our industries will be subjected to strong compe- tition from Germany, just as they were before the war, whether we exact Separation or not; and we must not ascribe to the Reparation policy in- conveniences which would exist in any case. The remedy lies not in the now popular nostrums for prescribing the form in which Germany shall pay, but in reducing the aggregate amount to a reason- able figure. For by prescribing the manner in which she shall pay us we do not control the form of her export trade as a whole ; and by absorbing for reparation purposes the whole of a particular type of export, we compel her to expand her other EEPAKATION, INTER-ALLY DEBT, ETC. 169 exports to pay for her imports and other inter- national obligations. On the other hand, we can secure from her moderate payments, on the sort of scale, for example, on which she might have been building up new foreign investments, with- out stimulating her exports as a whole to a greater activity than they would enjoy otherwise. This is the correct course for Great Britain from the standpoint of her own self-interest only. The practical application of Principles (5) and (6) is also clear. So far as (5) is concerned. Great Britain is to receive not the whole of the indemnity, but about a fifth of it; whilst (6) pro- vides the argument which to me has always ap- peared decisive. The permanence of reparation payments on a large scale for a long period of years is, to say the least, not to be reckoned on. Who believes that the Allies will, over a period of one or two generations, exert adequate force over the German Government, or that the Ger- man Government can exert adequate authority over its subjects, to extract continuing fruits on a vast scale from forced labor? No one believes it in his heart; no one at all. There is not the faintest possibility of our persisting with this affair to the end. But if this is so, then, most certainly, it will not be worth our while to dis- order our export trades and disturb the equi- 170 A REVISION OF THE TREATY librium of our industry for two or three years; much less to endanger the peace of Europe. The same principles apply with one modifica- tion to the United States and to the exaction by her of the debts which the Allied Governments owe. The industries of the United States would suffer, not so much from the competition of cheap goods from the Allies in their endeavors to pay their debts, as from the inability of the Allies to purchase from America their usual proportion of her exports. The Allies would have to find the money to pay America, not so much by selling more as by buying less. The farmers of the United States would suffer more than the manu- facturers; if only because increased imports can be kept out by a tarifiF, whilst there is no such easy way of stimulating diminished exports. It is, however, a curious fact that whilst Wall Street and the manufacturing East are prepared to con- sider a modification of the debts, the Middle West and South is reported (I write ignorantly) to be dead against it. For two years Germany was not required to pay cash to the Allies, and during that period the manufacturers of Great Britain were quite blind to what the consequences would be to themselves when the payments actually began. The Allies have not yet been required to begin to pay cash to the United States, and the farmers of the latter are still as blind as were EEPAKATION", INTER-ALLY DEBT, ETC. 171 the British manufacturers to the injuries they will suffer if the Allies ever try seriously to pay in full. I recommend Senators and Congressmen from the agricultural districts of the United States, lest they soon suffer the same moral and intellectual ignominy as our own high-Repara- tion men, to invest at once in a little caution in their opposition to the efforts of Mr. Harding's Administration to secure for itself a free hand to act wisely in this matter (and even perhaps generously) in accordance with the progress of opinion and of events. The decisive argument, however, for the United States, as for Great Britain, is not the damage to particular interests (which would diminish with time), but the unlikelihood of permanence in the exaction of the debts, even if they were paid for a short period. I say this, not only because I doubt the ability of the European Allies to pay, but because of the great difficulty of the problem which the United States has before her in any case in balancing her commercial account with the Old World. American economists have examined somewhat carefully the statistical measure of the change from the pre-war position. According to their estimates, America is now owed more interest on foreign investments tban is due from her, quite apart from the interest on the debts of the Allied 172 A EEVISIOlSr OF THE TREATY Governments; and her mercantile marine now earns from foreigners more than she owes them for similar services. Her excess of exports of commodities over imports approaches $3000 mil- lions a year ; ^ whilst, on the other side of the bal- ance, payments, mainly to Europe, in respect of tourists and of immigrant remittances are esti- mated at not above $1000 millions a year. Thus, in order to balance the account as it now stands, the United States must lend to the rest of the world, in one shape or another, not less than $2000 millions a year, to which interest and sink- ing fund on the European Governmental War Debts would, if they were paid, add about $600 millions. Recently, therefore, the United States must have been lending to the rest of the world, mainly Europe, something like $2000 millions a year. Fortunately for Europe, a fair proportion of this was by way of speculative purchases of depreci- ated paper currencies. From 1919 to 1921 the losses of American speculators fed Europe; but this source of income can scarcely be reckoned on permanently. For a time the policy of loans can meet the situation; but, as the interest on ^ In the year of boom to June 1920, on a total trade of $13,350 millions, the excess of exports over imports was $2870 millions. In the year, partly one of depression, to June 1921, on a total trade of $10,150 millions, the excess of exports was $2860 millions. EEPARATION", INTEK-ALLY DEBT, ETC. 173 past loans mounts up, it must in the long run aggravate it. Mercantile nations have always employed large funds in overseas trade. But the practice of for- eign investment, as we know it now, is a very modern contrivance, a very unstable one, and only suited to peculiar circumstances. An old coun- try can in this way develop a new one at a time when the latter could not possibly do so with its own resources alone; the arrangement may be mutually advantageous, and out of abundant profits the lender may hope to be repaid. But the position cannot be reversed. If European bonds are issued in America on the analogy of the American bonds issued in Europe during the nineteenth century, the analogy will be a false one; because, taken in the aggregate, there is no natural increase, no real sinking fund, out of which they can be repaid. The interest will be furnished out of new loans, so long as these are obtainable, and the financial structure will mount always higher, until it is not worth while to main- tain any longer the illusion that it has founda- tions. The unwillingness of American investors to buy European bonds is based on common sense. At the end of 1919 I advocated (in The Eco- nomic Consequences of the Peace) a reconstruc- tion loan from America to Europe, conditioned, however, on Europe's putting her own house in 174 A REVISION OF THE TREATY order. In the past two years America, in spite of European complaints to the contrary, has, in fact, made very large loans, much larger than the sum I contemplated, though not mainly in the form of regular, dollar-bond issues. No particu- lar conditions were attached to these loans, and much of the money has been lost. Though wasted in part, they have helped Europe through the crit- ical days of the post-Armistice period. But a continuance of them cannot provide a solution for the existing disequilibrium in the balance of indebtedness. In part the adjustment may be effected by the United States taking the place hitherto held by England, France, and (on a small scale) Germany in providing capital for those new parts of the world less developed than herself — the British Dominions and South America. The Russian Em- pire, too, in Europe and Asia, may be regarded as virgin soil, which will at a later date provide a suitable outlet for foreign capital. The Amer- ican investor will lend more wisely to these coun- tries, on the lines on which British and French in- vestors used to lend to them, than direct to the old countries of Europe. But it is not likely that the whole gap can be bridged thus. Ultimately, and probably soon, there must be a readjustment of the balance of exports and imports. America must buy more and sell less. This is the only al- KEPARATION", INTER-ALLY DEBT, ETC. 175 ternative to her making to Europe an annual pres- ent. Either American prices must rise faster than European (which will be the case if the Fed- eral Reserve Board allows the gold influx to pro- duce its natural consequences), or, failing this, the same result must be brought about by a fur- ther depreciation of the European exchanges, until Europe, by inability to buy, has reduced her purchases to articles of necessity. At first the American exporter, unable to scrap all at once the processes of production for export, may meet the situation by lowering his prices; but when these have continued, say for two years, below his cost of production, he will be driven inev- itably to curtail or abandon his business. It is useless for the United States to suppose that an equilibrium position can be reached on the basis of her exporting at least as much as at present, and at the same time restricting her im- ports by a tariff. Just as the Allies demand vast payments from Germany, and then exercise their ingenuity to prevent her paying them, so the American Administration devises, with one hand, schemes for financing exports, and, with the other, tariffs which will make it as difficult as possible for such credits to be repaid. Great nations can often act with a degree of folly which we should not excuse in an individual. By the shipment to the United States of all the 176 A KEVISION OF THE TKEATY bullion in the world, and the erection there of a sky-scraping golden calf, a short postponement may be gained. But a point may even come when the United States will refuse gold, yet still de- mand to be paid, — a new Midas vainly asking more succulent fare than the barren metal of her own contract. In any case the readjustment will be severe, and injurious to important interests. If, in ad- dition, the United States exacts payment of the Allied debts, the position will be intolerable. If she persevered to the bitter end, scrapped her export industries and diverted to other uses the capital now employed in them, and if her former European associates decided to meet their obliga- tions at whatever cost to themselves, I do not deny that the final result might be to America's material interest. But the project is utterly chi- merical. It will not happen. Nothing is more certain than that America will not pursue such a policy to its conclusion; she mil abandon it as soon as she experiences its first consequences. Nor, if she did, would the Allies pay the money. The position is exactly parallel to that of German Reparation. America will not carry through to a conclusion the collection of Allied debt, any more than the Allies will carry through the col- lection of their present Reparation demands. Neither, in the long run, is serious politics. REPARATION", INTER-ALLY DEBT, ETC. 177 Nearly all well-informed persons admit this in private conversation. But we live in a curious age when utterances in the press are deliberately designed to be in conformity with the worst-in- formed, instead of with the best-informed, opin- ion, because the former is the wider spread; so that for comparatively long periods there can be discrepancies, laughable or monstrous, between the written and the spoken word. If this is so, it is not good business for America to embitter her relations with Europe, and to dis- order her export industries for two years, in pur- suance of a policy which she is certain to abandon before it has profited her. For the benefit of any reader who enjoys an abstract statement, I summarize the argument thus. The equilibrium of international trade is based on a complicated balance between the agri- culture and the industries of the different coun- tries of the world, and on a specialization by each in the employment of its labor and its capital. If one country is required to transfer to another without payment great quantities of goods, for Vv^hich this equilibrium does not allow, the bal- ance is destroyed. Since capital and labor are fixed and organized in certain employments and cannot flow freely into others, the disturbance of the balance is destructive to the utility of the cap- ital and labor thus fixed. The organization, on 178 A REVISION" OP THE TREATY which the wealth of the modern world so largely depends, suffers injury. In course of time a new organization and a new equilibrium can be estab- lished. But if the origin of the disturbance is of temporary duration, the losses from the injury done to organization may outweigh the profit of receiving goods without paying for them. More- over, since the losses will be concentrated on the capital and labor employed in particular indus- tries, they will provoke an outcry out of propor- tion to the injury inflicted on the community as a whole. CHAPTER VII The Revision of the Treaty and the Settlement of Europe The deeper and the fouler the bogs into which Mr. Lloyd George leads us, the more credit is his for getting us out. He leads us in to satisfy our desires; he leads us out to save our souls. He hands us down the primrose path and puts out the bonfire just in time. Who, ever before, en- joyed the best of heaven and hell as we do? In England, opinion has nearly completed its swing, and the Prime Minister is making ready to win a General Election on Forbidding Ger- many to Pay, Employment for Every one, and a Happier Europe for All. Why not, indeed? But this Faustus of ours shakes too quickly his kaleidoscope of halos and hell-fire, for me to de- pict the hues as they melt into one another. I shall do better to construct an independent solu- tion, which is possible in the sense that nothing but a change in the popular will is necessary to achieve it, hoping to influence this will a little, but leaving it to those, whose business it is, to gage the moment at which it will be safe to embroider such patterns on a political banner. 