The English-Speaking World and the Continent of Europe

The British Empire and the United States, in sharp contrast with France and Germany, have pretty well recovered from the excitement and bitterness and terrible tension of feeling of the War. While the War was on, we hated Germany with passionate intensity. Hatred is an immensely useful thing when war is to be waged and battles are to be won. Rage stimualtes the adrenal glands. Rage pumps secretions into the blood which energize the organism. It makes men less sensitive to wounds, and more personal consequences than they could possibly be in cold blood. Men fight better in a great charge when their blood is stirred by powerful emotion. Hatred of the enemy energizes the civilian

Doctor Anderson is the Economist of the Chase National Bank of New York, and the author of a series of valuable economic bulletins published every two or three months by the bank. These deal in a critical way with banking problems, tariffs, stabilization of exchange, agricultural credits and co-operative marketing,--debts, interpretation of agricultural statistics, etc., etc. population. It lifts shrewd, selfish, narrowly practical men out of their narrow personal interests and makes them buy bonds and pay taxes for the common cause. Hatred is a powerful instrumentality in focusing the energies of a people on the winning of a wax.

When the war is over, however, and the problems are problems of peace-time construction, when we have to build up a shattered economic world and restore the processes of commerce and industry, so that peoples may have food and debts may be paid, a very different sort of psychology is called for. Calm calculation is needed then. It is more important to keep books accurately than it is to glow with patriotic fervor. It is desirable that men should once more consider their profits and their losses, and that private enterprise, seeking gain, should organize the industrial resources of the world and serve the world through competitive business.

The British Empire and the United States can aid France and Germany in working out their problem precisely because they can bring a bookkeeping point of view to the problem. They can view the situation in realistic, actuarial terms. They can show France the course by which she can get the most that can be got out of Germany. They can show Germany that she can best afford to pay France as much as possible, since she will, thereby, be able to have a larger measure of comfort and safety for her own people than she could otherwise obtain. Not because our hearts are purer, but because our heads are clearer, we are justified in saying to France, "You must let us sit in the councils, and you must seriously consider our advice."

The United States and the British Empire, moreover, have a right to intervene in the reparations problem because their interests are much more nearly identical with the interests of the world, as a whole, than are the interests uppermost in the mind of France. The British Empire, and very specially the islands of Great Britain and Ireland, are vitally dependent upon international commerce and the success of their international commerce depends upon the prosperity of the world, as a whole. Even pursuing selfish interests, Great Britain and the United States will still be serving the interests of the world. There is no policy, in connection with the reparations and the Ruhr problem, which might benefit the British Empire and the United States, which would not also benefit Holland and Italy, the Scandinavian countries, Switzerland, the great raw material producing countries of South America, Asia, and, for that matter, Belgium and France themselves. Our interest is in seeing the continent of Europe at peace once more, busy in rebuilding industry and commerce.

The best possible solution of the difficulty would be one worked out by direct negotiations between France and Germany, involving terms which both countries regarded as workable and just. We have lately had proposals of a tentative sort from Germany and there have been intimations from French quarters that the demands of France might be modified downward. It is possible that even before this address can be printed, much more definite proposals may be brought forth by one or the other side, and even possible that these proposals might be accepted in principle by the other. It is, however, extremely difficult to see how these two countries, in their present temper, can work out an adjustment unaided. The tension is very, very great.

The Foreign Minister of Germany, Baron von Rosenberg, in a speech on April 17th, said: "It is a fatality that for centuries France and Germany have never attained real peace. First one and then the other nation has gained the advantage. Perhaps it is harder for the French temperament than for the calmer German character to practice moderation in holding the upper hand, but lack of moderation was ever a shortsighted policy.

"The victor's interest, rightly understood, points the way to an understanding. The peoples of Germany and France have only one choice--either to live together or go down to ruin together. If France would make up her mind to recognize Germany's right to life and liberty and respect Germany's territories and rights of sovereignty, and that her German neighbour does not dream of wounding France's sensibilities or sense of honour, then the ice would be broken.

"Then might the dream of many good Europeans be fulfilled who hope for a new era of prosperity and happiness for Europe from co-operation of the German and French peoples."

Prominent representative Germans, in private conversation with Americans, have said that, if they were Frenchmen, they would be disposed to insist on getting every penny out of Germany that could be got, and they have recognized that France is on impregnable moral ground in insisting on payment. Their criticism of French policy has been on the basis of economic fact and economic possibility, and their contention has been that the present course of France would ruin Germany without doing France any economic good.

