7: Remedies
<< 6: Europe After the Treaty || TOC
It is difficult to maintain true perspective in large
affairs. I have criticised the work of Paris, and have depicted
in sombre colours the condition and the prospects of Europe. This
is one aspect of the position and, I believe, a true one. But in
so complex a phenomenon the prognostics do not all point one way;
and we may make the error of expecting consequences to follow too
swiftly and too inevitably from what perhaps are not all the
relevant causes. The blackness of the prospect itself leads us to
doubt its accuracy; our imagination is dulled rather than
stimulated by too woeful a narration, and our minds rebound from
what is felt 'too bad to be true'. But before the reader allows
himself to be too much swayed by these natural reflections, and
before I lead him, as is the intention of this chapter, towards
and ameliorations remedies and the discovery of happier
tendencies, let him redress the balance of his thought by
recalling two contrasts -- England and Russia, of which the one
may encourage his optimism too much, but the other should remind
him that catastrophes can still happen, and that modern society
is not immune from the very greatest evils.
In the chapters of this book I have not generally had in mind
the situation or the problems of England. 'Europe' in my
narration must generally be interpreted to exclude the British
Isles. England is in a state of transition, and her economic
problems are serious. We may be on the eve of great changes in
her social and industrial structure. Some of us may welcome such
prospects and some of us deplore them. But they are of a
different kind altogether from those impending on Europe. I do
not perceive in England the slightest possibility of catastrophe
or any serious likelihood of a general upheaval of society. The
war has impoverished us, but not seriously -- I should judge that
the real wealth of the country in 1919 is at least equal to what
it was in 1900. Our balance of trade is adverse, but not so much
so that the readjustment of it need disorder our economic
life.(1*) The deficit in our budget is large, but not beyond what
firm and prudent statesmanship could bridge. The shortening of
the hours of labour may have somewhat diminished our
productivity. But it should not be too much to hope that this is
a feature of transition, and no one who is acquainted with the
British working man can doubt that, if it suits him, and if he is
in sympathy and reasonable contentment with the conditions of his
life, he can produce at least as much in a shorter working day as
he did in the longer hours which prevailed formerly. The most
serious problems for England have been brought to a head by the
war, but are in their origins more fundamental. The forces of the
nineteenth century have run their course and are exhausted. The
economic motives and ideals of that generation no longer satisfy
us: we must find a new way and must suffer again the malaise, and
finally the pangs, of a new industrial birth. This is one
element. The other is that on which I have enlarged in chapter 2
-- the increase in the real cost of food and the diminishing
response of Nature to any further increase in the population of
the world, a tendency which must be especially injurious to the
greatest of all industrial countries and the most dependent on
imported supplies of food.
But these secular problems are such as no age is free from.
They are of an altogether different order from those which may
afflict the peoples of Central Europe. Those readers who, chiefly
mindful of the British conditions with which they are familiar,
are apt to indulge their optimism, and still more those whose
immediate environment is American, must cast their minds to
Russia, Turkey, Hungary, or Austria, where the most dreadful
material evils which men can suffer -- famine, cold, disease,
war, murder, and anarchy -- are an actual present experience, if
they are to apprehend the character of the misfortunes against
the further extension of which it must surely be our duty to seek
the remedy, if there is one.
What then is to be done? The tentative suggestions of this
chapter may appear to the reader inadequate. But the opportunity
was missed at Paris during the six months which followed the
armistice, and nothing we can do now can repair the mischief
wrought at that time. Great privation and great risks to society
have become unavoidable. All that is now open to us is to
redirect, so far as lies in our power, the fundamental economic
tendencies which underlie the events of the hour, so that they
promote the re-establishment of prosperity and order, instead of
leading us deeper into misfortune.
We must first escape from the atmosphere and the methods of
Paris. Those who controlled the conference may bow before the
gusts of popular opinion, but they will never lead us out of our
troubles. It is hardly to be supposed that the Council of Four
can retrace their steps, even if they wished to do so. The
replacement of the existing governments of Europe is, therefore,
an almost indispensable preliminary.
I propose then to discuss a programme, for those who believe
that the Peace of Versailles cannot stand, under the following
heads:
I. The revision of the treaty.
II. The settlement of inter-Ally indebtedness.
III. An international loan and the reform of the currency.
IV. The relations of Central Europe to Russia.
I. THE REVISION OF THE TREATY
Are any constitutional means open to us for altering the
treaty? President Wilson and General Smuts, who believe that to
have secured the covenant of the League of Nations outweighs much
evil in the rest of the treaty, have indicated that we must look
to the League for the gradual evolution of a more tolerable life
for Europe. 'There are territorial settlements', General Smuts
wrote in his statement on signing the peace treaty, 'which will
need revision. There are guarantees laid down which we all hope
will soon be found out of harmony with the new peaceful temper
and unarmed state of our former enemies. There are punishments
foreshadowed over most of which a calmer mood may yet prefer to
pass the sponge of oblivion. There are indemnities stipulated
which cannot be enacted without grave injury to the industrial
revival of Europe, and which it will be in the interests of all
to render more tolerable and moderate... I am confident that the
League of Nations will yet prove the path of escape for Europe
out of the ruin brought about by this war.' Without the League,
President Wilson informed the Senate when he presented the treaty
to them early in July 1919, '... long-continued supervision of
the task of reparation which Germany was to undertake to complete
within the next generation might entirely break down;(2*) the
reconsideration and revision of administrative arrangements and
restrictions which the treaty prescribed, but which it recognised
might not provide lasting advantage or be entirely fair if too
long enforced, would be impracticable.'
Can we look forward with fair hopes to securing from the
operation of the League those benefits which two of its principal
begetters thus encourage us to expect from it? The relevant
passage is to be found in article XIX of the covenant, which runs
as follows: 'The assembly may from time to time advise the
reconsideration by members of the League of treaties which have
become inapplicable and the consideration of international
conditions whose continuance might endanger the peace of the
world.'
