The Economic Consequences of the Peace Part 4

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 191,500,000 tons. Of this, 19,000,000 tons were consumed at the mines, and on balance (_i.e._ exports less imports) 33,500,000 tons were exported, leaving 139,000,000 tons for domestic consumption. It is estimated that this total was employed as follows:--

Railways 18,000,000 tons.

Gas, water, and electricity 12,500,000 "

Bunkers 6,500,000 "

House-fuel, small industry and agriculture 24,000,000 "

Industry 78,000,000 "

----------- 139,000,000 "

The diminution of production due to loss of territory is:--

Alsace-Lorraine 3,800,000 tons.

Saar Basin 13,200,000 "

Upper Silesia 43,800,000 "

----------- 60,800,000 "

There would remain, therefore, on the basis of the 1913 output, 130,700,000 tons, or, deducting consumption at the mines themselves, (say) 118,000,000 tons. For some years there must be sent out of this supply upwards of 20,000,000 tons to France as compensation for damage done to French mines, and 25,000,000 tons to France, Belgium, Italy, and Luxemburg;[43] 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 40,000,000 tons, leaving, on the above basis, 78,000,000 tons for her own use as against a pre-war consumption of 139,000,000 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 161,500,000 tons as compared with 191,500,000 tons in 1913; and during the first half of 1919 it was less than 50,000,000 tons, exclusive of Alsace-Lorraine and the Saar but including Upper Silesia, corresponding to an annual production of about 100,000,000 tons.[44] 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 t.i.the 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 a.n.a.logy 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 30 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 criticize it.

The pre-war figure of 118,000,000 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 100,000,000[45] tons, having regard to the above factors. If 40,000,000 tons of this are to be exported to the Allies, there remain 60,000,000 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 29,000,000 tons.[46] Our hypothetical calculations, therefore, leave us with post-war German domestic requirements, on the basis of a pre-war efficiency of railways and industry, of 110,000,000 tons against an output rot exceeding 100,000,000 tons, of which 40,000,000 tons are mortgaged to the Allies.

The importance of the subject has led me into a somewhat lengthy statistical a.n.a.lysis. It is evident that too much significance must not be attached to the precise figures arrived at, which are hypothetical and dubious.[47] 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 40,000,000 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 organization and the inefficiency of new governments, the coal position of all Europe is nearly desperate;[48] 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 jeopardize 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 13,600,000 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 neighbors, 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.[49] 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 to-day's industry it is not without advantages as a means of stimulating production. The b.u.t.ter-shifts of the Ruhr[50] show how far modern Europe has retrograded in the direction of barter, and afford a picturesque ill.u.s.tration of the low economic organization 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.[51]

Yet if Germany can find coal for the neighboring 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 b.u.t.ter, 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 neighbors 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 every one 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 even-handed 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 Czecho-Slovakia was a wise measure which, properly employed and extended, may prove of great a.s.sistance. But I reserve constructive proposals for Chapter VII.

Here I am only concerned with tracing the consequences, _per impossibile_, of carrying out the Treaty _au pied de lettre_.[52]

(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 per cent of the iron-ore raised in Germany in 1913 came from Alsace-Lorraine.[53]

In this the chief importance of the stolen provinces lay.

There is no question but that Germany must lose these ore-fields. 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 c.o.ke 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 per cent of Germany's iron-ore, only 25 per cent 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. .h.i.therto, 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 labor 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 regime of Free Trade and free economic intercourse it would be of little consequence that iron lay on one side of a political frontier, and labor, 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 pa.s.sions 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 labor for a larger reward.[54]

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 diminish.

Thus the Treaty strikes at organization, and by the destruction of organization 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 quant.i.ty of human labor in dragging iron or coal, as the case may he, over many useless miles to satisfy the dictates of a political treaty or because obstructions have been established to the proper localization of industry.

III

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 pin-p.r.i.c.ks, interferences and vexations, not so much objectionable for their solid consequences, as dishonorable to the Allies in the light of their professions. Let the reader consider what follows in the light of the a.s.surances already quoted, in reliance on which Germany laid down her arms.

(i.) 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-favored-nation treatment to the Allied and a.s.sociated States.[55] But she is not ent.i.tled herself to receive such treatment.

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.[56] But there is no similar provision for German exports into Alsace-Lorraine.

For three years Polish exports to Germany, and for five years Luxemburg's exports to Germany, are to have a similar privilege,[57]-- 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.[58]

For six months after the Treaty has come into force Germany may not impose duties on imports from the Allied and a.s.sociated States higher than the most favorable 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.[59] 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 particularized 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 Regime 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 regime to the occupied area on the 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."[60] 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 realize the French ambition of driving Germany proper beyond the Rhine, has not yet been abandoned. Some believe that much may be accomplished by a regime of threats, bribes, and cajolery extended over a period of fifteen years or longer.[61] 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.

(ii.) 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 favored 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."[62] 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,[63] and of an a.n.a.logous provision relating to pa.s.senger traffic,[64] will much depend on the interpretation of the phrase, "similar conditions of transport."[65]

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 5000 locomotives and 150,000 wagons, "in good working order, with all necessary spare parts and fittings." Under the Treaty Germany is required to confirm this surrender and to recognize the t.i.tle of the Allies to the material.[66] 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 November 11, 1918.[67] 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.

(iii.) 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 const.i.tute 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 princ.i.p.al 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 Czecho-Slovakia; 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 Silesia.

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 recognized 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,[68] the Treaty proceeds to hand over the administration of the Elbe, the Oder, the Danube, and the Rhine to International Commissions.[69] The ultimate powers of these Commissions are to be determined by "a General Convention drawn up by the Allied and a.s.sociated Powers, and approved by the League of Nations."[70] In the meantime the Commissions are to draw up their own const.i.tutions 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 regime, the fixing and collection of charges, and regulations for navigation."[71]

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 const.i.tuted, 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 Belgium.

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, Breslan, 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 per cent 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.[72] The same course is to be followed with German vessels and tugs on the Rhine and with German property in the port of Rotterdam.[73] Where the Rhine flows between France and Germany, France is to have all the rights of utilizing the water for irrigation or for power and Germany is to have none;[74] and all the bridges are to be French property as to their whole length.[75] 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 Stra.s.sburg for seven years and managed by a Frenchman to be 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.

FOOTNOTES: