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Economic Consequences of the Peace

<h2>Chapter IV</h2> <h2>The Treaty</h2> The thoughts which I have expressed in the second chapter were not present to the mind of Paris. The future life of Europe was not their concern; its means of livelihood was not their anxiety. Their preoccupations, good and bad alike, related to frontiers and nationalities, to the balance of power, to imperial aggrandizements, to the future enfeeblement of a strong and dangerous enemy, to revenge, and to the shifting by the victors of their unbearable financial burdens on to the shoulders of the defeated. Two rival schemes for the future polity of the world took the field,—the Fourteen Points of the President, and the Carthaginian Peace of M. Clemenceau. Yet only one of these was entitled to take the field; for the enemy had not surrendered unconditionally, but on agreed terms as to the general character of the Peace. This aspect of what happened cannot, unfortunately, be passed over with a word, for in the minds of many Englishmen at least it has been a subject of very great misapprehension. Many persons believe that the Armistice Terms constituted the first Contract concluded between the Allied and Associated Powers and the German Government, and that we entered the Conference with our hands, free, except so far as these Armistice Terms might bind us. This was not the case. To make the position plain, it is necessary briefly to review the history, of the negotiations which began with the German Note of October 5, 1918, and concluded with President Wilson's Note of November 5, 1918. On October 5, 1918, the German Government addressed a brief Note to the President accepting the Fourteen Points and asking for Peace negotiations. The President's reply of October 8 asked if he was to understand definitely that the German Government accepted "the terms laid down" in Fourteen Points and in his subsequent Addresses and "that its object in entering into discussion would be only to agree upon the practical details of their application." He added that the evacuation of invaded territory must be a prior condition of an Armistice. On October 12 the German Government returned an unconditional affirmative to these questions;-"its object in entering into discussions would be only to agree upon practical details of the application of these terms." On October 14, having received this affirmative answer, the President made a further communication to make clear the points: (1) that the details of the Armistice would have to be left to the military advisers of the United States and the Allies, and must provide absolutely against the possibility of Germany's resuming hostilities; (2) that submarine warfare must cease if these conversations were to continue; and (3) that he required further guarantees of the representative character of the Government with which he was dealing. On October 20 Germany accepted points (1) and (2), and pointed out, as regards (3), that she now had a Constitution and a Government dependent for its authority on the Reichstag. On October 23 the President announced that, "having received the solemn and explicit assurance of the German Government that it unreservedly accepts the terms of peace laid down in his Address to the Congress of the United States on January 8, 1918 (the Fourteen Points), and the principles of settlement enunciated in his subsequent Addresses, particularly the Address of September 27, and that it is ready to discuss the details of their application," he has communicated the above correspondence to the Governments of the Allied Powers "with the suggestion that, if these Governments are disposed to effect peace upon the terms and principles indicated," they will ask their military advisers to draw up Armistice Terms of such a character as to "ensure to the Associated Governments the unrestricted power to safeguard and enforce the details of the peace to which the German Government has agreed." At the end of this Note the President hinted more openly than in that of October 14 at the abdication of the Kaiser. This completes the preliminary negotiations to which the President alone was a party, adding without the Governments of the Allied Powers. On November 5, 1918, the President transmitted to Germany the reply he had received from the Governments associated with him, and added that Marshal Foch had been authorized to communicate the terms of an armistice to properly accredited representatives. In this reply the Allied Governments, "subject to the qualifications which follow, declare their willingness to make peace with the Government of Germany on the terms of peace laid down in the President's Address to Congress of January 8, 1918, and the principles of settlement enunciated in his subsequent Addresses." The qualifications in question were two in number. The first related to the Freedom of the Seas, as to which they "reserved to themselves complete freedom." The second related to Reparation and ran as follows:—"Further, in the conditions of peace laid down in his Address to Congress on the 8th January, 1918 the President declared that invaded territories must be restored as well as evacuated and made free. The Allied Governments feel that no doubt ought to be allowed to exist as to what this provision implies. By it they understand that compensation will be made by Germany for all damage done to the civilian population of the Allies and to their property by the aggression of Germany by land, by sea, and from the air."