Part 6: Tragedy & Hope...Security, 1919-1935 ...Disarmament, 1919-1935 ....Reparations, 1919-1932

Tragedy & Hope

by Carroll Quigley

Chapter 16

Security, 1919-1935 

France sought security after 1918 by a series of alternatives. As a first choice, it wanted to detach the Rhineland from Germany; this was prevented by the Anglo-Americans. As a second choice, France wanted a "League with teeth," that is, a League of Nations with an international police force empowered to take automatic and immediate action against an aggressor; this was blocked by the Anglo-Americans. As compensation for the loss of these first two choices, France accepted, as a third choice, an Anglo-American treaty of guarantee, but this was lost in 1919 by the refusal of the United States Senate to ratify the agreement and the refusal of Britain to assume the burden alone. In consequence, the French were forced back on a fourth choice—allies to the east of Germany. The chief steps in this were the creation of a "Little Entente" to enforce the Treaty of Trianon against Hungary in 1920-1921 and the bringing of France and Poland into this system to make it a coalition of "satisfied Powers." The Little Entente was formed by a series of bilateral alliances between Romania, Czechoslovakia, and Yugoslavia. This was widened by a French-Polish Treaty (February 1921) and a French-Czechoslovak Treaty (January 1924). This system contributed relatively little to French security because of the weakness of these allies (except Czechoslovakia) and the opposition of Britain to any French pressure against Germany along the Rhine, the only way in which France could guarantee Poland or Czechoslovakia against Germany. In consequence, France continued its agitation both for a British guarantee and to "put teeth" into the League of Nations.

Thus France wanted security, while Britain had security. France needed Britain, while Britain regarded France as a rival outside Europe (especially in the Near East) and the chief challenge to Britain's customary balance-of-power policy in Europe. After 1919 the British, and even some Americans, spoke of "French hegemony" on the Continent of Europe. The first rule of British foreign policy for four centuries had been to oppose any hegemony on the Continent and to do so by seeking to strengthen the second strongest Power against the strongest; after 1919 Britain regarded Germany as the second strongest Power and France as the strongest, a quite mistaken view in the light of the population, industrial productivity, and general organizations of the two countries. 

Because France lacked security, its chief concern in every issue was political; because Britain had security, its chief concern was economic. The political desires of France required that Germany should be weakened; the economic desires of Britain required that Germany should be strengthened in order to increase the prosperity of all Europe. While the chief political threat to France was Germany, the chief economic and social threat to Britain was Bolshevism. In any struggle with Bolshevist Russia, Britain tended to regard Germany as a potential ally, especially if it were prosperous and powerful. This was the primary concern of Lord D'Abernon, British ambassador in Berlin in the critical years 1920-1926. On the other hand, while France was completely opposed to the economic and social system of the Soviet Union and could not easily forget the immense French investments which had been lost in that country, it still tended to regard the Russians as potential allies against any revival of Germany (although France did not make an alliance with the Soviet Union until 1935).

Because of its insecurity France tended to regard the Treaty of Versailles as a permanent settlement, while Britain regarded it as a temporary arrangement subject to modification. Although dissatisfied with the treaty, France felt that it was the best it could hope to get, especially in view of the narrow margin by which Germany had decided to sign it, even when faced with a worldwide coalition. Britain, which had obtained all of her desires before the treaty was signed, had no reluctance to modify it, although it was only in 1935 (with the Anglo-German naval agreement) that it attempted to modify the colonial, naval, or merchant-marine clauses from which it had benefited. But in 1935 it had, for more than fifteen years, been seeking to modify the clauses from which France had benefited.

The French believed that peace in Europe was indivisible, while the British believed that it was divisible. That means that the French believed that the peace of eastern Europe was a primary concern of the states of western Europe and that the latter states could not allow Germany to move eastward because that would permit her to gain strength to strike back westward. The British believed that the peace of eastern Europe and that of western Europe were quite separate things and that it was their concern to maintain peace in the west but that any effort to extend this to eastern Europe would merely involve the West in "every little squabble" of these continually squabbling "backward" peoples and could, as happened in 1914, make a world war out of a local dispute. The Locarno Pacts of 1925 were the first concrete achievement of this British point of view, as we shall see. To the French argument that Germany would get stronger and thus more able to strike westward if allowed to grow eastward the British usually replied that the Germans were equally likely to become satisfied or get mired down in the great open spaces of the East. 

