The Economic Consequences of the Peace
by John Maynard Keynes

Chapter 4: The Treaty

     The thoughts which I have expressed in the second chapter
 were not present to the mind of Paris. The future life of Europe
 was not their concern; its means of livelihood was not their
 anxiety. Their preoccupations, good and bad alike, related to
 frontiers and nationalities, to the balance of power, to imperial
 aggrandisements, to the future enfeeblement of a strong and
 dangerous enemy, to revenge, and to the shifting by the victors
 of their unbearable financial burdens on to the shoulders of the
     Two rival schemes for the future polity of the world took the
 field -- the Fourteen Points of the President, and the
 Carthaginian peace of M. Clemenceau. Yet only one of these was
 entitled to take the field; for the enemy had not surrendered
 unconditionally, but on agreed terms as to the general character
 of the peace.
     This aspect of what happened cannot, unfortunately, be passed
 over with a word, for in the minds of many Englishmen at least it
 has been a subject of very great misapprehension. Many persons
 believe that the armistice terms constituted the first contract
 concluded between the Allied and Associated Powers and the German
 government, and that we entered the conference with our hands
 free, except so far as these armistice terms might bind us. This
 was not the case. To make the position plain, it is necessary
 briefly to review the history of the negotiations which began
 with the German Note of 5 October 1918, and concluded with
 President Wilson's Note of 5 November 1918.
     On 5 October 1918 the German government addressed a brief
 Note to the President accepting the Fourteen Points and asking
 for peace negotiations. The President's reply of 8 October asked
 if he was to understand definitely that the German government
 accepted 'the terms laid down' in the Fourteen Points and in his
 subsequent addresses and 'that its object in entering into
 discussion would be only to agree upon the practical details of
 their application.' He added that the evacuation of invaded
 territory must be a prior condition of an armistice. On 12
 October the German government returned an unconditional
 affirmative to these questions; 'its object in entering into
 discussions would be only to agree upon practical details of the
 application of these terms'. On 14 October, having received this
 affirmative answer, the President made a further communication to
 make clear the points: (1) that the details of the armistice
 would have to be left to the military advisers of the United
 States and the Allies, and must provide absolutely against the
 possibility of Germany's resuming hostilities; (2) that submarine
 warfare must cease if these conversations were to continue; and
 (3) that he required further guarantees of the representative
 character of the government with which he was dealing. On 20
 October Germany accepted points (1) and (2), and pointed out, as
 regards (3), that she now had a constitution and a government
 dependent for its authority on the Reichstag. On 23 October the
 President announced that, 'having received the solemn and
 explicit assurance of the German government that it unreservedly
 accepts the terms of peace laid down in his address to the
 Congress of the United States on 8 January 1918 (the Fourteen
 Points), and the principles of settlement enunciated in his
 subsequent addresses, particularly the address of 27 September,
 and that it is ready to discuss the details of their
 application', he has communicated the above correspondence to the
 governments of the Allied Powers 'with the suggestion that, if
 these governments are disposed to effect peace upon the terms and
 principles indicated,' they will ask their military advisers to
 draw up armistice terms of such a character as to 'ensure to the
 associated governments the unrestricted power to safeguard and
 enforce the details of the peace to which the German government
 has agreed'. At the end of this Note the President hinted more
 openly than in that of 14 October at the abdication of the
 Kaiser. This completes the preliminary negotiations to which the
 President alone was a party, acting without the governments of
 the Allied Powers.
     On 5 November 1918 the President transmitted to Germany the
 reply he had received from the governments associated with him,
 and added that Marshal Foch had been authorised to communicate
 the terms of an armistice to properly accredited representatives.
 In this reply the allied governments, 'subject to the
 qualifications which follow, declare their willingness to make
 peace with the government of Germany on the terms of peace laid
 down in the President's address to Congress of 8 January 1918,
 and the principles of settlement enunciated in his subsequent
 addresses'. The qualifications in question were two in number.
 The first related to the freedom of the seas, as to which they
 'reserved to themselves complete freedom'. The second related to
 reparation and ran as follows: 'Further, in the conditions of
 peace laid down in his address to Congress on 8 January 1918, the
 President declared that invaded territories must be restored as
 well as evacuated and made free. The allied governments feel that
 no doubt ought to be allowed to exist as to what this provision
 implies. By it they understand that compensation will be made by
 Germany for all damage done to the civilian population of the
 Allies and to their property by the aggression of Germany by
 land, by sea, and from the air.'(1*)
     The nature of the contract between Germany and the Allies
 resulting from this exchange of documents is plain and
 unequivocal. The terms of the peace are to be in accordance with
 the addresses of the President, and the purpose of the peace
 conference is 'to discuss the details of their application.' The
 circumstances of the contract were of an unusually solemn and
 binding character; for one of the conditions of it was that
 Germany should agree to armistice terms which were to be such as
 would leave her helpless. Germany having rendered herself
 helpless in reliance on the contract, the honour of the Allies
 was peculiarly involved in fulfilling their part and, if there
 were ambiguities, in not using their position to take advantage
 of them.
     What, then, was the substance of this contract to which the
 Allies had bound themselves? An examination of the documents
 shows that, although a large part of the addresses is concerned
 with spirit, purpose, and intention, and not with concrete
 solutions, and that many questions requiring a settlement in the
 peace treaty are not touched on, nevertheless there are certain
 questions which they settle definitely. It is true that within
 somewhat wide limits the Allies still had a free hand. Further,
 it is difficult to apply on a contractual basis those passages
 which deal with spirit, purpose, and intention; every man must
 judge for himself whether, in view of them, deception or
 hypocrisy has been practised. But there remain, as will be seen
 below, certain important issues on which the contract is
     In addition to the Fourteen Points of 8 January 1918, the
 addresses of the President which form part of the material of the
 contract are four in number -- before the Congress of 11
 February; at Baltimore on 6 April; at Mount Vernon on 4 July; and
 at New York on 27 September, the last of these being specially
 referred to in the contract. I venture to select from these
 addresses those engagements of substance, avoiding repetitions,
 which are most relevant to the German treaty. The parts I omit
 add to, rather than detract from, those I quote; but they chiefly
 relate to intention, and are perhaps too vague and general to be
 interpreted contractually.(2*)
     The Fourteen Points -- (3) 'The removal. so far as possible,
 of all economic barriers and the establishment of an equality of
 trade conditions among all the nations consenting to the peace
 and associating themselves for its maintenance.' (4) 'Adequate
 guarantees given and taken that national armaments will be
 reduced to the lowest point consistent with domestic safety.' (5)
 'A free, open-minded, and absolutely impartial adjustment of all
 colonial claims', regard being had to the interests of the
 populations concerned. (6), (7), (8), and (11) The evacuation and
 'restoration' of all invaded territory, especially of Belgium. To
 this must be added the rider of the Allies, claiming compensation
 for all damage done to civilians and their property by land, by
 sea, and from the air (quoted in full above). (8) The righting of
 'the wrong done to France by Prussia in 1871 in the matter of
 Alsace-Lorraine'. (13) An independent Poland, including 'the
 territories inhabited by indisputably Polish populations' and
 'assured a free and secure access to the sea'. (14) The League of
     Before the Congress, 11 February -- 'There shall be no
 annexations, no contributions, no punitive damages...
 Self-determination is not a mere phrase. It is an imperative
 principle of action which statesmen will henceforth ignore at
 their peril... Every territorial settlement involved in this war
 must be made in the interest and for the benefit of the
 populations concerned, and not as a part of any mere adjustment
 or compromise of claims amongst rival States.'
     New York, 27 September -- (1) 'The impartial justice meted
 out must involve no discrimination between those to whom we wish
 to be just and those to whom we do not wish to be just.' (2) 'No
 special or separate interest of any single nation or any group of
 nations can be made the basis of any part of the settlement which
 is not consistent with the common interest of all.' (3) 'There
 can be no leagues or alliances or special covenants and
 understandings within the general and common family of the League
 of Nations.' (4) 'There can be no special selfish economic
 combinations within the League and no employment of any form of
 economic boycott or exclusion, except as the power of economic
 penalty by exclusion from the markets of the world may be vested
 in the League of Nations itself as a means of discipline and
 control.' (5) 'All international agreements and treaties of every
 kind must be made known in their entirety to the rest of the
     This wise and magnanimous programme for the world had passed,
 on 5 November 1918, beyond the region of idealism and aspiration,
 and had become part of a solemn contract to which all the Great
 Powers of the world had put their signature. But it was lost,
 nevertheless, in the morass of Paris -- the spirit of it
 altogether, the letter in parts ignored and in other parts
     The German observations on the draft treaty of peace were
 largely a comparison between the terms of this understanding, on
 the basis of which the German nation had agreed to lay down its
 arms, and the actual provisions of the document offered them for
 signature thereafter. The German commentators had little
 difficulty in showing that the draft treaty constituted a breach
 of engagements and of international morality comparable with
 their own offence in the invasion of Belgium. Nevertheless, the
 German reply was not in all its parts a document fully worthy of
 the occasion, because in spite of the justice and importance of
 much of its contents, a truly broad treatment and high dignity of
 outlook were a little wanting, and the general effect lacks the
 simple treatment, with the dispassionate objectivity of despair,
 which the deep passions of the occasion might have evoked. The
 Allied governments gave it, in any case, no serious
 consideration, and I doubt if anything which the German
 delegation could have said at that stage of the proceedings would
 have much influenced the result.
     The commonest virtues of the individual are often lacking in
 the spokesmen of nations; a statesman representing not himself
 but his country may prove, without incurring excessive blame --
 as history often records -- vindictive, perfidious, and
 egotistic. These qualities are familiar in treaties imposed by
 victors. But the German delegation did not succeed in exposing in
 burning and prophetic words the quality which chiefly
 distinguishes this transaction from all its historical
 predecessors -- its insincerity.
     This theme, however, must be for another pen than mine. I am
 mainly concerned in what follows not with the justice of the
 treaty -- neither with the demand for penal justice against the
 enemy, nor with the obligation of contractual justice on the
 victor -- but with its wisdom and with its consequences.
     I propose, therefore, in this chapter to set forth baldly the
 principal economic provisions of the treaty, reserving, however,
 for the next my comments on the reparation chapter and on
 Germany's capacity to meet the payments there demanded from her.
     The German economic system as it existed before the war
 depended on three main factors: I. Overseas commerce as
 represented by her mercantile marine, her colonies, her foreign
 investments, her exports, and the overseas connections of her
 merchants. II. The exploitation of her coal and iron and the
 industries built upon them. III. Her transport and tariff system.
 Of these the first, while not the least important, was certainly
 the most vulnerable. The treaty aims at the systematic
 destruction of all three, but principally of the first two.