[7] The nature of the Contract between Germany and the Allies resulting from this exchange of documents is plain and unequivocal. The terms of the peace are to be in accordance with the Addresses of the President, and the purpose of the Peace Conference is "to discuss the details of their application." The circumstances of the Contract were of an unusually solemn and binding character; for one of the conditions of it was that Germany should agree to Armistice Terms which were to be such as would leave her helpless. Germany having rendered herself helpless in reliance on the Contract, the honor of the Allies was peculiarly involved in fulfilling their part and, if there were ambiguities, in not using their position to take advantage of them. What, then, was the substance of this Contract to which the Allies had bound themselves? An examination of the documents shows that, although a large part of the Addresses is concerned with spirit, purpose, and intention, and not with concrete solutions, and that many questions requiring a settlement in the Peace Treaty are not touched on, nevertheless, there are certain questions which they settle definitely. It is true that within somewhat wide limits the Allies still had a free hand. Further, it is difficult to apply on a contractual basis those passages which deal with spirit, purpose, and intention;—every man must judge for himself whether, in view of them, deception or hypocrisy has been practised. But there remain, as will be seen below, certain important issues on which the Contract is unequivocal. In addition to the Fourteen Points of January 18, 1918, the Addresses of the President which form part of the material of the Contract are four in number,—before the Congress on February 11; at Baltimore on April 6; at Mount Vernon on July 4; and at New York on September 27, the last of these being specially referred to in the Contract. I venture to select from these Addresses those engagements of substance, avoiding repetitions, which are most relevant to the German Treaty. The parts I omit add to, rather than detract from, those I quote; but they chiefly relate to intention, and are perhaps too vague and general to be interpreted contractually.[8] The Fourteen Points.—(3). "The removal, so far as possible, of all economic barriers and the establishment of an equality of trade conditions among all the nations consenting to the Peace and associating themselves for its maintenance." (4). "Adequate guarantees given and taken that national armaments will be reduced to the lowest point consistent with domestic safety." (5). "A free, open-minded, and absolutely impartial adjustment of all colonial claims," regard being had to the interests of the populations concerned. (6), (7), (8), and (11). The evacuation and "restoration" of all invaded territory, especially of Belgium. To this must be added the rider of the Allies, claiming compensation for all damage done to civilians and their property by land, by sea, and from the air (quoted in full above). (8). The righting of "the wrong done to France by Prussia in 1871 in the matter of Alsace-Lorraine." (13). An independent Poland, including "the territories inhabited by indisputably Polish populations" and "assured a free and secure access to the sea." (14). The League of Nations. Before the Congress, February 11.—"There shall be no annexations, no contributions, no punitive damages.... Self-determination is not a mere phrase. It is an imperative principle of action which statesmen will henceforth ignore at their peril.... Every territorial settlement involved in this war must be made in the interest and for the benefit of the populations concerned, and not as a part of any mere adjustment or compromise of claims amongst rival States." New York, September 27.—(1) "The impartial justice meted out must involve no discrimination between those to whom we wish to be just and those to whom we do not wish to be just." (2) "No special or separate interest of any single nation or any group of nations can be made the basis of any part of the settlement which is not consistent with the common interest of all." (3) "There can be no leagues or alliances or special covenants and understandings within the general and common family of the League of Nations." (4) "There can be no special selfish economic combinations within the League and no employment of any form of economic boycott or exclusion, except as the power of economic penalty by exclusion from the markets of the world may be vested in the League of Nations itself as a means of discipline and control." (5) "All international agreements and treaties of every kind must be made known in their entirety to the rest of the world." This wise and magnanimous program for the world had passed on November 5, 1918 beyond the region of idealism and aspiration, and had become part of a solemn contract to which all the Great Powers of the world had put their signature. But it was lost, nevertheless, in the morass of Paris;—the spirit of it altogether, the letter in parts ignored and in other parts