France believed that Germany could be made to keep the peace by duress, while Britain believed that Germany could be persuaded to keep the peace by concessions. The French, especially the political Right in France, could see no difference between the Germans of the empire and the Germans of the Weimar Republic: "Scratch a German and you will find a Hun," they said. The British, especially the political Left, regarded the Germans of the Weimar Republic as totally different from the Germans of the empire, purified by suffering and freed from the tyranny of the imperial autocracy; they were prepared to clasp these new Germans to their hearts and to make any concession to encourage them to proceed on the path of democracy and liberalism. When the British began to talk in this fashion, appealing to high principles of international cooperation and conciliation, the French tended to regard them as hypocrites, pointing out that the British appeal to principles did not appear until British interests had been satisfied and until these principles could be used as obstacles to the satisfaction of French interests. The British tended to reply to the French remarks about the dangers of English hypocrisy with a few remarks of their own about the dangers of French militarism. In this sad fashion, the core of the coalition which had beaten Germany dissolved in a confusion of misunderstandings and recriminations.

This contrast between the French and the British attitudes on foreign policy is an oversimplification of both. About 1935 there appeared a considerable change in both countries, and, long before that date, there were differences between different groups within each country. 

In both Britain and France (before 1935) there was a difference of opinion in international politics which followed general political outlooks (and even class lines) rather closely. In Britain, persons who were of the Left tended to believe in revision of the Treaty of Versailles in favor of Germany, collective security, general disarmament, and friendship with the Soviet Union. In the same period, the Right were impatient with policies based on humanitarianism, idealism, or friendship for the Soviet Union, and wanted to pursue a policy of "national interest," by which they meant emphasis on strengthening the empire, conducting an aggressive commercial policy against outsiders, and adopting relative isolationism in general policy with no European political commitments except west of the Rhine (where Britain's interests were immediate). The groups of the Left were in office in Britain for only about two years in the twenty years 1919-1939 and then only as a minority government (1924, 1929-1931); the groups of the Right were in power for eighteen of these twenty years, usually with an absolute majority. However, during these twenty years the people of Britain were generally sympathetic to the point of view of the Left in foreign policy, although they generally voted in elections on the basis of domestic rather than foreign politics. This means that the people were in favor of revision of Versailles, of collective security, of international cooperation, and of disarmament.  

Knowing this, the British governments of the Right began to follow a double policy: a public policy in which they spoke loudly in support of what we have called the foreign policy of the Left, and a secret policy in which they acted in support of what we have called the foreign policy of the Right. Thus the stated policy of the government and the policy of the British people were based on support of the League of Nations, of international cooperation, and of disarmament. Yet the real policy was quite different. Lord Curzon, who was foreign secretary for four years (1919-1923) called the League of Nations "a good joke"; Britain rejected every effort of France and Czechoslovakia to strengthen the system of collective security; while openly supporting the Naval Disarmament Conference at Geneva (1927) and the World Disarmament Conference (1926-1935), Britain signed a secret agreement with France which blocked disarmament on land as well as on the sea (July 1928) and signed an agreement with Germany which released her from her naval disarmament (1935). After 1935 the contrast between the public policy and the secret policy became so sharp that the authorized biographer of Lord Halifax (foreign secretary in 1938-1940) coined the name "dyarchy" for it. Also, after 1935, the policies of both Right and Left were changed, the Left becoming anti-revisionist as early as 1934, continuing to support disarmament until (in some cases) 1939, and strengthening its insistence on collective security, while the Right became more insistent on revisionism (by that time called "appeasement") and opposition to the Soviet Union. 

