IV. The Reparation Commission

This body is so remarkable a construction and may, if it functions at all, exert so wide an influence on the life of Europe, that its attributes deserve a separate examination.
There are no precedents for the indemnity imposed on Germany under the present treaty; for the money exactions which formed part of the settlement after previous wars have differed in two fundamental respects from this one. The sum demanded has been determinate and has been measured in a lump sum of money; and so long as the defeated party was meeting the annual instalments of cash, no further interference was necessary.
But for reasons already elucidated, the exactions in this case are not yet determinate, and the sum when fixed will prove in excess of what can be paid in cash and in excess also of what can be paid at all. It was necessary, therefore, to set up a body to establish the bill of claim, to fix the mode of payment, and to approve necessary abatements and delays. It was only possible to place this body in a position to exact the utmost year by year by giving it wide powers over the internal, economic life of the enemy countries who are to be treated henceforward as bankrupt estates to be administered by and for the benefit of the creditors. In fact, however, its powers and functions have been enlarged even beyond what was required for this purpose, and the reparation commission has been established as the final arbiter on numerous economic and financial issues which it was convenient to leave unsettled in the treaty itself.(59*)
The powers and constitution of the reparation commission are mainly laid down in articles 233-41 and annex II of the reparation chapter of the treaty with Germany. But the same commission is to exercise authority over Austria and Bulgaria, and possibly over Hungary and Turkey, when peace is made with these countries. There are therefore analogous articles mutatis mutandis in the Austrian treaty(60*) and in the Bulgarian treaty.(61*)
The principal Allies are each represented by one chief delegate. The delegates of the United States, Great Britain, France, and Italy take part in all proceedings; the delegate of Belgium in all proceedings except those attended by the delegates of Japan or the Serb-Croat-Slovene state; the delegate of Japan in all proceedings affecting maritime or specifically Japanese questions; and the delegate of the Serb-Croat-Slovene state when questions relating to Austria, Hungary, or Bulgaria are under consideration. Other Allies are to be represented by delegates, without the power to vote, whenever their respective claims and interests are under examination.
In general the commission decides by a majority vote, except in certain specific cases where unanimity is required, of which the most important are the cancellation of German indebtedness, long postponement of the instalments, and the sale of German bonds of indebtedness. The commission is endowed with full executive authority to carry out its decisions. It may set up an executive staff and delegate authority to its officers. The commission and its staff are to enjoy diplomatic privileges, and its salaries are to be paid by Germany, who will, however, have no voice in fixing them. If the commission is to discharge adequately its numerous functions, it will be necessary for it to establish a vast polyglot bureaucratic organisation, with a staff of hundreds. To this organisation, the headquarters of which will be in Paris, the economic destiny of Central Europe is to be entrusted.
Its main functions are as follows:—
(1) The commission will determine the precise figure of the claim against the enemy Powers by an examination in detail of the claims of each of the Allies under annex I of the reparation chapter. This task must be completed by May 1921. It shall give to the German government and to Germany's allies 'a just opportunity to be heard, but not to take any part whatever in the decisions of the commission'. That is to say, the commission will act as a party and a judge at the same time.
(2) Having determined the claim, it will draw up a schedule of payments providing for the discharge of the whole sum with interest within thirty years. From time to time it shall, with a view to modifying the schedule within the limits of possibility, 'consider the resources and capacity of Germany... giving her representatives a just opportunity to be heard'.
'In periodically estimating Germany's capacity to pay, the commission shall examine the German system of taxation, first, to the end that the sums for reparation which Germany is required to pay shall become a charge upon all her revenues prior to that for the service or discharge of any domestic loan, and secondly, so as to satisfy itself that, in general, the German scheme of taxation is fully as heavy proportionately as that of any of the Powers represented on the commission.'
(3) Up to May 1921 the commission has power, with a view to securing the payment of £31,000 million, to demand the surrender of any piece of German property whatever, wherever situated: that is to say, 'Germany shall pay in such instalments and in such manner, whether in gold, commodities, ships, securities, or otherwise, as the reparation commission may fix'.
(4) The commission will decide which of the rights and interests of German nationals in public utility undertakings operating in Russia, China, Turkey, Austria, Hungary, and Bulgaria, or in any territory formerly belonging to Germany or her allies, are to be expropriated and transferred to the commission itself; it will assess the value of the interests so transferred; and it will divide the spoils.
(5) The commission will determine how much of the resources thus stripped from Germany must be returned to her to keep enough life in her economic organisation to enable her to continue to make reparation payments in future.(62*)
(6) The commission will assess the value, without appeal or arbitration, of the property and rights ceded under the Armistice, and under the Treaty — rolling-stock, the mercantile marine, river craft, cattle, the Saar mines, the property in ceded territory for which credit is to be given, and so forth.
(7) The commission will determine the amounts and values (within certain defined limits) of the contributions which Germany is to make in kind year by year under the various annexes to the reparation chapter.
(8) The commission will provide for the restitution by Germany of property which can be identified.
(9) The commission will receive, administer, and distribute all receipts from Germany in cash or in kind. It will also issue and market German bonds of indebtedness.
(10) The commission will assign the share of the pre-war public debt to be taken over by the ceded areas of Schleswig, Poland, Danzig, and Upper Silesia. The commission will also distribute the public debt of the late Austro-Hungarian empire between its constituent parts.
