Essays in Persuasion E-Book

John Maynard Keynes

• Herausgeber: Reading Essentials
• Kategorie: Geisteswissenschaft
• Sprache: Englisch
• Veröffentlichungsjahr: 2019

Beschreibung

In the light of subsequent history, Essays of Persuasion is a remarkably prophetic volume covering a wide range of issues in political economy. In articles on the Versailles Treaty, John Maynard Keynes foresaw all too clearly that excessive Allied demands for reparations and indemnities would lead to the economic collapse of Germany. In Keynes' essays on inflation and deflation, the reader can find ideas that were to become the foundations of his most renowned treatise, "The General Theory of Employment, Interest and Money". With startling accuracy Keynes forecast the economic fluctuations that were to beset the economies of Europe and the United States and even proposed measures which, if heeded at the time, might have warded off an era of world-wide depression. His views on Soviet Russia, on the decline of laissez-faire, and the possibilities of economic growth are as relevant today as when Keynes originally set them forth.

Leseprobe

Essays in Persuasion 

by John Maynard Keynes

First published in 1931

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ESSAYS IN PERSUASION 

 by 

 John Maynard Keynes

PREFACE

Here are collected the croakings of twelve years—the croakings of a Cassandra who could never influence the course of events in time. The volume might have been entitled "Essays in Prophecy and Persuasion," for the Prophecy, unfortunately, has been more successful than the Persuasion. But it was in a spirit of persuasion that most of these essays were written, in an attempt to influence opinion. They were regarded at the time, many of them, as extreme and reckless utterances. But I think that the reader, looking through them to-day, will admit that this was because they often ran directly counter to the overwhelming weight of contemporary sentiment and opinion, and not because of their character in themselves. On the contrary, I feel—reading them again, though I am a prejudiced witness—that they contain more understatement than overstatement, as judged by after-events. That this should be their tendency, is a natural consequence of the circumstances in which they were written. For I wrote many of these essays painfully conscious that a cloud of witnesses would rise up against me and very few in my support, and that I must, therefore, be at great pains to say nothing which I could not substantiate. I was constantly on my guard—as I well remember, looking back—to be as moderate as my convictions and the argument would permit.

All this applies to the first three of the five books into which these essays naturally group themselves, rather than to the last two; that is to say, to the three great controversies of the past decade, into which I plunged myself without reserve,—the Treaty of Peace and the War Debts, the Policy of Deflation, and the Return to the Gold Standard,[1] of which the last two, and indeed in some respects all three, were closely interconnected. In these essays the author was in a hurry, desperately anxious to convince his audience in time. But in the last two books time's chariots make a less disturbing noise. The author is looking into the more distant future, and is ruminating matters which need a slow course of evolution to determine them. He is more free to be leisurely and philosophical. And here emerges more clearly what is in truth his central thesis throughout,—the profound conviction that the Economic Problem, as one may call it for short, the problem of want and poverty and the economic struggle between classes and nations, is nothing but a frightful muddle, a transitory and an unnecessary muddle. For the Western World already has the resources and the technique, if we could create the organisation to use them, capable of reducing the Economic Problem, which now absorbs our moral and material energies, to a position of secondary importance.

[1] I still stand—substantially—by the Positive Suggestions for the Future Regulation of Money, which I wrote in 1923 before our Return to the Gold Standard and which are here reprinted (p. 213) as the third Essay of Book III. Whilst we were on the Gold Standard, these proposals were necessarily in abeyance. But any one who wishes to know the general outline of how the author would settle our currency Problem, as it presents itself to-day, will find it in this essay.

Thus the author of these essays, for all his croakings, still hopes and believes that the day is not far off when the Economic Problem will take the back seat where it belongs, and that the arena of the heart and head will be occupied, or re-occupied, by our real problems—the problems of life and of human relations, of creation and behaviour and religion. And it happens that there is a subtle reason drawn from economic analysis why, in this case, faith may work. For if we consistently act on the optimistic hypothesis, this hypothesis will tend to be realised; whilst by acting on the pessimistic hypothesis we can keep ourselves for ever in the pit of want.