In France the contrasts between Right and Left were less sharp than in Britain and the exceptions more numerous, not only because of the comparative complexity of French political parties and political ideology, but also because foreign policy in France was not an academic or secondary issue but was an immediate, frightening concern of every Frenchman. Consequently, differences of opinion, however noisy and intense, were really rather slight. One thing all Frenchmen agreed upon: "It must not happen again." Never again must the Hun be permitted to become strong enough to assault France as in 1870 and in 1914. To prevent this, the Right and the Left agreed, there were two methods: by the collective action of all nations and by France's own military power. The two sides differed in the order in which these two should be used, the Left wanting to use collective action first and France's own power as a supplement or a substitute, the Right wanting to use France's own power first, with support from the League or other allies as a supplement. In addition, the Left tried to distinguish between the old imperial Germany and the new republican Germany, hoping to placate the latter and turn its mind away from revisionism by cooperative friendship and collective action. The Right, on the other hand, found it impossible to distinguish one Germany from another or even one German from another, believing that all were equally incapable of understanding any policy but force. Accordingly, the Right wanted to use force to compel Germany to fulfill the Treaty of Versailles, even if France had to act alone.

The policy of the Right was the policy of Poincaré and Barthou; the policy of the Left was the policy of Briand. The former was used in 1918-1924 and, briefly, in 1934-1935; the latter was used in 1924-1929. The policy of the Right failed in 1924 when Poincaré's occupation of the Ruhr in order to force Germany to pay reparations was ended. This showed that France could not act alone even against a weak Germany because of the opposition of Britain and the danger of alienating world opinion. Accordingly, France turned to a policy of the Left (1924-1929). In this period, which is known as the "Period of Fulfillment," Briand, as foreign minister of France, and Stresemann, as foreign minister of Germany, cooperated in friendly terms. This period ended in 1929, not, as is usually said, because Stresemann died and Briand fell from office, but because of a growing realization that the whole policy of fulfillment (1924-1929) had been based on a misunderstanding. Briand followed a policy of conciliation toward Germany in order to win Germany from any desire to revise Versailles; Stresemann followed his policy of fulfillment toward France in order to win from France a revision of the treaty. It was a relationship of cross-purposes, because on the crucial issue (revision of Versailles) Briand stood adamant, like most Frenchmen, and Stresemann was irreconcilable, like most Germans.  

In France, as a result of the failure of the policy of the Right in 1924 and of the policy of the Left in 1929, it became clear that France could not act alone toward Germany. It became clear that France did not have freedom of action in foreign affairs and was dependent on Britain for its security. To win this support, which Britain always held out as a bait but did not give until 1939, Britain forced France to adopt the policy of appeasement of the British Right after 1935. This policy forced France to give away every advantage which it held over Germany: Germany was allowed to rearm (1935); Germany was allowed to remilitarize the Rhineland (1936); Italy was alienated (1935); France lost its last secure land frontier (Spain, 1936-1939); France lost all her allies to the east of Germany, including her one strong ally (Czechoslovakia, 19381939); France had to accept the union of Austria with Germany which she had vetoed in 1931 (March 1938); the power and prestige of the League of Nations was broken and the whole system of collective security abandoned (1931-1939); the Soviet Union, which had allied with France and Czechoslovakia against Germany in 1935, was treated as a pariah among nations and lost to the anti-German coalition (1937-1939). And finally, when all these had been lost, public opinion in England forced the British government to abandon the Right's policy of appeasement and adopt the old French policy of resistance. This change was made on a poor issue (Poland, 1939) after the possibility of using the policy of resistance had been destroyed by Britain and after France itself had almost abandoned it.

In France, as in Britain, there were changes in the foreign policies of the Right and the Left after Hitler came to power in Germany (1933). The Left became more anti-German and abandoned Briand's policy of conciliation, while the Right, in some sections, sought to make a virtue of necessity and began to toy with the idea that, if Germany was to become strong anyway, a solution to the French problem of security might be found by turning Germany against the Soviet Union. This idea, which already had adherents in the Right in Britain, was more acceptable to the Right than to the Left in France, because, while the Right was conscious of the political threat from Germany, it was equally conscious of the social and economic threat from Bolshevism. Some members of the Right in France even went so far as to picture France as an ally of Germany in the assault on the Soviet Union. On the other hand, many persons of the Right in France continued to insist that the chief, or even the only, threat to France was from the danger of German aggression.

