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Economic Consequences of the Peace

<h2>Chapter V</h2> <h2>Reparation</h2> <h4>I. Undertakings given prior to the Peace Negotiations</h4> The categories of damage in respect of which the Allies were entitled to ask for Reparation are governed by the relevant passages in President Wilson's Fourteen Points of January 8, 1918, as modified by the Allied Governments in their qualifying Note, the text of which the President formally communicated to the German Government as the basis of peace on November 5, 1918. These passages have been quoted in full at the beginning of Chapter IV. That is to say, "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." The limiting quality of this sentence is reinforced by the passage in the President's speech before Congress on February 11, 1918 (the terms of this speech being an express part of the contract with the enemy), that there shall be "no contributions" and "no punitive damages." It has sometimes been argued that the preamble to paragraph 19[76] of the Armistice Terms, to the effect "that any future claims and demands of the Allies and the United States of America remain unaffected," wiped out all precedent conditions, and left the Allies free to make whatever demands they chose. But it is not possible to maintain that this casual protective phrase, to which no one at the time attached any particular importance, did away with all the formal communications which passed between the President and the German Government as to the basis of the Terms of Peace during the days preceding the Armistice, abolished the Fourteen Points, and converted the German acceptance of the Armistice Terms into unconditional surrender, so far as it affects the Financial Clauses. It is merely the usual phrase of the draftsman, who, about to rehearse a list of certain claims, wishes to guard himself from the implication that such list is exhaustive. In any case, this contention is disposed of by the Allied reply to the German observations on the first draft of the Treaty, where it is admitted that the terms of the Reparation Chapter must be governed by the President's Note of November 5. Assuming then that the terms of this Note are binding, we are left to elucidate the precise force of the phrase—"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." Few sentences in history have given so much work to the sophists and the lawyers, as we shall see in the next section of this chapter, as this apparently simple and unambiguous statement. Some have not scrupled to argue that it covers the entire cost of the war; for, they point out, the entire cost of the war has to be met by taxation, and such taxation is "damaging to the civilian population." They admit that the phrase is cumbrous, and that it would have been simpler to have said "all loss and expenditure of whatever description"; and they allow that the apparent emphasis of damage to the persons and property of civilians is unfortunate; but errors of draftsmanship should not, in their opinion, shut off the Allies from the rights inherent in victors. But there are not only the limitations of the phrase in its natural meaning and the emphasis on civilian damages as distinct from military expenditure generally; it must also be remembered that the context of the term is in elucidation of the meaning of the term "restoration" in the President's Fourteen Points. The Fourteen Points provide for damage in invaded territory—Belgium, France, Roumania, Serbia, and Montenegro (Italy being unaccountably omitted)—but they do not cover losses at sea by submarine, bombardments from the sea (as at Scarborough), or damage done by air raids. It was to repair these omissions, which involved losses to the life and property of civilians not really distinguishable in kind from those effected in occupied territory, that the Supreme Council of the Allies in Paris proposed to President Wilson their qualifications. At that time—the last days of October, 1918—I do not believe that any responsible statesman had in mind the exaction from Germany of an indemnity for the general costs of the war. They sought only to make it clear (a point of considerable importance to Great Britain) that reparation for damage done to non-combatants and their property was not limited to invaded territory (as it would have been by the Fourteen Points unqualified), but applied equally to all such damage, whether "by land, by sea, or from the air" It was only at a later stage that a general popular demand for an indemnity, covering the full costs of the war, made it politically desirable to practise dishonesty and to try to discover in the written word what was not there. What damages, then, can be claimed from the enemy on a strict interpretation of our engagements?