John Maynard Keynes

“ 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 on 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. ”

“ 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. ”

“ 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. ”

“ Second: whilst I estimate in terms of money, I assume that there is no revolutionary change in the purchasing power of our unit of value. If the value of gold were to sink to a half or a tenth of its present value, the real burden of a payment fixed in terms of gold would be reduced proportionately. If a gold sovereign comes to be worth what a shilling is worth now, then, of course, Germany can pay a larger sum than I have named, measured in gold sovereigns.
Third: I assume that there is no revolutionary change in the yield of nature and material to man's labour. ”

“ And even if we put on one side the burden of the internal debt, which amounts to 240 milliards of marks, as being a question of internal distribution rather than of productivity, we must still allow for the foreign debt incurred by Germany during the war, the exhaustion of her stock of raw materials, the depletion of her livestock, the impaired productivity of her soil from lack of manures and of labour, and the diminution in her wealth from the failure to keep up many repairs and renewals over a period of nearly five years. ”

“ 'They are a lot of hard-faced men', he said, 'who look as if they had done very well out of the war.'
This was the atmosphere in which the Prime Minister left for Paris, and these the entanglements he had made for himself. ”

“ By lowering the standard of life, an appreciable reduction of expenditure on imported commodities may be possible. But, as we have already seen, many large items are incapable of reduction without reacting on the volume of exports.
Let us put our guess as high as we can without being foolish, and suppose that after a time Germany will be able, in spite of the reduction of her resources, her facilities, her markets, and her productive power, to increase her exports and diminish her imports so as to improve her trade balance altogether by £3100 million annually, measured in pre-war prices. ”

“ In the first place, the vast expenditures of the war, the inflation of prices, and the depreciation of currency, leading up to a complete instability of the unit of value, have made us lose all sense of number and magnitude in matters of finance. What we believed to be the limits of possibility have been so enormously exceeded, and those who founded their expectations on the past have been so often wrong, that the man in the street is now prepared to believe anything which is told him with some show of authority, and the larger the figure the more readily he swallows it. ”

“ It is true that in 1870 no man could have predicted Germany's capacity in 1910. We cannot expect to legislate for a generation or more. The secular changes in man's economic condition and the liability of human forecast to error are as likely to lead to mistake in one direction as in another. We cannot as reasonable men do better than base our policy on the evidence we have and adapt it to the five or ten years over which we may suppose ourselves to have some measure of prevision ”

“ 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 civilised 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. ”

“ Germany is no longer a people and a state, but becomes a mere trade concern placed by its creditors in the hands of a receiver, without its being granted so much as the opportunity to prove its willingness to meet its obligations of its own accord. The commission, which is to have its permanent headquarters outside Germany, will possess in Germany incomparably greater rights than the German emperor ever possessed ”

“ On the assumptions (1) that we do not specially favour Germany over ourselves in supplies of such raw materials as cotton and wool (the world's supply of which is limited) , (2) that France, having secured the iron-ore deposits, makes a serious attempt to secure the blast furnaces and the steel trade also, (3) that Germany is not encouraged and assisted to undercut the iron and other trades of the Allies in overseas markets, and (4) that a substantial preference is not given to German goods in the British empire, it is evident by examination of the specific items that not much is practicable. ”

“ 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. ”

“ To what a different future Europe might have looked forward if either Mr Lloyd George or Mr Wilson had apprehended that the most serious of the problems which claimed their attention were not political or territorial but financial and economic, and that the perils of the future lay not in frontiers or sovereignties but in food, coal, and transport. ”

“ 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 £3100 to £3200 million at least, in addition to the value of her current exports. ”

“ 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 [6] 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. ”

“ While a mode of calculation which estimates the value of coal miles deep in the bowels of the earth as high as in a coal scuttle, of an annual lease of £31,000 for 999 years at £3999,000 and of a field (presumably) at the value of all the crops it will grow to the end of recorded time, opens up great possibilities, it is also double-edged. If Germany's total resources are worth £3250,000 million, those she will part with in the cession of Alsace-Lorraine and Upper Silesia should be more than sufficient to pay the entire costs of the war and reparation together. ”

“ 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 labouring classes before the war was in excess of what was required for maximum efficiency ”

“ 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. ”

“ It is not impossible that the progress of science should bring within our reach methods and devices by which the whole standard of life would be raised immeasurably, and a given volume of products would represent but a portion of the human effort which it represents now. In this case all standards of 'capacity' would be changed everywhere. But the fact that all things are possible is no excuse for talking foolishly. ”

“ From this it appears that of Germany's exports in 1913, 18% went to the British empire, 17% to France, Italy, and Belgium, 10% to Russia and Roumania, and 7% 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% went to Austria-Hungary, Turkey, and Bulgaria, and 35% 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. ”

“ An annual surplus available for home investment can only be converted into a surplus available for export abroad by a radical change in the kind of work performed. Labour, while it may be available and efficient for domestic services in Germany, may yet be able to find no outlet in foreign trade. ”

“ 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 traveller 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. ”

“ Private property in most of the ceded territory is utilised 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. ”

“ 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. ”

“ 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. ”

“ A capacity of £38,000 million or even of £35,000 million is, therefore, not within the limits of reasonable possibility. It is for those who believe that Germany can make an annual payment amounting to hundreds of millions sterling to say in what specific commodities they intend this payment to be made, and in what markets the goods are to be sold. Until they proceed to some degree of detail, and are able to produce some tangible argument in favour of their conclusions, they do not deserve to be believed. ”

“ Labour can only be diverted into new channels with loss of efficiency, and a large expenditure of capital. The annual surplus which German labour can produce for capital improvements at home is no measure, either theoretically or practically, of the annual tribute which she can pay abroad.
IV. The Reparation Commission This body is so remarkable a construction and may, if it functions at all, exert so wide an influence on the life of Europe, that its attributes deserve a separate examination.
There are no precedents for the indemnity imposed on Germany under the present treaty ”