The Economic Consequences of the Peace

THE TREATY

The thoughts which I have expressed in the second chapter were not
present to the mind of Paris. The future life of Europe was not their
concern; its means of livelihood was not their anxiety. Their
preoccupations, good and bad alike, related to frontiers and
nationalities, to the balance of power, to imperial aggrandizements, to
the future enfeeblement of a strong and dangerous enemy, to revenge, and
to the shifting by the victors of their unbearable financial burdens on
to the shoulders of the defeated.

Two rival schemes for the future polity of the world took the
field,--the Fourteen Points of the President, and the Carthaginian Peace
of M. Clemenceau. Yet only one of these was entitled to take the field;
for the enemy had not surrendered unconditionally, but on agreed terms
as to the general character of the Peace.

This aspect of what happened cannot, unfortunately, be passed over with
a word, for in the minds of many Englishmen at least it has been a
subject of very great misapprehension. Many persons believe that the
Armistice Terms constituted the first Contract concluded between the
Allied and Associated Powers and the German Government, and that we
entered the Conference with our hands, free, except so far as these
Armistice Terms might bind us. This was not the case. To make the
position plain, it is necessary briefly to review the history, of the
negotiations which began with the German Note of October 5, 1918, and
concluded with President Wilson's Note of November 5, 1918.

On October 5, 1918, the German Government addressed a brief Note to the
President accepting the Fourteen Points and asking for Peace
negotiations. The President's reply of October 8 asked if he was to
understand definitely that the German Government accepted "the terms
laid down" in Fourteen Points and in his subsequent Addresses and "that
its object in entering into discussion would be only to agree upon the
practical details of their application." He added that the evacuation of
invaded territory must be a prior condition of an Armistice. On October
12 the German Government returned an unconditional affirmative to these
questions;-"its object in entering into discussions would be only to
agree upon practical details of the application of these terms." On
October 14, having received this affirmative answer, the President made
a further communication to make clear the points: (1) that the details
of the Armistice would have to be left to the military advisers of the
United States and the Allies, and must provide absolutely against the
possibility of Germany's resuming hostilities; (2) that submarine
warfare must cease if these conversations were to continue; and (3) that
he required further guarantees of the representative character of the
Government with which he was dealing. On October 20 Germany accepted
points (1) and (2), and pointed out, as regards (3), that she now had a
Constitution and a Government dependent for its authority on the
Reichstag. On October 23 the President announced that, "having received
the solemn and explicit assurance of the German Government that it
unreservedly accepts the terms of peace laid down in his Address to the
Congress of the United States on January 8, 1918 (the Fourteen Points),
and the principles of settlement enunciated in his subsequent Addresses,
particularly the Address of September 27, and that it is ready to
discuss the details of their application," he has communicated the above
correspondence to the Governments of the Allied Powers "with the
suggestion that, if these Governments are disposed to effect peace upon
the terms and principles indicated," they will ask their military
advisers to draw up Armistice Terms of such a character as to "ensure to
the Associated Governments the unrestricted power to safeguard and
enforce the details of the peace to which the German Government has
agreed." At the end of this Note the President hinted more openly than
in that of October 14 at the abdication of the Kaiser. This completes
the preliminary negotiations to which the President alone was a party,
adding without the Governments of the Allied Powers.

On November 5, 1918, the President transmitted to Germany the reply he
had received from the Governments associated with him, and added that
Marshal Foch had been authorized to communicate the terms of an
armistice to properly accredited representatives. In this reply the
Allied Governments, "subject to the qualifications which follow, declare
their willingness to make peace with the Government of Germany on the
terms of peace laid down in the President's Address to Congress of
January 8, 1918, and the principles of settlement enunciated in his
subsequent Addresses." The qualifications in question were two in
number. The first related to the Freedom of the Seas, as to which they
"reserved to themselves complete freedom." The second related to
Reparation and ran as follows:--"Further, in the conditions of peace
laid down in his Address to Congress on the 8th January, 1918 the
President declared that invaded territories must be restored as well as
evacuated and made free. The Allied Governments feel that no doubt
ought to be allowed to exist as to what this provision implies. By it
they understand that compensation will be made by Germany for all damage
done to the civilian population of the Allies and to their property by
the aggression of Germany by land, by sea, and from the air."[7]

The nature of the Contract between Germany and the Allies resulting from
this exchange of documents is plain and unequivocal. The terms of the
peace are to be in accordance with the Addresses of the President, and
the purpose of the Peace Conference is "to discuss the details of their
application." The circumstances of the Contract were of an unusually
solemn and binding character; for one of the conditions of it was that
Germany should agree to Armistice Terms which were to be such as would
leave her helpless. Germany having rendered herself helpless in reliance
on the Contract, the honor of the Allies was peculiarly involved in
fulfilling their part and, if there were ambiguities, in not using their
position to take advantage of them.

What, then, was the substance of this Contract to which the Allies had
bound themselves? An examination of the documents shows that, although a
large part of the Addresses is concerned with spirit, purpose, and
intention, and not with concrete solutions, and that many questions
requiring a settlement in the Peace Treaty are not touched on,
nevertheless, there are certain questions which they settle definitely.
It is true that within somewhat wide limits the Allies still had a free
hand. Further, it is difficult to apply on a contractual basis those
passages which deal with spirit, purpose, and intention;--every man must
judge for himself whether, in view of them, deception or hypocrisy has
been practised. But there remain, as will be seen below, certain
important issues on which the Contract is unequivocal.

In addition to the Fourteen Points of January 18, 1918, the Addresses of
the President which form part of the material of the Contract are four
in number,--before the Congress on February 11; at Baltimore on April 6;
at Mount Vernon on July 4; and at New York on September 27, the last of
these being specially referred to in the Contract. I venture to select
from these Addresses those engagements of substance, avoiding
repetitions, which are most relevant to the German Treaty. The parts I
omit add to, rather than detract from, those I quote; but they chiefly
relate to intention, and are perhaps too vague and general to be
interpreted contractually.[8]

The Fourteen Points.--(3). "The removal, so far as possible, of all
economic barriers and the establishment of an equality of trade
conditions among all the nations consenting to the Peace and
associating themselves for its maintenance." (4). "Adequate guarantees
given and taken that national armaments will be reduced to the lowest
point consistent with domestic safety." (5). "A free, open-minded, and
absolutely impartial adjustment of all colonial claims," regard being
had to the interests of the populations concerned. (6), (7), (8), and
(11). The evacuation and "restoration" of all invaded territory,
especially of Belgium. To this must be added the rider of the Allies,
claiming compensation for all damage done to civilians and their
property by land, by sea, and from the air (quoted in full above). (8).
The righting of "the wrong done to France by Prussia in 1871 in the
matter of Alsace-Lorraine." (13). An independent Poland, including "the
territories inhabited by indisputably Polish populations" and "assured a
free and secure access to the sea." (14). The League of Nations.

Before the Congress, February 11.--"There shall be no annexations, no
contributions, no punitive damages.... Self-determination is not a
mere phrase. It is an imperative principle of action which statesmen
will henceforth ignore at their peril.... Every territorial settlement
involved in this war must be made in the interest and for the benefit of
the populations concerned, and not as a part of any mere adjustment or
compromise of claims amongst rival States."

New York, September 27.--(1) "The impartial justice meted out must
involve no discrimination between those to whom we wish to be just and
those to whom we do not wish to be just." (2) "No special or separate
interest of any single nation or any group of nations can be made the
basis of any part of the settlement which is not consistent with the
common interest of all." (3) "There can be no leagues or alliances or
special covenants and understandings within the general and common
family of the League of Nations." (4) "There can be no special selfish
economic combinations within the League and no employment of any form of
economic boycott or exclusion, except as the power of economic penalty
by exclusion from the markets of the world may be vested in the League
of Nations itself as a means of discipline and control." (5) "All
international agreements and treaties of every kind must be made known
in their entirety to the rest of the world."

This wise and magnanimous program for the world had passed on November
5, 1918 beyond the region of idealism and aspiration, and had become
part of a solemn contract to which all the Great Powers of the world had
put their signature. But it was lost, nevertheless, in the morass of
Paris;--the spirit of it altogether, the letter in parts ignored and in
other parts distorted.