The essays have been taken out of the author's printed writings, whether books or pamphlets or newspaper and magazine articles, indiscriminately. The method has been to omit freely (without special indications in the text) anything which appeared to be redundant or unnecessary to the main line of the argument or to have lost interest with the passage of events; but to alter nothing in the text which has been retained. New explanatory footnotes, which have been added in this volume, have been placed between square brackets. The author has endeavoured to secure that the omissions shall not be such as to make the balance of argument to appear in any way different from what it was in the original context. But for the curious inquirer, if there be any, there is provided on the last page of the book a table of references showing the source from which each essay has been taken, and where it can be found in its complete contemporary setting.

I have thought it convenient to choose this date of publication, because we are standing at a point of transition. It is called a National Crisis. But that is not correct—for Great Britain the main crisis is over. There is a lull in our affairs. We are, in the autumn of 1931, resting ourselves in a quiet pool between two waterfalls. The main point is that we have regained our freedom of choice. Scarcely any one in England now believes in the Treaty of Versailles or in the pre-war Gold Standard or in the Policy of Deflation. These battles have been won—mainly by the irresistible pressure of events and only secondarily by the slow undermining of old prejudices. But most of us have, as yet, only a vague idea of what we are going to do next, of how we are going to use our regained freedom of choice. So I should like to clinch the past, as it were, by reminding the reader of what we have been through, and how it appeared at the time, and the nature of the mistakes we made.

J. M. Keynes

November 8, 1931.

THE TREATY OF PEACE

1. Paris (1919)

The power to become habituated to his surroundings is a marked characteristic of mankind. Very few of us realise with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organisation by which Western Europe has lived for the last half-century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent, and to be depended on, and we lay our plans accordingly. On this sandy and false foundation we scheme for social improvement and dress our political platforms, pursue our animosities and particular ambitions, and feel ourselves with enough margin in hand to foster, not assuage, civil conflict in the European family. Moved by insane delusion and reckless self-regard, the German people overturned the foundations on which we all lived and built. But the spokesmen of the French and British people have run the risk of completing the ruin, which Germany began, by a Peace which, if it is carried into effect, must impair yet further, when it might have restored, the delicate, complicated organisation, already shaken and broken by war, through which alone the European peoples can employ themselves and live.

In England the outward aspect of life does not yet teach us to feel or realise in the least that an age is over. We are busy picking up the threads of our life where we dropped them, with this difference only, that many of us seem a good deal richer than we were before. Where we spent millions before the war, we have now learnt that we can spend hundreds of millions and apparently not suffer for it. Evidently we did not exploit to the utmost the possibilities of our economic life. We look, therefore, not only to a return to the comforts of 1914, but to an immense broadening and intensification of them. All classes alike thus build their plans, the rich to spend more and save less, the poor to spend more and work less.

But perhaps it is only in England (and America) that it is possible to be so unconscious. In continental Europe the earth heaves and no one but is aware of the rumblings. There it is not just a matter of extravagance or "labour troubles"; but of life and death, of starvation and existence, and of the fearful convulsions of a dying civilisation.

For one who spent in Paris the greater part of the six months which succeeded the Armistice, an occasional visit to London was a strange experience. England still stands outside Europe. Europe's voiceless tremors do not reach her. Europe is apart and England is not of her flesh and body. But Europe is solid with herself. France, Germany, Italy, Austria, and Holland, Russia and Roumania and Poland, throb together, and their structure and civilisation are essentially one. They flourished together, they have rocked together in a war, which we, in spite of our enormous contributions and sacrifices, (like though in a less degree than America) economically stood outside, and they may fall together. In this lies the destructive significance of the Peace of Paris. If the European Civil War is to end with France and Italy abusing their momentary victorious power to destroy Germany and Austria-Hungary now prostrate, they invite their own destruction also, being so deeply and inextricably intertwined with their victims by hidden psychic and economic bonds. At any rate an Englishman who took part in the Conference of Paris and was during those months a member of the Supreme Economic Council of the Allied Powers, was bound to become, for him a new experience, a European in his cares and outlook. There, at the nerve centre of the European system, his British preoccupations must largely fall away and he must be haunted by other and more dreadful spectres. Paris was a nightmare, and every one there was morbid. A sense of impending catastrophe overhung the frivolous scene; the futility and smallness of man before the great events confronting him; the mingled significance and unreality of the decisions; levity, blindness, insolence, confused cries from without,—all the elements of ancient tragedy were there. Seated indeed amid the theatrical trappings of the French Saloons of State, one could wonder if the extraordinary visages of Wilson and of Clemenceau, with their fixed hue and unchanging characterisation, were really faces at all and not the tragic-comic masks of some strange drama or puppet-show.