Ten years ago the situation was very different. France, after her defeat in 1870, for a generation and a half exhibited the utmost restraint, moderation and caution. She did everything in her power to avoid wounding German sensibilities. She yielded many points to an arrogant Germany in an effort to maintain peace. She went to war reluctantly in 1914. Her official course toward Germany from 1871 to the end of July, 1914, was characterized by punctiliousness, correctness, moderation and fairness. Germany, on the other hand, drunk with pride and power, was increasingly arrogant and unreasonable as the years went on.

It is easy for the vanquished or for the weaker party to exhibit reasonableness and self-restraint as a means of attracting sympathetic support from the outside world. It is never easy for the victor to impose restraint upon himself, and it is especially difficult when the victor has been subject, for a generation and a half, to unfair and ungenerous treatment. Baron von Rosenberg is in error in supposing that, at the present time, the difference between the French and German attitude is due to the "calmer German character," nor can he correctly claim that Germany has shown greater moderation, when holding the upper hand, than France is now showing.

With reference to this point, and in defence of the Ruhr policy, certain Frenchmen have said that, if Germany had won the War, she would be treating France and Belgium precisely as France and Belgium are treating Germany in the Ruhr. The statement is doubtless true, and it is probable that Germany would be doing it much more offensively and brutally, but the point is absolutely irrelevant The moral standards of Germany under the Kaiser were not exalted standards. We waged the War for the purpose of extirpating them from the world, and not for the purpose of making them our own?

If the issues could be stripped of distrust and bitterness and animosities, if the national interests of France and Germany alone could be considered, and if these national interests could be reduced to the two primary points (a) that France must have security against future German aggression and (b) that France must have as much reparations money from Germany as Germany is capable of paying, then France and Germany could work out an adjustment by direct negotiations which both of them would feel to be workable and fair. But it is very difficult to see how they can do it in the present state of heated feelings, hysteria and tension.

The matter is enormously complicated. There is the complication, first, of the conflict between national economic interests and national political interests. It is only a flourishing Germany which could make large payments to France. In the present state of French opinion, however, a flourishing Germany would seem to jeopardy gravely the political interests and political future of France.

The political complication, moreover, is far from a simple thing. If the French and German Governments were both strong governments, firmly entrenched in the confidence of the people and able to formulate and carry out wise plans looking toward long run national interests, the problem would be immensely simpler than it is. The fact is, however, that each of these Governments rests on unstable and shifting domestic political foundations. Precarious majorities in the German Reichstag, or in the French Chamber of Deputies, might overturn the ministers at any time. Each ministry depends on more or less shifting and temporary alliances of groups in its Parliament. Neither is in a position to do boldly and resolutely those things which its leaders might conceive to be best for the long time interest of the country. The desire to hold office, the desire of individuals to remain in power, the desire of, individuals for the advantages that office holding involves, the pressure of constituents for particular favors--familiar enough things in American politics, but apparently very greatly exaggerated in French politics and, perhaps, almost equally bad in German politics--would baffle the ablest, most patriotic and powerful statesmen that either country could muster.

There has been a great deal of discussion of French motives in going into the Ruhr. Very much speculation of one or another kind has been engaged in regarding the matter. It has been thought by some that France has definitely subordinated economic to political motives, has definitely decided that safety is more important than reparations money, and is willing to destroy Germany politically at the expense of destroying her economically, preferring to go through bankruptcy herself, knowing that she can feed her own people in bankruptcy, if only she can emerge from the struggle, in the end, the strongest power in a weakened continental Europe. Doubtless, some Frenchmen have thought the thing through in these terms, but it is improbable that the Government or the Chamber of Deputies have ever formulated the thing that way.

Another view has been that powerful industrial groups in France, dominating the Government, have felt that it was worth while to seize the iron and coal of Germany, even though it so demoralized Germany as to make it impossible for France, as a nation, to be paid by Germany, as a nation. On the other hand, there are complaints of a very authentic sort from leading industrialists in France that they have not been consulted by the French Government in the present emergency, and that their proffered advice has not been taken.

Both these interpretations seem to rest on a fundamental fallacy; namely, that of trying to rationalize the conduct of a weak, democratic government. The unfortunate part of the whole situation seems to be that the Government of France has done things which its ablest leaders did not approve, under pressure of public sentiment, and as a means of holding the Government together.

The more probable explanation of the French course would be something of the following. Ever since victory appeared in sight, the French Government has been saying to its people, "The Boche will pay." Anticipating gigantic payments from Germany, France has incurred gigantic deficits and piled debt on debt until the total has reached staggering proportions. When warning voices of conservative financiers have protested against low taxation and the high expenditures and the ever-growing public debt, the answer has always been, "Germany will pay," "Germany will make good the deficit" and "Germany will pay the debt." And so yielding, on the one hand, to reluctant taxpayers, and yielding, on the other hand, to eager beneficiaries of public expenditure, the French financial policy, ever since the Armistice, has gone on in reckless fashion piling up public debt. There have been growing misgivings. There has been growing uncertainty as to whether Germany could pay, in the minds of the French public, but the answer has been a turning from the indicative to the imperative mood. "Germany will pay" has given way to "Germany must pay."

