British Empire $7,000,000,000[106]
France 12,000,000,000[106]
Italy 2,500,000,000
Others (Including United States) 3,500,000,000
Total $25,000,000,000

I feel much more confidence in the approximate accuracy of the total figure[107] than in its division between the different claimants. The reader will observe that in any case the addition of Pensions and Allowances enormously increases the aggregate claim, raising it indeed by nearly double. Adding this figure to the estimate under other heads, we have a total claim against Germany of $40,000,000,000.[108] I believe that this figure is fully high enough, and that the actual result may fall somewhat short of it.[109] In the next section of this chapter the relation of this figure to Germany's capacity to pay will be examined. It is only necessary here to remind the reader of certain other particulars of the Treaty which speak for themselves:

1. Out of the total amount of the claim, whatever it eventually turns out to be, a sum of $5,000,000,000 must be paid before May 1, 1921. The possibility of this will be discussed below. But the Treaty itself provides certain abatements. In the first place, this sum is to include the expenses of the Armies of Occupation since the Armistice (a large charge of the order of magnitude of $1,000,000,000 which under another Article of the Treaty—No. 249—is laid upon Germany).[110] But further, "such supplies of food and raw materials as may be judged by the Governments of the Principal Allied and Associated Powers to be essential to enable Germany to meet her obligations for Reparation may also, with the approval of the said Governments, be paid for out of the above sum."[111] This is a qualification of high importance. The clause, as it is drafted, allows the Finance Ministers of the Allied countries to hold out to their electorates the hope of substantial payments at an early date, while at the same time it gives to the Reparation Commission a discretion, which the force of facts will compel them to exercise, to give back to Germany what is required for the maintenance of her economic existence. This discretionary power renders the demand for an immediate payment of $5,000,000,000 less injurious than it would otherwise be, but nevertheless it does not render it innocuous. In the first place, my conclusions in the next section of this chapter indicate that this sum cannot be found within the period indicated, even if a large proportion is in practice returned to Germany for the purpose of enabling her to pay for imports. In the second place, the Reparation Commission can only exercise its discretionary power effectively by taking charge of the entire foreign trade of Germany, together with the foreign exchange arising out of it, which will be quite beyond the capacity of any such body. If the Reparation Commission makes any serious attempt to administer the collection of this sum of $5,000,000,000 and to authorize the return to Germany of a part it, the trade of Central Europe will be strangled by bureaucratic regulation in its most inefficient form.

2. In addition to the early payment in cash or kind of a sum of $5,000,000,000, Germany is required to deliver bearer bonds to a further amount of $10,000,000,000, or, in the event of the payments in cash or kind before May 1, 1921, available for Reparation, falling short of $5,000,000,000 by reason of the permitted deductions, to such further amount as shall bring the total payments by Germany in cash, kind, and bearer bonds up to May 1, 1921, to a figure of $15,000,000,000 altogether.[112] These bearer bonds carry interest at 2-1/2 per cent per annum from 1921 to 1925, and at 5 per cent plus 1 per cent for amortization thereafter. Assuming, therefore, that Germany is not able to provide any appreciable surplus towards Reparation before 1921, she will have to find a sum of $375,000,000 annually from 1921 to 1925, and $900,000,000 annually thereafter.[113]

3. As soon as the Reparation Commission is satisfied that Germany can do better than this, 5 per cent bearer bonds are to be issued for a further $10,000,000,000, the rate of amortization being determined by the Commission hereafter. This would bring the annual payment to $1,400,000,000 without allowing anything for the discharge of the capital of the last $10,000,000,000.

4. Germany's liability, however, is not limited to $25,000,000,000, and the Reparation Commission is to demand further instalments of bearer bonds until the total enemy liability under Annex I. has been provided for. On the basis of my estimate of $40,000,000,000 for the total liability, which is more likely to be criticized as being too low than as being too high, the amount of this balance will be $15,000,000,000. Assuming interest at 5 per cent, this will raise the annual payment to $2,150,000,000 without allowance for amortization.

5. But even this is not all. There is a further provision of devastating significance. Bonds representing payments in excess of $15,000,000,000 are not to be issued until the Commission is satisfied that Germany can meet the interest on them. But this does not mean that interest is remitted in the meantime. As from May 1, 1921, interest is to be debited to Germany on such part of her outstanding debt as has not been covered by payment in cash or kind or by the issue of bonds as above,[114] and "the rate of interest shall be 5 per cent unless the Commission shall determine at some future time that circumstances justify a variation of this rate." That is to say, the capital sum of indebtedness is rolling up all the time at compound interest. The effect of this provision towards increasing the burden is, on the assumption that Germany cannot pay very large sums at first, enormous. At 5 per cent compound interest a capital sum doubles itself in fifteen years. On the assumption that Germany cannot pay more than $750,000,000 annually until 1936 (i.e. 5 per cent interest on $15,000,000,000) the $25,000,000,000 on which interest is deferred will have risen to $50,000,000,000, carrying an annual interest charge of $2,500,000,000. That is to say, even if Germany pays $750,000,000 annually up to 1936, she will nevertheless owe us at that date more than half as much again as she does now ($65,000,000,000 as compared with $40,000,000,000). From 1936 onwards she will have to pay to us $3,250,000,000 annually in order to keep pace with the interest alone. At the end of any year in which she pays less than this sum she will owe more than she did at the beginning of it. And if she is to discharge the capital sum in thirty years from 1930, i.e. in forty-eight years from the Armistice, she must pay an additional $650,000,000 annually, making $3,900,000,000 in all.[115]

It is, in my judgment, as certain as anything can be, for reasons which I will elaborate in a moment, that Germany cannot pay anything approaching this sum. Until the Treaty is altered, therefore, Germany has in effect engaged herself to hand over to the Allies the whole of her surplus production in perpetuity.

6. This is not less the case because the Reparation Commission has been given discretionary powers to vary the rate of interest, and to postpone and even to cancel the capital indebtedness. In the first place, some of these powers can only be exercised if the Commission or the Governments represented on it are unanimous.[116] But also, which is perhaps more important, it will be the duty of the Reparation Commission, until there has been a unanimous and far-reaching change of the policy which the Treaty represents, to extract from Germany year after year the maximum sum obtainable. There is a great difference between fixing a definite sum, which though large is within Germany's capacity to pay and yet to retain a little for herself, and fixing a sum far beyond her capacity, which is then to be reduced at the discretion of a foreign Commission acting with the object of obtaining each year the maximum which the circumstances of that year permit. The first still leaves her with some slight incentive for enterprise, energy, and hope. The latter skins her alive year by year in perpetuity, and however skilfully and discreetly the operation is performed, with whatever regard for not killing the patient in the process, it would represent a policy which, if it were really entertained and deliberately practised, the judgment of men would soon pronounce to be one of the most outrageous acts of a cruel victor in civilized history.

There are other functions and powers of high significance which the Treaty accords to the Reparation Commission. But these will be most conveniently dealt with in a separate section.