University of Virginia Library

1. Immediately transferable wealth

(a) Gold. After deduction of the gold to be returned to Russia, the official holding of gold as shown in the Reichsbank's return of 30 November 1918 amounted to £115,417,900. This was a very much larger amount than had appeared in the Reichsbank's return prior to the war,[41] and was the result of the vigorous campaign carried on in Germany during the war for the surrender to the Reichsbank not only of gold coin but of gold ornaments of every kind. Private hoards doubtless still exist but, in view of the great efforts already made, it is unlikely that either the German government or the Allies will be able to unearth them. The return can therefore be taken as probably representing the maximum amount which the German government are able to extract from their people. In addition to gold there was in the Reichsbank a sum of about £1 million in silver. There must be, however, a further substantial amount in circulation, for the holdings of the Reichsbank were as high as £9.1 million on 31 December 1917, and stood at about £6 million up to the latter part of October 1918, when the internal run began on currency of every kind.[42] We may, therefore, take a total of (say) £125 million for gold and silver together at the date of the armistice.

These reserves, however, are no longer intact. During the long period which elapsed between the armistice and the peace it became necessary for the Allies to facilitate the provisioning of Germany from abroad. The political condition of Germany at that time and the serious menace of Spartacism rendered this step necessary in the interests of the Allies themselves if they desired the continuance in Germany of a stable government to treat with. The question of how such provisions were to be paid for presented, however, the gravest difficulties. A series of conferences was held at Trèves, at Spa, at Brussels, and subsequently at Château Villette and Versailles, between representatives of the Allies and of Germany, with the object of finding some method of payment as little injurious as possible to the future prospects of reparation payments. The German representatives maintained from the outset that the financial exhaustion of their country was for the time being so complete that a temporary loan from the Allies was the only possible expedient. This the Allies could hardly admit at a time when they were preparing demands for the immediate payment by Germany of immeasurably larger sums. But, apart from this, the German claim could not be accepted as strictly accurate so long as their gold was still untapped and their remaining foreign securities unmarketed. In any case, it was out of the question to suppose that in the spring of 1919 public opinion in the Allied countries or in America would have allowed the grant of a substantial loan to Germany. On the other hand, the Allies were naturally reluctant to exhaust on the provisioning of Germany the gold which seemed to afford one of the few obvious and certain sources for reparation. Much time was expended in the exploration of all possible alternatives. but it was evident at last that, even if German exports and saleable foreign securities had been available to a sufficient value, they could not be liquidated in time, and that the financial exhaustion of Germany was so complete that nothing whatever was immediately available in substantial amounts except the gold in the Reichsbank. Accordingly a sum exceeding £50 million in all out of the Reichsbank gold was transferred by Germany to the Allies (chiefly to the United States, Great Britain, however, also receiving a substantial sum) during the first six months of 1919 in payment for foodstuffs.

But this was not all. Although Germany agreed, under the first extension of the armistice, not to export gold without Allied permission, this permission could not be always withheld. There were liabilities of the Reichsbank accruing in the neighbouring neutral countries, which could not be met otherwise than in gold. The failure of the Reichsbank to meet its liabilities would have caused a depreciation of the exchange so injurious to Germany's credit as to react on the future prospects of reparation. In some cases, therefore, permission to export gold was accorded to the Reichsbank by the Supreme Economic Council of the Allies.

The net result of these various measures was to reduce the gold reserve of the Reichsbank by more than half, the figures falling from £115 million to £55 million in September 1919.

It would be possible under the treaty to take the whole of this latter sum for reparation purposes. It amounts, however, as it is, to less than 4 % of the Reichsbank's note issue, and the psychological effect of its total confiscation might be expected (having regard to the very large volume of mark-notes held abroad) to destroy the exchange value of the mark almost entirely. A sum of £5 million, £10 million, or even £20 million might be taken for a special purpose. But we may assume that the reparation commission will judge it imprudent, having regard to the reaction on their future prospects of securing payment, to ruin the German currency system altogether, more particularly because the French and Belgian governments, being holders of a very large volume of mark-notes formerly circulating in the occupied or ceded territory have a great interest in maintaining some exchange value for the mark, quite apart from reparation prospects.

It follows, therefore, that no sum worth speaking of can be expected in the form of gold or silver towards the initial payment of £1,000 million due by 1921.

(b) Shipping. Germany has engaged, as we have seen above, to surrender to the Allies virtually the whole of her merchant shipping. A considerable part of it, indeed, was already in the hands of the Allies prior to the conclusion of peace, either by detention in their ports or by the provisional transfer of tonnage under the Brussels agreement in connection with the supply of foodstuffs.(44*) Estimating the tonnage of German shipping to be taken over under the treaty at 4 million gross tons, and the average value per ton at £30 per ton, the total money value involved is £120 million.[43]

(c) Foreign Securities. Prior to the census of foreign securities carried out by the German government in September 1916,[44] of which the exact results have not been made public, no official return of such investments was ever called for in Germany, and the various unofficial estimates are confessedly based on insufficient data, such as the admission of foreign securities to the German stock exchanges, the receipts of the stamp duties, consular reports, etc. The principal German estimates current before the war are given in the appended footnote.[45] This shows a general consensus of opinion among German authorities that their net foreign investments were upwards of £1,250 million. I take this figure as the basis of my calculations, although I believe it to be an exaggeration; £1,000 million would probably be a safer figure.

Deductions from this aggregate total have to be made under four heads.

(i) Investments in Allied countries and in the United States, which between them constitute a considerable part of the world, have been sequestrated by Public Trustees, custodians of enemy property, and similar officials, and are not available for reparation except in so far as they show a surplus over various private claims. Under the scheme for dealing with enemy debts outlined in chapter 4, the first charge on these assets is the private claims of Allied against German nationals. It is unlikely, except in the United States, that there will be any appreciable surplus for any other purpose.

