[28] In The Economic Consequences of the Peace, p. 92 n., I wrote as follows: “The reader must be reminded in particular that the above calculations take no account of the German production of lignite.... 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.”
[29] That is to say, production in the middle of 1921 was at the rate of about 120,000,000 tons per annum. At that time the legal maximum price was 60 paper marks per ton (i.e., 5s. or less); so that the national profit on the output in terms of money cannot have been a very material amount.
[30] In order to secure the increased output the number of miners was increased much more than in proportion, namely from 59,000 in 1913 to 171,000 in the first half of 1921. As a result, the cost of production of lignite rose much faster than that of coal. Also since its calorific value is much less than that of coal per unit of weight (even when it is briquetted), it can only compete with coal, unless it is assisted by preferential freight rates, within a limited area in the neighborhood of the mines.
[31] At the Paris Conference of August 1921 Lord Curzon tried unavailingly to persuade France to abandon this illegal occupation. The so–called “Economic Sanctions” were raised on October 1, 1921. The occupation still continues, though both the above pretexts have now disappeared.
CHAPTER III
The Burden of the London Settlement
The settlement of Reparations communicated to Germany by the Allied Powers on May 5, 1921, and accepted a few days later, constitutes the definitive scheme under the Treaty according to which Germany for the next two generations is to discharge her liabilities.[32] It will not endure. But it is the fait accompli of the hour, and, therefore, deserves examination.[33]
The settlement falls into three parts comprising (1) provisions for the delivery of Bonds; (2) provisions for setting up in Berlin an Allied Committee of Guarantees; (3) provisions for actual payment in cash and kind.
1. The Delivery of Bonds.—These provisions are the latest variant of similar provisions in the Treaty itself. Allied Finance Ministers have encouraged themselves (or their constituents) with the hope that some part of the capital sum of Germanyʼs liabilities might be anticipated by the sale to private investors of Bonds secured on future Reparation payments. For this purpose it was necessary that Germany should deliver negotiable Bonds. These Bonds do not constitute any additional burden on Germany. They are simply documents constituting a title to the sums which, under other clauses, Germany is to pay over annually to the Reparation Commission.
The advantages to the Allies of marketing such Bonds are obvious. If they could get rid of the Bonds they would have thrown the risk of Germanyʼs default on to others; they would have interested a great number of people all over the world in Germanyʼs not defaulting; and they would have secured the actual cash which the exigencies of their Budgets demand. But the hope is illusory. When at last a real settlement is made, it may be practicable for the German Government to float an international loan of moderate amount, well within the worldʼs estimate of their minimum capacity of payment. But, though there are foolish investors in the world, it would be sanguine to believe that there are so many of such folly as to swallow at this moment on these lines a loan of vast dimensions. It costs France at the present time somewhere about 10 per cent to float a loan of modest dimensions on the New York market. As the proposed German Bonds will carry 5 per cent interest and 1 per cent sinking fund, it would be necessary to reduce their price to 57 before they would yield 10 per cent including redemption. It would be very optimistic, therefore, to expect to market them at above half their par value. Even so, the world is not likely to invest in them any large proportion of its current savings, so that the whole amount even of the A Bonds, specified below, could not be marketed at this price. Moreover, in so far as the service of the Bonds marketed is within the minimum expectation of Germanyʼs capacity to pay (as it would have to be), the financial effect on the Ally which markets the Bonds is nearly the same as though they were to borrow themselves at the rate in question. Except, therefore, in the case of those Allies whose credit is inferior to Germanyʼs, the advantage compared with borrowing on their own credit would not be very material.[34]