First: if the Allies were to "nurse" the trade and industry of Germany for a period of five or ten years, supplying her with large loans, and with ample shipping, food, and raw materials during that period, building up markets for her, and deliberately applying all their resources and goodwill to making her the greatest industrial nation in Europe, if not in the world, a substantially larger sum could probably be extracted thereafter; for Germany is capable of very great productivity.
Second: whilst I estimate in terms of money, I assume that there is no revolutionary change in the purchasing power of our unit of value. If the value of gold were to sink to a half or a tenth of its present value, the real burden of a payment fixed in terms of gold would be reduced proportionately. If a sovereign comes to be worth what a shilling is worth now, then, of course, Germany can pay a larger sum than I have named, measured in gold sovereigns.
Third: I assume that there is no revolutionary change in the yield of Nature and material to man's labor. It is not impossible that the progress of science should bring within our reach methods and devices by which the whole standard of life would be raised immeasurably, and a given volume of products would represent but a portion of the human effort which it represents now. In this case all standards of "capacity" would be changed everywhere. But the fact that all things are possible is no excuse for talking foolishly.
It is true that in 1870 no man could have predicted Germany's capacity in 1910. We cannot expect to legislate for a generation or more. The secular changes in man's economic condition and the liability of human forecast to error are as likely to lead to mistake in one direction as in another. We cannot as reasonable men do better than base our policy on the evidence we have and adapt it to the five or ten years over which we may suppose ourselves to have some measure of prevision; and we are not at fault if we leave on one side the extreme chances of human existence and of revolutionary changes in the order of Nature or of man's relations to her. The fact that we have no adequate knowledge of Germany's capacity to pay over a long period of years is no justification (as I have heard some people claim that, it is) for the statement that she can pay $50,000,000,000.
Why has the world been so credulous of the unveracities of politicians? If an explanation is needed, I attribute this particular credulity to the following influences in part.
In the first place, the vast expenditures of the war, the inflation of prices, and the depreciation of currency, leading up to a complete instability of the unit of value, have made us lose all sense of number and magnitude in matters of finance. What we believed to be the limits of possibility have been so enormously exceeded, and those who founded their expectations on the past have been so often wrong, that the man in the street is now prepared to believe anything which is told him with some show of authority, and the larger the figure the more readily he swallows it.
But those who look into the matter more deeply are sometimes misled by a fallacy, much more plausible to reasonableness. Such a one might base his conclusions on Germany's total surplus of annual productivity as distinct from her export surplus. Helfferich's estimate of Germany's annual increment of wealth in 1913 was $2,000,000,000 to $2,125,000,000 (exclusive of increased money value of existing land and property). Before the war, Germany spent between $250,000,000 and $500,000,000 on armaments, with which she can now dispense. Why, therefore, should she not pay over to the Allies an annual sum of $2,500,000,000? This puts the crude argument in its strongest and most plausible form.
But there are two errors in it. First of all, Germany's annual savings, after what she has suffered in the war and by the Peace, will fall far short of what they were before, and, if they are taken from her year by year in future, they cannot again reach their previous level. The loss of Alsace-Lorraine, Poland, and Upper Silesia could not be assessed in terms of surplus productivity at less than $250,000,000 annually. Germany is supposed to have profited about $500,000,000 per annum from her ships, her foreign investments, and her foreign banking and connections, all of which have now been taken from her. Her saving on armaments is far more than balanced by her annual charge for pensions now estimated at $1,250,000,000,[132] which represents a real loss of productive capacity. And even if we put on one side the burden of the internal debt, which amounts to 24 milliards of marks, as being a question of internal distribution rather than of productivity, we must still allow for the foreign debt incurred by Germany during the war, the exhaustion of her stock of raw materials, the depletion of her live-stock, the impaired productivity of her soil from lack of manures and of labor, and the diminution in her wealth from the failure to keep up many repairs and renewals over a period of nearly five years. Germany is not as rich as she was before the war, and the diminution in her future savings for these reasons, quite apart from the factors previously allowed for, could hardly be put at less than ten per cent, that is $200,000,000 annually.
These factors have already reduced Germany's annual surplus to less than the $500,000,000 at which we arrived on other grounds as the maximum of her annual payments. But even if the rejoinder be made, that we have not yet allowed for the lowering of the standard of life and comfort in Germany which may reasonably be imposed on a defeated enemy,[133] there is still a fundamental fallacy in the method of calculation. An annual surplus available for home investment can only be converted into a surplus available for export abroad by a radical change in the kind of work performed. Labor, while it may be available and efficient for domestic services in Germany, may yet be able to find no outlet in foreign trade. We are back on the same question which faced us in our examination of the export trade—in what export trade is German labor going to find a greatly increased outlet? Labor can only he diverted into new channels with loss of efficiency, and a large expenditure of capital. The annual surplus which German labor can produce for capital improvements at home is no measure, either theoretically or practically, of the annual tribute which she can pay abroad.
IV. The Reparation Commission.