(ii) Germany's most important fields of foreign investment before the war were not, like ours, overseas, but in Russia, Austria-Hungary, Turkey, Roumania, and Bulgaria. A great part of these has now become almost valueless, at any rate for the time being; especially those in Russia and Austria-Hungary. If present market value is to be taken as the test, none of these investments are now saleable above a nominal figure. Unless the Allies are prepared to take over these securities much above their nominal market valuation, and hold them for future realisation, there is no substantial source of funds for immediate payment in the form of investments in these countries.

(iii) While Germany was not in a position to realise her foreign investments during the war to the degree that we were, she did so nevertheless in the case of certain countries and to the extent that she was able. Before the United States came into the war, she is believed to have resold a large part of the pick of her investments in American securities, although some current estimates of these sales (a figure of £60 million has been mentioned) are probably exaggerated. But throughout the war and particularly in its later stages, when her exchanges were weak and her credit in the neighbouring neutral countries was becoming very low, she was disposing of such securities as Holland, Switzerland, and Scandinavia would buy or would accept as collateral. It is reasonably certain that by June 1919 her investments in these countries had been reduced to a negligible figure and were far exceeded by her liabilities in them. Germany has also sold certain overseas securities, such as Argentine cedulas, for which a market could be found.

(iv) It is certain that since the armistice there has been a great flight abroad of the foreign securities still remaining in private hands. This is exceedingly difficult to prevent. German foreign investments are as a rule in the form of bearer securities and are not registered. They are easily smuggled abroad across Germany's extensive land frontiers, and for some months before the conclusion of peace it was certain that their owners would not be allowed to retain them if the Allied governments could discover any method of getting hold of them. These factors combined to stimulate human ingenuity, and the efforts both of the Allied and of the German governments to interfere effectively with the outflow are believed to have been largely futile.

In face of all these considerations, it will be a miracle if much remains for reparation. The countries of the Allies and of the United States, the countries of Germany's own allies, and the neutral countries adjacent to Germany exhaust between them almost the whole of the civilised world; and, as we have seen, we cannot expect much to be available for reparation from investments in any of these quarters. Indeed there remain no countries of importance for investments except those of South America.

To convert the significance of these deductions into figures involves much guesswork. I give the reader the best personal estimate I can form after pondering the matter in the light of the available figures and other relevant data.

I put the deduction under (i) at £300 million, of which £100 million may be ultimately available after meeting private debts, etc.

As regards (ii) -- according to a census taken by the Austrian Ministry of Finance on 31 December 1912, the nominal value of the Austro-Hungarian securities held by Germans was £197,300,000. Germany's pre-war investments in Russia outside government securities have been estimated at £95 million, which is much lower than would be expected, and in 1906 Sartorius von Waltershausen estimated her investments in Russian government securities at £150 million. This gives a total of £245 million, which is to some extent borne out by the figure of £200 million given in 1911 by Dr Ischchanian as a deliberately modest estimate. A Roumanian estimate, published at the time of that country's entry into the war, gave the value of Germany's investments in Roumania at £4,000,000-£4,400,000, of which £2,800,000-£3,200,000 were in government securities. An association for the defence of French interests in Turkey, as reported in the Temps (8 September 1919), has estimated the total amount of German capital invested in Turkey at about £59 million, of which, according to the latest Report of the council of foreign bondholders, £32,500,000 was held by German nationals in the Turkish external debt. No estimates are available to me of Germany's investments in Bulgaria. Altogether I venture a deduction of £500 million in respect of this group of countries as a whole.

Resales and the pledging as collateral of securities during the war under (iii) I put at £100 million to £150 million, comprising practically all Germany's holding of Scandinavian, Dutch, and Swiss securities, a part of her South American securities, and a substantial proportion of her North American securities sold prior to the entry of the United States into the war.

As to the proper deduction under (iv) there are naturally no available figures. For months past the European Press has been full of sensational stories of the expedients adopted. But if we put the value of securities which have already left Germany or have been safely secreted within Germany itself beyond discovery by the most inquisitorial and powerful methods at £100 million, we are not likely to overstate it.

These various items lead, therefore, in all to a deduction of a round figure of about £1,000 million, and leave us with an amount of £250 million theoretically still available.[46]

To some readers this figure may seem low, but let them remember that it purports to represent the remnant of saleable securities upon which the German government might be able to lay hands for public purposes. In my own opinion it is much too high, and considering the problem by a different method of attack I arrive at a lower figure. For leaving out of account sequestered Allied securities and investments in Austria, Russia, etc., what blocks of securities, specified by countries and enterprises, can Germany possibly still have which could amount to as much as £250 million? I cannot answer the question. She has some Chinese government securities which have not been sequestered, a few Japanese perhaps, and a more substantial value of first-class South American properties. But there are very few enterprises of this class still in German hands, and even their value is measured by one or two tens of millions, not by fifties or hundreds. He would be a rash man, in my judgment, who joined a syndicate to pay £100 million in cash for the unsequestered remnant of Germany's overseas investments. If the reparation commission is to realise even this lower figure, it is probable that they will have to nurse, for some years, the assets which they take over, not attempting their disposal at the present time.

We have, therefore, a figure of from £100 million to £250 million as the maximum contribution from Germany's foreign securities.

Her immediately transferable wealth is composed, then, of: (a) gold and silver -- say £60 million; (b) ships -- £120 million; (c) foreign securities -- £100-250 million.

Of the gold and silver, it is not, in fact, practicable to take any substantial part without consequences to the German currency system injurious to the interests of the Allies themselves. The contribution from all these sources together which the reparation commission can hope to secure by May 1921 may be put, therefore, at from £250 million to £350 million as a maximum.[47]