The Economic Consequences of the Peace

REMEDIES

It is difficult to maintain true perspective in large affairs. I have
criticized the work of Paris, and have depicted in somber colors the
condition and the prospects of Europe. This is one aspect of the
position and, I believe, a true one. But in so complex a phenomenon the
prognostics do not all point one way; and we may make the error of
expecting consequences to follow too swiftly and too inevitably from
what perhaps are not all the relevant causes. The blackness of the
prospect itself leads us to doubt its accuracy; our imagination is
dulled rather than stimulated by too woeful a narration, and our minds
rebound from what is felt "too bad to be true." But before the reader
allows himself to be too much swayed by these natural reflections, and
before I lead him, as is the intention of this chapter, towards remedies
and ameliorations and the discovery of happier tendencies, let him
redress the balance of his thought by recalling two contrasts--England
and Russia, of which the one may encourage his optimism too much, but
the other should remind him that catastrophes can still happen, and
that modern society is not immune from the very greatest evils.

In the chapters of this book I have not generally had in mind the
situation or the problems of England. "Europe" in my narration must
generally be interpreted to exclude the British Isles. England is in a
state of transition, and her economic problems are serious. We may be on
the eve of great changes in her social and industrial structure. Some of
us may welcome such prospects and some of us deplore them. But they are
of a different kind altogether from those impending on Europe. I do not
perceive in England the slightest possibility of catastrophe or any
serious likelihood of a general upheaval of society. The war has
impoverished us, but not seriously;--I should judge that the real wealth
of the country in 1919 is at least equal to what it was in 1900. Our
balance of trade is adverse, but not so much so that the readjustment of
it need disorder our economic life.[157] The deficit in our Budget is
large, but not beyond what firm and prudent statesmanship could bridge.
The shortening of the hours of labor may have somewhat diminished our
productivity. But it should not be too much to hope that this is a
feature of transition, and no one who is acquainted with the British
workingman can doubt that, if it suits him, and if he is in sympathy and
reasonable contentment with the conditions of his life, he can produce
at least as much in a shorter working day as he did in the longer hours
which prevailed formerly. The most serious problems for England have
been brought to a head by the war, but are in their origins more
fundamental. The forces of the nineteenth century have run their course
and are exhausted. The economic motives and ideals of that generation no
longer satisfy us: we must find a new way and must suffer again the
malaise, and finally the pangs, of a new industrial birth. This is one
element. The other is that on which I have enlarged in Chapter II.;--the
increase in the real cost of food and the diminishing response of nature
to any further increase in the population of the world, a tendency which
must be especially injurious to the greatest of all industrial
countries and the most dependent on imported supplies of food.

But these secular problems are such as no age is free from. They are of
an altogether different order from those which may afflict the peoples
of Central Europe. Those readers who, chiefly mindful of the British
conditions with which they are familiar, are apt to indulge their
optimism, and still more those whose immediate environment is American,
must cast their minds to Russia, Turkey, Hungary, or Austria, where the
most dreadful material evils which men can suffer--famine, cold,
disease, war, murder, and anarchy--are an actual present experience, if
they are to apprehend the character of the misfortunes against the
further extension of which it must surely be our duty to seek the
remedy, if there is one.

What then is to be done? The tentative suggestions of this chapter may
appear to the reader inadequate. But the opportunity was missed at Paris
during the six months which followed the Armistice, and nothing we can
do now can repair the mischief wrought at that time. Great privation and
great risks to society have become unavoidable. All that is now open to
us is to redirect, so far as lies in our power, the fundamental economic
tendencies which underlie the events of the hour, so that they promote
the re-establishment of prosperity and order, instead of leading us
deeper into misfortune.

We must first escape from the atmosphere and the methods of Paris. Those
who controlled the Conference may bow before the gusts of popular
opinion, but they will never lead us out of our troubles. It is hardly
to be supposed that the Council of Four can retrace their steps, even if
they wished to do so. The replacement of the existing Governments of
Europe is, therefore, an almost indispensable preliminary.

I propose then to discuss a program, for those who believe that the
Peace of Versailles cannot stand, under the following heads:

1. The Revision of the Treaty.

2. The settlement of inter-Ally indebtedness.

3. An international loan and the reform of the currency.

4. The relations of Central Europe to Russia.

1. The Revision of the Treaty

Are any constitutional means open to us for altering the Treaty?
President Wilson and General Smuts, who believe that to have secured the
Covenant of the League of Nations outweighs much evil in the rest of the
Treaty, have indicated that we must look to the League for the gradual
evolution of a more tolerable life for Europe. "There are territorial
settlements," General Smuts wrote in his statement on signing the Peace
Treaty, "which will need revision. There are guarantees laid down which
we all hope will soon be found out of harmony with the new peaceful
temper and unarmed state of our former enemies. There are punishments
foreshadowed over most of which a calmer mood may yet prefer to pass the
sponge of oblivion. There are indemnities stipulated which cannot be
enacted without grave injury to the industrial revival of Europe, and
which it will be in the interests of all to render more tolerable and
moderate.... I am confident that the League of Nations will yet prove
the path of escape for Europe out of the ruin brought about by this
war." Without the League, President Wilson informed the Senate when he
presented the Treaty to them early in July, 1919, "...long-continued
supervision of the task of reparation which Germany was to undertake to
complete within the next generation might entirely break down;[158] the
reconsideration and revision of administrative arrangements and
restrictions which the Treaty prescribed, but which it recognized might
not provide lasting advantage or be entirely fair if too long enforced,
would be impracticable."

Can we look forward with fair hopes to securing from the operation of
the League those benefits which two of its principal begetters thus
encourage us to expect from it? The relevant passage is to be found in
Article XIX. of the Covenant, which runs as follows:

"The Assembly may from time to time advise the
reconsideration by Members of the League of treaties which
have become inapplicable and the consideration of
international conditions whose continuance might endanger the
peace of the world."

But alas! Article V. provides that "Except where otherwise expressly
provided in this Covenant or by the terms of the present Treaty,
decisions at any meeting of the Assembly or of the Council shall require
the agreement of all the Members of the League represented at the
meeting." Does not this provision reduce the League, so far as concerns
an early reconsideration of any of the terms of the Peace Treaty, into a
body merely for wasting time? If all the parties to the Treaty are
unanimously of opinion that it requires alteration in a particular
sense, it does not need a League and a Covenant to put the business
through. Even when the Assembly of the League is unanimous it can only
"advise" reconsideration by the members specially affected.

