HKB
of the overwhelming popular ignorance of the influences governing the exchanges, an ignorance already displayed, to the great pecuniary advantage of Germany, by the international craze to purchase mark notes.
In its later stages the collapse has been mainly due to the necessity of paying money abroad in discharge of Reparation and in repaying foreign investors in marks, with the result that the fall in the external value of the mark has outstripped any figure which could be justified merely as a consequence of the present degree of currency inflation. Germany would require a much larger note issue than at present, if German internal prices were to become adjusted to gold prices at an exchange of more than 400 marks to the dollar.[1] If, therefore, the other influences were to be removed, if, that is to say, the Reparation demands were revised and foreign investors were to take heart again, a sharp recovery might occur. On the other hand, a serious attempt by Germany to meet the Reparation demands would cause the expenditure of her Government to exceed its income by so great an amount, that currency inflation and the internal price level would catch up in due course the external depreciation in the mark.
In either event Germany is faced with an unfortunate prospect. If the present exchange depreciation persists and the internal price level becomes adjusted to it, the resulting redistribution of wealth between different classes of the community will amount to a social catastrophe. If, on the other hand, there is a recovery in the exchange, the cessation of the existing artificial stimulus to industry and of the Stock Exchange boom based on the depreciating mark may lead to a financial catastrophe.[59] Those responsible for the financial policy of Germany have a problem of incomparable difficulty in front of them. Until the Reparation liability has been settled reasonably, it is scarcely worth the while of any one to trouble his head about a problem which is insoluble. When stabilization has become a practicable policy, the wisest course will probably be to stabilize at whatever level prices and trade seem most nearly adjusted to at that date.
FOOTNOTES:
[32] The preamble states that the settlement is “in accordance with Article 233 of the Treaty of Versailles.” This Article prescribes that the scheme of payments shall provide for the discharge of the liabilities within thirty years, any unpaid balance at the end of this period being “postponed” or “handled otherwise.” In the actual settlement, however, the initial limitation to thirty years has been neglected.
[33] This actual text is printed below in full, Appendix No. 7.
[34] It is not competent for a single Ally (e.g., Portugal) to claim its share of the Bonds and market them at the best price obtainable. Under the Treaty of Versailles Part VIII. Annex II. 13 (b) questions relating to the marketing of these Bonds can only be settled by unanimous decision of the Reparation Commission.
[35] The Committee is to coöpt three representatives of neutrals when a sufficient proportion of the Bonds to justify their representation has been marketed on neutral Stock Exchanges.
[36] And it really is an adequate rejoinder to deputies like M. Forgeot. If a partisan or a child wants a silly, harmful thing, it may be better to meet him with a silly, harmless thing, than with explanations he cannot understand. This is the traditional wisdom of statesmen and nursemaids.
[37] The effect of this provision is discussed in The Economic Consequences of the Peace, pp. 165–167.
[38] Cf. Baruch, The Making of the Reparation and Economic Sections of the Treaty*, p. 46; and Lamont, *What Really Happened at Paris, p. 275.
[39] Assuming exports of 10 milliards, which is double the actual figure of 1920.
[40] The Truth about the Treaty, p. 305.