distorted. The German observations on the draft Treaty of Peace were largely a comparison between the terms of this understanding, on the basis of which the German nation had agreed to lay down its arms, and the actual provisions of the document offered them for signature thereafter. The German commentators had little difficulty in showing that the draft Treaty constituted a breach of engagements and of international morality comparable with their own offense in the invasion of Belgium. Nevertheless, the German reply was not in all its parts a document fully worthy of the occasion, because in spite of the justice and importance of much of its contents, a truly broad treatment and high dignity of outlook were a little wanting, and the general effect lacks the simple treatment, with the dispassionate objectivity of despair which the deep passions of the occasion might have evoked. The Allied governments gave it, in any case, no serious consideration, and I doubt if anything which the German delegation could have said at that stage of the proceedings would have much influenced the result. The commonest virtues of the individual are often lacking in the spokesmen of nations; a statesman representing not himself but his country may prove, without incurring excessive blame—as history often records—vindictive, perfidious, and egotistic. These qualities are familiar in treaties imposed by victors. But the German delegation did not succeed in exposing in burning and prophetic words the quality which chiefly distinguishes this transaction from all its historical predecessors—its insincerity. This theme, however, must be for another pen than mine. I am mainly concerned in what follows, not with the justice of the Treaty,—neither with the demand for penal justice against the enemy, nor with the obligation of contractual justice on the victor,—but with its wisdom and with its consequences. I propose, therefore, in this chapter to set forth baldly the principal economic provisions of the Treaty, reserving, however, for the next my comments on the Reparation Chapter and on Germany's capacity to meet the payments there demanded from her. The German economic system as it existed before the war depended on three main factors: I. Overseas commerce as represented by her mercantile marine, her colonies, her foreign investments, her exports, and the overseas connections of her merchants; II. The exploitation of her coal and iron and the industries built upon them; III. Her transport and tariff system. Of these the first, while not the least important, was certainly the most vulnerable. The Treaty aims at the systematic destruction of all three, but principally of the first two. <h4>I</h4> (1) Germany has ceded to the Allies all the vessels of her mercantile marine exceeding 1600 tons gross, half the vessels between 1000 tons and 1600 tons, and one quarter of her trawlers and other fishing boats.[9] The cession is comprehensive, including not only vessels flying the German flag, but also all vessels owned by Germans but flying other flags, and all vessels under construction as well as those afloat.[10] Further, Germany undertakes, if required, to build for the Allies such types of ships as they may specify up to 200,000 tons[11] annually for five years, the value of these ships being credited to Germany against what is due from her for Reparation.[12] Thus the German mercantile marine is swept from the seas and cannot be restored for many years to come on a scale adequate to meet the requirements of her own commerce. For the present, no lines will run from Hamburg, except such as foreign nations may find it worth while to establish out of their surplus tonnage. Germany will have to pay to foreigners for the carriage of her trade such charges as they may be able to exact, and will receive only such conveniences as it may suit them to give her. The prosperity of German ports and commerce can only revive, it would seem, in proportion as she succeeds in bringing under her effective influence the merchant marines of Scandinavia and of Holland. (2) Germany has ceded to the Allies "all her rights and titles over her oversea possessions."[13] This cession not only applies to sovereignty but extends on unfavorable terms to Government property, all of which, including railways, must be surrendered without payment, while, on the other hand, the German Government remains liable for any debt which may have been incurred for the purchase or construction of this property, or for the development of the colonies generally.[14] In distinction from the practice ruling in the case of most similar cessions in recent history, the property and persons of private German nationals, as distinct from their Government, are also injuriously affected. The Allied Government exercising authority in any former German colony "may make such provisions as it thinks fit with reference to the repatriation from them of German nationals and to the conditions upon which German subjects of European origin shall, or shall not, be allowed to reside, hold property, trade or exercise a profession in them."