I feel much more confidence in the approximate accuracy of the total figure[107] than in its division between the different claimants. The reader will observe that in any case the addition of Pensions and Allowances enormously increases the aggregate claim, raising it indeed by nearly double. Adding this figure to the estimate under other heads, we have a total claim against Germany of $40,000,000,000.[108] I believe that this figure is fully high enough, and that the actual result may fall somewhat short of it.[109] In the next section of this chapter the relation of this figure to Germany's capacity to pay will be examined. It is only necessary here to remind the reader of certain other particulars of the Treaty which speak for themselves:

1. Out of the total amount of the claim, whatever it eventually turns out to be, a sum of $5,000,000,000 must be paid before May 1, 1921. The possibility of this will be discussed below. But the Treaty itself provides certain abatements. In the first place, this sum is to include the expenses of the Armies of Occupation since the Armistice (a large charge of the order of magnitude of $1,000,000,000 which under another Article of the Treaty—No. 249—is laid upon Germany).[110] But further, "such supplies of food and raw materials as may be judged by the Governments of the Principal Allied and Associated Powers to be essential to enable Germany to meet her obligations for Reparation may also, with the approval of the said Governments, be paid for out of the above sum."[111] This is a qualification of high importance. The clause, as it is drafted, allows the Finance Ministers of the Allied countries to hold out to their electorates the hope of substantial payments at an early date, while at the same time it gives to the Reparation Commission a discretion, which the force of facts will compel them to exercise, to give back to Germany what is required for the maintenance of her economic existence. This discretionary power renders the demand for an immediate payment of $5,000,000,000 less injurious than it would otherwise be, but nevertheless it does not render it innocuous. In the first place, my conclusions in the next section of this chapter indicate that this sum cannot be found within the period indicated, even if a large proportion is in practice returned to Germany for the purpose of enabling her to pay for imports. In the second place, the Reparation Commission can only exercise its discretionary power effectively by taking charge of the entire foreign trade of Germany, together with the foreign exchange arising out of it, which will be quite beyond the capacity of any such body. If the Reparation Commission makes any serious attempt to administer the collection of this sum of $5,000,000,000 and to authorize the return to Germany of a part it, the trade of Central Europe will be strangled by bureaucratic regulation in its most inefficient form.

2. In addition to the early payment in cash or kind of a sum of $5,000,000,000, Germany is required to deliver bearer bonds to a further amount of $10,000,000,000, or, in the event of the payments in cash or kind before May 1, 1921, available for Reparation, falling short of $5,000,000,000 by reason of the permitted deductions, to such further amount as shall bring the total payments by Germany in cash, kind, and bearer bonds up to May 1, 1921, to a figure of $15,000,000,000 altogether.[112] These bearer bonds carry interest at 2-1/2 per cent per annum from 1921 to 1925, and at 5 per cent plus 1 per cent for amortization thereafter. Assuming, therefore, that Germany is not able to provide any appreciable surplus towards Reparation before 1921, she will have to find a sum of $375,000,000 annually from 1921 to 1925, and $900,000,000 annually thereafter.[113]

3. As soon as the Reparation Commission is satisfied that Germany can do better than this, 5 per cent bearer bonds are to be issued for a further $10,000,000,000, the rate of amortization being determined by the Commission hereafter. This would bring the annual payment to $1,400,000,000 without allowing anything for the discharge of the capital of the last $10,000,000,000.

4. Germany's liability, however, is not limited to $25,000,000,000, and the Reparation Commission is to demand further instalments of bearer bonds until the total enemy liability under Annex I. has been provided for. On the basis of my estimate of $40,000,000,000 for the total liability, which is more likely to be criticized as being too low than as being too high, the amount of this balance will be $15,000,000,000. Assuming interest at 5 per cent, this will raise the annual payment to $2,150,000,000 without allowance for amortization.