But the League will operate, say its supporters, by its influence on the
public opinion of the world, and the view of the majority will carry
decisive weight in practice, even though constitutionally it is of no
effect. Let us pray that this be so. Yet the League in the hands of the
trained European diplomatist may become an unequaled instrument for
obstruction and delay. The revision of Treaties is entrusted primarily,
not to the Council, which meets frequently, but to the Assembly, which
will meet more rarely and must become, as any one with an experience of
large Inter-Ally Conferences must know, an unwieldy polyglot debating
society in which the greatest resolution and the best management may
fail altogether to bring issues to a head against an opposition in favor
of the status quo. There are indeed two disastrous blots on the
Covenant,--Article V., which prescribes unanimity, and the
much-criticized Article X., by which "The Members of the League
undertake to respect and preserve as against external aggression the
territorial integrity and existing political independence of all Members
of the League." These two Articles together go some way to destroy the
conception of the League as an instrument of progress, and to equip it
from the outset with an almost fatal bias towards the status quo. It
is these Articles which have reconciled to the League some of its
original opponents, who now hope to make of it another Holy Alliance for
the perpetuation of the economic ruin of their enemies and the Balance
of Power in their own interests which they believe themselves to have
established by the Peace.

But while it would be wrong and foolish to conceal from ourselves in the
interests of "idealism" the real difficulties of the position in the
special matter of revising treaties, that is no reason for any of us to
decry the League, which the wisdom of the world may yet transform into a
powerful instrument of peace, and which in Articles XI.-XVII.[159] has
already accomplished a great and beneficent achievement. I agree,
therefore, that our first efforts for the Revision of the Treaty must be
made through the League rather than in any other way, in the hope that
the force of general opinion and, if necessary, the use of financial
pressure and financial inducements, may be enough to prevent a
recalcitrant minority from exercising their right of veto. We must trust
the new Governments, whose existence I premise in the principal Allied
countries, to show a profounder wisdom and a greater magnanimity than
their predecessors.

We have seen in Chapters IV. and V. that there are numerous particulars
in which the Treaty is objectionable. I do not intend to enter here into
details, or to attempt a revision of the Treaty clause by clause. I
limit myself to three great changes which are necessary for the economic
life of Europe, relating to Reparation, to Coal and Iron, and to
Tariffs.

Reparation.--If the sum demanded for Reparation is less than what the
Allies are entitled to on a strict interpretation of their engagements,
it is unnecessary to particularize the items it represents or to hear
arguments about its compilation. I suggest, therefore, the following
settlement:--

(1) The amount of the payment to be made by Germany in respect of
Reparation and the costs of the Armies of Occupation might be fixed at
$10,000,000,000.

(2) The surrender of merchant ships and submarine cables under the
Treaty, of war material under the Armistice, of State property in ceded
territory, of claims against such territory in respect of public debt,
and of Germany's claims against her former Allies, should be reckoned as
worth the lump sum of $2,500,000,000, without any attempt being made to
evaluate them item by item.

(3) The balance of $7,500,000,000 should not carry interest pending its
repayment, and should be paid by Germany in thirty annual instalments of
$250,000,000, beginning in 1923.

(4) The Reparation Commission should be dissolved, or, if any duties
remain for it to perform, it should become an appanage of the League of
Nations and should include representatives of Germany and of the neutral
States.

(5) Germany would be left to meet the annual instalments in such manner
as she might see fit, any complaint against her for non-fulfilment of
her obligations being lodged with the League of Nations. That is to say,
there would be no further expropriation of German private property
abroad, except so far as is required to meet private German obligations
out of the proceeds of such property already liquidated or in the hands
of Public Trustees and Enemy Property Custodians in the Allied countries
and in the United States; and, in particular, Article 260 (which
provides for the expropriation of German interests in public utility
enterprises) would be abrogated.

(6) No attempt should be made to extract Reparation payments from
Austria.

Coal and Iron.--(1) The Allies' options on coal under Annex V. should
be abandoned, but Germany's obligation to make good France's loss of
coal through the destruction of her mines should remain. That is to say,
Germany should undertake "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 years in question; such delivery
not to exceed twenty million tons in any one year of the first five
years, and eight million tons in any one year of the succeeding five
years." This obligation should lapse, nevertheless, in the event of the
coal districts of Upper Silesia being taken from Germany in the final
settlement consequent on the plebiscite.

(2) The arrangement as to the Saar should hold good, except that, on the
one hand, Germany should receive no credit for the mines, and, on the
other, should receive back both the mines and the territory without
payment and unconditionally after ten years. But this should be
conditional on France's entering into an agreement for the same period
to supply Germany from Lorraine with at least 50 per cent of the
iron-ore which was carried from Lorraine into Germany proper before the
war, in return for an undertaking from Germany to supply Lorraine with
an amount of coal equal to the whole amount formerly sent to Lorraine
from Germany proper, after allowing for the output of the Saar.

(3) The arrangement as to Upper Silesia should hold good. That is to
say, a plebiscite should be held, and in coming to a final decision
"regard will be paid (by the principal Allied and Associated Powers) to
the wishes of the inhabitants as shown by the vote, and to the
geographical and economic conditions of the locality." But the Allies
should declare that in their judgment "economic conditions" require the
inclusion of the coal districts in Germany unless the wishes of the
inhabitants are decidedly to the contrary.

(4) The Coal Commission already established by the Allies should become
an appanage of the League of Nations, and should be enlarged to include
representatives of Germany and the other States of Central and Eastern
Europe, of the Northern Neutrals, and of Switzerland. Its authority
should be advisory only, but should extend over the distribution of the
coal supplies of Germany, Poland, and the constituent parts of the
former Austro-Hungarian Empire, and of the exportable surplus of the
United Kingdom. All the States represented on the Commission should
undertake to furnish it with the fullest information, and to be guided
by its advice so far as their sovereignty and their vital interests
permit.

