THE REPARATIONS REPORT.
THE Report of- General Dawes's Committee is like a lifeboat that has just put off from the shore • on a perilous attempt to rescue the sailors who have for so long been sending up distress signals from that poor old tramp; the ' Europa,' which lies fast aground on Reparations -Reef, and seems very likely to break up under a fast rising sea of troubles. We, in England, are like the towns- folk who watch the scene from the safety of the land, but whose most vital interests are bound up with the- success of the lifeboat's enterprise -and the salvation of the ship-wrecked sailors. We watch the new launched lifeboat, heart in mouth, as she meets the first great breakers of fear, hatred and suspicion that have these ten years been pounding on that iron-bound coast. But though we follow the fortunes of the attempt with the keenest anxiety, we must examine as critically and as minutely as we can the design of the craft that has put out, and the plan of rescue that animates the attempt.
The Scheme which General Dawes's Committee recom- mends as capable of providing a solution of the repara- tions problem seems to be divided into two distinct halves: (1) The estimate of what Germany is capable of paying, at various dates, and the outline of a system of financial organizations which can collect and pay this sum in marks into the Central German Bank. , (2) The Outline of an organization which can transfer this sum into foreign currencies and so make it available for the general pur- poses of the Allied Governments. And, it is implied, the second of these tasks is not less difficult than the first. The mere fact of this separation of the problem is of the utmost importance, and in itself marks the Committee's scientific attitude.
On the first half of its scheme----the estimate of German capacity to pay, and the arrangements for collection—the Committee has been very definite. It takes as a basic hypothesis that Germany cannot pay in any one year more than " the difference between the maximum revenue (of the Budget) and the minimum expenditure for Germany's own needs." When we compare this with previous estimates of reparations which were arrived at by the simple means of adding together the demands of the various Allies, without taking Germany's capacity into consideration at all, it will be seen how strikingly the experts' sanity contrasts with four years of hysteria. But the experts have not, left out of consideration the Allies', and, of course, especially France's needs. By the unmitigated' application of their bask principle they would come to the conclusion that Gerniany could pay very little for some time. For the next two years they do not expect any budgetary surplus- i.e., any " difference between maximum revenue and the minimum expenditure for Germany's own needs." Hence the Allies would get nothing for two years. But the Allies would not hear of this. It is to circumvent this impasse that the experts have, decided on the expedients of a foreign loan, and of the scheme for special shares in the German railways, which will together produce 1,000 million gold marks for the Allies in the first year.
As we have stated, in the second year also the experts expect no budgetary surplus—the only thing out of which Germany can really pay. Hence they reckon that 1,220 million marks should be raised by Germany -on her railways and industries ; this practically amounts to an internal loan. • In .the third year they do expect their first budgetary surplus, and this, with more special receipts from industry, will produce- another 1,200 million Marks for the Allies. In the fourth. year they expect. that the surplus will be increased and that there will be 1,750 mil, lion -marks for the Allies. , fifth year- they expect the budgetary surplus, to have grown large.enough for the maximum payment of 2;500 million marks a year, which will continue as the annual payment to the Allies until the total of reparations is liquidated. To sum up, the experts say that Germany will have nothing out of which, to .pay for two years, and very little for- another two years, but that the Allies must have. something during that time, and that therefore the only conceivable way in which they can get it, is for the Germans to anticipate their own solvency and .raise both foreign and internal loans on their material assets.
This is the voice of reason, sounding strange and unfamiliar in connexion with reparations, but it has only to be heard clearly in order to be absolutely con- vincing. The acceptance of the basic principle that_ Germany can pay only out of her budgetary surplus has,, however, another inevitable consequence. One of the terms of reference of the Dawes Committee was " to find measures to balance the German Budget." But if the Budget is not balanced still less can there be a surplus out of which to pay, and on the conditions requisite for the balancing of the Budget the Committee is quite definite. The economic and fiscal unity of the Reich. must be restored. " It is, however, our duty to point out clearly that these forecasts are based on the assump- tion that economic activity will be unhampered and unaffected by any foreign organization other than the controls herein provided. Consequently our Tian is based. upon the assumption that existing measures, in so far as they hamper that activity, will be withdrawn or suffi- ciently modified so soon as Germany Las put into execu- tion the plan recommended, and that they will not be reimposed except in case of flagran.t failure to fulfil the conditions accepted by common agreement." Unless this is done the whole scheme falls to the ground, neither a foreign nor an internal loan can be raised, the railway shares will be valueless, and the expected budgetary surplus will not be realized.
It is clear that the experts have placed their annual payments at the maximum that they consider possible in the most favourable circumstances. If all these favourable circumstances are not realized, if German economic integrity is not completely restored, if the foreign or industrial loans are not successfully floated, and if as a consequence the anticipated surpluses do not materialize, then what happens ? If the scale of payments. is then reduced automatically, it obviously becomes Germany's interest to see that budgetary surpluses arc not realized, and we get back to the old story of " volun- tary bankruptcy."