     (1) Germany has ceded to the Allies all the vessels of her
 mercantile marine exceeding 1,600 tons gross, half the vessels
 between 1,000 tons and 1,600 tons, and one-quarter of her
 trawlers and other fishing boats.(3*) The cession is
 comprehensive, including not only vessels flying the German flag,
 but also all vessels owned by Germans but flying other flags, and
 all vessels under construction as well as those afloat.(4*)
 Further, Germany undertakes, if required, to build for the Allies
 such types of ships as they may specify up to 200,000 tons(5*)
 annually for five years, the value of these ships being credited
 to Germany against what is due from her for reparation.(6*)
     Thus the German mercantile marine is swept from the seas and
 cannot be restored for many years to come on a scale adequate to
 meet the requirements of her own commerce. For the present, no
 lines will run from Hamburg, except such as foreign nations may
 find it worth while to establish out of their surplus tonnage.
 Germany will have to pay to foreigners for the carriage of her
 trade such charges as they may be able to exact, and will receive
 only such conveniences as it may suit them to give her. The
 prosperity of German ports and commerce can only revive, it would
 seem, in proportion as she succeeds in bringing under her
 effective influence the merchant marines of Scandinavia and of
     (2) Germany has ceded to the Allies 'all her rights and
 titles over her overseas possessions.'(7*)
     This cession not only applies to sovereignty but extends on
 unfavourable terms to government property, all of which,
 including railways, must be surrendered without payment, while,
 on the other hand, the German government remains liable for any
 debt which may have been incurred for the purchase or
 construction of this property, or for the development of the
 colonies generally.(8*)
     In distinction from the practice ruling in the case of most
 similar cessions in recent history, the property and persons of
 private German nationals, as distinct from their government, are
 also injuriously affected. The Allied government exercising
 authority in any former German colony 'may make such provisions
 as it thinks fit with reference to the repatriation from them of
 German nationals and to the conditions upon which German subjects
 of European origin shall, or shall not, be allowed to reside,
 hold property, trade or exercise a profession in them'.(9*) All
 contracts and agreements in favour of German nationals for the
 construction or exploitation of public works lapse to the Allied
 governments as part of the payment due for reparation.
     But these terms are unimportant compared with the more
 comprehensive provision by which 'the Allied and Associated
 Powers reserve the right to retain and liquidate all property,
 rights, and interests belonging at the date of the coming into
 force of the present treaty to German nationals, or companies
 controlled by them', within the former German colonies.(10*) This
 wholesale expropriation of private property is to take place
 without the Allies affording any compensation to the individuals
 expropriated, and the proceeds will be employed, first, to meet
 private debts due to Allied nationals from any German nationals,
 and second, to meet claims due from Austrian, Hungarian,
 Bulgarian, or Turkish nationals. Any balance may either be
 returned by the liquidating Power direct to Germany, or retained
 by them. If retained, the proceeds must be transferred to the
 reparation commission for Germany's credit in the reparation
     In short, not only are German sovereignty and German
 influence extirpated from the whole of her former overseas
 possessions, but the persons and property of her nationals
 resident or owning property in those parts are deprived of legal
 status and legal security.
     (3) The provisions just outlined in regard to the private
 property of Germans in the ex-German colonies apply equally to
 private German property in Alsace-Lorraine, except in so far as
 the French government may choose to grant exceptions.(12*) This
 is of much greater practical importance than the similar
 expropriation overseas because of the far higher value of the
 property involved and the closer interconnection, resulting from
 the great development of the mineral wealth of these provinces
 since 1871, of German economic interests there with those in
 Germany itself. Alsace-Lorraine has been part of the German
 empire for nearly fifty years -- a considerable majority of its
 population is German-speaking -- and it has been the scene of
 some of Germany's most important economic enterprises.
 Nevertheless, the property of those Germans who reside there, or
 who have invested in its industries, is now entirely at the
 disposal of the French government without compensation, except in
 so far as the German government itself may choose to afford it.
 The French government is entitled to expropriate without
 compensation the personal property of private German citizens and
 German companies resident or situated within Alsace-Lorraine, the
 proceeds being credited in part satisfaction of various French
 claims. The severity of this provision is only mitigated to the
 extent that the French government may expressly permit German
 nationals to continue to reside, in which case the above
 provision is not applicable. Government, state, and municipal
 property, on the other hand, is to be ceded to France without any
 credit being given for it. This includes the railway system of
 the two provinces, together with its rolling-stock.(13*) But
 while the property is taken over, liabilities contracted in
 respect of it in the form of public debts of any kind remain the
 liability of Germany.(14*) The provinces also return to French
 sovereignty free and quit of their share of German war or pre-war
 dead-weight debt; nor does Germany receive a credit on this
 account in respect of reparation.
     (4) The expropriation of German private property is not
 limited, however, to the ex-German colonies and Alsace-Lorraine.
 The treatment of such property forms, indeed, a very significant
 and material section of the treaty, which has not received as
 much attention as it merits, although it was the subject of
 exceptionally violent objection on the part of the German
 delegates at Versailles. So far as I know, there is no precedent
 in any peace treaty of recent history for the treatment of
 private property set forth below, and the German representatives
 urged that the precedent now established strikes a dangerous and
 immoral blow at the security of private property everywhere. This
 is an exaggeration, and the sharp distinction, approved by custom
 and convention during the past two centuries, between the
 property and rights of a state and the property and rights of its
 nationals is an artificial one, which is being rapidly put out of
 date by many other influences than the peace treaty, and is
 inappropriate to modern socialistic conceptions of the relations
 between the state and its citizens. It is true, however, that the
 treaty strikes a destructive blow at a conception which lies at
 the root of much of so-called international law, as this has been
 expounded hitherto.
     The principal provisions relating to the expropriation of
 German private property situated outside the frontiers of
 Germany, as these are now determined, are overlapping in their
 incidence, and the more drastic would seem in some cases to
 render the others unnecessary. Generally speaking, however, the
 more drastic and extensive provisions are not so precisely framed
 as those of more particular and limited application. They are as
     (a) The Allies 'reserve the right to retain and liquidate all
 property, rights and interests belonging at the date of the
 coming into force of the present treaty to German nationals, or
 companies controlled by them, within their territories, colonies,
 possessions and protectorates, including territories ceded to
 them by the present treaty.'(15*)
     This is the extended version of the provision which has been
 discussed already in the case of the colonies and of
 Alsace-Lorraine. The value of the property so expropriated will
 be applied, in the first instance, to the satisfaction of private
 debts due from Germany to the nationals of the Allied government
 within whose jurisdiction the liquidation takes place, and,
 second, to the satisfaction of claims arising out of the acts of
 Germany's former allies. Any balance, if the liquidating
 government elects to retain it, must be credited in the
 reparation account.(16*) It is, however, a point of considerable
 importance that the liquidating government is not compelled to
 transfer the balance to the reparation commission, but can, if it
 so decides, return the proceeds direct to Germany. For this will
 enable the United States, if they so wish, to utilise the very
 large balances in the hands of their enemy-property custodian to
 pay for the provisioning of Germany, without regard to the views
 of the reparation commission.
     These provisions had their origin in the scheme for the
 mutual settlement of enemy debts by means of a clearing house.
 Under this proposal it was hoped to avoid much trouble and
 litigation by making each of the governments lately at war
 responsible for the collection of private debts due from its
