Chapter II (2)

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 “Poland’s pre–war annual demand” for coal, where I should have said “pre–war Poland’s pre–war annual demand.” The mistake was not material, as I allowed for Germany’s 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 Germany’s 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 Germany’s 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.

EXCURSUS II

THE LEGALITY OF OCCUPYING GERMANY EAST OF THE RHINE

The years 1920 and 1921 have been filled with excursions and with threats of excursions by the French Army into Germany east of the Rhine. In March 1920 France, without the approval of her Allies, occupied Frankfort and Darmstadt. In July 1920 a threat to invade Germany by the Allies as a whole was successful in enforcing the Spa Agreement. In March 1921 a similar threat was unsuccessful in securing assent to the Paris Decisions, and Duisberg, Ruhrort, and Düsseldorf were occupied accordingly. In spite of the objections of her Allies France continued this occupation when, by the acceptance of the second Ultimatum of London, the original occasion for it had disappeared, on the ground that so long as the Upper Silesian question was unsettled, it was in the opinion of Marshal Foch just as well to retain this hold.[31] In April 1921 the French Government announced their intention of occupying the Ruhr, though they were prevented from carrying this out by the pressure of the other Allies. In May 1921 the Second Ultimatum of London was successfully enforced by a threat to occupy the Ruhr Valley. Thus, within the space of little more than a year the invasion of Germany, beyond the Rhine, was threatened five times and actually carried out twice.

We are supposed to be at peace with Germany, and the invasion of a country in time of peace is an irregular act, even when the invaded country is not in a position to resist. We are also bound by our adhesion to the League of Nations to avoid such action. It is, however, the contention of France, and apparently, from time to time, that of the British Government also, that these acts are in some way permissible under the Treaty of Versailles, whenever Germany is in technical default in regard to any part of the Treaty, that is to say, since some parts of the Treaty are incapable of literal fulfilment, at any time. In particular the French Government maintained in April 1921 that so long as Germany possessed any tangible assets capable of being handed over, she was in voluntary default in respect of Reparation, and that if she was in voluntary default any Ally was entitled to invade and pillage her territory without being guilty of an act of war. In the previous month the Allies as a whole had argued that default under Chapters of the Treaty, other than the Reparation Chapter, also justified invasion.

Though the respect shown for legality is now very small, the legal position under the Treaty deserves nevertheless an exact examination.

The Treaty of Versailles expressly provides for breaches by Germany of the _Reparation_ Chapter. It contains no special provision for breaches of other Chapters, and such breaches are, therefore, in exactly the same position as breaches of any other Treaty. Accordingly, I will discuss separately default in respect of Reparation, and other defaults.

Sections 17 and 18 of the Reparation Chapter, Annex II. run as follows:

“(17) In case of default by Germany in the performance of any obligation under this part of the present Treaty, the Commission will forthwith give notice of such default to each of the interested Powers, and will make such recommendations as to the action to be taken in consequence of such default as it may think necessary.

“(18) The measures which the Allied and Associated Powers shall have the right to take in case of voluntary default by Germany, and which Germany agrees not to regard as acts of war, may include economic and financial prohibitions and reprisals, and in general such other measures as the respective Governments may determine to be necessary in the circumstances.”

There is also a provision in Article 430 of the Treaty, by which any part of the occupied area which has been evacuated may be reoccupied if Germany fails to observe her obligations with regard to Reparation.

The French Government base their contention on the words “and in general such other measures” in § 18, arguing that this gives them an entirely free hand. The sentence taken as a whole, however, supports, on the principle of _ejusdem generis_, the interpretation that the other measures contemplated are of the nature of economic and financial reprisals. This view is confirmed by the fact that the rest of the Treaty narrowly limits the rights of occupying German territory, which, as M. Tardieu’s book shows, was the subject of an acute difference of opinion between France and her Associates at the Peace Conference. There is _no_ provision for occupying territory on the _right_ bank of the Rhine; and the only provision for occupation in the event of default is that contained in Article 430. This Article, which provides for _reoccupation_ of the _left_ bank in the event of default, would have been entirely pointless and otiose if the French view were correct. Indeed the theory, that at any time during the next thirty years any Ally can invade any part of Germany on the ground that Germany has not fulfilled every letter of the Treaty, is on the face of it unreasonable.

In any case, however, §§ 17, 18 of Annex II. of the Reparation Chapter only operate after a specific procedure has been set on foot by the Reparation Commission. It is the duty of the Reparation Commission to give notice of the default to each of the interested Powers, including presumably the United States, and to recommend action. If the default is voluntary—there is no provision as to who is to decide this—then the paragraphs in question become operative. There is no warrant here for isolated action by a single Ally. And indeed the Reparation Commission have never so far put this procedure in operation.

If, on the other hand, Germany is alleged to be in default under some other Chapter of the Treaty, then the Allies have no recourse except to the League of Nations; and they are bound to bring into operation Article 17 of the Covenant, which provides for the case of a dispute between a member of the League and a non–member. That is to say, apart from procedure by the Reparation Commission as set forth above, breaches or alleged breaches of this Treaty are in precisely the same position as breaches of any other treaty between two Powers which are at peace.

According to Article 17, in the event of a dispute between a member of the League and a State which is not a member of the League, the latter “shall be invited to accept the obligations of membership in the League for the purposes of such dispute, upon such conditions as the Council may deem just. If such invitation is accepted, the provisions of Articles 12 to 16 inclusive shall be applied, with such modifications as may be deemed necessary by the Council. Upon such invitation being given, the Council shall immediately institute an inquiry into the circumstances of the dispute, and recommend such action as may seem best and most effectual in the circumstances.”