Tariffs.--A Free Trade Union should be established under the auspices
of the League of Nations of countries undertaking to impose no
protectionist tariffs[160] whatever against the produce of other members
of the Union, Germany, Poland, the new States which formerly composed
the Austro-Hungarian and Turkish Empires, and the Mandated States should
be compelled to adhere to this Union for ten years, after which time
adherence would be voluntary. The adherence of other States would be
voluntary from the outset. But it is to be hoped that the United
Kingdom, at any rate, would become an original member.

* * * * *

By fixing the Reparation payments well within Germany's capacity to pay,
we make possible the renewal of hope and enterprise within her
territory, we avoid the perpetual friction and opportunity of improper
pressure arising out of Treaty clauses which are impossible of
fulfilment, and we render unnecessary the intolerable powers of the
Reparation Commission.

By a moderation of the clauses relating directly or indirectly to coal,
and by the exchange of iron-ore, we permit the continuance of Germany's
industrial life, and put limits on the loss of productivity which would
be brought about otherwise by the interference of political frontiers
with the natural localization of the iron and steel industry.

By the proposed Free Trade Union some part of the loss of organization
and economic efficiency may be retrieved, which must otherwise result
from the innumerable new political frontiers now created between greedy,
jealous, immature, and economically incomplete nationalist States.
Economic frontiers were tolerable so long as an immense territory was
included in a few great Empires; but they will not be tolerable when the
Empires of Germany, Austria-Hungary, Russia, and Turkey have been
partitioned between some twenty independent authorities. A Free Trade
Union, comprising the whole of Central, Eastern, and South-Eastern
Europe, Siberia, Turkey, and (I should hope) the United Kingdom, Egypt,
and India, might do as much for the peace and prosperity of the world as
the League of Nations itself. Belgium, Holland, Scandinavia, and
Switzerland might be expected to adhere to it shortly. And it would be
greatly to be desired by their friends that France and Italy also should
see their way to adhesion.

It would be objected, I suppose, by some critics that such an
arrangement might go some way in effect towards realizing the former
German dream of Mittel-Europa. If other countries were so foolish as to
remain outside the Union and to leave to Germany all its advantages,
there might be some truth in this. But an economic system, to which
every one had the opportunity of belonging and which gave special
privilege to none, is surely absolutely free from the objections of a
privileged and avowedly imperialistic scheme of exclusion and
discrimination. Our attitude to these criticisms must be determined by
our whole moral and emotional reaction to the future of international
relations and the Peace of the World. If we take the view that for at
least a generation to come Germany cannot be trusted with even a modicum
of prosperity, that while all our recent Allies are angels of light, all
our recent enemies, Germans, Austrians, Hungarians, and the rest, are
children of the devil, that year by year Germany must be kept
impoverished and her children starved and crippled, and that she must be
ringed round by enemies; then we shall reject all the proposals of this
chapter, and particularly those which may assist Germany to regain a
part of her former material prosperity and find a means of livelihood
for the industrial population of her towns. But if this view of nations
and of their relation to one another is adopted by the democracies of
Western Europe, and is financed by the United States, heaven help us
all. If we aim deliberately at the impoverishment of Central Europe,
vengeance, I dare predict, will not limp. Nothing can then delay for
very long that final civil war between the forces of Reaction and the
despairing convulsions of Revolution, before which the horrors of the
late German war will fade into nothing, and which will destroy, whoever
is victor, the civilization and the progress of our generation. Even
though the result disappoint us, must we not base our actions on better
expectations, and believe that the prosperity and happiness of one
country promotes that of others, that the solidarity of man is not a
fiction, and that nations can still afford to treat other nations as
fellow-creatures?

Such changes as I have proposed above might do something appreciable to
enable the industrial populations of Europe to continue to earn a
livelihood. But they would not be enough by themselves. In particular,
France would be a loser on paper (on paper only, for she will never
secure the actual fulfilment of her present claims), and an escape from
her embarrassments must be shown her in some other direction. I proceed,
therefore, to proposals, first, for the adjustment of the claims of
America and the Allies amongst themselves; and second, for the provision
of sufficient credit to enable Europe to re-create her stock of
circulating capital.

2. The Settlement of Inter-Ally Indebtedness

In proposing a modification of the Reparation terms, I have considered
them so far only in relation to Germany. But fairness requires that so
great a reduction in the amount should be accompanied by a readjustment
of its apportionment between the Allies themselves. The professions
which our statesmen made on every platform during the war, as well as
other considerations, surely require that the areas damaged by the
enemy's invasion should receive a priority of compensation. While this
was one of the ultimate objects for which we said we were fighting, we
never included the recovery of separation allowances amongst our war
aims. I suggest, therefore, that we should by our acts prove ourselves
sincere and trustworthy, and that accordingly Great Britain should waive
altogether her claims for cash payment in favor of Belgium, Serbia, and
France. The whole of the payments made by Germany would then be subject
to the prior charge of repairing the material injury done to those
countries and provinces which suffered actual invasion by the enemy; and
I believe that the sum of $7,500,000,000 thus available would be
adequate to cover entirely the actual costs of restoration. Further, it
is only by a complete subordination of her own claims for cash
compensation that Great Britain can ask with clean hands for a revision
of the Treaty and clear her honor from the breach of faith for which she
bears the main responsibility, as a result of the policy to which the
General Election of 1918 pledged her representatives.

With the Reparation problem thus cleared up it would be possible to
bring forward with a better grace and more hope of success two other
financial proposals, each of which involves an appeal to the generosity
of the United States.

The first is for the entire cancellation of Inter-Ally indebtedness
(that is to say, indebtedness between the Governments of the Allied and
Associated countries) incurred for the purposes of the war. This
proposal, which has been put forward already in certain quarters, is one
which I believe to be absolutely essential to the future prosperity of
the world. It would be an act of far-seeing statesmanship for the United
Kingdom and the United States, the two Powers chiefly concerned, to
adopt it. The sums of money which are involved are shown approximately
in the following table:--[161]

-----------------+------------+------------+-----------+----------
Loans to | By United | By United | By France | Total
| States | Kingdom | |
-----------------+------------+------------+-----------+----------
| Million | Million | Million | Million
| Dollars | Dollars | Dollars | Dollars
| | | |
United Kingdom | 4,210 | 0 | 0 | 4,210
France | 2,750 | 2,540 | 0 | 5,200
Italy | 1,625 | 2,335 | 175 | 4,135
Russia | 190 | 2,840[162]| 800 | 3,830
Belgium | 400 | 490[163]| 450 | 1,340
Serbia and | | | |
Jugo-Slavia | 100 | 100[163]| 100 | 300
Other Allies | 175 | 395 | 250 | 820
| ----- | ----- | ----- | ------
Total | 9,450[164]| 8,700 | 1,775 | 19,925
| | | |
-----------------+------------+------------+-----------+----------

Thus the total volume of Inter-Ally indebtedness, assuming that loans
from one Ally are not set off against loans to another, is nearly
$20,000,000,000. The United States is a lender only. The United Kingdom
has lent about twice as much as she has borrowed. France has borrowed
about three times as much as she has lent. The other Allies have been
borrowers only.