But alas! Article V provides that 'Except where otherwise
expressly provided in this covenant or by the terms of the
present treaty, decisions at any meeting of the assembly or of
the council shall require the agreement of all the members of the
League represented at the meeting.' Does not this provision
reduce the League, so far as concerns an early reconsideration of
any of the terms of the peace treaty, into a body merely for
wasting time? If all the parties to the treaty are unanimously of
opinion that it requires alteration in a particular sense, it
does not need a League and a covenant to put the business
through. Even when the assembly of the League is unanimous it can
only 'advise' reconsideration by the members specially affected.
But the League will operate, say its supporters, by its
influence on the public opinion of the world, and the view of the
majority will carry decisive weight in practice, even though
constitutionally it is of no effect. Let us pray that this be so.
Yet the League in the hands of the trained European diplomatist
may become an unequalled instrument for obstruction and delay.
The revision of treaties is entrusted primarily, not to the
council, which meets frequently, but to the assembly, which will
meet more rarely and must become, as any one with an experience
of large inter-Ally conferences must know, an unwieldy polyglot
debating society in which the greatest resolution and the best
management may fail altogether to bring issues to a head against
an opposition in favour of the status quo. There are indeed two
disastrous blots on the covenant -- article V, which prescribes
unanimity, and the much-criticised article X, by which 'The
members of the League undertake to respect and preserve as
against external aggression the territorial integrity and
existing political independence of all members of the League.'
These two articles together go some way to destroy the conception
of the League as an instrument of progress, and to equip it from
the outset with an almost fatal bias towards the status quo. It
is these articles which have reconciled to the League some of its
original opponents, who now hope to make of it another Holy
Alliance for the perpetuation of the economic ruin of their
enemies and the balance of power in their own interests which
they believe themselves to have established by the peace.
But while it would be wrong and foolish to conceal from
ourselves in the interests of 'idealism' the real difficulties of
the position in the special matter of revising treaties, that is
no reason for any of us to decry the League, which the wisdom of
the world may yet transform into a powerful instrument of peace,
and which in articles XI-XVII(3*) has already accomplished a
great and beneficent achievement. I agree, therefore, that our
first efforts for the revision of the treaty must be made through
the League rather than in any other way, in the hope that the
force of general opinion, and if necessary, the use of financial
pressure and financial inducements, may be enough to prevent a
recalcitrant minority from exercising their right of veto. We
must trust the new governments, whose existence I premise in the
principal Allied countries, to show a profounder wisdom and a
greater magnanimity than their predecessors.
We have seen in chapters 4 and 5 that there are numerous
particulars in which the treaty is objectionable. I do not intend
to enter here into details, or to attempt a revision of the
treaty clause by clause. I limit myself to three great changes
which are necessary for the economic life of Europe, relating to
reparation, to coal and iron, and to tariffs.
Reparation. If the sum demanded for reparation is less than
what the Allies are entitled to on a strict interpretation of
their engagements, it is unnecessary to particularise the items
it represents or to hear arguments about its compilation. I
suggest, therefore, the following settlement:
(1) The amount of the payment to be made by Germany in
respect of reparation and the costs of the armies of occupation
might be fixed at £2,000 million.
(2) The surrender of merchant ships and submarine cables
under the treaty, of war material under the armistice, of state
property in ceded territory, of claims against such territory in
respect of public debt, and of Germany's claims against her
former Allies, should be reckoned as worth the lump sum of £500
million, without any attempt being made to evaluate them item by
item.
(3) The balance of £1,500 million should not carry interest
pending its repayment, and should be paid by Germany in thirty
annual instalments of £50 million, beginning in 1923.
(4) The reparation commission should be dissolved or, if any
duties remain for it to perform, it should become an appanage of
the League of Nations and should include representatives of
Germany and of the neutral states.
(5) Germany would be left to meet the annual instalments in
such manner as she might see fit, any complaint against her for
non-fulfilment of her obligations being lodged with the League of
Nations. That is to say, there would be no further expropriation
of German private property abroad, except so far as is required
to meet private German obligations out of the proceeds of such
property already liquidated or in the hands of public trustees
and enemy-property custodians in the Allied countries and in the
United States; and, in particular, article 260 (which provides
for the expropriation of German interests in public utility
enterprises) would be abrogated.
(6) No attempt should be made to extract reparation payments
from Austria.
Coal and iron. (1) The Allies' options on coal under annex V
should be abandoned, but Germany's obligation to make good
France's loss of coal through the destruction of her mines should
remain. That is to say, Germany should undertake 'to deliver to
France annually for a period not exceeding ten years an amount of
coal equal to the difference between the annual production before
the war of the coal-mines of the Nord and Pas de Calais,
destroyed as a result of the war, and the production of the mines
of the same area during the years in question; such delivery not
to exceed 20 million tons in any one year of the first five
years, and 8 million tons in any one year of the succeeding five
years.' This obligation should lapse, nevertheless, in the event
of the coal districts of Upper Silesia being taken from Germany
in the final settlement consequent on the plebiscite.
(2) The arrangement as to the Saar should hold good, except
that, on the one hand, Germany should receive no credit for the
mines, and, on the other, should receive back both the mines and
the territory without payment and unconditionally after ten
years. But this should be conditional on France's entering into
an agreement for the same period to supply Germany from Lorraine
with at least 50% of the iron ore which was carried from Lorraine
into Germany proper before the war, in return for an undertaking
from Germany to supply Lorraine with an amount of coal equal to
the whole amount formerly sent to Lorraine from Germany proper,
after allowing for the output of the Saar.
(3) The arrangement as to Upper Silesia should hold good.
That is to say, a plebiscite should be held, and in coming to a
final decision 'regard will be paid (by the principal Allied and
Associated Powers) to the wishes of the inhabitants as shown by
the vote, and to the geographical and economic conditions of the
locality'. But the Allies should declare that in their judgment
'economic conditions' require the inclusion of the coal districts
in Germany unless the wishes of the inhabitants are decidedly to
the contrary.
(4) The coal commission already established by the Allies
should become an appanage of the League of Nations, and should be
enlarged to include representatives of Germany and the other
states of Central and Eastern Europe, of the northern neutrals,
and of Switzerland. Its authority should be advisory only, but
should extend over the distribution of the coal supplies of
Germany, Poland, and the constituent parts of the former
Austro-Hungarian empire, and of the exportable surplus of the
United Kingdom. All the states represented on the commission
should undertake to furnish it with the fullest information, and
to be guided by its advice so far as their sovereignty and their
vital interests permit.