(11) The Commission will liquidate the Austro-Hungarian Bank, and will supervise the withdrawal and replacement of the currency system of the late Austro-Hungarian empire.
(12) It is for the commission to report if, in their judgment, Germany is falling short in fulfilment of her obligations, and to advise methods of coercion.
(13) In general, the commission, acting through a subordinate body, will perform the same functions for Austria and Bulgaria as for Germany, and also, presumably, for Hungary and Turkey.(63*)
There are also many other relatively minor duties assigned to the commission. The above summary, however, shows sufficiently the scope and significance of its authority. This authority is rendered of far greater significance by the fact that the demands of the treaty generally exceed Germany's capacity. Consequently the clauses which allow the commission to make abatements, if in their judgment the economic conditions of Germany require it, will render it in many different particulars the arbiter of Germany's economic life. The commission is not only to inquire into Germany's general capacity to pay, and to decide (in the early years) what import of foodstuffs and raw materials is necessary; it is authorised to exert pressure on the German system of taxation (annex II, paragraph 12(b))(64*) and on German internal expenditure, with a view to ensuring that reparation payments are a first charge on the country's entire resources; and it is to decide on the effect on German economic life of demands for machinery, cattle, etc., and of the scheduled deliveries of coal.
By article 240 of the treaty Germany expressly recognises the commission and its powers 'as the same may be constituted by the Allied and Associated governments', and 'agrees irrevocably to the possession and exercise by such commission of the power and authority given to it under the present treaty'. She undertakes to furnish the commission with all relevant information. And finally in article 241, 'Germany undertakes to pass, issue, and maintain in force any legislation, orders, and decrees that may be necessary to give complete effect to these provisions'.
The comments on this of the German financial commission at Versailles were hardly an exaggeration: 'German democracy is thus annihilated at the very moment when the German people was about to build it up after a severe struggle — annihilated by the very persons who throughout the war never tired of maintaining that they sought to bring democracy to us... Germany is no longer a people and a state, but becomes a mere trade concern placed by its creditors in the hands of a receiver, without its being granted so much as the opportunity to prove its willingness to meet its obligations of its own accord. The commission, which is to have its permanent headquarters outside Germany, will possess in Germany incomparably greater rights than the German emperor ever possessed; the German people under its r
would remain for decades to come shorn of all rights, and deprived, to a far greater extent than any people in the days of absolutism, of any independence of action, of any individual aspiration in its economic or even in its ethical progress.'
In their reply to these observations the Allies refused to admit that there was any substance, ground, or force in them. 'The observations of the German delegation', they pronounced, 'present a view of this commission so distorted and so inexact that it is difficult to believe that the clauses of the treaty have been calmly or carefully examined. It is not an engine of oppression or a device for interfering with German sovereignty. It has no forces at its command; it has no executive powers within the territory of Germany; it cannot, as is suggested, direct or control the educational or other systems of the country. Its business is to ask what is to be paid; to satisfy itself that Germany can pay; and to report to the Powers, whose delegation it is, in case Germany makes default. If Germany raises the money required in her own way, the commission cannot order that it shall be raised in some other way. if Germany offers payment in kind, the commission may accept such payment, but, except as specified in the treaty itself, the commission cannot require such a payment.'
This is not a candid statement of the scope and authority of the reparation commission, as will be seen by a comparison of its terms with the summary given above or with the treaty itself. Is not, for example, the statement that the commission 'has no forces at its command' a little difficult to justify in view of article 430 of the treaty, which runs: 'In case, either during the occupation or after the expiration of the fifteen years referred to above, the reparation commission finds that Germany refuses to observe the whole or part of her obligations under the present treaty with regard to reparation, the whole or part of the areas specified in article 429 will be reoccupied immediately by the Allied and Associated Powers'? The decision as to whether Germany has kept her engagements and whether it is possible for her to keep them is left, it should be observed, not to the League of Nations, but to the reparation commission itself; and an adverse ruling on the part of the commission to is be followed 'immediately' by the use of armed force. Moreover, the depreciation of the powers of the commission attempted in the Allied reply largely proceeds from the assumption that it is quite open to Germany to 'raise the money required in her own way', in which case it is true that many of the powers of the reparation commission would not come into practical effect; whereas in truth one of the main reasons for setting up the commission at all is the expectation that Germany will not be able to carry the burden nominally laid upon her.
It is reported that the people of Vienna, hearing that a section of the reparation commission is about to visit them, have decided characteristically to pin their hopes on it. A financial body can obviously take nothing from them, for they have nothing; therefore this body must be for the purpose of assisting and relieving them. Thus do the Viennese argue, still light-headed in adversity. But perhaps they are right. The reparation commission will come into very close contact with the problems of Europe; and it will bear a responsibility proportionate to its powers. It may thus come to fulfil a very different role from that which some of its authors intended for it. Transferred to the League of Nations, an organ of justice and no longer of interest, who knows that by a change of heart and object the reparation commission may not yet be transformed from an instrument of oppression and rapine into an economic council of Europe, whose object is the restoration of life and of happiness, even in the enemy countries?