179 180 A REVISION OF THE TREATY If I look back two years and read again what I wrote then, I see that perils which were ahead are now passed safely. The patience of the common people of Europe and the stability of its insti- tutions have survived the worst shocks they will receive. Two years ago the Treaty, which out- raged Justice, Mercy, and Wisdom, represented the momentary will of the victorious countries. "Would the victims be patient? Or would they be driven by despair and privation to shake Society's foundations! We have the answer now. They have been patient. Nothing very much has hap- pened, except pain and injury to individuals. The communities of Europe are settling down to a new equilibrium. We are almost ready to turn our minds from the avoidance of calamity to the re- newal of health. There have been other influences besides that patience of the common people which often before has helped Europe through worse evils. The ac- tions of those in power have been wiser than their words. It is only a slight exaggeration to say that no parts of the Peace Treaties have been car- ried out, except those relating to frontiers and to disarmament. Many of the misfortunes which I predicted as attendant on the execution of the Reparation Chapter have not occurred, because no serious attempt has been made to execute it. And, whilst no one can predict with what particular THE SETTLEMENT OF EUROPE 181 sauce the makers of the Treaty will eat their words, there can no longer be any question of the actual enforcement of this Chapter. And there has been a third factor, not quite in accordance with expectations, paradoxical at first sight, but natural, nevertheless, and concordant with past experience, — the fact that it is in times of grow- ing profits and not in times of growing distress that the working classes stir themselves and threaten their masters. "When times are bad and poverty presses on them they sink back again into a weary acquiescence. Great Britain and all Eu- rope have learned this in 1921. Was not the French Revolution rather due perhaps to the growing wealth of eighteenth-century Prance — for at that time France was the richest country in the world — than to the pressure of taxation or the exactions of the old regime? It is the profiteer, not privation, that makes man shake his chains. In spite, therefore, of trade depression and dis- ordered exchanges, Europe, under the surface, is much stabler and much healthier than two years ago. The disturbance of minds is less. The or- ganization, destroyed by war, has been partly re- stored; transport, except in Eastern Europe, is largely repaired; there has been a good harvest, everywhere but in Russia, and raw materials are abundant. Great Britain and the United States 182 A REVISION OF THE TREATY and their markets overseas have suffered a cyclical fluctuation of trade prosperity of a greater ampli- tude than ever before; but there are indications that the worst point is passed. Two obstacles remain. The Treaty, though un- executed, is not revised. And that part of or- ganization, which consists in currency regulation, public finance, and the foreign exchanges, remains nearly as bad as it ever was. In most European countries there is still no proper balance between the expenditure of the State and its income, so that inflation continues and the international val- ues of their currencies are fluctuating and un- certain. The suggestions which follow are mainly directed towards these problems. Some contemporary plans for the reconstruc- tion of Europe err in being too paternal or too complicated; also, sometimes, in being too pes- simistic. The patients need neither drugs nor surgery, but healthy and natural surroundings in which they can exert their own recuperative powers. Therefore a good plan must be in the main negative; it must consist in getting rid of shackles, in simplifying the situation, in cancel- ing futile but injurious entanglements. At pres- ent every one is faced by obligations which they cannot meet. Until the problem set to the Fi- nance Ministers of Europe is a possible one, there THE SETTLEMENT OF ETJEOPE 183 can be little incentive to energy or to the exer- cise of skill. But if the situation was made such that an insolvent country could have only itself to blame, then the highest integrity and the most accomplished financial technique would, in each separate country, have its chance. I seek by the proposals of this chapter, not to prescribe a solu- tion, but to create a situation in which a solution is possible. In their main substance, therefore, my sugges- tions are not novel. The now familiar project of the cancelation, in part or in their entirety, of the Eeparation and Inter-allied Debts, is a large and unavoidable feature of them. But those who are not prepared for these measures must not pretend to a serious interest in the Reconstruc- tion of Europe. In so far as such cancelation or abatement in- volves concessions by Great Britain, an English- man can write without embarrassment and with some knowledge of the tendency of popular opin- ion in his own country. But where concessions by the United States are concerned he is in more dif- ficulty. The attitude of a section of the Amer- ican press furnishes an almost irresistible tempta- tion to deal out the sort of humbug (or discrete half-truths) which are believed to promote cor- diality between nations; it is easy and terribly respectable ; and what is much worse, it may even 184 A KEVISION OF THE TREATY do good where frankness would do harm. I pur- sue the opposite course, with a doubting and un- easy conscience, yet supported (not only in this chapter but throughout my book) by the hope, possibly superstitious, that openness does good in the long run, even when it makes trouble at first. So far, Reparation on a large scale has not been collected from Germany. So far, the Allies have not paid interest to the United States on what they owe. Our present troubles, when they are not attributable to the after-effects of war and the cyclical depression of trade, are due, therefore, not to the enforcement of these claims, but to the uncertainties of their possible enforcement. It follows, therefore, that merely to put off the prob- lem will do us no good. That is what we have been doing for two years already. Even to re- duce our Reparation demands to Germany's maxi- mum actual capacity and really force her to pay them, might make matters worse than they are. To write down inter-ally debts by half and then try to collect them, would be an aggravation, not a cure, of the existing difficulties. The solution, therefore, must not be one which tries to extract the last theoretical penny from everybody; its main object must be to set the Finance Ministers of every country a problem not incapable of wise solution over the next five years. THE SETTLEMEN'T OF EUROPE 185 I. The Revision of the Treaty The Reparation Commission have assessed the Treaty claims at 138 milliard gold marks, of whicli 132 milliards are for pensions and damage and 6 milliards for Belgian debt. They have not stated in what proportions the 132 milliards are divided between pensions and damages. My own assess- ment of the Treaty claims (p. 131 above) is 110 milliards, of which 74 milliards are for pensions and allowances, 30 milliards for damage and 6 milliards for Belgian debt. The arguments of Chapter VI make it incum- bent on those who are convinced by them to aban- don as dishonorable the claims to pensions and allowances. This reduces the claims to 36 mil- liards, a sum which it may not be in our interest to exact in full, but which is probably within Ger- many's theoretical capacity to pay. Apart from clearing out of the way various clauses which are no longer operative or useful, and from terminating the occupation on condi- tions set forth below, I should limit my Revision of the Treaty to this simple stroke of the pen. Let the present assessment of 138 milliard gold marks be replaced by 36 milliard gold marks. We are strictly entitled under the Armistice Terms to these 36 milliards; and if prudence recommends an abatement below that figure, such 186 A EEVISION" OF THE TREATY abatement can properly be made, on terms, by those and those only who are entitled to the claims. I estimate with some confidence that this sum of 36 milliards is divisible between the Allies about in the proportions shown in the table below. The payment by Germany of 5 per cent inter- est and 1 per cent sinking fund on this total sum is not, in my judgment, theoretically impossible. But it could only be done by stimulating her ex- port industries in a manner injurious and irritat- ing to Great Britain, and by imposing on her Damage. Belgian Debt. Total. British Empire 9 16 3 1 i 2 2 2 11 France 18 Belgium 3 Italy 1 United States 2 Others 1 30 6 36 Treasury a financial problem of such difficulty that it would tend to unsound finance and to weak, unstable Governments. Even though this pay- ment is theoretically possible, I do not think that it is practically obtainable over a period of thirty years. I recommend, therefore, that, as a separate ar- rangement from the Revision of the Treaty as THE SETTLEMENT OF EUROPE 187 above, the British Empire should waive the whole of their claims, with the exception of 1 milliard gold marks reserved for a special purpose ex- plained below, and should undertake to square the claims of Italy and the minor claimants by cancelation of debt owing from them; thus leav- ing Germany to pay 18 milliards to France and 3 milliards to Belgium (on the assumption that the United States also would forego the trifle due to her). This sum should be discharged by an an- nual payment of 6 per cent of the sum due (being 5 per cent interest and 1 per cent sinking fund) over a period of thirty years. With the assist- ance of minor measures to ease the opening pe- riod, it is reasonable to suppose that this amount could be paid without serious injury to any one. In so far as it proves convenient to discharge this liability in goods, and not in cash, so much the better. But I see no advantage in laying stress on this. It would be wiser to leave Ger- many to find the money as best she can, any pay- ment in goods being by mutual agreement, as in the Wiesbaden plan. It may lead, however, to great anomalies to fix the annual payments in terms of gold over so long a period as thirty years. If gold prices fall, the burden may become intolerable. If gold prices rise, the claimants may be cheated of their ex- pectations. The annual payment should be ad- 188 A EEVISION OF THE TREATY justed, therefore, by some impartial authority, with reference to an index number of the com- modity-value of gold. The other Treaty change relates to the Occu- pation. It would promote peaceable relations in Europe if, as a part of the new settlement, the Allied troops were withdrawn altogether from German territory, and all rights of invasion for whatever purpose waived, except by leave of a majority vote of the League of Nations. But in return, the British Empire and the United States should guarantee to France and Belgium all rea- sonable assistance, short of warfare, in securing satisfaction for their reduced claims ; whilst Ger- many should guarantee the complete de-mili- tarization of her territory west of the Rhine. II. The Satisfaction of the Allies France. — Is it in the interest of France to ac- cept this settlement! If it is combined with fur- ther concessions from Great Britain and the United States by the cancelation of her debts to them, it is overwhelmingly in her interest. What is her present balance-sheet of claims and liabilities? She is entitled to 52 per cent of what Germany pays. On p. 75 I have calculated what this will be under the London Settlement, (a) on the basis of German exports at the rate of 6 mil- THE SETTLEMENT OP EUROPE 189 liards, namely 3.56 milliard gold marks; and (h) on the basis of exports at the rate of 10 milliards, namely 4.60 milliard gold marks. France's share, therefore, is 1.85 milliards per annum on assump- tion (a), and 2.39 milliards on assumption (h). On the other hand, she owes the United States $3634 million and the United Kingdom £557 mil- lion. If these sums be converted into gold marks at par, and the annual charge on them is cal- culated at 5 per cent for interest and 1 per cent for sinking fund, her liability is 1.48 milliards per annum. That is to say, if Germany pays in full and if the more favorable assumption (h) is adopted as to the growth of her exports, the most for which France can hope under existing arrange- ments is a net sum of .91 milliard gold marks (£45,500,000 gold) per annum. Whereas under the revised scheme she will not only be entitled to a greater sum, namely 1.08 milliard gold marks (£54,000,000 gold) per annum; but, inasmuch as she will be accorded a priority on Germany's avail- able resources, and as the total charge is within Germany's capacity, she may reasonably expect to be paid. My proposal provides for the complete restora- tion of the devastated provinces at a fair val- uation of the actual damage done, and it abandons other rival claims which stand in the way of the priority of this paramount claim. But apart 190 A EEVISION" OF THE TREATY from this, about which opinions will differ, and apart from the increased likelihood which it af- fords of really getting payment, France will ac- tually receive a larger sum than if the letter of the existing agreements is adhered to all round. Belgium is entitled at present to 8 per cent of the receipts, which under the London Settlement would amount to 280 million gold marks per annum on assumption (a) and 368 million on assump- tion (b). Under the new proposal she will re- ceive 180 million gold marks per annum and will gain in certainty what she loses in possible re- ceipts. The satisfaction of her existing priority should be adjusted by mutual agreement between herself and France. Italy would gain immensely. She is entitled to 10 per cent of the receipts under the London Set- tlement (together with some claims on proble- matical receipts from Austria and Bulgaria) ; that is to say, 326 million gold marks per annum on assumption (a) and 460 million on assumption (b). But these sums are far below the annual charge of her obligations towards the United Kingdom and the United States, which, converted into gold marks on the same basis as that em- ployed above in the case of France, amounts to 1000 million gold marks per annum. THE SETTLEMENT OP EUROPE 191 III. The Assistance of New States i have reserved above, out of the claims of Great Britain, a sum of one milliard gold marks, with the object, not that she should retain this sum for herself, but that she should use it to ease the financial problems of two states for which she has a certain responsibility, namely Austria and Poland. Austria's problems are well known and attract a general sympathy. The Viennese were not made for tragedy ; the world feels that, and there is none so bitter as to wish ill to the city of Mozart. Vienna has been the capital of degenerate great- ness, but, released from imperial temptations, she is now free to fulfil her true role of providing for a quarter-part of Europe the capital