 nationals to the nationals of any of the other governments (the
 normal process of collection having been suspended by reason of
 the war), and for the distribution of the funds so collected to
 those of its nationals who had claims against the nationals of
 the other governments, any final balance either way being settled
 in cash. Such a scheme could have been completely bilateral and
 reciprocal. And so in part it is, the scheme being mainly
 reciprocal as regards the collection of commercial debts. But the
 completeness of their victory permitted the Allied governments to
 introduce in their own favour many divergencies from reciprocity,
 of which the following are the chief: Whereas the property of
 Allied nationals within German jurisdiction reverts under the
 treaty to Allied ownership on the conclusion of peace, the
 property of Germans within Allied jurisdiction is to be retained
 and liquidated as described above, with the result that the whole
 of German property over a large part of the world can be
 expropriated, and the large properties now within the custody of
 public trustees and similar officials in the Allied countries may
 be retained permanently. In the second place, such German assets
 are chargeable, not only with the liabilities of Germans, but
 also, if they run to it, with 'payment of the amounts due in
 respect of claims by the nationals of such Allied or Associated
 Power with regard to their property, rights, and interests in the
 territory of other enemy Powers,' as, for example, Turkey,
 Bulgaria, and Austria.(17*) This is a remarkable provision, which
 is naturally non-reciprocal. In the third place, any final
 balance due to Germany on private account need not be paid over,
 but can be held against the various liabilities of the German
 government.(18*) The effective operation of these articles is
 guaranteed by the delivery of deeds, titles, and
 information.(19*) In the fourth place, pre-war contracts between
 Allied and German nationals may be cancelled or revived at the
 option of the former, so that all such contracts which are in
 Germany's favour will be cancelled, while, on the other hand, she
 will be compelled to fulfil those which are to her disadvantage.
     (b) So far we have been concerned with German property within
 Allied jurisdiction. The next provision is aimed at the
 elimination of German interests in the territory of her
 neighbours and former allies, and of certain other countries.
 Under article 260 of the financial clauses it is provided that
 the reparation commission may, within one year of the coming into
 force of the treaty, demand that the German government
 expropriate its nationals and deliver to the reparation
 commission 'any rights and interests of German nationals in any
 public utility undertaking or in any concession(20*) operating in
 Russia, China, Turkey, Austria, Hungary, and Bulgaria, or in the
 possessions or dependencies of these states, or in any territory
 formerly belonging to Germany or her allies, to be ceded by
 Germany or her allies to any Power or to be administered by a
 mandatory under the present treaty.' This is a comprehensive
 description, overlapping in part the provisions dealt with under
 (a) above, but including, it should be noted, the new states and
 territories carved out of the former Russian, Austro-Hungarian,
 and Turkish empires. Thus Germany's influence is eliminated and
 her capital confiscated in all those neighbouring countries to
 which she might naturally look for her future livelihood, and for
 an outlet for her energy, enterprise, and technical skill.
     The execution of this programme in detail will throw on the
 reparation commission a peculiar task, as it will become
 possessor of a great number of rights and interests over a vast
 territory owing dubious obedience, disordered by war, disruption,
 and Bolshevism. The division of the spoils between the victors
 will also provide employment for a powerful office, whose
 doorsteps the greedy adventurers and jealous concession-hunters
 of twenty or thirty nations will crowd and defile.
     Lest the reparation commission fail by ignorance to exercise
 its rights to the full, it is further provided that the German
 government shall communicate to it within six months of the
 treaty's coming into force a list of all the rights and interests
 in question, 'whether already granted, contingent or not yet
 exercised', and any which are not so communicated within this
 period will automatically lapse in favour of the Allied
 governments.(21*) How far an edict of this character can be made
 binding on a German national, whose person and property lie
 outside the jurisdiction of his own government, is an unsettled
 question; but all the countries specified in the above list are
 open to pressure by the Allied authorities, whether by the
 imposition of an appropriate treaty clause or otherwise.
     (c) There remains a third provision more sweeping than either
 of the above, neither of which affects German interests in
 neutral countries. The reparation commission is empowered up to 1
 May 1921 to demand payment up to £31,000 million in such manner as
 they may fix, 'whether in gold, commodities, ships, securities or
 otherwise'.(22*) This provision has the effect of entrusting to
 the reparation commission for the period in question dictatorial
 powers over all German property of every description whatever.
 They can, under this article, point to any specific business,
 enterprise, or property, whether within or outside Germany, and
 demand its surrender; and their authority would appear to extend
 not only to property existing at the date of the peace, but also
 to any which may be created or acquired at any time in the course
 of the next eighteen months. For example, they could pick out --
 as presumably they will as soon as they are established -- the fine
 and powerful German enterprise in South America known as the
 Deutsche Ueberseeische Elektrizitëtsgesellschaft (the D.U.E.G.),
 and dispose of it to Allied interests. The clause is unequivocal
 and all-embracing. It is worth while to note in passing that it
 introduces a quite novel principle in the collection of
 indemnities. Hitherto, a sum has been fixed, and the nation
 mulcted has been left free to devise and select for itself the
 means of payment. But in this case the payees can (for a certain
 period) not only demand a certain sum but specify the particular
 kind of property in which payment is to be effected. Thus the
 powers of the reparation commission, with which I deal more
 particularly in the next chapter, can be employed to destroy
 Germany's commercial and economic organisation as well as to
 exact payment.
     The cumulative effect of (a), (b), and (c) (as well as of
 certain other minor provisions on which I have not thought it
 necessary to enlarge) is to deprive Germany (or rather to empower
 the Allies so to deprive her at their will -- it is not yet
 accomplished) of everything she possesses outside her own
 frontiers as laid down in the treaty. Not only are her overseas
 investments taken and her connections destroyed, but the same
 process of extirpation is applied in the territories of her
 former allies and of her immediate neighbours by land.
     (5) Lest by some oversight the above provisions should
 overlook any possible contingencies, certain other articles
 appear in the treaty, which probably do not add very much in
 practical effect to those already described, but which deserve
 brief mention as showing the spirit of completeness in which the
 victorious Powers entered upon the economic subjection of their
 defeated enemy.
     First of all there is a general clause of barrer and
 renunciation: 'In territory outside her European frontiers as
 fixed by the present treaty, Germany renounces all rights, titles
 and privileges whatever in or over territory which belonged to
 her or to her allies, and all rights, titles and privileges
 whatever their origin which she held as against the Allied and
 Associated Powers...'(23*)
     There follow certain more particular provisions. Germany
 renounces all rights and privileges she may have acquired in
 China.(24*) There are similar provisions for Siam,(25*) for
 Liberia,(26*) for Morocco,(27*) and for Egypt.(28*) In the case
 of Egypt not only are special privileges renounced, but by
 article 150 ordinary liberties are withdrawn, the Egyptian
 government being accorded 'complete liberty of action in
 regulating the status of German nationals and the conditions
 under which they may establish themselves in Egypt.'
     By article 258 Germany renounces her right to any
 participation in any financial or economic organisations of an
 international character 'operating in any of the Allied or
 Associated States, or in Austria, Hungary, Bulgaria or Turkey, or
 in the dependencies of these states, or in the former Russian
     Generally speaking, only those pre-war treaties and
 conventions are revived which it suits the Allied governments to
 revive, and those in Germany's favour may be allowed to
     It is evident, however, that none of these provisions are of
 any real importance, as compared with those described previously.
 They represent the logical completion of Germany's outlawry and
 economic subjection to the convenience of the Allies; but they do
 not add substantially to her effective disabilities.