If all the above Inter-Ally indebtedness were mutually forgiven, the
net result on paper (i.e. assuming all the loans to be good) would be
a surrender by the United States of about $10,000,000,000 and by the
United Kingdom of about $4,500,000,000. France would gain about
$3,500,000,000 and Italy about $4,000,000,000. But these figures
overstate the loss to the United Kingdom and understate the gain to
France; for a large part of the loans made by both these countries has
been to Russia and cannot, by any stretch of imagination, be considered
good. If the loans which the United Kingdom has made to her Allies are
reckoned to be worth 50 per cent of their full value (an arbitrary but
convenient assumption which the Chancellor of the Exchequer has adopted
on more than one occasion as being as good as any other for the purposes
of an approximate national balance sheet), the operation would involve
her neither in loss nor in gain. But in whatever way the net result is
calculated on paper, the relief in anxiety which such a liquidation of
the position would carry with it would be very great. It is from the
United States, therefore, that the proposal asks generosity.

Speaking with a very intimate knowledge of the relations throughout the
war between the British, the American, and the other Allied Treasuries,
I believe this to be an act of generosity for which Europe can fairly
ask, provided Europe is making an honorable attempt in other
directions, not to continue war, economic or otherwise, but to achieve
the economic reconstitution of the whole Continent, The financial
sacrifices of the United States have been, in proportion to her wealth,
immensely less than those of the European States. This could hardly have
been otherwise. It was a European quarrel, in which the United States
Government could not have justified itself before its citizens in
expending the whole national strength, as did the Europeans. After the
United States came into the war her financial assistance was lavish and
unstinted, and without this assistance the Allies could never have won
the war,[165] quite apart from the decisive influence of the arrival of
the American troops. Europe, too, should never forget the extraordinary
assistance afforded her during the first six months of 1919 through the
agency of Mr. Hoover and the American Commission of Relief. Never was a
nobler work of disinterested goodwill carried through with more tenacity
and sincerity and skill, and with less thanks either asked or given.
The ungrateful Governments of Europe owe much more to the statesmanship
and insight of Mr. Hoover and his band of American workers than they
have yet appreciated or will ever acknowledge. The American Relief
Commission, and they only, saw the European position during those months
in its true perspective and felt towards it as men should. It was their
efforts, their energy, and the American resources placed by the
President at their disposal, often acting in the teeth of European
obstruction, which not only saved an immense amount of human suffering,
but averted a widespread breakdown of the European system.[166]

But in speaking thus as we do of American financial assistance, we
tacitly assume, and America, I believe, assumed it too when she gave the
money, that it was not in the nature of an investment. If Europe is
going to repay the $10,000,000,000 worth of financial assistance which
she has had from the United States with compound interest at 5 per cent,
the matter takes on quite a different complexion. If America's advances
are to be regarded in this light, her relative financial sacrifice has
been very slight indeed.

Controversies as to relative sacrifice are very barren and very foolish
also; for there is no reason in the world why relative sacrifice should
necessarily be equal,--so many other very relevant considerations being
quite different in the two cases. The two or three facts following are
put forward, therefore, not to suggest that they provide any compelling
argument for Americans, but only to show that from his own selfish point
of view an Englishman is not seeking to avoid due sacrifice on his
country's part in making the present suggestion. (1) The sums which the
British Treasury borrowed from the American Treasury, after the latter
came into the war, were approximately offset by the sums which England
lent to her other Allies during the same period (i.e. excluding sums
lent before the United States came into the war); so that almost the
whole of England's indebtedness to the United States was incurred, not
on her own account, but to enable her to assist the rest of her Allies,
who were for various reasons not in a position to draw their assistance
from the United States direct.[167] (2) The United Kingdom has disposed
of about $5,000,000,000 worth of her foreign securities, and in addition
has incurred foreign debt to the amount of about $6,000,000,000. The
United States, so far from selling, has bought back upwards of
$5,000,000,000, and has incurred practically no foreign debt. (3) The
population of the United Kingdom is about one-half that of the United
States, the income about one-third, and the accumulated wealth between
one-half and one-third. The financial capacity of the United Kingdom may
therefore be put at about two-fifths that of the United States. This
figure enables us to make the following comparison:--Excluding loans to
Allies in each case (as is right on the assumption that these loans are
to be repaid), the war expenditure of the United Kingdom has been about
three times that of the United Sates, or in proportion to capacity
between seven and eight times.

Having cleared this issue out of the way as briefly as possible, I turn
to the broader issues of the future relations between the parties to the
late war, by which the present proposal must primarily be judged.

Failing such a settlement as is now proposed, the war will have ended
with a network of heavy tribute payable from one Ally to another. The
total amount of this tribute is even likely to exceed the amount
obtainable from the enemy; and the war will have ended with the
intolerable result of the Allies paying indemnities to one another
instead of receiving them from the enemy.