of com- merce and the arts. Somehow she has laughed and cried her way through the last two years ; and now, I think, though on the surface her plight is more desperate than before, a very little help will be enough. She has no army, and by virtue of the depreciation of her money a trifling internal debt. Too much help may make of her a lifelong beggar; but a little will raise her from de- spondency and render her financial problem no longer beyond solution. My proposal, then, is to cancel the debts she owes to foreign governments, including empty 192 A REVISION OF THE TREATY claims to Reparation, and to give her a compara- tively small sum out of the milliard gold marks reserved from British claims on Germany. Cred- its placed at her disposal in Berlin, equivalent in value to 300 million gold marks, to be available, as required, over a period of five years, might be enough. For the other new States, the cancelation of debt owing, and, in the case of Hungary, of Repa- ration claims, should be enough, except for Poland. Poland, too, must be given a possible problem, but it is not easy to be practical with so imprac- ticable a subject. Her main problem can be solved only by time, and the recovery of her neighbors. I deal here only with the urgent ques- tion of making just possible for her a reorgan- ization of currency, and of facilitating a peace- able intercourse between herself and Germany. For this purpose I would assign to her the bal- ance of the reserved milliard, namely, 700 million gold marks, of which the annual interest should be available to her unconditionally, but of which the capital should be employed only for a cur- rency reorganization, under conditions to be approved by the United States and Great Brit- ain. In its essentials this scheme is very simple. I think that it satisfies my criterion of leaving every THE SETTLEMENT OF EUROPE 193 Finance Minister in Europe with a possible prob- lem. The rest must come gradually, and I will not burden the argument of this book by consid- ering along what lines the detailed solutions should be sought. Who are the losers? Even on paper — far more in reality — every continental country gains an ad- vantage. But on paper the United States and the United Kingdom are losers. What is each of them giving up? Under the London Settlement Great Britain is entitled to 22 per cent of the receipts, which is from 780 to 1010 million gold marks per annum (£39,000,000 to £50,500,000 gold) according to which assumption is adopted as to the volume of German exports. She is owed by various Euro- pean governments (including Russia, see Appen- dix No. IX.) £1,800,000,000, which at 6 per cent for interest and sinking fund is £108,000,000 per annum. On paper she would forego these sums, say £150,000,000 per annum, altogether. In actual fact, her prospects of securing more than a frac- tion of this amount are remote. Great Britain lives by commerce, and most Englishmen now need but little persuading that she will gain more in honor, prestige, and wealth by employing a prudent generosity to preserve the equilibrium of commerce and the well-being of Europe, than by attempting to exact a hateful and crushing 194 A EEVISION OF THE TREATY tribute, whether from her victorious Allies or her defeated enemy. The United States would forego on paper a cap- ital sum of about 6500 million dollars, which, at 6 per cent, represents an annual charge of $390,- 000,000 (£78,000,000 gold). But in my opinion the chance of her being actually paid any consid- erable amount of this, if she tries to exact it, is decidedly remote.^ Is there any likelihood of the United States joining in such a scheme soo7i enough (for I feel confident she will cancel these debts in the end) to be useful! Most Americans, with whom I have discussed this question, express themselves as personally fa- vorable to the cancelation of the European debts, but add that so great a majority of their country- men think otherwise that such a proposal is at present outside practical politics. They think, therefore, that it is premature to discuss it; for the present, America must pretend she is going to demand the money and Europe must pretend she is going to pay it. Indeed, the position is much the same as that of German Reparation in 1 This scheme is in no way concernea with the debt of Great Britain to the United States, which is excluded from the above figures. The question of the right treatment of this debt (which differs from the others chiefly because the interest on it is capa- ble of being actually collected in cash) raises other issues with which I am not dealing here. The above proposals for cancela- tion relate solely to the debts owing by the Governments of Con- tinental Europe to the Governments of Great Britain and the United States. THE SETTLEMENT OF EUROPE 195 England in the middle of 1921. Doubtless my in- formants are right about this public opinion, the mysterious entity which is the same thing perhaps as Rousseau's General Will. Yet, all the same, I do not attach, to what they tell me, too much importance. Public opinion held that Hans An- dersen's Emperor wore a fine suit; and in the United States especially, public opinion changes sometimes, as it were, en bloc. If, indeed, public opinion were an unalterable thing, it would be a waste of time to discuss pub- lic affairs. And though it may be the chief busi- ness of newsmen and politicians to ascertain its momentary features, a writer ought to be con- cerned, rather, with what public opinion should be. I record these platitudes because many Americans give their advice, as though it were actually immoral to make suggestions which pub- lic opinion does not now approve. In America, I gather, an act of this kind is considered so reck- less, that some improper motive is at once sus- pected, and criticism takes the form of an inquiry into the culprit's personal character and ante- cedents. Let us inquire, however, a little more deeply into the sentiments and emotions which underlie the American attitude to the European debts. They want to be generous to Europe, both out of good feeling and because many of them now sus- 196 A REVISION OP THE TEEATT pect that any other course would upset their own economic equilibrium. But they don't want to be "done." They do not want it to be said that once again the old cynics in Europe have been one too many for them. Times, too, have been bad and taxation oppressive; and many parts of America do not feel rich enough at the moment to favor a light abandonment of a possible asset. Moreover, these arrangements, between nations warring together, they liken much more closely than we do to ordinary business transactions be- tween individuals. It is, they say, as though a bank having made an unsecured advance to a client, in whom they believe, at a difficult time when he would have gone under without it, this client were then to cry off paying. To permit such a thing would be to do an injury to the ele- mentary principles of business honor. The average American, I fancy, would like to see the European nations approaching him with a pathetic light in their eyes and the cash in their hands, saying, "America, we owe to you our lib- erty and our life; here we bring what we can in grateful thanks, money not wrung by grievous taxation from the widow and orphan, but saved, the best fruits of victory, out of the abolition of armaments, militarism, Empire, and internal strife, made possible by the help you freely gave us." And then the average American would re- THE SETTLEMENT 0¥ EUROPE 197 ply: **I honor you for your integrity. It is what I expected. But I did not enter the war for profit or to invest my money well. I have had my re- ward in the words you have just uttered. The loans are forgiven. Return to your homes and use the resources I release to uplift the poor and the unfortunate." And it would be an essential part of the little scene that his reply should come as a complete and overwhelming surprise. Alas for the wickedness of the world! It is not in international affairs that we can secure the sen- timental satisfactions which we all love. For only individuals are good, and all nations are dishonor- able, cruel, and designing. In deciding whether Italy (for example) must pay what she owes, America must consider the consequences of try- ing to make her pay, — so far as self-interest is concerned, in terms of economic equilibrium be- tween America and Italy, and, so far as generos- ity is concerned, in terms of Italian peasants and their lives. And whilst the various Prime Min- isters will telegraph something suitable, drafted by their private secretaries, to the etfect that America's action makes the moment of writing the most important in the history of the world and proves that Americans are the noblest crea- tures living, America must not expect adequate or appropriate thanks. Nevertheless, since time presses, we cannot 198 A REVISION or THE TREATY rely on American assistance, and we must do without it if necessary. If America does not feel ready to participate in a Conference of Revision and Reconstruction, Great Britain should be pre- pared to do her part in the cancelation of paper claims, irrespective of similar action by the United States. The simplicity of my plan may be emphasized by summarizing it. (1) Great Britain, and if possible America too, to cancel all the debts owing them from the Governments of Europe and to waive their claims to any share of German Repa- ration; (2) Germany to pay 1260 million gold marks (£63,000,000 gold) per annum for 30 years, and to hold available a lump sum of 1000 million gold marks for assistance to Poland and Austria; (3) this annual payment to be assigned in the shares 1080 million gold marks to France and 180 million to Belgium. This would be a just, sensible, and permanent settlement. If France were to refuse it, she would indeed be sacrificing the substance to the shadow. In spite of superficial appearances to the contrary, it is also in the self-interest of Great Britain. Perhaps British public opinion, pro- foundly altered though it now is, may not yet be reconciled to obtaining nothing. But this is a case where a wise nation will do best by acting in a large way. I have not neglected to consider with THE SETTLEMENT OF EUROPE 199 care the various possible devices by which Great Britain might get, or appear to get, something for herself from the settlement. She might take, for instance, in satisfaction of her claims some of the C Bonds under the London Settlement, which, having a third priority after provision for the A and B Bonds, can be given a nominal value but are really worth nothing. She might, in lieu of receiving a share of the proceeds of the German customs, stipulate that her goods should be ad- mitted into Germany free of duty. She might seek a partial control over German industries, or obtain the services of German organization for the future exploitation of Russia. Plans of this sort attract an ingenious mind and are not to be dis- carded too hastily. Yet I prefer the simple plan, and I believe that all these devices are contrary to true wisdom. There is a disposition in some quarters to insist that any concessions to France by Great Britain and the United States, affecting Reparation and Inter- Ally Debt, should be conditional on Prance 's acceptance of a more pacific policy towards the rest of the world than that to which she herself appears to be inclined. I hope that France will abandon her opposition to proposals for reduced military and naval establishments. What a handicap her youth will suffer if she maintains conscription whilst her neighbors, voluntarily or 200 A KEVISION" OF THE TREATY involuniarily, have abandoned it ! Does she real- ize the impossibility of friendship between Great Britain and any neighboring Power which em- barks on a large program of submarines'? I hope, too, that France will forget her dangerous ambitions in Central Europe and will limit strictly those in the Near East; for both are based on rubbishy foundations and will bring her no good. That she has anything to fear from Germany in the future which we can foresee, except what she may herself provoke, is a delusion. When Ger- many has recovered her strength and pride, as in due time she will, many years must pass before she again casts her eyes Westward. Germany's future now lies to the East, and in that direction her hopes and ambitions, when they revive, will certainly turn. France has an opportunity now of consolidating her national position into one of the stablest, saf- est, richest on the face of the earth; self-con- tained; well- but not over-populated; the heir of a peculiar and splendid civilization. Neither whining about devastated districts, which are eas- ily repaired, nor boasting of military hegemonies, which can quickly ruin her, let her lift up her head as the leader and mistress of Europe in the peace- ful practices of the mind. Nevertheless, these objects are not to be gained by bargaining and cannot be imposed from with- THE SETTLEMENT OF EUROPE 201 out. Therefore they must not be dragged into the Reparation Settlement. This Settlement must be offered France on one condition only, — that she accepts it. But if, like Shylock, she claims her pound of flesh, then let the Law pre- vail. Let her have her bond, and let us have our bonds too. Let her get what she can from Ger- many and pay what she owes to the United States and England. The chief question for dispute is, perhaps, whether an annual payment by Germany of £63,- 000,000 (gold) is enough. I admit that the pay- ment of a somewhat larger sum may prove to be within her capacity. But I recommend this fig- ure because on the one hand it is sufficient to re- store the destruction done in France, yet on the other is not so crushing that, to make Germany pay it, we need be in a position to invade her every spring and autumn. We must fix the pay- ment at an amount which Germany herself will recognize as not unjust, and which is sufficiently within her maximum capacity to leave her some incentive to work and pay it off. Suppose that we knew the theoretical maximum of Germany's capacity to produce and sell abroad a surplus of goods, or could hit on some sliding scale which would automatically absorb year by year whatever surplus there was; should we be wise to demand it? The project of extracting at 202 A REVISION OF THE TREATY the point of the bayonet — for that is what it would mean — a payment so heavy that it would never be paid voluntarily, and to go on doing this until all the makers of the Peace Treaty of Versailles have been long dead and buried in their local Valhallas, is neither good nor sensible. My own proposals, moderate though they may seem in comparison with others, throw on Ger- many a very great burden. They procure for France an enormous benefit. Frenchmen, having fed to satiety on imaginary figures, are nearly ready, I think, to find a surprising flavor and piquancy in real ones. Let them consider what a tremendous financial strength my scheme would give them. Freed from external debt, they would receive in real values each year for thirty years a payment equivalent in gold to nearly half the gold reserv^e now held by the Bank of France; and at the end of the set period Germany would have paid back ten times what she took after 1870. Is it for Englishmen to complain! Are they really losers? One cannot cast up a balance-sheet between incommensurables. But peace and amity might be won for Europe. And England is only asked (as 1 fancy she knows pretty well, by now, in her bones) to give up something which she will never get anyhow. The alternative is that we and the United States will be jockeyed out of our claims amidst a general international disgust. APPENDIX OF DOCUMENTS I. The Spa Agreement, July 1920 {A) Summary ^ of the Agreement upon Reparations be- tween tlie Allies, signed hy tlie British Empire, France, Italy, Japan, Belgium, and Portugal. Article 1 provides that in pursuance of the Treaty o-f Versailles the sums received from Germany for repara- tions shall be divided in the following proportions: France 62 per cent. British Empire 22 " Italy 10 Belgium 8 " Japan and Portugal % of 1 per cent each. The remaining 6^/^ per cent is reserved for the Serbo- Croat-Slovene State and for Greece, Rumania, and other Powers not signatories of the Agreement. Article 2 provides that the aggregate amount re- ceived for reparation from Austria-Hungary and Bul- garia, together with amounts that may be received in respect of the liberation of territories belonging to the former Austro-Hungarian Monarchy, shall be divided : (a) As to half in the proportions mentioned in Arti- cle 1. (&) As to the other half, Italy shall receive 40 per cent, while 60 per cent is reserved for Greece, Rumania, and the Serbo-Croat-Slovene State and other Powers entitled to reparations but not signatories of the Agreement. Article 3 provides that the Allied Governments shall * The following is the official summary issued at the time. The complete text of the Agreement has not been published. 