The German observations on the draft Treaty of Peace were largely a
comparison between the terms of this understanding, on the basis of
which the German nation had agreed to lay down its arms, and the actual
provisions of the document offered them for signature thereafter. The
German commentators had little difficulty in showing that the draft
Treaty constituted a breach of engagements and of international morality
comparable with their own offense in the invasion of Belgium.
Nevertheless, the German reply was not in all its parts a document fully
worthy of the occasion, because in spite of the justice and importance
of much of its contents, a truly broad treatment and high dignity of
outlook were a little wanting, and the general effect lacks the simple
treatment, with the dispassionate objectivity of despair which the deep
passions of the occasion might have evoked. The Allied governments gave
it, in any case, no serious consideration, and I doubt if anything which
the German delegation could have said at that stage of the proceedings
would have much influenced the result.

The commonest virtues of the individual are often lacking in the
spokesmen of nations; a statesman representing not himself but his
country may prove, without incurring excessive blame--as history often
records--vindictive, perfidious, and egotistic. These qualities are
familiar in treaties imposed by victors. But the German delegation did
not succeed in exposing in burning and prophetic words the quality which
chiefly distinguishes this transaction from all its historical
predecessors--its insincerity.

This theme, however, must be for another pen than mine. I am mainly
concerned in what follows, not with the justice of the Treaty,--neither
with the demand for penal justice against the enemy, nor with the
obligation of contractual justice on the victor,--but with its wisdom
and with its consequences.

I propose, therefore, in this chapter to set forth baldly the principal
economic provisions of the Treaty, reserving, however, for the next my
comments on the Reparation Chapter and on Germany's capacity to meet the
payments there demanded from her.

The German economic system as it existed before the war depended on
three main factors: I. Overseas commerce as represented by her
mercantile marine, her colonies, her foreign investments, her exports,
and the overseas connections of her merchants; II. The exploitation of
her coal and iron and the industries built upon them; III. Her transport
and tariff system. Of these the first, while not the least important,
was certainly the most vulnerable. The Treaty aims at the systematic
destruction of all three, but principally of the first two.

I

(1) Germany has ceded to the Allies all the vessels of her mercantile
marine exceeding 1600 tons gross, half the vessels between 1000 tons and
1600 tons, and one quarter of her trawlers and other fishing boats.[9]
The cession is comprehensive, including not only vessels flying the
German flag, but also all vessels owned by Germans but flying other
flags, and all vessels under construction as well as those afloat.[10]
Further, Germany undertakes, if required, to build for the Allies such
types of ships as they may specify up to 200,000 tons[11] annually for
five years, the value of these ships being credited to Germany against
what is due from her for Reparation.[12]

Thus the German mercantile marine is swept from the seas and cannot be
restored for many years to come on a scale adequate to meet the
requirements of her own commerce. For the present, no lines will run
from Hamburg, except such as foreign nations may find it worth while to
establish out of their surplus tonnage. Germany will have to pay to
foreigners for the carriage of her trade such charges as they may be
able to exact, and will receive only such conveniences as it may suit
them to give her. The prosperity of German ports and commerce can only
revive, it would seem, in proportion as she succeeds in bringing under
her effective influence the merchant marines of Scandinavia and of
Holland.

(2) Germany has ceded to the Allies "all her rights and titles over her
oversea possessions."[13] This cession not only applies to sovereignty
but extends on unfavorable terms to Government property, all of which,
including railways, must be surrendered without payment, while, on the
other hand, the German Government remains liable for any debt which may
have been incurred for the purchase or construction of this property, or
for the development of the colonies generally.[14]

In distinction from the practice ruling in the case of most similar
cessions in recent history, the property and persons of private German
nationals, as distinct from their Government, are also injuriously
affected. The Allied Government exercising authority in any former
German colony "may make such provisions as it thinks fit with reference
to the repatriation from them of German nationals and to the conditions
upon which German subjects of European origin shall, or shall not, be
allowed to reside, hold property, trade or exercise a profession in
them."[15] All contracts and agreements in favor of German nationals for
the construction or exploitation of public works lapse to the Allied
Governments as part of the payment due for Reparation.

But these terms are unimportant compared with the more comprehensive
provision by which "the Allied and Associated Powers reserve the right
to retain and liquidate all property, rights, and interests belonging
at the date of the coming into force of the present Treaty to German
nationals, or companies controlled by them," within the former German
colonies.[16] This wholesale expropriation of private property is to
take place without the Allies affording any compensation to the
individuals expropriated, and the proceeds will be employed, first, to
meet private debts due to Allied nationals from any German nationals,
and second, to meet claims due from Austrian, Hungarian, Bulgarian, or
Turkish nationals. Any balance may either be returned by the liquidating
Power direct to Germany, or retained by them. If retained, the proceeds
must be transferred to the Reparation Commission for Germany's credit in
the Reparation account.[17]

In short, not only are German sovereignty and German influence
extirpated from the whole of her former oversea possessions, but the
persons and property of her nationals resident or owning property in
those parts are deprived of legal status and legal security.

(3) The provisions just outlined in regard to the private property of
Germans in the ex-German colonies apply equally to private German
property in Alsace-Lorraine, except in so far as the French Government
may choose to grant exceptions.[18] This is of much greater practical
importance than the similar expropriation overseas because of the far
higher value of the property involved and the closer interconnection,
resulting from the great development of the mineral wealth of these
provinces since 1871, of German economic interests there with those in
Germany itself. Alsace-Lorraine has been part of the German Empire for
nearly fifty years--a considerable majority of its population is German
speaking--and it has been the scene of some of Germany's most important
economic enterprises. Nevertheless, the property of those Germans who
reside there, or who have invested in its industries, is now entirely at
the disposal of the French Government without compensation, except in so
far as the German Government itself may choose to afford it. The French
Government is entitled to expropriate without compensation the personal
property of private German citizens and German companies resident or
situated within Alsace-Lorraine, the proceeds being credited in part
satisfaction of various French claims. The severity of this provision is
only mitigated to the extent that the French Government may expressly
permit German nationals to continue to reside, in which case the above
provision is not applicable. Government, State, and Municipal property,
on the other hand, is to be ceded to France without any credit being
given for it. This includes the railway system of the two provinces,
together with its rolling-stock.[19] But while the property is taken
over, liabilities contracted in respect of it in the form of public
debts of any kind remain the liability of Germany.[20] The provinces
also return to French sovereignty free and quit of their share of German
war or pre-war dead-weight debt; nor does Germany receive a credit on
this account in respect of Reparation.

(4) The expropriation of German private property is not limited,
however, to the ex-German colonies and Alsace-Lorraine. The treatment of
such property forms, indeed, a very significant and material section of
the Treaty, which has not received as much attention as it merits,
although it was the subject of exceptionally violent objection on the
part of the German delegates at Versailles. So far as I know, there is
no precedent in any peace treaty of recent history for the treatment of
private property set forth below, and the German representatives urged
that the precedent now established strikes a dangerous and immoral blow
at the security of private property everywhere. This is an exaggeration,
and the sharp distinction, approved by custom and convention during the
past two centuries, between the property and rights of a State and the
property and rights of its nationals is an artificial one, which is
being rapidly put out of date by many other influences than the Peace
Treaty, and is inappropriate to modern socialistic conceptions of the
relations between the State and its citizens. It is true, however, that
the Treaty strikes a destructive blow at a conception which lies at the
root of much of so-called international law, as this has been expounded
hitherto.

The principal provisions relating to the expropriation of German private
property situated outside the frontiers of Germany, as these are now
determined, are overlapping in their incidence, and the more drastic
would seem in some cases to render the others unnecessary. Generally
speaking, however, the more drastic and extensive provisions are not so
precisely framed as those of more particular and limited application.
They are as follows:--

(a) The Allies "reserve the right to retain and liquidate all
property, rights and interests belonging at the date of the coming into
force of the present Treaty to German nationals, or companies controlled
by them, within their territories, colonies, possessions and
protectorates, including territories ceded to them by the present
Treaty."[21]

This is the extended version of the provision which has been discussed
already in the case of the colonies and of Alsace-Lorraine. The value of
the property so expropriated will be applied, in the first instance, to
the satisfaction of private debts due from Germany to the nationals of
the Allied Government within whose jurisdiction the liquidation takes
place, and, second, to the satisfaction of claims arising out of the
acts of Germany's former allies. Any balance, if the liquidating
Government elects to retain it, must be credited in the Reparation
account.[22] It is, however, a point of considerable importance that the
liquidating Government is not compelled to transfer the balance to the
Reparation Commission, but can, if it so decides, return the proceeds
direct to Germany. For this will enable the United States, if they so
wish, to utilize the very large balances, in the hands of their
enemy-property custodian, to pay for the provisioning of Germany,
without regard to the views of the Reparation Commission.

