III. Germany's Capacity To Pay
The forms in which Germany can discharge the sum which she has
engaged herself to pay are three in number --
(1) immediately transferable wealth in the form of gold, ships, and
foreign securities; (2) the value of property in ceded territory, or
surrendered under the armistice; (3) annual payments spread over a term
of years, partly in cash and partly in materials such as coal products,
potash, and dyes.
There is excluded from the above the actual restitution of property
removed from territory occupied by the enemy, as, for example, Russian
gold, Belgian and French securities, cattle, machinery, and works of
art. In so far as the actual goods taken can be identified and
restored, they must clearly be returned to their rightful owners, and
cannot be brought into the general reparation pool. This is expressly
provided for in article 238 of the treaty.
1. Immediately Transferable Wealth
(a) Gold. After deduction of the gold to be returned to Russia, the
official holding of gold as shown in the Reichsbank's return of 30
November 1918 amounted to £3115,417,900. This was a very much larger
amount than had appeared in the Reichsbank's return prior to the
war,(42*) and was the result of the vigorous campaign carried on in
Germany during the war for the surrender to the Reichsbank not only of
gold coin but of gold ornaments of every kind. Private hoards doubtless
still exist but, in view of the great efforts already made, it is
unlikely that either the German government or the Allies will be able
to unearth them. The return can therefore be taken as probably
representing the maximum amount which the German government are able to
extract from their people. In addition to gold there was in the
Reichsbank a sum of about £31 million in silver. There must be,
however, a further substantial amount in circulation, for the holdings
of the Reichsbank were as high as £39.1 million on 31 December 1917,
and stood at about £36 million up to the latter part of October 1918,
when the internal run began on currency of every kind.(43*) We may,
therefore, take a total of (say) £3125 million for gold and silver
together at the date of the armistice.
These reserves, however, are no longer intact. During the long
period which elapsed between the armistice and the peace it became
necessary for the Allies to facilitate the provisioning of Germany from
abroad. The political condition of Germany at that time and the serious
menace of Spartacism rendered this step necessary in the interests of
the Allies themselves if they desired the continuance in Germany of a
stable government to treat with. The question of how such provisions
were to be paid for presented, however, the gravest difficulties. A
series of conferences was held at Trèves, at Spa, at Brussels, and
subsequently at Ch
Villette and Versailles, between
representatives of the Allies and of Germany, with the object of
finding some method of payment as little injurious as possible to the
future prospects of reparation payments. The German representatives
maintained from the outset that the financial exhaustion of their
country was for the time being so complete that a temporary loan from
the Allies was the only possible expedient. This the Allies could
hardly admit at a time when they were preparing demands for the
immediate payment by Germany of immeasurably larger sums. But, apart
from this, the German claim could not be accepted as strictly accurate
so long as their gold was still untapped and their remaining foreign
securities unmarketed. In any case, it was out of the question to
suppose that in the spring of 1919 public opinion in the Allied
countries or in America would have allowed the grant of a substantial
loan to Germany. On the other hand, the Allies were naturally reluctant
to exhaust on the provisioning of Germany the gold which seemed to
afford one of the few obvious and certain sources for reparation. Much
time was expended in the exploration of all possible alternatives. but
it was evident at last that, even if German exports and saleable
foreign securities had been available to a sufficient value, they could
not be liquidated in time, and that the financial exhaustion of Germany
was so complete that nothing whatever was immediately available in
substantial amounts except the gold in the Reichsbank. Accordingly a
sum exceeding £350 million in all out of the Reichsbank gold was
transferred by Germany to the Allies (chiefly to the United States,
Great Britain, however, also receiving a substantial sum) during the
first six months of 1919 in payment for foodstuffs.
But this was not all. Although Germany agreed, under the first
extension of the armistice, not to export gold without Allied
permission, this permission could not be always withheld. There were
liabilities of the Reichsbank accruing in the neighbouring neutral
countries, which could not be met otherwise than in gold. The failure
of the Reichsbank to meet its liabilities would have caused a
depreciation of the exchange so injurious to Germany's credit as to
react on the future prospects of reparation. In some cases, therefore,
permission to export gold was accorded to the Reichsbank by the Supreme
Economic Council of the Allies.
The net result of these various measures was to reduce the gold
reserve of the Reichsbank by more than half, the figures falling from
£3115 million to £355 million in September 1919.
It would be possible under the treaty to take the whole of this
latter sum for reparation purposes. It amounts, however, as it is, to
less than 4 % of the Reichsbank's note issue, and the psychological
effect of its total confiscation might be expected (having regard to
the very large volume of mark-notes held abroad) to destroy the
exchange value of the mark almost entirely. A sum of £35 million, £310
million, or even £320 million might be taken for a special purpose. But
we may assume that the reparation commission will judge it imprudent,
having regard to the reaction on their future prospects of securing
payment, to ruin the German currency system altogether, more
particularly because the French and Belgian governments, being holders
of a very large volume of mark-notes formerly circulating in the
occupied or ceded territory have a great interest in maintaining some
exchange value for the mark, quite apart from reparation prospects.