5. But even this is not all. There is a further provision of devastating significance. Bonds representing payments in excess of $15,000,000,000 are not to be issued until the Commission is satisfied that Germany can meet the interest on them. But this does not mean that interest is remitted in the meantime. As from May 1, 1921, interest is to be debited to Germany on such part of her outstanding debt as has not been covered by payment in cash or kind or by the issue of bonds as above,[114] and "the rate of interest shall be 5 per cent unless the Commission shall determine at some future time that circumstances justify a variation of this rate." That is to say, the capital sum of indebtedness is rolling up all the time at compound interest. The effect of this provision towards increasing the burden is, on the assumption that Germany cannot pay very large sums at first, enormous. At 5 per cent compound interest a capital sum doubles itself in fifteen years. On the assumption that Germany cannot pay more than $750,000,000 annually until 1936 (i.e. 5 per cent interest on $15,000,000,000) the $25,000,000,000 on which interest is deferred will have risen to $50,000,000,000, carrying an annual interest charge of $2,500,000,000. That is to say, even if Germany pays $750,000,000 annually up to 1936, she will nevertheless owe us at that date more than half as much again as she does now ($65,000,000,000 as compared with $40,000,000,000). From 1936 onwards she will have to pay to us $3,250,000,000 annually in order to keep pace with the interest alone. At the end of any year in which she pays less than this sum she will owe more than she did at the beginning of it. And if she is to discharge the capital sum in thirty years from 1930, i.e. in forty-eight years from the Armistice, she must pay an additional $650,000,000 annually, making $3,900,000,000 in all.[115]

It is, in my judgment, as certain as anything can be, for reasons which I will elaborate in a moment, that Germany cannot pay anything approaching this sum. Until the Treaty is altered, therefore, Germany has in effect engaged herself to hand over to the Allies the whole of her surplus production in perpetuity.

6. This is not less the case because the Reparation Commission has been given discretionary powers to vary the rate of interest, and to postpone and even to cancel the capital indebtedness. In the first place, some of these powers can only be exercised if the Commission or the Governments represented on it are unanimous.[116] But also, which is perhaps more important, it will be the duty of the Reparation Commission, until there has been a unanimous and far-reaching change of the policy which the Treaty represents, to extract from Germany year after year the maximum sum obtainable. There is a great difference between fixing a definite sum, which though large is within Germany's capacity to pay and yet to retain a little for herself, and fixing a sum far beyond her capacity, which is then to be reduced at the discretion of a foreign Commission acting with the object of obtaining each year the maximum which the circumstances of that year permit. The first still leaves her with some slight incentive for enterprise, energy, and hope. The latter skins her alive year by year in perpetuity, and however skilfully and discreetly the operation is performed, with whatever regard for not killing the patient in the process, it would represent a policy which, if it were really entertained and deliberately practised, the judgment of men would soon pronounce to be one of the most outrageous acts of a cruel victor in civilized history.

There are other functions and powers of high significance which the Treaty accords to the Reparation Commission. But these will be most conveniently dealt with in a separate section.

III. Germany's Capacity to pay

The forms in which Germany can discharge the sum which she has engaged herself to pay are three in number—

1. Immediately transferable wealth in the form of gold, ships, and foreign securities;

2. The value of property in ceded territory, or surrendered under the Armistice;

3. Annual payments spread over a term of years, partly in cash and partly in materials such as coal products, potash, and dyes.

There is excluded from the above the actual restitution of property removed from territory occupied by the enemy, as, for example, Russian gold, Belgian and French securities, cattle, machinery, and works of art. In so far as the actual goods taken can be identified and restored, they must clearly be returned to their rightful owners, and cannot be brought into the general reparation pool. This is expressly provided for in Article 238 of the Treaty.