203 204 A REVISION OF THE TREATY adopt measures to facilitate if necessary the issue by Germany of loans destined for the internal requirements of that country and to the prompt discharge of the Ger- man debt to the Allies. Article 4 deals in detail with the keeping of accounts by the Reparation Commission. Article 5 secures to Belgium her priority of £100,- 000,000 gold and enumerates the securities affected by such priority.^ Article 6 deals with the valuation of ships sur- rendered under the various Peace Treaties, and provides for the allocation of sums received for the hire of such ships. It deals also with questions outstanding as to the decisions taken by the Belgian Prize Courts. Bel- gium receives compensation out of the shares of other Allied Powers. Article 7 refers to the Allied cruisers, floating docks, and material handed over under the Protocol of January 10, 1920, as compensation for the German warships which were sunk. Article 8 declares that the same Protocol shall apply to the proceeds of the sale of ships and war material surrendered under the naval clauses of the Treaty, vir- tually including the proceeds of naval war material sold by the Reparation Commission. Article 9 gives Italy an absolutely prior claim to cer- tain specified sums as a set-off to amounts due to her by Austria-Hungary and Bulgaria. Article 10 reserves the rights of Poland and declares that this Agreement shall not apply to her. ' Of which the most tangible were 400,000,000 Danish kroner payable in respect of Sleswig, certain sums were from Luxem- burg for coal, any balance available in respect of German ships seized as prizes in Brazilian ports, and any balance available towards reparation out of German assets in the United States. APPENDIX OF DOCUMENTS 205 Article 11 maintains the rights of countries who lent money to Belgium before November 11, 1918, and makes provision for repayment immediately after satisfaction of the Belgian claim to priority in respect of £100,- 000,000. Article 12 maintains the rights of the Allied Powers to the repayment of credits granted to ex-enemy Powers for the purposes of relief. Article 13 reserves the question of fixing the cost of the armies of occupation in Germany on a uniform basis for discussion with the United States of America. (B) The Allied Note to Germany on the Subject of Coal Deliveries 1. The German Government undertakes to place at the disposal of the Allies, from August 1, 1920, for the ensuing six months, 2,000,000 tons of coal per month, this figure having been approved by the Reparation Com- mission. 2. The Allied Governments will credit the Repara- tion accounts with the value of this coal, as far as it is delivered by rail or inland navigation, and it will be valued at the German internal price in accordance with Paragraph 6 (A), Annex V., Part VIIL, of the Treaty of Versailles. In addition, in consideration of the ad- mission of the right of the Allies to have coal of specified kind and quality delivered to tliem, a premium of five gold marks, payable in cash by the party taking delivery, shall be applied to the acquisition of foodstuffs for the German miners. 3. During the period of the coal deliveries provided for above, the stipulations of Paragraphs 2, 3, and 4 of the draft Control Protocol of July 11, 1920, shall be 206 A REVISION OP THE TREATY put in force at once in the modified form of the Annex hereto. (See below.) 4. An agreement shall be made forthwith between the Allies for distribution of the Upper Silesian coal output by a Commission on which Germany will be represented. This agreement shall be submitted for the approval of the Reparation Commission. 5. The Commission, on which the Germans shall be represented, shall meet forthwith at Essen, Its purpoae sJiall be to seek means by which the conditions of life among the miners with regard to food and clothing can be improved, with a view to the better working of the mines. 6. The Allied Governments declare their readiness to make advances to Germany equal in amount to the difference between the price paid under Paragraph 2 above, and the export price of German coal, f.o.b. in German ports, or the English export price, f.o.b. in English ports, whichever may be the lowest, as laid down in Paragraph VI. (B) of Annex V., Part VIII., of the Treaty of Versailles. These advances shall be made in accordance with Articles 235 and 251 of the Treaty of Versailles. They shall enjoy an absolute priority over all other Allied claims on Germany. The advances shall be made at the end of each month, in accordance with the number of tons delivered and the average f.o.b. price of coal during the period. Advances on account shall be made by the Allies at the end of the first month, without waiting for exact figures. 7. If by November 15, 1920, it is ascertained that the total deliveries for August, September, and October 1920 have not reached 6,000,000 tons, the Allies will proceed to the occupation of a further portion of German terri- tory, either the region of the Ruhr or some other. APPENDIX OF DOCUMENTS 207 Annex 1. A permanent delegation of the Reparation Com- mission will be set up at Berlin, whose mission will be to satisfy itself by the following means that the deliv- eries of coal to the Allies provided for under the Agree- ment of July 15, 1920, shall be carried out: The pro- grammes for the general distribution of output, with details of origin and kind, on the one hand, and the orders given to ensure deliveries to the Allied Powers on the other hand, shall be drawn up by the responsible German authorities and submitted by them for the ap- proval of the said delegation a reasonable time before their despatch to the executive bodies responsible for their execution, 2. No modification in the said progi'amme which may involve a reduction in the amount of the deliveries to the Allies shall be put into effect without prior approval of the Delegation of the Reparation Commission in Berlin. 3. The Reparation Commission, to which the German Government must periodically report the execution by the competent bodies of the orders for deliveries to the Allies, will notify to the interested Powers any infrac- tion of the principles adopted herein. II. The Paris Decisions,^ January 29, 1921 1. In satisfaction of the obligations laid on her by Articles 231 and 232 of the Treaty of Versailles, Ger- many shall pay, apart from the restitutions which she must effect in conformity with Article 238 and all obli- gations under the Treaty: * So far as I am aware, no complete official text of these de- cisions has been published in English. The above is translated from the French text. 208 !^ EEVISION OF THE TREATY (1) Fixed annuities, payable in equal instalments at the end of each six months, as follows : milliard gold marks (a) Two annuities of 2 (May 1, 1921-May 1, 1923) (6) Three " 3 (May 1, 1923-May 1, 1926) (c) Tliree " 4 (May 1, 1926-May 1, 1929) (d) Three " 5 (May 1 1929-May 1, 1932) (e) Thirty-one " 6 (May 1, 1932-May 1, 1963) (2) Forty-two annuities, reckoning from May 1, 1921, equivalent to 12 per cent of the value of Germany's exports, levied on the receipts from them and payable in gold two months after the conclusion of each six- monthly period. To ensure that (2) above shall be completely carried out, Germany will accord to the Reparation Commission every facility for verifying the amount of the exports and for establishing the necessary supervision. 2. The German Government shall deliver forthwith to the Reparation Commission Bearer Bonds payable at the due dates laid down in Article 1 (1) of the present scheme, and of an amount equal to each of the six- monthly instalments payable thereunder. Instructions will be given with the object of facilitating, on the part of such Powers as may require it, the mobilisation of the portion accruing to them under the Agreements which they have established amongst themselves. 3. Germany shall be entitled at any time to antici- pate the fixed portion of her obligation. Payments made by her in anticipation shall be applied in reduction of the fixed annuities prescribed in Article 1 (1), discounted at a rate of 8 per cent up to May 1, 1923, 6 per cent from May 1, 1923, to May 1, 1925, and 5 per cent after May 1, 1925. 4. Germany shall not embark on any credit operation APPENDIX OP DOCUMENTS 209 abroad, directly or indirectly, without the approval of the Reparation Commission. Tliis restriction applies to the Government of the German Empire, the Government of the German States, German provincial and municipal authorities, and also to companies and enterprises con- trolled by these Governments and authorities. 5. In pursuance of Article 248 of the Treaty of Ver- sailles all the assets and revenues of the German Em- pire and its constituent States are held in guarantee of the complete execution by Germany of the provisions of this scheme. The receipts of the German Customs, by land and sea, in particular the receipts of all import and export duties and all supplementary taxes, constitute a special pledge for the execution of the present Agreement. No modification shall be introduced, liable to dimin- ish the yield of the Customs, without the Reparation Commission approving the Customs Legislation and Regulations of Germany. The whole of the receipts of the German Customs shall be credited to the account of the German Government, by a Receiver-General of the German Customs, nomi- nated by the German Government with the assent of the Reparation Commission. In the event of Germany failing to meet one of the payments laid down in the present scheme: (1) The whole or part of the receipts of the German Customs shall be taken over from the Receiver-General of the German Customs by the Reparation Commission and applied by it to the obligations in which Germany has defaulted. In this event the Reparation Commis- sions shall, if it deems necessary, itself a.ssume the ad- ministration and collection of the Customs receipts. (2) The Reparation Commission shall be entitled, in 210 A REVISION OF THE TEEATY addition, to require the German Government to impose such higher tariffs or to take such other measures to increase its resources as it may deem indispensable. (3) If this injunction is without effect, the Commis- sion shall be entitled to declare the German Government in default and to notify this state of affairs to the Gov- ernments of the Allied and Associated Powers who shall take such measures as they think justified. (Signed) Henri Jaspar, D. Lloyd George. Aristide Briand. C. Sforza. K. ISHII. Pabis, January 29, 1921. III. Claims Submitted to the Reparation Commis- sion BY the Various Allied Nations, as Pub- lished BY the Commission,^ February 23, 1921 France I. — Damage to Property (Reconstitution Values) Frs. (Paper) Industrial damages 38,882,521,479 Damage to buildings (propriHd bdtie) 36,892,500,000 Damage to furniture and fittings (dommages mo- biliers) 25,119,500,000 Damage to land (propri4t6 non batie) 21,671,546,225 Damage to State property 1,958.217,193 Damage to public works 2,583,299,425 Other damages 2,359,865,000 Shipping losses 5,009.618,722 Damages suffered in Algeria and colonies 10,710,000 Do. abroad 2,094,825,000 Interest at 5 per cent on the principal (33,000,- 000,000 francs, in round figures, between No- vember 11, 1918, and May 1, 1921, or 30 months) , say, in round figures 4,125,000,000 ^ The Commission published at the same time a warning that it had not adopted these claims, but was about to examine them. Appendix of documents 211 II. — Injuries to Persons Frs. (Paper) Military pensions 60,045,696,000 Allowances to families ot mobilised men 12,936,956,824 Pensions accorded to civilian victims of the war and theii dependants 514,465,000 Ill-treatment inflicted on civilians and prisoners of war 1,869,230,000 Assistance given to prisoners of war 976,906,000 Insufficiency of salaries and wages 223,123,313 Exactions by Germany to the detriment of the civilian population 1,267,615,939 Total of the French claims 218,541,596,120 Great Britain £ Frs. Damage to property 7,936,456 Shipping losses 763,000,000 Losses abroad 24,940,559 Damage to river and canal shipping 4,000,000 Military pensions 1,706,800,000 Allowances to families of mo- bilised men 7,597,832,086 Pensions for civilian victims. . 35,915,579 Ill-treatment inflicted on civilians and prisoners. . . 95,746 Assistance to prisoners of war 12,663 Insufficiency of salaries and wages 6,372 £2,542,070,375 Frs. 7,597,832,086 Italy Damage to property Lire 20,933,547,500 Shipping losses £128,000,000 Military pensions , Francs 31,041,000,000 Allowances to families of mobilised men. . . Francs 6,885,130,395 Civilian victims of the war and prisoners. . Lire 12,153,289,000 Total Lire 33,086,836,000 " Francs 37,926,130,395 " £128,000,000 212 A REVISION OF THE TEEATY Belgium Damage to property (present value) .Belgian Frcs. 29,773,939,099 Shipping losses (present value) Belgian Frcs. 180,708,250 Military pensions French Frcs. 1,637,285,512 Allowances to families of mobilised men French Frcs. 737,930,484 Civilian victims and prisoners of war Belgian Frcs. 4,295,998,454 Total Belgian Frcs. 34,254,645,893 " French Frcs. 2,375,215,996 The other claims may be summarised as follows : Japan .... 