The proceedings of Paris all had this air of extraordinary importance and unimportance at the same time. The decisions seemed charged with consequences to the future of human society; yet the air whispered that the word was not flesh, that it was futile, insignificant, of no effect, dissociated from events; and one felt most strongly the impression, described by Tolstoy in War and Peace or by Hardy in The Dynasts, of events marching on to their fated conclusion uninfluenced and unaffected by the cerebrations of Statesmen in Council:

SPIRIT OF THE YEARS

Observe that all wide sight and self-commandDesert these throngs now driven to demonryBy the Immanent Unrecking. Nought remainsBut vindictiveness here amid the strong,And there amid the weak an impotent rage.

SPIRIT OF THE PITIES

Why prompts the Will so senseless-shaped a doing?

SPIRIT OF THE YEARS

I have told thee that It works unwittingly,As one possessed, not judging.

2. The Capacity of Germany to pay Reparations (1919)

It is evident that Germany's pre-war capacity to pay an annual foreign tribute has not been unaffected by the almost total loss of her colonies, her overseas connections, her mercantile marine, and her foreign properties, by the cession of ten per cent of her territory and population, of one-third of her coal and of three-quarters of her iron ore, by two million casualties amongst men in the prime of life, by the starvation of her people for four years, by the burden of a vast war debt, by the depreciation of her currency to less than one-seventh its former value, by the disruption of her allies and their territories, by Revolution at home and Bolshevism on her borders, and by all the unmeasured ruin in strength and hope of four years of all-swallowing war and final defeat.

All this, one would have supposed, is evident. Yet most estimates of a great indemnity from Germany depend on the assumption that she is in a position to conduct in the future a vastly greater trade than ever she has had in the past.

For the purpose of arriving at a figure it is of no great consequence whether payment takes the form of cash (or rather of foreign exchange) or is partly effected in kind (coal, dyes, timber, etc.), as contemplated by the Treaty. In any event, it is only by the export of specific commodities that Germany can pay, and the method of turning the value of these exports to account for Reparation purposes is, comparatively, a matter of detail.

We shall lose ourselves in mere hypothesis unless we return in some degree to first principles, and, whenever we can, to such statistics as there are. It is certain that an annual payment can only be made by Germany over a series of years by diminishing her imports and increasing her exports, thus enlarging the balance in her favour which is available for effecting payments abroad. Germany can pay in the long run in goods, and in goods only, whether these goods are furnished direct to the Allies, or whether they are sold to neutrals and the neutral credits so arising are then made over to the Allies. The most solid basis for estimating the extent to which this process can be carried is to be found, therefore, in an analysis of her trade returns before the war. Only on the basis of such an analysis, supplemented by some general data as to the aggregate wealth-producing capacity of the country, can a rational guess be made as to the maximum degree to which the exports of Germany could be brought to exceed her imports.

In the year 1913 Germany's imports amounted to £538,000,000 and her exports to £505,000,000, exclusive of transit trade and bullion. That is to say, imports exceeded exports by about £33,000,000. On the average of the five years ending 1913, however, her imports exceeded her exports by a substantially larger amount, namely, £74,000,000. It follows, therefore, that more than the whole of Germany's pre-war balance for new foreign investment was derived from the interest on her existing foreign securities, and from the profits of her shipping, foreign banking, etc. As her foreign properties and her mercantile marine are now to be taken from her, and as her foreign banking and other miscellaneous sources of revenue from abroad have been largely destroyed, it appears that, on the pre-war basis of exports and imports, Germany, so far from having a surplus wherewith to make a foreign payment, would be not nearly self-supporting. Her first task, therefore, must be to effect a readjustment of consumption and production to cover this deficit. Any further economy she can effect in the use of imported commodities, and any further stimulation of exports will then be available for Reparation.

Let us run over the chief items of export: (1) Iron goods. In view of Germany's loss of resources, an increased net export seems impossible and a large decrease probable. (2) Machinery. Some increase is possible. (3) Coal and coke. The value of Germany's net export before the war was £22,000,000; the Allies have agreed that for the time being 20,000,000 tons is the maximum possible export with a problematic (and in fact) impossible increase to 40,000,000 tons at some future time; even on the basis of 20,000,000 tons we have virtually no increase of value, measured in pre-war prices; whilst, if this amount is exacted, there must be a decrease of far greater value in the export of manufactured articles requiring coal for their production. (4) Woollen goods. An increase is impossible without the raw wool, and, having regard to the other claims on supplies of raw wool, a decrease is likely. (5) Cotton goods. The same considerations apply as to wool. (6) Cereals. There never was and never can be a net export. (7) Leather goods. The same considerations apply as to wool.

We have now covered nearly half of Germany's pre-war exports, and there is no other commodity which formerly represented as much as 3 per cent of her exports. In what commodity is she to pay? Dyes?—their total value in 1913 was £10,000,000. Toys? Potash?—1913 exports were worth £3,000,000. And even if the commodities could be specified, in what markets are they to be sold?—remembering that we have in mind goods to the value not of tens of millions annually, but of hundreds of millions.

On the side of imports, rather more is possible. By lowering the standard of life, an appreciable reduction of expenditure on imported commodities may be possible. But, as we have already seen, many large items are incapable of reduction without reacting on the volume of exports.

Let us put our guess as high as we can without being foolish, and suppose that after a time Germany will be able, in spite of the reduction of her resources, her facilities, her markets, and her productive power, to increase her exports and diminish her imports so as to improve her trade balance altogether by £100,000,000 annually, measured in pre-war prices. This adjustment is first required to liquidate the adverse trade balance, which in the five years before the war averaged £74,000,000; but we will assume that after allowing for this, she is left with a favourable trade balance of £50,000,000 a year. Doubling this to allow for the rise in post-war prices, we have a figure of £100,000,000. Having regard to the political, social, and human factors, as well as to the purely economic, I doubt if Germany could be made to pay this sum annually over a period of 30 years; but it would not be foolish to assert or to hope that she could.

Such a figure, allowing 5 per cent for interest, and 1 per cent for repayment of capital, represents a capital sum having a present value of about £1700 million.

I reach, therefore, the final conclusion that, including all methods of payment—immediately transferable wealth, ceded property, and an annual tribute—£2,000,000,000 is a safe maximum figure of Germany's capacity to pay. In all the actual circumstances, I do not believe that she can pay as much.

There is only one head under which I see a possibility of adding to the figure reached on the line of argument adopted above; that is, if German labour is actually transported to the devastated areas and there engaged in the work of reconstruction. I have heard that a limited scheme of this kind is actually in view. The additional contribution thus obtainable depends on the number of labourers which the German Government could contrive to maintain in this way and also on the number which, over a period of years, the Belgian and French inhabitants would tolerate in their midst. In any case, it would seem very difficult to employ on the actual work of reconstruction, even over a number of years, imported labour having a net present value exceeding (say) £250,000,000; and even this would not prove in practice a net addition to the annual contributions obtainable in other ways.

A capacity of £8,000,000,000 or even of £5,000,000,000 is, therefore, not within the limits of reasonable possibility. It is for those who believe that Germany can make an annual payment amounting to hundreds of millions sterling to say in what specific commodities they intend this payment to be made, and in what markets the goods are to be sold. Until they proceed to some degree of detail, and are able to produce some tangible argument in favour of their conclusions, they do not deserve to be believed.

I make three provisos only, none of which affect the force of my argument for immediate practical purposes.

First: If the Allies were to "nurse" the trade and industry of Germany for a period of five or ten years, supplying her with large loans, and with ample shipping, food, and raw materials during that period, building up markets for her, and deliberately applying all their resources and goodwill to making her the greatest industrial nation in Europe, if not in the world, a substantially larger sum could probably be extracted thereafter; for Germany is capable of very great productivity.