[77] In the case of the United Kingdom the bill would cover the following items:— (a) Damage to civilian life and property by the acts of an enemy Government including damage by air raids, naval bombardments, submarine warfare, and mines. (b) Compensation for improper treatment of interned civilians. It would not include the general costs of the war, or (e.g.) indirect damage due to loss of trade. The French claim would include, as well as items corresponding to the above:— (c) Damage done to the property and persons of civilians in the war area, and by aerial warfare behind the enemy lines. (d) Compensation for loot of food, raw materials, live-stock, machinery, household effects, timber, and the like by the enemy Governments or their nationals in territory occupied by them. (e) Repayment of fines and requisitions levied by the enemy Governments or their officers on French municipalities or nationals. (f) Compensation to French nationals deported or compelled to do forced labor. In addition to the above there is a further item of more doubtful character, namely— (g) The expenses of the Relief Commission in providing necessary food and clothing to maintain the civilian French population in the enemy-occupied districts. The Belgian claim would include similar items.[78] If it were argued that in the case of Belgium something more nearly resembling an indemnity for general war costs can be justified, this could only be on the ground of the breach of International Law involved in the invasion of Belgium, whereas, as we have seen, the Fourteen Points include no special demands on this ground.[79] As the cost of Belgian Belief under (g), as well as her general war costs, has been met already by advances from the British, French, and United States Governments, Belgium would presumably employ any repayment of them by Germany in part discharge of her debt to these Governments, so that any such demands are, in effect, an addition to the claims of the three lending Governments. The claims of the other Allies would be compiled on similar lines. But in their case the question arises more acutely how far Germany can be made contingently liable for damage done, not by herself, but by her co-belligerents, Austria-Hungary, Bulgaria, and Turkey. This is one of the many questions to which the Fourteen Points give no clear answer; on the one hand, they cover explicitly in Point 11 damage done to Roumania, Serbia, and Montenegro, without qualification as to the nationality of the troops inflicting the damage; on the other hand, the Note of the Allies speaks of "German" aggression when it might have spoken of the aggression of "Germany and her allies." On a strict and literal interpretation, I doubt if claims lie against Germany for damage done,—e.g. by the Turks to the Suez Canal, or by Austrian submarines in the Adriatic. But it is a case where, if the Allies wished to strain a point, they could impose contingent liability on Germany without running seriously contrary to the general intention of their engagements. As between the Allies themselves the case is quite different. It would be an act of gross unfairness and infidelity if France and Great Britain were to take what Germany could pay and leave Italy and Serbia to get what they could out of the remains of Austria-Hungary. As amongst the Allies themselves it is clear that assets should be pooled and shared out in proportion to aggregate claims. In this event, and if my estimate is accepted, as given below, that Germany's capacity to pay will be exhausted by the direct and legitimate claims which the Allies hold against her, the question of her contingent liability for her allies becomes academic. Prudent and honorable statesmanship would therefore have given her the benefit of the doubt, and claimed against her nothing but the damage she had herself caused. What, on the above basis of claims, would the aggregate demand amount to? No figures exist on which to base any scientific or exact estimate, and I give my own guess for what it is worth, prefacing it with the following observations. The amount of the material damage done in the invaded districts has been the subject of enormous, if natural, exaggeration. A journey through the devastated areas of France is impressive to the eye and the imagination beyond description. During the winter of 1918-19, before Nature had cast over the scene her ameliorating mantle, the horror and desolation of war was made visible to sight on an extraordinary scale of blasted grandeur. The completeness of the destruction was evident. For mile after mile nothing was left. No building was habitable and no field fit for the plow. The sameness was also striking. One devastated area was exactly like another—a heap of rubble, a morass of shell-holes, and a tangle of wire.