If, on the other hand, Germany is simply declared to be " in default," we get the old story of " sanctions " and those expensive luxuries, " productive pledges." We suggest these difficulties only because they must inevitably occur to any reader of the Report. We take it that the Committee itself does not consider that it has any other. duty than to state how much a year Germany can pay, under specific conditions. It has left to others the task of finding an inducement by which to make her pay. But let us assume for the moment that Germany will pay,, and that into the reparations account at the Reichsbank, or at the new German Bank of Issue which the Committee proposes to establish, there will flow the annual stuns which, the Committee has mentioned. in its schedule. It is Ham that the second half of the: Committee's Report, that half which deals with the transfer of sums lying at the credit .• of the reparations account in marks into the currency, of tlie.Allied Governments, will come into operation. , • As. it recognizes ,the extreme complication of this problem, the Committee has here mentioned no specific Its report does not say .-our Transfer Committee shall sell so many million marks a year, and buy pounds or francs with them." It .simply lays it down that the Transfer Committee shall convert its credit account in the Reichsbank into pounds and francs as opportunity offers, without flooding the market and making the Mark -waste paper again in the money market of the world. If, as the experts evidently contemplate, the Transfer Committee is not able to liquidate its account at the Reichsbank, by buying francs and pounds, as quickly as money flows. into- that account from Germany in marks, then it is to let this account accumulate at the Reichsbank, and be used on short term loans within Germany. But should its credit account rise to 250 million pounds in marks, it must come to a decision by a two-thirds majority as to whether it will ask the German Government to reduce the payments into this account, or whether it will simply allow that account to go on accumulating, or, apparently, whether the actual scale of German 'payments is- to - be reduced. It will be seen that the Transfer Committee is a body, to put it mildly, of some importance. The experts say, in effect, " it is one thing to make Germany pay money into the Reiehsbank, and-it-is another to get that money transferred to-the Allied Governments. But the difficulty of doing this second thing need not interfere with the operation of the first thing." The money can be left to accumulate in Germany, to be transferred to the Allies. as opportunity offers—quite 'independently of its collection.
The next consideration which presents itself is, what conditions will in practice allow the Transfer Committee to conduct its operations and make its credit account at the Reichsbank available in francs and pounds for the Allied Governments ? We suppose that the answer to this question is clear. Pounds and francs can be boUght with marks and the eXchange Yet remain stable on only one condition, and that condition is that Germany should be selling more than she buys. For example, the Transfer Committee can hope to be able to transfer " x " marks into pounds and francs if Germany sells to the world at large " x " marks worth of goods more than she buys. To be particular, if the Transfer Committee is to keep pace with the accumulations of its account at the Reichs- bank, it will have; ultimately, to transfer 2,500 million marks. (125 million pounds) a year into pounds and francs. And it can do this only if -Germany sells to the world 125 million pounds worth -of goods more than she buys.--- in other words, if she has an active trade balance of 125 million pounds. This proposition may not be strictly true of any single given year, but over a period of years - it is unquestionably so. Therefore we cannot doubt that it is true that reparations can only be paid in goods. Money is but the symbol of commodities, and if the transfer of money from country to country is not accom- panied by an exactly equivalent transfer of goods then the essential relation between the two is broken, 'and we experience the familiar phenoinenon of violently. fluctu- ating foreign exchanges. Thus with the distant but yet possible prospect of annual reparation payments • which the Dawes Report has opened up to us, all- our old doubts of whether we really want reparations or not must be re-examined. The whole machinery of the Transfer Committee is a- clear indication of the always provable principle that if we wish to receive, for example, 10G Million pounds from- Germany; we must be prepared to receive 100 million pounds worth of German goods. There is no conceivable escape from this dilemma, if indeed it is a dilemma: If we do not take the goods, the Transfer Committee will not be able to transfer to us the money. If we take the goods we shall unquestionably not want- to produce them here. This is no question of Free Trade or Protection.. The Free 'nee araument would obviously be that if Germany sold us a 100 million pounds of goods her purchasing power would- be increased by 100 million pounds. With this she would buygoods from us and therefore our trade would not be in the least injured. But by hypothesis, this would not be so in the present case, because the purchase money of the 100 mil- lion pounds worth of goods which she sold to us would not go to increasing her purchasing power, but merely- to swell reparation payments to ourselves and to the other Allies. Germany would not be selling us the goods, but giving us them, or, as our Protectionists would say, " dumping " them. And yet it must not be supposed that this country does not need' reparations ; unquestion- ably, if we received considerable and regular payments from Germany or from anyone else, our overburdened taxpayers could be relieved.
These considerations are evidently in the mind of Mr. J. A. Hobson, who contributed an- illuminating letter to the Times on Saturday last on this subject. Mr. Hobson pointed out that if the Allies are really determined to receive reparations they must face the fact that they must receive them in goods, and that they must therefore cease producing certain classes of goods in their own countries. They must, for example, say, " We will give our steel workers a rest and take German steel in payment of reparations." But will any modern country conceivably assent to this sort of proposition for any one of her im- portant industries ? The idea has only to be stated to seem out of the question. So, after all, it would be, let us say, premature, to assert that " the reparations problem is solved."
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