Chapter VII: Part 7

The valuation of the expenses for the reconstruction of the ruined territories had to be carried out according to the regulations of the treaty, and, the prices having increased, the French Government presented in July, 1920, a first approximate valuation: damages, 152 milliards; pensions, 58 milliards; in all, 210 milliards. In November, 1920, the damages had increased to 218 milliards.

Even these figures represent something less absurd than the first demands and figures.

On September 5, 1919, the French Minister of Finance, speaking in the French Chamber, calculated the total of the German indemnities arising from the treaty at 375 milliards, whose interest would accumulate until 1921, after which date Germany would begin to pay her debt in thirty-four annual rates of about 25 milliards each, and 13,750 milliards a year would go to France.

Again, in November, 1920, Ogier, Minister of the liberated regions, put before the Reparations Commission in the name of France a detailed memorial which made the value of the territories to be reconstructed only for the cases of private individuals come to 140 milliards, not including the pensions, damage to railways and mercantile marine, which totalled 218 milliards, of which 77 milliards were for pensions and 141 milliards for damages.

Of late the sense of reality has begun to diffuse itself. The Minister Loucheur himself has laughed at the earlier figures, and has stated that the damages do not exceed eighty milliards.

But the French public has been accustomed for some time to take the figures of Klotz seriously, and to discuss indemnities of 150, 200 and 250 milliards. The public, however, is not yet aware of the real position, and will not be able to arrive at a just realization of it without passing through a serious moral crisis which will be the first secure element of the real peace.

Setting aside all questions of indemnities from Austria-Hungary, Turkey and Bulgaria (they have nothing to give, can give nothing; on the contrary, they ask and merit assistance), it is clear that all the indemnities must be paid by Germany.

The French totals of the material damage claims in the invaded districts have been absolutely fantastic and more exaggerated than in the case of Belgium, whose indemnity claims would lead one to suppose the total destruction of at least the third part of her territory, almost as if she had undergone the submersion of, say, ten thousand square metres of her small territory.

This problem of the indemnities, limited to the reparation of damages, and in accordance with the costs contemplated in the Treaty of Versailles, has never been seriously tackled. One may even say it has not been seriously examined. And it is deplorable that there has been created among the public, or among a large part of it, the conviction that Germany will repair the damage of the War by her own effort. This idea, however, finds no acceptance in England among serious persons, and in Italy no one believes in it. But in France and Belgium the idea is widely diffused, and the wish to spread the belief is lively in several sections of opinion, not because intelligent people believe in the possibility of effective payment, but with the idea of putting Germany in the light of not maintaining the clauses of the peace, thus extending the right to prolong the military occupation and even to aggravate it. Germany, thereby, is kept out of the League of Nations and her dissolution facilitated.

John Maynard Keynes, ever since the end of 1919, has shown in his admirable book the absurdity of asking for vast indemnities, Germany's impossibility of paying them, and the risk for all Europe of following a road leading to ruin, thus at the same time accentuating the work of disintegration started by the treaty. That book had awakened a wide-sounding echo, but it ought to have had a still wider one, and would have done but for the fact that, unfortunately, the Press in free countries is anything but free.

The great industrial syndicates, especially in the steel-making industry, which control so large a part of the Press among the majority of the States of Europe, and even beyond Europe, find easy allies in the inadequate preparation of the major part of the journalists to discuss the most important problems, and the indisposition on the part of the public to examine those questions which present difficulties, and are so rendered less convenient for discussion.

I knew Keynes during the War, when he was attached to the British Treasury and chief of the department charged to look after the foreign exchanges and the financial relations between Great Britain and her allies. A serious writer, a teacher of economics of considerable value, he brought to his difficult task a scrupulousness and an exactness that bordered on mistrust. Being at that time Chancellor of the Exchequer in Italy, in the bitterest and most decisive period of the War, I had frequent contact with Mr. Keynes, and I always admired his exactness and his precision. I could not always find it in myself to praise his friendly spirit. But he had an almost mystic force of severity, and those enormous squanderings of wealth, that facile assumption of liabilities that characterized this period of the War, must have doubtless produced in him a sense of infinite disgust. This state of mind often made him very exigent, and sometimes unjustifiably suspicious. His word had a decisive effect on the actions of the English Treasury.

When the War was finished, he took part as first delegate of the English Treasury at the Peace Conference of Paris, and was substituted by the Chancellor of the Exchequer in the Supreme Economic Council. He quitted his office when he had come to the conclusion that it was hopeless to look for any fundamental change of the peace treaties.

His book is not only a document of political uprightness but the first appeal to a sense of reality which, after an orgy of mistakes, menaces a succession of catastrophes. In my opinion it merits a serious reconsideration as the expression of a new conscience, as well as an expression of the truth, which is only disguised by the existing state of exasperation and violence.

After two years we must recognize that all the forecasts of Keynes have been borne out by the facts: that the exchange question has grown worse in all the countries who have been in the War, that the absurd indemnities imposed on the enemies cannot be paid, that the depressed condition of the vanquished is harmful to the victors almost in equal measure with the vanquished themselves, that it menaces their very existence, that, in fine, the sense of dissolution is more widespread than ever.