1. Immediately Transferable Wealth

(a) Gold.—After deduction of the gold to be returned to Russia, the official holding of gold as shown in the Reichsbank's return of the 30th November, 1918, amounted to $577,089,500. This was a very much larger amount than had appeared in the Reichsbank's return prior to the war,[117] and was the result of the vigorous campaign carried on in Germany during the war for the surrender to the Reichsbank not only of gold coin but of gold ornaments of every kind. Private hoards doubtless still exist, but, in view of the great efforts already made, it is unlikely that either the German Government or the Allies will be able to unearth them. The return can therefore be taken as probably representing the maximum amount which the German Government are able to extract from their people. In addition to gold there was in the Reichsbank a sum of about $5,000,000 in silver. There must be, however, a further substantial amount in circulation, for the holdings of the Reichsbank were as high as $45,500,000 on the 31st December, 1917, and stood at about $30,000,000 up to the latter part of October, 1918, when the internal run began on currency of every kind.[118] We may, therefore, take a total of (say) $625,000,000 for gold and silver together at the date of the Armistice.

These reserves, however, are no longer intact. During the long period which elapsed between the Armistice and the Peace it became necessary for the Allies to facilitate the provisioning of Germany from abroad. The political condition of Germany at that time and the serious menace of Spartacism rendered this step necessary in the interests of the Allies themselves if they desired the continuance in Germany of a stable Government to treat with. The question of how such provisions were to be paid for presented, however, the gravest difficulties. A series of Conferences was held at Trèves, at Spa, at Brussels, and subsequently at Château Villette and Versailles, between representatives of the Allies and of Germany, with the object of finding some method of payment as little injurious as possible to the future prospects of Reparation payments. The German representatives maintained from the outset that the financial exhaustion of their country was for the time being so complete that a temporary loan from the Allies was the only possible expedient. This the Allies could hardly admit at a time when they were preparing demands for the immediate payment by Germany of immeasurably larger sums. But, apart from this, the German claim could not be accepted as strictly accurate so long as their gold was still untapped and their remaining foreign securities unmarketed. In any case, it was out of the question to suppose that in the spring of 1919 public opinion in the Allied countries or in America would have allowed the grant of a substantial loan to Germany. On the other hand, the Allies were naturally reluctant to exhaust on the provisioning of Germany the gold which seemed to afford one of the few obvious and certain sources for Reparation. Much time was expended in the exploration of all possible alternatives; but it was evident at last that, even if German exports and saleable foreign securities had been available to a sufficient value, they could not be liquidated in time, and that the financial exhaustion of Germany was so complete that nothing whatever was immediately available in substantial amounts except the gold in the Reichsbank. Accordingly a sum exceeding $250,000,000 in all out of the Reichsbank gold was transferred by Germany to the Allies (chiefly to the United States, Great Britain, however, also receiving a substantial sum) during the first six months of 1919 in payment for foodstuffs.

But this was not all. Although Germany agreed, under the first extension of the Armistice, not to export gold without Allied permission, this permission could not be always withheld. There were liabilities of the Reichsbank accruing in the neighboring neutral countries, which could not be met otherwise than in gold. The failure of the Reichsbank to meet its liabilities would have caused a depreciation of the exchange so injurious to Germany's credit as to react on the future prospects of Reparation. In some cases, therefore, permission to export gold was accorded to the Reichsbank by the Supreme Economic Council of the Allies.

The net result of these various measures was to reduce the gold reserve of the Reichsbank by more than half, the figures falling from $575,000,000 to $275,000,000 in September, 1919.

It would be possible under the Treaty to take the whole of this latter sum for Reparation purposes. It amounts, however, as it is, to less than 4 per cent of the Reichsbank's Note Issue, and the psychological effect of its total confiscation might be expected (having regard to the very large volume of mark notes held abroad) to destroy the exchange value of the mark almost entirely. A sum of $25,000,000, $50,000,000, or even $100,000,000 might be taken for a special purpose. But we may assume that the Reparation Commission will judge it imprudent, having regard to the reaction on their future prospects of securing payment, to ruin the German currency system altogether, more particularly because the French and Belgian Governments, being holders of a very large volume of mark notes formerly circulating in the occupied or ceded territory, have a great interest in maintaining some exchange value for the mark, quite apart from Reparation prospects.