For this reason the question of Inter-Allied indebtedness is closely
bound up with the intense popular feeling amongst the European Allies on
the question of indemnities,--a feeling which is based, not on any
reasonable calculation of what Germany can, in fact, pay, but on a
well-founded appreciation of the unbearable financial situation in which
these countries will find themselves unless she pays. Take Italy as an
extreme example. If Italy can reasonably be expected to pay
$4,000,000,000, surely Germany can and ought to pay an immeasurably
higher figure. Or if it is decided (as it must be) that Austria can pay
next to nothing, is it not an intolerable conclusion that Italy should
be loaded with a crushing tribute, while Austria escapes? Or, to put it
slightly differently, how can Italy be expected to submit to payment of
this great sum and see Czecho-Slovakia pay little or nothing? At the
other end of the scale there is the United Kingdom. Here the financial
position is different, since to ask us to pay $4,000,000,000 is a very
different proposition from asking Italy to pay it. But the sentiment is
much the same. If we have to be satisfied without full compensation from
Germany, how bitter will be the protests against paying it to the
United States. We, it will be said, have to be content with a claim
against the bankrupt estates of Germany, France, Italy, and Russia,
whereas the United States has secured a first mortgage upon us. The case
of France is at least as overwhelming. She can barely secure from
Germany the full measure of the destruction of her countryside. Yet
victorious France must pay her friends and Allies more than four times
the indemnity which in the defeat of 1870 she paid Germany. The hand of
Bismarck was light compared with that of an Ally or of an Associate. A
settlement of Inter-Ally indebtedness is, therefore, an indispensable
preliminary to the peoples of the Allied countries facing, with other
than a maddened and exasperated heart, the inevitable truth about the
prospects of an indemnity from the enemy.

It might be an exaggeration to say that it is impossible for the
European Allies to pay the capital and interest due from them on these
debts, but to make them do so would certainly be to impose a crushing
burden. They may be expected, therefore, to make constant attempts to
evade or escape payment, and these attempts will be a constant source of
international friction and ill-will for many years to come. A debtor
nation does not love its creditor, and it is fruitless to expect
feelings of goodwill from France, Italy, and Russia towards this
country or towards America, if their future development is stifled for
many years to come by the annual tribute which they must pay us. There
will be a great incentive to them to seek their friends in other
directions, and any future rupture of peaceable relations will always
carry with it the enormous advantage of escaping the payment of external
debts, if, on the other hand, these great debts are forgiven, a stimulus
will be given to the solidarity and true friendliness of the nations
lately associated.

The existence of the great war debts is a menace to financial stability
everywhere. There is no European country in which repudiation may not
soon become an important political issue. In the case of internal debt,
however, there are interested parties on both sides, and the question is
one of the internal distribution of wealth. With external debts this is
not so, and the creditor nations may soon find their interest
inconveniently bound up with the maintenance of a particular type of
government or economic organization in the debtor countries. Entangling
alliances or entangling leagues are nothing to the entanglements of cash
owing.

The final consideration influencing the reader's attitude to this
proposal must, however, depend on his view as to the future place in the
world's progress of the vast paper entanglements which are our legacy
from war finance both at home and abroad. The war has ended with every
one owing every one else immense sums of money. Germany owes a large sum
to the Allies, the Allies owe a large sum to Great Britain, and Great
Britain owes a large sum to the United States. The holders of war loan
in every country are owed a large sum by the State, and the State in its
turn is owed a large sum by these and other taxpayers. The whole
position is in the highest degree artificial, misleading, and vexatious.
We shall never be able to move again, unless we can free our limbs from
these paper shackles. A general bonfire is so great a necessity that
unless we can make of it an orderly and good-tempered affair in which no
serious injustice is done to any one, it will, when it comes at last,
grow into a conflagration that may destroy much else as well. As regards
internal debt, I am one of those who believe that a capital levy for the
extinction of debt is an absolute prerequisite of sound finance in
everyone of the European belligerent countries. But the continuance on a
huge scale of indebtedness between Governments has special dangers of
its own.

Before the middle of the nineteenth century no nation owed payments to a
foreign nation on any considerable scale, except such tributes as were
exacted under the compulsion of actual occupation in force and, at one
time, by absentee princes under the sanctions of feudalism. It is true
that the need for European capitalism to find an outlet in the New World
has led during the past fifty years, though even now on a relatively
modest scale, to such countries as Argentine owing an annual sum to such
countries as England. But the system is fragile; and it has only
survived because its burden on the paying countries has not so far been
oppressive, because this burden is represented by real assets and is
bound up with the property system generally, and because the sums
already lent are not unduly large in relation to those which it is still
hoped to borrow. Bankers are used to this system, and believe it to be a
necessary part of the permanent order of society. They are disposed to
believe, therefore, by analogy with it, that a comparable system between
Governments, on a far vaster and definitely oppressive scale,
represented by no real assets, and less closely associated with the
property system, is natural and reasonable and in conformity with human
nature.

I doubt this view of the world. Even capitalism at home, which engages
many local sympathies, which plays a real part in the daily process of
production, and upon the security of which the present organization of
society largely depends, is not very safe. But however this may be, will
the discontented peoples of Europe be willing for a generation to come
so to order their lives that an appreciable part of their daily produce
may be available to meet a foreign payment, the reason of which, whether
as between Europe and America, or as between Germany and the rest of
Europe, does not spring compellingly from their sense of justice or
duty?

On the one hand, Europe must depend in the long run on her own daily
labor and not on the largesse of America; but, on the other hand, she
will not pinch herself in order that the fruit of her daily labor may go
elsewhere. In short, I do not believe that any of these tributes will
continue to be paid, at the best, for more than a very few years. They
do not square with human nature or agree with the spirit of the age.

If there is any force in this mode of thought, expediency and generosity
agree together, and the policy which will best promote immediate
friendship between nations will not conflict with the permanent
interests of the benefactor.[168]

3. An International Loan

I pass to a second financial proposal. The requirements of Europe are
immediate. The prospect of being relieved of oppressive interest
payments to England and America over the whole life of the next two
generations (and of receiving from Germany some assistance year by year
to the costs of restoration) would free the future from excessive
anxiety. But it would not meet the ills of the immediate present,--the
excess of Europe's imports over her exports, the adverse exchange, and
the disorder of the currency. It will be very difficult for European
production to get started again without a temporary measure of external
assistance. I am therefore a supporter of an international loan in some
shape or form, such as has been advocated in many quarters in France,
Germany, and England, and also in the United States. In whatever way the
ultimate responsibility for repayment is distributed, the burden of
finding the immediate resources must inevitably fall in major part upon
the United States.