What was the alternative that faced the French Ministry when the question of the Ruhr occupation finally came to a head? They, might, on the one hand, have said to the French people, "Germany can pay only if we give her a long moratorium, relax our demands so that her credit can be somewhat restored, give her a chance to restore her currency and her public finances and to get her industries going on a sound basis. She will ultimately be able to pay us a good deal in installments, but this will not help our present financial plight. Germany may be able to borrow some money, if we subordinate our reparations claims to the new loans, with which she can make some payment to us on reparations account, but the total of this will not begin to fill in the great deficits that we have incurred. If we take this course, we must at once face the realities of our own financial position. We can save this financial position only by immense sacrifices. Public expenditures will have to be curtailed enormously. Taxation will have to be increased tremendously. Even with these reforms, the burden will be so heavy that, to make it endurable, we shall have to scale down the franc to a much lower gold par."

The Ministry might have said to the French people, but, had it done so, it would have been thrown out of office immediately. Another Ministry would have taken its place which would have carried out the policy of invading the Ruhr. It seemed simpler and easier and apparently much more agreeable to the existing Ministry to go into the Ruhr, stave off for a few months the facing of the financial facts and continue to hold office. This would seem to be a more probable explanation in the light of what we know about democratic governments and the psychology of politicians than alternative interpretations which represent France as a utilitarian individual, thinking in cold-blooded terms about its long run interests.

It is much more probable that the politicians of Germany would be able to unite German public sentiment on a workable settlement than that the politicians of France could unite public sentiment in their country on such a settlement. Germany is living in a nightmare. Her people are thoroughly frightened. They are thinking less of the long run future of Germany than they are about the problems of bread and coal for the coming months. They know that they are helpless. It is probable that they would enter whole-heartedly into a plan which really gave them relief and which enabled them to see a long run future in which they and their children could live in peace and moderate comfort. In victory, Germany might have been much more unreasonable than France, and probably would have been much more brutal. Defeated Germany, however, facing the gravest kind of disaster, would probably be reasonable.

Germany has been remiss in not presenting to the French and to the Reparations Commission a clean cut, definite, workable plan, indicating the amounts that she is able to pay, the conditions under which she could pay them, and the steps by which she would expect to pay them. Offers of various kinds have been made by the Germans, but they have been very vague, for the most part, and have usually involved conditions which seemed designed to irritate the Allies. The Germans have apparently proposed that impartial arbiters should make a settlement, but Germany's case would be better off if she had herself proposed a settlement which impartial observers would recognize as reasonable, and had given unqualified assurance that she would carry it out, if permitted to do so.

Defenders of the French course in the Ruhr continue to accuse Germany of deliberate bad faith. They contend that Germany has been well able to pay, and is well able to pay, but that she has refused to pay and has evaded payment. They contend that Germany has deliberately brought about the immense depreciation of the mark for the purpose of creating an apparent bankruptcy, so that she might be unable to pay and so that the Allies might be unable to force her to pay. They accuse the Germans of systematically sending wealth out of the country and hiding it in foreign lands, in the form of bank balances and foreign securities. They draw the picture of an immense German conspiracy to which the government, the banks, the great industrialists, and even the masses of the people are party, which has for its object the deception of the outside world as to Germany's economic and financial condition and which, hiding behind the appearance of governmental bankruptcy, is building up an immensely productive industrial machine. In support of this picture, they have been able to point, until recently, to a very high level of employment in Germany at the same time that unemployment, on a great scale, existed in Britain, the Netherlands, the Scandinavian countries, and even in the United States. Since the invasion of the Ruhr, when the Reichsbank has been using funds accumulated for the purpose of making reparations payments to aid in the stabilization of mark exchange, they have pointed to the recovery of the mark from twenty cents per ten thousand to forty-seven cents per ten thousand as evidence of Germany's ability to pay, if she only had the will.

What are the facts? First of all, is it possible that there could be in post-War Germany such a great conspiracy, such a unity of purpose of all parties, monarchists, republicans, socialists, extremer radicals, Jews and Gentiles, militarists and pacifists, as to make it possible for secrets of this kind to be kept without disclosure? Second, is it possible that, in a country where the center of sovereignty has been violently shifted, and where the fact of sovereignty itself has been gravely shaken, there could exist such definiteness of purpose and such completeness of control as the idea of nation-wide conspiracy would involve? Third, does it accord with the experience of any country that a democratic government follows for four years systematically a unified and definite policy in the midst of changing circumstances?