Second: Whilst I estimate in terms of money, I assume that there is no revolutionary change in the purchasing power of our unit of value. If the value of gold were to sink to a half or a tenth of its present value, the real burden of a payment fixed in terms of gold would be reduced proportionately. If a gold sovereign comes to be worth what a shilling is worth now, then, of course, Germany can pay a larger sum than I have named, measured in gold sovereigns.

Third: I assume that there is no revolutionary change in the yield of Nature and material to man's labour. It is not impossible that the progress of science should bring within our reach methods and devices by which the whole standard of life would be raised immeasurably, and a given volume of products would represent but a portion of the human effort which it represents now. In this case all standards of "capacity" would be changed everywhere. But the fact that all things are possible is no excuse for talking foolishly.

It is true that in 1870 no man could have predicted Germany's capacity in 1910. We cannot expect to legislate for a generation or more. The secular changes in man's economic condition and the liability of human forecast to error are as likely to lead to mistake in one direction as in another. We cannot as reasonable men do better than base our policy on the evidence we have and adapt it to the five or ten years over which we may suppose ourselves to have some measure of prevision; and we are not at fault if we leave on one side the extreme chances of human existence and of revolutionary changes in the order of Nature or of man's relations to her. The fact that we have no adequate knowledge of Germany's capacity to pay over a long period of years is no justification (as I have heard some people claim that it is) for the statement that she can pay ten thousand million pounds.

Why has the world been so credulous of the unveracities of politicians? If an explanation is needed, I attribute this particular credulity to the following influences in part.

In the first place, the vast expenditures of the war, the inflation of prices, and the depreciation of currency, leading up to a complete instability of the unit of value, have made us lose all sense of number and magnitude in matters of finance. What we believed to be the limits of possibility have been so enormously exceeded, and those who founded their expectations on the past have been so often wrong, that the man in the street is now prepared to believe anything which is told him with some show of authority, and the larger the figure the more readily he swallows it.

But those who look into the matter more deeply are sometimes misled by a fallacy, much more plausible to reasonable persons. Such a one might base his conclusions on Germany's total surplus of annual productivity as distinct from her export surplus. Helfferich's estimate of Germany's annual increment of wealth in 1913 was £400,000,000 to £425,000,000 (exclusive of increased money value of existing land and property). Before the war, Germany spent between £50,000,000 and £100,000,000 on armaments, with which she can now dispense. Why, therefore, should she not pay over to the Allies an annual sum of £500,000,000? This puts the crude argument in its strongest and most plausible form.

But there are two errors in it. First of all, Germany's annual savings, after what she has suffered in the war and by the Peace, will fall far short of what they were before, and, if they are taken from her year by year in future, they cannot again reach their previous level. The loss of Alsace-Lorraine, Poland, and Upper Silesia could not be assessed in terms of surplus productivity at less than £50,000,000 annually. Germany is supposed to have profited about £100,000,000 per annum from her ships, her foreign investments, and her foreign banking and connections, all of which have now been taken from her. Her saving on armaments is far more than balanced by her annual charge for pensions now estimated at £250,000,000,[2] which represents a real loss of productive capacity. And even if we put on one side the burden of the internal debt, which amounts to 240 milliards of marks, as being a question of internal distribution rather than of productivity, we must still allow for the foreign debt incurred by Germany during the war, the exhaustion of her stock of raw materials, the depletion of her live-stock, the impaired productivity of her soil from lack of manures and of labour, and the diminution in her wealth from the failure to keep up many repairs and renewals over a period of nearly five years. Germany is not as rich as she was before the war, and the diminution in her future savings for these reasons, quite apart from the factors previously allowed for, could hardly be put at less than ten per cent, that is £40,000,000 annually.

[2] The conversion at par of 5000 million marks overstates by reason of the existing depreciation of the mark, the present money burden of the actual pensions payments, but not, in all probability, the real loss of national productivity as a result of the casualties suffered in the war.