The chief objections to all the varieties of this species of project
are, I suppose, the following. The United States is disinclined to
entangle herself further (after recent experiences) in the affairs of
Europe, and, anyhow, has for the time being no more capital to spare for
export on a large scale. There is no guarantee that Europe will put
financial assistance to proper use, or that she will not squander it and
be in just as bad case two or three years hence as she is in now;--M.
Klotz will use the money to put off the day of taxation a little longer,
Italy and Jugo-Slavia will fight one another on the proceeds, Poland
will devote it to fulfilling towards all her neighbors the military rÙle
which France has designed for her, the governing classes of Roumania
will divide up the booty amongst themselves. In short, America would
have postponed her own capital developments and raised her own cost of
living in order that Europe might continue for another year or two the
practices, the policy, and the men of the past nine months. And as for
assistance to Germany, is it reasonable or at all tolerable that the
European Allies, having stripped Germany of her last vestige of working
capital, in opposition to the arguments and appeals of the American
financial representatives at Paris, should then turn to the United
States for funds to rehabilitate the victim in sufficient measure to
allow the spoliation to recommence in a year or two?

There is no answer to these objections as matters are now. If I had
influence at the United States Treasury, I would not lend a penny to a
single one of the present Governments of Europe. They are not to be
trusted with resources which they would devote to the furtherance of
policies in repugnance to which, in spite of the President's failure to
assert either the might or the ideals of the people of the United
States, the Republican and the Democratic parties are probably united.
But if, as we must pray they will, the souls of the European peoples
turn away this winter from the false idols which have survived the war
that created them, and substitute in their hearts for the hatred and the
nationalism, which now possess them, thoughts and hopes of the happiness
and solidarity of the European family,--then should natural piety and
filial love impel the American people to put on one side all the smaller
objections of private advantage and to complete the work, that they
began in saving Europe from the tyranny of organized force, by saving
her from herself. And even if the conversion is not fully accomplished,
and some parties only in each of the European countries have espoused a
policy of reconciliation, America can still point the way and hold up
the hands of the party of peace by having a plan and a condition on
which she will give her aid to the work of renewing life.

The impulse which, we are told, is now strong in the mind of the United
States to be quit of the turmoil, the complication, the violence, the
expense, and, above all, the unintelligibility of the European problems,
is easily understood. No one can feel more intensely than the writer
how natural it is to retort to the folly and impracticability of the
European statesmen,--Rot, then, in your own malice, and we will go our
way--

Remote from Europe; from her blasted hopes;
Her fields of carnage, and polluted air.

But if America recalls for a moment what Europe has meant to her and
still means to her, what Europe, the mother of art and of knowledge, in
spite of everything, still is and still will be, will she not reject
these counsels of indifference and isolation, and interest herself in
what may prove decisive issues for the progress and civilization of all
mankind?

Assuming then, if only to keep our hopes up, that America will be
prepared to contribute to the process of building up the good forces of
Europe, and will not, having completed the destruction of an enemy,
leave us to our misfortunes,--what form should her aid take?

I do not propose to enter on details. But the main outlines of all
schemes for an international loan are much the same, The countries in a
position to lend assistance, the neutrals, the United Kingdom, and, for
the greater portion of the sum required, the United States, must provide
foreign purchasing credits for all the belligerent countries of
continental Europe, allied and ex-enemy alike. The aggregate sum
required might not be so large as is sometimes supposed. Much might be
done, perhaps, with a fund of $1,000,000,000 in the first instance. This
sum, even if a precedent of a different kind had been established by the
cancellation of Inter-Ally War Debt, should be lent and should be
borrowed with the unequivocal intention of its being repaid in full.
With this object in view, the security for the loan should be the best
obtainable, and the arrangements for its ultimate repayment as complete
as possible. In particular, it should rank, both for payment of interest
and discharge of capital, in front of all Reparation claims, all
Inter-Ally War Debt, all internal war loans, and all other Government
indebtedness of any other kind. Those borrowing countries who will be
entitled to Reparation payments should be required to pledge all such
receipts to repayment of the new loan. And all the borrowing countries
should be required to place their customs duties on a gold basis and to
pledge such receipts to its service.

Expenditure out of the loan should be subject to general, but not
detailed, supervision by the lending countries.

If, in addition to this loan for the purchase of food and materials, a
guarantee fund were established up to an equal amount, namely
$1,000,000,000 (of which it would probably prove necessary to find only
a part in cash), to which all members of the League of Nations would
contribute according to their means, it might be practicable to base
upon it a general reorganization of the currency.

In this manner Europe might be equipped with the minimum amount of
liquid resources necessary to revive her hopes, to renew her economic
organization, and to enable her great intrinsic wealth to function for
the benefit of her workers. It is useless at the present time to
elaborate such schemes in further detail. A great change is necessary in
public opinion before the proposals of this chapter can enter the region
of practical politics, and we must await the progress of events as
patiently as we can.

4. The Relations of Central Europe to Russia

I have said very little of Russia in this book. The broad character of
the situation there needs no emphasis, and of the details we know almost
nothing authentic. But in a discussion as to how the economic situation
of Europe can be restored there are one or two aspects of the Russian
question which are vitally important.

From the military point of view an ultimate union of forces between
Russia and Germany is greatly feared in some quarters. This would be
much more likely to take place in the event of reactionary movements
being successful in each of the two countries, whereas an effective
unity of purpose between Lenin and the present essentially middle-class
Government of Germany is unthinkable. On the other hand, the same people
who fear such a union are even more afraid of the success of Bolshevism;
and yet they have to recognize that the only efficient forces for
fighting it are, inside Russia, the reactionaries, and, outside Russia,
the established forces of order and authority in Germany. Thus the
advocates of intervention in Russia, whether direct or indirect, are at
perpetual cross-purposes with themselves. They do not know what they
want; or, rather, they want what they cannot help seeing to be
incompatibles. This is one of the reasons why their policy is so
inconstant and so exceedingly futile.