     The provisions relating to coal and iron are more important
 in respect of their ultimate consequences on Germany's internal
 industrial economy than for the money value immediately involved.
 The German empire has been built more truly on coal and iron than
 on blood and iron. The skilled exploitation of the great
 coalfields of the Ruhr, Upper Silesia, and the Saar, alone made
 possible the development of the steel, chemical, and electrical
 industries which established her as the first industrial nation
 of continental Europe. One-third of Germany's population lives in
 towns of more than 20,000 inhabitants, an industrial
 concentration which is only possible on a foundation of coal and
 iron. In striking, therefore, at her coal supply, the French
 politicians were not mistaking their target. It is only the
 extreme immoderation, and indeed technical impossibility, of the
 treaty's demands which may save the situation in the long run.
     (1) The treaty strikes at Germany's coal supply in four ways:
     (i) 'As compensation for the destruction of the coal-mines in
 the north of France, and as part payment towards the total
 reparation due from Germany for the damage resulting from the
 war, Germany cedes to France in full and absolute possession,
 with exclusive rights of exploitation, unencumbered, and free
 from all debts and charges of any kind, the coal-mines situated
 in the Saar Basin.'(30*) While the administration of this
 district is vested for fifteen years in the League of Nations, it
 is to be observed that the mines are ceded to France absolutely.
 Fifteen years hence the population of the district will be called
 upon to indicate by plebiscite their desires as to the future
 sovereignty of the territory; and, in the event of their electing
 for union with Germany, Germany is to be entitled to repurchase
 the mines at a price payable in gold.(31*)
     The judgment of the world has already recognised the
 transaction of the Saar as an act of spoliation and insincerity.
 So far as compensation for the destruction of French coal-mines
 is concerned, this is provided for, as we shall see in a moment,
 elsewhere in the treaty. 'There is no industrial region in
 Germany', the German representatives have said without
 contradiction, 'the population of which is so permanent, so
 homogeneous, and so little complex as that of the Saar district.
 Among more than 650,000 inhabitants, there were in 1918 less than
 100 French. The Saar district has been German for more than 1,000
 years. Temporary occupation as a result of warlike operations on
 the part of the French always terminated in a short time in the
 restoration of the country upon the conclusion of peace. During a
 period of 1,048 years France has possessed the country for not
 quite 68 years in all. When, on the occasion of the first Treaty
 of Paris in 1814, a small portion of the territory now coveted
 was retained for France, the population raised the most energetic
 opposition and demanded "reunion with their German fatherland,"
 to which they were "related by language, customs, and religion".
 After an occupation of one year and a quarter, this desire was
 taken into account in the second Treaty of Paris in 1815. Since
 then the country has remained uninterruptedly attached to
 Germany, and owes its economic development to that connection.'
     The French wanted the coal for the purpose of working the
 ironfields of Lorraine, and in the spirit of Bismarck they have
 taken it. Not precedent, but the verbal professions of the
 Allies, have rendered it indefensible.(32*)
     (ii) Upper Silesia, a district without large towns, in which,
 however, lies one of the major coalfields of Germany with a
 production of about 23% of the total German output of hard coal,
 is, subject to a plebiscite,(33*) to be ceded to Poland. Upper
 Silesia was never part of historic Poland; but its population is
 mixed Polish, German, and Czechoslovakian, the precise
 proportions of which are disputed.(34*) Economically it is
 intensely German; the industries of eastern Germany depend upon
 it for their coal; and its loss would be a destructive blow at
 the economic structure of the German state.(35*)
     With the loss of the fields of Upper Silesia and the Saar,
 the coal supplies of Germany are diminished by not far short of
     (iii) Out of the coal that remains to her, Germany is obliged
 to make good year by year the estimated loss which France has
 incurred by the destruction and damage of war in the coalfields
 of her northern provinces. In paragraph 2 of annex V to the
 reparation chapter, 'Germany undertakes 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 year 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 is a reasonable provision if it stood by itself, and one
 which Germany should be able to fulfil if she were left her other
 resources to do it with.
     (iv) The final provision relating to coal is part of the
 general scheme of the reparation chapter by which the sums due
 for reparation are to be partly paid in kind instead of in cash.
 As a part of the payment due for reparation, Germany is to make
 the following deliveries of coal or its equivalent in coke (the
 deliveries to France being wholly additional to the amounts
 available by the cession of the Saar or in compensation for
 destruction in Northern France):
     (a) to France 7 million tons annually for ten years;(36*)
     (b) to Belgium 8 million tons annually for ten years;
     (c) to Italy an annual quantity, rising by annual increments
 from 4.5 million tons in 1919-20 to 8.5 million tons in each of
 the six years 1923-4 to 1928-9;
     (d) to Luxemburg, if required, a quantity of coal equal to
 the pre-war annual consumption of German coal in Luxemburg.
     This amounts in all to an annual average of about 25 million