In France, as in Britain, there appeared a double policy but only after 1935, and, even then, it was more of an attempt to pretend that France was following a policy of her own instead of a policy made in Britain than it was an attempt to pretend it was following a policy of loyalty to collective security and French allies rather than a policy of appeasement. While France continued to talk of her international obligations, of collective security, and of the sanctity of treaties (especially Versailles), this was largely for public consumption, for in fact from the autumn of 1935 to the spring of 1940 France had no policy in Europe independent of Britain's policy of appeasement. 

Thus French foreign policy in the whole period 1919-1939 was dominated by the problem of security. These twenty years can be divided into five sub-periods as follows: 

1919-1924, Policy of the Right 

1924-1929, Policy of the Left 

1929-1934, Confusion and Transition

1934-1935, Policy of the Right

1935-1939, Dual Policy of Appeasement

The French feeling that they lacked security was so powerful in 1919 that they were quite willing to sacrifice the sovereignty of the French state and its freedom of action in order to get a League of Nations possessing the powers of a world government. Accordingly, at the first meeting of the League of Nations Committee at the Paris Peace Conference in 1919, the French tried to establish a League with its own army, its own general staff, and its own powers of police action against aggressors without the permission of the member states. The Anglo-Americans were horrified at what they regarded as an inexcusable example of "power politics and militarism." They rode roughshod over the French and drew up their own draft Covenant in which there was no sacrifice of state sovereignty and where the new world organization had no powers of its own and no right to take action without the consent of the parties concerned. War was not outlawed but merely subjected to certain procedural delays in making it, nor were peaceful procedures for settling international disputes made compulsory but instead were merely provided for those who wished to use them. Finally, no real political sanctions were provided to force nations to use peaceful procedures or even to use the delaying procedures of the Covenant itself. Economic sanctions were expected to be used by member nations against aggressor states which violated the delaying procedures of the Covenant, but no military sanctions could be used except as contributed by each state itself. The League was thus far from being a world government, although both its friends and its enemies, for opposite reasons, tried to pretend that it was more powerful, and more important, than it really was. The Covenant, especially the critical articles l o- 16, had been worded by a skillful British lawyer, Cecil Hurst, who filled it with loopholes cleverly concealed under a mass of impressive verbiage, so that no state's freedom of action was vitally restricted by the document. The politicians knew this, although it was not widely publicized and, from the beginning, those states which wanted a real international organization began to seek to amend the Covenant, to "plug the loopholes" in it. Any real international political organization needed three things: 

(1) peaceful procedures for settling all disputes, 

(2) outlawry of non-peaceful procedures for this purpose, and 

(3) effective military sanctions to compel use of the peaceful procedures and to prevent the use of warlike procedures.

The League of Nations consisted of three parts: (1) the Assembly of all members of the League, meeting generally in September of each year; (2) the Council, consisting of the Great Powers with permanent seats and a number of Lesser Powers holding elective seats for three-year terms; and (3) the Secretariat, consisting of an international bureaucracy devoted to all kinds of international cooperation and having its headquarters in Geneva. The Assembly, in spite of its large numbers and its infrequent meetings, proved to be a lively and valuable institution, full of hard-working and ingenious members, especially from the secondary Powers, like Spain, Greece, and Czechoslovakia. The Council was less effective, was dominated by the Great Powers, and spent much of its time trying to prevent action without being too obvious about it. Originally, it consisted of four permanent and four non-permanent members, the former including Britain, France, Italy, and Japan. Germany was added in 1926; Japan and Germany withdrew in 1933; the Soviet Union was admitted in 1934 and was expelled in 1939 after its attack on Finland. Since the number of non-permanent members was increased during this period, the Council ended up in 1940 with two permanent and eleven non-permanent members.

The Secretariat was slowly built up and, by 1938, consisted of more than eight hundred persons from fifty-two countries. Most of these were idealistically devoted to the principles of international cooperation, and displayed considerable ability and amazing loyalty during the brief existence of the League. They were concerned with every type of international activity, including disarmament, child welfare, education, the drug traffic, slavery, refugees, minorities, the codification of international law, the protection of wildlife and natural resources, cultural cooperation, and many others. 

Attached to the League were a number of dependent organizations. Two, the Permanent Court of International Justice and the International Labor Office, were semi-autonomous. Others included the Economic and Financial Organization, the Organization for Communications and Transit, the International Health Organization with offices in Paris, and the Intellectual Cooperation Organization with branches in Paris, Geneva, and Rome.