These provisions had their origin in the scheme for the mutual
settlement of enemy debts by means of a Clearing House. Under this
proposal it was hoped to avoid much trouble and litigation by making
each of the Governments lately at war responsible for the collection of
private debts due from its nationals to the nationals of any of the
other Governments (the normal process of collection having been
suspended by reason of the war), and for the distribution of the funds
so collected to those of its nationals who had claims against the
nationals of the other Governments, any final balance either way being
settled in cash. Such a scheme could have been completely bilateral and
reciprocal. And so in part it is, the scheme being mainly reciprocal as
regards the collection of commercial debts. But the completeness of
their victory permitted the Allied Governments to introduce in their own
favor many divergencies from reciprocity, of which the following are the
chief: Whereas the property of Allied nationals within German
jurisdiction reverts under the Treaty to Allied ownership on the
conclusion of Peace, the property of Germans within Allied jurisdiction
is to be retained and liquidated as described above, with the result
that the whole of German property over a large part of the world can be
expropriated, and the large properties now within the custody of Public
Trustees and similar officials in the Allied countries may be retained
permanently. In the second place, such German assets are chargeable, not
only with the liabilities of Germans, but also, if they run to it, with
"payment of the amounts due in respect of claims by the nationals of
such Allied or Associated Power with regard to their property, rights,
and interests in the territory of other Enemy Powers," as, for example,
Turkey, Bulgaria, and Austria.[23] This is a remarkable provision,
which is naturally non-reciprocal. In the third place, any final balance
due to Germany on private account need not be paid over, but can be held
against the various liabilities of the German Government.[24] The
effective operation of these Articles is guaranteed by the delivery of
deeds, titles, and information.[25] In the fourth place, pre-war
contracts between Allied and German nationals may be canceled or revived
at the option of the former, so that all such contracts which are in
Germany's favor will be canceled, while, on the other hand, she will be
compelled to fulfil those which are to her disadvantage.

(b) So far we have been concerned with German property within Allied
jurisdiction. The next provision is aimed at the elimination of German
interests in the territory of her neighbors and former allies, and of
certain other countries. Under Article 260 of the Financial Clauses it
is provided that the Reparation Commission may, within one year of the
coming into force of the Treaty, demand that the German Government
expropriate its nationals and deliver to the Reparation Commission "any
rights and interests of German nationals in any public utility
undertaking or in any concession[26] operating in Russia, China, Turkey,
Austria, Hungary, and Bulgaria, or in the possessions or dependencies of
these States, or in any territory formerly belonging to Germany or her
allies, to be ceded by Germany or her allies to any Power or to be
administered by a Mandatory under the present Treaty." This is a
comprehensive description, overlapping in part the provisions dealt with
under (a) above, but including, it should be noted, the new States and
territories carved out of the former Russian, Austro-Hungarian, and
Turkish Empires. Thus Germany's influence is eliminated and her capital
confiscated in all those neighboring countries to which she might
naturally look for her future livelihood, and for an outlet for her
energy, enterprise, and technical skill.

The execution of this program in detail will throw on the Reparation
Commission a peculiar task, as it will become possessor of a great
number of rights and interests over a vast territory owing dubious
obedience, disordered by war, disruption, and Bolshevism. The division
of the spoils between the victors will also provide employment for a
powerful office, whose doorsteps the greedy adventurers and jealous
concession-hunters of twenty or thirty nations will crowd and defile.

Lest the Reparation Commission fail by ignorance to exercise its rights
to the full, it is further provided that the German Government shall
communicate to it within six months of the Treaty's coming into force a
list of all the rights and interests in question, "whether already
granted, contingent or not yet exercised," and any which are not so
communicated within this period will automatically lapse in favor of the
Allied Governments.[27] How far an edict of this character can be made
binding on a German national, whose person and property lie outside the
jurisdiction of his own Government, is an unsettled question; but all
the countries specified in the above list are open to pressure by the
Allied authorities, whether by the imposition of an appropriate Treaty
clause or otherwise.

(c) There remains a third provision more sweeping than either of the
above, neither of which affects German interests in neutral
countries. The Reparation Commission is empowered up to May 1, 1921, to
demand payment up to $5,000,000,000 in such manner as they may fix,
"whether in gold, commodities, ships, securities or otherwise."[28] This
provision has the effect of intrusting to the Reparation Commission for
the period in question dictatorial powers over all German property of
every description whatever. They can, under this Article, point to any
specific business, enterprise, or property, whether within or outside
Germany, and demand its surrender; and their authority would appear to
extend not only to property existing at the date of the Peace, but also
to any which may be created or acquired at any time in the course of the
next eighteen months. For example, they could pick out--as presumably
they will as soon as they are established--the fine and powerful German
enterprise in South America known as the Deutsche Ueberseeische
Elektrizit‰tsgesellschaft (the D.U.E.G.), and dispose of it to Allied
interests. The clause is unequivocal and all-embracing. It is worth
while to note in passing that it introduces a quite novel principle in
the collection of indemnities. Hitherto, a sum has been fixed, and the
nation mulcted has been left free to devise and select for itself the
means of payment. But in this case the payees can (for a certain
period) not only demand a certain sum but specify the particular kind of
property in which payment is to be effected. Thus the powers of the
Reparation Commission, with which I deal more particularly in the next
chapter, can be employed to destroy Germany's commercial and economic
organization as well as to exact payment.

The cumulative effect of (a), (b), and (c) (as well as of certain
other minor provisions on which I have not thought it necessary to
enlarge) is to deprive Germany (or rather to empower the Allies so to
deprive her at their will--it is not yet accomplished) of everything she
possesses outside her own frontiers as laid down in the Treaty. Not only
are her oversea investments taken and her connections destroyed, but the
same process of extirpation is applied in the territories of her former
allies and of her immediate neighbors by land.

(5) Lest by some oversight the above provisions should overlook any
possible contingencies, certain other Articles appear in the Treaty,
which probably do not add very much in practical effect to those already
described, but which deserve brief mention as showing the spirit of
completeness in which the victorious Powers entered upon the economic
subjection of their defeated enemy.

First of all there is a general clause of barrer and renunciation: "In
territory outside her European frontiers as fixed by the present Treaty,
Germany renounces all rights, titles and privileges whatever in or over
territory which belonged to her or to her allies, and all rights, titles
and privileges whatever their origin which she held as against the
Allied and Associated Powers...."[29]

There follow certain more particular provisions. Germany renounces all
rights and privileges she may have acquired in China.[30] There are
similar provisions for Siam,[31] for Liberia,[32] for Morocco,[33] and
for Egypt.[34] In the case of Egypt not only are special privileges
renounced, but by Article 150 ordinary liberties are withdrawn, the
Egyptian Government being accorded "complete liberty of action in
regulating the status of German nationals and the conditions under which
they may establish themselves in Egypt."

By Article 258 Germany renounces her right to any participation in any
financial or economic organizations of an international character
"operating in any of the Allied or Associated States, or in Austria,
Hungary, Bulgaria or Turkey, or in the dependencies of these States, or
in the former Russian Empire."

Generally speaking, only those pre-war treaties and conventions are
revived which it suits the Allied Governments to revive, and those in
Germany's favor may be allowed to lapse.[35]

It is evident, however, that none of these provisions are of any real
importance, as compared with those described previously. They represent
the logical completion of Germany's outlawry and economic subjection to
the convenience of the Allies; but they do not add substantially to her
effective disabilities.

