But were my critic’s figures as complete as they are absurdly incomplete and misleading, I should still be unimpressed, because the facts which stare us in the face would not corroborate his statistical performance. We are examining what is from the money point of view the most successful war ever recorded in history, and if the general proposition that such a war is financially profitable were sound, and if the results of the war were anything like as brilliant as they are represented, money should be cheaper and more plentiful in Germany than in France, and credit, public and private, should be sounder. Well, it is the exact reverse which is the case. As a net result of the whole thing Germany was, ten years after the war, a good deal worse off, financially, than her vanquished rival, and was at that date trying, as she is trying today, to borrow money from her victim. Within twenty months of the payment of the last of the indemnity, the bank rate was higher in Berlin than in Paris, and we know that Bismarck’s later life was clouded by the spectacle of what he regarded as an absurd miracle: the vanquished recovering more quickly than the victor. We have the testimony of his own speeches to this fact, and to the fact that France weathered the financial storms of 1878–9 a great deal better than did Germany. And today, when Germany is compelled to pay nearly 4 percent for money, France can secure it for 3. … We are not for the moment considering anything but the money view—the advantages and disadvantages of a certain financial operation—and by any test that you care to apply, France, the vanquished, is better off than Germany, the victor. The French people are as a whole more prosperous, more comfortable, more economically secure, with greater reserve of savings and all the moral and social advantages that go therewith, than are the Germans, a fact expressed briefly by French Rentes standing at 98 and German Consols at 83. There is something wrong with a financial operation that gives these results.
The something wrong, of course, is that in order to arrive at any financial profit at all essential facts have to be disregarded, those facts being what necessarily precedes and what necessarily follows a war of this kind. In the case of highly organized industrial nations like England and Germany, dependent for the very livelihood of great masses of their population upon the fact that neighboring nations furnish a market for their goods, a general policy of “piracy,” imposing upon those neighbors an expenditure which limits their purchasing power, creates a burden of which the nation responsible for that policy of piracy pays its part. It is not France alone which has paid the greater part of the real cost of the Franco-German War, it is Europe—and particularly Germany—in the burdensome military system and the general political situation which that war has created or intensified.
But there is a more special consideration connected with the exaction of an indemnity, which demands notice, and that is the practical difficulty with regard to the transfer of an immense sum of money outside the ordinary operations of commerce.
The history of the German experience with the French indemnity suggests the question whether in every case an enormous discount on the nominal value of a large money indemnity must not be allowed owing to the practical financial difficulties of its payment and receipt, difficulties unavoidable in any circumstances which we need consider.
These difficulties were clearly foreseen by Sir Robert Giffen, though his warnings, and the important reservations that he made on this point, are generally overlooked by those who wish to make use of his conclusions.
These warnings he summarized as follows:
As regards Germany, a doubt is expressed whether the Germans will gain so much as France loses, the capital of the indemnity being transferred from individuals to the German Government, who cannot use it so profitably as individuals. It is doubted whether the practice of lending out large sums, though a preferable course to locking them up, will not in the end be injurious.
The financial operations incidental to these great losses and expenses seriously affect the money market. They have been a fruitful cause, in the first place, of spasmodic disturbance. The outbreak of war caused a monetary panic in July, 1870, by the anxiety of people who had money engagements to meet to provide against the chances of war, and there was another monetary crash in September, 1871, owing to the sudden withdrawal by the German Government of the money it had to receive. The war thus illustrates the tendency of wars in general to cause spasmodic disturbance in a market so delicately organized as that of London now is.
And it is to be noted in this connection that the difficulties of 1872 were trifling compared to what they would necessarily be in our day. In 1872, Germany was self-sufficing, little dependent upon credit; today undisturbed credit in Europe is the very lifeblood of her industry; it is, in fact, the very food of her people, as the events of 1911 have sufficiently proved.
It is not generally realized how abundantly the whole history of the German indemnity bears out Sir Robert Giffen’s warning; how this flood of gold turned indeed to dust and ashes as far as the German nation is concerned.
First, anyone familiar with financial problems might have expected that the receipt of so large a sum of money by Germany would cause prices to rise and so handicap export trade in competition with France, where the reverse process would cause prices to fall. This result was, in fact, produced. M. Paul Beaulieu and M. Léon Say