It follows, therefore, that no sum worth speaking of can be
expected in the form of gold or silver towards the initial payment of
£31,000 million due by 1921.
(b) Shipping. Germany has engaged, as we have seen above, to
surrender to the Allies virtually the whole of her merchant shipping. A
considerable part of it, indeed, was already in the hands of the Allies
prior to the conclusion of peace, either by detention in their ports or
by the provisional transfer of tonnage under the Brussels agreement in
connection with the supply of foodstuffs.(44*) Estimating the tonnage
of German shipping to be taken over under the treaty at 4 million gross
tons, and the average value per ton at £330 per ton, the total money
value involved is £3120 million.(45*)
(c) Foreign Securities. Prior to the census of foreign securities
carried out by the German government in September 1916,(46*) of which
the exact results have not been made public, no official return of such
investments was ever called for in Germany, and the various unofficial
estimates are confessedly based on insufficient data, such as the
admission of foreign securities to the German stock exchanges, the
receipts of the stamp duties, consular reports, etc. The principal
German estimates current before the war are given in the appended
footnote.(47*) This shows a general consensus of opinion among German
authorities that their net foreign investments were upwards of £31,250
million. I take this figure as the basis of my calculations, although I
believe it to be an exaggeration; £31,000 million would probably be a
safer figure.
Deductions from this aggregate total have to be made under four
heads.
(i) Investments in Allied countries and in the United States, which
between them constitute a considerable part of the world, have been
sequestrated by Public Trustees, custodians of enemy property, and
similar officials, and are not available for reparation except in so
far as they show a surplus over various private claims. Under the
scheme for dealing with enemy debts outlined in chapter 4, the first
charge on these assets is the private claims of Allied against German
nationals. It is unlikely, except in the United States, that there will
be any appreciable surplus for any other purpose.
(ii) Germany's most important fields of foreign investment before
the war were not, like ours, overseas, but in Russia, Austria-Hungary,
Turkey, Roumania, and Bulgaria. A great part of these has now become
almost valueless, at any rate for the time being; especially those in
Russia and Austria-Hungary. If present market value is to be taken as
the test, none of these investments are now saleable above a nominal
figure. Unless the Allies are prepared to take over these securities
much above their nominal market valuation, and hold them for future
realisation, there is no substantial source of funds for immediate
payment in the form of investments in these countries.
(iii) While Germany was not in a position to realise her foreign
investments during the war to the degree that we were, she did so
nevertheless in the case of certain countries and to the extent that
she was able. Before the United States came into the war, she is
believed to have resold a large part of the pick of her investments in
American securities, although some current estimates of these sales (a
figure of £360 million has been mentioned) are probably exaggerated.
But throughout the war and particularly in its later stages, when her
exchanges were weak and her credit in the neighbouring neutral
countries was becoming very low, she was disposing of such securities
as Holland, Switzerland, and Scandinavia would buy or would accept as
collateral. It is reasonably certain that by June 1919 her investments
in these countries had been reduced to a negligible figure and were far
exceeded by her liabilities in them. Germany has also sold certain
overseas securities, such as Argentine cedulas, for which a market
could be found.
(iv) It is certain that since the armistice there has been a great
flight abroad of the foreign securities still remaining in private
hands. This is exceedingly difficult to prevent. German foreign
investments are as a rule in the form of bearer securities and are not
registered. They are easily smuggled abroad across Germany's extensive
land frontiers, and for some months before the conclusion of peace it
was certain that their owners would not be allowed to retain them if
the Allied governments could discover any method of getting hold of
them. These factors combined to stimulate human ingenuity, and the
efforts both of the Allied and of the German governments to interfere
effectively with the outflow are believed to have been largely futile.
In face of all these considerations, it will be a miracle if much
remains for reparation. The countries of the Allies and of the United
States, the countries of Germany's own allies, and the neutral
countries adjacent to Germany exhaust between them almost the whole of
the civilised world; and, as we have seen, we cannot expect much to be
available for reparation from investments in any of these quarters.
Indeed there remain no countries of importance for investments except
those of South America.
To convert the significance of these deductions into figures
involves much guesswork. I give the reader the best personal estimate I
can form after pondering the matter in the light of the available
figures and other relevant data.
I put the deduction under (i) at £3300 million, of which £3100
million may be ultimately available after meeting private debts, etc.
As regards (ii) — according to a census taken by the Austrian
Ministry of Finance on 31 December 1912, the nominal value of the
Austro-Hungarian securities held by Germans was £3197,300,000.