297,593,000 yen ( shipping losses ) . " .... 454,063,000 yen (allowances to families of mobil- ised men). 832,774,000 yen. Jugo-Slavia 8,496,091,000 dinars (damage to property). " 19,219,700,112 francs (injuries to persons) . Rumania.. 9,734,015,287 gold francs (property losses). " 9,296,663,076 gold francs (military pensions). " 11,652,009,978 gold francs (civilians and prisoners of war). 31,099,400,188 gold francs. Portugal.. 1,944,261 contos ( 1,574,907 contos for property loss). Greece , . . 4,992,788,739 gold francs ( 1,883,181,542 francs for property loss ) . Brazil £1,216,714 (shipping £1,189,144), plus 598,405 francs. Czecho- slovakia 6,944,228,296 franca and 5,614,947,990 kroner (war- losses). 618,204,007 francs and 1,448,169,845 kroner (Bolshe- vist invasion ) . 7,612,432,103 francs and 7,063,117,135 kroner, Siam 9,179,208 marks, gold, plus 1,169,821 francs. Bolivia . .. £16,000. Peru £56,236, plus 107,389 francs. Haiti $80,000, plus 532,593 francs. Cuba $801,135. Liberia . . . $3,977,135. Poland ... 21,91 3,269,740 francs gold, plus 500,000,000 marks gold. European ^ Danube W 1,834,800 francs gold, 15,048 francs French, and CommissionJ 488,051 lei. APPENDIX OF DOCUMENTS 213 IV. The First Ultimatum of London, March 3, 1921 The following declaration was delivered to Dr. Simons by Mr. Lloyd George, speaking on behalf of the British and Allied Governments, by word of mouth: "The Allies have been conferring upon the whole position and I am now authorised to make this declara- tion on their behalf : "The Treaty of Versailles was signed less than two years ago. The German Government have already de- faulted in respect of some of its most important pro- visions : the delivery for trial of the criminals, who have offended against the laws of war, disarmament, the pay- ment in cash or in kind of 20,000,000,000 of gold marks (£1,000,000,000). These are some of the provisions. The Allies have displayed no harsh insistence upon the letter of their bond. They have extended time, they have even modified the character of their demands; but each time the German Government failed them. "In spite of the Treaty and of the honourable under- taking given at Spa, tlie criminals have not yet been tried, let alone punished, although the evidence has been in the hands of the German Government for months. Military organisations, some of them open, some clan- destine, have been allowed to spring up all over the coun- try, equipped with arms that ought to have been sur- rendered. If the German Government had shown in respect of reparations a sincere desire to help the Allies to repair the terrible losses inflicted upon them by the act of aggression of which the German Imperialist Gov- ernment was guilty, we should still have been ready as before to make all allowances for the legitimate difficul- ties of Germany. But the proposals put forward have reluctantly convinced the Allies either that the German 214 A EEVISION^ OF THE TREATY Government does not intend to carry out its Treaty obligations, or that it has not the strength to insist, in the face of selfish and short-sighted opposition, upon the necessary sacrifices being made. "If that is due to the fact that German opinion will not permit it, that makes the situation still more seri- ous, and renders it all the more necessary that the Allies should bring the leaders of public opinion once more face to face with facts. The first essential fact for them to realise is this — that the Allies, whilst pre- pared to listen to every reasonable plea arising out of Germany's difficulties, cannot allow any further palter- ing with the Treaty. The Ultimatum "We have therefore decided — having regard to the infractions already committed, to the determination in- dicated in these proposals that Germany means still further to defy and explain away the Treaty, and to the challenge issued not merely in these proposals but in official statements made in Germany by the German Government — that we must act upon the assumption that the German Government are not merely in default, but deliberately in default ; and unless we hear by Monday that Germany is either prepared to accept the Paris decisions or to submit proposals which will in other ways be an equally satisfactory discharge of her obliga- tions under the Treaty of Versailles (subject to the concessions made in the Paris proposals), we shall, as from that date, take the following course under tlie Treaty of Versailles. "The Allies are agreed: (1) To occupy the towns of Duisburg, Ruhrort, and Diisseldorf, on the right bank of the Rhine. APPENDIX or DOCUMENTS 215 (2) To obtain powers from their respective Parlia- ments requiring their nationals to pay a cer- tain proportion of all payments due to Ger- many on German goods to their several Govern- ments, such proportion to be retained on ac- count of reparations. (This is in respect of goods purdiased either in this eoimtry or in any other Allied country from Germany.) (3) (a) The amount of the duties collected by the German Customs houses on the external fron- tiers of the occupied territories to be paid to the Reparation Commission. (&) These duties to continue to be levied in accordance with the German tariff. (c) A line of Customs houses to be tem- porarily established on the Rhine and at the boundary of the tetes des ponts occupied by the Allied troops ; the tariff to be levied on this line, botli on tbe entry and export of goods, to be determined by the Allied High Commission of the Rhine territory in conformity with the instructions of tlie Allied Governmeaits. ' ' V. The German Counter-proposaij, as Transmitted TO THE United States Government, April 24, 1921 The United States Government have, by their Note of April 22, opened the possibility, in a way which is thank- fully acknowledged, of solving the reparations problem once more by negotiations ere a solution is effected by coercive measures. The German Government appreci- ates this step in its full importance. They have in the following proposals endeavoured to offer that which ac- 216 A REVISION OF THE TEEATY cording to their convictions represents the utmost limit which Germany 's economic resources can bear, even with the most favourable developments : 1. Germany expresses her readiness to acknowledge for reparation purposes a total liability of 50 milliard gold marks (present value). Germany is also prepared to pay the equivalent of this sum in annuities, adapted to her economic capacity up to an aggregate of 200 mil- liard gold marks. Germany proposes to mobilise her liability in the following way: 2. Germany to raise at once an international loan, of which amount, rate of interest, and amortisation quota are to be agreed on. Germany will participate in this loan, and its terms, in order to secure the greatest possi- ble success, will contain special concessions, and gen- erally be made as favourable as possible. Proceeds of this loan to be placed at the disposal of the Allies. 3. On the amount of her liability not covered by the international loan Germany is prepared to pay interest and amortisation quota in accordance with her economic capacity. In present circumstances she considers the rate of 4 per cent the highest possible. 4. Germany is prepared to let the Powers concerned have the benefit of improvements in her economic and financial situation. For this purpose the amortisation quota should be made variable. In case an improve- ment should take place, the quota would rise, whilst it would correspondingly fall if developments should be in the other direction. To regulate such variations an index scheme would have to be prepared. 5. To accelerate the redemption of the balance, Ger- many is ready to assist with all her resources in the reconstruction of the devastated territories. She con- siders reconstruction the most pressing part of repara- APPENDIX OF DOCUMENTS 217 tion, because it is the most effective way to combat the hatred and misery caused by the war. She is prepared to undertake, herself, the rebuilding of townships, vil- lages, and hamlets, or to assist in the reconstruction with labour, material, and her other resources, in any way the Allies may desire. The cost of such labour and ma- terial she would pay herself. (Full details about this matter have been communicated to the Reparation Com- mission.) 6. Apart from any reconstruction work Germany is prepared to supply for the same purpose, to States con- cerned, any other materials, and to render them any other services as far as possible on a purely commercial basis. 7. To prove the sincerity of her intention to make reparation at once, and in an unmistakable way, Ger- many is prepared to place immediately at the disposal of the Reparation Commission the amount of one mil- liard gold marks in the following manner: First, 150,- 000,000 gold marks in gold, silver, and foreign bills; secondly, 850,000,000 gold marks in Treasury bills, to be redeemed within a period not exceeding three months by foreign bills and other foreign values. 8. Germany is further prepared, if the United States and the Allies should so desire, to assume part of the indebtedness of the Allies to the United States as far as her economic capacity will allow her. 9. In respect of the method by which the German expenditures for reparation purposes should be cred- ited against her total liability, Germany proposes that prices and values should be fixed by a commission of experts. 10. Germany is prepared to secure subscribers for the loan hi every possible way by assigning to them public 218 A EEVISION" OF THE TEEATY properties or public income in a way to be arranged for. 11. By the acceptance of these proposals all other German liabilities on reparation account are cancelled, and German private property abroad released. 12. Germany considers that her propasals can only be realised if the system of sanctions is done away with at once; if the present basis of German production is not further diminished; and if the German nation is again admitted to the world's commerce and freed of all unproductive expenditure. These proposals testify to the German firm will to make good damage caused by the war up to the limit of her economic capacity. The amounts offered, as well as mode of payment, depend on this capacity. As far as differences of opinion as to this capacity exist, the Ger- man Government recommend that they be examined by a commission of recognised experts acceptable to all the interested Governments. She declares herself ready in advance to accept as binding any decision come to by it. Should the United States Government consider negotia- tions could be facilitated by giving the proposals an- other form, the German Government would be thankful if their attention were drawn to points in which the United States Government consider an alteration desira- ble. The German Government would also readily re- ceive any other proposals the United States Government might feel inclined to make. The German Government is too firmly convinced that the peace and welfare of the world depend on a prompt, just, and fair solution of the reparation problem not to do everything in their power to put the United States in a position which enables them to bring the matter to the attention of the Allied Gt)vernmeiit5k — BerliUf April 24, 1921. APPENDIX OF DOCUMENTS 219 VI. The Assessment Announced by the Reparation Commission, April 30, 1921 The Reparation Commission, in discharge of the pro- visions of Article 233 of tlie Treaty of Versailles, has reached a unanimous decision to fix at 132 milliard gold marks the total of the damages for which reparation is due by Germany under Article 232 (2) and Part VIII., Annex I. of tlie said Treaty. In fixing tliis figure the Commission have made the necessary deductions from the total of damages to cover restitutions effected or to be effected in discharge of Article 238, so that no credit will be due to Germany from the fact of these restitutions. The Commission have not included in the above figure the sum corresponding to the obligation, which falls on Germany as an addition in virtue of Article 232.(3), "to make reimbursement of all sums which Belgium has borrowed from the Allied and Associated Governments up to November 11, 1918, together with interest at the rate of 5 per cent per annum on such sums." VII. The Second Ultimatum of London, May 5, 1921 The Allied Powers, taking note of the fact that, in spite of the successive concessions made by the Allies since the signature of the Treaty of Versailles, and in spite of the warnings and sanctions agreed upon at Spa and at Paris, as well as of the sanctions announced in London and since applied, the German Government is still in default in the fulfilment of the obligations in- cumbent upon it under the terms of the Treaty of Ver- sailles as regards (1) disarmament; (2) the payment due on May 1, 1921, under Article 235 of the Treaty, 220 A REVISION" OF THE TREATY which the Eeparation Commission has already called upon it to make at this date; (3) the trial of the war criminals as further provided for by the Allied Notes of February 13 and May 7, 1920; and (4) certain other important respects, notably those which arise under Articles 264 to 267, 269, 273, 321, 322, and 327 of the Treaty, decide: — (a) To proceed forthwith with such preliminary measures as may be required for the occupa- tion of the Ruhr Valley by the Allied Forces on the Rhine in the contingency provided for in Paragraph {d) of this Note. (&) In accordance with Article 233 of the Treaty to invite the Reparation Commission to prescribe to the German Government without delay the time and manner for securing and discharging the entire obligation incumbent upon that Gov- ernment, and to announce their decision on this point to the German Government at latest on May 6. (c) To call upon the German Government categori- cally to declare within a period of six days from the receipt of the above decision its resolve (1) to carry out without reserve or condition their obligations as defined by the Reparation Com- mission; (2) to accept without reserve or con- dition the guarantees in respect of those obliga- tions prescribed by the Reparation Commis- sion; (3) to carry out without reserve or delay the measures of military, naval, and aerial dis- armament notified to the German Government by the Allied Powers in their Note of January 29, 1921, those overdue being completed at once, APPENDIX OF DOCUMENTS 221 and the remainder by the prescribed dates; (4) to carry out without reserve or delay the trial of the war criminals and the other unful- filled portions of the Treaty referred to in the first paragraph of this Note. (d) Failing fulfilment by the German Government of the above conditions by May 12, to proceed to the occupation of the Valley of the Ruhr and to take all other military and naval measures that may be required. Such occupation will continue so long as Germany fails to comply with the conditions summarised in Paragraph (c). (Signed) Henri Jaspab, A. Briand D. Lloyd George. C. Sforza. Hayashi. Schedule of Payments Prescribing the Time and Manner for Securing and Discharging the Entire Ohliga- tion of Germany for Beparation under Articles 231, 232, and 233 of the Treaty of Versailles. The Reparation Commission has, in accordance with Article 233 of the Treaty of Versailles, fixed the time and manner for securing and discharging the entire obligation of Germany for Reparation under Articles 231, 232, and 233 of the Treaty as follows:— This determination is without prejudice to the duty of Germany to make restitution under Article 238, or to other obligations under the Treaty. 