[15] All contracts and agreements in favor of German nationals for the construction or exploitation of public works lapse to the Allied Governments as part of the payment due for Reparation. But these terms are unimportant compared with the more comprehensive provision by which "the Allied and Associated Powers reserve the right to retain and liquidate all property, rights, and interests belonging at the date of the coming into force of the present Treaty to German nationals, or companies controlled by them," within the former German colonies.[16] This wholesale expropriation of private property is to take place without the Allies affording any compensation to the individuals expropriated, and the proceeds will be employed, first, to meet private debts due to Allied nationals from any German nationals, and second, to meet claims due from Austrian, Hungarian, Bulgarian, or Turkish nationals. Any balance may either be returned by the liquidating Power direct to Germany, or retained by them. If retained, the proceeds must be transferred to the Reparation Commission for Germany's credit in the Reparation account.[17] In short, not only are German sovereignty and German influence extirpated from the whole of her former oversea possessions, but the persons and property of her nationals resident or owning property in those parts are deprived of legal status and legal security. (3) The provisions just outlined in regard to the private property of Germans in the ex-German colonies apply equally to private German property in Alsace-Lorraine, except in so far as the French Government may choose to grant exceptions.[18] This is of much greater practical importance than the similar expropriation overseas because of the far higher value of the property involved and the closer interconnection, resulting from the great development of the mineral wealth of these provinces since 1871, of German economic interests there with those in Germany itself. Alsace-Lorraine has been part of the German Empire for nearly fifty years—a considerable majority of its population is German speaking—and it has been the scene of some of Germany's most important economic enterprises. Nevertheless, the property of those Germans who reside there, or who have invested in its industries, is now entirely at the disposal of the French Government without compensation, except in so far as the German Government itself may choose to afford it. The French Government is entitled to expropriate without compensation the personal property of private German citizens and German companies resident or situated within Alsace-Lorraine, the proceeds being credited in part satisfaction of various French claims. The severity of this provision is only mitigated to the extent that the French Government may expressly permit German nationals to continue to reside, in which case the above provision is not applicable. Government, State, and Municipal property, on the other hand, is to be ceded to France without any credit being given for it. This includes the railway system of the two provinces, together with its rolling-stock.[19] But while the property is taken over, liabilities contracted in respect of it in the form of public debts of any kind remain the liability of Germany.[20] The provinces also return to French sovereignty free and quit of their share of German war or pre-war dead-weight debt; nor does Germany receive a credit on this account in respect of Reparation. (4) The expropriation of German private property is not limited, however, to the ex-German colonies and Alsace-Lorraine. The treatment of such property forms, indeed, a very significant and material section of the Treaty, which has not received as much attention as it merits, although it was the subject of exceptionally violent objection on the part of the German delegates at Versailles. So far as I know, there is no precedent in any peace treaty of recent history for the treatment of private property set forth below, and the German representatives urged that the precedent now established strikes a dangerous and immoral blow at the security of private property everywhere. This is an exaggeration, and the sharp distinction, approved by custom and convention during the past two centuries, between the property and rights of a State and the property and rights of its nationals is an artificial one, which is being rapidly put out of date by many other influences than the Peace Treaty, and is inappropriate to modern socialistic conceptions of the relations between the State and its citizens. It is true, however, that the Treaty strikes a destructive blow at a conception which lies at the root of much of so-called international law, as this has been expounded hitherto. The principal provisions relating to the expropriation of German private property situated outside the frontiers of Germany, as these are now determined, are overlapping in their incidence, and the more drastic would seem in some cases to render the others unnecessary. Generally speaking, however, the more drastic and extensive provisions are not so precisely framed as those of more particular and limited application. They are as follows:— (a) The Allies "reserve the right to retain and liquidate all property, rights and interests belonging at the date of the coming into force of the present Treaty to German nationals, or companies controlled by them, within their territories, colonies, possessions and protectorates, including territories ceded to them by the present Treaty."