The moment has come to make an objective examination of the indemnity question, and to discuss it without any hesitation.

Let us lay aside all sentiment and forget the undertakings of the peace treaties. Let us suppose that the Entente's declarations and Wilson's proposals never happened. Let us imagine that we are examining a simple commercial proposition stripped of all sentiment and moral ideas.

After a great war it is useless to invoke moral sentiments: men, while they are blinded by hatred, recognize nothing save their passion. It is the nature of war not only to kill or ruin a great number of men, not only to cause considerable material damage, but also, necessarily, to bring about states of mind full of hate which cannot be ended at once and which are even refractory to the language of reason.

For a long time I myself have looked upon the Germans with the profoundest hatred. When I think of all the persons of my race dead in the War, when I look back upon the fifteen months of anguish when my first-born son was a prisoner of war in Germany, I am quite able to understand the state of mind of those who made the peace and the mental condition in which it was made. What determined the atmosphere of the peace treaties was the fact that there was a conference presided over by Clemenceau, who remembered the Prussians in the streets of Paris after the war of 1870, who desired but one thing: the extermination of the Germans. What created this atmosphere, or helped to create it, was the action of Marshal Foch, who had lost in the War the two persons dearest to him in life, the persons who attached him to existence.

But now we must examine the question not in the light of our sentiments or even of our hatreds. We must see quite calmly if the treaties are possible of application without causing the ruin of the vanquished. Then we must ask ourselves if the ruin of the vanquished does not bring in its train the ruin of the victors. Putting aside, then, all moral considerations, let us examine and value the economic facts.

There is no question that the reparation problem exists solely in the case of Germany, who has still a powerful statal framework which allows her to maintain great efforts, capable not only of providing her with the means of subsistence, but also of paying a large indemnity to the victors. The other vanquished States are more in need of succour than anything else.

What are the reparations?

Let us follow the _précis_ of them which a representative of France made at the signing of the Treaty of Versailles. They are as follows:

1. Germany is responsible for the total of the losses and damages sustained by her victors inasmuch as she caused them.

2. Germany, in consideration of the permanent diminution of her resources, resulting from the Peace Treaty, is only obliged (but is obliged without restitutions or reserves) to reimburse the direct damages and the pensions as precised in Schedule I of Clause viii of the treaty.

3. Germany must pay before May 1, 1921, not less than twenty milliards of gold marks or make equivalent payment in kind.

4. On May 1 the Reparations Commission will fix the total amount of the German debt.

5. This debt must be liquidated by annual payments whose totals are to be fixed by the Commission.

6. The payments will continue for a period of thirty years, or longer if by that time the debt is not extinguished.

7. Germany will issue one hundred milliards of gold marks of bearer bonds, and afterwards all such issues as the Reparations Commission shall demand, until the amount of the debt be reached in order to permit the stabilization of credit.

8. The payments will be made in money and in kind. The payments in kind will be made in coal, live stock, chemical products, ships, machines, furniture, etc. The payments _in specie_ consist of metal money, of Germany's credits, public and private, abroad, and of a first charge on all the effects and resources of the Empire and the German States.

9. The Reparations Commission, charged with seeing to the execution of this clause, shall have powers of control and decision. It will be a commission for Germany's debt with wider powers. Called upon to decide, according to equity, justice and good faith, without being bound by any codex or special legislation, it has obtained from Germany an irrevocable recognition of its authority. Its duty is to supervise until the extinction of the debt Germany's situation, her financial operations, her effects, her capacity for production, her provisioning, her production. This commission must decide what Germany can pay each year, and must see that her payments, added to the budget, fall upon her taxpayers at least to the extent of the allied country most heavily taxed. Its decisions shall be carried out immediately and receive immediate application, without any other formality. The commission can effect all the changes deemed necessary in the German laws and regulations, as well as all the sanctions, whether of a financial, economic or military nature arising from established violations of the clauses put under its control. And Germany is obliged not to consider these "sanctions" as hostile acts.

In order to guarantee the payments an inter-allied army--in reality a Franco-Belgian army--occupies the left bank of the Rhine, and is stationed at the bridgeheads. Germany is completely helpless, and has lost all the features of a sovereign State inasmuch as she is subject to "controls" in a way that Turkey never was. In modern history we can find no parallel for this state of things. These are conditions which alter the very bases of civilization and the relations between peoples. Such procedure has been unknown in Europe for centuries. The public has become accustomed in certain countries to consider responsible for the War not the government that wished it or the German people, but the future generations. Thus the indemnities are to be paid--were such conditions possible--in thirty years and for at least twenty years afterwards by people still unborn at the time of the War. This cursing of the guilty people has no parallel in modern history. We must go back to the early ages of humanity to find anything of the kind.

But even the most inhuman policies, such as Germany has never adopted in her victories, although she has been accused of every cruelty, can find at least some justification if they had a useful effect on the country which has wished and accepts responsibility for them. The conqueror has his rights. Julius Caesar killed millions of Germans and retarded perhaps for some centuries the invasion of Rome. But the practices established by the Treaty of Versailles are in effect equally harmful to victors and vanquished, though maybe in unequal measure, and in any case prepare the dissolution of Europe.

I had my share in arranging at San Remo the Spa Conference, in the hope and with the desire of discussing frankly with the Germans what sum they could pay by way of indemnity without upsetting their economy and damaging severely that of the Allies. But the ministerial crisis which took place in June, 1920, prevented me from participating at the Spa Conference; and the profitable action which Great Britain had agreed to initiate in the common interest, ours as well as France's, could not be proceeded with. The old mistakes continued to be repeated, though many attenuations have come about and the truth begins to appear even for those most responsible for past errors.

We shall have to examine with all fair-mindedness if Germany is in a position to pay in whole or in part the indemnity established or rather resulting from the treaty. France especially believes, or has said on several occasions she believes, that Germany can pay without difficulty 350 milliards.

After many stupidities and many exaggerations which have helped considerably to confuse the public, in face of the new difficulties which have arisen, new arrangements for the payment of the indemnity have been established. On May 11, in face of the situation which had arisen, the Allies proposed and Germany accepted a fresh scheme for the payment of the reparations. Germany is constrained to pay every year in cash and in kind the equivalent of 500 million dollars, plus 26 per cent. of the total of her exports.

The rest of the accord refers to the procedure for the issue of bonds guaranteed on the indicated payments, to the constitution of a guarantee committee, and to the date of payment. Probably Germany will have been able to get through the year 1921 without insurmountable difficulties.

At Spa, on April 27, 1921, the proportionate sums assessed for each of the conquering powers were established on a total indemnity notably reduced in comparison with the earlier absurd demands.

But leaving alone the idea of an indemnity of 250, 150, or even 100 milliards of gold marks, it will be well to see in a concrete form what Germany can be made to pay, and whether the useless and elaborate structure of the Reparations Commission which, with its powers of regulating the internal life of Germany for thirty years or more, ought not to be substituted by a simpler formula more in sympathy with civilized notions.

Shortly before the War, according to successive statistics, the private wealth of France did not amount to more than 250 milliards.

The wealth of France, according to successive valuations, was calculated at 208 milliards of francs in 1905 (de Foville), at 214 milliards in 1908 (Turquan), at about 250 milliards according to other authors. The wealth of Belgium, according to official statistics published by the Belgian Ministry of Finance in 1913, amounted to rather less than 30 milliards of francs. The estimate is perhaps a trifle low. But this official figure must not be considered as being a long way from the truth. At certain moments Belgium's demands have surpassed even the total of her national wealth, while the damages have not been more than some milliards.

The value of the land in France was calculated before the War at between 62 and 78 milliards; the value of the buildings, according to _l'Annuaire Statistique de la France_, at 59-1/2 milliards. The territory occupied by the Germans is not more than a tenth of the national territory. Even taking into consideration the loss of industrial buildings it is very difficult to arrive at the figure of 15 milliards. At the same time it is true that the Minister Loucheur declared on February 17, 1919, in the French Chamber that the reconstruction of the devastated regions in France required 75 milliards--that is, very much more than double the private wealth of all the inhabitants of all the occupied regions.

In all the demands for compensation of the various States we have seen not so much a real and precise estimate of the damages as a kind of fixing of credit in the largest measure possible in order that in the successive reductions each State should still have proportionally an advantageous position.

Making his calculation with a generosity which I assert to be excessive (and I assert this as a result of an accurate study of the question, which perhaps I may have occasion to publish), Keynes maintains that the damages for which Germany should be made to pay come to 53 milliards for all losses on land and sea and for the effects of aerial bombardments--53 milliards of francs all told, including the damages of France, Great Britain, Italy, Belgium, Serbia, etc.! I do not believe that the damages reach 40 milliards of gold marks, unless, of course, we calculate in them the pensions and allowances.

But these figures have but small interest, since the demands have been almost entirely purely arbitrary.

What we must see is if Germany can pay, and if, with a regime of restrictions and violence, she can hand over, not the many milliards which have been announced and which have been a deplorable speculation on the ignorance of the public, but a considerable sum, such as is that which many folk still delude themselves it is possible to have.

Germany has already consigned all her transferable wealth; the gold in her banks, her colonies, her commercial fleet, a large and even the best part of her railway material, her submarine cables, her foreign credits, the property of her private citizens in the victorious countries, etc. Everything that could be handed over, even in opposition to the rights of nations as such are known in modern civilized States, Germany has given. She has also hypothecated all her national goods. What can she give now?

Germany can pay in three ways only:

1. Merchandise and food products on account of the indemnity: coal, machines, chemical products, etc.

2. Credits abroad coming from the sale of merchandise. If Germany exports, that is sells eight milliard marks' worth of goods abroad, she pays two milliards to the Reparations Commission.

3. Property of private citizens. Germany can enslave herself, ceding the property of her private citizens to foreign States or citizens to be disposed of as they wish.

Excluding this last form, which would constitute slavery pure and simple, as useless, as impossible, and calculated to parallel the methods in use among barbarous peoples, there only remain the first two methods of payment which we will examine briefly.

It must be remembered that Germany, even before the War, was in difficulties for insufficient avenues of development, given the restricted nature of her territory and the exuberance of her population. Her territory, smaller than that of France and much less fertile, must now nourish a population which stands to that of France as three to two.

If we have had gigantic war losses, Germany, who fought on all the fronts, has had losses certainly not inferior to ours. She too has had, in larger or smaller proportion, her dead and her mutilated. She has known the most atrocious sufferings from hunger. Thus her productive power is much diminished, not only on account of the grave difficulties in which her people find themselves (and the development of tuberculosis is a terrible index), but also for the lowered productive capacity of her working classes.

The statistics published by the Office of Public Health of the Empire (_Reichsgesundheitsamt_) and those given in England by Professor Starling and laid before the British Parliament, leave no doubt in the matter.

Germany has had more than 1,800,000 dead and many more than 4,000,000 of wounded. She has her mass of orphans, widows and invalids. Taken altogether the structure of her people has become much worse.

What constituted the great productive force of the German people was not only its capacity to work, but the industrial organization which she had created with fifty years of effort at home and abroad with many sacrifices. Now Germany has not only lost 8 per cent. of her population, but _25_ per cent. of her territory, from which cereals and potatoes were produced, and 10 to 12 per cent. of her live stock, etc. We have already seen the enormous losses sustained by Germany in coal, iron and potash.

The most intelligent and able working classes, created by the most patient efforts, have been reduced to the state of becoming revolutionary elements. By taking away from Germany at a stroke her mercantile marine, about 60,000 sailors have been thrown on the streets and their skill made useless.

Germany, therefore, impoverished in her agricultural territory, deprived of a good part of her raw materials, with a population weakened in its productive qualities, has lost a good part of her productive capacity because all her organization abroad has been broken, and everything which served as a means of exchange of products, such as her mercantile fleet, has been destroyed. Moreover, Germany encounters everywhere obstacles and diffidence. Impeded from developing herself on the seas, held up to ridicule by the absurd corridor of Danzig, whereby there is a Polish State in German territory, she cannot help seeking life and raw materials in Russia.

In these conditions she must not only nourish her vast population, not only produce sufficient to prevent her from falling into misery, but must also pay an indemnity which fertile fantasies have made a deceived Europe believe should amount even to 350 milliards of gold marks, and which even now is supposed by seemingly reasonable people to be able to surpass easily the sum of a hundred milliards.

Could France or Italy, by any kind of sacrifice, have paid any indemnities after ending the War? Germany has not only to live and make reparation, but to maintain an inter-allied army of occupation and the heavy machinery of the Reparations Commission, and must prepare to pay an indemnity for thirty years. France and Italy have preserved their colonies (Italy's do not amount to much), their mercantile fleets (which have much increased), their foreign organization. Germany, without any of these things, is to find herself able to pay an indemnity which a brazen-faced and ignorant Press deceived the public into believing could amount to twenty or twenty-five milliards a year.

Taking by chance Helferich's book, which valued the annual capitalization at ten milliards, the difference between an annual production of forty-three milliards and a consumption of thirty-three milliards, inexpert persons have said that Germany can pay without difficulty ten milliards, plus a premium on her exports, plus a sufficient quantity of goods and products.

One becomes humiliated when one sees newspapers of serious reputation and politicians deemed not to be unimportant reasoning in language so false.

The estimates of private wealth, about which the economists make experiments, and on which I myself have written much in the past, have a relative value. It may be argued that before the War the total of all private patrimony in Germany surpassed but by little three hundred milliards of marks; and this is a valuation made upon generous criteria.

But when it is said that the annual capitalization of Germany was ten milliards, that is not to say that ten milliards of capital is deposited in the banks ready to be transferred at will. Capitalization means the creation of instruments of production. The national capital increases in proportion as these are increased. Therefore the best way of examining the annual capitalization of a country is to see how many new industries have arisen, to what extent the old ones have been improved, what improvements have been introduced into agriculture, what new investments have been made, etc.

If the capitalization of Germany before the War was scarcely ten milliards of marks, it was too small for an Empire of some 67,000,000 persons. I believe that in reality it was larger. But even if it came to fifteen milliards, it represented a very small figure.

The population in the progressive countries augments every year. In Germany, before the War, in the period 1908-1913, the population increased on an average by 843,000 persons a year, the difference between the people born alive and the dead. In other words, the annual increase of the population per annum was at the rate of 13.0 per thousand.

As in certain districts of Italy the peasants plant a row of trees on the birth of every son, so among nations it is necessary to increase the national wealth at least in proportion to the newly arrived. Supposing that the private wealth of the German citizens was from 300 to 350 milliards of marks (an exaggeration, doubtless), it would mean that the wealth increased each year by a thirteenth part or rather more. The difference between the increase in population and the increase in wealth constituted the effective increase in wealth, but always in a form not capable of being immediately handled. To plant trees, build workshops, utilize water-power: all this stands for the output of so much force. One may undertake such works or not, but in any case the result cannot immediately be given to the enemy.

This is so obvious as to be banal.

To seek to propagate the idea that Germany can give that which constitutes her annual capitalization either wholly or in great part is an example of extreme ignorance of economic facts.

It is positively painful to listen to certain types of argument.

A French Minister has said that the success of the war loans for 151 milliards in Germany, and the increase of bank deposits for a sum of 28 milliards, coinciding with an increase of capital of 45 milliards in limited companies, demonstrate that Germany has saved at least 180 milliards in four years. Leaving aside the exactness of these figures, it is really sad to observe reasoning of this type. How can the public have an idea of the reality?

Let us apply the same reasoning to France. We must say that inasmuch as France before the War had a public debt of 32 milliards, and now has a debt of 265 milliards, without calculating what she owes to Great Britain and the United States, France, by reason of the War, has immensely enriched herself, since, leaving aside the debt contracted abroad and the previous debt, she has saved during the War 200 milliards, quite apart from the increase in bank deposits and the increase in capital of limited companies. The War has therefore immensely enriched her. In reality we are face to face with one of the phenomena of the intoxication brought about by paper money, by means of which it has been possible at certain times for the public to believe that the War had increased wealth. Other features of this phenomenon we have in the wretched example of the capitalist classes, after which it was not unnatural that the people should give way to a great increase in consumption, should demand high wages and offer little work in return at the very time when it was most necessary to work more and consume less. There is small cause for wonder that certain erroneous ideas are diffused among the public when they have their being in those very sophisms according to which the indemnity to be paid by the beaten enemy will pay all the debts and losses of the conquering nations.

We are told that Germany, being responsible for the War, must impose on herself a regime of restrictions and organize herself as an exporting nation for the payment of the reparation debts.

Here again the question can be considered in two ways, according as it is proposed to allow Germany a free commerce or to impose on her a series of forced cessions of goods in payment of the reparations. Both hypotheses can be entertained, but both, as we shall see, lead to economic disorder in the conquering States, if these relations are to be regulated by violence.

It is useless to dilate on the other aphorisms, or rather sophisms, which were seriously discussed at the Paris Conference, and which had even the honour of being sustained by the technical experts:

1. That it is not important to know what Germany can pay, but it is sufficient to know what she ought to pay.

2. That no one can foresee what immense resources Germany will develop within thirty or forty years, and what Germany will not be able to pay will be paid by the Allies.

3. That Germany, under the stimulus of a military occupation, will increase her production in an unheard-of manner.

4. The obligation arising from the treaty is an absolute one; the capacity to pay can only be taken into consideration to establish the number and amount of the annual payments; the total must in any case be paid within thirty years or more.

5. _Elle ou nous_. Germany must pay; if she doesn't the Allies must pay. It is not necessary that Germany free herself by a certain date; it is only necessary that she pay all.

6. Germany has not to discuss, only to pay. Let time illustrate what is at present unforeseeable, etc. etc.

If we exclude the third means of payment Germany has two ways open to her. First of all she can give goods. What goods? When we speak of goods we really mean coal. Now, as we have seen, according to the treaty Germany must furnish for ten years to Belgium, Italy, and France especially quantities of coal, which in the first five years run from 39-1/2 to 42 millions of tons, and in the following five years come to a maximum of about 32 millions. And all this when she has lost the Saar coalfields and is faced with the threatening situation in Upper Silesia.

Germany's exports reached their maximum in 1913, when the figures touched 10,097 millions of marks, excluding precious metals. Grouping exports and imports in categories, the millions of marks were distributed as follows:

Imports. Exports.

Foodstuffs 2,759 1,035
Live animals 289 7.4
Raw materials 5,003 1,518
Semi-manufactured goods 5,003 1,139
Manufactured goods 1,478 6,395

About one-fifth of the entire exports was in iron and machine products (1,337 [mil.] articles in iron, 680 machines); 722 millions from coal (as against imports of other qualities of 289), 658 millions of chemical products and drugs, 446 from cotton, 298 paint, 290 techno-electrical productions, etc.

What goods can Germany give in payment of the indemnity? We have seen how she has lost a very large part of her iron and a considerable quantity of her coal.

All the economic force of Germany was based upon:

(a) The proper use of her reserves of coal and iron, which allowed her to develop enormously those industries which are based on these two elements.

(b) On her transport and tariff system, which enabled her to fight any competition.

(c) On her potent overseas commercial organization.

Now, by effect of the treaty, these three great forces have been entirely or in part destroyed.

What goods can Germany give in payment of the indemnity, and what goods can she offer without ruining the internal production of the Entente countries? Let us suppose that Germany gives machines, colours, wagons, locomotives, etc. Then for this very fact the countries of the Entente, already suffering by unemployment, would soon see their factories obliged to shut down. Germany must therefore, above all, give raw materials; but since she is herself a country that imports raw materials, and has an enormous and dense population, she is herself obliged to import raw materials for the fundamental needs of her existence.