V. The German Counter-Proposals

NOTES:

1. 'With reservation that any future claims and demands of the Allies and the United States of America remain unaffected, the following financial conditions are required: Reparation for damage done. While armistice lasts, no public securities shall be removed by the enemy which can serve as a pledge to the Allies for recovery or reparation of war losses. Immediate restitution of cash deposit in National Bank of Belgium, and, in general, immediate return of all documents, of specie, stock, shares, paper money, together with plant for issue thereof, touching public or private interests in invaded countries. Restitution of Russian and Roumanian gold yielded to Germany or taken by that Power. This gold to be delivered in trust to the Allies until signature of peace.'

2. It is to be noticed, in passing, that they contain nothing which limits the damage to damage inflicted contrary to the recognised rules of warfare. That is to say, it is permissible to include claims arising out of the legitimate capture of a merchantman at sea, as well as the costs of illegal submarine warfare.

3. Mark-paper or mark-credits owned in ex-occupied territory by Allied nationals should be included, if at all, in the settlement of enemy debts, along with other sums owed to Allied nationals, and not in connection with reparation.

4. A special claim on behalf of Belgium was actually included in the peace treaty, and was accepted by the German representatives without demur.

5. To the British observer, one scene, however, stood out distinguished from the rest — the field of Ypres. In that desolate and ghostly spot, the natural colour and humours of the landscape and the climate seemed designed to express to the traveller the memories of the ground. A visitor to the salient early in November 1918, when a few German bodies still added a touch of realism and human horror, and the great struggle was not yet certainly ended, could feel there, as nowhere else, the present outrage of war, and at the same time the tragic and sentimental purification which to the future will in some degree transform its harshness.