Many efforts were made, chiefly by France and Czechoslovakia, to "plug the gaps in the Covenant." The chief of these were the Draft Treaty of Mutual Assistance (1923), the Geneva Protocol (1924), and the Locarno Pacts (1925). The Draft Treaty bound its signers to renounce aggressive war as an international crime and to bring military assistance to any signer the Council of the League designated to be the victim of an aggression. This project was destroyed in 1924 by the veto of the British Labour government on the grounds that the agreement would increase the burden on the British Empire without increasing its security. The Assembly at once formulated a better agreement known as the Geneva Protocol. This sought to plug all the gaps in the Covenant. It bound its signers to settle international disputes by methods provided in the treaty, defined as aggressor any state which refused to use these peaceful procedures, bound its members to use military sanctions against such aggressors, and ended the "veto" power in the Council by providing that the necessary unanimity for Council decisions could be achieved without counting the votes of the parties to the dispute. This agreement was destroyed by the objections of a newly installed Conservative government in London. The chief British opposition to the Protocol came from the Dominions, especially from Canada, which feared that the agreement might force them, at some time, to apply sanctions against the United States. This was a very remote possibility in view of the fact that the British Commonwealth generally had two seats on the Council and one at least could use its vote to prevent action even if the vote of the other was nullified by being a party to the dispute.   

The fact that both the Draft Treaty and the Geneva Protocol had been destroyed by Britain led to an adverse public opinion throughout the world. To counteract this, the British devised a complicated alternative known as the Locarno Pacts. Conceived in the same London circles which had been opposing France, supporting Germany, and sabotaging the League, the Locarno Pacts were the result of a complex international intrigue in which General Smuts played a chief role. On the face of it, these agreements appeared to guarantee the Rhine frontiers, to provide peaceful procedures for all disputes between Germany and her neighbors, and to admit Germany to the League of Nations on a basis of equality with the Great Powers. The Pacts consisted of nine documents of which four were arbitration treaties between Germany and her neighbors (Belgium, France, Poland and Czechoslovakia); two were treaties between France and her eastern allies (Poland and Czechoslovakia); the seventh was a note releasing Germany from any need to apply the sanctions clause of the Covenant against any aggressor nation on the grounds that Germany, being disarmed by the Treaty of Versailles, could not be expected to assume the same obligations as other members of the League; the eighth document v.:as a general introduction to the Pacts j and the ninth document was the "Rhine Pact," the real heart of the agreement. This "Rhine Pact" guaranteed the frontier between Germany and Belgium-France against attack from either side. The guarantee was signed by Britain and Italy, as well as by the three states directly concerned, and covered the demilitarized condition of the Rhineland as established in 1919. This meant that if any one of the three frontier Powers violated the frontier or the demilitarized zone, this violation would bring the four other Powers into action against the violator.

The Locarno Pacts were designed by Britain to give France the security against Germany on the Rhine which France so urgently desired and at the same time (since the guarantee worked both ways) to prevent France from ever occupying the Ruhr or any other part of Germany, as had been done over the violent objections of Britain in 1923- 1924. Moreover, by refusing to guarantee Germany's eastern frontier with Poland and Czechoslovakia, Britain established in law the distinction between peace in the east and peace in the west, on which she had been insisting since 1919, and greatly weakened the French alliances with Poland and Czechoslovakia by making it almost impossible for France to honor her alliances with these two countries or to put pressure on Germany in the west if Germany began to put pressure on these French allies in the east, unless Britain consented. Thus, the Locarno Pacts, which were presented at the time throughout the English-speaking world as a sensational contribution to the peace and stability of Europe, really formed the background for the events of 1938 when Czechoslovakia was destroyed at Munich. The only reason why France accepted the Locarno Pacts was that they guaranteed explicitly the demilitarized condition of the Rhineland. So long as this condition continued, France held a complete veto over any movement of Germany either east or west because Germany's chief industrial districts in the Ruhr were unprotected. Unfortunately, as we have indicated, when the guarantee of Locarno became due in March 1936 Britain dishonored its agreement, the Rhine was remilitarized, and the way was opened for Germany to move eastward. 