     These figures have to be examined in relation to Germany's
 probable output. The maximum pre-war figure was reached in 1913
 with a total of 191.5 million tons. Of this, 19 million tons were
 consumed at the mines, and on balance (i.e. exports less imports)
 33.5 million tons were exported, leaving 139 million tons for
 domestic consumption. It is estimated that this total was
 employed as follows:

                                 Million tons
          Railways                    18.0
          Gas, water, and electricity 12.5
          Bunkers                      6.5
          House-fuel, small industry
             and agriculture          24.0
          Industry                    78.0

     The diminution of production due to loss of territory is:
                                 Million tons
             Alsace-Lorraine         3.8
             Saar Basin             13.2
             Upper Silesia          43.8

     There would remain, therefore, on the basis of the 1913
 output, 130.7 million tons or, deducting consumption at the mines
 themselves, (say) 118 million tons. For some years there must be
 sent out of this supply upwards of 20 million tons to France as
 compensation for damage done to French mines, and 25 million tons
 to France, Belgium, Italy, and Luxemburg;(37*) as the former
 figure is a maximum, and the latter figure is to be slightly less
 in the earliest years, we may take the total export to Allied
 countries which Germany has undertaken to provide as 40 million
 tons, leaving, on the above basis, 78 million tons for her own
 use as against a pre-war consumption of 139 million tons.
     This comparison, however, requires substantial modification
 to make it accurate. On the one hand, it is certain that the
 figures of pre-war output cannot be relied on as a basis of
 present output. During 1918 the production was 161.5 million tons
 as compared with 191.5 million tons in 1913; and during the first
 half of 1919 it was less than 50 million tons, exclusive of
 Alsace-Lorraine and the Saar but including Upper Silesia,
 corresponding to an annual production of about 100 million
 tons.(38*) The causes of so low an output were in part temporary
 and exceptional, but the German authorities agree, and have not
 been confuted, that some of them are bound to persist for some
 time to come. In part they are the same as elsewhere; the daily
 shift has been shortened from 8 1/2 to 7 hours, and it is
 improbable that the powers of the central government will be
 adequate to restore them to their former figure. But in addition,
 the mining plant is in bad condition (due to the lack of certain
 essential materials during the blockade), the physical efficiency
 of the men is greatly impaired by malnutrition (which cannot be
 cured if a tithe of the reparation demands are to be satisfied --
 the standard of life will have rather to be lowered), and the
 casualties of the war have diminished the numbers of efficient
 miners. The analogy of English conditions is sufficient by itself
 to tell us that a pre-war level of output cannot be expected in
 Germany. German authorities put the loss of output at somewhat
 above thirty per cent, divided about equally between the
 shortening of the shift and the other economic influences. This
 figure appears on general grounds to be plausible, but I have not
 the knowledge to endorse or to criticise it.
     The pre-war figure of 118 million tons net (i.e. after
 allowing for loss of territory and consumption at the mines) is
 likely to fall, therefore, at least as low as to 100 million(39*)
 tons, having regard to the above factors. If 40 million tons of
 this are to be exported to the Allies, there remain 60 million
 tons for Germany herself to meet her own domestic consumption.
 Demand as well as supply will be diminished by loss of territory,
 but at the most extravagant estimate this could not be put above
 29 million tons.(40*) Our hypothetical calculations, therefore,
 leave us with post-war German domestic requirements, on the basis
 of a prewar efficiency of railways and industry, of 110 million
 tons against an output not exceeding 100 million tons, of which
 40 million tons are mortgaged to the Allies.
     The importance of the subject has led me into a somewhat
 lengthy statistical analysis. It is evident that too much
 significance must not be attached to the precise figures arrived
 at, which are hypothetical and dubious.(41*) But the general
 character of the facts presents itself irresistibly. Allowing for
 the loss of territory and the loss of efficiency, Germany cannot
 export coal in the near future (and will even be dependent on her
 treaty rights to purchase in Upper Silesia), if she is to
 continue as an industrial nation. Every million tons she is
 forced to export must be at the expense of closing down an
 industry. With results to be considered later this within certain
 limits is possible. But it is evident that Germany cannot and
 will not furnish the Allies with a contribution of 40 million
 tons annually. Those Allied ministers who have told their peoples
 that she can have certainly deceived them for the sake of
 allaying for the moment the misgivings of the European peoples as
 to the path along which they are being led.
     The presence of these illusory provisions (amongst others) in
 the clauses of the treaty of peace is especially charged with
 danger for the future. The more extravagant expectations as to
 reparation receipts, by which finance ministers have deceived
 their publics, will be heard of no more when they have served
 their immediate purpose of postponing the hour of taxation and
 retrenchment. But the coal clauses will not be lost sight of so
 easily -- for the reason that it will be absolutely vital in the
 interests of France and Italy that these countries should do
 everything in their power to exact their bond. As a result of the
 diminished output due to German destruction in France, of the
 diminished output of mines in the United Kingdom and elsewhere,
 and of many secondary causes, such as the breakdown of transport
 and of organisation and the inefficiency of new governments, the
 coal position of all Europe is nearly desperate;(42*) and France
 and Italy, entering the scramble with certain treaty rights, will
 not lightly surrender them.
     As is generally the case in real dilemmas, the French and
 Italian case will possess great force, indeed unanswerable force
 from a certain point of view. The position will be truly
 represented as a question between German industry on the one hand
 and French and Italian industry on the other. It may be admitted
 that the surrender of the coal will destroy German industry; but
 it may be equally true that its non-surrender will jeopardise
 French and Italian industry. In such a case must not the victors
 with their treaty rights prevail, especially when much of the
 damage has been ultimately due to the wicked acts of those who
 are now defeated? Yet if these feelings and these rights are
 allowed to prevail beyond what wisdom would recommend, the
 reactions on the social and economic life of Central Europe will
 be far too strong to be confined within their original limits.
     But this is not yet the whole problem. If France and Italy
 are to make good their own deficiencies in coal from the output
 of Germany, then northern Europe, Switzerland, and Austria, which
 previously drew their coal in large part from Germany's
 exportable surplus, must be starved of their supplies. Before the
 war 13.4 million tons of Germany's coal exports went to
 Austria-Hungary. Inasmuch as nearly all the coalfields of the
 former empire lie outside what is now German Austria, the
 industrial ruin of this latter state, if she cannot obtain coal
 from Germany, will be complete. The case of Germany's neutral
 neighbours, who were formerly supplied in part from Great Britain
 but in large part from Germany, will be hardly less serious. They
 will go to great lengths in the direction of making their own
 supplies to Germany of materials which are essential to her,
 conditional on these being paid for in coal. Indeed they are
 already doing so.(43*) With the breakdown of money economy the
 practice of international barter is becoming prevalent. Nowadays
 money in Central and south-eastern Europe is seldom a true
 measure of value in exchange, and will not necessarily buy
 anything, with the consequence that one country, possessing a
 commodity essential to the needs of another, sells it not for
 cash but only against a reciprocal engagement on the part of the
 latter country to furnish in return some article not less
 necessary to the former. This is an extraordinary complication as
 compared with the former almost perfect simplicity of
 international trade. But in the no less extraordinary conditions
 of today's industry it is not without advantages as a means of
 stimulating production. The butter-shifts of the Ruhr(44*) show
 how far modern Europe has retrograded in the direction of barter,
 and afford a picturesque illustration of the low economic
 organisation to which the breakdown of currency and free exchange
 between individuals and nations is quickly leading us. But they
 may produce the coal where other devices would fail.(45*)
     Yet if Germany can find coal for the neighbouring neutrals,
 France and Italy may loudly claim that in this case she can and
 must keep her treaty obligations. In this there will be a great
 show of justice, and it will be difficult to weigh against such
 claims the possible facts that, while German miners will work for
 butter, there is no available means of compelling them to get
 coal the sale of which will bring in nothing, and that if Germany
 has no coal to send to her neighbours she may fail to secure
 imports essential to her economic existence.
     If the distribution of the European coal supplies is to be a
 scramble in which France is satisfied first, Italy next, and
 everyone else takes their chance, the industrial future of Europe
 is black and the prospects of revolution very good. It is a case
 where particular interests and particular claims, however well
 founded in sentiment or in justice, must yield to sovereign
 expediency. If there is any approximate truth in Mr Hoover's
 calculation that the coal output of Europe has fallen by
 one-third, a situation confronts us where distribution must be
 effected with evenhanded impartiality in accordance with need,
 and no incentive can be neglected towards increased production
 and economical methods of transport. The establishment by the
 Supreme Council of the Allies in August 1919 of a European coal
 commission, consisting of delegates from Great Britain, France,
 Italy, Belgium, Poland, and Czechoslovakia, was a wise measure
 which, properly employed and extended, may prove of great
 assistance. But I reserve constructive proposals for chapter 7.
 Here I am only concerned with tracing the consequences, per
 impossibile, of carrying out the treaty au pied de la
     (2) The provisions relating to iron ore require less detailed
 attention, though their effects are destructive. They require
 less attention, because they are in large measure inevitable.
 Almost exactly 75% of the iron ore raised in Germany in 1913 came
 from Alsace-Lorraine.(47*) In this the chief importance of the
 stolen provinces lay.
     There is no question but that Germany must lose these
 orefields. The only question is how far she is to be allowed
 facilities for purchasing their produce. The German delegation
 made strong efforts to secure the inclusion of a provision by
 which coal and coke to be furnished by them to France should be
 given in exchange for minette from Lorraine. But they secured no
 such stipulation, and the matter remains at France's option.
     The motives which will govern France's eventual policy are
 not entirely concordant. While Lorraine comprised 75% of
 Germany's iron ore, only 25 % of the blast furnaces lay within
 Lorraine and the Saar basin together, a large proportion of the
 ore being carried into Germany proper. Approximately the same
 proportion of Germany's iron and steel foundries, namely 25 per
 cent, were situated in Alsace-Lorraine. For the moment,
 therefore, the most economical and profitable course would
 certainly be to export to Germany, as hitherto, a considerable
 part of the output of the mines.
     On the other hand, France, having recovered the deposits of
 Lorraine, may be expected to aim at replacing as far as possible
 the industries which Germany had based on them by industries
 situated within her own frontiers. Much time must elapse before
 the plant and the skilled labour could be developed within
 France, and even so she could hardly deal with the ore unless she
 could rely on receiving the coal from Germany. The uncertainty,
 too, as to the ultimate fate of the Saar will be disturbing to
 the calculations of capitalists who contemplate the establishment
 of new industries in France.
     In fact, here, as elsewhere, political considerations cut
 disastrously across economic. In a régime of free trade and free
 economic intercourse it would be of little consequence that iron
 lay on one side of a political frontier, and labour, coal, and
 blast furnaces on the other. But as it is, men have devised ways
 to impoverish themselves and one another; and prefer collective
 animosities to individual happiness. It seems certain,
 calculating on the present passions and impulses of European
 capitalistic society, that the effective iron output of Europe
 will be diminished by a new political frontier (which sentiment
 and historic justice require), because nationalism and private
 interest are thus allowed to impose a new economic frontier along
 the same lines. These latter considerations are allowed, in the
 present governance of Europe, to prevail over the intense need of
 the continent for the most sustained and efficient production to
 repair the destructions of war, and to satisfy the insistence of
 labour for a larger reward.(48*)
     The same influences are likely to be seen, though on a lesser
 scale, in the event of the transference of Upper Silesia to
 Poland. While Upper Silesia contains but little iron, the
 presence of coal has led to the establishment of numerous blast
 furnaces. What is to be the fate of these? If Germany is cut off
 from her supplies of ore on the west, will she export beyond her
 frontiers on the east any part of the little which remains to
 her? The efficiency and output of the industry seem certain to
     Thus the treaty strikes at organisation, and by the
 destruction of organisation impairs yet further the reduced
 wealth of the whole community. The economic frontiers which are
 to be established between the coal and the iron upon which modern
 industrialism is founded will not only diminish the production of
 useful commodities, but may possibly occupy an immense quantity
 of human labour in dragging iron or coal, as the case may be,
 over many useless miles to satisfy the dictates of a political
 treaty or because obstructions have been established to the
 proper localisation of industry.