6. These notes, estimated to amount to no less than six thousand million marks, are now a source of embarrassment and great potential loss to the Belgian government, inasmuch as on their recovery of the country they took them over from their nationals in exchange for Belgian notes at the rate of Fr. 1.20 = Mk. 1. This rate of exchange, being substantially in excess of the value of the mark-notes at the rate of exchange current at the time (and enormously in excess of the rate to which the mark-notes have since fallen, the Belgian franc being now worth more than three marks), was the occasion of the smuggling of mark-notes into Belgium on an enormous scale, to take advantage of the profit obtainable. The Belgian government took this very imprudent step partly because they hoped to persuade the peace conference to make the redemption of these bank-notes, at the par of exchange, a first charge on German assets. The peace conference held, however, that reparation proper must ike precedence of the adjustment of improvident banking transactions effected at an excessive rate of exchange. The possession by the Belgian government of this great mass of German currency, in addition to an amount of nearly two thousand million marks held by the French government which they similarly exchanged for the benefit of the population of the invaded areas and of Alsace-Lorraine, is a serious aggravation of the exchange position of the mark. It will certainly be desirable for the Belgian and German governments to come to some arrangement as to its disposal, though this is rendered difficult by the prior lien held by the reparation commission over all German assets available for such purposes.

7. It should be added, in fairness, that the very high claims put forward on behalf of Belgium generally include not only devastation proper, but all kinds of other items, as, for example, the profits and earnings which Belgians might reasonably have expected to earn if there had been no war.

8. 'The wealth and income of the chief Powers', by J. C. Stamp (Journal of the Royal Statistical Society, July 1919).

9. Other estimates vary from £32,420 million to £32,680 million. See Stamp, loc. cit.

10. This was clearly and courageously pointed out by M. Charles Gide in L'Emancipation for February 1919.

11. For details of these and other figures, see Stamp, loc. cit.

12. Even when the extent of the material damage has been established, it will be exceedingly difficult to put a price on it, which must largely depend on the period over which restoration is spread, and the methods adopted. It would be impossible to make the damage good in a year or two at any price, and an attempt to do so at a rate which was excessive in relation to the amount of labour and materials at hand might force prices up to almost any level. We must, I think, assume a cost of labour and materials about equal to that current in the world generally. In point of fact, however, we may safely assume that literal restoration will never be attempted. Indeed, it would be very wasteful to do so. Many of the townships were old and unhealthy, and many of the hamlets miserable. To re-erect the same type of building in the same places would be foolish. As for the land, the wise course may be in some cases to leave long strips of it to Nature for many years to come. An aggregate money sum should be computed as fairly representing the value of the material damage, and France should be left to expend it in the manner she thinks wisest with a view to her economic enrichment as a whole. The first breeze of this controversy has already blown through France. A long and inconclusive debate occupied the Chamber during the spring of 1919, as to whether inhabitants of the devastated area receiving compensation should be compelled to expend it in restoring the identical property, or whether they should be free to use it as they like. There was evidently a great deal to be said on both sides; in the former case there would be much hardship and uncertainty for owners who could not, many of them, hope to recover the effective use of their property perhaps for years to come, and yet would not be free to set themselves up elsewhere; on the other hand, if such persons were allowed to take their compensation and go elsewhere, the countryside of northern France would never be put right. Nevertheless I believe that the wise course will be to allow great latitude and let economic motives take their own course.