If only there were in Germany, or in France, such definite unity of national purpose as those who talk of nation-wide conspiracies imply, the problems would be much more manageable than they are today. The great tragedy of the post-War world is the dissipation of definite purpose, the breaking up of unity of action into unorganized, antagonistic activities. International policy in all nations is more or less adrift. National policy in most nations is drifting. Germany, despite the very great intelligence and power of organization which she possesses, has been perhaps more caught in the chain of circumstances than any other great country, and has pursued a policy of opportunist drift, perhaps to a greater extent than any other great country.

It has at least been possible in Germany for a Minister, proclaiming a "policy of fulfillment" (i.e., a policy of meeting treaty obligations in connection with the reparations) to hold office. It is, moreover, a matter of record that Briand, Prime Minister of France, in a speech before the French Chamber of Deputies, expressed the opinion that the Wirth Ministry in Germany was exhibiting good faith.

M. Briand said: "Mere words, mere promises, you may say. But no. Dr. Wirth since he has been head of the German Government has shown great frankness and great loyalty. He has undertaken engagements and he has taken steps to carry them out. . . Here are my last words: In the present world crisis no people can live alone. As long as I am on the bridge I will not send our ship upon the rocks. I will never act so that France finds herself as in 1815 or 1871. I can never forget that in the World War England came to our side, and America, came, and others came . . . . We owe them something in spite of dissension and politics."*

How MUCH HAS GERMANY PAID?

Germany has paid far more than is commonly supposed. Germany has surrendered in cash, in deliveries in kind, in State properties in the ceded territories, in restitution of Allied property found in Germany, in Allied expenses in Germany, and in sequestered German property in foreign lands, a sum estimated by a good American authority (Mr. Charles H. Grasty, European correspondent of the

*May 24, 1921.

New York Times) * at fifteen billions, four hundred and ten millions of gold marks or approximately three billions, eight hundred and fifty millions of dollars. These figures are higher than the amounts credited by the Reparations Commission. They are much lower than the eleven billions of dollars which Rathenau claimed that Germany had paid. Mr. Grasty indicates that some of the items, particularly deliveries in kind, are probably of greater value than his figures indicate. Mr. Grasty's figures, moreover, do not include the German submarine cables surrendered, nor do they include the German colonies surrendered. Mr. Grasty adds, "I submit that no person in possession of the facts and data from the Reparations Commission as herein set forth can subscribe to the doctrine that Germany has come off scot-free from the War and is gleefully and successfully avoiding payment That is a doctrine kept afloat to sustainhue and cry against the Germans and prevent the formation of fair and steady public opinion that would promote a businesslike settlement."

(The Total to January 1, 1923)

In Gold Marks (About 4 to the dollar)

Cash (payments under treaty) _______ ___ 1,905,665,995 Deliveries in kind (real value probably

greater) ____________________________________________ 3,483,342,000 State properties (in ceded territories) 2,504,342,000 Restitutions (property found in Germany)

________________________________________________

2,700,000,000

"New York Times, Sunday, April 15, 1925. 'Mr. Grasty's table.

Allied expenses in Germany ________________ 1,206,650,005 Sequestrated property ________________________ 4,000,000,000

Total ________________________________________________ 15,800,000,000 Deduct loans by Allies to Germany---390,000,000

Total in gold marks ______________________15,410,000,000 Total in dollars (approximately).$3,850,000,000

It is to be noted that Germany's credits on reparations account are very much smaller indeed than these figures indicate. Very much of the proceeds of Germany's payments has gone to maintaining the armies of occupation. Other items in the figures given above could not, in any case, be applied to reparations account. The significant point, in connection with these figures, is not to be found in the benefits that the Allies have got from them-which are comparatively small-but in the costs which they have imposed upon Germany. The making of these payments has been exceedingly demoralizing to Germany's economic life, and has cirtually exhausted her ability to make further substantial payments in the near future.

Since the Armistice, Germany has produced less than she has consumed and has imported more than she has exported. Her position has been an exceedingly desperate one. In the years preceding the War, she had built up a great population, primarily urban, engaged in manufacturing and large scale commerce. The rapid growth of population in Germany was accompanied by a rising standard of life. In the course of time, however, Germany lost her economic self-sufficiency, became dependent upon the outside world for a substantial part of her food supply, and became thoroughly dependent upon the smooth workings of transportation, finance, sound currency and international credit. She also became dependent upon easy access to coal and iron ore, which she had within her own territories in the days before the War, but of which the War has, in considerable part, deprived her. She has lost to Poland one of her best food producing regions. She is much more dependent upon the outside world today for food and raw materials than before the War.