Germany's pre-war investments in Russia outside government securities
have been estimated at £395 million, which is much lower than would be
expected, and in 1906 Sartorius von Waltershausen estimated her
investments in Russian government securities at £3150 million. This
gives a total of £3245 million, which is to some extent borne out by
the figure of £3200 million given in 1911 by Dr Ischchanian as a
deliberately modest estimate. A Roumanian estimate, published at the
time of that country's entry into the war, gave the value of Germany's
investments in Roumania at £34,000,000-£34,400,000, of which
£32,800,000-£33,200,000 were in government securities. An association
for the defence of French interests in Turkey, as reported in the Temps
(8 September 1919), has estimated the total amount of German capital
invested in Turkey at about £359 million, of which, according to the
latest Report of the council of foreign bondholders, £332,500,000 was
held by German nationals in the Turkish external debt. No estimates are
available to me of Germany's investments in Bulgaria. Altogether I
venture a deduction of £3500 million in respect of this group of
countries as a whole.
Resales and the pledging as collateral of securities during the war
under (iii) I put at £3100 million to £3150 million, comprising
practically all Germany's holding of Scandinavian, Dutch, and Swiss
securities, a part of her South American securities, and a substantial
proportion of her North American securities sold prior to the entry of
the United States into the war.
As to the proper deduction under (iv) there are naturally no
available figures. For months past the European Press has been full of
sensational stories of the expedients adopted. But if we put the value
of securities which have already left Germany or have been safely
secreted within Germany itself beyond discovery by the most
inquisitorial and powerful methods at £3100 million, we are not likely
to overstate it.
These various items lead, therefore, in all to a deduction of a
round figure of about £31,000 million, and leave us with an amount of
£3250 million theoretically still available.(48*)
To some readers this figure may seem low, but let them remember
that it purports to represent the remnant of saleable securities upon
which the German government might be able to lay hands for public
purposes. In my own opinion it is much too high, and considering the
problem by a different method of attack I arrive at a lower figure. For
leaving out of account sequestered Allied securities and investments in
Austria, Russia, etc., what blocks of securities, specified by
countries and enterprises, can Germany possibly still have which could
amount to as much as £3250 million? I cannot answer the question. She
has some Chinese government securities which have not been sequestered,
a few Japanese perhaps, and a more substantial value of first-class
South American properties. But there are very few enterprises of this
class still in German hands, and even their value is measured by one or
two tens of millions, not by fifties or hundreds. He would be a rash
man, in my judgment, who joined a syndicate to pay £3100 million in
cash for the unsequestered remnant of Germany's overseas investments.
If the reparation commission is to realise even this lower figure, it
is probable that they will have to nurse, for some years, the assets
which they take over, not attempting their disposal at the present
time.
We have, therefore, a figure of from £3100 million to £3250 million
as the maximum contribution from Germany's foreign securities.
Her immediately transferable wealth is composed, then, of: (a) gold
and silver — say £360 million; (b) ships — £3120 million; (c) foreign
securities — £3100-250 million.
Of the gold and silver, it is not, in fact, practicable to take any
substantial part without consequences to the German currency system
injurious to the interests of the Allies themselves. The contribution
from all these sources together which the reparation commission can
hope to secure by May 1921 may be put, therefore, at from £3250 million
to £3350 million as a maximum.(49*)
2. Property in ceded Territory or surrendered under the Armistace
As the treaty has been drafted Germany will not receive important
credits available towards meeting reparation in respect of her property
in ceded territory.
Private property in most of the ceded territory is utilised towards
discharging private German debts to Allied nationals, and only the
surplus, if any, is available towards reparation. The value of such
property in Poland and the other new states is payable direct to the
owners.
Government property in Alsace-Lorraine, in territory ceded to
Belgium, and in Germany's former colonies transferred to a mandatory,
is to be forfeited without credit given. Buildings, forests, and other
state property which belonged to the former kingdom of Poland are also
to be surrendered without credit. There remain, therefore, government
properties, other than the above, surrendered to Poland, government
properties in Schleswig surrendered to Denmark,(50*) the value of the
Saar coalfields, the value of certain river craft, etc., to be
surrendered under the ports, waterways, and railways chapter, and the
value of the German submarine cables transferred under annex VII of the
reparation chapter.
Whatever the treaty may say, the reparation commission will not
secure any cash payments from Poland. I believe that the Saar
coalfields have been valued at from £315 million to £320 million. A
round figure of £330 million for all the above items, excluding any
surplus available in respect of private property, is probably a liberal
estimate.
There remains the value of material surrendered under the
armistice. Article 250 provides that a credit shall be assessed by the
reparation commission for rolling-stock surrendered under the armistice
as well as for certain other specified items, and generally for any
material so surrendered for which the reparation commission think that
credit should be given, 'as having non-military value'. The
rolling-stock (150,000 wagons and 5,000 locomotives) is the only very
valuable item. A round figure of £350 million, for all the armistice
surrenders, is probably again a liberal estimate.
We have, therefore, £380 million to add in respect of this heading
to our figure of £3250-350 million under the previous heading. This
figure differs from the preceding in that it does not represent cash
capable of benefiting the financial situation of the Allies, but is
only a book credit between themselves or between them and Germany.