Tariffs. A free trade union should be established under the
auspices of the League of Nations of countries undertaking to
impose no protectionist tariffs(4*) whatever against the produce
of other members of the union. Germany, Poland, the new states
which formerly composed the Austro-Hungarian and Turkish empires,
and the mandated states should be compelled to adhere to this
union for ten years, after which time adherence would be
voluntary. The adherence of other states would be voluntary from
the outset. But it is to be hoped that the United Kingdom, at any
rate, would become an original member.
By fixing the reparation payments well within Germany's
capacity to pay, we make possible the renewal of hope and
enterprise within her territory, we avoid the perpetual friction
and opportunity of improper pressure arising out of treaty
clauses which are impossible of fulfilment, and we render
unnecessary the intolerable powers of the reparation commission.
By a moderation of the clauses relating directly or
indirectly to coal, and by the exchange of iron ore, we permit
the continuance of Germany's industrial life, and put limits on
the loss of productivity which would be brought about otherwise
by the interference of political frontiers with the natural
localisation of the iron and steel industry.
By the proposed free trade union some part of the loss of
organisation and economic efficiency may be retrieved which must
otherwise result from the innumerable new political frontiers now
created between greedy, jealous, immature, and economically
incomplete, nationalist states. Economic frontiers were tolerable
so long as an immense territory was included in a few great
empires; but they will not be tolerable when the empires of
Germany, Austria-Hungary, Russia, and Turkey have been
partitioned between some twenty independent authorities. A free
trade union, comprising the whole of Central, Eastern, and
south-Eastern Europe, Siberia, Turkey, and (I should hope) the
United Kingdom, Egypt, and India, might do as much for the peace
and prosperity of the world as the League of Nations itself.
Belgium, Holland, Scandinavia, and Switzerland might be expected
to adhere to it shortly. And it would be greatly to be desired by
their friends that France and Italy also should see their way to
adhesion.
It would be objected, I suppose, by some critics that such an
arrangement might go some way in effect towards realising the
former German dream of Mittel-Europa. If other countries were so
foolish as to remain outside the union and to leave to Germany
all its advantages, there might be some truth in this. But an
economic system, to which everyone had the opportunity of
belonging and which gave special privilege to none, is surely
absolutely free from the objections of a privileged and avowedly
imperialistic scheme of exclusion and discrimination. Our
attitude to these criticisms must be determined by our whole
moral and emotional reaction to the future of international
relations and the peace of the world. If we take the view that
for at least a generation to come Germany cannot be trusted with
even a modicum of prosperity, that while all our recent allies
are angels of light, all our recent enemies, Germans, Austrians,
Hungarians, and the rest, are children of the devil, that year by
year Germany must be kept impoverished and her children starved
and crippled, and that she must be ringed round by enemies; then
we shall reject all the proposals of this chapter, and
particularly those which may assist Germany to regain a part of
her former material prosperity and find a means of livelihood for
the industrial population of her towns. But if this view of
nations and of their relation to one another is adopted by the
democracies of Western Europe, and is financed by the United
States, heaven help us all. If we aim deliberately at the
impoverishment of Central Europe, vengeance, I dare predict, will
not limp. Nothing can then delay for very long that final civil
war between the forces of reaction and the despairing convulsions
of revolution, before which the horrors of the late German war
will fade into nothing, and which will destroy, whoever is
victor, the civilisation and the progress of our generation. Even
though the result disappoint us, must we not base our actions on
better expectations, and believe that the prosperity and
happiness of one country promotes that of others, that the
solidarity of man is not a fiction, and that nations can still
afford to treat other nations as fellow-creatures?
Such changes as I have proposed above might do something
appreciable to enable the industrial populations of Europe to
continue to earn a livelihood. But they would not be enough by
themselves. In particular, France would be a loser on paper (on
paper only, for she will never secure the actual fulfilment of
her present claims), and an escape from her embarrassments must
be shown her in some other direction. I proceed, therefore, to
proposals, first, for the adjustment of the claims of America and
the Allies amongst themselves; and second, for the provision of
sufficient credit to enable Europe to re-create her stock of
circulating capital.
II. THE SETTLEMENT OF INTER-ALLY INDEBTEDNESS
In proposing a modification of the reparation terms, I have
considered them so far only in relation to Germany. But fairness
requires that so great a reduction in the amount should be
accompanied by a readjustment of its apportionment between the
Allies themselves. The professions which our statesmen made on
every platform during the war, as well as other considerations,
surely require that the areas damaged by the enemy's invasion
should receive a priority of compensation. While this was one of
the ultimate objects for which we said we were fighting, we never
included the recovery of separation allowances amongst our war
aims. I suggest, therefore, that we should by our acts prove
ourselves sincere and trustworthy, and that accordingly Great
Britain should waive altogether her claims for cash payment, in
favour of Belgium, Serbia, and France. The whole of the payments
made by Germany would then be subject to the prior charge of
repairing the material injury done to those countries and
provinces which suffered actual invasion by the enemy; and I
believe that the sum of £1,500 million thus available would be
adequate to cover entirely the actual costs of restoration.
Further, it is only by a complete subordination of her own claims
for cash compensation that Great Britain can ask with clean hands
for a revision of the treaty and clear her honour from the breach
of faith for which she bears the main responsibility, as a result
of the policy to which the General Election of 1918 pledged her
representatives.
With the reparation problem thus cleared up it would be
possible to bring forward with a better grace and more hope of
success two other financial proposals, each of which involves an
appeal to the generosity of the United States.
Loans to By United States By United Kingdom By France Total
Million £ Million £ Million £ Million £
United Kingdom 842 -- -- 842
France 550 508 -- 1,058
Italy 325 467 35 827
Russia 38 568(5*) 160 766
Belgium 80 98(6*) 90 268
Serbia and
Jugoslavia 20 202 20 60
Other Allies 35 79 50 164
Total 1,900(7*) 1,740 355 3,995
The first is for the entire cancellation of inter-Ally
indebtedness (that is to say, indebtedness between the
governments of the Allied and Associated countries) incurred for
the purposes of the war. This proposal, which has been put
forward already in certain quarters, is one which I believe to be
absolutely essential to the future prosperity of the world. It
would be an act of farseeing statesmanship for the United Kingdom
and the United States, the two Powers chiefly concerned, to adopt
it. The sums of money which are involved are shown approximately
in the above table.(8*)
Thus the total volume of inter-Ally indebtedness, assuming
that loans from one Ally are not set off against loans to
another, is nearly £4,000 million. The United States is a lender
only. The United Kingdom has lent about twice as much as she has
borrowed. France has borrowed about three times as much as she
has lent. The other Allies have been borrowers only.