It follows, therefore, that no sum worth speaking of can be expected in the form of gold or silver towards the initial payment of $5,000,000,000 due by 1921.

(b) Shipping.—Germany has engaged, as we have seen above, to surrender to the Allies virtually the whole of her merchant shipping. A considerable part of it, indeed, was already in the hands of the Allies prior to the conclusion of Peace, either by detention in their ports or by the provisional transfer of tonnage under the Brussels Agreement in connection with the supply of foodstuffs.[119] Estimating the tonnage of German shipping to be taken over under the Treaty at 4,000,000 gross tons, and the average value per ton at $150 per ton, the total money value involved is $600,000,000.[120]

(c) Foreign Securities.—Prior to the census of foreign securities carried out by the German Government in September, 1916,[121] of which the exact results have not been made public, no official return of such investments was ever called for in Germany, and the various unofficial estimates are confessedly based on insufficient data, such as the admission of foreign securities to the German Stock Exchanges, the receipts of the stamp duties, consular reports, etc. The principal German estimates current before the war are given in the appended footnote.[122] This shows a general consensus of opinion among German authorities that their net foreign investments were upwards of $6,250,000,000. I take this figure as the basis of my calculations, although I believe it to be an exaggeration; $5,000,000,000 would probably be a safer figure.

Deductions from this aggregate total have to be made under four heads.

(i.) Investments in Allied countries and in the United States, which between them constitute a considerable part of the world, have been sequestrated by Public Trustees, Custodians of Enemy Property, and similar officials, and are not available for Reparation except in so far as they show a surplus over various private claims. Under the scheme for dealing with enemy debts outlined in Chapter IV., the first charge on these assets is the private claims of Allied against German nationals. It is unlikely, except in the United States, that there will be any appreciable surplus for any other purpose.

(ii.) Germany's most important fields of foreign investment before the war were not, like ours, oversea, but in Russia, Austria-Hungary, Turkey, Roumania, and Bulgaria. A great part of these has now become almost valueless, at any rate for the time being; especially those in Russia and Austria-Hungary. If present market value is to be taken as the test, none of these investments are now saleable above a nominal figure. Unless the Allies are prepared to take over these securities much above their nominal market valuation, and hold them for future realization, there is no substantial source of funds for immediate payment in the form of investments in these countries.

(iii.) While Germany was not in a position to realize her foreign investments during the war to the degree that we were, she did so nevertheless in the case of certain countries and to the extent that she was able. Before the United States came into the war, she is believed to have resold a large part of the pick of her investments in American securities, although some current estimates of these sales (a figure of $300,000,000 has been mentioned) are probably exaggerated. But throughout the war and particularly in its later stages, when her exchanges were weak and her credit in the neighboring neutral countries was becoming very low, she was disposing of such securities as Holland, Switzerland, and Scandinavia would buy or would accept as collateral. It is reasonably certain that by June, 1919, her investments in these countries had been reduced to a negligible figure and were far exceeded by her liabilities in them. Germany has also sold certain overseas securities, such as Argentine cedulas, for which a market could be found.

(iv.) It is certain that since the Armistice there has been a great flight abroad of the foreign securities still remaining in private hands. This is exceedingly difficult to prevent. German foreign investments are as a rule in the form of bearer securities and are not registered. They are easily smuggled abroad across Germany's extensive land frontiers, and for some months before the conclusion of peace it was certain that their owners would not be allowed to retain them if the Allied Governments could discover any method of getting hold of them. These factors combined to stimulate human ingenuity, and the efforts both of the Allied and of the German Governments to interfere effectively with the outflow are believed to have been largely futile.

In face of all these considerations, it will be a miracle if much remains for Reparation. The countries of the Allies and of the United States, the countries of Germany's own allies, and the neutral countries adjacent to Germany exhaust between them almost the whole of the civilized world; and, as we have seen, we cannot expect much to be available for Reparation from investments in any of these quarters. Indeed there remain no countries of importance for investments except those of South America.