[80] The amount of human labor which would be required to restore such a countryside seemed incalculable; and to the returned traveler any number of milliards of dollars was inadequate to express in matter the destruction thus impressed upon his spirit. Some Governments for a variety of intelligible reasons have not been ashamed to exploit these feelings a little. Popular sentiment is most at fault, I think, in the case of Belgium. In any event Belgium is a small country, and in its case the actual area of devastation is a small proportion of the whole. The first onrush of the Germans in 1914 did some damage locally; after that the battle-line in Belgium did not sway backwards and forwards, as in France, over a deep belt of country. It was practically stationary, and hostilities were confined to a small corner of the country, much of which in recent times was backward, poor, and sleepy, and did not include the active industry of the country. There remains some injury in the small flooded area, the deliberate damage done by the retreating Germans to buildings, plant, and transport, and the loot of machinery, cattle, and other movable property. But Brussels, Antwerp, and even Ostend are substantially intact, and the great bulk of the land, which is Belgium's chief wealth, is nearly as well cultivated as before. The traveler by motor can pass through and from end to end of the devastated area of Belgium almost before he knows it; whereas the destruction in France is on a different kind of scale altogether. Industrially, the loot has been serious and for the moment paralyzing; but the actual money cost of replacing machinery mounts up slowly, and a few tens of millions would have covered the value of every machine of every possible description that Belgium ever possessed. Besides, the cold statistician must not overlook the fact that the Belgian people possess the instinct of individual self-protection unusually well developed; and the great mass of German bank-notes[81] held in the country at the date of the Armistice, shows that certain classes of them at least found a way, in spite of all the severities and barbarities of German rule, to profit at the expense of the invader. Belgian claims against Germany such as I have seen, amounting to a sum in excess of the total estimated pre-war wealth of the whole country, are simply irresponsible.[82] It will help to guide our ideas to quote the official survey of Belgian wealth, published in 1913 by the Finance Ministry of Belgium, which was as follows: <div class="ctr"> <table border="0" cellpadding="0" cellspacing="0" summary=""> <tr> <td>Land</td> <td>  </td> <td align="right">$1,320,000,000</td> <td>  </td> <td>tons.</td> </tr> <tr> <td>Buildings</td> <td>  </td> <td align="right">1,175,000,000</td> <td>  </td> <td> "</td> </tr> <tr> <td>Personal wealth</td> <td>  </td> <td align="right">2,725,000,000</td> <td>  </td> <td> "</td> </tr> <tr> <td>Cash</td> <td>  </td> <td align="right">85,000,000</td> <td>  </td> <td> "</td> </tr> <tr> <td>Furniture, etc.</td> <td>  </td> <td align="right">600,000,000</td> <td>  </td> <td> "</td> </tr> <tr> <td></td> <td>  </td> <td align="right" class="top">$5,905,000,000</td> <td>  </td> <td> "</td> </tr> </table></div> This total yields an average of $780 per inhabitant, which Dr. Stamp, the highest authority on the subject, is disposed to consider as prima facie too low (though he does not accept certain much higher estimates lately current), the corresponding wealth per head (to take Belgium's immediate neighbors) being $835 for Holland, $1,220 for Germany, and $1,515 for France.[83] A total of $7,500,000,000, giving an average of about $1,000 per head, would, however, be fairly liberal. The official estimate of land and buildings is likely to be more accurate than the rest. On the other hand, allowance has to be made for the increased costs of construction. Having regard to all these considerations, I do not put the money value of the actual physical loss of Belgian property by destruction and loot above $750,000,000 as a maximum, and while I hesitate to put yet lower an estimate which differs so widely from those generally current, I shall be surprised if it proves possible to substantiate claims even to this amount. Claims in respect of levies, fines, requisitions, and so forth might possibly amount to a further $500,000,000. If the sums advanced to Belgium by her allies for the general costs of the war are to be included, a sum of about $1,250,000,000 has to be added (which includes the cost of relief), bringing the total to $2,500,000,000. The destruction in France was on an altogether more significant scale, not only as regards the length of the battle line, but also on account of the immensely deeper area of country over which the battle swayed from time to time. It is a popular delusion to think of Belgium as the principal victim of the war; it will turn out, I believe, that taking account of casualties, loss of property and burden of future debt, Belgium has made the least relative sacrifice of all the belligerents except the United States. Of the Allies, Serbia's sufferings and loss have been proportionately the greatest, and after Serbia, France. France in all essentials was just as much the victim of German ambition as was Belgium, and France's entry into the war was just as unavoidable. France, in my judgment, in spite of her policy at the Peace Conference, a policy largely traceable to her sufferings, has the greatest claims on our generosity. The special position occupied by Belgium in the popular mind is due, of course, to