1. Germany will perform in the manner laid down in this Schedule her obligations to pay the total fixed in accordance with Articles 231, 232, and 233 of the Treaty 222 A EEVISION OF THE TREATY of Versailles by the Commission — viz. 132 milliards of gold marks (£6,600,000,000) less (a) the amount already- paid on account of Eeparation; (&) sums which may from time to time be credited to Germany in respect of State properties in ceded territory, etc.; and (c) any sums received from other enemy or ex-enemy Powers in respect of which the Commission may decide that credits should be given to Germany, plus the amount of tlie Bel- gian debt to the Allies, the amounts of these deductions and additions to be determined later by the Commission. 2. Germany shall create and deliver to the Commis- sion in substitution for bonds already delivered or de- liverable under Paragraph 12 (c) of Annex 2 of Part VIII. (Reparation) of the Treaty of Versailles the bonds hereinafter described. (A) Bonds for an amount of 12 milliard gold marks (£600,000,000). These bonds shall be created and de- livered at latest on July 1, 1921. There shall be an annual payment from funds to be provided by Germany as prescribed in this agreement, in each year from May 1, 1921, equal in amount to 6 per cent of the nominal value of the issued bonds, out of which there shall be paid interest at 5 per cent per annum, payable half-yearly on the bonds outstanding at any time, and the balance to sinking fund for the redemption of the bonds by annual drawings at par. These bonds are hereinafter referred to as bonds of Series (A). (B) Bonds for a further amount of 38 milliard gold marks (£1,900,000,000). These bonds shall be created and delivered at the latest on November 1, 1921. There shall be an annual payment from funds to be provided by Germany as prescribed in this agreement in each year from November 1, 1921, equal in amount to 6 per cent of the nominal value of the issued bonds, out of which APPENDIX OF DOCUMENTS 223 there shall be paid interest at 5 per cent per annum, payable half-yearly on the bonds outstanding at any time and the balance to sinking fund for the redemption of the bonds by annual drawings at par. These bonds are hereinafter referred to as bonds of Series {B). (C) Bonds for 82 milliards of gold marks (£4,100,- 000,000), subject to such subsequent adjustment by creation or cancellation of bonds as may be required under Paragraph (1). These bonds shall be created and delivered to the Reparation Commission, without coupons attached, at latest on November 1, 1921 ; they shall be issued by the Commission as and when it is satisfied that the payments which Germany undertakes to make in pursuance of this agreement are sufficient to provide for the payment of interest and sinking fund on such bonds. There shall be an annual payment from funds to be provided by Germany as prescribed in this agreement in each year from the date of issue by the Reparation Commission equal in amount to 6 per cent of the nominal value of the issued bonds, out of which shall be paid interest at 5 per cent per annum, payable half-yearly on the bonds outstanding at any time, and the balance to sinking fund for the redemption of the bonds by annual drawings at par. The German Government shall supply to the Commission coupons for such bonds as and when issued by the Commission, These bonds are here- inafter referred to as bonds of Series (C). 3. The bonds provided for in Article 2 shall be signed German Government bearer bonds, in such form and in such denominations as the Reparation Commission shall prescribe for the purpose of making them marketable, and shall be free of all German taxes and charges of every description present or future. Subject to the provisions of Articles 248 and 251 of 224 A REVISION OF THE TREATY the Treaty of Versailles these bonds shall be secured on the whole of the assets and revenues of the German Em- pire and the German States, and in particular on the specific assets and revenues specified in Article 7 of the agreement. The service of the bonds of Series (A), (B), and (C) shall be a first, second, and third charge respectively on the said assets and revenues and shall be met by the payments to be made by Germany under this Schedule. 4. Germany shall pay in each year until the redemp- tion of the bonds provided for in Article 2 by means of the sinking funds attached thereto — (1) A sum of two milliard gold marks (£100,000,000). (2) (a) A sum equivalent to 25 per cent of the value of her exports in each period of 12 months starting from May 1, 1921, as determined by the Commission; or (&) Alternatively an equivalent amount as fixed in accordance with any other index proposed by Germany and accepted by the Commission. (3) A further sum equivalent to 1 per cent of the value of her exports as above defined, or alter- natively an equivalent amount fixed as pro- vided in (&) above. Provided always that when Germany shall have dis- charged all her obligations under this Schedule, other than her liability in respect of outstanding bonds, the amount to be paid in each year under this paragraph shall be reduced to the amount required in that year to meet the interest and sinking fund on the bonds then outstanding. Subject to the provisions of Article 5, the payments APPENDIX OF DOCUMENTS 225 to be made in respect of Paragraph (1) above shall be made quarterly before the end of each quarter, i.e. be- fore January 15, April 15, July 15, and October 15 each year, and the payments in respect of Paragraphs (2) aud (3) above shall be made quarterly, November 15, February 15, May 15, August 15, and calculated on the basis of the exports in the last quarter but one preced- ing that quarter, the first payment to be made November 15, 1921. 5. Germany will pay within 25 days from this notifi- cation one milliard gold marks (£50,000,000) in gold or approved foreign bills or in drafts at three months on the German Treasury, endorsed by approved German banks and payable in London, Paris, New York, or any other place designated by the Reparation Commission. These payments will be treated as the first two quarterly instalments of the payments provided for in compliance with Article 4 (1). 6. The Commission will within 25 days from this notification, in accordance with Paragraph 12 {d), An- nex II. of the Treaty as amended, establish the special Sub-Commission, to be called the Committee of Guar- antees. The Committee of Guarantees will consist of representatives of the Allied Powers now represented on the Reparation Commission, including a representative of the United States of America, in the event of that Government desiring to make the appointment. The Committee shall co-opt not more than three representatives of nationals of other Powers whenever it shall appear to the Commission that a sufficient portion of the bonds to be issued under this agreement is held by nationals of such Powers to justify their representa- tion on the Committee of Guarantees. 7. The Committee of Guarantees is charged with the 226 A EEVISION" OF THE TREATY duty of securing the application of Articles 241 and 248 of the Treaty of Versailles. It shall supervise the application to the service of the bonds provided for in Article 2 of the funds assigned as security for the payments to be made by Germany under Paragraph 4. The funds to be so assigned shall be — (a) The proceeds of all German maritime and land customs and duties, and in particular the pro- ceeds of all import and export duties. (&) The proceeds of the levy of 25 per cent on the value of all exports from Germany, except those exports upon which a levy of not less than 25 per cent is applied under the legislation re- ferred to in Article 9. (c) The proceeds of such direct or indirect taxes or any other funds as may be proposed by the German Government and accepted by the Com- mittee of Guarantees in addition to or in sub- stitution for the funds specified in (a) or (&) above. The assigned funds shall be paid to accounts to be opened in the name of the Committee and supervised by it, in gold or in foreign currency approved by the Committee. The equivalent of the 25 per cent levy referred to in Paragraph (6) shall be paid in German currency by the German Government to the exporter. The German Government shall notify to the Com- mittee of Guarantees any proposed action which may tend to diminish the proceeds of any of the assigned funds, and shall, if the Committee demand it, substitute some other approved funds. APPENDIX OF DOCUMENTS 227 The Committee of Guarantees shall be charged fur- ther with the duty of conducting on behalf of the Com- mission the examination provided for in Paragraph 12 (&) of Annex 2 to Part VIII. of the Treaty of Ver- sailles, and of verifying on behalf of the said Commis- sion, and if necessary of correcting, the amount declared by the German Government as the value of German exports for the purpose of the calculation of the sum payable in each year under Article 4 (2) and the amounts of the funds assigned under this Article to the service of the bonds. The Committee shall be entitled to take such measures as it may deem necessary for the proper discharge of its duties. The Committee of Guarantees is not authorised to interfere in German administration. 8. Germany shall on demand, subject to the prior approval of the Commission, provide such material and labour as any of the Allied Powers may require towards the restoration of the devastated areas of that Power, or to enable any Allied Power to proceed with the restoration or development of its industrial or economic life. The value of such material and labour shall be determined by a valuer appointed by Germany and a valuer appointed by the Power concerned, and, in de- fault of agreement, by a referee nominated by the Com- mission. This provision as to valuation does not apply to deliveries under Annexes III., IV., V., and VI. to Part VIII. of the Treaty. 9. Germany shall take every necessary measure of legislative and administrative action to facilitate the operation of the German Reparation (Recovery) Act, 1921, in force in the United Kingdom, and of any similar legislation enacted by any Allied Power, so long as such legislation remains in force. Payments effected by the 228 A REVISION OF THE TEEATY operation of such legislation shall be credited to Ger- many on account of the payment to be made by her under Article 4 (2). The equivalent in German cur- rency shall be paid by the German Government to the exporter. 10. Payment for aU services rendered, all deliveries in kind, and all receipts under Article 9 shall be made to the Reparation Commission by the Allied Power receiv- ing the same in cash or current coupons within one month of the receipt thereof, and shall be credited to Germany on account of the payments to be made by her under Article 4. 11. The sum payable under Article 4 (3) and the surplus receipts by the Commission under Article 4 (1) and (2) in each year, not required for the payment of interest and sinking fund on bonds outstanding in that year, shall be accumulated and applied so far as they wiU extend, at such times as the Commission may think fit, by the Commission in paying simple interest not exceeding 2i/2 per cent per annum from May 1, 1921, to May 1, 1926, and thereafter at a rate not exceeding 5 per cent on the balance of the debt not covered by the bonds then issued. No interest thereon shall be payable otherwise. 12. The present Schedule does not modify the pro- visions securing the execution of the Treaty of Versailles, vrhich are applicable to the stipulations of the present Schedule. VIII. The Wiesbaden Agreement, October 6, 1921 This Agreement, signed by M. Loucheur and Herr Rathenau at Wiesbaden on October 6, 1921, is a lengthy document, consisting of a Protocol, Memorandum, and Annex. The effective clauses are to be found mainly in APPENDIX OF DOCUMENTS 229 the Annex. The full text has been published in a British White Paper [Cmd. 1547]. This White Paper also con- tains (1) an explanatory Memorandum, (2) the De- cision of the Reparation Commission, and (3) a Report from Sir John Bradbury to the British Treasury. Ex- tracts from these three documents are given below. 