These factors have already reduced Germany's annual surplus to less than the £100,000,000 at which we arrived on other grounds as the maximum of her annual payments. But even if the rejoinder be made, that we have not yet allowed for the lowering of the standard of life and comfort in Germany which may reasonably be imposed on a defeated enemy, there is still a fundamental fallacy in the method of calculation. An annual surplus available for home investment can only be converted into a surplus available for export abroad by a radical change in the kind of work performed. Labour, while it may be available and efficient for domestic services in Germany, may yet be able to find no outlet in foreign trade. We are back on the same question which faced us in our examination of the export trade—in what export trade is German labour going to find a greatly increased outlet? Labour can only be diverted into new channels with loss of efficiency, and a large expenditure of capital. The annual surplus which German labour can produce for capital improvements at home is no measure, either theoretically or practically, of the annual tribute which she can pay abroad.

I cannot leave this subject as though its just treatment wholly depended either on our own pledges or on economic facts. The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable,—abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilised life of Europe. Some preach it in the name of Justice. In the great events of man's history, in the unwinding of the complex fates of nations Justice is not so simple. And if it were, nations are not authorised, by religion or by natural morals, to visit on the children of their enemies the misdoings of parents or of rulers.

3. Proposals for the Reconstruction of Europe (1919)

(i) The Revision of the Treaty

Are any constitutional means open to us for altering the Treaty? President Wilson and General Smuts, who believe that to have secured the Covenant of the League of Nations outweighs much evil in the rest of the Treaty, have indicated that we must look to the League for the gradual evolution of a more tolerable life for Europe. "There are territorial settlements," General Smuts wrote in his statement on signing the Peace Treaty, "which will need revision. There are guarantees laid down which we all hope will soon be found out of harmony with the new peaceful temper and unarmed state of our former enemies. There are punishments foreshadowed over most of which a calmer mood may yet prefer to pass the sponge of oblivion. There are indemnities stipulated which cannot be exacted without grave injury to the industrial revival of Europe, and which it will be in the interests of all to render more tolerable and moderate. . . . I am confident that the League of Nations will yet prove the path of escape for Europe out of the ruin brought about by this war." Without the League, President Wilson informed the Senate when he presented the Treaty to them early in July 1919, ". . . long-continued supervision of the task of reparation which Germany was to undertake to complete within the next generation might entirely break down; the reconsideration and revision of administrative arrangements and restrictions which the Treaty prescribed, but which it recognised might not provide lasting advantage or be entirely fair if too long enforced, would be impracticable."

Can we look forward with fair hopes to securing from the operation of the League those benefits which two of its principal begetters thus encourage us to expect from it? The relevant passage is to be found in Article XIX. of the Covenant, which runs as follows:

The Assembly may from time to time advise the reconsideration by Members of the League of treaties which have become inapplicable and the consideration of international conditions whose continuance might endanger the peace of the world.

But alas! Article V. provides that "Except where otherwise expressly provided in this Covenant or by the terms of the present Treaty, decisions at any meeting of the Assembly or of the Council shall require the agreement of all the Members of the League represented at the meeting." Does not this provision reduce the League, so far as concerns an early reconsideration of any of the terms of the Peace Treaty, into a body merely for wasting time? If all the parties to the Treaty are unanimously of opinion that it requires alteration in a particular sense, it does not need a League and a Covenant to put the business through. Even when the Assembly of the League is unanimous it can only "advise" reconsideration by the members specially affected.

But the League will operate, say its supporters, by its influence on the public opinion of the world, and the view of the majority will carry decisive weight in practice, even though constitutionally it is of no effect. Let us pray that this be so. Yet the League in the hands of the trained European diplomatist may become an unequalled instrument for obstruction and delay. The revision of Treaties is entrusted primarily, not to the Council, which meets frequently, but to the Assembly, which will meet more rarely and must become, as any one with an experience of large Inter-Ally Conferences must know, an unwieldy polyglot debating society in which the greatest resolution and the best management may fail altogether to bring issues to a head against an opposition in favour of the status quo. There are indeed two disastrous blots on the Covenant,—Article V., which prescribes unanimity, and the much-criticised Article X., by which "The Members of the League undertake to respect and preserve as against external aggression the territorial integrity and existing political independence of all Members of the League." These two Articles together go some way to destroy the conception of the League as an instrument of progress, and to equip it from the outset with an almost fatal bias towards the status quo. It is these Articles which have reconciled to the League some of its original opponents, who now hope to make of it another Holy Alliance for the perpetuation of the economic ruin of their enemies and the Balance of Power in their own interests which they believe themselves to have established by the Peace.