the fact that in 1914 her sacrifice was by far the greatest of any of the Allies. But after 1914 she played a minor rôle. Consequently, by the end of 1918, her relative sacrifices, apart from those sufferings from invasion which cannot be measured in money, had fallen behind, and in some respects they were not even as great, for example, as Australia's. I say this with no wish to evade the obligations towards Belgium under which the pronouncements of our responsible statesmen at many different dates have certainly laid us. Great Britain ought not to seek any payment at all from Germany for herself until the just claims of Belgium have been fully satisfied. But this is no reason why we or they should not tell the truth about the amount. While the French claims are immensely greater, here too there has been excessive exaggeration, as responsible French statisticians have themselves pointed out. Not above 10 per cent of the area of France was effectively occupied by the enemy, and not above 4 per cent lay within the area of substantial devastation. Of the sixty French towns having a population exceeding 35,000, only two were destroyed—Reims (115,178) and St. Quentin (55,571); three others were occupied—Lille, Roubaix, and Douai—and suffered from loot of machinery and other property, but were not substantially injured otherwise. Amiens, Calais, Dunkerque, and Boulogne suffered secondary damage by bombardment and from the air; but the value of Calais and Boulogne must have been increased by the new works of various kinds erected for the use of the British Army. The Annuaire Statistique de la France, 1917, values the entire house property of France at $11,900,000,000 (59.5 milliard francs).[84] An estimate current in France of $4,000,000,000 (20 milliard francs) for the destruction of house property alone is, therefore, obviously wide of the mark.[85] $600,000,000 at pre-war prices, or say $1,250,000,000 at the present time, is much nearer the right figure. Estimates of the value of the land of France (apart from buildings) vary from $12,400,000,000 to $15,580,000,000, so that it would be extravagant to put the damage on this head as high as $500,000,000. Farm Capital for the whole of France has not been put by responsible authorities above $2,100,000,000.[86] There remain the loss of furniture and machinery, the damage to the coal-mines and the transport system, and many other minor items. But these losses, however serious, cannot be reckoned in value by hundreds of millions of dollars in respect of so small a part of France. In short, it will be difficult to establish a bill exceeding $2,500,000,000 for physical and material damage in the occupied and devastated areas of Northern France.[87] I am confirmed in this estimate by the opinion of M. René Pupin, the author of the most comprehensive and scientific estimate of the pre-war wealth of France,[88] which I did not come across until after my own figure had been arrived at. This authority estimates the material losses of the invaded regions at from $2,000,000,000 to $3,000,000,000 (10 to 15 milliards),[89] between which my own figure falls half-way. Nevertheless, M. Dubois, speaking on behalf of the Budget Commission of the Chamber, has given the figure of $13,000,000,000 (65 milliard francs) "as a minimum" without counting "war levies, losses at sea, the roads, or the loss of public monuments." And M. Loucheur, the Minister of Industrial Reconstruction, stated before the Senate on the 17th February, 1919, that the reconstitution of the devastated regions would involve an expenditure of $15,000,000,000 (75 milliard francs),—more than double M. Pupin's estimate of the entire wealth of their inhabitants. But then at that time M. Loucheur was taking a prominent part in advocating the claims of France before the Peace Conference, and, like others, may have found strict veracity inconsistent with the demands of patriotism.[90] The figure discussed so far is not, however, the totality of the French claims. There remain, in particular, levies and requisitions on the occupied areas and the losses of the French mercantile marine at sea from the attacks of German cruisers and submarines. Probably $1,000,000,000 would be ample to cover all such claims; but to be on the safe side, we will, somewhat arbitrarily, make an addition to the French claim of $1,500,000,000 on all heads, bringing it to $4,000,000,000 in all. The statements of M. Dubois and M. Loucheur were made in the early spring of 1919. A speech delivered by M. Klotz before the French Chamber six months later (Sept. 5, 1919) was less excusable. In this speech the French Minister of Finance estimated the total French claims for damage to property (presumably inclusive of losses at sea, etc., but apart from pensions and allowances) at $26,800,000,000 (134 milliard francs), or more than six times my estimate. Even if my figure prove erroneous, M. Klotz's can never have been justified. So grave has been the deception practised on the French people by their Ministers that when the inevitable enlightenment