The total of £3330 million to £3430 million now reached is not,
however, available for reparation. The first charge upon it, under
article 251 of the treaty, is the cost of the armies of occupation both
during the armistice and after the conclusion of peace. The aggregate
of this figure up to May 1921 cannot be calculated until the rate of
withdrawal is known which is to reduce the monthly cost from the figure
exceeding £320 million which prevailed during the first part of 1919,
to that of £31 million, which is to be the normal figure eventually. I
estimate, however, that this aggregate may be about £3200 million. This
leaves us with from £3100 million to £3200 million still in hand.
Out of this, and out of exports of goods, and payments in kind
under the treaty prior to May 1921 (for which I have not as yet made
any allowance), the Allies have held out the hope that they will allow
Germany to receive back such sums for the purchase of necessary food
and raw materials as the former deem it essential for her to have. It
is not possible at the present time to form an accurate judgment either
as to the money-value of the goods which Germany will require to
purchase from abroad in order to re-establish her economic life, or as
to the degree of liberality with which the Allies will exercise their
discretion. If her stocks of raw materials and food were to be
restored to anything approaching their normal level by May 1921,
Germany would probably require foreign purchasing power of from £3100
to £3200 million at least, in addition to the value of her current
exports. While this is not likely to be permitted, I venture to assert
as a matter beyond reasonable dispute that the social and economic
condition of Germany cannot possibly permit a surplus of exports over
imports during the period prior to May 1921, and that the value of any
payments in kind with which she may be able to furnish the Allies under
the treaty in the form of coal, dyes, timber, or other materials will
have to be returned to her to enable her to pay for imports essential
to her existence.(51*)
The reparation commission can, therefore, expect no addition from
other sources to the sum of from £3100 million to £3200 million with
which we have hypothetically credited it after the realisation of
Germany's immediately transferable wealth, the calculation of the
credits due to Germany under the treaty, and the discharge of the cost
of the armies of occupation. As Belgium has secured a private agreement
with France, the United States, and Great Britain, outside the treaty,
by which she is to receive, towards satisfaction of her claims, the
first £3100 million available for reparation, the upshot of the whole
matter is that Belgium may possibly get her £3100 million by May 1921,
but none of the other Allies are likely to secure by that date any
contribution worth speaking of. At any rate, it would be very imprudent
for finance ministers to lay their plans on any other hypothesis.
3. Annual Payments spread over a Term of Years
It is evident that Germany's pre-war capacity to pay an annual
foreign tribute has not been unaffected by the almost total loss of her
colonies, her overseas connections, her mercantile marine, and her
foreign properties, by the cession of ten per cent of her territory and
population, of one-third of her coal and of three-quarters of her iron
ore, by two million casualties amongst men in the prime of life, by the
starvation of her people for four years, by the burden of a vast war
debt, by the depreciation of her currency to less than one-seventh its
former value, by the disruption of her allies and their territories, by
revolution at home and Bolshevism on her borders, and by all the
unmeasured ruin in strength and hope of four years of all-swallowing
war and final defeat.
All this, one would have supposed, is evident. Yet most estimates
of a great indemnity from Germany depend on the assumption that she is
in a position to conduct in the future a vastly greater trade than ever
she has had in the past.
For the purpose of arriving at a figure it is of no great
consequence whether payment takes the form of cash (or rather of
foreign exchange) or is partly effected in kind (coal, dyes, timber,
etc.), as contemplated by the treaty. In any event, it is only by the
export of specific commodities that Germany can pay, and the method of
turning the value of these exports to account for reparation purposes
is, comparatively, a matter of detail.
We shall lose ourselves in mere hypothesis unless we return in some
degree to first principles and, whenever we can, to such statistics as
there are. It is certain that an annual payment can only be made by
Germany over a series of years by diminishing her imports and
increasing her exports, thus enlarging the balance in her favour which
is available for effecting payments abroad. Germany can pay in the
long run in goods, and in goods only, whether these goods are furnished
direct to the Allies, or whether they are sold to neutrals and the
neutral credits so arising are then made over to the Allies. The most
solid basis for estimating the extent to which this 'process can be
carried is to be found, therefore, in an analysis of her trade returns
before the war. Only on the basis of such an analysis, supplemented by
some general data as to the aggregate wealth-producing capacity of the
country, can a rational guess be made as to the maximum degree to which
the exports of Germany could be brought to exceed her imports.
In the year 1913 Germany's imports amounted to £3538 million and
her exports to £3505 million, exclusive of transit trade and bullion.
That is to say, imports exceeded exports by about £333 million. On the
average of the five years ending 1913, however, her imports exceeded
her exports by a substantially larger amount, namely, £374 million. It
follows, therefore, that more than the whole of Germany's pre-war
balance for new foreign investment was derived from the interest on her
existing foreign securities, and from the profits of her shipping,
foreign banking, etc. As her foreign properties and her mercantile
marine are now to be taken from her, and as her foreign banking and
other miscellaneous sources of revenue from abroad have been largely
destroyed, it appears that, on the pre-war basis of exports and
imports, Germany, so far from having a surplus wherewith to make a
foreign payment, would be not nearly self-supporting. Her first task,
therefore, must be to effect a readjustment of consumption and
production to cover this deficit. Any further economy she can effect
in the use of imported commodities, and any further stimulation of
exports will then be available for reparation.