If all the above inter-Ally indebtedness were mutually
forgiven, the net result on paper (i.e., assuming all the loans to
be good) would be a surrender by the United States of about
£2,000 million and by the United Kingdom of about £900 million.
France would gain about £700 million and Italy about £800
million. But these figures overstate the loss to the United
Kingdom and understate the gain to France; for a large part of
the loans made by both these countries has been to Russia and
cannot, by any stretch of imagination, be considered good. If the
loans which the United Kingdom has made to her allies are
reckoned to be worth 5o % of their full value (an arbitrary but
convenient assumption which the Chancellor of the Exchequer has
adopted on more than one occasion as being as good as any other
for the purposes of an approximate national balance sheet), the
operation would involve her neither in loss nor in gain. But in
whatever way the net result is calculated on paper, the relief in
anxiety which such a liquidation of the position would carry with
it would be very great. It is from the United States, therefore,
that the proposal asks generosity.
Speaking with a very intimate knowledge of the relations
throughout the war between the British, the American, and the
other Allied treasuries, I believe this to be an act of
generosity for which Europe can fairly ask, provided Europe is
making an honourable attempt in other directions not to continue
war, economic or otherwise, but to achieve the economic
reconstitution of the whole continent. The financial sacrifices
of the United States have been, in proportion to her wealth,
immensely less than those of the European states. This could
hardly have been otherwise. It was a European quarrel, in which
the United States government could not have justified itself
before its citizens in expending the whole national strength, as
did the Europeans. After the United States came into the war her
financial assistance was lavish and unstinted, and without this
assistance the Allies could never have won the war,(9*) quite
apart from the decisive influence of the arrival of the American
troops. Europe, too, should never forget the extraordinary
assistance afforded her during the first six months of 1919
through the agency of Mr Hoover and the American commission of
relief. Never was a nobler work of disinterested goodwill carried
through with more tenacity and sincerity and skill, and with less
thanks either asked or given. The ungrateful governments of
Europe owe much more to the statesmanship and insight of Mr
Hoover and his band of American workers than they have yet
appreciated or will ever acknowledge. The American relief
commission, and they only, saw the European position during those
months in its true perspective and felt towards it as men should.
It was their efforts, their energy, and the American resources
placed by the President at their disposal, often acting in the
teeth of European obstruction, which not only saved an immense
amount of human suffering, but averted a widespread breakdown of
the European system.(10*)
But in speaking thus as we do of American financial
assistance, we tacitly assume, and America, I believe, assumed it
too when she gave the money, that it was not in the nature of an
investment. If Europe is going to repay the £2,000 million worth
of financial assistance which she has had from the United States
with compound interest at 5%, the matter takes on quite a
different complexion. If America's advances are to be regarded in
this light, her relative financial sacrifice has been very slight
indeed.
Controversies as to relative sacrifice are very barren and
very foolish also; for there is no reason in the world why
relative sacrifice should necessarily be equal -- so many other
very relevant considerations being quite different in the two
cases. The two or three facts following are put forward,
therefore, not to suggest that they provide any compelling
argument for Americans, but only to show that from his own
selfish point of view an Englishman is not seeking to avoid due
sacrifice on his country's part in making the present suggestion.
(1) The sums which the British Treasury borrowed from the
American Treasury, after the latter came into the war, were
approximately offset by the sums which England lent to her other
allies during the same period (i.e. excluding sums lent before
the United States came into the war); so that almost the whole of
England's indebtedness to the United States was incurred, not on
her own account, but to enable her to assist the rest of her
allies, who were for various reasons not in a position to draw
their assistance from the United States direct.(11*) (2) The
United Kingdom has disposed of about £1,000 million worth of her
foreign securities, and in addition has incurred foreign debt to
the amount of about £1,200 million. The United States, so far
from selling, has bought back upwards of £1,000 million, and has
incurred practically no foreign debt. (3) The population of the
United Kingdom is about one-half that of the United States, the
income about one-third, and the accumulated wealth between
one-half and one-third. The financial capacity of the United
Kingdom may therefore be put at about two-fifths that of the
United States. This figure enables us to make the following
comparison: Excluding loans to allies in each case (as is right
on the assumption that these loans are to be repaid), the war
expenditure of the United Kingdom has been about three times that
of the United States, or in proportion to capacity between seven
and eight times.
Having cleared this issue out of the way as briefly as
possible, I turn to the broader issues of the future relations
between the parties to the late war, by which the present
proposal must primarily be judged.
Failing such a settlement as is now proposed, the war will
have ended with a network of heavy tribute payable from one Ally
to another. The total amount of this tribute is even likely to
exceed the amount obtainable from the enemy; and the war will
have ended with the intolerable result of the Allies paying
indemnities to one another instead of receiving them from the
enemy.
For this reason the question of inter-Allied indebtedness is
closely bound up with the intense popular feeling amongst the
European Allies on the question of indemnities -- a feeling which
is based, not on any reasonable calculation of what Germany can,
in fact, pay, but on a well-founded appreciation of the
unbearable financial situation in which these countries will find
themselves unless she pays. Take Italy as an extreme example. If
Italy can reasonably be expected to pay £800 million, surely
Germany can and ought to pay an immeasurably higher figure. Or if
it is decided (as it must be) that Austria can pay next to
nothing, is it not an intolerable conclusion that Italy should be
loaded with a crushing tribute, while Austria escapes? Or, to
put it slightly differently, how can Italy be expected to submit
to payment of this great sum and see Czechoslovakia pay little or
nothing? At the other end of the scale there is the United
Kingdom. Here the financial position is different, since to ask
us to pay £800 million is a very different proposition from
asking Italy to pay it. But the sentiment is much the same. If we
have to be satisfied without full compensation from Germany, how
bitter will be the protests against paying it to the United
States. We, it will be said, have to be content with a claim
against the bankrupt estates of Germany, France, Italy, and
Russia, whereas the United States has secured a first mortgage
upon us. The case of France is at least as overwhelming. She can
barely secure from Germany the full measure of the destruction of
her countryside. Yet victorious France must pay her friends and
allies more than four times the indemnity which in the defeat of
1870 she paid Germany. The hand of Bismarck was light compared
with that of an Ally or of an associate. A settlement of
inter-Ally indebtedness is, therefore, an indispensable
preliminary to the peoples of the Allied countries facing, with
other than a maddened and exasperated heart, the inevitable truth
about the prospects of an indemnity from the enemy.