The Locarno Pacts caused considerable alarm in eastern Europe, especially in Poland and Russia. Poland protested violently, issued a long legal justification of her own frontiers, sent her foreign minister to take up residence in Paris, and signed three agreements with Czechoslovakia (ending the dispute over Teschen, as well as a commercial treaty and an arbitration convention). Poland was alarmed by the refusal to guarantee her frontiers, the weakening of her alliance with France, and the special status given to Germany within the League of Nations and on the Council of the League (where Germany could prevent sanctions against Russia, if Russia ever attacked Poland). To assuage this alarm a deal was made with Poland by which this country also received a seat on the Council of the League for the next twelve years (1926-1938). 

The Locarno Pacts and the admission of Germany into the League also alarmed the Soviet Union. This country from 1917 had had a feeling of insecurity and isolation which at times assumed the dimensions of mania. For this, there was some justification. Subject to the attacks of propaganda, diplomatic, economic, and even military action, the Soviet Union had struggled for survival for years. By the end of 1921, most of the invading armies had withdrawn (except the Japanese), but Russia continued in isolation and in fear of a worldwide anti-Bolshevik alliance. Germany, at the time, was in similar isolation. The two outcast Powers drifted together and sealed their friendship by a treaty signed at Rapallo in April 1922. This agreement caused great alarm in western Europe, since a union of German technology and organizing ability with Soviet manpower and raw materials would make it impossible to enforce the Treaty of Versailles and might expose much of Europe or even the world to the triumph of Bolshevism. Such a union of Germany and Soviet Russia remained the chief nightmare of much of western Europe from 1919 to 1939. On this last date it was brought into existence by the actions of these same western Powers.  

In order to assuage Russia's alarm at Locarno, Stresemann signed a commercial treaty with Russia, promised to obtain a special position for Germany within the League so that it could block any passage of troops as sanctions of the League against Russia, and signed a nonaggression pact with the Soviet Union (April 1926). The Soviet Union, in its turn, as a result of Locarno signed a treaty of friendship and neutrality with Turkey in which the latter country was practically barred from entering the League.

The "Locarno spirit," as it came to be called, gave rise to a feeling of optimism, at least in the western countries. In this favorable atmosphere, on the tenth anniversary of America's entry into the World War, Briand, the foreign minister of France, suggested that the United States and France renounce the use of war between the two countries. This was extended by Frank B. Kellogg, the American secretary of state, into a multilateral agreement by which all countries could "renounce the use of war as an instrument of national policy." France agreed to this extension only after a reservation that the rights of self-defense and of prior obligations were not weakened. The British government reserved certain areas, notably in the Middle East, where it wished to be able to wage wars which could not be termed self-defense in a strict sense. The United States also made a reservation preserving its right to make war under the Monroe Doctrine. 

None of these reservations was included in the text of the Kellogg-Briand Pact itself, and the British reservation was rejected by Canada, Ireland, Russia, Egypt, and Persia. The net result was that only aggressive war was renounced.

The Kellogg-Briand Pact (1928) was a weak and rather hypocritical document and advanced further toward the destruction of international law as it had existed in 1900. We have seen that the First World War did much to destroy the legal distinctions between belligerents and neutrals and between combatants and noncombatants. The Kellogg-Briand Pact took one of the first steps toward destroying the legal distinction between war and peace, since the Powers, having renounced the use of war, began to wage wars without declaring them, as was done by Japan in China in 1937, by Italy in Spain in 1936-1939, and by everyone in Korea in 1950.

The Kellogg-Briand Pact was signed by fifteen nations which were invited to do so, while forty-eight nations were invited to adhere to its terms. Ultimately, sixty-four nations (all those invited except Argentina and Brazil) signed the pact. The Soviet Union was not invited to sign but only to adhere. It was, however, so enthusiastic about the pact that it was the first country of either group to ratify and, when several months passed with no ratifications by the original signers, it attempted to put the terms of the pact into effect in eastern Europe by a separate agreement. Known as the Litvinoff Protocol after the Soviet foreign minister, this agreement was signed by nine countries (Russia, Poland, Latvia, Estonia, Romania, Lithuania, Turkey, Danzig, and Persia, but not by Finland, which refused), although Poland had no diplomatic relations with Lithuania and the Soviet Union had none with Romania. 