     There remain those treaty provisions which relate to the
 transport and the tariff systems of Germany. These parts of the
 treaty have not nearly the importance and the significance of
 those discussed hitherto. They are pinpricks, interferences and
 vexations, not so much objectionable for their solid
 consequences, as dishonourable to the Allies in the light of
 their professions. Let the reader consider what follows in the
 light of the assurances already quoted, in reliance on which
 Germany laid down her arms.
     (1) The miscellaneous economic clauses commence with a number
 of provisions which would be in accordance with the spirit of the
 third of the Fourteen Points -- if they were reciprocal. Both for
 imports and exports, and as regards tariffs, regulations, and
 prohibitions, Germany binds herself for five years to accord
 most-favoured-nation treatment to the Allied and Associated
 states.(49*) But she is not entitled herself to receive such
     For five years Alsace-Lorraine shall be free to export into
 Germany, without payment of customs duty, up to the average
 amount sent annually into Germany from 1911 to 1913.(50*) But
 there is no similar provision for German exports into
     For three years Polish exports to Germany, and for five years
 Luxemburg's exports to Germany, are to have a similar
 privilege,(51*) but not German exports to Poland or to Luxemburg.
 Luxemburg also, which for many years has enjoyed the benefits of
 inclusion within the German customs union, is permanently
 excluded from it henceforward.(52*)
     For six months after the treaty has come into force Germany
 may not impose duties on imports from the Allied and Associated
 states higher than the most favourable duties prevalent before
 the war; and for a further two years and a half (making three
 years in all) this prohibition continues to apply to certain
 commodities, notably to some of those as to which special
 agreements existed before the war, and also to wine, to vegetable
 oils, to artificial silk, and to washed or scoured wool.(53*)
 This is a ridiculous and injurious provision, by which Germany is
 prevented from taking those steps necessary to conserve her
 limited resources for the purchase of necessaries and the
 discharge of reparation. As a result of the existing distribution
 of wealth in Germany, and of financial wantonness amongst
 individuals, the offspring of uncertainty, Germany is threatened
 with a deluge of luxuries and semi-luxuries from abroad, of which
 she has been starved for years, which would exhaust or diminish
 her small supplies of foreign exchange. These provisions strike
 at the authority of the German government to ensure economy in
 such consumption, or to raise taxation during a critical period.
 What an example of senseless greed overreaching itself, to
 introduce, after taking from Germany what liquid wealth she has
 and demanding impossible payments for the future, a special and
 particularised injunction that she must allow as readily as in
 the days of her prosperity the import of champagne and of silk!
     One other article affects the customs régime of Germany
 which, if it was applied, would be serious and extensive in its
 consequences. The Allies have reserved the right to apply a
 special customs régime to the occupied area on the left bank of
 the Rhine, 'in the event of such a measure being necessary in
 their opinion in order to safeguard the economic interests of the
 population of these territories'.(54*) This provision was
 probably introduced as a possibly useful adjunct to the French
 policy of somehow detaching the left-bank provinces from Germany
 during the years of their occupation. The project of establishing
 an independent republic under French clerical auspices, which
 would act as a buffer state and realise the French ambition of
 driving Germany proper beyond the Rhine, has not yet been
 abandoned. Some believe that much may be accomplished by a régime
 of threats, bribes, and cajolery extended over a period of
 fifteen years or longer.(55*) If this article is acted upon, and
 the economic system of the left bank of the Rhine is effectively
 severed from the rest of Germany, the effect would be
 far-reaching. But the dreams of designing diplomats do not always
 prosper, and we must trust the future.
     (2) The clauses relating to railways, as originally presented
 to Germany, were substantially modified in the final treaty, and
 are now limited to a provision by which goods coming from Allied
 territory to Germany, or in transit through Germany, shall
 receive the most favoured treatment as regards rail freight,
 rates, etc., applied to goods of the same kind carried on any
 German lines 'under similar conditions of transport, for example,
 as regards length of route'.(56*) As a non-reciprocal provision
 this is an act of interference in internal arrangements which it
 is difficult to justify, but the practical effect of this,(57*)
 and of an analogous provision relating to passenger traffic,(58*)
 will much depend on the interpretation of the phrase, 'similar
 conditions of transport'.(59*)
     For the time being Germany's transport system will be much
 more seriously disordered by the provisions relating to the
 cession of rolling-stock. Under paragraph 7 of the armistice
 conditions Germany was called on to surrender 5,000 locomotives
 and 150,000 waggons, 'in good working order, with all necessary
 spare parts and fittings'. Under the treaty Germany is required
 to confirm this surrender and to recognise the title of the
 Allies to the material.(60*) She is further required, in the case
 of railway systems in ceded territory, to hand over these systems
 complete with their full complement of rolling-stock 'in a normal
 state of upkeep' as shown in the last inventory before 11
 November 1918.(61*) That is to say, ceded railway systems are not
 to bear any share in the general depletion and deterioration of
 the German rolling-stock as a whole.
     This is a loss which in course of time can doubtless be made
 good. But lack of lubricating oils and the prodigious wear and
 tear of the war, not compensated by normal repairs, had already
 reduced the German railway system to a low state of efficiency.
 The further heavy losses under the treaty will confirm this state
 of affairs for some time to come, and are a substantial
 aggravation of the difficulties of the coal problem and of export
 industry generally.
     (3) There remain the clauses relating to the river system of
 Germany. These are largely unnecessary and are so little related
 to the supposed aims of the Allies that their purport is
 generally unknown. Yet they constitute an unprecedented
 interference with a country's domestic arrangements, and are
 capable of being so operated as to take from Germany all
 effective control over her own transport system. In their present
 form they are incapable of justification; but some simple changes
 might transform them into a reasonable instrument.
     Most of the principal rivers of Germany have their source or
 their outlet in non-German territory. The Rhine, rising in
 Switzerland, is now a frontier river for a part of its course,
 and finds the sea in Holland; the Danube rises in Germany but
 flows over its greater length elsewhere; the Elbe rises in the
 mountains of Bohemia, now called Czechoslovakia; the Oder
 traverses Lower Silesia; and the Niemen now bounds the frontier
 of East Prussia and has its source in Russia. Of these, the Rhine
 and the Niemen are frontier rivers, the Elbe is primarily German
 but in its upper reaches has much importance for Bohemia, the
 Danube in its German parts appears to have little concern for any
 country but Germany, and the Oder is an almost purely German
 river unless the result of the plebiscite is to detach all Upper
     Rivers which, in the words of the treaty, 'naturally provide
 more than one state with access to the sea', properly require
 some measure of international regulation and adequate guarantees
 against discrimination. This principle has long been recognised
 in the international commissions which regulate the Rhine and the
 Danube. But on such commissions the states concerned should be
 represented more or less in proportion to their interests. The
 treaty, however, has made the international character of these
 rivers a pretext for taking the river system of Germany out of
 German control.
     After certain articles which provide suitably against
 discrimination and interference with freedom of transit,(62*) the
 treaty proceeds to hand over the administration of the Elbe, the
 Oder, the Danube, and the Rhine to international
 commissions.(63*) The ultimate powers of these commissions are to
 be determined by 'a general convention drawn up by the Allied and
 Associated Powers, and approved by the League of Nations'.(64*)
 In the meantime the commissions are to draw up their own
 constitutions and are apparently to enjoy powers of the most
 extensive description, 'particularly in regard to the execution
 of works of maintenance, control, and improvement on the river
 system, the financial régime, the fixing and collection of
 charges, and regulations for navigation.'(65*)
     So far there is much to be said for the treaty. Freedom of
 through transit is a not unimportant part of good international
 practice and should be established everywhere. The objectionable
 feature of the commissions lies in their membership. In each case
 the voting is so weighted as to place Germany in a clear
 minority. On the Elbe commission Germany has four votes out of
 ten; on the Oder commission three out of nine; on the Rhine
 commission four out of nineteen; on the Danube commission, which
 is not yet definitely constituted, she will be apparently in a
 small minority. On the government of all these rivers France and
 Great Britain are represented; and on the Elbe for some
 undiscoverable reason there are also representatives of Italy and
     Thus the great waterways of Germany are handed over to
 foreign bodies with the widest powers; and much of the local and
 domestic business of Hamburg, Magdeburg, Dresden, Stettin,
 Frankfurt, Breslau, and Ulm will be subject to a foreign
 jurisdiction. It is almost as though the Powers of continental
 Europe were to be placed in a majority on the Thames Conservancy
 or the Port of London.
     Certain minor provisions follow lines which in our survey of
 the treaty are now familiar. Under annex III of the reparation
 chapter Germany is to cede up to 20% of her inland navigation
 tonnage. Over and above this she must cede such proportion of her
 river craft upon the Elbe, the Oder, the Niemen, and the Danube
 as an American arbitrator may determine, 'due regard being had to
 the legitimate needs of the parties concerned, and particularly
 to the shipping traffic during the five years preceding the war',
 the craft so ceded to be selected from those most recently
 built.(66*) The same course is to be followed with German vessels
 and tugs on the Rhine and with German property in the port of
 Rotterdam.(67*) Where the Rhine flows between France and Germany,
 France is to have all the rights of utilising the water for
 irrigation or for power and Germany is to have none;(68*) and all
 the bridges are to be French property as to their whole
 length.(69*) Finally, the administration of the purely German
 Rhine port of Kehl lying on the eastern bank of the river is to
 be united to that of Strassburg for seven years and managed by a
 Frenchman nominated by the new Rhine commission.
     Thus the economic clauses of the treaty are comprehensive,
 and little has been overlooked which might impoverish Germany now
 or obstruct her development in future. So situated, Germany is to
 make payments of money, on a scale and in a manner to be examined
 in the next chapter.