Two-thirds of Germany's import and export trade is enumerated under
separate headings in the following tables. The considerations applying
to the enumerated portions may be assumed to apply more or less to the
remaining one-third, which is composed of commodities of minor
importance individually.
| German Exports, 1913 | Amount:
(million £) | Percentage of
Total Exports |
Iron goods (including tin plates, etc.)
Machinery and parts (including
motor-cars)...........................
Coal, coke and briquettes...............
Woolen goods (including raw and
combed wool and clothing).............
Cotton goods (including raw cotton,
yarn, and thread).....................
Cereals, etc. (including rye, oats,
wheat, hops)..........................
Leather and leather goods...............
Sugar...................................
Paper, etc..............................
Furs....................................
Electrical goods (installations, ma-
chinery, lamps, cables)...............
Silk goods..............................
Dyes....................................
Copper goods............................
Toys....................................
Rubber and rubber goods.................
Books, maps, and music..................
Potash..................................
Glass...................................
Potassium chloride......................
Pianos, organs, and parts...............
Raw zinc................................
Porcelain...............................
Other goods, unenumerated.........
Total.......................
|
66.13
37.55
35.34
29.40
28.15
------
196.57
------
21.18
15.47
13.20
13.10
11.75
10.88
10.10
9.76
6.50
5.15
4.27
3.71
3.18
3.14
2.91
2.77
2.74
2.53
-------
142.34
-------
165.92
-------
504.83
|
13.2
7.5
7.0
5.9
5.6
-------
39.2
-------
4.1
3.0
2.6
2.6
2.2
2.2
2.0
1.9
1.3
1.0
0.9
0.8
0.6
0.6
0.6
0.6
0.5
0.5
-------
67.2
-------
32.8
-------
100.0
|
| German Exports, 1913 | Amount:
(million £) | Percentage of
Total Imports |
I. Raw materials:—
Cotton...........................
Hides and skins..................
Wool.............................
Copper...........................
Coal.............................
Timber...........................
Iron ore.........................
Furs.............................
Flax and flaxseed................
Saltpetre........................
Silk.............................
Rubber...........................
Jute.............................
Petroleum........................
Tin..............................
Phosphorus chalk.................
Lubricating oil..................
II. Food, tobacco, etc.:—
Cereals, etc. (wheat, barley,
bran, rice, maize, oats, rye,
clover)........................
Oil seeds and cake, etc. (in-
cluding palm kernels, copra,
cocoa beans)...................
Cattle, lamb fat, bladders.......
Coffee...........................
Eggs.............................
Tobacco..........................
Butter...........................
Horses...........................
Fruit............................
Fish.............................
Poultry..........................
Wine.............................
III. Manufacturers:—
Cotton yarn and thread and
cotton goods...................
Woolen yarn and woolen
goods..........................
Machinery........................
IV. Unenumerated.......................
Total........................
|
30.35
24.86
23.67
16.75
13.66
11.60
11.35
9.35
9.33
8.55
7.90
7.30
4.70
3.49
2.91
2.32
2.29
-------
190.38
-------
65.51
20.53
14.62
10.95
9.70
6.70
5.93
5.81
3.65
2.99
2.80
2.67
-------
151.86
-------
9.41
7.57
4.02
-------
21.00
-------
175.28
-------
538.52
|
5.6
4.6
4.4
3.1
2.5
2.2
2.1
1.7
1.7
1.6
1.5
1.4
0.9
0.7
0.5
0.4
0.4
-------
35.3
-------
12.2
3.8
2.8
2.0
1.8
1.2
1.1
1.1
0.7
0.6
0.5
0.5
-------
28.3
-------
1.8
1.4
0.7
-------
3.9
-------
32.5
-------
100.0
|
These tables show that the most important exports consisted of:—
(1) iron goods, including tin-plates (13.2%);
(2) machinery, etc. (7.5%);
(3) coal, coke, and briquettes (7%);
(4) woollen goods, including raw
and combed wool (5.9 %); and
(5) cotton goods, including cotton yarn
and thread and raw cotton (5.6%),
these five classes between them accounting for 39.2% of the total exports. It will be observed that all
these goods are of a kind in which before the war competition between
Germany and the United Kingdom was very severe. If, therefore, the
volume of such exports to overseas or European destinations is very
largely increased the effect upon British export trade must be
correspondingly serious. As regards two of the categories, namely,
cotton and woollen goods, the increase of an export trade is dependent
upon an increase of the import of the raw material, since Germany
produces no cotton and practically no wool. These trades are therefore
incapable of expansion unless Germany is given facilities for securing
these raw materials (which can only be at the expense of the Allies) in
excess of the pre-war standard of consumption, and even then the
effective increase is not the gross value of the exports, but only the