The same conflict of purpose is apparent in the attitude of the Council
of the Allies at Paris towards the present Government of Germany. A
victory of Spartacism in Germany might well be the prelude to Revolution
everywhere: it would renew the forces of Bolshevism in Russia, and
precipitate the dreaded union of Germany and Russia; it would certainly
put an end to any expectations which have been built on the financial
and economic clauses of the Treaty of Peace. Therefore Paris does not
love Spartacus. But, on the other hand, a victory of reaction in Germany
would be regarded by every one as a threat to the security of Europe,
and as endangering the fruits of victory and the basis of the Peace.
Besides, a new military power establishing itself in the East, with its
spiritual home in Brandenburg, drawing to itself all the military talent
and all the military adventurers, all those who regret emperors and hate
democracy, in the whole of Eastern and Central and South-Eastern Europe,
a power which would be geographically inaccessible to the military
forces of the Allies, might well found, at least in the anticipations of
the timid, a new Napoleonic domination, rising, as a phoenix, from the
ashes of cosmopolitan militarism. So Paris dare not love Brandenburg.
The argument points, then, to the sustentation of those moderate forces
of order, which, somewhat to the world's surprise, still manage to
maintain themselves on the rock of the German character. But the present
Government of Germany stands for German unity more perhaps than for
anything else; the signature of the Peace was, above all, the price
which some Germans thought it worth while to pay for the unity which was
all that was left them of 1870. Therefore Paris, with some hopes of
disintegration across the Rhine not yet extinguished, can resist no
opportunity of insult or indignity, no occasion of lowering the
prestige or weakening the influence of a Government, with the continued
stability of which all the conservative interests of Europe are
nevertheless bound up.

The same dilemma affects the future of Poland in the rÙle which France
has cast for her. She is to be strong, Catholic, militarist, and
faithful, the consort, or at least the favorite, of victorious France,
prosperous and magnificent between the ashes of Russia and the ruin of
Germany. Roumania, if only she could be persuaded to keep up appearances
a little more, is a part of the same scatter-brained conception. Yet,
unless her great neighbors are prosperous and orderly, Poland is an
economic impossibility with no industry but Jew-baiting. And when Poland
finds that the seductive policy of France is pure rhodomontade and that
there is no money in it whatever, nor glory either, she will fall, as
promptly as possible, into the arms of somebody else.

The calculations of "diplomacy" lead us, therefore, nowhere. Crazy
dreams and childish intrigue in Russia and Poland and thereabouts are
the favorite indulgence at present of those Englishmen and Frenchmen who
seek excitement in its least innocent form, and believe, or at least
behave as if foreign policy was of the same genre as a cheap
melodrama.

Let us turn, therefore, to something more solid. The German Government
has announced (October 30, 1919) its continued adhesion to a policy of
non-intervention in the internal affairs of Russia, "not only on
principle, but because it believes that this policy is also justified
from a practical point of view." Let us assume that at last we also
adopt the same standpoint, if not on principle, at least from a
practical point of view. What are then the fundamental economic factors
in the future relations of Central to Eastern Europe?

Before the war Western and Central Europe drew from Russia a substantial
part of their imported cereals. Without Russia the importing countries
would have had to go short. Since 1914 the loss of the Russian supplies
has been made good, partly by drawing on reserves, partly from the
bumper harvests of North America called forth by Mr. Hoover's guaranteed
price, but largely by economies of consumption and by privation. After
1920 the need of Russian supplies will be even greater than it was
before the war; for the guaranteed price in North America will have been
discontinued, the normal increase of population there will, as compared
with 1914, have swollen the home demand appreciably, and the soil of
Europe will not yet have recovered its former productivity. If trade is
not resumed with Russia, wheat in 1920-21 (unless the seasons are
specially bountiful) must be scarce and very dear. The blockade of
Russia, lately proclaimed by the Allies, is therefore a foolish and
short-sighted proceeding; we are blockading not so much Russia as
ourselves.

The process of reviving the Russian export trade is bound in any case to
be a slow one. The present productivity of the Russian peasant is not
believed to be sufficient to yield an exportable surplus on the pre-war
scale. The reasons for this are obviously many, but amongst them are
included the insufficiency of agricultural implements and accessories
and the absence of incentive to production caused by the lack of
commodities in the towns which the peasants can purchase in exchange for
their produce. Finally, there is the decay of the transport system,
which hinders or renders impossible the collection of local surpluses in
the big centers of distribution.

I see no possible means of repairing this loss of productivity within
any reasonable period of time except through the agency of German
enterprise and organization. It is impossible geographically and for
many other reasons for Englishmen, Frenchmen, or Americans to undertake
it;--we have neither the incentive nor the means for doing the work on a
sufficient scale. Germany, on the other hand, has the experience, the
incentive, and to a large extent the materials for furnishing the
Russian peasant with the goods of which he has been starved for the
past five years, for reorganizing the business of transport and
collection, and so for bringing into the world's pool, for the common
advantage, the supplies from which we are now so disastrously cut off.
It is in our interest to hasten the day when German agents and
organizers will be in a position to set in train in every Russian
village the impulses of ordinary economic motive. This is a process
quite independent of the governing authority in Russia; but we may
surely predict with some certainty that, whether or not the form of
communism represented by Soviet government proves permanently suited to
the Russian temperament, the revival of trade, of the comforts of life
and of ordinary economic motive are not likely to promote the extreme
forms of those doctrines of violence and tyranny which are the children
of war and of despair.

Let us then in our Russian policy not only applaud and imitate the
policy of non-intervention which the Government of Germany has
announced, but, desisting from a blockade which is injurious to our own
permanent interests, as well as illegal, let us encourage and assist
Germany to take up again her place in Europe as a creator and organizer
of wealth for her Eastern and Southern neighbors.

There are many persons in whom such proposals will raise strong
prejudices. I ask them to follow out in thought the result of yielding
to these prejudices. If we oppose in detail every means by which Germany
or Russia can recover their material well-being, because we feel a
national, racial, or political hatred for their populations or their
Governments, we must be prepared to face the consequences of such
feelings. Even if there is no moral solidarity between the
nearly-related races of Europe, there is an economic solidarity which we
cannot disregard. Even now, the world markets are one. If we do not
allow Germany to exchange products with Russia and so feed herself, she
must inevitably compete with us for the produce of the New World. The
more successful we are in snapping economic relations between Germany
and Russia, the more we shall depress the level of our own economic
standards and increase the gravity of our own domestic problems. This is
to put the issue on its lowest grounds. There are other arguments, which
the most obtuse cannot ignore, against a policy of spreading and
encouraging further the economic ruin of great countries.