 1. The precise force of this reservation is discussed in detail
 in chapter 5.

 2. I also omit those which have no special relevance to the
 German settlement. The second of the Fourteen Points, which
 relates to the freedom of the seas, is omitted because the Allies
 did not accept it.

 3. Part VIII, annex III (1).

 4. Part VIII, annex III (3).

 5. In the years before the war the average shipbuilding output of
 Germany was about 350,000 tons annually, exclusive of warships.

 6. Part VIII, annex III (5).

 7. Article 119.

 8. Article 120 and 257.

 9. Article 122.

 10. Articles 121 and 297(b). The exercise or non-exercise of this
 option of expropriation appears to lie, not with the reparation
 commission, but with the particular Power in whose territory the
 property has become situated by cession or mandation.

 11. Article 297(h) and paragraph 4 of annex to part X, section

 12. Articles 53 and 74.

 13. In 1871 Germany granted France credit for the railways of
 Alsace-Lorraine but not for state property. At that time,
 however, the railways were private property. As they afterwards
 became the property of the German government, the French
 government have held, in spite of the large additional capital
 which Germany has sunk in them, that their treatment must follow
 the precedent of state property generally.

 14. Articles 55 and 255. This follows the precedent of 1871.

 15. Articles 297(b).

 16. Part X, sections III and IV and article 243.

 17. The interpretation of the words between inverted commas is a
 little dubious. The phrase is so wide as to seem to include
 private debts. But in the final draft of the treaty private debts
 are not explicitly referred to.

 18. This provision is mitigated in the case of German property in
 Poland and the other new states, the proceeds of liquidation in
 these areas being payable direct to the owner (article 92).

 19. Part x, section IV, annex, paragraph 10: 'Germany will,
 within six months from the coming into force of the present
 treaty, deliver to each Allied or Associated Power all
 securities, certificates, deeds, or other documents of title held
 by its nationals and relating to property, rights, or interests
 situated in the territory of that Allied or Associated Power...
 Germany will at any time on demand of any Allied or Associated
 Power furnish such information as may be required with regard to
 the property, rights, and interests of German nationals within
 the territory of such Allied or Associated Power, or with regard
 to any transactions concerning such property, rights, or
 interests effected since 1 July 1914.'

 20. 'Any public utility undertaking or concession' is a vague
 phrase, the precise interpretation of which is not provided for.

 21. Article 260.

 22. Article 235.

 23. Article 118.

 24. Articles 129 and 132.

 25. Articles 135-7.

 26. Articles 135 40.

 27. Article 141: 'Germany renounces all rights, titles and
 privileges conferred on her by the general Act of Algeciras of 7
 April 1906, and by the Franco-German agreements of 9 February
 1909 and 4 November 1911...'

 28. Article 148: 'All treaties, agreements, arrangements and
 contracts concluded by Germany with Egypt are regarded as
 abrogated from 4 August 1914.' Article 153: 'All property and
 possessions in Egypt of the German empire and the German states
 pass to the Egyptian government without payment.'

 29. Article 289.

 30. Article 45.

 31. Part IV, section IV, annex, chapter III.

 32. 'We take over the ownership of the Sarre mines, and in order
 not to be inconvenienced in the exploitation of these coal
 deposits, we constitute a distinct little estate for the 600,000
 Germans who inhabit this coal basin, and in fifteen years we
 shall endeavour by a plebiscite to bring them to declare that
 they want to be French. We know what that means. During fifteen
 years we are going to work on them, to attack them from every
 point, till we obtain from them a declaration of love. It is
 evidently a less brutal proceeding than the coup de force which
 detached from us our Alsatians and Lorrainers. But if less
 brutal, it is more hypocritical. We know quite well between
 ourselves that it is an attempt to annex these 600,000 Germans.
 One can understand very well the reasons of an economic nature
 which have led Clemenceau to wish to give us these Sarre coal
 deposits, but in order to acquire them must we give ourselves the
 appearance of wanting to juggle with 600,000 Germans in order to
 make Frenchmen of them in fifteen years?' (M. Hervé in La
 Victoire, 31 May 1919).

 33. This plebiscite is the most important of the concessions
 accorded to Germany in the Allies' final Note, and one for which
 Mr Lloyd George, who never approved the Allies' policy on the
 eastern frontiers of Germany, can claim the chief credit. The
 vote cannot take place before the spring of 1920, and may be
 postponed until 1921. In the meantime the province will be
 governed by an Allied commission. The vote will be taken by
 communes, and the final frontiers will be determined by the
 Allies, who shall have regard, partly to the results of the vote
 in each commune, and partly 'to the geographical and economic
 conditions of the locality'. It would require great local
 knowledge to predict the result. By voting Polish, a locality can
 escape liability for the indemnity and for the crushing taxation
 consequent on voting German, a factor not to be neglected. On the
 other hand, the bankruptcy and incompetence of the new Polish
 state might deter those who were disposed to vote on economic
 rather than on racial grounds. It has also been stated that the
 conditions of life in such matters as sanitation and social
 legislation are incomparably better in Upper Silesia than in the
 adjacent districts of Poland, where similar legislation is in its
 infancy. The argument in the text assumes that Upper Silesia will
 cease to be German. But much may happen in a year, and the
 assumption is not certain. To the extent that it proves erroneous
 the conclusions must be modified.

 34. German authorities claim, not without contradiction, that to
 judge from the votes cast at elections, one-third of the
 population would elect in the Polish interest, and two-thirds in
 the German.

 35. It must not be overlooked, however, that, amongst the other
 concessions relating to Silesia accorded in the Allies' final
 Note, there has been included article 90, by which 'Poland
 undertakes to permit for a period of fifteen years the
 exportation to Germany of the products of the mines in any part
 of Upper Silesia transferred to Poland in accordance with the
 present treaty. Such products shall be free from all export
 duties or other charges or restrictions on exportation. Poland
 agrees to take such steps as may be necessary to secure that any
 such products shall be available for sale to purchasers in
 Germany on terms as favourable as are applicable to like products
 sold under similar conditions to purchasers in Poland or in any
 other country.' This does not apparently amount to a right of
 pre-emption, and it is not easy to estimate its effective
 practical consequences. It is evident, however, that in so far as
 the mines are maintained at their former efficiency, and in so
 far as Germany is in a position to purchase substantially her
 former supplies from that source, the loss is limited to the
 effect on her balance of trade, and is without the more serious
 repercussions on her economic life which are contemplated in the
 text. Here is an opportunity for the Allies to render more
 tolerable the actual operation of the settlement. The Germans, it
 should be added, have pointed out that the same economic argument
 which adds the Saar fields to France, allots Upper Silesia to
 Germany. For whereas the Silesian mines are essential to the
 economic life of Germany, Poland does not need them. Of Poland's
 pre-war annual demand of 10.5 million tons, 6.8 million tons were
 supplied by the indisputably Polish districts adjacent to Upper
 Silesia, 1.5 million tons from Upper Silesia (out of a total
 Upper Silesian output of 43.5 million tons) , and the balance
 from what is now Czechoslovakia. Even without any supply from
 Upper Silesia and Czechoslovakia, Poland could probably meet her
 requirements by the fuller exploitation of her own coalfields
 which are not yet scientifically developed, or from the deposits
 of Western Galicia which are now to be annexed to her.