difference between the value of the manufactured exports and of the
imported raw material. As regards the other three categories, namely,
machinery, iron goods, and coal, Germany's capacity to increase her
exports will have been taken from her by the cessions of territory in
Poland, Upper Silesia, and Alsace-Lorraine. As has been pointed out
already, these districts accounted for nearly one-third of Germany's
production of coal. But they also supplied no less than three-quarters
of her iron-ore production, 38% of her blast furnaces, and 9.5% of her
iron and steel foundries. Unless, therefore, Alsace-Lorraine and Upper
Silesia send their iron ore to Germany proper, to be worked up, which
will involve an increase in the imports for which she will have to find
payment, so far from any increase in export trade being possible, a
decrease is inevitable.(52*)
Next on the list come cereals, leather goods, sugar, paper, furs,
electrical goods, silk goods, and dyes. Cereals are not a net export
and are far more than balanced by imports of the same commodities. As
regards sugar, nearly 90 per cent of Germany's pre-war exports came to
the United Kingdom.(53*) An increase in this trade might be stimulated
by the grant of a preference in this country to German sugar or by an
arrangement by which sugar was taken in part payment for the indemnity
on the same lines as has been proposed for coal, dyes, etc. Paper
exports also might be capable of some increase. Leather goods, furs,
and silks depend upon corresponding imports on the other side of the
account. Silk goods are largely in competition with the trade of France
and Italy. The remaining items are individually very small. I have
heard it suggested that the indemnity might be paid to a great extent
in potash and the like. But potash before the war represented 0.6% of
Germany's export trade, and about £33 million in aggregate value.
Besides, France, having secured a potash field in the territory which
has been restored to her, will not welcome a great stimulation of the
German exports of this material.
An examination of the import list shows that 63.6% are raw
materials and food. The chief items of the former class, namely,
cotton, wool, copper, hides, iron ore, furs, silk, rubber, and tin,
could not be much reduced without reacting on the export trade, and
might have to be increased if the export trade was to be increased.
Imports of food, namely, wheat, barley, coffee, eggs, rice, maize, and
the like, present a different problem. It is unlikely that, apart from
certain comforts, the consumption of food by the German labouring
classes before the war was in excess of what was required for maximum
efficiency; indeed, it probably fell short of that amount. Any
substantial decrease in the imports of food would therefore react on
the efficiency of the industrial population, and consequently on the
volume of surplus exports which they could be forced to produce. It is
hardly possible to insist on a greatly increased productivity of German
industry if the workmen are to be underfed. But this may not be equally
true of barley, coffee, eggs, and tobacco. If it were possible to
enforce a regime in which for the future no German drank beer or
coffee, or smoked any tobacco, a substantial saving could be effected.
Otherwise there seems little room for any significant reduction.
The following analysis of German exports and imports according to
destination and origin is also relevant. From this it appears that of
Germany's exports in 1913, 18% went to the British empire, 17% to
France, Italy, and Belgium, 10% to Russia and Roumania, and 7% to the
United States; that is to say, more than half of the exports found
their market in the countries of the Entente nations. Of the balance,
12% went to Austria-Hungary, Turkey, and Bulgaria, and 35% elsewhere.
Unless, therefore, the present Allies are prepared to encourage the
importation of German products, a substantial increase in total volume
can only be effected by the wholesale swamping of neutral markets.
GERMAN TRADE (1913) ACCORDING TO DESTINATION AND ORIGIN
| | Destination of
Germany's Exports | Origin of
Germany's Imports |
Great Britain................
India........................
Egypt........................
Canada.......................
Australia....................
South Africa.................
Total: British Empire
France.......................
Belgium......................
Italy........................
U.S.A........................
Russia.......................
Roumania.....................
Austria-Hungary..............
Turkey.......................
Bulgeria.....................
Other countries..............
|
Million
£
71.91
7.53
2.17
3.02
4.42
2.34
-------
91.39
39.49
27.55
19.67
35.66
44.00
7.00
55.24
4.92
1.51
178.04
-------
504.47
|
Per cent
14.2
1.5
0.4
0.6
0.9
0.5
-----
18.1
7.8
5.5
3.9
7.1
8.7
1.4
10.9
1.0
0.3
35.3
-----
100.0
|
|
Million
£
219.00
135.20
29.60
16.00
74.00
17.40
-------
491.20
146.05
86.15
79.40
427.80
356.15
19.95
206.80
18.40
2.00
858.70
-------
2,692.60
|
Per cent
8.1
5.0
1.1
0.6
2.8
0.6
-----
18.2
5.4
3.2
3.0
15.9
13.2
0.7
7.7
0.7
...