13. La Richesse de la France devant la Guerre, published in 1916.

14. Revue Bleue, 3 February 1919. This is quoted in a very valuable selection of French estimates and expressions of opinion, forming chapter iv of La Liquidation financière de la Guerre, by H. Charriaut and R. Hacault. The general magnitude of my estimate is further confirmed by the extent of the repairs already effected, as set forth in a speech delivered by M. Tardieu on 10 October 1919, in which he said: 'On 16 September last, of 2,246 kilometres of railway track destroyed, 2,016 had been repaired; of 1,075 kilometres of canal, 700; of 1,160 constructions, such as bridges and tunnels, which had been blown up, 588 had been replaced; of 550,000 houses ruined by bombardment, 60,000 had been rebuilt; and of 1,800,000 hectares of ground rendered useless by battle, 400,000 had been recultivated, 200,000 hectares of which are now ready to be sown. Finally, more than 10,000,000 metres of barbed wire had been removed.'

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

16. A substantial part of this was lost in the service of the Allies; this must not be duplicated by inclusion both in their claims and in ours.

17. The fact that no separate allowance is made in the above for the sinking of 675 fishing vessels of 71,765 tons gross, or for the 1,885 vessels of 8,007,967 tons damaged or molested, but not sunk, may be set off against what may be an excessive figure for replacement cost.

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

19. There is a reservation in the peace treaty on this question. 'The Allied and Associated Powers formally reserve the right of Russia to obtain from Germany restitution and reparation based on the principles of the present treaty' (article 116).

20. Dr Diouritch in his 'Economic and statistical survey of the southern Slav nations' (Journal of the Royal Statistical Society, May 1919), quotes some extraordinary figures of the loss of life: 'According to the official returns, the number of those fallen in battle or died in captivity up to the last Serbian offensive amounted to 320,000, which means that one-half of Serbia's male population, from 18 to 60 years of age, perished outright in the European war. In addition, the Serbian medical authorities estimate that about 300,000 people have died from typhus among the civil population, and the losses among the population interned in enemy camps are estimated at 50,000. During the two Serbian retreats and during the Albanian retreat the losses among children and young people are estimated at 200,000. Lastly, during over three years of enemy occupation, the losses in lives owing to the lack of proper food and medical attention are estimated at 250,000.' Altogether, he puts the losses in life at above a million, or more than one-third of the population of Old Serbia.

21 Come si calcola e a quanto ammonta la richezza d'Iialia e delle altre principali nazioni, published in 1919.

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

23. Assuming that in her case £3250 million are included for the general expenses of the war defrayed out of loans made to Belgium by her allies.

24. It must be said to Mr Hughes' honour that he apprehended from the first the bearing of the pre-armistice negotiations on our right to demand an indemnity covering the full costs of the war, protested against our ever having entered into such engagements, and maintained loudly that he had been no party to them and could not consider himself bound by them. His indignation may have been partly due to the fact that Australia, not having been ravaged, would have no claims at all under the more limited interpretation of our rights.

25. The whole cost of the war has been estimated at from £324,000 million upwards. This would mean an annual payment of interest (apart from sinking fund) of £31,200 million. Could any expert committee have reported that Germany can pay this sum?

26. But unhappily they did not go down with their flags flying very gloriously. For one reason or another their leaders maintained substantial silence. What a different position in the country's estimation they might hold now if they had suffered defeat amidst firm protests against the fraud, chicane, and dishonour of the whole proceedings.

27. Only after the most painful consideration have I written these words. The almost complete absence of protest from the leading statesmen of England makes one feel that one must have made some mistake. But I believe that I know all the facts, and I can discover no such mistake. In any case, I have set forth all the relevant engagements in chapter 4 and at the beginning of this chapter, so that the reader can form his own judgment.

28. In conversation with Frenchmen who were private persons and quite unaffected by political considerations, this aspect became very clear. You might persuade them that some current estimates as to the amount to be got out of Germany were quite fantastic. Yet at the end they would always come back to where they had started: 'But Germany must pay; for, otherwise, what is to happen to France?'

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

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

31. M. Klotz has estimated the French claims on this head at £33,000 million (75 milliard francs, made up of 13 milliard for allowances, 60 for pensions, and 2 for widows). If this figure is correct, the others should probably be scaled up also.

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

33. In his speech of 5 September 1919, addressed to the French Chamber, M. Klotz estimated the total Allied claims against Germany under the treaty at £315,000 million, which would accumulate at interest until 1921, and be paid off thereafter by 34 annual instalments of about £31,000 million each, of which France would receive about £3550 million annually. 'The general effect of the statement (that France would receive from Germany this annual payment) proved', it is reported, 'appreciably encouraging to the country as a whole, and was immediately reflected in the improved tone on the Bourse and throughout the business world in France.' So long as such statements can be accepted in Paris without protest, there can be no financial or economic future for France, and a catastrophe of disillusion is not far distant.

34. As a matter of subjective judgment, I estimate for this figure an accuracy of 10% in deficiency and 20% in excess, i.e. that the result will lie between £36,400 million and £38,800 million.

35. Germany is also liable under the treaty, as an addition to her liabilities for reparation, to pay all the costs of the armies of occupation after peace is signed for the fifteen subsequent years of occupation. So far as the text of the treaty goes, there is nothing to limit the size of these armies, and France could, therefore, by quartering the whole of her normal standing army in the occupied area, shift the charge from her own taxpayers to those of Germany — though

in reality any such policy would be at the expense not of Germany, who by hypothesis is already paying for reparation up to the full limit of her capacity, but of France's allies, who would receive so much less in respect of reparation. A White Paper (Cmd. 240) has, however, been issued, in which is published a declaration by the governments of the United States, Great Britain, and France engaging themselves to limit the sum payable annually by Germany to cover the cost of occupation to £312 million, 'as soon as the Allied and Associated Powers concerned are convinced that the conditions of disarmament by Germany are being satisfactorily fulfilled'. The three Powers reserve to themselves the liberty to modify this arrangement at any time if they agree that it is necessary.

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

37. This is the effect of paragraph 12 (c) of annex II of the reparation chapter, leaving minor complications on one side. The treaty fixes the payments in terms of gold marks, which are converted in the above at the rate of 20 to £31.

38. If, per impossibile, Germany discharged £3500 million in cash or kind by 1921, her annual payments would be at the rate of £362,500,000 from 1921 to 1925 and of £3150 million thereafter

39. Paragraph 16 of annex II of the reparation chapter. There is also an obscure provision by which interest may be charged 'on sums arising out of material damage as from 11 November 1918 up to 1 May 1921'. This seems to differentiate damage to property from damage to the person in favour of the former. It does not affect pensions and allowances, the cost of which is capitalised as at the date of the coming into force of the treaty.

40. On the assumption which no one supports and even the most optimistic fear to be unplausible, that Germany can pay the full charge for interest and siding fund from the outset, the annual payment would amount to £3480 million.

41. Under paragraph 13 of annex II unanimity is required (i) for any postponement beyond 1930 of instalments due between 1921 and 1926, and (ii) for any postponement for more than three years of instalments due after 1926. Further, under article 234, the commission may not cancel any part of the indebtedness without the specific authority of all the governments represented on the commission.

42. On 23 July 1914 the amount was £367,800,000.

43. Owing to the very high premium which exists on German silver coin, as the combined result of the depreciation of the mark and the appreciation of silver, it is highly improbable that it will be possible to extract such coin out of the pockets of the people. But it may gradually leak over the frontier by the agency of private speculators, and thus indirectly benefit the German exchange position as a whole.

44. The Allies made the supply of foodstuffs to Germany during the armistice, mentioned above, conditional on the provisional transfer to them of the greater part of the mercantile marine, to be operated by them for the purpose of shipping foodstuffs to Europe generally, and to Germany in particular. The reluctance of the Germans to agree to this was productive of long and dangerous delays in the supply of food, but the abortive conferences of Trèves and Spa (16 January, 14-16 February,and 4-5 March 1919) were at last followed by the agreement of Brussels (14 March 1919). The unwillingness of the Germans to conclude was mainly due to the lack of any absolute guarantee on the part of the Allies that, if they surrendered the ships, they would get the food. But assuming reasonable good faith on the part of the latter (their behaviour in respect of certain other clauses of the armistice, however, had not been impeccable and gave the enemy some just grounds for suspicion), their demand was not an improper one; for without the German ships the business of transporting the food would have been difficult, if not impossible, and the German ships surrendered or their equivalent were in fact almost wholly employed in transporting food to Germany itself. Up to 30 June 1919, 176 German ships of 1,025,388 gross tonnage had been surrendered to the Allies in accordance with the Brussels agreement.