Germany has lost some population by war-time deaths, and by loss of territory, but this is much more than offset by the loss of resources to sustain her population. Moreover, the loss of effective earning power is very much greater than the loss of population. The population contains a much higher proportion, than before the War, of old men, maimed and mangled men, women and children. The average productive efficiency of the uninjured workers, moreover, is very substantially reduced. Underfed during the War, inadequately nourished today, the present efficiency of German labor is very much reduced below what it would be, if standard of life were adequate. Democratic measures, designed to improve the condition of labour, including the eight-hour day legislation, have reduced production efficiency.

The capital equipment of Germany deteriorated very greatly during the War. It is true that foreign armies did not invade German soil, but the needs of the German army were quite enough to suck the country dry of its resources. The very efficiency of the German military authorities in bringing every ounce of energy to bear upon the battle front meant that, when the final collapse came, Germany was pretty much a hollow shell. Factories producing "non-essentials" had been allowed to deteriorate. Housing had deteriorated. Few new houses had been built. The transportation system had been neglected, except on lines necessary for military purposes. Rolling stock had been worn out. Copper and rubber had been used up. Soil fertility had been neglected. Flocks and herds had been greatly depleted. Moreover, during the Armistice, heavy deliveries were made to the Allies of railway rolling stock, milk cattle, and other things.

Even more important, however, was the derangement of organization. To an urban manufacturing and trading people, a sound social and financial organization is vital. A highly industrialized people is helpless in the face of disorganized transportation, trade, finance and money.

Germany, at the end of the War, therefore, was in no position to make payments out of a current surplus of production over consumption. The immense payments which she has made have not been made out of surplus income. There has been none. Rather, as the figures for exports and imports make clear, Germany has consumed more than she has produced. The payments have been made partly out of capital equipment and supplies physically present in Germany, including the Merchant Marine, partly by the sale of foreign securities, but chiefly by the sale of German mark securities and German marks to the outside world. Where Germany has made payments out of current production, as in the case of coal or dyes, the food and other necessities on which the workers, who produced these things, lived were largely imported from abroad through the proceeds of the sales of marks.

Instead of a gigantic conspiracy to ruin the mark, it appears that the German statesmen, who adopted the policy of unlimited printing of marks late in 1918 and early in 1919, adopted the policy reluctantly. They did it because they saw no alternative. They knew that the course of public finance which they were following led ultimately to ruin. Faced with the fact, however, that they had on their hands many millions more people than they could support with the existing output of German industry and agriculture, feeling that it was necessary somehow or other to keep them alive, they turned to the one asset which they had left; namely, the credit of the Reichsbank with the outside world. As long as the outside world would buy marks, they could keep their people alive. If men were unemployed, they could put them on a public payroll, paying them with marks. They hoped that, before the finances of Germany and the Reichsbank were utterly ruined, something might turn up outside, that a change might take place in the spirit of their conquerors, and that better expedients might be available to them.

Mr. Paul Warburg has, for a long time, contended that the position of the Finance Minister of Germany was a hopeless one when it came to reorganizing public finance, because of the reparations demands. The demands were known to be far in excess of Germany's ability to pay, and the demands had priority over every other debt of the German Government and especially over any new debt which the German Government might create. The German Government could, therefore, offer no security to foreign capital or to foreign bankers which would justify loans which might be used in tiding over a period of financial reorganization. Quite a dramatic illustration of the correctness of Mr. Warburg's contention came recently in connection with the fifty million dollar "gold loan" which the German Government attempted to float. The Reparations Commission, after deliberation, voted that, while Germany was free to issue such a loan, she would not be free to pay it back, at the time of its maturity, she was in default on reparations account. No foreign lender would be interested in such a loan under such conditions.

We have had reports from American travellers of what seemed to them surprising economic activity in countries where public finance was demoralized, and various theories have grown out of these observations. Optimists have held that it does not really matter what public finance does, so long as industrial activity goes on; that finance is superficial and industry is fundamental. The view has even been held-and in powerful quarters-that rapidly depreciating paper money and great public deficits axe positively advantageous to a country in giving it an advantage over its competitors in export trade and in stimulating industry; and the view has been seriously presented that England, instead of submitting to unemployment in her successful effort to control her public finances, might have done better to follow the example of France, where the lavish expenditure of borrowed public funds in reconstruction has kept labour employed; or the example of Germany, where the rapidly depreciating mark has kept a fictitious prosperity under way. In France it has been seriously urged that the Government, instead of borrowing on short-term, interest-bearing paper, would do better to print bank notes freely, so that her industrialists might not be handicapped in competition with German industrialists, whose Government was more generous in the matter of turning out money.

