EXCURSUS I

COAL

The question of coal has always considerable importance for Reparation, both because (in spite of the exaggerations of the Treaty) it is a form in which Germany can make important payments, and also because of the reaction of coal deliveries on Germanyʼs internal economy. Up to the middle of 1921 Germanyʼs payments for Reparation were almost entirely in the form of coal. And coal was the main topic of the Spa Conference, where for the first time the Governments of the Allies and of Germany met face to face.

Under the terms of the Treaty Germany was to deliver 3,400,000 tons of coal per month. For reasons explained in detail in The Economic Consequences of the Peace (pp. 74–89) this total was a figure of rhetoric and not capable of realization. Accordingly for the first quarter of 1920 the Reparation Commission reduced their demand to 1,660,000 tons per month, and in the second quarter to 1,500,000 tons per month; whilst in the second quarter Germany actually delivered at the rate of 770,000 tons per month. This last figure was unduly low, and by the latter date coal was in short supply throughout the world and very dear. The main object of the Spa Coal Agreement was, therefore, to secure for France an increased supply of German coal.

The Conference was successful in obtaining coal, but on terms not unfavorable to Germany. After much bargaining the deliveries were fixed at 2,000,000 tons a month for six months from August 1920. But the German representatives succeeded in persuading the Allies that they could not deliver this amount unless their miners were better fed and that this meant foreign credit. The Allies agreed, therefore, to pay Germany something substantial for this coal, the sums thus received to be utilized in purchasing from abroad additional food for the miners. In form, the greater part of the sum thus paid was a loan; but, since it was set off as a prior charge against the value of Reparation deliveries (e.g., the ships), it really amounted to paying back to Germany the value of a part of these deliveries. Germanyʼs total cash receipts[21] under these arrangements actually came to about 360,000,000 gold marks,[22] which worked out at about 40s. per ton averaged over the whole of the deliveries. As at this time the German internal price was from 25s. to 30s. per ton, the German Government received in foreign currency substantially more than they had to pay for the coal to the home producers. The high figure of 2,000,000 tons per month involved short supplies to German transport and industry. But the money was badly wanted, and was of the utmost assistance in paying for the German food program (and also in meeting German liabilities in respect of pre–war debts) during the autumn and winter of 1920.

This is a convenient point at which to record the subsequent history of the coal deliveries. During the next six months Germany very nearly fulfilled the Spa Agreement, her deliveries towards the 2,000,000 tons per month being 2,055,227 tons in August, 2,008,470 tons in September, 2,288,049 tons in October, 1,912,696 tons in November, 1,791,828 tons in December, and 1,678,675 tons in January 1921. At the end of January 1921 the Spa Agreement lapsed, and since that time Germany has had to continue her coal deliveries without any payment or advance of cash in return for them. To make up for the accumulated deficit under the Spa Agreement, the Reparation Commission called for 2,200,000 tons per month in February and March, and continued to demand this figure in subsequent months. Like so much else, however, this demand was only on paper. Germany was not able to fulfil it, her actual deliveries during the next six months amounting to 1,885,051 tons in February 1921, 1,419,654 tons in March, 1,510,332 tons in April, 1,549,768 tons in May, 1,453,761 tons in June, and 1,399,132 tons in July. And the Reparation Commission, not really wanting the coal, tacitly acquiesced in these quantities. During the first half of 1921 there was, in fact, a remarkable reversal of the situation six months earlier. In spite of the British Coal Strike, France and Belgium, having replenished their stocks and suffering from a depression in the iron and steel trades, were in risk of being glutted with coal. If Germany had complied with the full demands of the Reparation Commission the recipients would not have known what to do with the deliveries. Even as it was, some of the coal received was sold to exporters, and the coal miners of France and Belgium were in danger of short employment.