45. The amount of tonnage transferred may be rather greater and the value per ton rather less. The aggregate value involved is not likely, however, to be less than £3100 million or greater than £3150 million.

46. This census was carried out by virtue of a decree of 23 August 1916. On 22 March 1917, the German government acquired complete control over the utilisation of foreign securities in German possession; and in May 1917 it began to exercise these powers for the mobilisation of certain Swedish, Danish, and Swiss securities.

47 £3 (million)

1892. Schmoller 500 1892. Christians 650 1893-4. Koch 600 1905. v. Halle 800(†) 1913. Helfferich 1,000( 1914. Ballod 1,250 1914. Pistorius 1,250 1919. Hans David 1,050() † Plus £3500 million for investments other than securities. Net investments, i.e. after allowance for property in Germany owned abroad. This may also be the case with some of the other estimates. This estimate, given in Weltwirtschaftszeitung (13 June 1919), is an estimate of the value of Germany's foreign investments as at the outbreak of war.

48. I have made no deduction for securities in the ownership of Alsace-Lorrainers and others who have now ceased to be German nationals.

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

50. The treaty (see article 114) leaves it very dubious how far the Danish government is under an obligation to make payments to the reparation commission in respect of its acquisition of Schleswig. They might, for instance, arrange for various offsets such as the value of the mark-notes held by the inhabitants of ceded areas. In any case the amount of money involved is quite small. The Danish government is raising a loan for £36,600,000 (kr. 120,000,000) for the joint purposes of 'taking over Schleswig's share of the German debt, for buying German public property, for helping the Schleswig population, and for settling the currency question'.

51. Here again my own judgment would carry me much further and I should doubt the possibility of Germany's exports equalling her imports during this period. But the statement in the text goes far enough for the purpose of my argument.

52. It has been estimated that the cession of territory to France, apart from the loss of Upper Silesia, may reduce Germany's annual pre-war production of steel ingots from 20 million tons to 14 million tons, and increase France's capacity from 5 million tons to 11 million tons.

53. Germany's exports of sugar in 1913 amounted to 1,110,073 tons of the value of £313,094,300, of which 838,583 tons were exported to the United Kingdom at a value of £39,050,800. These figures were in excess of the normal, the average total exports for the five years ending 1913 being about £310 million.

54. The necessary price adjustment which is required on both sides of this account will be made en bloc later.

55. If the amount of the sinking fund be reduced, and the annual payment is continued over a greater number of years, the present value — so powerful is the operation of compound interest — cannot be materially increased. A payment of £3100 million annually in perpetuity, assuming interest, as before, at 5%, would only raise the present value to £32,000 million.

56. As an example of public misapprehension on economic affairs, the following letter from Sir Sidney Low to The Times of 3 December 1918 deserves quotation: 'I have seen authoritative estimates which place the gross value of Germany's mineral and chemical resources as high as £3250,000 million sterling or even more; and the Ruhr basin mines alone are said to be worth over £345,000 million. It is certain, at any rate, that the capital value of these natural supplies is much greater than the toil war debts of all the Allied states. Why should not some portion of this wealth be diverted for a sufficient period from its present owners and assigned to the peoples whom Germany has assailed, deported, and injured? The Allied governments might justly require Germany to surrender to them the use of such of her mines and mineral deposits as would yield, say, from 100 to 200 millions annually for the next 30, 40, or 50 years. By this means we could obtain sufficient compensation from Germany without unduly stimulating her manufactures and export trade to our detriment.' It is not clear why, if Germany has wealth exceeding £3250,000 million sterling, Sir Sidney Low is content with the trifling sum of 100 to 200 millions annually. But his letter is an admirable reductio ad absurdum of a certain line of thought. While a mode of calculation which estimates the value of coal miles deep in the bowels of the earth as high as in a coal scuttle, of an annual lease of £31,000 for 999 years at £3999,000 and of a field (presumably) at the value of all the crops it will grow to the end of recorded time, opens up great possibilities, it is also double-edged. If Germany's total resources are worth £3250,000 million, those she will part with in the cession of Alsace-Lorraine and Upper Silesia should be more than sufficient to pay the entire costs of the war and reparation together. In point of fact, the present market value of all the mines in Germany of every kind has been estimated at £3300 million, or a little more than one-thousandth part of Sir Sidney Low's expectations.