To convert the significance of these deductions into figures involves much guesswork. I give the reader the best personal estimate I can form after pondering the matter in the light of the available figures and other relevant data.

I put the deduction under (i.) at $1,500,000,000, of which $500,000,000 may be ultimately available after meeting private debts, etc.

As regards (ii.)—according to a census taken by the Austrian Ministry of Finance on the 31st December, 1912, the nominal value of the Austro-Hungarian securities held by Germans was $986,500,000. Germany's pre-war investments in Russia outside Government securities have been estimated at $475,000,000, which is much lower than would be expected, and in 1906 Sartorius v. Waltershausen estimated her investments in Russian Government securities at $750,000,000. This gives a total of $1,225,000,000, which is to some extent borne out by the figure of $1,000,000,000 given in 1911 by Dr. Ischchanian as a deliberately modest estimate. A Roumanian estimate, published at the time of that country's entry in the war, gave the value of Germany's investments in Roumania at $20,000,000 to $22,000,000, of which $14,000,000 to $16,000,000 were in Government securities. An association for the defense of French interests in Turkey, as reported in the Temps (Sept. 8, 1919), has estimated the total amount of German capital invested in Turkey at about $295,000,000, of which, according to the latest Report of the Council of Foreign Bondholders, $162,500,000 was held by German nationals in the Turkish External Debt. No estimates are available to me of Germany's investments in Bulgaria. Altogether I venture a deduction of $2,500,000,000 in respect of this group of countries as a whole.

Resales and the pledging as collateral of securities during the war under (iii.) I put at $500,000,000 to $750,000,000, comprising practically all Germany's holding of Scandinavian, Dutch, and Swiss securities, a part of her South American securities, and a substantial proportion of her North American securities sold prior to the entry of the United States into the war.

As to the proper deduction under (iv.) there are naturally no available figures. For months past the European press has been full of sensational stories of the expedients adopted. But if we put the value of securities which have already left Germany or have been safely secreted within Germany itself beyond discovery by the most inquisitorial and powerful methods at $500,000,000, we are not likely to overstate it.

These various items lead, therefore, in all to a deduction of a round figure of about $5,000,000,000, and leave us with an amount of $1,250,000,000 theoretically still available.[123]

To some readers this figure may seem low, but let them remember that it purports to represent the remnant of saleable securities upon which the German Government might be able to lay hands for public purposes. In my own opinion it is much too high, and considering the problem by a different method of attack I arrive at a lower figure. For leaving out of account sequestered Allied securities and investments in Austria, Russia, etc., what blocks of securities, specified by countries and enterprises, can Germany possibly still have which could amount to as much as $1,250,000,000? I cannot answer the question. She has some Chinese Government securities which have not been sequestered, a few Japanese perhaps, and a more substantial value of first-class South American properties. But there are very few enterprises of this class still in German hands, and even their value is measured by one or two tens of millions, not by fifties or hundreds. He would be a rash man, in my judgment, who joined a syndicate to pay $500,000,000 in cash for the unsequestered remnant of Germany's overseas investments. If the Reparation Commission is to realize even this lower figure, it is probable that they will have to nurse, for some years, the assets which they take over, not attempting their disposal at the present time.

We have, therefore, a figure of from $500,000,000 to $1,250,000,000 as the maximum contribution from Germany's foreign securities.

Her immediately transferable wealth is composed, then, of—

(a) Gold and silver—say $300,000,000.

(b) Ships—$600,000,000.

(c) Foreign securities—$500,000,000 to $1,250,000,000.

Of the gold and silver, it is not, in fact, practicable to take any substantial part without consequences to the German currency system injurious to the interests of the Allies themselves. The contribution from all these sources together which the Reparation Commission can hope to secure by May, 1921, may be put, therefore, at from $1,250,000,000 to $1,750,000,000 as a maximum.[124]

2. Property in ceded Territory or surrendered under the Armistice

As the Treaty has been drafted Germany will not receive important credits available towards meeting reparation in respect of her property in ceded territory.