comes, as it soon must (both as to their own claims and as to Germany's capacity to meet them), the repercussions will strike at more than M. Klotz, and may even involve the order of Government and Society for which he stands. British claims on the present basis would be practically limited to losses by sea—losses of hulls and losses of cargoes. Claims would lie, of course, for damage to civilian property in air raids and by bombardment from the sea, but in relation to such figures as we are now dealing with, the money value involved is insignificant,—$25,000,000 might cover them all, and $50,000,000 would certainly do so. The British mercantile vessels lost by enemy action, excluding fishing vessels, numbered 2479, with an aggregate of 7,759,090 tons gross.[91] There is room for considerable divergence of opinion as to the proper rate to take for replacement cost; at the figure of $150 per gross ton, which with the rapid growth of shipbuilding may soon be too high but can be replaced by any other which better authorities[92] may prefer, the aggregate claim is $1,150,000,000. To this must be added the loss of cargoes, the value of which is almost entirely a matter of guesswork. An estimate of $200 per ton of shipping lost may be as good an approximation as is possible, that is to say $1,550,000,000, making $2,700,000,000 altogether. An addition to this of $150,000,000, to cover air raids, bombardments, claims of interned civilians, and miscellaneous items of every description, should be more than sufficient,—making a total claim for Great Britain of $2,850,000,000. It is surprising, perhaps, that the money value of Great Britain's claim should be so little short of that of France and actually in excess of that of Belgium. But, measured either by pecuniary loss or real loss to the economic power of the country, the injury to her mercantile marine was enormous. There remain the claims of Italy, Serbia, and Roumania for damage by invasion and of these and other countries, as for example Greece,[93] for losses at sea. I will assume for the present argument that these claims rank against Germany, even when they were directly caused not by her but by her allies; but that it is not proposed to enter any such claims on behalf of Russia.[94] Italy's losses by invasion and at sea cannot be very heavy, and a figure of from $250,000,000 to $500,000,000 would be fully adequate to cover them. The losses of Serbia, although from a human point of view her sufferings were the greatest of all,[95] are not measured pecuniarily by very great figures, on account of her low economic development. Dr. Stamp (loc. cit.) quotes an estimate by the Italian statistician Maroi, which puts the national wealth of Serbia at $2,400,000,000 or $525 per head,[96] and the greater part of this would be represented by land which has sustained no permanent damage.[97] In view of the very inadequate data for guessing at more than the general magnitude of the legitimate claims of this group of countries, I prefer to make one guess rather than several and to put the figure for the whole group at the round sum of $1,250,000,000. We are finally left with the following— <div class="ctr"> <table border="0" cellpadding="0" cellspacing="0" summary=""> <tr> <td>Belgium</td> <td>  </td> <td align="right">$2,500,000,000</td> <td>[98]</td> </tr> <tr> <td>France</td> <td>  </td> <td align="right">4,000,000,000</td> <td></td> </tr> <tr> <td>Great Britain</td> <td>  </td> <td align="right">2,850,000,000</td> <td></td> </tr> <tr> <td>Other Allies</td> <td>  </td> <td align="right">1,250,000,000</td> <td></td> </tr> <tr> <td>Total</td> <td>  </td> <td align="right" class="top">$10,600,000,000</td> <td></td> </tr> </table></div> I need not impress on the reader that there is much guesswork in the above, and the figure for France in particular is likely to be criticized. But I feel some confidence that the general magnitude, as distinct from the precise figures, is not hopelessly erroneous; and this may be expressed by the statement that a claim against Germany, based on the interpretation of the pre-Armistice engagements of the Allied Powers which is adopted above, would assuredly be found to exceed $8,000,000,000 and to fall short of $15,000,000,000. This is the amount of the claim which we were entitled to present to the enemy. For reasons which will appear more fully later on, I believe that it would have been a wise and just act to have asked the German Government at the Peace Negotiations to agree to a sum of $10,000,000,000 in final settlement, without further examination of particulars. This would have provided an immediate and certain solution, and would have required from Germany a sum which, if she were granted certain indulgences, it might not have proved entirely impossible for her to pay. This sum should have been divided up amongst the Allies themselves on a basis of need and general equity. But the question was not settled on its merits. <div style="break-after:column;"></div>

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