But while it would be wrong and foolish to conceal from ourselves in the interests of "idealism" the real difficulties of the position in the special matter of revising treaties, that is no reason for any of us to decry the League, which the wisdom of the world may yet transform into a powerful instrument of peace, and which in Articles XI.-XVII.[3] has already accomplished a great and beneficent achievement. I agree, therefore, that our first efforts for the Revision of the Treaty must be made through the League rather than in any other way, in the hope that the force of general opinion, and if necessary, the use of financial pressure and financial inducements, may be enough to prevent a recalcitrant minority from exercising their right of veto. We must trust the new Governments, whose existence I premise in the principal Allied countries, to show a profounder wisdom and a greater magnanimity than their predecessors.

[3] These Articles, which provide safeguards against the outbreak of war between members of the League and also between members and non-members, are the solid achievement of the Covenant. These Articles make substantially less probable a war between organised Great Powers such as that of 1914. This alone should commend the League to all men.

I do not intend to enter here into details, or to attempt a revision of the Treaty clause by clause. I limit myself to three great changes which are necessary for the economic life of Europe, relating to Reparation, to Coal and Iron, and to Tariffs.

Reparation.—If the sum demanded for Reparation is less than what the Allies are entitled to on a strict interpretation of their engagements, it is unnecessary to particularise the items it represents or to hear arguments about its compilation. I suggest, therefore, the following settlement:

(1) The amount of the payment to be made by Germany in respect of Reparation and the costs of the Armies of Occupation might be fixed at £2000 million.

(2) The surrender of merchant ships and submarine cables under the Treaty, of war material under the Armistice, of State property in ceded territory, of claims against such territory in respect of public debt, and of Germany's claims against her former Allies, should be reckoned as worth the lump sum of £500 million, without any attempt being made to evaluate them item by item.

(3) The balance of £1500 million should not carry interest pending its repayment, and should be paid by Germany in thirty annual instalments of £50 million, beginning in 1923.

(4) The Reparation Commission should be dissolved, or, if any duties remain for it to perform, it should become an appanage of the League of Nations and should include representatives of Germany and of the neutral States.

(5) Germany would be left to meet the annual instalments in such manner as she might see fit, any complaint against her for non-fulfilment of her obligations being lodged with the League of Nations. That is to say, there would be no further expropriation of German private property abroad, except so far as is required to meet private German obligations out of the proceeds of such property already liquidated or in the hands of Public Trustees and Enemy-Property Custodians in the Allied countries and in the United States; and, in particular, Article 260 (which provides for the expropriation of German interests in public utility enterprises) would be abrogated.

(6) No attempt should be made to extract Reparation payments from Austria.

Coal and Iron.—(1) The Allies' options on coal under Annex V. should be abandoned, but Germany's obligation to make good France's loss of coal through the destruction of her mines should remain. This obligation should lapse, nevertheless, in the event of the coal districts of Upper Silesia being taken from Germany in the final settlement consequent on the plebiscite.

(2) The arrangement as to the Saar should hold good, except that, on the one hand, Germany should receive no credit for the mines, and, on the other should receive back both the mines and the territory without payment and unconditionally after ten years. But this should be conditional on France's entering into an agreement for the same period to supply Germany from Lorraine with at least 50 per cent of the iron ore which was carried from Lorraine into Germany proper before the war, in return for an undertaking from Germany to supply Lorraine with an amount of coal equal to the whole amount formerly sent to Lorraine from Germany proper, after allowing for the output of the Saar.

(3) The arrangement as to Upper Silesia should hold good. That is to say, a plebiscite should be held, and in coming to a final decision "regard will be paid (by the principal Allied and Associated Powers) to the wishes of the inhabitants as shown by the vote, and to the geographical and economic conditions of the locality." But the Allies should declare that in their judgement "economic conditions" require the inclusion of the coal districts in Germany unless the wishes of the inhabitants are decidedly to the contrary.