Private property in most of the ceded territory is utilized towards discharging private German debts to Allied nationals, and only the surplus, if any, is available towards Reparation. The value of such property in Poland and the other new States is payable direct to the owners.

Government property in Alsace-Lorraine, in territory ceded to Belgium, and in Germany's former colonies transferred to a Mandatory, is to be forfeited without credit given. Buildings, forests, and other State property which belonged to the former Kingdom of Poland are also to be surrendered without credit. There remain, therefore, Government properties, other than the above, surrendered to Poland, Government properties in Schleswig surrendered to Denmark,[125] the value of the Saar coalfields, the value of certain river craft, etc., to be surrendered under the Ports, Waterways, and Railways Chapter, and the value of the German submarine cables transferred under Annex VII. of the Reparation Chapter.

Whatever the Treaty may say, the Reparation Commission will not secure any cash payments from Poland. I believe that the Saar coalfields have been valued at from $75,000,000 to $100,000,000. A round figure of $150,000,000 for all the above items, excluding any surplus available in respect of private property, is probably a liberal estimate.

Then remains the value of material surrendered under the Armistice. Article 250 provides that a credit shall be assessed by the Reparation Commission for rolling-stock surrendered under the Armistice as well as for certain other specified items, and generally for any material so surrendered for which the Reparation Commission think that credit should be given, "as having non-military value." The rolling-stock (150,000 wagons and 5,000 locomotives) is the only very valuable item. A round figure of $250,000,000, for all the Armistice surrenders, is probably again a liberal estimate.

We have, therefore, $400,000,000 to add in respect of this heading to our figure of $1,250,000,000 to $1,750,000,000 under the previous heading. This figure differs from the preceding in that it does not represent cash capable of benefiting the financial situation of the Allies, but is only a book credit between themselves or between them and Germany.

The total of $1,650,000,000 to $2,150,000,000 now reached is not, however, available for Reparation. The first charge upon it, under Article 251 of the Treaty, is the cost of the Armies of Occupation both during the Armistice and after the conclusion of Peace. The aggregate of this figure up to May, 1921, cannot be calculated until the rate of withdrawal is known which is to reduce the monthly cost from the figure exceeding $100,000,000, which prevailed during the first part of 1919, to that of $5,000,000, which is to be the normal figure eventually. I estimate, however, that this aggregate may be about $1,000,000,000. This leaves us with from $500,000,000 to $1,000,000,000 still in hand.

Out of this, and out of exports of goods, and payments in kind under the Treaty prior to May, 1921 (for which I have not as yet made any allowance), the Allies have held out the hope that they will allow Germany to receive back such sums for the purchase of necessary food and raw materials as the former deem it essential for her to have. It is not possible at the present time to form an accurate judgment either as to the money-value of the goods which Germany will require to purchase from abroad in order to re-establish her economic life, or as to the degree of liberality with which the Allies will exercise their discretion. If her stocks of raw materials and food were to be restored to anything approaching their normal level by May, 1921, Germany would probably require foreign purchasing power of from $500,000,000 to $1,000,000,000 at least, in addition to the value of her current exports. While this is not likely to be permitted, I venture to assert as a matter beyond reasonable dispute that the social and economic condition of Germany cannot possibly permit a surplus of exports over imports during the period prior to May, 1921, and that the value of any payments in kind with which she may be able to furnish the Allies under the Treaty in the form of coal, dyes, timber, or other materials will have to be returned to her to enable her to pay for imports essential to her existence.[126]

The Reparation Commission can, therefore, expect no addition from other sources to the sum of from $500,000,000 to $1,000,000,000 with which we have hypothetically credited it after the realization of Germany's immediately transferable wealth, the calculation of the credits due to Germany under the Treaty, and the discharge of the cost of the Armies of Occupation. As Belgium has secured a private agreement with France, the United States, and Great Britain, outside the Treaty, by which she is to receive, towards satisfaction of her claims, the first $500,000,000 available for Reparation, the upshot of the whole matter is that Belgium may possibly get her $500,000,000 by May, 1921, but none of the other Allies are likely to secure by that date any contribution worth speaking of. At any rate, it would be very imprudent for Finance Ministers to lay their plans on any other hypothesis.