32.0
-----
100.0
|
|
The above analysis affords some indication of the possible
magnitude of the maximum modification of Germany's export balance under
the conditions which will prevail after the peace. On the assumptions
(1) that we do not specially favour Germany over ourselves in supplies
of such raw materials as cotton and wool (the world's supply of which
is limited), (2) that France, having secured the iron-ore deposits,
makes a serious attempt to secure the blast furnaces and the steel
trade also, (3) that Germany is not encouraged and assisted to undercut
the iron and other trades of the Allies in overseas markets, and (4)
that a substantial preference is not given to German goods in the
British empire, it is evident by examination of the specific items that
not much is practicable.
Let us run over the chief items again: (1) Iron goods. In view of
Germany's loss of resources, an increased net export seems impossible
and a large decrease probable. (2) Machinery. Some increase is
possible. (3) Coal and coke. The value of Germany's net export before
the war was £322 million; the Allies have agreed that for the time
being 20 million tons is the maximum possible export with a problematic
(and in fact) impossible increase to 40 million tons at some future
time; even on the basis of 20 million tons we have virtually no
increase of value, measured in pre-war prices;(54*) whilst, if this
amount is exacted, there must be a decrease of far greater value in the
export of manufactured articles requiring coal for their production.
(4) Woollen goods. An increase is impossible without the raw wool, and,
having regard to the other claims on supplies of raw wool, a decrease
is likely. (5) Cotton goods. The same considerations apply as to wool.
(6) Cereals. There never was and never can be a net export. (7) Leather
goods. The same considerations apply as to wool.
We have now covered nearly half of Germany's pre-war exports, and
there is no other commodity which formerly represented as much as 3 per
cent of her exports. In what commodity is she to pay? Dyes? — their
total value in 1913 was £310 million. Toys? Potash? — 1913 exports
were worth £33 million. And even if the commodities could be specified,
in what markets are they to be sold? — remembering that we have in
mind goods to the value not of tens of millions annually, but of
hundreds of millions.
On the side of imports, rather more is possible. By lowering the
standard of life, an appreciable reduction of expenditure on imported
commodities may be possible. But, as we have already seen, many large
items are incapable of reduction without reacting on the volume of
exports.
Let us put our guess as high as we can without being foolish, and
suppose that after a time Germany will be able, in spite of the
reduction of her resources, her facilities, her markets, and her
productive power, to increase her exports and diminish her imports so
as to improve her trade balance altogether by £3100 million annually,
measured in pre-war prices. This adjustment is first required to
liquidate the adverse trade balance, which in the five years before the
war averaged £374 million; but we will assume that after allowing for
this, she is left with a favourable trade balance of £350 million a
year. Doubling this to allow for the rise in pre-war prices, we have a
figure of £3100 million. Having regard to the political, social, and
human factors, as well as to the purely economic, I doubt if Germany
could be made to pay this sum annually over a period of 30 years; but
it would not be foolish to assert or to hope that she could.
Such a figure, allowing 5% for interest, and 1% for repayment of
capital, represents a capital sum having a present value of about
£31,700 million.(55*)
I reach, therefore, the final conclusion that, including all
methods of payment — immediately transferable wealth, ceded property,
and an annual tribute — £32,000 million is a safe maximum figure of
Germany's capacity to pay. In all the actual circumstances, I do not
believe that she can pay as much. Let those who consider this a very
low figure, bear in mind the following remarkable comparison. The
wealth of France in 1871 was estimated at a little less than half that
of Germany in 1913. Apart from changes in the value of money, an
indemnity from Germany of £3500 million would, therefore, be about
comparable to the sum paid by France in 1871; and as the real burden of
an indemnity increases more than in proportion to its amount, the
payment of £32,000 million by Germany would have far severer
consequences than the £3200 million paid by France in 1871.
There is only one head under which I see a possibility of adding to
the figure reached on the line of argument adopted above; that is, if
German labour is actually transported to the devastated areas and there
engaged in the work of reconstruction. I have heard that a limited
scheme of this kind is actually in view. The additional contribution
thus obtainable depends on the number of labourers which the German
government could contrive to maintain in this way and also on the
number which, over a period of years, the Belgian and French
inhabitants would tolerate in their midst. In any case, it would seem
very difficult to employ on the actual work of reconstruction, even
over a number of years, imported labour having a net present value
exceeding (say) £3250 million; and even this would not prove in
practice a net addition to the annual contributions obtainable in other
ways.
A capacity of £38,000 million or even of £35,000 million is,
therefore, not within the limits of reasonable possibility. It is for
those who believe that Germany can make an annual payment amounting to
hundreds of millions sterling to say in what specific commodities they
intend this payment to be made, and in what markets the goods are to be
sold. Until they proceed to some degree of detail, and are able to
produce some tangible argument in favour of their conclusions, they do
not deserve to be believed.(56*)
I make three provisos only, none of which affect the force of my
argument for immediate practical purposes.