The Litvinoff Protocol was one of the first concrete evidences of a shift in Soviet foreign policy which occurred about 1927-1928 Previously, Russia had refused to cooperate with any system of collective security or disarmament on the grounds that these were just "capitalistic tricks." It had regarded foreign relations as a kind of jungle competition and had directed its own foreign policy toward efforts to foment domestic disturbances and revolution in other countries of the world. This was based on the belief that these other Powers were constantly conspiring among themselves to attack the Soviet Union. To the Russians, internal revolution within these countries seemed a kind of self defense, while the animosity of these countries seemed to them to be a defense against the Soviet plans for world revolution. In 1927 there came a shift in Soviet policy: "world revolution" was replaced by a policy of "Communism in a single country" and a growing support for collective security. This new policy continued for more than a decade and was based on the belief that Communism in a single country could best be secured within a system of collective security. Emphasis on this last point increased after Hitler came to power in Germany in 1933 and reached its peak in the so-called "Popular Front" movement of 1935-1937 

The Kellogg Pact gave rise to a proliferation of efforts to establish peaceful methods for settling international disputes. A "General Act for the Pacific Settlement of International Disputes" was accepted by twenty-three states and came into force in August 1929. About a hundred bilateral agreements for the same purpose were signed in the five years 1924-1929, compared to a dozen or so in the five years 1919-1924. A codification of international law was begun in 1927 and continued for several years, but no portions of it ever came into force because of insufficient ratifications. 

The outlawry of war and the establishment of peaceful procedures for settling disputes were relatively meaningless unless some sanctions could be established to compel the use of peaceful methods. Efforts in this direction were nullified by the reluctance of Britain to commit itself to the use of force against some unspecified country at some indefinite date or to allow the establishment of an international police force for this purpose. Even a modest step in this direction in the form of an international agreement providing financial assistance for any state which was a victim of aggression, a suggestion first made by Finland, was destroyed by a British amendment that it was not to go into effect until the achievement of a general disarmament agreement. This reluctance to use sanctions against aggression came to the forefront in the fall of 1931 at the time of the Japanese attack on Manchuria. As a result the "peace structure" based on Versailles, which had been extended by so many well-intended, if usually misdirected, efforts for twelve years, began a process of disintegration which destroyed it completely in eight years (1931- 1939).

Chapter 17

Disarmament, 1919-1935 

The failure to achieve a workable system of collective security in the period 1919- 1935 prevented the achievement of any system of general disarmament in the same period. Obviously, countries which feel insecure are not going to disarm. This point, however obvious, was lost on the English-speaking countries, and the disarmament efforts of the whole period 1919-1935 were weakened by the failure of these countries to see this point and their insistence that disarmament must precede security rather than follow it. Thus disarmament efforts, while continuous in this period (in accordance with the promise made to the Germans in 1919), were stultified by disagreements between the "pacifists" and the "realists" on procedural matters. The "pacifists," including the English-speaking nations, argued that armaments cause wars and insecurity and that the proper way to disarm is simply to disarm. They advocated a "direct" or "technical" approach to the problem, and believed that armaments could be measured and reduced by direct international agreement. The "realists," on the other hand, including most of the countries in Europe, led by France and the Little Entente, argued that armaments are caused by war and the fear of war and that the proper way to disarm is to make nations secure. They advocated an "indirect" or "political" approach to the problem, and believed that once security had been achieved disarmament would present no problem. 

The reasons for this difference of opinion are to be found in the fact that the nations which advocated the direct method, like Britain, the United States, and Japan, already had security and could proceed directly to the problem of disarmament, while the nations which felt insecure were bound to seek security before they would bind themselves to reduce the armaments they had. Since the nations with security were all naval powers, the use of the direct method proved to be fairly effective in regard to naval disarmament, while the failure to obtain security for those who lacked it made most of the international efforts for disarmament on land or in the air relatively futile.  

The history of naval disarmament is marked by four episodes in the period between the wars: (1) the Washington Conference of 1922; (2) the abortive Geneva Conference of 1927; (3) the London Conference of 1930; and (4) the London Conference of 1936. 