If we examine Germany's commerce in the five years prior to the War--that is, in the five years of her greatest boom--we shall find that the imports always exceeded the exports. In the two years before the War, 1912 and 1913, the imports were respectively 10,691 and 10,770 millions, and the exports 8,956 and 10,097 millions. In some years the difference even exceeded two milliards, and was compensated by credits abroad, with the payment of freights and with the remittances (always considerable) of the German emigrants. All this is lost.

Exported goods can yield to the exporter a profit of, let us suppose, ten, twelve, or twenty per cent. For the Allies to take an income from the Custom returns means in practice reducing the exports. In fact, in Germany production must be carried on at such low prices as to compensate for the difference, or the exports must be reduced.

In the first case (which is not likely, since Germany succeeds only with difficulty, owing to her exchange, in obtaining raw materials, and must encounter worse difficulties in this respect than other countries), Germany would be preparing the ruin of the other countries in organizing forms of production which are superior to those of all her rivals. Germany would therefore damage all her creditors, especially in the foreign markets.

In the second case--the reduction of exports, one would have the exactly opposite effect to that imagined in the programme proposed--that is, the indemnities would become unpayable.

In terms of francs or lire at par with the dollar, Germany's exportations in 1920 have amounted to 7,250 millions. In 1921 an increase may be foreseen.

If Germany has to pay in cash and kind 2,500 millions of marks at par, plus 26 per cent. of the total of her exports, then supposing an export trade of eight milliards, she will have to give 1,840 millions, or in all 4,540 millions of marks. Thus we arrive by stages at less hyperbolical figures, coming down from the twenty-five milliards a year to something less than a fifth. But to come to grips with reality, Germany in all ways, it must be admitted, cannot give more than two milliards a year, if, indeed, it is desired that an indemnity be paid.

Notwithstanding her great resources, France would not be in a condition to pay abroad two milliards a year without ruining her exchange, which would drop at once to the level of Germany's. Italy with difficulty could pay one milliard.

France and Italy are honest countries, yet they cannot pay their war creditors, and have not been able, and are not able, to pay any share of their debt either to the United States of America or to Great Britain. As a matter of fact, up till now they have paid nothing, and the interest continues to accumulate with the capital.

Why have neither France nor Italy yet started to pay some of their debt? Having won the War, France has had all she could have--fertile territories, new colonies, an abundance of raw material, and above all iron and potash. The simple explanation is that which I have given above.

Can, then, Germany, who is in a terrible condition, whose circulation promises ruin, who has no longer credits nor organization abroad, who has a great shortage in raw materials; can Germany pay four or five milliards a year?

We must also remember that Germany, in addition to the indemnity, must pay the cost of the Army of Occupation, which up to now has amounted to twenty-five milliards of paper marks a year, or more than 1,600 millions of francs at par. That is, Germany has to bear for the support of the Allied troops a charge equal to the cost of maintaining the armies of France, Italy and Belgium before the War.

No financier seriously believes that the issue of bonds authorized by the treaty for the credit of the Reparations Commission has now any probability of success. Germany's monetary circulation system is falling to the stage of _assignats_, and the time is not distant when, if intelligent provision is not made, Germany will not be in a position to pay any indemnity.

Obliged to pay only one milliard of gold marks, Germany has not been able to find this modest sum (modest, that is, in comparison with all the dreams about the indemnity) without contracting new foreign debts and increasing her already enormous paper circulation. Each new indemnity payment, each new debt incurred, will only place Germany in the position of being unable to make payments abroad.

Many capitalists, even in Italy, inspire their Press to state that Germany derives an advantage from the depreciation of her mark, or, in other words, is content with its low level. But the high exchanges (and in the case of Germany it amounts to ruin) render almost impossible the purchase of raw materials, of which Germany has need. With what means must she carry out her payments if she is obliged to cede a large part of her customs receipts, that is of her best form of monetary value, and if she has no longer either credits or freights abroad?

If what is happening injured Germany only, it would be more possible to explain it, if not to justify it. But, on the contrary, Germany's fall, which is also the decadence of Europe, profoundly disturbs not only the European continent, but many other producing countries. Though the United States and Great Britain partially escape the effect, they too feel the influence of it, not only in their political serenity, but in the market of goods and values. Germany's position is bound up with that of Europe; her conquerors cannot escape dire consequences if the erstwhile enemy collapses.

We must not forget that before the War, in the years 1912 and 1913, the larger part of Germany's commerce was with the United States, with Great Britain, with Russia and with Austria-Hungary. In 1913 her commerce with the United States represented alone little less than two milliards and a half of marks according to the statistics of the German Empire, and 520 millions of dollars according to the figures of America. If we except Canada, which we may consider a territorial continuation, the two best customers of the United States were Great Britain and Germany. They were, moreover, the two customers whose imports largely exceeded the exports. The downfall of Germany will bring about inevitably a formidable crisis in the Anglo-Saxon countries and consequent ruin in other countries.