Articles 12 to 16 provide, amongst other things, for arbitration in any case of “disputes as to the interpretation of a Treaty; as to any question of international law; as to the existence of any fact which, if established, would constitute a breach of any international obligation; or as to the extent and nature of the reparation to be made for any such breach.”

The Allies as signatories of the Treaty and of the Covenant are therefore absolutely precluded in the event of a breach or alleged breach by Germany of the Treaty, from proceeding except under the power given to the Reparation Commission as stated above, or under Article 17 of the Covenant. Any other act on their part is illegal.

In any case it is _obligatory_ on the Council of the League, under Article 17, to invite Germany, in the event of a dispute between Germany and the Allies, to accept the obligations of membership in the League for the purposes of such dispute, and to institute immediately an inquiry into the circumstances of the dispute.

In my opinion the protest addressed by the German Government to the Council of the League of Nations in March 1921 was correctly argued. But, as with the inclusion of pensions in the Reparation Bill, we reserve the whole stock of our indignation over illegality between nations for the occasions when it is the fault of others. I am told that to object to this is to overlook “the human element” and is therefore both wrong and foolish.

FOOTNOTES:

[2] More exactly, out of 1,220,000 entitled to vote and 1,186,000 actual voters, 707,000 votes or seven–elevenths were cast for Germany, and 479,000 votes or four–elevenths for Poland. Out of 1522 communes, 844 showed a majority for Germany and 678 for Poland. The Polish voters were mainly rural, as is shown by the fact that in 36 towns Germany polled 267,000 votes against 70,000 for Poland, and in the country 440,000 votes against 409,000 for Poland.

[3] Up to May 31, 1920, securities and other identifiable assets to the value of 8300 million francs and 500,000 tons of machinery and raw material had been restored to France (_Report of Finance Commission of French Chamber_, June 14, 1920), also 445,000 head of live stock.

[4] Up to May, 1921, the _cash_ receipts of the Reparation Commission amounted to no more than 124,000,000 gold marks.

[5] See Excursus VI.

[6] Lord D’Abernon and Sir John Bradbury for Great Britain, Seydoux and Cheysson for France, d’Amelio and Giannini for Italy, Delacroix and Lepreux for Belgium, and, in accordance with custom, two Japanese. The German representatives included Bergmann, Havenstein, Cuno, Melchior, von Stauss, Bonn, and Schroeder.

[7] The text of these Decisions is given in Appendix No. 2.

[8] The full text is given in Appendix No. 4.

[9] Compare this with the fixed payment of $500,000,000 and an export proportion of 26 per cent proposed in the second Ultimatum of London, only two months later.

[10] _The Times_, March 8, 1921.

[11] _The Times_, March 8, 1921.

[12] A week or two later the German Government made a formal appeal to the League of Nations against the legality of this act; but I am not aware that the League took any action on it.

[13] A few weeks later the Reparation Commission endeavored to put the action of the Supreme Council in order, by demanding one milliard marks in gold ($250,000,000), that is to say, the greater part of the reserve of the Reichsbank against its note issue. This demand was afterwards dropped.

[14] The full text is given in Appendix No. 5.

[15] The practicability of such a loan on a large scale is of course more than doubtful.

[16] The German Government is reported also to have offered, alternatively, to accept any sum which the President of the United States might fix.

[17] After the enforcement of the Sanctions and the failure of the counter–proposals, the Cabinet of Herr Fehrenbach and Dr. Simons was succeeded by that of Dr. Wirth.

[18] As late as January 26, 1921, M. Doumer gave a forecast of 240 milliards.

[19] Exclusive of sums due in repayment of war loans made to Belgium.

[20] Exclusive of sums due in repayment of war loans made to Belgium.

[21] Under the Spa Agreement (see Appendix No. 1) Germany was to be paid in cash 5 gold marks per ton for _all_ coal delivered, and, in the case of coal delivered _overland_, “lent” (_i.e._, advanced out of Reparation receipts) the difference between the German inland price and the British export price. At the date of the Spa Conference this difference was about 70s. per ton (100s. less 30s.), but this sum was not to be advanced in the case of the undetermined amount of coal delivered _by sea_. The advances were made by the Allies in the proportions, 61 per cent by France, 24 per cent by Great Britain, and 15 per cent by Belgium and Italy.

[22] For details of these payments see p. 133.

[23] This very valuable tax, first imposed in 1917, yielded in 1920–21 mks. 4½ milliards.

[24] Dr. Wirth’s first Government prepared a Bill to raise the tax to 30 per cent, with power, however, to reduce the rate temporarily to 25 per cent. It was estimated that the 30 per cent tax would bring in a revenue of 9.2 milliard marks.

[25] The same authority estimates that 85.6 of Upper Silesia’s zinc ore production and all the zinc smelting works fall to Poland. This is of some importance, since before the war Upper Silesia was responsible for 17 per cent of the total world production of zinc. Of the iron and steel production of the area 63 per cent falls to Poland. I am not in a position to check any of these figures. Some authorities ascribe a higher proportion of the coal to Poland.

[26] These are the figures according to the Polish authorities. But it is difficult to obtain accurate pre–war figures for an area which was not coterminous with any then existing State; and these totals have been questioned in detail by Dr. W. Schotte.

[27] See _e.g._, my controversy with M. Brenier in _The Times_.

[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.