First: if the Allies were to 'nurse' the trade and industry of
Germany for a period of five or ten years, supplying her with large
loans, and with ample shipping, food, and raw materials during that
period, building up markets for her, and deliberately applying all
their resources and goodwill to making her the greatest industrial
nation in Europe, if not in the world, a substantially larger sum could
probably be extracted thereafter; for Germany is capable of very great
productivity.
Second: whilst I estimate in terms of money, I assume that there is
no revolutionary change in the purchasing power of our unit of value.
If the value of gold were to sink to a half or a tenth of its present
value, the real burden of a payment fixed in terms of gold would be
reduced proportionately. If a gold sovereign comes to be worth what a
shilling is worth now, then, of course, Germany can pay a larger sum
than I have named, measured in gold sovereigns.
Third: I assume that there is no revolutionary change in the yield
of nature and material to man's labour. It is not impossible that the
progress of science should bring within our reach methods and devices
by which the whole standard of life would be raised immeasurably, and a
given volume of products would represent but a portion of the human
effort which it represents now. In this case all standards of
'capacity' would be changed everywhere. But the fact that all things
are possible is no excuse for talking foolishly.
It is true that in 1870 no man could have predicted Germany's
capacity in 1910. We cannot expect to legislate for a generation or
more. The secular changes in man's economic condition and the liability
of human forecast to error are as likely to lead to mistake in one
direction as in another. We cannot as reasonable men do better than
base our policy on the evidence we have and adapt it to the five or ten
years over which we may suppose ourselves to have some measure of
prevision; and we are not at fault if we leave on one side the extreme
chances of human existence and of revolutionary changes in the order of
Nature or of man's relations to her. The fact that we have no adequate
knowledge of Germany's capacity to pay over a long period of years is
no justification (as I have heard some people claim that it is) for the
statement that she can pay ten thousand million pounds.
Why has the world been so credulous of the unveracities of
politicians? If an explanation is needed, I attribute this particular
credulity to the following influences in part.
In the first place, the vast expenditures of the war, the inflation
of prices, and the depreciation of currency, leading up to a complete
instability of the unit of value, have made us lose all sense of number
and magnitude in matters of finance. What we believed to be the limits
of possibility have been so enormously exceeded, and those who founded
their expectations on the past have been so often wrong, that the man
in the street is now prepared to believe anything which is told him
with some show of authority, and the larger the figure the more readily
he swallows it.
But those who look into the matter more deeply are sometimes misled
by a fallacy much more plausible to reasonable persons. Such a one
might base his conclusions on Germany's total surplus of annual
productivity as distinct from her export surplus. Helfferich's
estimate of Germany's annual increment of wealth in 1913 was £3400
million to £3425 million (exclusive of increased money value of
existing land and property). Before the war, Germany spent between £350
million and £3100 million on armaments, with which she can now
dispense. Why, therefore, should she not pay over to the Allies an
annual sum of £3500 million? This puts the crude argument in its
strongest and most plausible form.
But there are two errors in it. First of all, Germany's annual
savings, after what she has suffered in the war and by the peace, will
fall far short of what they were before and, if they are taken from her
year by year in future, they cannot again reach their previous level.
The loss of Alsace-Lorraine, Poland, and Upper Silesia could not be
assessed in terms of surplus productivity at less than £350 million
annually. Germany is supposed to have profited about £3100 million per
annum from her ships, her foreign investments, and her foreign banking
and connections, all of which have now been taken from her. Her saving
on armaments is far more than balanced by her annual charge for
pensions, now estimated at £3250 million,(57*) which represents a real
loss of productive capacity. And even if we put on one side the burden
of the internal debt, which amounts to 240 milliards of marks, as being
a question of internal distribution rather than of productivity, we
must still allow for the foreign debt incurred by Germany during the
war, the exhaustion of her stock of raw materials, the depletion of her
livestock, the impaired productivity of her soil from lack of manures
and of labour, and the diminution in her wealth from the failure to
keep up many repairs and renewals over a period of nearly five years.
Germany is not as rich as she was before the war, and the diminution in
her future savings for these reasons, quite apart from the factors
previously allowed for, could hardly be put at less than ten per cent,
that is £340 million annually.
These factors have already reduced Germany's annual surplus to less
than the £ 3100 million at which we arrived on other grounds as the
maximum of her annual payments. But even if the rejoinder be made that
we have not yet allowed for the lowering of the standard of life and
comfort in Germany which may reasonably be imposed on a defeated
enemy,(58*) there is still a fundamental fallacy in the method of
calculation. An annual surplus available for home investment can only
be converted into a surplus available for export abroad by a radical
change in the kind of work performed. Labour, while it may be available
and efficient for domestic services in Germany, may yet be able to find
no outlet in foreign trade. We are back on the same question which
faced us in our examination of the export trade — in what export trade
is German labour going to find a greatly increased outlet? Labour can
only be diverted into new channels with loss of efficiency, and a large
expenditure of capital. The annual surplus which German labour can
produce for capital improvements at home is no measure, either
theoretically or practically, of the annual tribute which she can pay
abroad.
Current Chapter Continued