Up to now Germany has given all she could; any further payment will cause a downfall without changing the actual monetary position. Germany, after a certain point, will not pay, but will drag down in her fall the economic edifices of the victorious countries of the Continent.

All attempts at force are useless, all impositions are sterile.

All this is true and cannot be denied, but at the same time it must be recognized that in the first move for the indemnity there was a reasonable cause for anxiety on the part of the Allies.

If Germany had had to pay no indemnity this absurd situation would have come about, that although exhausted, Germany would have issued from the War without debts abroad and could easily have got into her stride again, while France, Italy, and in much less degree Great Britain, would have come out of the War with heavy debts.

This anxiety was not only just and well founded, but it is easy to see why it gave ground for a feeling of grave disquiet.

France and Italy, the two big victor States of the Continent, were only able to carry on the War through the assistance of Great Britain and the United States. The War would not have lasted long without the aid of the Anglo-Saxons, which had a decisive effect.

France has obtained all she asked for, and, indeed, more than all her previsions warranted. Italy has found herself in a difficult position. She too has realized her territorial aspirations, though not completely, and the assistance of her Allies has not always been cordial.

I have had, as head of the Government, to oppose all the agitations, and especially the Adriatic adventures, which have caused an acute party division in Italy. From a sense of duty I have also assumed all responsibility. But the rigidness of Wilson in the Fiume and Adriatic questions and the behaviour of some of the European Allies have been perfectly unjustifiable. In certain messages to Wilson during my term of government I did not fail to bring this fact forward. Certainly, Jugo-Slavia's demands must be considered with a sense of justice, and it would have been an error and an injustice to attribute to Italy large tracts of territory in Dalmatia; but it would have been possible to find a more reasonable settlement for a country which has had such sufferings and known such losses during the War. In any case, when by the absurd system followed in the treaties so many millions of Germans, Magyars, Turks and Bulgarians have been handed over to States like Serbia, whose intemperate behaviour precipitated the War, or to States like Greece, which took only a small and obligatory part in it, when States like Poland have won their unity and independence without making war, when Germany has been dismembered in order to give Poland an access to the sea and the ridiculous situation of Danzig has been created, when the moral paradox of the Saar, which now becomes a German Alsace-Lorraine, has been set up, when so many millions of men have been parcelled out without any criteria, it was particularly invidious to contest so bitterly Italy's claims. I can freely affirm this inasmuch as, risking all popularity, I have always done my duty as a statesman, pointing out that solution which time has proved to be inevitable.

No one can deny that Italy is passing through a period of crisis and political ill-health. Such states of public psychology are for peoples what neurasthenia is for individuals. On what does it depend? Often enough on reasons which cannot be isolated or defined. It is a state of mind which may come to an end at any minute, and is consequent upon the after-effects of the War. Rather than coming from the economic disorder, it derives from a malady of the temperament.

I have never believed, in spite of the agitations which have been seen at certain periods, in the possibility of a revolutionary movement in Italy. Italy is the only country which has never had religious wars, the only country which in twenty centuries has never had a real revolution. Land of an ancient civilization, prone to sudden bursts of enthusiasm, susceptible to rapid moods of discouragement, Italy, with all the infinite resources of the Latin spirit, has always overcome the most difficult crises by her wonderful adaptive power. In human history she is, perhaps, the only country where three great civilizations have risen up one after another in her limited soil. If Italy can have the minimum of coal, cereals and raw materials necessary to her existence and her economic revival, the traditional good sense of the Italian people will easily overcome a crisis which is grave, but which affects in various measure all the victors, and is especially temperamental.

It cannot be denied that if all Europe is sick, Italy has its own special state of mind. Those who wished the War and those who were against it are both dissatisfied: the former because, after the War, Italy has not had the compensations she expected, and has had sufferings far greater than could have been imagined; the latter because they attribute to the War and the conduct of the War the great trials which the nation has now to face. This sickness of the spirit is the greatest cause of disorder, since malcontent is always the worst kind of leaven.

Four great countries decided the War: Great Britain, France, Italy, and the United States of America. Russia fell to pieces soon, and fell rather on account of her own internal conditions than from enemy pressure. The action of the United States arrived late, but was decisive. Each country, however, acted from a different state of mind. France had of necessity to make war. Her territory was invaded, and all hope of salvation lay in moral resistance alone. Great Britain had to wage the War out of sense of duty. She had guaranteed the neutrality of Belgium, and could not fail to keep her word of honour. Two countries alone chose freely the sorrowful way of the War: Italy and the United States. But their sacrifices, sufferings and losses have been very different. During the War the United States have been able to develop their immense resources, and, notwithstanding some crises, they have come out of it much richer than before. From being debtors to Europe they have become creditors. They had few losses in men, and a great development in wealth. Italy, who after many difficulties had developed in her famous but too narrow territory the germs of a greater fortune, has had, together with very heavy losses in men, heavy losses in her wealth.