[21] This is the extended version of the provision which has been discussed already in the case of the colonies and of Alsace-Lorraine. The value of the property so expropriated will be applied, in the first instance, to the satisfaction of private debts due from Germany to the nationals of the Allied Government within whose jurisdiction the liquidation takes place, and, second, to the satisfaction of claims arising out of the acts of Germany's former allies. Any balance, if the liquidating Government elects to retain it, must be credited in the Reparation account.[22] It is, however, a point of considerable importance that the liquidating Government is not compelled to transfer the balance to the Reparation Commission, but can, if it so decides, return the proceeds direct to Germany. For this will enable the United States, if they so wish, to utilize the very large balances, in the hands of their enemy-property custodian, to pay for the provisioning of Germany, without regard to the views of the Reparation Commission. These provisions had their origin in the scheme for the mutual settlement of enemy debts by means of a Clearing House. Under this proposal it was hoped to avoid much trouble and litigation by making each of the Governments lately at war responsible for the collection of private debts due from its nationals to the nationals of any of the other Governments (the normal process of collection having been suspended by reason of the war), and for the distribution of the funds so collected to those of its nationals who had claims against the nationals of the other Governments, any final balance either way being settled in cash. Such a scheme could have been completely bilateral and reciprocal. And so in part it is, the scheme being mainly reciprocal as regards the collection of commercial debts. But the completeness of their victory permitted the Allied Governments to introduce in their own favor many divergencies from reciprocity, of which the following are the chief: Whereas the property of Allied nationals within German jurisdiction reverts under the Treaty to Allied ownership on the conclusion of Peace, the property of Germans within Allied jurisdiction is to be retained and liquidated as described above, with the result that the whole of German property over a large part of the world can be expropriated, and the large properties now within the custody of Public Trustees and similar officials in the Allied countries may be retained permanently. In the second place, such German assets are chargeable, not only with the liabilities of Germans, but also, if they run to it, with "payment of the amounts due in respect of claims by the nationals of such Allied or Associated Power with regard to their property, rights, and interests in the territory of other Enemy Powers," as, for example, Turkey, Bulgaria, and Austria.[23] This is a remarkable provision, which is naturally non-reciprocal. In the third place, any final balance due to Germany on private account need not be paid over, but can be held against the various liabilities of the German Government.[24] The effective operation of these Articles is guaranteed by the delivery of deeds, titles, and information.[25] In the fourth place, pre-war contracts between Allied and German nationals may be canceled or revived at the option of the former, so that all such contracts which are in Germany's favor will be canceled, while, on the other hand, she will be compelled to fulfil those which are to her disadvantage. (b) So far we have been concerned with German property within Allied jurisdiction. The next provision is aimed at the elimination of German interests in the territory of her neighbors and former allies, and of certain other countries. Under Article 260 of the Financial Clauses it is provided that the Reparation Commission may, within one year of the coming into force of the Treaty, demand that the German Government expropriate its nationals and deliver to the Reparation Commission "any rights and interests of German nationals in any public utility undertaking or in any concession[26] operating in Russia, China, Turkey, Austria, Hungary, and Bulgaria, or in the possessions or dependencies of these States, or in any territory formerly belonging to Germany or her allies, to be ceded by Germany or her allies to any Power or to be administered by a Mandatory under the present Treaty." This is a comprehensive description, overlapping in part the provisions dealt with under (a) above, but including, it should be noted, the new States and territories carved out of the former Russian, Austro-Hungarian, and Turkish Empires. Thus Germany's influence is eliminated and her capital confiscated in all those neighboring countries to which she might naturally look for her future livelihood, and for an outlet for her energy, enterprise, and technical skill. The execution of this program in detail will throw on the Reparation Commission a peculiar task, as it will become possessor of a great number of rights and interests over a vast territory owing dubious obedience, disordered by war, disruption, and Bolshevism. The division of the spoils between the victors will also provide employment for a powerful office, whose doorsteps the greedy adventurers and jealous concession-hunters of twenty or thirty nations will crowd and defile. Lest the Reparation Commission fail by ignorance to exercise its rights to the full, it is further provided that the German Government shall communicate to it within six months of the Treaty's coming into force a list of all the rights and interests in question, "whether already granted, contingent or not yet exercised," and any which are not so communicated within this period will automatically lapse in favor of the Allied Governments.