It is, in my judgment, as certain as anything can be, for reasons which I will elaborate in a moment, that Germany cannot pay anything approaching this sum. Until the Treaty is altered, therefore, Germany has in effect engaged herself to hand over to the Allies the whole of her surplus production in perpetuity.
6. This is not less the case because the Reparation Commission has been given discretionary powers to vary the rate of interest, and to postpone and even to cancel the capital indebtedness. In the first place, some of these powers can only be exercised if the Commission or the Governments represented on it are unanimous.116 But also, which is perhaps more important, it will be the duty of the Reparation Commission, until there has been a unanimous and far-reaching change of the policy which the Treaty represents, to extract from Germany year after year the maximum sum obtainable. There is a great difference between fixing a definite sum, which though large is within Germany’s capacity to pay and yet to retain a little for herself, and fixing a sum far beyond her capacity, which is then to be reduced at the discretion of a foreign Commission acting with the object of obtaining each year the maximum which the circumstances of that year permit. The first still leaves her with some slight incentive for enterprise, energy, and hope. The latter skins her alive year by year in perpetuity, and however skilfully and discreetly the operation is performed, with whatever regard for not killing the patient in the process, it would represent a policy which, if it were really entertained and deliberately practised, the judgment of men would soon pronounce to be one of the most outrageous acts of a cruel victor in civilized history.
There are other functions and powers of high significance which the Treaty accords to the Reparation Commission. But these will be most conveniently dealt with in a separate section.
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—
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Immediately transferable wealth in the form of gold, ships, and foreign securities;
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The value of property in ceded territory, or surrendered under the Armistice;
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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 the 30th November, 1918, amounted to $577,089,500. This was a very much larger amount than had appeared in the Reichsbank’s return prior to the war,117 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 $5,000,000 in silver. There must be, however, a further substantial amount in circulation, for the holdings of the Reichsbank were as high as $45,500,000 on the 31st December, 1917, and stood at about $30,000,000 up to the latter part of October, 1918, when the internal run began on currency of every kind.118 We may, therefore, take a total of (say) $625,000,000 for gold and silver together at the date of the Armistice.
These reserves, however, are no longer intact. During the long period which elapsed between the Armistice and the Peace it became necessary for the Allies to 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 Château 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