1. Explanatory/ Memorandum In order to understand the arrangements proposed by the Wiesbaden Agreement, it is necessary to bear in mind certain provisions of the Treaty of Versailles, the application of which is affected by it. The Treaty itself provides in the Reparation Chap- ter, Part VIII., and in some of its Annexes, for the par- tial liquidation of Germany's reparation indebtedness by deliveries in kind. The important passages in this connection are Paragraph 19 of Annex II. and Annex IV., which together make extensive provision for the de- livery, through the Reparation Commission, to the Al- lied and Associated Powers of machinery, equipment, tools, reconstruction material, and, in general, all such material and labour as is necessary to enable any Allied Power to proceed with the restoration or development of its industrial or economic life. Germany's obligation being stated in terms of gold and not in terms of commodities, provision has neces- sarily been made in all cases for crediting Germany, from time to time, with the fair value, as assessed by the Reparation Commission, of such deliveries. More- over, since the proportions received by the respective Powers in kind need not necessarily correspond exactly with their respective shares in Germany's reparation payments, as determined by Inter-Allied agreement, 230 A KEVISION OF THE TREATY provision is further necessarily made in the Treaty to render each Power accountable not only to Germany, but to the Reparation Commission, for the value of these deliveries. Thus, on the one hand, the Treaty stipulates as between the Allies and Germany that the value of services under the Annexes shall be credited towards the liquidation of Germany's general obliga- tion, and the Schedule of Payments assigns the value of Annex deliveries to the service of the bonds handed over by Germany as security for her debt. On the other hand, the Treaty provides that for the purpose of equita- ble distribution as between the Allies, the value of An- nex deliveries shall be reckoned in the same manner as cash payments effected in the year, and the Schedule of Payments stipulates that the value of the deliveries received by each Power shall, within one month of the date of delivery, be paid over to the Reparation Com- mission, either in cash or in current coupons. Further, the Treaty imposes upon the Reparation Commission not only the duty of fixing prices, but also of determining the capacity of Germany to deliver goods demanded by any of the Allies, and, by implica- tion, of deciding between the competing demands which are made upon that capacity by the Allies themselves. The Wiesbaden Agreement provides for the delivery by a German company^ to French "sinistres" of "all plant and materials compatible with the productive ea- * The aprangement under which a German private company is to be created to deal directly with the orders without the inter- vention of the French and German Governments is intended to obviate the delays which experience has showTi to be inseparable from the employment of the present machinery. It does not appear to have any important bearing on the general financial situation, since the deliveries will clearly have to be financed by the German Government and will ultimately be paid for by means of a reparation credit in account with the German Government. APPENDIX OF DOCUMENTS 231 paeity of Germany, her supply of raw materials and her domestic requirements," that is to say, of the articles and materials which can be demanded under Annex IV. and Paragraph 19 of Annex II., which are, by the terms of the Agreement, in so far as France is concerned, vir- tually suspended, the obligations of Germany to deliver to France under the other Annexes remaining unaf- fected. Any question as to the capacity of Germany to satisfy the requirement of France, and all questions of price, are to be settled by a Commission of three members, one French and one German, and a third selected by common agreement or nominated by the Swiss Presi- dent. The aggregate value of the deliveries to be made under the Agreement, and of the deliveries to be made under Annexes III., V. and VI. (hereafter, for the sake of brevity, called the "Annex deliveries") in the period expiring on the 1st May 1926, is fixed at a maximum of 7 milliard gold marks. In regard to the Annex deliveries the Agreement in no way modifies the Treaty provisions under which Ger- many is credited and France debited forthwith with the value, but special provisions, which are financially the essential part of the Agreement, are made for bringing to reparation account the value of the Agreement de- liveries. These special provisions are designed to secure that Germany shall only be credited on reparation ac- count at the time of delivery with a certain proportion of them, and that deliveries not thus accounted for, which may be called ''excess deliveries," shall be liqui- dated over a period of years beginning at the earliest on 1st May 1926. The provisions themselves are somewhat 232 A REVISION OF THE TEEATT intricate, comprising, as they do, a series of interacting limitations, and they require some elucidation. (1) In no case is credit to be given to Germany in any one year for Annex and Agreement de- liveries together to an amount exceeding one milliard gold marks. (2) In no case is credit to be given to Germany in any one year for more than 45 per cent of the value of the Agreement deliveries or for more than 35 per cent if the value of the Agreement deliveries exceeds one milliard gold marks. The effect of the above is to prescribe that 55 per cent (or, if the Agreement operates successfully, 65 per cent) of the value of the Agreement deliveries as a mini- mum will be the object of deferred payment by instal- ments. If the Agreement deliveries reached really high figures, the operation of the milliard limitation would make the carry forward much more than 65 per cent. The excess deliveries are to be liquidated with interest at 5 per cent per annum in 10 equal annual instalments as from 1st May 1926, subject to certain conditions : — (1) France shall in no case be debited in one year for Agreement deliveries with an amount which, when added to the value of her Annex deliveries in that year, would make her responsible for more than her share (52 per cent) of the total reparation payments made by Germany in that year. (2) Agreement deliveries continue after 1st May 1926, with the same provisions for deferred payment. If in any year between May 1926 and May 1936 the amount (not exceeding 35 APPENDIX OF DOCUMENTS 233 or 45 per cent) of the value of that year's Agreement deliveries to be credited to Ger- many, together with the annual instalment to repay the debt incurred in respect of the period ending 1st May 1926, exceeds one milliard, the excess is to be carried forward from year to year until a year is reached in which no such excess is created by the payment. But in no case shall the amount credited, even if it is less than one milliard gold marks, exceed the limit laid down by the preceding condition. (3) Any balance with which Germany has not been credited on 1st May 1936 is to be credited to her with compound interest at 5 per cent in four half-yearly payments on 30th June and 31st December 1936 and 30th June and 31st December 1937. But, again, these half-yearly payments shall not be made if the effect of making them would be to exceed the limit laid down in Condition 1 above. (4) Agreement deliveries continue indefinitely after 1st May 1936, with power, however, to Ger- many to arrest them whenever the execution of them would result in France owing more than 52 per cent of Germany's annual reparation payment in respect of Annex deliveries, de- ferred payments already matured, and the 35 or 45 per cent of current deliveries. From the above it is to be noted that, while there is a limitation for the first five years of the amount of Agreement deliveries which can be demanded, there is — (1) No point at which the right of France to demand 234 A REVISION OF THE TREATY these special deliveries automatically termi- nates. (2) No final limitation upon the value of the deliv- eries which can be demanded by France during the lifetime of the Agreement. (3) No definitely prescribed period within which France's debt to Germany and to the other partners in reparation shall be liquidated. It remains necessary to draw attention to one sub- sidiary point of a financial character under the Schedule of Payments. Part of Germany's annual reparation liability consists of the payment of 26 per cent of the value of German exports in each period of twelve months, and part of the security for the payment con- sists of the proceeds of a levy of 25 per cent on the value of all German exports. The French Government has undertaken to support a request, to be submitted by the German Government to the Reparation Commission, for the inclusion in the exports which form the basis of these calculations of that part only of the value of the deliveries made under the Agreement which is credited to Germany and debited to France during any particu- lar year. If it can be assumed that any part of the special de- liveries to be made under the Agreement would, in the absence of the Agreement, have been diverted to Ger- many's ordinary external trade, then the concession desired will have the effect of diminishing the annual payments made by Germany for the benefit of the Al- lies as a whole. APPENDIX OF DOCUMENTS 235 2. Decisio7i of the Reparation Commission on Octoher 20, 1921, after considering the Franco-German Agreement of October 6, 1921 The French Government, having submitted to the Reparation Commission in accordance with Paragraph 3 of the Memorandum thereto attached the Agreement be- tween the representatives of the French and German Governments signed at Wiesbaden on the 6th instant, the Commission has come to the following decision : — (1) It entirely approves the general principles under- lying the Agreement whereby special arrange- ments are proposed for enabling Germany to liquidate the largest possible proportion of her reparation obligations in the form of goods and services, more especially with a view to the speedier restoration of the Devastated Regions. (2) At the same time, it considers that the Agree- ment involves certain departures from the pro- visions of Part VIII. of the Treaty of Versailles, notal)ly Article 237, Paragraphs 12 and 19 of Annex II. and Paragraph 5 of Annex IV. (3) As the Commission has no power to authorise such departures, it decides to refer the question to the Governments represented on the Commis- sion, with a copy of the Memorandum and its Annex, recommending a favourable examina- tion of them. (4) The Commission recommends that reasonable fa- cilities for deferred payment in respect of the exceptional volume which, if the arrangements are successful, the deliveries in kind to France are likely to assume during the next few years, should be accorded to France, subject to any 236 A REVISION" OF THE TREATY safeguards which the Allied Governments may regard as necessary to protect their respective interests. 3, Concluding Recommendations of Sir John Brad- bury's Report to the British Government {October 26, 1921) The safeguards which are envisaged as necessary by my Italian and Belgian colleagues on the Reparation Commission and myself, and for which we presume that our respective Governments will desire to stipulate are — (1) That a limit of time should be laid down after the expiration of which no new deferment of debit should be permitted and the liquidation of the existing deferred debits should commence to be made by regular annual instalments. The precise length of this period should be determined upon an estimate of the time necessary to carry out the main work of reconstruction, regard being had to the time required by Germany to effect the necessary sup- plies. In view of the delays which are inevitable in regard to operations of the magnitude of those contem- plated, the prescribed period might be reasonably some- what longer than the four and a half years' initial period under the agreement, but it should not exceed seven years. (2) That in no circumstances should the aggregate amount for which debit against France for the time being stands deferred be allowed to ex- ceed a prescribed amount, say, 4 milliard gold marks. (3) That a provision should be inserted for the pay- ment by France to the general reparation ac- APPENDIX OF DOCUMENTS 237 count from time to time (within the limits of the deferred debits for the time being outstand- ing) of any amounts which may be necessary to secure that the other Allies shall receive their proper proportions of the amounts due from Germany under the Schedule of Payments. Subject to the introduction of these safeguards, to which it would not appear that legitimate exception could be taken, the arrangements contemplated by the agreement may be expected to accelerate the solution of the Reparation problem on practical lines in a manner advantageous to France without prejudicing the inter- ests of other Powers, and it is upon this ground that the Reparation Commission has unanimously recom- mended them for favourable examination by the Allied Governments. If the Allied Governments approve the general scheme, subject to whatever safeguards they may decide to be necessary, there will remain certain subsidiary points for the Reparation Commission to consider — amongst other: — (1) The proposed omission of the excess deliveries from the index figure determining the annual liability under the Schedule of Payments, until such time as these deliveries are finally brought to account for reparation purposes. (2) The special arrangements for substitution in re- spect of articles of which France is entitled to restitution by identity, involving in certain cases money payments ; and (3) The special arrangements in regard to the delivery of coal and the prices to be credited and deb- ited, which in several particulars affect the interest of other Powers. p 5j "A <» n w » p o 'A ^^ 1— 1 !k ^ -♦^ ^ Ci PsQ o ^ t-» § ^ O s* C,5 «« <» M » M <=> H es l-H c/5 <» o 03 cc •T3 02 « t^ -U H X ^ 5si Si Ci '-Hr-jTfpoc»i-;OOOC3CO(M ro i-^cdt-ldoD»ncdcccooicdt^do6o-^b-^d ic a i-HO-*OCQTt<(MMlftOC^L'5COO-i IC ^ o d irf d~ o d' o --r ei oo" d' t;^' -*' ;f sj i—' -^^ cc — T co j-T -4.) CO oiooofMr^cnoocoi— loooc^ccc-icccoo-icift to OOdOi— tO(Mt^C0OC0C>-i C:cffcc«OiXi t^ o ^'+ClC;b-COOOTfl>.-5li5r-HCllO •<*ICOO— -< o eoeci— iio oo ee- "* ccio c» 1-1 eg ^ eo" '* i-T €ft- -oo . ■ -o -o • -oo • -o • • ■ -ooo 1 dl O O o o o •ooo o " a r-i o o o o o ■ c_^ o o 1 o ■W CS Ca'^X f „'SC. d~ <£ — 1 ■ r^ • • o a M O (N p p p O »6 CO 00 o d d .s'-s o o CO CO o t>. lO 1>^ "H co_^ in oo 2o r-TlO CO in wO d" og. eo ic t-- CO in o oo 00 CO CO CO o CO ^^ (m" M*' d" €e-(M . * -* CO ■ o • eg CO in eg o o- o ^ n O C0_^ p^ : 00 TJ< CO CO o c "*- CQ XR^ 00 .-Tco' o • I-H 05 CO eg CO cc oo' ^ ^ 00 eg ■-! o • eg m eo eg o h- Tf 'q.'S iq «o cg_^ p_ • in r-^co cis^Tf cr ® . OJ -w t^ d"cg o • oJ It d'eg" -^ in 5* (M eg — < o . in >-i c^ CO Mg ^ -* . in «© • -COOT)* • •05T*<0 -o -o • eg o eg ■* (M p t-; i-i tJ< O O O >n o eg (M d d d CO CO d d d d d o: d '*-' 't;;;' . CO o o CO in o in o r-H inco eg S^2 lo in (N C5 CO o p. o 00 t- l-H eo 2^ o ^ind" eg oo o -*" CO in o in in tt~j<3 C5 (M in CO — • o eo eg O (N t- eg i2 tH o in eij » ca eg ctf "C tS fit CO o H < < p: w yt fc^ (JH OO 33 1— i rA -^ -1 Oh « K m o -zS fa Is APPENDIX OF DOCUMENTS 239 (B) Advances hij the British Government to Other Governments (as on March 31, 1921) Allied Governments ' — France £557,039,507 6 8 Kussia 561,402,234 18 5 ftalv ■ 476,850,000 Belgium ■■.". 103,421,192 8 9 Serbia 22,247,376 12 5 Montenegro 204,755 19 9 Rumania 21,393,662 2 8 Portugal 18,575,000 Greece 22,577,978 9 7 ^^'S^^^ ^'«"^^ _!:!!!:!^i-i-^ £1,787.262,007 is 3 Loans for Relief — Austria £8,605,134 9 9 Rumania 1,294,726 8 Serb-Croat-Slovene Kingdom 1,839,167 3 7 Poland 4,137,040 10 1 Czecho-Slovakia 417,392 3 3 Esthouia 241,681 14 2 Lithuania 16,811 12 4 Latvia 20,169 1 10 Hungary 79,997 15 10 Armenia 77,613 17 2 Inter-Allied Commission on the Danube.... 6,868 17 6 ^^^^^^^^^ ^ ^ Other Loans { Stores, etc. ) — Czecho-Slovakia £2,000,000 ArniPTiia 829,634 9 3 ^^^^^^^ ___J 2,829,634 9 5 Total £1,806,828,245 13 » These accounts include interest, except in the case of Belgium and Serbia from whom interest has not been charged, and in the case of Russia, where no interest has been entered up smce January 1918. INDEX Allied debts, 170 f., 183, 193 f., 238 Armistice negotiations, 145, 148 f. Army of Occupation, expenses of, 84 n., 133 f., 140, 191 Austria, 130, 190, 191 Balfour, A. J., 148 n. Baruch, 72 n., 106 n., 153, 155, 56, 159, 160 ». Belgian priority, 135-6, 139-40, 190, 204 Reparation claims, 123-4, 197 Boulogne Conference, 19 Boyden, 112, 130 Bradbury, Sir John, 93, 95, 128 n,. 