[27] How far an edict of this character can be made binding on a German national, whose person and property lie outside the jurisdiction of his own Government, is an unsettled question; but all the countries specified in the above list are open to pressure by the Allied authorities, whether by the imposition of an appropriate Treaty clause or otherwise. (c) There remains a third provision more sweeping than either of the above, neither of which affects German interests in neutral countries. The Reparation Commission is empowered up to May 1, 1921, to demand payment up to $5,000,000,000 in such manner as they may fix, "whether in gold, commodities, ships, securities or otherwise."[28] This provision has the effect of intrusting to the Reparation Commission for the period in question dictatorial powers over all German property of every description whatever. They can, under this Article, point to any specific business, enterprise, or property, whether within or outside Germany, and demand its surrender; and their authority would appear to extend not only to property existing at the date of the Peace, but also to any which may be created or acquired at any time in the course of the next eighteen months. For example, they could pick out—as presumably they will as soon as they are established—the fine and powerful German enterprise in South America known as the Deutsche Ueberseeische Elektrizitätsgesellschaft (the D.U.E.G.), and dispose of it to Allied interests. The clause is unequivocal and all-embracing. It is worth while to note in passing that it introduces a quite novel principle in the collection of indemnities. Hitherto, a sum has been fixed, and the nation mulcted has been left free to devise and select for itself the means of payment. But in this case the payees can (for a certain period) not only demand a certain sum but specify the particular kind of property in which payment is to be effected. Thus the powers of the Reparation Commission, with which I deal more particularly in the next chapter, can be employed to destroy Germany's commercial and economic organization as well as to exact payment. The cumulative effect of (a), (b), and (c) (as well as of certain other minor provisions on which I have not thought it necessary to enlarge) is to deprive Germany (or rather to empower the Allies so to deprive her at their will—it is not yet accomplished) of everything she possesses outside her own frontiers as laid down in the Treaty. Not only are her oversea investments taken and her connections destroyed, but the same process of extirpation is applied in the territories of her former allies and of her immediate neighbors by land. (5) Lest by some oversight the above provisions should overlook any possible contingencies, certain other Articles appear in the Treaty, which probably do not add very much in practical effect to those already described, but which deserve brief mention as showing the spirit of completeness in which the victorious Powers entered upon the economic subjection of their defeated enemy. First of all there is a general clause of barrer and renunciation: "In territory outside her European frontiers as fixed by the present Treaty, Germany renounces all rights, titles and privileges whatever in or over territory which belonged to her or to her allies, and all rights, titles and privileges whatever their origin which she held as against the Allied and Associated Powers...."[29] There follow certain more particular provisions. Germany renounces all rights and privileges she may have acquired in China.[30] There are similar provisions for Siam,[31] for Liberia,[32] for Morocco,[33] and for Egypt.[34] In the case of Egypt not only are special privileges renounced, but by Article 150 ordinary liberties are withdrawn, the Egyptian Government being accorded "complete liberty of action in regulating the status of German nationals and the conditions under which they may establish themselves in Egypt." By Article 258 Germany renounces her right to any participation in any financial or economic organizations of an international character "operating in any of the Allied or Associated States, or in Austria, Hungary, Bulgaria or Turkey, or in the dependencies of these States, or in the former Russian Empire." Generally speaking, only those pre-war treaties and conventions are revived which it suits the Allied Governments to revive, and those in Germany's favor may be allowed to lapse.[35] It is evident, however, that none of these provisions are of any real importance, as compared with those described previously. They represent the logical completion of Germany's outlawry and economic subjection to the convenience of the Allies; but they do not add substantially to her effective disabilities. <div style="break-after:column;"></div>

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