 36. France is also to receive annually for three years 35,000
 tons of benzol, 50,000 tons of coal tar, and 30,000 tons of
 sulphate of ammonia.

 37. The reparation commission is authorised under the treaty
 (part VIII, annex V, paragraph 10) 'to postpone or to cancel
 deliveries' if they consider 'that the full exercise of the
 foregoing options would interfere unduly with the industrial
 requirements of Germany'. In the event of such postponements or
 cancellations 'the coal to replace coal from destroyed mines
 shall receive priority over other deliveries'. This concluding
 clause is of the greatest importance if, as will be seen, it is
 physically impossible for Germany to furnish the full 45 million;
 for it means that France will receive 20 million tons before
 Italy receives anything. The reparation commission has no
 discretion to modify this. The Italian Press has not failed to
 notice the significance of the provision, and alleges that this
 clause was inserted during the absence of the Italian
 representatives from Paris (Corriere della Sera, 19 July 1919).

 38. It follows that the current rate of production in Germany has
 sunk to about sixty per cent of that of 1913. The effect on
 reserves has naturally been disastrous, and the prospects for the
 coming winter are dangerous.

 39. This assumes a loss of output of fifteen per cent as compared
 with the estimate of thirty per cent quoted above.

 40. This supposes a loss of twenty-five per cent of Germany's
 industrial undertakings and a diminution of thirteen per cent in
 her other requirements.

 41. The reader must be reminded in particular that the above
 calculations take no account of the German production of lignite,
 which yielded in 1913 13 million tons of rough lignite in
 addition to an amount converted into 21 million tons of
 briquette. This amount of lignite, however, was required in
 Germany before the war in addition to the quantities of coal
 assumed above. I am not competent to speak on the extent to which
 the loss of coal can be made good by the extended use of lignite
 or by economies in its present employment; but some authorities
 believe that Germany may obtain substantial compensation for her
 loss of coal by paying more attention to her deposits of lignite.

 42. Mr Hoover, in July 1919, estimated that the coal output of
 Europe, excluding Russia and the Balkans, had dropped from 679.5
 million tons to 443 million tons -- as a result in a minor degree
 of loss of material and labour, but owing chiefly to a relaxation
 of physical effort after the privations and sufferings of the
 war, a lack of rolling-stock and transport, and the unsettled
 political fate of some of the mining districts.

 43. Numerous commercial agreements during the war were arranged
 on these lines. But in the month of June 1919 alone, minor
 agreements providing for payment in coal were made by Germany
 with Denmark, Norway, and Switzerland. The amounts involved were
 not large, but without them Germany could not have obtained
 butter from Denmark, fats and herrings from Norway, or milk and
 cattle from Switzerland.

 44. 'Some 60,000 Ruhr miners have agreed to work extra shifts --
 so-called butter-shifts -- for the purpose of furnishing coal for
 export to Denmark, whence butter will be exported in return. The
 butter will benefit the miners in the first place, as they have
 worked specially to obtain it' (Kölnische Zeitung, 11 June 1919).

 45. What of the prospects of whisky-shifts in England?

 46. As early as 1 September 1919 the coal commission had to face
 the physical impracticability of enforcing the demands of the
 treaty, and agreed to modify them as follows: 'Germany shall in
 the next six months make deliveries corresponding to an annual
 delivery of 20 million tons as compared with 43 millions as
 provided in the peace treaty. If Germany's total production
 exceeds the present level of about 108 millions a year, 60% of
 the extra production, up to 128 millions, shall be delivered to
 the Entente, and 50% of any extra beyond that, until the figure
 provided in the peace treaty is reached. If the toil production
 falls below 108 millions the Entente will examine the situation,
 after hearing Germany, and take account of it.'

 47. 21,136,265 tons out of a total of 28,607,903 tons. The loss
 of iron ore in respect of Upper Silesia is insignificant. The
 exclusion of the iron and steel of Luxemburg from the German
 customs union is, however, important, especially when this loss
 is added to that of Alsace-Lorraine. It may be added in passing
 that Upper Silesia includes 75% of the zinc production of

 48. In April 1919 the British Ministry of Munitions despatched an
 expert commission to examine the conditions of the iron and steel
 works in Lorraine and the occupied areas of Germany. The Report
 states that the iron and steel works in Lorraine, and to a lesser
 extent in the Saar Valley, are dependent on supplies of coal and
 coke from Westphalia. It is necessary to mix Westphalian coal
 with Saar coal to obtain a good furnace coke. The entire
 dependence of all the Lorraine iron and steel works upon Germany
 for fuel supplies 'places them', says the Report, 'in a very
 unenviable position'.

 49. Articles 264, 265, 266, and 267. These provisions can only be
 extended beyond five years by the council of the League of

 50. Article 268 (a).

 51. Article 268 (b) and (c).

 52. The Grand Duchy is also deneutralised and Germany binds
 herself to 'accept in advance all international arrangements
 which may be concluded by the Allied and Associated Powers
 relating to the Grand Duchy' (article 40). At the end of
 September 1919 a plebiscite was held to determine whether
 Luxemburg should join the French or the Belgian customs union,
 which decided by a substantial majority in favour of the former.
 The third alternative of the maintenance of the union with
 Germany was not left open to the electorate.

 53. Article 269.

 54. Article 270.

 55. The occupation provisions may be conveniently summarised at
 this point. German territory situated west of the Rhine, together
 with the bridge-heads, is subject to occupation for a period of
 fifteen years (article 428). If, however, 'the conditions of the
 present treaty are faithfully carried out by Germany', the
 Cologne district will be evacuated after five years, and the
 Coblenz district after ten years (article 429). It is, however,
 further provided that if at the expiration of fifteen years 'the
 guarantees against unprovoked aggression by Germany are not
 considered sufficient by the Allied and Associated governments,
 the evacuation of the occupying troops may be delayed to the
 extent regarded as necessary for the purpose of obtaining the
 required guarantees' (article 429); and also that 'in case either
 during the occupation or after the expiration of the fifteen
 years, the reparation commission finds that Germany refuses to
 observe the whole or part of her obligations under the present
 treaty with regard to reparation, the whole or part of the areas
 specified in article 429 will be re-occupied immediately by the
 Allied and Associated Powers , (article 430). Since it will be
 impossible for Germany to fulfil the whole of her reparation
 obligations, the effect of the above provisions will be in
 practice that the Allies will occupy the left bank of the Rhine
 just so long as they choose. They will also govern it in such
 manner as they may determine (e.g. not only as regards customs,
 but such matters as the respective authority of the local German
 representatives and the Allied governing commission), since 'all
 matters relating to the occupation and not provided for by the
 present treaty shall be regulated by subsequent agreements, which
 Germany hereby undertakes to observe' (article 432). The actual
 agreement under which the occupied areas are to be administered
 for the present has been published as a White Paper (Cd. 222).
 The supreme authority is to be in the hands of an inter-Allied
 Rhineland commission, consisting of a Belgian, a French, a
 British, and an American member. The articles of this agreement
 are very fairly and reasonably drawn.

 56. Article 365. After five years this article is subject to
 revision by the Council of the League of Nations.

 57. The German government withdrew, as from 1 September 1919, all
 preferential railway tariffs for the export of iron and steel
 goods, on the ground that these privileges would have been more
 than counterbalanced by the corresponding privileges which, under
 this article of the treaty, they would have been forced to give
 to Allied traders.

 58. Article 367.

 59. Questions of interpretation and application are to be
 referred to the League of Nations (article 376).

 60. Article 250.

 61. Article 371. This provision is even applied 'to the lines of
 former Russian Poland converted by Germany to the German gauge,
 such lines being regarded as detached from the Prussian state

 62. Articles 332-7. Exception may be taken, however, to the
 second paragraph of article 332, which allows the vessels of
 other nations to trade between German towns but forbids German
 vessels to trade between non-German towns except with special
 permission; and article 333, which prohibits Germany from making
 use of her river system as a source of revenue, may be

 63. The Niemen and the Moselle are to be similarly treated at a
 later date if required.

 64. Article 338.

 65. Article 344. This is with particular reference to the Elbe
 and the Oder; the Danube and the Rhine are dealt with in relation
 to the existing commissions.

 66. Article 339.

 67. Article 357.

 68. Article 358. Germany is, however, to be allowed some payment
 or credit in respect of power so taken by France.

 69. Article 66. 

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