57. The conversion at par of 5,000 million marks overstates by reason of the existing depreciation of the mark, the present money burden of the actual pensions payments, but not, in all probability, the real loss of national productivity as a result of the casualties suffered in the war.

58. It cannot be overlooked, in passing, that in its results on a country's surplus productivity a lowering of the standard of life acts both ways. Moreover, we are without experience of the psychology of a white race under conditions little short of servitude. It is, however, generally supposed that if the whole of a man's surplus production is taken from him, his efficiency and his industry are diminished. The entrepreneur and the inventor will not contrive, the trader and shopkeeper will not save, the labourer will not toil, if the fruits of their industry are set aside, not for the benefit of their children, their old age, their pride, or their position, but for the enjoyment of a foreign conqueror.

59. In the course of the compromises and delays of the conference, there were many questions on which, in order to reach any conclusion at all, it was necessary to leave a margin of vagueness and uncertainty. The whole method of the conference tended towards this — the Council of Four wanted, not so much a settlement, as a treaty. On political and territorial questions the tendency was to leave the final arbitrament to the League of Nations. But on financial and economic questions the final decision has generally been left with the reparation commission, in spite of its being an executive body composed of interested parties.

60. The sum to be paid by Austria for reparation is left to the absolute discretion of the reparation commission, no determinate figure of any kind being mentioned in the text of the treaty. Austrian questions are to be handled by a special section of the reparation commission, but the section will have no powers except such as the main commission may delegate.

61. Bulgaria is to pay an indemnity of £390 million by half-yearly instalments, beginning 1 July 1920. These sums will be collected, on behalf of the reparation commission, by an inter-Ally commission of control, with its seat at Sofia. In some respects the Bulgarian inter-Ally commission appears to have powers and authority independent of the reparation commission, but it is to act, nevertheless, as the agent of the later, and is authorised to tender advice to the reparation commission as to, for example, the reduction of the half-yearly instalments.

62. Under the treaty this is the function of any body appointed for the purpose by the principal Allied and Associated governments, and not necessarily of the reparation commission. But it may be presumed that no second body will be established for this special purpose.

63. At the date of writing no treaties with these countries have been drafted. It is possible that Turkey might be dealt with by a separate commission.

64. This appears to me to be in effect the position (if this paragraph means anything at all), in spite of the following disclaimer of such intentions in the Allies' reply: 'Nor does paragraph 12 (b) of annex II give the commission powers to prescribe or enforce taxes or to dictate the character of the German budget.'

65. Whatever that may mean.

66. Assuming that the capital sum is discharged evenly over a period as short as thirty-three years, this has the effect of halving the burden as compared with the payments required on the basis of 5% interest on the outstanding capital.

67. I forbear to outline further details of the German offer as the above are the essential points.

68. For this reason it is not strictly comparable with my estimate of Germany's capacity in an earlier section of this chapter, which estimate is on the basis of Germany's condition as it will be when the rest of the treaty has come into effect.

69. Owing to delays on the part of the Allies in ratifying the treaty, the reparation commission had not yet been formally constituted by the end of October 1919. So far as I am aware, therefore, nothing has been done to make the above offer effective. But perhaps, in view of the circumstances, there has been an extension of the date.

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