II

The provisions relating to coal and iron are more important in respect
of their ultimate consequences on Germany's internal industrial economy
than for the money value immediately involved. The German Empire has
been built more truly on coal and iron than on blood and iron. The
skilled exploitation of the great coalfields of the Ruhr, Upper Silesia,
and the Saar, alone made possible the development of the steel,
chemical, and electrical industries which established her as the first
industrial nation of continental Europe. One-third of Germany's
population lives in towns of more than 20,000 inhabitants, an industrial
concentration which is only possible on a foundation of coal and iron.
In striking, therefore, at her coal supply, the French politicians were
not mistaking their target. It is only the extreme immoderation, and
indeed technical impossibility, of the Treaty's demands which may save
the situation in the long-run.

(1) The Treaty strikes at Germany's coal supply in four ways:--

(i.) "As compensation for the destruction of the coal-mines in the north
of France, and as part payment towards the total reparation due from
Germany for the damage resulting from the war, Germany cedes to France
in full and absolute possession, with exclusive rights of exploitation,
unencumbered, and free from all debts and charges of any kind, the
coal-mines situated in the Saar Basin."[36] While the administration of
this district is vested for fifteen years in the League of Nations, it
is to be observed that the mines are ceded to France absolutely. Fifteen
years hence the population of the district will be called upon to
indicate by plebiscite their desires as to the future sovereignty of the
territory; and, in the event of their electing for union with Germany,
Germany is to be entitled to repurchase the mines at a price payable in
gold.[37]

The judgment of the world has already recognized the transaction of the
Saar as an act of spoliation and insincerity. So far as compensation for
the destruction of French coal-mines is concerned, this is provided for,
as we shall see in a moment, elsewhere in the Treaty. "There is no
industrial region in Germany," the German representatives have said
without contradiction, "the population of which is so permanent, so
homogeneous, and so little complex as that of the Saar district. Among
more than 650,000 inhabitants, there were in 1918 less than 100 French.
The Saar district has been German for more than 1,000 years. Temporary
occupation as a result of warlike operations on the part of the French
always terminated in a short time in the restoration of the country upon
the conclusion of peace. During a period of 1048 years France has
possessed the country for not quite 68 years in all. When, on the
occasion of the first Treaty of Paris in 1814, a small portion of the
territory now coveted was retained for France, the population raised the
most energetic opposition and demanded 'reunion with their German
fatherland,' to which they were 'related by language, customs, and
religion.' After an occupation of one year and a quarter, this desire
was taken into account in the second Treaty of Paris in 1815. Since then
the country has remained uninterruptedly attached to Germany, and owes
its economic development to that connection."

The French wanted the coal for the purpose of working the ironfields of
Lorraine, and in the spirit of Bismarck they have taken it. Not
precedent, but the verbal professions of the Allies, have rendered it
indefensible.[38]

(ii.) Upper Silesia, a district without large towns, in which, however,
lies one of the major coalfields of Germany with a production of about
23 per cent of the total German output of hard coal, is, subject to a
plebiscite,[39] to be ceded to Poland. Upper Silesia was never part of
historic Poland; but its population is mixed Polish, German, and
Czecho-Slovakian, the precise proportions of which are disputed.[40]
Economically it is intensely German; the industries of Eastern Germany
depend upon it for their coal; and its loss would be a destructive blow
at the economic structure of the German State.[41]

With the loss of the fields of Upper Silesia and the Saar, the coal
supplies of Germany are diminished by not far short of one-third.

(iii.) Out of the coal that remains to her, Germany is obliged to make
good year by year the estimated loss which France has incurred by the
destruction and damage of war in the coalfields of her northern
Provinces. In para. 2 of Annex V. to the Reparation Chapter, "Germany
undertakes to deliver to France annually, for a period not exceeding ten
years, an amount of coal equal to the difference between the annual
production before the war of the coal-mines of the Nord and Pas de
Calais, destroyed as a result of the war, and the production of the
mines of the same area during the year in question: such delivery not to
exceed 20,000,000 tons in any one year of the first five years, and
8,000,000 tons in any one year of the succeeding five years."

This is a reasonable provision if it stood by itself, and one which
Germany should be able to fulfil if she were left her other resources to
do it with.

(iv.) The final provision relating to coal is part of the general scheme
of the Reparation Chapter by which the sums due for Reparation are to be
partly paid in kind instead of in cash. As a part of the payment due for
Reparation, Germany is to make the following deliveries of coal or
equivalent in coke (the deliveries to France being wholly additional to
the amounts available by the cession of the Saar or in compensation for
destruction in Northern France):--

(i.) To France 7,000,000 tons annually for ten years;[42]

(ii.) To Belgium 8,000,000 tons annually for ten years;

(iii.) To Italy an annual quantity, rising by annual increments from
4,500,000 tons in 1919-1920 to 8,500,000 tons in each of the six years,
1923-1924 to 1928-1929;

(iv.) To Luxemburg, if required, a quantity of coal equal to the
pre-war annual consumption of German coal in Luxemburg.

This amounts in all to an annual average of about 25,000,000 tons.

* * * * *

These figures have to be examined in relation to Germany's probable
output. The maximum pre-war figure was reached in 1913 with a total of
191,500,000 tons. Of this, 19,000,000 tons were consumed at the mines,
and on balance (i.e. exports less imports) 33,500,000 tons were
exported, leaving 139,000,000 tons for domestic consumption. It is
estimated that this total was employed as follows:--

Railways 18,000,000 tons.
Gas, water, and electricity 12,500,000 "
Bunkers 6,500,000 "
House-fuel, small industry
and agriculture 24,000,000 "
Industry 78,000,000 "
-----------
139,000,000 "

The diminution of production due to loss of territory is:--

Alsace-Lorraine 3,800,000 tons.
Saar Basin 13,200,000 "
Upper Silesia 43,800,000 "
-----------
60,800,000 "

There would remain, therefore, on the basis of the 1913 output,
130,700,000 tons, or, deducting consumption at the mines themselves,
(say) 118,000,000 tons. For some years there must be sent out of this
supply upwards of 20,000,000 tons to France as compensation for damage
done to French mines, and 25,000,000 tons to France, Belgium, Italy, and
Luxemburg;[43] as the former figure is a maximum, and the latter figure
is to be slightly less in the earliest years, we may take the total
export to Allied countries which Germany has undertaken to provide as
40,000,000 tons, leaving, on the above basis, 78,000,000 tons for her
own use as against a pre-war consumption of 139,000,000 tons.

This comparison, however, requires substantial modification to make it
accurate. On the one hand, it is certain that the figures of pre-war
output cannot be relied on as a basis of present output. During 1918 the
production was 161,500,000 tons as compared with 191,500,000 tons in
1913; and during the first half of 1919 it was less than 50,000,000
tons, exclusive of Alsace-Lorraine and the Saar but including Upper
Silesia, corresponding to an annual production of about 100,000,000
tons.[44] The causes of so low an output were in part temporary and
exceptional but the German authorities agree, and have not been
confuted, that some of them are bound to persist for some time to come.
In part they are the same as elsewhere; the daily shift has been
shortened from 8-1/2 to 7 hours, and it is improbable that the powers of
the Central Government will be adequate to restore them to their former
figure. But in addition, the mining plant is in bad condition (due to
the lack of certain essential materials during the blockade), the
physical efficiency of the men is greatly impaired by malnutrition
(which cannot be cured if a tithe of the reparation demands are to be
satisfied,--the standard of life will have rather to be lowered), and
the casualties of the war have diminished the numbers of efficient
miners. The analogy of English conditions is sufficient by itself to
tell us that a pre-war level of output cannot be expected in Germany.
German authorities put the loss of output at somewhat above 30 per
cent, divided about equally between the shortening of the shift and the
other economic influences. This figure appears on general grounds to be
plausible, but I have not the knowledge to endorse or to criticize it.

The pre-war figure of 118,000,000 tons net (i.e. after allowing for
loss of territory and consumption at the mines) is likely to fall,
therefore, at least as low as to 100,000,000[45] tons, having regard to
the above factors. If 40,000,000 tons of this are to be exported to the
Allies, there remain 60,000,000 tons for Germany herself to meet her own
domestic consumption. Demand as well as supply will be diminished by
loss of territory, but at the most extravagant estimate this could not
be put above 29,000,000 tons.[46] Our hypothetical calculations,
therefore, leave us with post-war German domestic requirements, on the
basis of a pre-war efficiency of railways and industry, of 110,000,000
tons against an output not exceeding 100,000,000 tons, of which
40,000,000 tons are mortgaged to the Allies.