The statistics of the aggregate German output of pit coal are now as follows, exclusive of Alsace–Lorraine, the Saar, and the Palatinate, in million tons:

1913.1917.1918.1919.1920.1921 (first
nine months)
Germany exclusive
of Upper Silesia		130.19111.66109.5492.7699.6676.06
Germany inclusive
of Upper Silesia		173.62154.41148.19117.69.131.35.100.60
Per cent of 1913 output100.0088.9085.4067.8075.7077.20

The production of rough lignite (I will not risk controversy by attempting to convert this into its pit–coal equivalent) rose from 87.1 million tons in 1913 to 93.8 in 1919, 111.6 in 1920, and 90.8 in the first three–quarters of 1921.

The Spa Agreement supplied a temporary palliative of the anomalous conditions governing the price at which these coal deliveries are credited to Germany. But with the termination of this Agreement they again require attention. Under the Treaty Germany is credited in the case of coal delivered overland with “the German pithead price to German nationals” plus the freight to the frontier; and in the case of coal delivered by sea with the export price; provided in each case this price is not in excess of the British export price. Now for various internal reasons the German Government have thought fit to maintain the pithead price to German nationals far below the world price, with the result that she gets credited with much less than its real value for her deliveries of Reparation coal. During the year ending June 1921 the average legal maximum price of the different kinds of coal was about 270 marks a ton, inclusive of a tax of 20 per cent on the price,[23] which at the exchange then prevailing was about 20s., i.e., between a third and a half of the British price at that date. The fall in the mark exchange in the autumn of 1921 increased the discrepancy. For although the price of German coal was substantially increased in terms of paper marks, and although the price of British coal had fallen sharply, the movements of exchange so out–distanced the other factors, that in November 1921 the price of British coal worked out at about three and half times the price of the best bituminous coal from the Ruhr. Thus not only were the German iron–masters placed in an advantageous position for competing with British producers, but the Belgian and French industries also benefited artificially through the receipt by their Governments of very low–priced coal.

The German Government is in rather a dilemma in this matter. An increase in the coal tax is one of the most obvious sources for an increased revenue, and such a tax would be, from the standpoint of the exchequer, twice blessed, since it would increase correspondingly the Reparation credits. But on the other hand, such a proposal unites two groups against them, the industrialists, who want cheap coal for industry and the Socialists who want cheap coal for the domestic stove. From the revenue standpoint the tax would probably stand an increase from 20 per cent to 60 per cent; but from the political standpoint an increase from 20 per cent to 30 per cent is the highest contemplated at present, with a differential price in favor of domestic consumers.[24]

I take this opportunity of making a few corrections or amplifications of the passages in The Economic Consequences of the Peace which deal with coal.

1. The fate of Upper Silesia is highly relevant to some of the conclusions about coal in Chapter IV of The Economic Consequences of the Peace (pp. 77–84). I there stated that “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,” which forecast turned out to be in almost exact accordance with the facts. I also urged that, unless the plebiscite went in a way which I did not expect, the industrial districts ought to be assigned to Germany. But I felt no confidence, having regard to the policy of France, that this would be done; and I allowed, therefore, in my figures for the possibility that Germany would lose this area.

The actual decision of the Allies, acting on the advice of the Council of the League of Nations to whom the matter had been referred, which we have discussed briefly above (pp. 12–14), divides the industrial triangle between the two claimants to it. According to an estimate of the Prussian Ministry of Trade 86 per cent of the total coal deposits of Upper Silesia fall to Poland, leaving 14 per cent to Germany. Germany retains a somewhat larger proportion of pits in actual operation, 64 per cent of the current production of coal falling to Poland and 36 per cent to Germany.[25]

The figure of 100,000,000 tons, given in The Economic Consequences of the Peace for the net German production (i.e., deducting consumption at the mines themselves) in the near future excluding Upper Silesia, should, therefore, be replaced by the figure of (say) 115,000,000 tons, including such part of Upper Silesia as Germany is now to retain.