It might be an exaggeration to say that it is impossible for
the European Allies to pay the capital and interest due from them
on these debts, but to make them do so would certainly be to
impose a crushing burden. They may be expected, therefore, to
make constant attempts to evade or escape payment, and these
attempts will be a constant source of international friction and
ill-will for many years to come. A debtor nation does not love
its creditor, and it is fruitless to expect feelings of goodwill
from France, Italy and Russia towards this country or towards
America, if their future development is stifled for many years to
come by the annual tribute which they must pay us. There will be
a great incentive to them to seek their friends in other
directions, and any future rupture of peaceable relations will
always carry with it the enormous advantage of escaping the
payment of external debts. If, on the other hand, these great
debts are forgiven, a stimulus will be given to the solidarity
and true friendliness of the nations lately associated.
The existence of the great war debts is a menace to financial
stability everywhere. There is no European country in which
repudiation may not soon become an important political issue. In
the case of internal debt, however, there are interested parties
on both sides, and the question is one of the internal
distribution of wealth. With external debts this is not so, and
the creditor nations may soon find their interest inconveniently
bound up with the maintenance of a particular type of government
or economic organisation in the debtor countries. Entangling
alliances or entangling leagues are nothing to the entanglements
of cash owing.
The final consideration influencing the reader's attitude to
this proposal must, however, depend on his view as to the future
place in the world's progress of the vast paper entanglements
which are our legacy from war finance both at home and abroad.
The war has ended with everyone owing everyone else immense sums
of money. Germany owes a large sum to the Allies; the Allies owe
a large sum to Great Britain; and Great Britain owes a large sum
to the United States. The holders of war loan in every country
are owed a large sum by the state; and the state in its turn is
owed a large sum by these and other taxpayers. The whole position
is in the highest degree artificial, misleading, and vexatious.
We shall never be able to move again, unless we can free our
limbs from these paper shackles. A general bonfire is so great a
necessity that unless we can make of it an orderly and
good-tempered affair in which no serious injustice is done to
anyone, it will, when it comes at last, grow into a conflagration
that may destroy much else as well. As regards internal debt, I
am one of those who believe that a capital levy for the
extinction of debt is an absolute prerequisite of sound finance
in every one of the European belligerent countries. But the
continuance on a huge scale of indebtedness between governments
has special dangers of its own.
Before the middle of the nineteenth century no nation owed
payments to a foreign nation on any considerable scale, except
such tributes as were exacted under the compulsion of actual
occupation in force and, at one time, by absentee princes under
the sanctions of feudalism. It is true that the need for European
capitalism to find an outlet in the New World has led during the
past fifty years, though even now on a relatively modest scale,
to such countries as Argentina owing an annual sum to such
countries as England. But the system is fragile; and it has only
survived because its burden on the paying countries has not so
far been oppressive, because this burden is represented by real
assets and is bound up with the property system generally, and
because the sums already lent are not unduly large in relation to
those which it is still hoped to borrow. Bankers are used to this
system, and believe it to be a necessary part of the permanent
order of society. They are disposed to believe, therefore, by
analogy with it, that a comparable system between governments, on
a far vaster and definitely oppressive scale, represented by no
real assets, and less closely associated with the property
system, is natural and reasonable and in conformity with human
nature.
I doubt this view of the world. Even capitalism at home,
which engages many local sympathies, which plays a real part in
the daily process of production, and upon the security of which
the present organisation of society largely depends, is not very
safe. But however this may be, will the discontented peoples of
Europe be willing for a generation to come so to order their
lives that an appreciable part of their daily produce may be
available to meet a foreign payment the reason for which, whether
as between Europe and America, or as between Germany and the rest
of Europe, does not spring compellingly from their sense of
justice or duty?
On the one hand, Europe must depend in the long run on her
own daily labour and not on the largesse of America; but, on the
other hand, she will not pinch herself in order that the fruit of
her daily labour may go elsewhere. In short, I do not believe
that any of these tributes will continue to be paid, at the best,
for more than a very few years. They do not square with human
nature or agree with the spirit of the age.
If there is any force in this mode of thought, expediency and
generosity agree together, and the policy which will best promote
immediate friendship between nations will not conflict with the
permanent interests of the benefactor.(12*)
III. AN INTERNATIONAL LOAN
I pass to a second financial proposal. The requirements of
Europe are immediate. The prospect of being relieved of
oppressive interest payments to England and America over the
whole life of the next two generations (and of receiving from
Germany some assistance year by year to the costs of restoration)
would free the future from excessive anxiety. But it would not
meet the ills of the immediate present -- the excess of Europe's
imports over her exports, the adverse exchange, and the disorder
of the currency. It will be very difficult for European
production to get started again without a temporary measure of
external assistance. I am therefore a supporter of an
international loan in some shape or form, such as has been
advocated in many quarters in France, Germany, and England, and
also in the United States. In whatever way the ultimate
responsibility for repayment is distributed, the burden of
finding the immediate resources must inevitably fall in major
part upon the United States.
The chief objections to all the varieties of this species of
project are, I suppose, the following. The United States is
disinclined to entangle herself further (after recent
experiences) in the affairs of Europe, and, anyhow, has for the
time being no more capital to spare for export on a large scale.