The importance of the subject has led me into a somewhat lengthy
statistical analysis. It is evident that too much significance must not
be attached to the precise figures arrived at, which are hypothetical
and dubious.[47] But the general character of the facts presents itself
irresistibly. Allowing for the loss of territory and the loss of
efficiency, Germany cannot export coal in the near future (and will even
be dependent on her Treaty rights to purchase in Upper Silesia), if she
is to continue as an industrial nation. Every million tons she is forced
to export must be at the expense of closing down an industry. With
results to be considered later this within certain limits is possible.
But it is evident that Germany cannot and will not furnish the Allies
with a contribution of 40,000,000 tons annually. Those Allied Ministers,
who have told their peoples that she can, have certainly deceived them
for the sake of allaying for the moment the misgivings of the European
peoples as to the path along which they are being led.

The presence of these illusory provisions (amongst others) in the
clauses of the Treaty of Peace is especially charged with danger for
the future. The more extravagant expectations as to Reparation
receipts, by which Finance Ministers have deceived their publics, will
be heard of no more when they have served their immediate purpose of
postponing the hour of taxation and retrenchment. But the coal clauses
will not be lost sight of so easily,--for the reason that it will be
absolutely vital in the interests of France and Italy that these
countries should do everything in their power to exact their bond. As a
result of the diminished output due to German destruction in France, of
the diminished output of mines in the United Kingdom and elsewhere, and
of many secondary causes, such as the breakdown of transport and of
organization and the inefficiency of new governments, the coal position
of all Europe is nearly desperate;[48] and France and Italy, entering
the scramble with certain Treaty rights, will not lightly surrender
them.

As is generally the case in real dilemmas, the French and Italian case
will possess great force, indeed unanswerable force from a certain point
of view. The position will be truly represented as a question between
German industry on the one hand and French and Italian industry on the
other. It may be admitted that the surrender of the coal will destroy
German industry, but it may be equally true that its non-surrender will
jeopardize French and Italian industry. In such a case must not the
victors with their Treaty rights prevail, especially when much of the
damage has been ultimately due to the wicked acts of those who are now
defeated? Yet if these feelings and these rights are allowed to prevail
beyond what wisdom would recommend, the reactions on the social and
economic life of Central Europe will be far too strong to be confined
within their original limits.

But this is not yet the whole problem. If France and Italy are to make
good their own deficiencies in coal from the output of Germany, then
Northern Europe, Switzerland, and Austria, which previously drew their
coal in large part from Germany's exportable surplus, must be starved of
their supplies. Before the war 13,600,000 tons of Germany's coal exports
went to Austria-Hungary. Inasmuch as nearly all the coalfields of the
former Empire lie outside what is now German-Austria, the industrial
ruin of this latter state, if she cannot obtain coal from Germany, will
be complete. The case of Germany's neutral neighbors, who were formerly
supplied in part from Great Britain but in large part from Germany,
will be hardly less serious. They will go to great lengths in the
direction of making their own supplies to Germany of materials which are
essential to her, conditional on these being paid for in coal. Indeed
they are already doing so.[49] With the breakdown of money economy the
practice of international barter is becoming prevalent. Nowadays money
in Central and South-Eastern Europe is seldom a true measure of value in
exchange, and will not necessarily buy anything, with the consequence
that one country, possessing a commodity essential to the needs of
another, sells it not for cash but only against a reciprocal engagement
on the part of the latter country to furnish in return some article not
less necessary to the former. This is an extraordinary complication as
compared with the former almost perfect simplicity of international
trade. But in the no less extraordinary conditions of to-day's industry
it is not without advantages as a means of stimulating production. The
butter-shifts of the Ruhr[50] show how far modern Europe has
retrograded in the direction of barter, and afford a picturesque
illustration of the low economic organization to which the breakdown of
currency and free exchange between individuals and nations is quickly
leading us. But they may produce the coal where other devices would
fail.[51]

Yet if Germany can find coal for the neighboring neutrals, France and
Italy may loudly claim that in this case she can and must keep her
treaty obligations. In this there will be a great show of justice, and
it will be difficult to weigh against such claims the possible facts
that, while German miners will work for butter, there is no available
means of compelling them to get coal, the sale of which will bring in
nothing, and that if Germany has no coal to send to her neighbors she
may fail to secure imports essential to her economic existence.

If the distribution of the European coal supplies is to be a scramble in
which France is satisfied first, Italy next, and every one else takes
their chance, the industrial future of Europe is black and the prospects
of revolution very good. It is a case where particular interests and
particular claims, however well founded in sentiment or in justice,
must yield to sovereign expediency. If there is any approximate truth in
Mr. Hoover's calculation that the coal output of Europe has fallen by
one-third, a situation confronts us where distribution must be effected
with even-handed impartiality in accordance with need, and no incentive
can be neglected towards increased production and economical methods of
transport. The establishment by the Supreme Council of the Allies in
August, 1919, of a European Coal Commission, consisting of delegates
from Great Britain, France, Italy, Belgium, Poland, and Czecho-Slovakia
was a wise measure which, properly employed and extended, may prove of
great assistance. But I reserve constructive proposals for Chapter VII.
Here I am only concerned with tracing the consequences, per
impossibile, of carrying out the Treaty au pied de lettre.[52]

(2) The provisions relating to iron-ore require less detailed attention,
though their effects are destructive. They require less attention,
because they are in large measure inevitable. Almost exactly 75 per cent
of the iron-ore raised in Germany in 1913 came from Alsace-Lorraine.[53]
In this the chief importance of the stolen provinces lay.

There is no question but that Germany must lose these ore-fields. The
only question is how far she is to be allowed facilities for purchasing
their produce. The German Delegation made strong efforts to secure the
inclusion of a provision by which coal and coke to be furnished by them
to France should be given in exchange for minette from Lorraine. But
they secured no such stipulation, and the matter remains at France's
option.

The motives which will govern France's eventual policy are not entirely
concordant. While Lorraine comprised 75 per cent of Germany's iron-ore,
only 25 per cent of the blast furnaces lay within Lorraine and the Saar
basin together, a large proportion of the ore being carried into Germany
proper. Approximately the same proportion of Germany's iron and steel
foundries, namely 25 per cent, were situated in Alsace-Lorraine. For
the moment, therefore, the most economical and profitable course would
certainly be to export to Germany, as hitherto, a considerable part of
the output of the mines.

On the other hand, France, having recovered the deposits of Lorraine,
may be expected to aim at replacing as far as possible the industries,
which Germany had based on them, by industries situated within her own
frontiers. Much time must elapse before the plant and the skilled labor
could be developed within France, and even so she could hardly deal with
the ore unless she could rely on receiving the coal from Germany. The
uncertainty, too, as to the ultimate fate of the Saar will be disturbing
to the calculations of capitalists who contemplate the establishment of
new industries in France.

In fact, here, as elsewhere, political considerations cut disastrously
across economic. In a rÈgime of Free Trade and free economic intercourse
it would be of little consequence that iron lay on one side of a
political frontier, and labor, coal, and blast furnaces on the other.
But as it is, men have devised ways to impoverish themselves and one
another; and prefer collective animosities to individual happiness. It
seems certain, calculating on the present passions and impulses of
European capitalistic society, that the effective iron output of Europe
will be diminished by a new political frontier (which sentiment and
historic justice require), because nationalism and private interest are
thus allowed to impose a new economic frontier along the same lines.
These latter considerations are allowed, in the present governance of
Europe, to prevail over the intense need of the Continent for the most
sustained and efficient production to repair the destructions of war,
and to satisfy the insistence of labor for a larger reward.[54]

The same influences are likely to be seen, though on a lesser scale, in
the event of the transference of Upper Silesia to Poland. While Upper
Silesia contains but little iron, the presence of coal has led to the
establishment of numerous blast furnaces. What is to be the fate of
these? If Germany is cut off from her supplies of ore on the west, will
she export beyond her frontiers on the east any part of the little which
remains to her? The efficiency and output of the industry seem certain
to diminish.

Thus the Treaty strikes at organization, and by the destruction of
organization impairs yet further the reduced wealth of the whole
community. The economic frontiers which are to be established between
the coal and the iron, upon which modern industrialism is founded, will
not only diminish the production of useful commodities, but may possibly
occupy an immense quantity of human labor in dragging iron or coal, as
the case may be, over many useless miles to satisfy the dictates of a
political treaty or because obstructions have been established to the
proper localization of industry.

III

There remain those Treaty provisions which relate to the transport and
the tariff systems of Germany. These parts of the Treaty have not nearly
the importance and the significance of those discussed hitherto. They
are pin-pricks, interferences and vexations, not so much objectionable
for their solid consequences, as dishonorable to the Allies in the light
of their professions. Let the reader consider what follows in the light
of the assurances already quoted, in reliance on which Germany laid down
her arms.

(i.) The miscellaneous Economic Clauses commence with a number of
provisions which would be in accordance with the spirit of the third of
the Fourteen Points,--if they were reciprocal. Both for imports and
exports, and as regards tariffs, regulations, and prohibitions, Germany
binds herself for five years to accord most-favored-nation treatment to
the Allied and Associated States.[55] But she is not entitled herself to
receive such treatment.

For five years Alsace-Lorraine shall be free to export into Germany,
without payment of customs duty, up to the average amount sent annually
into Germany from 1911 to 1913.[56] But there is no similar provision
for German exports into Alsace-Lorraine.

For three years Polish exports to Germany, and for five years
Luxemburg's exports to Germany, are to have a similar privilege,[57]--
but not German exports to Poland or to Luxemburg. Luxemburg also, which
for many years has enjoyed the benefits of inclusion within the German
Customs Union, is permanently excluded from it henceforward.[58]

For six months after the Treaty has come into force Germany may not
impose duties on imports from the Allied and Associated States higher
than the most favorable duties prevalent before the war and for a
further two years and a half (making three years in all) this
prohibition continues to apply to certain commodities, notably to some
of those as to which special agreements existed before the war, and also
to wine, to vegetable oils, to artificial silk, and to washed or scoured
wool.[59] This is a ridiculous and injurious provision, by which Germany
is prevented from taking those steps necessary to conserve her limited
resources for the purchase of necessaries and the discharge of
Reparation. As a result of the existing distribution of wealth in
Germany, and of financial wantonness amongst individuals, the offspring
of uncertainty, Germany is threatened with a deluge of luxuries and
semi-luxuries from abroad, of which she has been starved for years,
which would exhaust or diminish her small supplies of foreign exchange.
These provisions strike at the authority of the German Government to
ensure economy in such consumption, or to raise taxation during a
critical period. What an example of senseless greed overreaching itself,
to introduce, after taking from Germany what liquid wealth she has and
demanding impossible payments for the future, a special and
particularized injunction that she must allow as readily as in the days
of her prosperity the import of champagne and of silk!

One other Article affects the Customs RÈgime of Germany which, if it was
applied, would be serious and extensive in its consequences. The Allies
have reserved the right to apply a special customs rÈgime to the
occupied area on the bank of the Rhine, "in the event of such a measure
being necessary in their opinion in order to safeguard the economic
interests of the population of these territories."[60] This provision
was probably introduced as a possibly useful adjunct to the French
policy of somehow detaching the left bank provinces from Germany during
the years of their occupation. The project of establishing an
independent Republic under French clerical auspices, which would act as
a buffer state and realize the French ambition of driving Germany proper
beyond the Rhine, has not yet been abandoned. Some believe that much may
be accomplished by a rÈgime of threats, bribes, and cajolery extended
over a period of fifteen years or longer.[61] If this Article is acted
upon, and the economic system of the left bank of the Rhine is
effectively severed from the rest of Germany, the effect would be
far-reaching. But the dreams of designing diplomats do not always
prosper, and we must trust the future.

(ii.) The clauses relating to Railways, as originally presented to
Germany, were substantially modified in the final Treaty, and are now
limited to a provision by which goods, coming from Allied territory to
Germany, or in transit through Germany, shall receive the most favored
treatment as regards rail freight rates, etc., applied to goods of the
same kind carried on any German lines "under similar conditions of
transport, for example, as regards length of route."[62] As a
non-reciprocal provision this is an act of interference in internal
arrangements which it is difficult to justify, but the practical effect
of this,[63] and of an analogous provision relating to passenger
traffic,[64] will much depend on the interpretation of the phrase,
"similar conditions of transport."[65]

For the time being Germany's transport system will be much more
seriously disordered by the provisions relating to the cession of
rolling-stock. Under paragraph 7 of the Armistice conditions Germany was
called on to surrender 5000 locomotives and 150,000 wagons, "in good
working order, with all necessary spare parts and fittings." Under the
Treaty Germany is required to confirm this surrender and to recognize
the title of the Allies to the material.[66] She is further required, in
the case of railway systems in ceded territory, to hand over these
systems complete with their full complement of rolling-stock "in a
normal state of upkeep" as shown in the last inventory before November
11, 1918.[67] That is to say, ceded railway systems are not to bear any
share in the general depletion and deterioration of the German
rolling-stock as a whole.

This is a loss which in course of time can doubtless be made good. But
lack of lubricating oils and the prodigious wear and tear of the war,
not compensated by normal repairs, had already reduced the German
railway system to a low state of efficiency. The further heavy losses
under the Treaty will confirm this state of affairs for some time to
come, and are a substantial aggravation of the difficulties of the coal
problem and of export industry generally.

(iii.) There remain the clauses relating to the river system of Germany.
These are largely unnecessary and are so little related to the supposed
aims of the Allies that their purport is generally unknown. Yet they
constitute an unprecedented interference with a country's domestic
arrangements and are capable of being so operated as to take from
Germany all effective control over her own transport system. In their
present form they are incapable of justification; but some simple
changes might transform them into a reasonable instrument.

Most of the principal rivers of Germany have their source or their
outlet in non-German territory. The Rhine, rising in Switzerland, is now
a frontier river for a part of its course, and finds the sea in Holland;
the Danube rises in Germany but flows over its greater length elsewhere;
the Elbe rises in the mountains of Bohemia, now called Czecho-Slovakia;
the Oder traverses Lower Silesia; and the Niemen now bounds the frontier
of East Prussia and has its source in Russia. Of these, the Rhine and
the Niemen are frontier rivers, the Elbe is primarily German but in its
upper reaches has much importance for Bohemia, the Danube in its German
parts appears to have little concern for any country but Germany, and
the Oder is an almost purely German river unless the result of the
plebiscite is to detach all Upper Silesia.

Rivers which, in the words of the Treaty, "naturally provide more than
one State with access to the sea," properly require some measure of
international regulation and adequate guarantees against discrimination.
This principle has long been recognized in the International Commissions
which regulate the Rhine and the Danube. But on such Commissions the
States concerned should be represented more or less in proportion to
their interests. The Treaty, however, has made the international
character of these rivers a pretext for taking the river system of
Germany out of German control.

After certain Articles which provide suitably against discrimination and
interference with freedom of transit,[68] the Treaty proceeds to hand
over the administration of the Elbe, the Oder, the Danube, and the Rhine
to International Commissions.[69] The ultimate powers of these
Commissions are to be determined by "a General Convention drawn up by
the Allied and Associated Powers, and approved by the League of
Nations."[70] In the meantime the Commissions are to draw up their own
constitutions and are apparently to enjoy powers of the most extensive
description, "particularly in regard to the execution of works of
maintenance, control, and improvement on the river system, the financial
rÈgime, the fixing and collection of charges, and regulations for
navigation."[71]

So far there is much to be said for the Treaty. Freedom of through
transit is a not unimportant part of good international practice and
should be established everywhere. The objectionable feature of the
Commissions lies in their membership. In each case the voting is so
weighted as to place Germany in a clear minority. On the Elbe Commission
Germany has four votes out of ten; on the Oder Commission three out of
nine; on the Rhine Commission four out of nineteen; on the Danube
Commission, which is not yet definitely constituted, she will be
apparently in a small minority. On the government of all these rivers
France and Great Britain are represented; and on the Elbe for some
undiscoverable reason there are also representatives of Italy and
Belgium.

Thus the great waterways of Germany are handed over to foreign bodies
with the widest powers; and much of the local and domestic business of
Hamburg, Magdeburg, Dresden, Stettin, Frankfurt, Breslan, and Ulm will
be subject to a foreign jurisdiction. It is almost as though the Powers
of Continental Europe were to be placed in a majority on the Thames
Conservancy or the Port of London.