129, 216 Brenier, 109, 110, 118 n. Briand, 24, 25, 27, 41, 69, 114 British Reparation Claims, 124, 211 Brockdorff-Rantzau, 29 Brussels Conference (Experts), 22-3 Brussels Conference (League of Nations), 86 Brussels Conference (Premiers), 19 Bulgaria, 130, 190 Clemenceau, 84 n., 108, 149, 150 Coal, 44 f., 75, 98 Cunliflfe, Lord, 72, 156 Curzon, Lord, 57 n. D'Abernon, Lord, 31 Decisions of London, 95 Disarmament of Germany, 16-19 Dominion Prime Ministers' Con- ference, 139 Doumer, 111, 141 Dubois, 110, 115»., 128 w. Dulles, John Foster, 156-7 East Prussia (plebiscite), 11 Economic Consequences of the Peace, 5, 39, 45, 51, 55 n., 71, 72, 74 w., 107, 108, 114, 119, 124, 126 n., 127 n., 144, 146 «., 166, 173 Elsas, Dr. Moritz, 88-9, 92 ». Exports, German, 79 f., 99, 165 f. Financial Agreement of Paris (Aug. 1921), 135, 141 f. Foch, Marshal, 31, 33, 57, 148 «. Forgeot, 70 n. Fournier-Sarlov&ze, 116 n. Frankfurt, Occupation of, 15, 57 French Reparation Claim, 107 f ., 117 f., 210 George, Lloyd, 1, 17, 18, 21, 27, 30, 33, 41, 84«., 121, 138 n., 139, 150, 155, 179, 198 German Budget, 81 f. German Counter-proposal (March 1921), 28-30 German Counter-proposal (April 1921), 36 f., 215 f. German individual income, 86 f. German property in United States, 77, 143 Gladstone, 6 240 INDEX 241 Guarantees, Committee of, 68 f ., 225 f. Haig, Sir Douglas, 148 w. Harding, President, 171 Heiclien, Dr. Artliur, 87 Heitiericb, 88, 90 History of the Peace Conference of Pans, 147 n., 152 »., 160 w. House, Col., 148 n. Hughes, W. M., 156 Hungary, 192 Hymans, 150 Hythe Conference, 18 Invasion of Germany, 31, 32, 36 Italian Reparation Claims, 127, 211 Italy, 190 Kaiser, trial of, 14 Kapp, " Putsch," 15 Klotz, 24, 72, 109, 111, 147, 151 f. Lamont, J. W., 106 n., 161, 162 «. Lansburgh, Dr, Albert, 87 Law, Bonar, 150 League of Nations, 12, 61, 188 Leipzig trials, 15 Levy, Raphael-Georges, 118 n. Leygues, 21, 24 Lignite, 55 London Conference I., 28, 34 London Conference II., 40 London Settlement, 64 f ., 72, 73, 81, 84 m., 130, 188 f., 221 London Ultimatum I., 30, 35, 213 London Ultimatum II., 16, 19, 31 n., 42, 44, 57. 219 f. Loucheur, 31. 92, 95, 109, 110, 112 n., 117, 120 Loucheur-Rathenau Agreement; vide Wiesbaden Agreement Mark Exchange, 81, 100 f. Mercantile Marine of Germany, 16, 137 " Mermeix," 148 »., 149 n. Millerand, 18, 20 Newspaper opinion, 7 Nitti, 18 Occupation, Army of, 84 n., 133, 140 Occupation of Germany, 188, 214, 219 Occupation of Germany, legality of, 32, 41, 57 f. Orlando, 150 Paris decisions, 18, 26, 32, 34, 39, 40, 57, 207 Payiiient in kind, 97 f., 168 Pensions, 125, 146 f., 185 Poincare, 24, 108, 128, 129 Poland, 192 f. Poland's coal, 52 Private opinion, 7, 8 Rathenau, 92, 95 Reparation Claims, 126 f., 210 f . Reparation and International Trade, 163 f. Reparation Bill, 39, 106 f., 185 Reparation Bonds, 58 f., 101, 207, 221 Reparation Commission, 21, 32, 35, 45, 47. 59, 61, 66 «., 67, 68, 73, 93. 106, 110, 118, 126, 156, 221 f., 235 Reparation Commission, Assess- ment of, 27, 127 f., 219 Reparation, Estimates of, 39, 72 Reparation Receipts, division of, 1.38 f., 203 Restitution, 16, 149, 150 Revision of Treaty, 185 f. Ruhr, Occupation of, 36, 41, 58, 204 Ruhr riots, 15 San Remo Conference, 15, 18 Sanctions, 32, 36, 57 n. 242 INDEX Schlesvig (plebiscite), 11 Simons, 28, 29, 32, 38 n., 213 Smuts, General, 160 Sonino, 150 Spa Coal Agreement, 45 f., 102, 133, 136, 205 Spa Conference, 18, 19, 45, 138, 203 Sumner, Lord, 156 Tardieu, 24, 27, 60, 72, 106 n., 107 n., 108 w., 114 «., 117, 120 »., 121 M., 138, 147, 148 n., 149 n., 150«.., 151, 153 The Times, 18, 20, 22, 27, 32, 55 n., 100, 110, 117 ». United States 36, 38, 78 n., 143 United States and Inter-Allied Debts, 170, 183, 194 f., 238, United States, Treaty rights of, towards Germany, 77, 78, 130, 140, i42 Upper Silesia, 11, 30, 32, 39, 52, 54 Westphalian riots, 15 Wierzlicki, 53 Wiesbaden Agreement, 76, 92 f ., 187, 211 f. Wilson, President, 146 f., 151 f ., 157, 160, 161-162 Young, Allyn, 5 n. BY THE SAME AUTHOR THE ECONOMIC CONSEQUENCES OF THE PEACE First published in London, December, 1919, and in New YorJe, January, 1920. Afterwards reprinted in French, German, Italian, Spanish, Dutch, Flemish, Danish, Swedish, Rumanian, Russian, and Chinese, these editions, of ichich the chief are mentioned^ below, amounting in all to 140,000 copies. 1. The Economic Consequences op the Peace. London: Macmillan and Co., 1919. 2. The Economic Consequences of the Peace. London: Labour Research Department, 1920. [Out of print.] 3. The Economic Consequences of the Peace. New York : Harcourt, Brace and Co. 1920. $2.50. 4. Les Consequences economiques de la Paix. Tra- duit de TAnglais par Paul Franck. Paris: Editions de la Nouvelle Eevue Francaise. 1920. 5. Die wirthschaftlichen Folgen des Friedensver- tragens. tjbersetzt von M. J. Bonn und C. Brinkmann. Miinchen: Duncker und Humblot. 1920. 6. De economische Gevolgen van den Vrede. Met een Inleiding van Mr. G. Visserig. Amsterdam: Uitgevers-Maatschappij Elsevier. 1920. 7. Le Conseguenze economiche della Pace. Tradu- zione di Vincenzo Tasco. Prefazione di Vincenzo GlUFFRIDA. Milano: Fratelli Treves. 1920. 8. Fredens Ekonomiska Foljder. Oversattning av Evert Berggren. Stockholm : Albert Bonnier. 1920. [2] 9. Las Consecuencias economicas de la Paz. Tra- duceion por Juan U'Sa. Madrid: Calpe. 1920. 10. De economische Gevolgen van den Vrede. Vlaamsehe Uitgave vertaing van G. "W. Brussel: Uitgeverij Ons Vaderland. 1920. 11. Urtmarile economice a le Pach. Bucaresti: Editura. Viata Romineasca. 1920. 12. Ekonomitjeskija Posledstvija Mira. Stockholm: W. Tullbergs Boktryckeri. 1921. PKESS NOTICES British THE NATION, Dec. 13, 1919.— "This is the first heavy shot that has been fired in the war which the intellectuals opened on the statesmen the moment they realized what a piece of work the Treaty was." WESTMINSTER GAZETTE, Dec. 20, 1919.— "Mr. Keynes has produced a smashing and unanswerable indictment of the economic settlement. . . . It is too much to hope that the arbiters of our destinies will read it and perhaps learn wisdom, but it should do much good in informing a wide section of that public which will in its turn become the arbiters of theirs." SUNDAY CHRONICLE, Dec. 21, 1919.— "No criticism of the Peace which omits, as Mr. Keynes seems to me by implication to omit, the aspect of it not as a treaty, hut as a sentence, has any right to be heard by the European Allied peoples." THE SPECTATOR, Dec. 20, 1919.— "The world is not governed by economical forces alone, and we do not blame the statesmen at Paris for declining to be guided by Mr. Keynog if he gave them such political advice as he sets forth in his book." THE TIMES, Jan. 5, 1920. — "Mr. Keynes has written an ex- tremely 'clever' book on the Peace Conference and its economic con- sequences. ... As a whole, his cry against the Peace seems to us the cry of an academic mind, arcustomed to deal with the abstrac- [3] tions of that largely metaphysical exercise known as 'political economy,' in revolt against the facts and forces of actual political existence. . . . Indet-d, one of the most striking features of Mr. Keynes's book is the political inexperience, not to say ingenuous- ness, which it reveals. . . . He believes it would have been wise and just to demand from Germany payment of £2,000,000,000 'in tinal settlement of all claims without further examination of par- ticulars.' " THE ATBEN^VM, Jan. 23, 1920.— "This book is a perfectly well-equipped arsenal of facts and arguments, to which every one will resort for years to come who wishes to strike a blow against the forces of prejudice, delusion, and stupidity. It is not easy to make large numbers of men reasonable by a book, yet there are no limits to which, without undue extravagance, we may not hope that the influence of this book may not extend. Never was the case for reasonableness more powerfully put. It is enforced with extraordinary art. What might easily have been a difficult trea- tise, semi-official or academic, proves to be as fascinating as a good novel." FORTNIGHTLY REVIEW, March 1, 1920.— "Mr. Keynes's book has now been published three months, and no sort of official reply to it has been issued. Nothing but the angry cries of bureaucrats have been heard. No such crushing indictment of a great act of international policy, no such revelation of the futility of diplomats has even been made." TIME8 LITERARY SUPPLEMENT, April 29, 1920.— "Mr. Keynes . . . has violently attacked the whole work of those who made the Treaty in a book which exhibits every kind of ability except the political kind. . . . Mr. Keynes knows everything ex- cept the (>lements of politics, which is the science of discovering, and the art of accomplishing, the practicable in public affairs." TIMES ("Annual Financial and Commercial Review"), Jan. 28, 1921. — "The almost unhealtliy greed with which Mr. Keynes's book on The Economic Consequences of the Peace was devoured in a dozen countries was but a symptom of the new desire to appre- ciate, and, if possible, to cope with, the economic consequences not only of tlu" peace but of the war." LIVERPOOL COURIER, Feb. 2, 1921.— "In the eyes of the world — at least, of the world that is not pro-German — the repara- tion costs are wholly inadequate. It is true that in the eyes of Mr. J. M. Keynes it is wicked to charge Germany with the cost of war pensions, but we imagine that the average man with a simple sense of simple justice does not agree with Mr. Keynes." "Realist" in the ENGLISH REVIEW, March 1921.— "The operation of indemnity-payment must be followed through to its remorseless end. . . . The cry 'Germany must pay' has still a good healthy sound about it." ENGLISH REVIEW, June 1921.— "What Mr. Maynard Keynes predicted in his remarkable book is coming only too true. All over Europe the nations are standing to arms, thinking boundaries, while trade languishes, production stagnates, and credit lapses into the relativities." American Joseph P. Cotton in the EVENING POST, New York, Jan. 30, 1920. — "Mr. Keynes's book is the first good book on peace and the reconstruction of Europe. The writing is simple and sincere and true ... a great book with a real message." Paul D. CBAVAxn in the SDN AND NEW YORK HERALD, Feb. 2, 1920. — "No English novel during or since the war has had such a success as this book. It should be read by every thoughtful American. It is the first serious discussion of the Peace Treaty by a man who knows the facts and is capable of discussing them with intelligence and authority." Haeold J. Laski in the NATION, New York, Feb. 7, 1920.— "This is a very great book. If any answer can be made to the overwhelming indictment of the Treaty that it contains, that an- swer has yet to be published. Mr. Keynes writes with a fullness of knowledge, an incisiveness of judgment, and a penetration into the ultimate causes of economic events that perhaps only half-a- dozen living economists might hope to rival. Nor is the manner of his book less remarkable than its substance. The style is like finely-hammered steel. It is full of unforgettable phrases and ot vivid portraits etched in the biting acid of a passionate moral indignation." F. W. Taussig, Harvard University, in the QUARTERLY JOURNAL OF ECONOMICS, Feb. 1920.— "Mr. Keynes needs no introduction to economists. The high quality of his work is known. This book shows the sure touch, the wide interests, the independent judgment, which we expect. It shows, also, fine spirit and literary skill. . . . Coming to the economic provisions of the Treaty, I find myself in general accord with what Mr. Keynes says. He makes out an estimate of what Germany can do in the way of reparation. . . . The maximum cannot, in his judgment, exceed ten billions of dollars. Some such figure, it is not improper to say, was reached independently by Professor A. A. Young in his esti- mates for the American financial advisers." FINANCIAL WORLD, New York City, Feb. 16, 1920.— "There is a thousand dollars of information in it for the average business man." [5] Feank a. Vandeelip in CHICAGO NEWS, March 3, 1920.— "I regard it as the most important volume published since the Armis- tice. It is certain to have a profound efiect on world thought. It is a deep analysis of the economic structure of Europe at the out- break of the war, a brilliant characterisation of the Peace Confer- ence, a revealing analysis of the shortcomings of the Treaty, a dis- section of the reparation claims, done with the scientific spirit and steadiness of hand of a great surgeon, a vision of Europe after the Treaty, which is the most illuminating picture that has yet been made of the immediate situation on the Continent, and, finally, constructive remedial proposals. Every chapter bears the imprint ot a master hand, of a mind trained to translate economic data, and of absolutely imfaltering courage to tell the truth." Alvin Johnson in the NEW REPUBLIC, April 14, 1920.— "There has been no failure anywhere to recognise that Keyifts's Economic Consequences of the Peace requires an 'answer.' Too many complacencies have been assailed by it. . . . What progress are his critics making in their attack on it? . . . There is sur- prisingly little effort made by American reviewers to refute the charge that the Treaty is in many respects in direct violation of the preliminary engagements, nor is anywhere a serious attempt made to show that those engagements were not morally binding. . . . The critics have not seriously shaken Keynes's characteriza- tion of the Treaty. They have not been able to get far away from agreement with him as to what the Treaty should have been. They admit the desirability of revision." DETROIT FREE PRESS, Nov. 21, 1921.— "Only once have I seen Viviani go into action gradually. It was after his last trip to the United States. He was talking in a subdued conversational tone when suddenly he thought of John Maynard Keynes's book, The Economic Consequences of the Peace. His face, hitherto mo- tionless, twitched a little. His words accelerated slowly. The current of his emotion spread curiously through the muscles of his whole body, until the figure which had been relaxed from head to foot became tense in every fibre. In a moment he was de- nouncing, with the sonorous blast of his anger, the book which he said he had encountered in every country in the New World, as 'a monument of iniquity,' a monster which confronted him every- where in South or North America, and which for some (to him) incredible reason everyone seemed to believe as the gospel truth about the pact of Versailles." ^ a"* ''" v"^ -• ', •P ^ •^ \^\.-, ^ X*^ <^, '' . , Deacidified using the Bookkeeper process. •^ ' ''' ^ . \ Neutralizing agent: Magnesium Oxide * ./^ > '^v.^^' , , „ ^ * • " \^^^0 Treatment Date: j^N 2001 .^ c^^'V^' "' % v^*V' PreservationTechnologie "^ V ^* ^"^ <^ " . i A WORLD tEAOER It* P*PEB PRESERVATIOM r _ ■ . ^ ; 111 Thomson Park Drive A^' vP^ ^ :^$ "^ c • Cranberry Township. PA 16066 ■1^ ' •>>■ - ^ <<. ' (72417792111 ^> c*- <^ .< ,0 < xO^x. "b. 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