Italy saved the destinies of France for the first time by declaring her neutrality on August 2, 1914, and letting the certainty of it be known from July 30, as the diplomatic documents have shown.

It was that sudden and unexpected declaration of neutrality which rendered it possible for France to concentrate all her forces in the north and to win the battle of the Marne. Italy for a second time saved the destinies of the Entente by entering into the War (too precipitately and unprepared), in May, 1915, thus preventing the Austrian army, which was formidable for its technical organization and for its valour, from obtaining the advantages it expected.

Why did Italy go to war?

The diplomatic documents, which are not all documents of political wisdom, demonstrate the anxiety of the Italian Government to realize its Adriatic programme and to gain secure frontiers against Austria-Hungary and its successors. But this was not the _cause_ of the War; it was rather a means of explaining to the people the necessity for the War. Italy had been for nearly thirty-four years ally of Austria-Hungary, and the aspirations of Italy's Adriatic policy had never disturbed the relations between the two countries. The real cause of Italy's war was a sentimental movement, a form of extraordinary agitation of the spirits, brought about by the invasion of Belgium and the danger of France. The intellectual movement especially, the world of culture, partook largely in fomenting the state of exaltation which determined the War.

During the progress of the War, which was long and bitter, Italy passed through some terrible hours. Her privations during the War, and immediately after, surpassed all expectations. Italy found herself face to face with an enemy who enjoyed a superior geographical situation, a numerical superiority, as well as a superiority in artillery. After the downfall of Russia she had to support a terrible campaign. Even in 1917, after the military disaster, when allied troops came to Italy, she sent abroad more men than there came allied troops to her aid. According to some statistics which I had compiled, and which I communicated to the Allies, Italy was shown, in relation to her demographic structure, to have more men in the front line than any other country. The economic sufferings were, and are, greater than those endured by others. France is only in part a Mediterranean country, while Italy is entirely so. During the War the action of the submarines rendered the victualling of Italy a very difficult matter. Many provinces, for months on end, had to content themselves with the most wretched kind of food. Taking population and wealth into proportion, if the United States had made the effort of Italy they would have had to arm sixteen millions of men, to have lost a million and a half to two million soldiers, and to have spent at least four hundred milliards. In order to work up popular enthusiasm (and it was perhaps necessary), the importance of the country's Adriatic claims was exaggerated. Thus many Italians believe even to-day in good faith that the War may be considered as lost if some of these aspirations have not been realized or will not be realized.

But, after the War, Italy's situation suddenly changed. The War had aroused in the minds of all Europeans a certain sentiment of violence, a longing for expansion and conquest. The proclamations of the Entente, the declarations of Wilson's principles, or points, became so contorted that no trace of them could be found in the treaties, save for that ironic _covenant_ of the League of Nations, which is always repeated on the front page, as Dante said of the rule of St. Benedict, _at the expense of the paper_.

For Italy a very curious situation came about. France had but one enemy: Germany. She united all her forces against this enemy in a coherent and single action which culminated in the Treaty of Versailles. France had but one idea: to make the Entente abandon the principles it had proclaimed, and try to suffocate Germany, dismember her, humiliate her by means of a military occupation, by controlling her transports, confiscating all her available wealth, by raising to the dignity of elevated and highly civilized States inferior populations without national dignity.

Austria-Hungary was composed of eleven peoples. It was split up into a series of States. Austria and Hungary were reduced to small territories and shut up in narrow confines. All the other countries were given to Rumania, to Serbia, or more exactly to the S.H.S. State, to Poland, or else were formed into new States, such as Czeko-Slovakia. These countries were considered by the Entente as allies, and, to further good relations, the most important of the Entente nations protected their aspirations even against the wishes of Italy. The Italians had found themselves in their difficult theatre of war against Galatians, Bosnians, Croats, Transylvanians, etc. But by the simple fact of their having changed names, and having called themselves Poles, Jugo-Slavs, Rumanians, they became friends. In order to favour some of these new friends, it has happened that not only have Italy's sentiments been offended, but even justice itself. Montenegro was always mentioned in the declarations of the Entente. On January 10, 1917, Briand, speaking in the name of all the Allies, united at that time _pour la défense et la liberté des peuples_, put forward as a fundamental programme the restoration of Belgium, Serbia and Montenegro: Montenegro was in this on an equality with Belgium. Just a year afterwards, January 8, 1918, Wilson, when formulating his fourteen points, had included in the eleventh proposition the duty of evacuating the territories of Rumania, Serbia and Montenegro, and restoring them. The exact reason for which it was established that Montenegro should be absorbed (even without plebiscite) by the S.H.S. State, thus offending also Italy's sentiments, will remain one of the most melancholy pages of the New Holy Alliance that the Entente has become, along with that poor prestigeless organism, the League of Nations. But let us hope this latter will find a means of renovating itself.

While France was ruining the German people's sources of life, the peoples who had fought most ferociously against Italy became, through the War, friendly nations, and every aspiration of Italy appeared directed to lessen the prestige of the new friends and allies.

The territories annexed to Italy have a small economic value.