There is no guarantee that Europe will put financial assistance
to proper use, or that she will not squander it and be in just as
bad case two or three years hence as she is in now: M. Klotz will
use the money to put off the day of taxation a little longer,
Italy and Jugoslavia will fight one another on the proceeds,
Poland will devote it to fulfilling towards all her neighbours
the military role which France has designed for her, the
governing classes of Roumania will divide up the booty amongst
themselves. In short, America would have postponed her own
capital developments and raised her own cost of living in order
that Europe might continue for another year or two the practices,
the policy, and the men of the past nine months. And as for
assistance to Germany, is it reasonable or at all tolerable that
the European Allies, having stripped Germany of her last vestige
of working capital, in opposition to the arguments and appeals of
the American financial representatives at Paris, should then turn
to the United States for funds to rehabilitate the victim in
sufficient measure to allow the spoliation to recommence in a
year or two?
There is no answer to these objections as matters are now. If
I had influence at the United States Treasury, I would not lend a
penny to a single one of the present governments of Europe. They
are not to be trusted with resources which they would devote to
the furtherance of policies in repugnance to which, in spite of
the President's failure to assert either the might or the ideals
of the people of the United States, the Republican and the
Democratic parties are probably united. But if, as we must pray
they will, the souls of the European peoples turn away this
winter from the false idols which have survived the war that
created them, and substitute in their hearts, for the hatred and
the nationalism which now possess them, thoughts and hopes of the
happiness and solidarity of the European family -- then should
natural piety and filial love impel the American people to put on
one side all the smaller objections of private advantage and to
complete the work that they began in saving Europe from the
tyranny of organised force, by saving her from herself. And even
if the conversion is not fully accomplished, and some parties
only in each of the European countries have espoused a policy of
reconciliation, America can still point the way and hold up the
hands of the party of peace by having a plan and a condition on
which she will give her aid to the work of renewing life.
The impulse which, we are told, is now strong in the mind of
the United States to be quit of the turmoil, the complication,
the violence, the expense, and, above all, the unintelligibility
of the European problems, is easily understood. No one can feel
more intensely than the writer how natural it is to retort to the
folly and impracticability of the European statesmen -- Rot,
then, in your own malice, and we will go our way --
Remote from Europe; from her blasted hopes;
Her fields of carnage, and polluted air.
But if America recalls for a moment what Europe has meant to
her and still means to her, what Europe, the mother of art and of
knowledge, in spite of everything, still is and still will be,
will she not reject these counsels of indifference and isolation,
and interest herself in what may prove decisive issues for the
progress and civilisation of all mankind?
Assuming then, if only to keep our hopes up, that America
will be prepared to contribute to the process of building up the
good forces of Europe, and will not, having completed the
destruction of an enemy, leave us to our misfortunes, what form
should her aid take?
I do not propose to enter on details. But the main outlines
of all schemes for an international loan are much the same. The
countries in a position to lend assistance, the neutrals, the
United Kingdom and, for the greater portion of the sum required,
the United States, must provide foreign purchasing credits for
all the belligerent countries of continental Europe, Allied and
ex-enemy alike. The aggregate sum required might not be so large
as is sometimes supposed. Much might be done, perhaps, with a
fund of £200 million in the first instance. This sum, even if a
precedent of a different kind had been established by the
cancellation of inter-Ally war debt, should be lent and should be
borrowed with the unequivocal intention of its being repaid in
full. With this object in view, the security for the loan should
be the best obtainable, and the arrangements for its ultimate
repayment as complete as possible. In particular, it should rank,
both for payment of interest and discharge of capital, in front
of all reparation claims, all inter-Ally war debt, all internal
war loans, and all other government indebtedness of any other
kind. Those borrowing countries who will be entitled to
reparation payments should be required to pledge all such
receipts to repayment of the new loan. And all the borrowing
countries should be required to place their customs duties on a
gold basis and to pledge such receipts to its service.
Expenditure out of the loan should be subject to general, but
not detailed, supervision by the lending countries.
If, in addition to this loan for the purchase of food and
materials, a guarantee fund were established up to an equal
amount, namely £200 million (of which it would probably prove
necessary to find only a part in cash), to which all members of
the League of Nations would contribute according to their means,
it might be practicable to base upon it a general reorganisation
of the currency.
In this manner Europe might be equipped with the minimum
amount of liquid resources necessary to revive her hopes, to
renew her economic organisation, and to enable her great
intrinsic wealth to function for the benefit of her workers. It
is useless at the present time to elaborate such schemes in
further detail. A great change is necessary in public opinion
before the proposals of this chapter can enter the region of
practical politics, and we must await the progress of events as
patiently as we can.
IV. THE RELATIONS OF CENTRAL EUROPE TO RUSSIA
I have said very little of Russia in this book. The broad
character of the situation there needs no emphasis, and of the
details we know almost nothing authentic. But in a discussion as
to how the economic situation of Europe can be restored there are
one or two aspects of the Russian question which are vitally
important.
From the military point of view an ultimate union of forces
between Russia and Germany is greatly feared in some quarters.
This would be much more likely to take place in the event of
reactionary movements being successful in each of the two
countries, whereas an effective unity of purpose between Lenin
and the present essentially middle-class government of Germany is
unthinkable. On the other hand, the same people who fear such a
union are even more afraid of the success of Bolshevism; and yet
they have to recognise that the only efficient forces for
fighting it are, inside Russia, the reactionaries, and, outside
Russia, the established forces of order and authority in Germany.
Thus the advocates of intervention in Russia, whether direct or
indirect, are at perpetual cross-purposes with themselves. They
do not know what they want; or, rather, they want what they
cannot help seeing to be incompatibles. This is one of the
reasons why their policy is so inconstant and so exceedingly
futile.