Certain minor provisions follow lines which in our survey of the Treaty
are now familiar. Under Annex III. of the Reparation Chapter Germany is
to cede up to 20 per cent of her inland navigation tonnage. Over and
above this she must cede such proportion of her river craft upon the
Elbe, the Oder, the Niemen, and the Danube as an American arbitrator may
determine, "due regard being had to the legitimate needs of the parties
concerned, and particularly to the shipping traffic during the five
years preceding the war," the craft so ceded to be selected from those
most recently built.[72] The same course is to be followed with German
vessels and tugs on the Rhine and with German property in the port of
Rotterdam.[73] Where the Rhine flows between France and Germany, France
is to have all the rights of utilizing the water for irrigation or for
power and Germany is to have none;[74] and all the bridges are to be
French property as to their whole length.[75] Finally the administration
of the purely German Rhine port of Kehl lying on the eastern bank of the
river is to be united to that of Strassburg for seven years and managed
by a Frenchman to be nominated by the new Rhine Commission.

Thus the Economic Clauses of the Treaty are comprehensive, and little
has been overlooked which might impoverish Germany now or obstruct her
development in future. So situated, Germany is to make payments of
money, on a scale and in a manner to be examined in the next chapter.

FOOTNOTES:

[7] The precise force of this reservation is discussed in
detail in Chapter V.

[8] I also omit those which have no special relevance to the
German Settlement. The second of the Fourteen Points, which relates to
the Freedom of the Seas, is omitted because the Allies did not accept
it. Any italics are mine.

[9] Part VIII. Annex III. (1).

[10] Part VIII. Annex III. (3).

[11] In the years before the war the average shipbuilding
output of Germany was about 350,000 tons annually, exclusive of
warships.

[12] Part VIII. Annex III. (5).

[13] Art. 119.

[14] Arts. 120 and 257.

[15] Art. 122.

[16] Arts. 121 and 297(b). The exercise or non-exercise of this
option of expropriation appears to lie, not with the Reparation
Commission, but with the particular Power in whose territory the
property has become situated by cession or mandation.

[17] Art. 297 (h) and para. 4 of Annex to Part X. Section IV.

[18] Arts. 53 and 74.

[19] In 1871 Germany granted France credit for the railways of
Alsace-Lorraine but not for State property. At that time, however, the
railways were private property. As they afterwards became the property
of the German Government, the French Government have held, in spite of
the large additional capital which Germany has sunk in them, that their
treatment must follow the precedent of State property generally.

[20] Arts. 55 and 255. This follows the precedent of 1871.

[21] Art. 297 (b).

[22] Part X. Sections III. and IV. and Art. 243.

[23] The interpretation of the words between inverted commas is
a little dubious. The phrase is so wide as to seem to include private
debts. But in the final draft of the Treaty private debts are not
explicitly referred to.

[24] This provision is mitigated in the case of German property
in Poland and the other new States, the proceeds of liquidation in these
areas being payable direct to the owner (Art. 92.)

[25] Part X. Section IV. Annex, para. 10: "Germany will, within
six months from the coming into force of the present Treaty, deliver to
each Allied or Associated Power all securities, certificates, deeds, or
other documents of title held by its nationals and relating to property,
rights, or interests situated in the territory of that Allied or
Associated Power.... Germany will at any time on demand of any Allied or
Associated Power furnish such information as may be required with regard
to the territory, rights, and interests of German nationals within the
territory of such Allied or Associated Power, or with regard to any
transactions concerning such property, rights, or interests effected
since July 1, 1914."

[26] "Any public utility undertaking or concession" is a vague
phrase, the precise interpretation of which is not provided for.

[27] Art. 260.

[28] Art. 235.

[29] Art. 118.

[30] Arts. 129 and 132.

[31] Arts. 135-137.

[32] Arts. 135-140.

[33] Art. 141: "Germany renounces all rights, titles and
privileges conferred on her by the General Act of Algeciras of April 7,
1906, and by the Franco-German Agreements, of Feb. 9, 1909, and Nov. 4,
1911...."

[34] Art. 148: "All treaties, agreements, arrangements and
contracts concluded by Germany with Egypt are regarded as abrogated from
Aug. 4, 1914." Art. 153: "All property and possessions in Egypt of the
German Empire and the German States pass to the Egyptian Government
without payment."

[35] Art. 289.

[36] Art. 45.

[37] Part IV. Section IV. Annex, Chap. III.

[38] "We take over the ownership of the Sarre mines, and in
order not to be inconvenienced in the exploitation of these coal
deposits, we constitute a distinct little estate for the 600,000 Germans
who inhabit this coal basin, and in fifteen years we shall endeavor by a
plebiscite to bring them to declare that they want to be French. We know
what that means. During fifteen years we are going to work on them, to
attack them from every point, till we obtain from them a declaration of
love. It is evidently a less brutal proceeding than the coup de force
which detached from us our Alsatians and Lorrainers. But if less brutal,
it is more hypocritical. We know quite well between ourselves that it is
an attempt to annex these 600,000 Germans. One can understand very well
the reasons of an economic nature which have led Clemenceau to wish to
give us these Sarre coal deposits, but in order to acquire them must we
give ourselves the appearance of wanting to juggle with 600,000 Germans
in order to make Frenchmen of them in fifteen years?" (M. HervÈ in La
Victorie, May 31, 1919).

[39] This plebiscite is the most important of the concessions
accorded to Germany in the Allies' Final Note, and one for which Mr.
Lloyd George, who never approved the Allies' policy on the Eastern
frontiers of Germany, can claim the chief credit. The vote cannot take
place before the spring of 1920, and may be postponed until 1921. In the
meantime the province will be governed by an Allied Commission. The vote
will be taken by communes, and the final frontiers will be determined by
the Allies, who shall have regard, partly to the results of the vote in
each commune, and partly "to the geographical and economic conditions of
the locality." It would require great local knowledge to predict the
result. By voting Polish, a locality can escape liability for the
indemnity, and for the crushing taxation consequent on voting German, a
factor not to be neglected. On the other hand, the bankruptcy and
incompetence of the new Polish State might deter those who were disposed
to vote on economic rather than on racial grounds. It has also been
stated that the conditions of life in such matters as sanitation and
social legislation are incomparably better in Upper Silesia than in the
adjacent districts of Poland, where similar legislation is in its
infancy. The argument in the text assumes that Upper Silesia will cease
to be German. But much may happen in a year, and the assumption is not
certain. To the extent that it proves erroneous the conclusions must be
modified.

[40] German authorities claim, not without contradiction, that
to judge from the votes cast at elections, one-third of the population
would elect in the Polish interest, and two-thirds in the German.

[41] It must not be overlooked, however, that, amongst the
other concessions relating to Silesia accorded in the Allies' Final
Note, there has been included Article 90, by which "Poland undertakes to
permit for a period of fifteen years the exportation to Germany of the
products of the mines in any part of Upper Silesia transferred to Poland
in accordance with the present Treaty. Such products shall be free from
all export duties or other charges or restrictions on exportation.
Poland agrees to take such steps as may be necessary to secure that any
such products shall be available for sale to purchasers in Germany on
terms as favorable as are applicable to like products sold under similar
conditions to purchasers in Poland or in any other country." This does
not apparently amount to a right of preemption, and it is not easy to
estimate its effective practical consequences. It is evident, however,
that in so far as the mines are maintained at their former efficiency,
and in so far as Germany is in a position to purchase substantially her
former supplies from that source, the loss is limited to the effect on
her balance of trade, and is without the more serious repercussions on
her economic life which are contemplated in the text. Here is an
opportunity for the Allies to render more tolerable the actual operation
of the settlement. The Germans, it should be added, have pointed out
that the same economic argument which adds the Saar fields to France
allots Upper Silesia to Germany. For whereas the Silesian mines are
essential to the economic life of Germany, Poland does not need them. Of
Poland's pre-war annual demand of 10,500,000 tons, 6,800,000 tons were
supplied by the indisputably Polish districts adjacent to Upper Silesia.
1,500,000 tons from Upper Silesia (out of a total Upper Silesian output
of 43,500,000 tons), and the balance from what is now Czecho-Slovakia.
Even without any supply from Upper Silesia and Czecho-Slovakia, Poland
could probably meet her requirements by the fuller exploitation of her
own coalfields which are not yet scientifically developed, or from the
deposits of Western Galicia which are now to be annexed to her.