3. Annual Payments spread over a Term of Years

It is evident that Germany's pre-war capacity to pay an annual foreign tribute has not been unaffected by the almost total loss of her colonies, her overseas connections, her mercantile marine, and her foreign properties, by the cession of ten per cent of her territory and population, of one-third of her coal and of three-quarters of her iron ore, by two million casualties amongst men in the prime of life, by the starvation of her people for four years, by the burden of a vast war debt, by the depreciation of her currency to less than one-seventh its former value, by the disruption of her allies and their territories, by Revolution at home and Bolshevism on her borders, and by all the unmeasured ruin in strength and hope of four years of all-swallowing war and final defeat.

All this, one would have supposed, is evident. Yet most estimates of a great indemnity from Germany depend on the assumption that she is in a position to conduct in the future a vastly greater trade than ever she has had in the past.

For the purpose of arriving at a figure it is of no great consequence whether payment takes the form of cash (or rather of foreign exchange) or is partly effected in kind (coal, dyes, timber, etc.), as contemplated by the Treaty. In any event, it is only by the export of specific commodities that Germany can pay, and the method of turning the value of these exports to account for Reparation purposes is, comparatively, a matter of detail.

We shall lose ourselves in mere hypothesis unless we return in some degree to first principles, and, whenever we can, to such statistics as there are. It is certain that an annual payment can only be made by Germany over a series of years by diminishing her imports and increasing her exports, thus enlarging the balance in her favor which is available for effecting payments abroad. Germany can pay in the long-run in goods, and in goods only, whether these goods are furnished direct to the Allies, or whether they are sold to neutrals and the neutral credits so arising are then made over to the Allies. The most solid basis for estimating the extent to which this process can be carried is to be found, therefore, in an analysis of her trade returns before the war. Only on the basis of such an analysis, supplemented by some general data as to the aggregate wealth-producing capacity of the country, can a rational guess be made as to the maximum degree to which the exports of Germany could be brought to exceed her imports.

In the year 1913 Germany's imports amounted to $2,690,000,000, and her exports to $2,525,000,000, exclusive of transit trade and bullion. That is to say, imports exceeded exports by about $165,000,000. On the average of the five years ending 1913, however, her imports exceeded her exports by a substantially larger amount, namely, $370,000,000. It follows, therefore, that more than the whole of Germany's pre-war balance for new foreign investment was derived from the interest on her existing foreign securities, and from the profits of her shipping, foreign banking, etc. As her foreign properties and her mercantile marine are now to be taken from her, and as her foreign banking and other miscellaneous sources of revenue from abroad have been largely destroyed, it appears that, on the pre-war basis of exports and imports, Germany, so far from having a surplus wherewith to make a foreign payment, would be not nearly self-supporting. Her first task, therefore, must be to effect a readjustment of consumption and production to cover this deficit. Any further economy she can effect in the use of imported commodities, and any further stimulation of exports will then be available for Reparation.

Two-thirds of Germany's import and export trade is enumerated under separate headings in the following tables. The considerations applying to the enumerated portions may be assumed to apply more or less to the remaining one-third, which is composed of commodities of minor importance individually.