These arguments seem hardly to merit reply. It is obvious that we could at any time during a period of depression in the United States turn it into intense activity, if our Government would borrow billions of dollars to spend on public works. It is obvious that with the immense credit of our Government, we could keep the most feverish kind of activity going for a good many years by this method. At the end of it, our Government would be bankrupt. At the end of it, our public securities and our paper money would have to be repudiated. In the course of it we should consume more than we produced. Thrift and economy would disappear from among our people. Our capital equipment would deteriorate. Our political life would be debauched. Our investing and professional classes would be impoverished. At the end of it all, we should be in a very sad state, but the chimneys would pour out smoke and the wheels would turn, while it lasted!

How much longer Germany can go on consuming more than she produces is a baffling question. The occupation of the Ruhr has very greatly intensified the difficulties. Confidential reports from good American sources would indicate that, while Germany probably has arranged for enough food to hold out until the next harvest, it is a grave question whether the coal resources can last for more than a month or two, and it is a graver question whether Germany can command the necessary credit resources to bring in coal from Britain in adequate amount. The appetite of the outside world for marks is nearly satiated. A million marks sold, some time since, for less than $20 and, after the immense effort which the Reichsbank made to bring the mark up, a million marks sold for something like $47.50 and a billion marks for $47,500. While details are not available, it would appear that the chief purchasers of marks, in countries outside of Germany today, may well be the agents of the Reichsbank itself.

German banks and individuals are supposed to have in foreign countries substantial holdings in dollars, guilders, sterling and in foreign securities. The total of these was estimated by the Rt. Honorable Reginald McKenna, speaking in New York last October, at about a billion dollars. Mr. Ludwig Bendix, financial representative of the German Government in New York, in an article in Current History (April, 1923, page 31), estimated the amount at not over seven hundred and fifty million dollars. Other estimates have put the figure much higher, but Mr. McKenna probably had made a careful survey. Some of this the German Government may be able to get hold of. The Reichsbank still has substantial holdings of gold, and may have undisclosed holdings of foreign balances. When one is scraping the corners of the till, it is often possible to find unexpected cash resources, but the end of living on capital and foreign credit is surely in sight for Germany. When the end comes, millions of Germans must either be fed on charity, or emigrate to foreign countries, or starve.

The world at large cannot complacently face prospects of this kind. The peoples of the United States and of Canada, who will be called upon for large donations to feed a starving people in Germany, have a right to speak now while there is yet a chance that the course of events may be so changed that, instead of a starving people in Germany, we may have a self-supporting people there. The peoples of the British Empire and the United States, who have important trade relations with Germany and whose own prosperity is, in part, bound up in German activity and revival, have a right to speak and to assert those economic interests. The peoples of the United States and the British Empire, who shared with France in the victory over Germany, have a right to a voice in determining what shall be the fate of Germany. It is no part of the traditions of the British Empire and the United States to continue a relentless pressure on a beaten foe, four years after his surrender.

Has Germany shown good faith or bad faith? Can Germany pay more now or must she have time for recuperation? There has been bad faith shown by individual Germans. The German Government, on the whole, has shown a reasonable Spirit. * Speculators and profiteers have taken advantage of the demoralization of Germany to amass individual fortunes while the condition of the country, as a

*The German Government has done stupid and irritating things, the worst, perhaps, being the signing of a treaty with the Soviet Government of Russia while the Genoa Conference was in session whole, grew steadily worse. Individual Germans have, in the effort to protect their property from the inevitable loss which keeping it in the form of marks or mark securities involved, converted their holdings into dollars and sterling and guilders, and sent them away to foreign countries. A weak government has, perhaps, made less effective efforts to check this practice than a stronger government could have made, but only an omnipotent government could really have prevented them, the situation being what it was. Private citizens always attempt to flee from the consequences of the financial disaster of their government when they can. There are dollar and sterling balances held by Frenchmen who converted their nine cent francs of last year into dollars and sterling because they felt that the franc would go lower. The question of international good faith is really not involved in activities of this kind.

Germany can, if she is given time, pay more than she has already paid. If she is given a complete moratorium of from three to five years; if the total of her future payments is fixed definitely and finally at a sum which the Germans recognize as within their future ability to pay; if a definite schedule of payments, beginning with a modest sum three to five years hence and gradually ascending to a large annual sum, is set definitely, once for all; if meanwhile Germany is permitted to float a small loan, which has priority over reparations payments, to assist her in stabilizing her currency, and which will meet the urgent needs of the government, pending the reorganization of her tax system, so that it will not have to force the bank to print more bank notes; if, finally, Germany is given opportunity to trade on fair terms with the rest of the world; then Germany can make very substantial payments on reparations account to France. But no amount of military pressure, at the present time, can get much more out of Germany than has already been got. No conceivable military pressure today could extract enough from Germany to meet the financial needs of the French Government, or prevent the necessity for a drastic reorganization of French public finance.