* * * * *

I see few signs of sudden or dramatic developments anywhere. Riots and
revolutions there may be, but not such, at present, as to have
fundamental significance. Against political tyranny and injustice
Revolution is a weapon. But what counsels of hope can Revolution offer
to sufferers from economic privation, which does not arise out of the
injustices of distribution but is general? The only safeguard against
Revolution in Central Europe is indeed the fact that, even to the minds
of men who are desperate, Revolution offers no prospect of improvement
whatever. There may, therefore, be ahead of us a long, silent process of
semi-starvation, and of a gradual, steady lowering of the standards of
life and comfort. The bankruptcy and decay of Europe, if we allow it to
proceed, will affect every one in the long-run, but perhaps not in a way
that is striking or immediate.

This has one fortunate side. We may still have time to reconsider our
courses and to view the world with new eyes. For the immediate future
events are taking charge, and the near destiny of Europe is no longer in
the hands of any man. The events of the coming year will not be shaped
by the deliberate acts of statesmen, but by the hidden currents, flowing
continually beneath the surface of political history, of which no one
can predict the outcome. In one way only can we influence these hidden
currents,--by setting in motion those forces of instruction and
imagination which change opinion. The assertion of truth, the
unveiling of illusion, the dissipation of hate, the enlargement and
instruction of men's hearts and minds, must be the means.

In this autumn of 1919, in which I write, we are at the dead season of
our fortunes. The reaction from the exertions, the fears, and the
sufferings of the past five years is at its height. Our power of feeling
or caring beyond the immediate questions of our own material well-being
is temporarily eclipsed. The greatest events outside our own direct
experience and the most dreadful anticipations cannot move us.

In each human heart terror survives
The ruin it has gorged: the loftiest fear
All that they would disdain to think were true:
Hypocrisy and custom make their minds
The fanes of many a worship, now outworn.
They dare not devise good for man's estate,
And yet they know not that they do not dare.
The good want power but to weep barren tears.
The powerful goodness want: worse need for them.
The wise want love; and those who love want wisdom;
And all best things are thus confused to ill.
Many are strong and rich, and would be just,
But live among their suffering fellow-men
As if none felt: they know not what they do.

We have been moved already beyond endurance, and need rest. Never in the
lifetime of men now living has the universal element in the soul of man
burnt so dimly.

For these reasons the true voice of the new generation has not yet
spoken, and silent opinion is not yet formed. To the formation of the
general opinion of the future I dedicate this book.

THE END

FOOTNOTES:

[157] The figures for the United Kingdom are as follows:

Net Excess of
Monthly Imports Exports Imports
Average $1,000 $1,000 $1,000

1913 274,650 218,850 55,800
1914 250,485 179,465 71,020
Jan.-Mar. 1919 547,890 245,610 302,280
April-June 1919 557,015 312,315 244,700
July-Sept. 1919 679,635 344,315 335,320

But this excess is by no means so serious as it looks; for with the
present high freight earnings of the mercantile marine the various
"invisible" exports of the United Kingdom are probably even higher than
they were before the war, and may average at least $225,000,000 monthly.

[158] President Wilson was mistaken in suggesting that the
supervision of Reparation payments has been entrusted to the League of
Nations. As I pointed out in Chapter V., whereas the League is invoked
in regard to most of the continuing economic and territorial provisions
of the Treaty, this is not the case as regards Reparation, over the
problems and modifications of which the Reparation Commission is supreme
without appeal of any kind to the League of Nations.

[159] These Articles, which provide safeguards against the
outbreak of war between members of the League and also between members
and non-members, are the solid achievement of the Covenant. These
Articles make substantially less probable a war between organized Great
Powers such as that of 1914. This alone should commend the League to all
men.

[160] It would be expedient so to define a "protectionist
tariff" as to permit (a) the total prohibition of certain imports;
(b) the imposition of sumptuary or revenue customs duties on
commodities not produced at home; (c) the imposition of customs duties
which did not exceed by more than five per cent a countervailing excise
on similar commodities produced at home; (d) export duties. Further,
special exceptions might be permitted by a majority vote of the
countries entering the Union. Duties which had existed for five years
prior to a country's entering the Union might be allowed to disappear
gradually by equal instalments spread over the five years subsequent to
joining the Union.

[161] The figures in this table are partly estimated, and are
probably not completely accurate in detail; but they show the
approximate figures with sufficient accuracy for the purposes of the
present argument. The British figures are taken from the White Paper of
October 23, 1919 (Cmd. 377). In any actual settlement, adjustments would
be required in connection with certain loans of gold and also in other
respects, and I am concerned in what follows with the broad principle
only. The total excludes loans raised by the United Kingdom on the
market in the United States, and loans raised by France on the market in
the United Kingdom or the United States, or from the Bank of England.

[162] This allows nothing for interest on the debt since the
Bolshevik Revolution.

[163] No interest has been charged on the advances made to
these countries.

[164] The actual total of loans by the United States up to date
is very nearly $10,000,000,000, but I have not got the latest details.

[165] The financial history of the six months from the end of
the summer of 1916 up to the entry of the United States into the war in
April, 1917, remains to be written. Very few persons, outside the
half-dozen officials of the British Treasury who lived in daily contact
with the immense anxieties and impossible financial requirements of
those days, can fully realize what steadfastness and courage were
needed, and how entirely hopeless the task would soon have become
without the assistance of the United States Treasury. The financial
problems from April, 1917, onwards were of an entirely different order
from those of the preceding months.

[166] Mr. Hoover was the only man who emerged from the ordeal
of Paris with an enhanced reputation. This complex personality, with his
habitual air of weary Titan (or, as others might put it, of exhausted
prize-fighter), his eyes steadily fixed on the true and essential facts
of the European situation, imported into the Councils of Paris, when he
took part in them, precisely that atmosphere of reality, knowledge,
magnanimity, and disinterestedness which, if they had been found in
other quarters also, would have given us the Good Peace.

[167] Even after the United States came into the war the bulk
of Russian expenditure in the United States, as well as the whole of
that Government's other foreign expenditure, had to be paid for by the
British Treasury.

[168] It is reported that the United States Treasury has agreed
to fund (i.e. to add to the principal sum) the interest owing them on
their loans to the Allied Governments during the next three years. I
presume that the British Treasury is likely to follow suit. If the debts
are to be paid ultimately, this piling up of the obligations at compound
interest makes the position progressively worse. But the arrangement
wisely offered by the United States Treasury provides a due interval for
the calm consideration of the whole problem in the light of the
after-war position as it will soon disclose itself.