Europe Since 1918

by Herbert Adams Gibbons

The Entente Powers issued an ultimatum giving Germany until May 12, under threat of occupation of the Ruhr Valley, to accept unreservedly all the demands of the Reparations Commission and to obey its orders without delay. Allied armies were massed on the Rhine with headquarters at Düsseldorf.

After many efforts a new cabinet was formed on May 10 under Herr Wirth, a man of great ability, who gathered good men around him. It was just in time to accept the ultimatum and prevent the further invasion of Germany.

But the payment of the first billion marks in gold caused the mark to depreciate one third in value. The Wirth Government seemed unable to raise more money. An attempt to borrow money abroad failed. In December the Government told the Reparations Commission that it could not pay the January and February instalments. The burden under which Germany was resting was the payment of two billion gold marks annually plus an amount equal to 26 per cent of her exports. In addition she had to face deliveries in kind, of which the most important was twenty million tons of coal per annum. She had to find the money to pay for this coal, and to buy coal abroad to make up her deficiency resulting from this loss plus her loss from the alienation of Upper Silesia. How the reparations crisis developed to the breaking-point, as a result of the developments of 1922, is related in another chapter.

It is difficult, almost impossible, one must confess, to make a categorical statement or pass a definitive judgment upon the financial policy of successive German cabinets since the World War. In every discussion the assertion of what Germany might have done is based upon the assumption that there existed ability but not the will to do it. Just as on the Allied side reparations demands have never been based on an impartial expert estimate of German capacity to pay, and the Reparations Commission has been political and not judicial in all its decisions, on the German side the budget has not taken into account treaty obligations, and enormous sums seem to have been spent on railroads and other public work and on shipping. The industrial life of Germany was not harmed by the war. Her plants and mines remained intact. She was ready to resume business; and her industrialists succeeded, despite all the moral and political confusion related in this chapter, in keeping things going. There has been virtually no unemployment, no shutting down of factories and mines, no suspension of transportation service, in a word, no outward sign to indicate that the country was hard up and unable to pay reparations. On the other hand, one noted in Germany in 1922 an orgy of spending, a feverish industrial activity, and the incredible return to bustling prosperity of ports like Hamburg.[21] Export and import trade seemed to be thriving. In a dozen cities the Government and private concerns, principally banks, were undertaking extensive new building.

One was tempted to ask last summer, “Why does not Germany pay?” Mutilated and buffeted about as she has been since 1918, her people certainly seem to have kept their spirit, and very largely to have recovered from the starvation days following the World War. And yet, as is very clearly shown by the figures, her finances have become more and more involved until the Government faces bankruptcy. The first billion gold marks paid under the arrangement of 1921 caused a violent downward movement in German exchange. Each successive payment accentuated this movement until the paper mark became virtually worthless. Before the end of 1922 economists were of the opinion that Germany would never be able to pay the sums her own experts suggested in their counter-proposals at Versailles in 1919.

As an economic problem, the reparations issue boils itself down to three questions: How much is Germany’s surplus per annum? How much of that surplus can be taken for reparations? How can the amount taken be transferred abroad? This is the practical side of the reparations question. To find the answers it was necessary to take into consideration basic economic laws and internal conditions in Germany. Only a healthy goose lays golden eggs. Only a strong government can tax adequately a nation that has representative institutions.

Here the moral factors enter in. The people must have the willingness to make sacrifices, and must consent to the measures adopted by the Government. In the matter of reparations, for instance, nothing could be accomplished unless the German people had impressed upon them that their moral rehabilitation and the return of Germany to the family of nations on terms of equality depended upon making the tremendous sacrifices necessitated by adopting the policy of paying the piper for what they had done in the World War. But we all know that “the people” have to be shown the path of duty and honor and interest. Nations are run by men of large means, with the help of the bourgeois class. Public opinion is created by the press, pulpit, and platform.

In Germany, ever since the armistice, and much more so during the last two years, the governing class has had a desperate fight on its hands simply to prevent the German people from embracing one or the other of the mad alternatives of despair, extreme Nationalism and extreme Socialism. The governing class has been successful in appealing to the instincts of order and conservation of property. But the policy of the Allies has given the capitalists no incentive or encouragement to make tremendous sacrifices. Good faith has been lacking on the side of the victors. Could it be expected on the side of the vanquished? The bourgeois class was morally sick and physically exhausted. The insistence of the Allies in calling for gold payments has ruined the salaried and investing classes throughout Germany. Until the invasion of the Ruhr reawakened national spirit, the screws put down on the Germans at French insistence had brought the country to the verge of social paralysis.

There has been loose talk of rich German industrialists evading taxation, and when the French and Belgians went into the Ruhr it was confidently expected that these industrialists would pay up rather than see their sources of wealth ruined. Public opinion in the United States, wrongly informed, thought the rich Germans had been “welching” and would now pay up promptly. Events have proved this belief wrong. But a study of the fiscal measures of the German Government would have demonstrated the absurdity of the assumption that the men who had a stake in the Ruhr had not been paying their taxes and that if they did so they would furnish ample means for the German Government to pay whatever the French demanded.

The German tax on fixed incomes—salaries, wages, and pensions—includes directors of companies in the Ruhr and all their high-salaried staff, officers in the army, and ministers of state. Laborers pay only 10 per cent, but the tax goes up to 60 per cent. As it is paid at the source, evasion is impossible. As for the capitalists, besides the income tax, they have been subjected to so many different levies that it would have been impossible for them to escape heavy taxation during the last four years. On top of the war profits tax came the emergency law of 1921, which put the Government in possession of 65 per cent of the largest fortunes. The forced loan law of 1922 took 10 per cent of all fortunes above a million marks, on which no interest was to be paid for three years. The legacy duty goes as high as 70 per cent and cannot be evaded by presents made by the living, which are taxed up to 60 per cent. Increment-values pay 30 per cent, and public companies are subjected to a foundation capital tax of 7½ per cent. Then, there are dividend and corporation profit taxes. The figures would seem to show that the propertied classes in Germany are paying 90 per cent of the taxes, and could not, if they would, give more to meet reparations demands.[22]