These tables show that the most important exports consisted of:—

1. Iron Goods, including tin plates (13.2 per cent),
2. Machinery, etc. (7.5 per cent),
3. Coal, coke, and briquettes (7 per cent),
4. Woolen goods, including raw and combed wool (5.9 per cent), and
5. Cotton goods, including cotton yarn and thread and raw cotton (5.6 per cent),

these five classes between them accounting for 39.2 per cent. of the total exports. It will be observed that all these goods are of a kind in which before the war competition between Germany and the United Kingdom was very severe. If, therefore, the volume of such exports to overseas or European destinations is very largely increased the effect upon British export trade must be correspondingly serious. As regards two of the categories, namely, cotton and woolen goods, the increase of an export trade is dependent upon an increase of the import of the raw material, since Germany produces no cotton and practically no wool. These trades are therefore incapable of expansion unless Germany is given facilities for securing these raw materials (which can only be at the expense of the Allies) in excess of the pre-war standard of consumption, and even then the effective increase is not the gross value of the exports, but only the difference between the value of the manufactured exports and of the imported raw material. As regards the other three categories, namely, machinery, iron goods, and coal, Germany's capacity to increase her exports will have been taken from her by the cessions of territory in Poland, Upper Silesia, and Alsace-Lorraine. As has been pointed out already, these districts accounted for nearly one-third of Germany's production of coal. But they also supplied no less than three-quarters of her iron-ore production, 38 per cent of her blast furnaces, and 9.5 per cent of her iron and steel foundries. Unless, therefore, Alsace-Lorraine and Upper Silesia send their iron ore to Germany proper, to be worked up, which will involve an increase in the imports for which she will have to find payment, so far from any increase in export trade being possible, a decrease is inevitable.[127]

Next on the list come cereals, leather goods, sugar, paper, furs, electrical goods, silk goods, and dyes. Cereals are not a net export and are far more than balanced by imports of the same commodities. As regards sugar, nearly 90 per cent of Germany's pre-war exports came to the United Kingdom.[128] An increase in this trade might be stimulated by a grant of a preference in this country to German sugar or by an arrangement by which sugar was taken in part payment for the indemnity on the same lines as has been proposed for coal, dyes, etc. Paper exports also might be capable of some increase. Leather goods, furs, and silks depend upon corresponding imports on the other side of the account. Silk goods are largely in competition with the trade of France and Italy. The remaining items are individually very small. I have heard it suggested that the indemnity might be paid to a great extent in potash and the like. But potash before the war represented 0.6 per cent of Germany's export trade, and about $15,000,000 in aggregate value. Besides, France, having secured a potash field in the territory which has been restored to her, will not welcome a great stimulation of the German exports of this material.

An examination of the import list shows that 63.6 per cent are raw materials and food. The chief items of the former class, namely, cotton, wool, copper, hides, iron-ore, furs, silk, rubber, and tin, could not be much reduced without reacting on the export trade, and might have to be increased if the export trade was to be increased. Imports of food, namely, wheat, barley, coffee, eggs, rice, maize, and the like, present a different problem. It is unlikely that, apart from certain comforts, the consumption of food by the German laboring classes before the war was in excess of what was required for maximum efficiency; indeed, it probably fell short of that amount. Any substantial decrease in the imports of food would therefore react on the efficiency of the industrial population, and consequently on the volume of surplus exports which they could be forced to produce. It is hardly possible to insist on a greatly increased productivity of German industry if the workmen are to be underfed. But this may not be equally true of barley, coffee, eggs, and tobacco. If it were possible to enforce a régime in which for the future no German drank beer or coffee, or smoked any tobacco, a substantial saving could be effected. Otherwise there seems little room for any significant reduction.

The following analysis of German exports and imports, according to destination and origin, is also relevant. From this it appears that of Germany's exports in 1913, 18 per cent went to the British Empire, 17 per cent to France, Italy, and Belgium, 10 per cent to Russia and Roumania, and 7 per cent to the United States; that is to say, more than half of the exports found their market in the countries of the Entente nations. Of the balance, 12 per cent went to Austria-Hungary, Turkey, and Bulgaria, and 35 per cent elsewhere. Unless, therefore, the present Allies are prepared to encourage the importation of German products, a substantial increase in total volume can only be effected by the wholesale swamping of neutral markets.