[42] France is also to receive annually for three years 35,000
tons of benzol, 60,000 tons of coal tar, and 30,000 tons of sulphate of
ammonia.

[43] The Reparation Commission is authorized under the Treaty
(Part VIII Annex V. para. 10) "to postpone or to cancel deliveries" if
they consider "that the full exercise of the foregoing options would
interfere unduly with the industrial requirements of Germany." In the
event of such postponements or cancellations "the coal to replace coal
from destroyed mines shall receive priority over other deliveries." This
concluding clause is of the greatest importance, if, as will be seen, it
is physically impossible for Germany to furnish the full 45,000,000; for
it means that France will receive 20,000,000 tons before Italy receives
anything. The Reparation Commission has no discretion to modify this.
The Italian Press has not failed to notice the significance of the
provision, and alleges that this clause was inserted during the absence
of the Italian representatives from Paris (Corriere della Sera, July
19, 1919).

[44] It follows that the current rate of production in Germany
has sunk to about 60 per cent of that of 1913. The effect on reserves
has naturally been disastrous, and the prospects for the coming winter
are dangerous.

[45] This assumes a loss of output of 15 per cent as compared
with the estimate of 30 per cent quoted above.

[46] This supposes a loss of 23 per cent of Germany's
industrial undertaking and a diminution of 13 per cent in her other
requirements.

[47] The reader must be reminded in particular that the above
calculations take no account of the German production of lignite, which
yielded in 1913 13,000,000 tons of rough lignite in addition to an
amount converted into 21,000,000 tons of briquette. This amount of
lignite, however, was required in Germany before the war in addition
to the quantities of coal assumed above. I am not competent to speak on
the extent to which the loss of coal can be made good by the extended
use of lignite or by economies in its present employment; but some
authorities believe that Germany may obtain substantial compensation for
her loss of coal by paying more attention to her deposits of lignite.

[48] Mr. Hoover, in July, 1919, estimated that the coal output
of Europe, excluding Russia and the Balkans, had dropped from
679,500,000 tons to 443,000,000 tons,--as a result in a minor degree of
loss of material and labor, but owing chiefly to a relaxation of
physical effort after the privations and sufferings of the war, a lack
of rolling-stock and transport, and the unsettled political fate of some
of the mining districts.

[49] Numerous commercial agreements during the war ware
arranged on these lines. But in the month of June, 1919, alone, minor
agreements providing for payment in coal were made by Germany with
Denmark, Norway, and Switzerland. The amounts involved were not large,
but without them Germany could not have obtained butter from Denmark,
fats and herrings from Norway, or milk and cattle from Switzerland.

[50] "Some 60,000 Ruhr miners have agreed to work extra
shifts--so-called butter-shifts--for the purpose of furnishing coal for
export to Denmark hence butter will be exported in return. The butter
will benefit the miners in the first place, as they have worked
specially to obtain it" (Kˆlnische Zeitung, June 11, 1919).

[51] What of the prospects of whisky-shifts in England?

[52] As early as September, 1919, the Coal Commission had to
face the physical impracticability of enforcing the demands of the
Treaty, and agreed to modify them as follows:--"Germany shall in the
next six months make deliveries corresponding to an annual delivery of
20 million tons as compared with 43 millions as provided in the Peace
Treaty. If Germany's total production exceeds the present level of about
108 millions a year, 60 per cent of extra production, up to 128
millions, shall be delivered to the Entente and 50 per cent of any extra
beyond that, until the figure provided in the Peace Treaty is reached.
If the total production falls below 108 millions the Entente will
examine the situation, after hearing Germany, and take account of it."

[53] 21,136,265 tons out of a total of 28,607,903 tons. The
loss of iron-ore in respect of Upper Silesia is insignificant. The
exclusion of the iron and steel of Luxemburg from the German Customs
Union is, however, important, especially when this loss is added to that
of Alsace-Lorraine. It may be added in passing that Upper Silesia
includes 75 per cent of the zinc production of Germany.

[54] In April, 1919, the British Ministry of Munitions
despatched an expert Commission to examine the conditions of the iron
and steel works in Lorraine and the occupied areas of Germany. The
Report states that the iron and steel works in Lorraine, and to a lesser
extent in the Saar Valley, are dependent on supplies of coal and coke
from Westphalia. It is necessary to mix Westphalian coal with Saar coal
to obtain a good furnace coke. The entire dependence of all the Lorraine
iron and steel works upon Germany for fuel supplies "places them," says
the Report, "in a very unenviable position."

[55] Arts. 264, 265, 266, and 267. These provisions can only be
extended beyond five years by the Council of the League of Nations.

[56] Art. 268 (a).

[57] Art. 268 (b) and (c).

[58] The Grand Duchy is also deneutralized and Germany binds
herself to "accept in advance all international arrangements which may
be concluded by the Allied and Associated Powers relating to the Grand
Duchy" (Art. 40). At the end of September, 1919, a plebiscite was held
to determine whether Luxemburg should join the French or the Belgian
Customs Union, which decided by a substantial majority in favour of the
former. The third alternative of the maintenance of the union with
Germany was not left open to the electorate.

[59] Art. 269.

[60] Art. 270.

[61] The occupation provisions may be conveniently summarized
at this point. German territory situated west of the Rhine, together
with the bridge-heads, is subject to occupation for a period of fifteen
years (Art. 428). If, however, "the conditions of the present Treaty are
faithfully carried out by Germany," the Cologne district will be
evacuated after five years, and the Coblenz district after ten years
(Art. 429). It is, however, further provided that if at the expiration
of fifteen years "the guarantees against unprovoked aggression by
Germany are not considered sufficient by the Allied and Associated
Governments, the evacuation of the occupying troops may be delayed to
the extent regarded as necessary for the purpose of obtaining the
required guarantees" (Art. 429); and also that "in case either during
the occupation or after the expiration of the fifteen years, 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 re-occupied immediately by the Allied and Associated Powers" (Art.
430). Since it will be impossible for Germany to fulfil the whole of her
Reparation obligations, the effect of the above provisions will be in
practice that the Allies will occupy the left bank of the Rhine just so
long as they choose. They will also govern it in such manner as they may
determine (e.g. not only as regards customs, but such matters as the
respective authority of the local German representatives and the Allied
Governing Commission), since "all matters relating to the occupation and
not provided for by the present Treaty shall be regulated by subsequent
agreements, which Germany hereby undertakes to observe" (Art. 432). The
actual Agreement under which the occupied areas are to be administered
for the present has been published as a White Paper [Cd. 222]. The
supreme authority is to be in the hands of an Inter-Allied Rhineland
Commission, consisting of a Belgian, a French, a British, and an
American member. The articles of this Agreement are very fairly and
reasonably drawn.

[62] Art. 365. After five years this Article is subject to
revision by the Council of the League of Nations.

[63] The German Government withdrew, as from September 1, 1919,
all preferential railway tariffs for the export of iron and steel goods,
on the ground that these privileges would have been more than
counterbalanced by the corresponding privileges which, under this
Article of the Treaty, they would have been forced to give to Allied
traders.

[64] Art. 367.

[65] Questions of interpretation and application are to be
referred to the League of Nations (Art. 376).

[66] Art. 250.

[67] Art 371. This provision is even applied "to the lines of
former Russian Poland converted by Germany to the German gage, such
lines being regarded as detached from the Prussian State System."

[68] Arts. 332-337. Exception may be taken, however, to the
second paragraph of Art. 332, which allows the vessels of other nations
to trade between German towns but forbids German vessels to trade
between non-German towns except with special permission; and Art. 333,
which prohibits Germany from making use of her river system as a source
of revenue, may be injudicious.

[69] The Niemen and the Moselle are to be similarly treated at
a later date if required.

[70] Art. 338.

[71] Art. 344. This is with particular reference to the Elbe
and the Oder; the Danube and the Rhine are dealt with in relation to the
existing Commissions.

[72] Art. 339.

[73] Art. 357.

[74] Art. 358. Germany is, however, to be allowed some payment
or credit in respect of power so taken by France.

[75] Art. 66.