Tariffs.—A Free Trade Union should be established under the auspices of the League of Nations of countries undertaking to impose no protectionist tariffs[4] whatever against the produce of other members of the Union. Germany, Poland, the new States which formerly composed the Austro-Hungarian and Turkish Empires, and the Mandated States should be compelled to adhere to this Union for ten years, after which time adherence would be voluntary. The adherence of other States would be voluntary from the outset. But it is to be hoped that the United Kingdom, at any rate, would become an original member.

[4] It would be expedient so to define a "protectionist tariff" as to permit (a) the total prohibition of certain imports; (b) the imposition of sumptuary or revenue customs duties on commodities not produced at home; (c) the imposition of customs duties which did not exceed by more than five per cent a countervailing excise on similar commodities produced at home; (d) export duties. Further, special exceptions might be permitted by a majority vote of the countries entering the Union. Duties which had existed for five years prior to a country's entering the Union might be allowed to disappear gradually by equal instalments spread over the five years subsequent to joining the Union.

By fixing the Reparation payments well within Germany's capacity to pay, we make possible the renewal of hope and enterprise within her territory, we avoid the perpetual friction and opportunity of improper pressure arising out of Treaty clauses which are impossible of fulfilment, and we render unnecessary the intolerable powers of the Reparation Commission.

By a moderation of the clauses relating directly or indirectly to coal, and by the exchange of iron ore, we permit the continuance of Germany's industrial life, and put limits on the loss of productivity which would be brought about otherwise by the interference of political frontiers with the natural localisation of the iron and steel industry.

By the proposed Free Trade Union some part of the loss of organisation and economic efficiency may be retrieved, which must otherwise result from the innumerable new political frontiers now created between greedy, jealous, immature, and economically incomplete, nationalist States. Economic frontiers were tolerable so long as an immense territory was included in a few great Empires; but they will not be tolerable when the Empires of Germany, Austria-Hungary, Russia, and Turkey have been partitioned between some twenty independent authorities. A Free Trade Union, comprising the whole of Central, Eastern, and South-Eastern Europe, Siberia, Turkey, and (I should hope) the United Kingdom, Egypt, and India, might do as much for the peace and prosperity of the world as the League of Nations itself. Belgium, Holland, Scandinavia, and Switzerland might be expected to adhere to it shortly. And it would be greatly to be desired by their friends that France and Italy also should see their way to adhesion.

It would be objected, I suppose, by some critics that such an arrangement might go some way in effect towards realising the former German dream of Mittel-Europa. If other countries were so foolish as to remain outside the Union and to leave to Germany all its advantages, there might be some truth in this. But an economic system, to which every one had the opportunity of belonging and which gave special privilege to none, is surely absolutely free from the objections of a privileged and avowedly imperialistic scheme of exclusion and discrimination. Our attitude to these criticisms must be determined by our whole moral and emotional reaction to the future of international relations and the Peace of the World. If we take the view that for at least a generation to come Germany cannot be trusted with even a modicum of prosperity, that while all our recent Allies are angels of light, all our recent enemies, Germans, Austrians, Hungarians, and the rest, are children of the devil, that year by year Germany must be kept impoverished and her children starved and crippled, and that she must be ringed round by enemies; then we shall reject all the proposals of this chapter, and particularly those which may assist Germany to regain a part of her former material prosperity and find a means of livelihood for the industrial population of her towns. But if this view of nations and of their relation to one another is adopted by the democracies of Western Europe, and is financed by the United States, heaven help us all. If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victor, the civilisation and the progress of our generation. Even though the result disappoint us, must we not base our actions on better expectations, and believe that the prosperity and happiness of one country promotes that of others, that the solidarity of man is not a fiction, and that nations can still afford to treat other nations as fellow-creatures?

Such changes as I have proposed above might do something appreciable to enable the industrial populations of Europe to continue to earn a livelihood. But they would not be enough by themselves. In particular, France would be a loser on paper (on paper only, for she will never secure the actual fulfilment of her present claims), and an escape from her embarrassments must be shown her in some other direction. I proceed, therefore, to proposals, first, for the adjustment of the claims of America and the Allies amongst themselves; and second, for the provision of sufficient credit to enable Europe to re-create her stock of circulating capital.