The same conflict of purpose is apparent in the attitude of
the council of the Allies at Paris towards the present government
of Germany. A victory of Spartacism in Germany might well be the
prelude to revolution everywhere: it would renew the forces of
Bolshevism in Russia, and precipitate the dreaded union of
Germany and Russia; it would certainly put an end to any
expectations which have been built on the financial and economic
clauses of the treaty of peace. Therefore Paris does not love
Spartacus. But, on the other hand, a victory of reaction in
Germany would be regarded by everyone as a threat to the security
of Europe, and as endangering the fruits of victory and the basis
of the peace. Besides, a new military power establishing itself
in the East, with its spiritual home in Brandenburg, drawing to
itself all the military talent and all the military adventurers,
all those who regret emperors and hate democracy, in the whole of
Eastern and Central and south-eastern Europe, a power which would
be geographically inaccessible to the military forces of the
Allies, might well found, at least in the anticipations of the
timid, a new Napoleonic domination, rising, as a phoenix, from
the ashes of cosmopolitan militarism. So Paris dare not love
Brandenburg. The argument points, then, to the sustentation of
those moderate forces of order which, somewhat to the world's
surprise, still manage to maintain themselves on the rock of the
German character. But the present government of Germany stands
for German unity more perhaps than for anything else; the
signature of the peace was, above all, the price which some
Germans thought it worth while to pay for the unity which was all
that was left them of 1870. Therefore Paris, with some hopes of
disintegration across the Rhine not yet extinguished, can resist
no opportunity of insult or indignity, no occasion of lowering
the prestige or weakening the influence of a government with the
continued stability of which all the conservative interests of
Europe are nevertheless bound up.
The same dilemma affects the future of Poland in the role
which France has cast for her. She is to be strong, Catholic,
militarist, and faithful, the consort, or at least the favourite,
of victorious France, prosperous and magnificent between the
ashes of Russia and the ruin of Germany. Roumania, if only she
could be persuaded to keep up appearances a little more, is a
part of the same scatter-brained conception. Yet, unless her
great neighbours are prosperous and orderly, Poland is an
economic impossibility with no industry but Jew-baiting. And when
Poland finds that the seductive policy of France is pure
rhodomontade and that there is no money in it whatever, nor
glory either, she will fall, as promptly as possible, into the
arms of somebody else.
The calculations of 'diplomacy' lead us, therefore, nowhere.
Crazy dreams and childish intrigue in Russia and Poland and
thereabouts are the favourite indulgence at present of those
Englishmen and Frenchmen who seek excitement in its least
innocent form, and believe, or at least behave as if foreign
policy was of the same genre as a cheap melodrama.
Let us turn, therefore, to something more solid. The German
government has announced (30 October 1919) its continued adhesion
to a policy of non-intervention in the internal affairs of
Russia, 'not only on principle, but because it believes that this
policy is also justified from a practical point of view'. Let us
assume that at last we also adopt the same standpoint, if not on
principle, at least from a practical point of view. What are then
the fundamental economic factors in the future relations of
Central to Eastern Europe?
Before the war Western and Central Europe drew from Russia a
substantial part of their imported cereals. Without Russia the
importing countries would have had to go short. Since 1914 the
loss of the Russian supplies has been made good, partly by
drawing on reserves, partly from the bumper harvests of North
America called forth by Mr Hoover's guaranteed price, but largely
by economies of consumption and by privation. After 1920 the need
of Russian supplies will be even greater than it was before the
war; for the guaranteed price in North America will have been
discontinued, the normal increase of population there will, as
compared with 1914, have swollen the home demand appreciably, and
the soil of Europe will not yet have recovered its former
productivity. If trade is not resumed with Russia, wheat in
1920-1 (unless the seasons are specially bountiful) must be
scarce and very dear. The blockade of Russia lately proclaimed by
the Allies is therefore a foolish and short-sighted proceeding;
we are blockading not so much Russia as ourselves.
The process of reviving the Russian export trade is bound in
any case to be a slow one. The present productivity of the
Russian peasant is not believed to be sufficient to yield an
exportable surplus on the pre-war scale. The reasons for this are
obviously many, but amongst them are included the insufficiency
of agricultural implements and accessories and the absence of
incentive to production caused by the lack of commodities in the
towns which the peasants can purchase in exchange for their
produce. Finally, there is the decay of the transport system,
which hinders or renders impossible the collection of local
surpluses in the big centres of distribution.
I see no possible means of repairing this loss of
productivity within any reasonable period of time except through
the agency of German enterprise and organisation. It is
impossible geographically and for many other reasons for
Englishmen, Frenchmen, or Americans to undertake it; we have
neither the incentive nor the means for doing the work on a
sufficient scale. Germany, on the other hand, has the experience,
the incentive, and to a large extent the materials for furnishing
the Russian peasant with the goods of which he has been starved
for the past five years, for reorganising the business of
transport and collection, and so for bringing into the world's
pool, for the common advantage, the supplies from which we are
now so disastrously cut off. It is in our interest to hasten the
day when German agents and organisers will be in a position to
set in train in every Russian village the impulses of ordinary
economic motive. This is a process quite independent of the
governing authority in Russia; but we may surely predict with
some certainty that, whether or not the form of communism
represented by Soviet government proves permanently suited to the
Russian temperament, the revival of trade, of the comforts of
life and of ordinary economic motive are not likely to promote
the extreme forms of those doctrines of violence and tyranny
which are the children of war and of despair.
Let us then in our Russian policy not only applaud and
imitate the policy of non-intervention which the government of
Germany has announced, but, desisting from a blockade which is
injurious to our own permanent interests, as well as illegal, let
us encourage and assist Germany to take up again her place in
Europe as a creator and organiser of wealth for her eastern and
southern neighbours.
There are many persons in whom such proposals will raise
strong prejudices. I ask them to follow out in thought the result
of yielding to these prejudices. If we oppose in detail every
means by which Germany or Russia can recover their material
well-being, because we feel a national, racial, or political
hatred for their populations or their governments, we must be
prepared to face the consequences of such feelings. Even if there
is no moral solidarity between the nearly related races of
Europe, there is an economic solidarity which we cannot
disregard. Even now, the world markets are one. If we do not
allow Germany to exchange products with Russia and so feed
herself, she must inevitably compete with us for the produce of
the New World. The more successful we are in snapping economic
relations between Germany and Russia, the more we shall depress
the level of our own economic standards and increase the gravity
of our own domestic problems. This is to put the issue on its
lowest grounds. There are other arguments, which the most obtuse
cannot ignore, against a policy of spreading and encouraging
further the economic ruin of great countries.
I see few signs of sudden or dramatic developments anywhere.
Riots and revolutions there may be, but not such, at present, as
to have fundamental significance. Against political tyranny and
injustice revolution is a weapon. But what counsels of hope can
revolution offer to sufferers from economic privation which does
not arise out of the injustices of distribution but is general?
