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

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

It is unlikely, except in the United States, that there will be any appreciable surplus for any other purpose.

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

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

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

These factors combined to stimulate human ingenuity, and the efforts both of the Allied and of the German Governments to interfere effectively with the outflow are believed to have been largely futile.

In face of all these considerations, it will be a miracle if much remains for Reparation. The countries of the Allies and of the United States, the countries of Germany's own allies, and the neutral countries adjacent to Germany exhaust between them almost the whole of the civilized world; and, as we have seen, we cannot expect much to be available for Reparation from investments in any of these quarters.

Indeed there remain no countries of importance for investments except those of South America.

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

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

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

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

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

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

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

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

Her immediately transferable wealth is composed, then, of--

(_a_) Gold and silver--say $300,000,000.

(_b_) Ships--$600,000,000.

(_c_) Foreign securities--$500,000,000 to $1,250,000,000.

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

2. _Property in ceded Territory or surrendered under the Armistice_

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

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

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

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

Then remains the value of material surrendered under the Armistice.

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

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

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

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

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

3. _Annual Payments spread over a Term of Years_

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

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

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

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

Only on the basis of such an a.n.a.lysis, supplemented by some general data as to the aggregate wealth-producing capacity of the country, can a rational guess be made as to the maximum degree to which the exports of Germany could be brought to exceed her imports.

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

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

-----------------------------------------+---------+--------------- | Amount: | Percentage of German Exports, 1913 | Million | Total Exports | Dollars | -----------------------------------------+---------+--------------- Iron goods (including tin plates, etc.) | 330.65 | 13.2 Machinery and parts (including | | motor-cars) | 187.75 | 7.5 Coal, c.o.ke, and briquettes | 176.70 | 7.0 Woolen goods (including raw and | | combed wool and clothing) | 147.00 | 5.9 Cotton goods (including raw cotton, | | yarn, and thread) | 140.75 | 5.6 +---------+--------------- | 982.85 | 39.2 +---------+--------------- Cereals, etc. (including rye, oats, | | wheat, hops) | 105.90 | 4.1 Leather and leather goods | 77.35 | 3.0 Sugar | 66.00 | 2.6 Paper, etc. | 65.50 | 2.6 Furs | 58.75 | 2.2 Electrical goods (installations, | | machinery, lamps, cables) | 54.40 | 2.2 Silk goods | 50.50 | 2.0 Dyes | 48.80 | 1.9 Copper goods | 32.50 | 1.3 Toys | 25.75 | 1.0 Rubber and rubber goods | 21.35 | 0.9 Books, maps, and music | 18.55 | 0.8 Potash | 15.90 | 0.6 Gla.s.s | 15.70 | 0.6 Pota.s.sium chloride | 14.55 | 0.6 Pianos, organs, and parts | 13.85 | 0.6 Raw zinc | 13.70 | 0.5 Porcelain | 12.65 | 0.5 +---------+--------------- | 711.70 | 67.2 +---------+--------------- Other goods, unenumerated | 829.60 | 32.8 +---------+--------------- Total |2,524.15 | 100.0 -----------------------------------------+---------+---------------

-----------------------------------------+---------+--------------- | Amount: | Percentage of German Imports, 1913 | Million | Total Imports | Dollars | -----------------------------------------+---------+--------------- I. Raw materials:-- | | Cotton | 151.75 | 5.6 Hides and skins | 124.30 | 4.6 Wool | 118.35 | 4.4 Copper | 83.75 | 3.1 Coal | 68.30 | 2.5 Timber | 58.00 | 2.2 Iron ore | 56.75 | 2.1 Furs | 46.75 | 1.7 Flax and flaxseed | 46.65 | 1.7 Saltpetre | 42.75 | 1.6 Silk | 39.50 | 1.5 Rubber | 36.50 | 1.4 Jute | 23.50 | 0.9 Petroleum | 17.45 | 0.7 Tin | 14.55 | 0.5 Phosphorus chalk | 11.60 | 0.4 Lubricating oil | 11.45 | 0.4 +---------+--------------- | 951.90 | 35.3 +---------+--------------- II. Food, tobacco, etc.:-- | | Cereals, etc. (wheat, barley, | | bran, rice, maize, oats, rye, | | clover) | 327.55 | 12.2 Oil seeds and cake, etc. | | (including palm kernels, copra,| | cocoa, beans) | 102.65 | 3.8 Cattle, lamb fat, bladders | 73.10 | 2.8 Coffee | 54.75 | 2.0 Eggs | 48.50 | 1.8 Tobacco | 33.50 | 1.2 b.u.t.ter | 29.65 | 1.1 Horses | 29.05 | 1.1 Fruit | 18.25 | 0.7 Fish | 14.95 | 0.6 Poultry | 14.00 | 0.5 Wine | 13.35 | 0.5 +---------+--------------- | 759.30 | 28.3 -----------------------------------------+---------+---------------

-----------------------------------------+---------+--------------- | Amount: | Percentage of German Imports, 1913 | Million | Total Imports | Dollars | -----------------------------------------+---------+--------------- III. Manufactures:-- | | Cotton yarn and thread and | | cotton goods | 47.05 | 1.8 Woolen yarn and woolen | | goods | 37.85 | 1.4 Machinery | 20.10 | 0.7 +---------+--------------- | 105.00 | 3.9 +---------+--------------- IV. Unenumerated | 876.40 | 32.5 +---------+--------------- Total |2,692.60 | 100.0 -----------------------------------------+---------+---------------

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

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

these five cla.s.ses between them accounting for 39.2 per cent. of the total exports. It will be observed that all these goods are of a kind in which before the war compet.i.tion between Germany and the United Kingdom was very severe. If, therefore, the volume of such exports to overseas or European destinations is very largely increased the effect upon British export trade must be correspondingly serious. As regards two of the categories, namely, cotton and woolen goods, the increase of an export trade is dependent upon an increase of the import of the raw material, since Germany produces no cotton and practically no wool.

These trades are therefore incapable of expansion unless Germany is given facilities for securing these raw materials (which can only be at the expense of the Allies) in excess of the pre-war standard of consumption, and even then the effective increase is not the gross value of the exports, but only the difference between the value of the manufactured exports and of the imported raw material. As regards the other three categories, namely, machinery, iron goods, and coal, Germany's capacity to increase her exports will have been taken from her by the cessions of territory in Poland, Upper Silesia, and Alsace-Lorraine. As has been pointed out already, these districts accounted for nearly one-third of Germany's production of coal. But they also supplied no less than three-quarters of her iron-ore production, 38 per cent of her blast furnaces, and 9.5 per cent of her iron and steel foundries. Unless, therefore, Alsace-Lorraine and Upper Silesia send their iron ore to Germany proper, to be worked up, which will involve an increase in the imports for which she will have to find payment, so far from any increase in export trade being possible, a decrease is inevitable.[127]

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

Besides, France, having secured a potash field in the territory which has been restored to her, will not welcome a great stimulation of the German exports of this material.

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

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

GERMAN TRADE (1913) ACCORDING TO DESTINATION AND ORIGIN.