Distrustful of Germany's good faith, the Allies insisted in the terms of the Armistice and of the Peace Treaty that armies of occupation should hold important areas in Germany until Germany had met the terms of the Treaty. The occupation of the Ruhr is based, in part, on the same theory, the idea being in some degree that the inconvenience and humiliation which Germany experiences in having her territory occupied will supply her with incentive to meet her obligations. There is, however, a further contention in connection with the Ruhr occupation. France seeks to have not merely a "guaranty," but also a "productive guaranty," i.e., France wishes to hold in her own hands an important source of German wealth, from which she can draw current income to be applied on reparations account during the period that Germany may remain in default on reparations obligations, or possibly even until the full reparations account is settled.

If it were probable that the holding of the Ruhr would, in the long run, improve France's chance of getting large payments from Germany, much might be said for the policy, but what are the economic probabilities regarding the matter?

Obviously, the first few months of occupation have involved financial burdens rather than financial gains for France. They have been demoralizing in the extreme to German industry and finance, both in the occupied territory and in the unoccupied country. The ordinary processes of trade have been dislocated. Military decisions have been substituted for for business contracts. The normal course of trade has been interrupted. For example, it is reported that shipments of coal from the Ruhr to East Prussia in cars which would have returned from East Prussia loaded with potatoes for Ruhr consumption--a usual thing at the season when the occupation first began--were promptly stopped. It is notorious that France has got very little coal and coke from the Ruhr as compared with what she was getting before the occupation began. Unoccupied Germany likewise has been unable to get coal in any quantity from the Ruhr, and many of her industries are, consequently, in a very precarious position. France has experienced very heavy losses so far, and Germany's ability to make future reparations payments has been gravely impaired.

It may be urged, however, that this is a temporary result. The Germans have engaged systematically in "passive resistance." When the Germans are at the end of their resources; when the German industrialists in the Ruhr can no longer pay wages; when the paper marks printed by the Reichsbank and sent in by the German Government will no longer buy food for the Ruhr workmen; when, with or without the consent of their government, the Ruhr workmen turn to France, seeking employment and wages, will not conditions be altered, and will not the Ruhr be a true productive guaranty for France?

It is possible that in time France will be able to get revenue from the Ruhr. She cannot, of course, get the coal and coke she takes from the Ruhr for nothing. If German workmen are to man the Ruhr industries, they must be paid, and they must be paid enough to give them and their families food, clothing, shelter, and some of the minor comforts of life. Moreover, if the Ruhr is to remain a productive asset, the occupying forces must spend part of the proceeds from the sale of the coal and iron and coke in the maintenance of plant and equipment, transportation facilities, and other things. Only the margin left after these expenses had been met would constitute revenue for France. As an offset against that margin would have to be placed the expenses of maintaining an army of occupation, and the expenses of administration-very great indeed in the case of an unpopular conqueror in an alien country. The margin might be much more than wiped out by these expenses.

The balance, in any case, would be much less than the margin of profit which could be made by the German owners controlling their own establishments, operating under commercial motives, and bound by ties of language, nationality, and the sympathy which a common cause involves, to their workmen. Systematic socialist propaganda has tried again and again to break down national lines. The effort has been made to convince the workingmen of Germany that they have more of common interest with the workingmen of France and of Belgium and of Russia than they have with their own German employers. On the whole, this propaganda has been unsuccessful. Conflicts of interest and of sympathy there are between employers and labourers in Germany, but so far the sentiment of common nationality has been stronger than the disintegrating sentiments of labour-capital antagonism. If propaganda should succeed in alienating the labourers of the Ruhr from their capitalist employers by developing radical anticapitalistic feeling among them, would this improve the prospects of business revenues from Ruhr mines and factories? Are labourers imbued with such sentiments likely to produce as effectively as labourers who believe in the general system of private enterprise, and who content themselves with trying to improve their wages and conditions of work within the system of private enterprise?

French managers of Ruhr industries, even after a nominal surrender by the German workmen, will face enough of sabotage and sullen, individual resistance to make it probable that the narrow margin of profit will be turned to loss. Whether sabotage comes from German nationalist sentiment, or whether it comes from radical labour sentiment, does not matter much.

It is my own view that the whole theory of "productive guaranties" is a fallacy, when the productive guaranties involve the carrying on of industrial and commercial operations by an alien power. "Productive guaranties" in the form of the control of certain revenues-say the customs revenues of an important seaport-have at times proved really valuable. Guaranties in the form of the occupation of strategic points from the standpoint of possible military operations may also be useful, since they bear hard on the pride of the people whose territory is held, and lead them to make every effort to pay off their debt in order to have their territory released. When the occupation goes so far, however, as to interfere with the commercial and industrial activities of the defeated people, and when the mere cost of an army of occupation is so great as to impose a grinding burden upon them, it is difficult to see how such measures can contribute much to the ultimate payment of large sums.