2. I beg leave to correct a misleading passage in a footnote to p. 79 of The Economic Consequences of the Peace. I there spoke of “Polandʼs pre–war annual demand” for coal, where I should have said “pre–war Polandʼs pre–war annual demand.” The mistake was not material, as I allowed for Germanyʼs diminished requirements for coal, due to loss of territory, in the body of the text. But I confess that the footnote, as published, might be deemed misleading. At the same time it is, I think, a tribute to the general accuracy of The Economic Consequences that partizan critics should have fastened so greedily on the omission of the word “pre–war” before the word “Poland” in the footnote in question. Quite a considerable literature has grown up round it. The Polish Diet devoted January 20, 1921, to the discussion and patriotic analysis of this footnote, and concluded with a Resolution ordering the chief speech of the occasion (that of Deputy A. Wierzlicki) to be published throughout the world in several languages at the expense of the State. I apologize for any depreciation in the Polish mark for which I may have been so inadvertently responsible. Mr. Wierzlicki begins: “A book appeared by Keynes ... the author of a well–known work on India, that pearl of the English crown, that land which is a beloved subject of study to the English. Through such studies a man may win himself name and fame,”—which was certainly a little unscrupulous of me. And he concludes: “But England too must believe in facts! And if Keynes, whose book is impregnated with a humanitarian spirit and with understanding of the necessity to get up beyond selfish interests, if Keynes is convinced by actual data that he has done a wrong, that he has wrought confusion in the ideas of statesmen and politicians as regards Upper Silesia, then he too will see with his eyes and must become the friend of Poland, of Poland as an active factor in the development of the natural wealth of Silesia.” I owe it to so generous and eloquent a critic to quote the corrected figures, which are as follows: the Polish lands, united by the Peace Treaty into the new Polish State, consumed in 1913 19,445,000 tons of coal, of which 8,989,000 tons were produced within that area and 7,370,000 tons were imported from Upper Silesia (the total production of Upper Silesia in that year being 43,800,000 tons).[26] The Silesian Plebiscite has been preceded and followed by a mass of propagandist literature on both sides. For the economic questions involved see, particularly, on the Polish side: Wierzlicki, The Truth about Upper Silesia; Olszewski, Upper Silesia, Her Influence on the Solvability and on the Economic Life of Germany, and The Economic Value of Upper Silesia for Poland and Germany respectively; and on the German side: Sidney Osborne, The Upper Silesian Question and Germanyʼs Coal Problem, The Problem of Upper Silesia (papers by various authors, not all on the German side, with excellent maps, edited by Sidney Osborne), various pamphlets by Professor Schulz–Gavernitz, and documents circulated by the Breslau Chamber of Commerce.

3. My observations on Germanyʼs capacity to deliver reparation coal have been criticized in some quarters[27] on the ground that I made insufficient allowance for the compensation which is available to her by the more intensive exploitation of her deposits of lignite or brown coal. This criticism is scarcely fair, because I was the first in popular controversy to call attention to the factor of lignite, and because I was careful from the outset to disclaim expert knowledge of the subject.[28] I still find it difficult, in the face of conflicting expert opinions, to know how much importance to attach to this material. Since the Armistice there has been a substantial increase in output, which was 36 per cent higher in the first half of 1921 than in 1913.[29] In view of the acute shortage of coal this output must have been of material assistance towards meeting the situation. The deposits are near the surface, and no great amount of capital or machinery is needed for its production. But lignite briquette is a substitute for coal for certain purposes only, and the evidence is conflicting as to whether any further material expansion is economically practicable.[30]

The process of briquetting the rough lignite is probably a wasteful one, and it is doubtful whether it would be worth while to set up new plant with a view to production on a larger scale. Some authorities hold that the real future of lignite and its value as an element in the future wealth of Germany lie in improved methods of distillation (the chief obstacle to which, as also to other uses, lies in its high water content), by which the various oils, ammonia and benzine, latent in it can be released for commercial uses.

It is certainly the case that the future possibilities of lignite should not be overlooked. But there is a tendency at present, just as was the case with potash some little time ago, to exaggerate its importance greatly as a decisive factor in the wealth–producing capacity of Germany.