The only safeguard against revolution in Central Europe is indeed
the fact that, even to the minds of men who are desperate,
revolution offers no prospect of improvement whatever. There may,
therefore, be ahead of us a long, silent process of
semi-starvation, and of a gradual, steady lowering of the
standards of life and comfort. The bankruptcy and decay of
Europe, if we allow it to proceed, will affect everyone in the
long run, but perhaps not in a way that is striking or immediate.
This has one fortunate side. We may still have time to
reconsider our courses and to view the world with new eyes. For
the immediate future events are taking charge, and the near
destiny of Europe is no longer in the hands of any man. The
events of the coming year will not be shaped by the deliberate
acts of statesmen, but by the hidden currents, flowing
continually beneath the surface of political history, of which no
one can predict the outcome. In one way only can we influence
these hidden currents -- by setting in motion those forces of
instruction and imagination which change opinion. The assertion
of truth, the unveiling of illusion, the dissipation of hate, the
enlargement and instruction of men's hearts and minds, must be
the means.
In this autumn of 1919 in which I write, we are at the dead
season of our fortunes. The reaction from the exertions, the
fears, and the sufferings of the past five years is at its
height. Our power of feeling or caring beyond the immediate
questions of our own material well-being is temporarily eclipsed.
The greatest events outside our own direct experience and the
most dreadful anticipations cannot move us.
In each human heart terror survives
The ruin it has gorged: the loftiest fear
All that they would disdain to think were true:
Hypocrisy and custom make their minds
The fanes of many a worship, now outworn.
They dare not devise good for man's estate,
And yet they know not that they do not dare.
The good want power but to weep barren tears.
The powerful goodness want: worse need for them.
The wise want love; and those who love want wisdom;
And all best things are thus confused to ill.
Many are strong and rich, and would be just,
But live among their suffering fellow-men
As if none felt: they know not what they do.
We have been moved already beyond endurance, and need rest.
Never in the lifetime of men now living has the universal element
in the soul of man burnt so dimly.
For these reasons the true voice of the new generation has
not yet spoken, and silent opinion is not yet formed. To the
formation of the general opinion of the future I dedicate this
book.
NOTES:
1. The figures for the United Kingdom are as follows:
Monthly Net imports Exports Excess of imports
average (£1,000) (£1,000) (£1,000)
1913 54,930 43,770 11,160
1914 50,097 35,893 14,204
Jan-Mar. 1919 109,578 49,122 60,456
April-June 1919 111,403 62,463 48,940
July-Sept 1919 135,927 68,863 67,064
But this excess is by no means so serious as it looks; for
with the present high freight earnings of the mercantile marine
the various 'invisible' exports of the United Kingdom are
probably even higher than they were before the war, and may
average at least £45 million monthly.
2. President Wilson was mistaken in suggesting that the
supervision of reparation payments has been entrusted to the
League of Nations. As I pointed out in chapter 5, whereas the
League is invoked in regard to most of the continuing economic
and territorial provisions of the treaty, this is not the case as
regards reparation, over the problems and modifications of which
the reparation commission is supreme, without appeal of any kind
to the League of Nations.
3. These articles, which provide safeguards against the outbreak
of war between members of the League and also between members and
non-members, are the solid achievement of the covenant. These
articles make substantially less probable a war between organised
Great Powers such as that of 1914. This alone should commend the
League to all men.
4. It would be expedient so to define a 'protectionist tariff' as
to permit (a) the total prohibition of certain imports; (b) the
imposition of sumptuary or revenue customs duties on commodities
not produced at home; (c) the imposition of customs duties which
did not exceed by more than 5% a countervailing excise on similar
commodities produced at home; (d) export duties. Further, special
exceptions might be permitted by a majority vote of the countries
entering the union. Duties which had existed for five years prior
to a country's entering the union might be allowed to disappear
gradually by equal instalments spread over the five years
subsequent to joining the union.
5. This allows nothing for interest on the debt since the
Bolshevik Revolution.
6. No interest has been charged on the advances made to these
countries.
7. The actual total of loans by the United States up to date is
very nearly £2,000 million, but I have not got the latest
details.
8. The figures in this table are partly estimated, and are
probably not completely accurate in detail; but they show the
approximate figures with sufficient accuracy for the purposes of
the present argument. The British figures are taken from the
White Paper of 23 October 1919 (Cmd. 377). In any actual
settlement, adjustments would be required in connection with
certain loans of gold and also in other respects, and I am
concerned in what follows with the broad principle only. The sums
advanced by the United States and France, which are in terms of
dollars and francs respectively, have been converted at
approximately par rates. The total excludes loans raised by the
United Kingdom on the market in the United States, and loans
raised by France on the market in the United Kingdom or the
United States, or from the Bank of England.
9. The financial history of the six months from the end of the
summer of 1916 up to the entry of the United States into the war
in April 1917 remains to be written. Very few persons, outside
the half-dozen officials of the British Treasury who lived in
daily contact with the immense anxieties and impossible financial
requirements of those days, can fully realise what steadfastness
and courage were needed, and how entirely hopeless the task would
soon have become without the assistance of the United States
Treasury. The financial problems from April 1917 onwards were of
an entirely different order from those of the preceding months.
10. Mr Hoover was the only man who emerged from the ordeal of
Paris with an enhanced reputation. This complex personality, with
his habitual air of weary Titan (or, as others might put it, of
exhausted prize-fighter), his eyes steadily fixed on the true and
essential facts of the European situation, imported into the
councils of Paris, when he took part in them, precisely that
atmosphere of reality, knowledge, magnanimity, and
disinterestedness which, if they had been found in other quarters
also, would have given us the Good Peace.
11. Even after the United States came into the war the bulk of
Russian expenditure in the United States, as well as the whole of
that government's other foreign expenditure, had to be paid for
by the British Treasury.
12. It is reported that the United States Treasury has agreed to
fund (i.e. to add to the principal sum) the interest owing them
on their loans to the Allied governments during the next three
years. I presume that the British Treasury is likely to follow
suit. If the debts are to be paid ultimately, this piling up of
the obligations at compound interest makes the position
progressively worse. But the arrangement wisely offered by the
United States Treasury provides a due interval for the calm
consideration of the whole problem in the light of the after-war
position as it will soon disclose itself.
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