If France really wants cash from Germany, it is probable that her best guaranty will be in giving consent to a settlement which the German people will themselves recognize as within their ability to meet, and in the manifestation of something like generosity and confidence toward the German people.

It is difficult to see how such an outcome can be brought about if matters are allowed to drift and if France and Germany alone must work it out. The English-speaking world, with its greater detachment and its relative freedom from the bitterness of the War, must help make the necessary accommodation.

France has a right to expect a settlement which will insure her future peace. She has a right to expect a settlement which will leave her a first-class power on the continent of Europe. She has, moreover, a right to be satisfied that the solution reached really does give her security. It is not enough that the Government of the United States or that the Government of Great Britain, or both, should judge that a given arrangement will make France safe. The arrangement should be one which, after it is debated and discussed in the public forums of France, leaves the majority of intelligent French people with a feeling of safety.

All this, however, may be freely recognized without in any way committing the rest of the world to the acceptance of some particular solution, which a given French Government may demand. The whole question must be brought out into the open for realistic discussion. The opinions of the United States and Great Britain should have much weight in these discussions. The opinions of representative Germans should have such weight as their sincerity and reasonableness merit. Finally, France must recognize that no nation can be secure in the world which does not take a reasonable attitude toward its neighbours. No guaranties could be given which would make France secure if France should, through a generation, systematically carry on a course calculated not only to irritate former foes, but also to injure good friends.

What does French security involve? Does it mean a defensive alliance between the British Empire, the United States and France? Would it be sufficient if Great Britain and the United States promised financial backing, in case of a defensive war with Germany, or would it be necessary to add, on the part of one or both of them, the guaranty of military co-operation also? Could a clear definition of defensive war be made which would justify the Governments of Great Britain and the United States before their own peoples, in making a long time commitment to aid France, in the case of defensive war with Germany?

Does French security involve the dismemberment of Germany? Would it be possible to separate Germany into two or more parts, each of which would carry on a sound economic life? Is it possible that such a separation of Germany would be permanent, or would the same forces which brought Germany together in the early seventies prove overpowering still? After all, it was a series of brilliant victories which overcame the local jealousies in Germany and led to German unity. May not defeat have weakened the centralizing forces? Or have intervening years, since the formation of the German Empire, brought about such a powerful sentiment of political unity that it would still prove irresistible in the long run? These ideas do not appeal to me as very reasonable. I do not think that it would be possible permanently to dismember Germany, and I do not think that French security requires it. I do believe, however, that, in working out a settlement, Great Britain and the United States should give very respectful and careful consideration to the political hopes and fears of France. I believe further that Germany should be expected to give whatever guaranties for French security may be deemed necessary, after France, the British Empire and the United States have reached agreement on the matter.

The energies of the State Departments of great countries may be devoted to the problems of world reconstruction in a generous spirit of helpfulness, with a display of mutual confidence, or they may be dissipated in jealousy-breeding, competitive struggle and reprisal over oil and rubber and special trade advantages. They cannot easily be given whole hearted to both kinds of things, however. Let us hope that there may be magnimity enough on the part of the Governments of the British Empire, the United States, and our good friends in the Netherlands, to prevent friction over these minor points from interfering with co-operation among the commercially minded nations of the world in the effort to reconstruct the world on a commercial, rather than a political basis. Just as a matter of business, we all have much more to gain from an early industrial and commercial revival in Europe than any of us could possibly gain from the utmost success in ousting our rivals from concessions in the outlying regions of the world.

On what conditions are the United States and the British Empire justified in insisting on an early adjustment of these matters? Only, I think, on conditions which will make sure that the world will really be made a fit place to live in once more; only on condition that all of the major issues are brought into the settlement and really solved in relation to one another. We, of the United States, as well as Great Britain, must be willing to throw into the common settlement the question of the debts of France and Belgium, and others of our continental Allies, to us. We must entertain the question of readjustment of our trade policy. We must be prepared to consider what our bankers and investors can do in the way of necessary foreign loans. The questions of currency and financial reform, not alone in Germany, but among all the major continental belligerents, must be brought in. We must give careful thought to French fears regarding future wars.

No piecemeal, partial settlement will accomplish much. Not only Germany but also France and Belgium and Italy and Austria and other countries west of Russia must be given opportunity, in consideration of financial and currency reforms, to have their financial burdens lightened and to give new outside aid. These things all hang together and they should all be considered together.

THE PRESIDENT expressed the thanks of the audience to Dr. Anderson for his very illuminating treatment of, perhaps, the greatest problem of the day, and the members showed the appreciation by hearty and prolonged applause.