The Washington Conference was the most successful disarmament conference of the inter-war period because such a variety of issues came together at that point that it was possible to bargain successfully. Britain wished (1) to avoid a naval race with the United States because of the financial burden, (2) to get rid of the Anglo-Japanese alliance of 1902, which was no longer needed in view of the collapse of both Germany and Russia, and (3) to reduce the Japanese naval threat in the southwestern Pacific. The United States wished (1) to get Japan out of East Asia and restore the "open door" in China, (2) to prevent the Japanese from fortifying the German-mandated islands which stretched across the American communications from Hawaii to the Philippines, and (3) to reduce the Japanese naval threat to the Philippines. Japan wanted (1) to get out of eastern Siberia without appearing to retreat, (2) to prevent the United States from fortifying Wake Island and Guam, its two bases on the route from Pearl Harbor to Manila, and (3) to reduce American naval power in the extreme western Pacific. By bargaining one of these for another, all three Powers were able to obtain their wishes, although this was possible only because of the goodwill between Britain and the United States and, above all, because at that time, before the use of fleet-tankers and the present techniques of supplying a fleet at sea, the range of any battle fleet was limited by the position of its bases (to which it had to return for supplies at relatively short intervals). 

Probably the key to the whole settlement rested in the relative positions of the British and American navies. At the end of 1918, the United States had in its battle line 16 capital ships with 168 guns of 12 to 14 inches; Britain had 42 capital ships with 376 guns of 12 to 15 inches, but the building programs of the two Powers would have given the United States practical equality by 1926. In order to avoid a naval race which would have made it impossible for Britain to balance its budget or get back on the prewar gold standard, that country gave the United States equality in capital ships (with 15 each), while Japan was given 60 percent as much (or 9 capital ships). This small Japanese fleet, however, provided the Japanese with naval supremacy in their home waters, because of an agreement not to build new fortifications or naval bases within striking distance of Japan. The same 10-10-6 ratio of capital ships was also applied to aircraft carriers. France and Italy were brought into the agreements by granting them one-third as much tonnage as the two greatest naval Powers in these two categories of vessels. The two categories themselves were strictly defined and thus limited. Capital ships were combat vessels of from 10,000 to 35,000 tons displacement with guns of not over 16 inches, while carriers were to be limited to 27,000 tons each with guns of no more than 6 inches. The five great naval Powers were to have capital ships and carriers as follows: 

       Tons of   Number of      Tons of 

Country  Ratio Capital Ships Capital Ships   Carriers 

U.S.A.    5       525,000        15          135,000

Britain   5       525,000        15          135,000

Japan     3       315,000         9           81,000 

France  1.67      175,000     not fixed       60,000

Italy   1.67      175,000     not fixed       60,000 

These limits were to be achieved by 1931. This required that 76 capital ships, built or projected, be scrapped by that date. Of these the United States scrapped 15 built and 13 building, or 28; the British Empire scrapped 20 built and 4 building, or 24; and Japan scrapped lo built and 14 building, or 24. The areas in which new fortifications in the Pacific were forbidden included (a) all United States possessions west of Hawaii, (b) all British possessions east of 110° East longitude except Canada, New Zealand, and Australia with its territories, and (c) all Japanese possessions except the "home islands" of Japan.

Among the six treaties and thirteen resolutions made at Washington during the six weeks of the conference (November 1921—February 1922) were a Nine-Power Treaty to maintain the integrity of China, an agreement between China and Japan over Shantung, another between the United States and Japan over the Mandated Pacific Islands, and an agreement regarding the Chinese customs. In consequence of these, the Anglo-Japanese Treaty of 1902 was ended, and Japan evacuated eastern Siberia.

Efforts to limit other categories of vessels at Washington failed because of France. This country had accepted equality with Italy in capital ships only on the understanding that its possession of lesser vessels would not be curtailed. France argued that it needed a larger navy than Italy because it had a world empire (while Italy did not) and required protection of its home coasts both in the Atlantic and in the Mediterranean) (while Italy could concentrate its navy in the Mediterranean). The same objections led both of these Powers to refuse the American invitation to the Geneva Disarmament Conference of 1927.

The Geneva Conference of 1927 tried to limit other categories of vessels beyond capital ships and carriers. It failed because of a violent dispute between Britain and the United States regarding cruisers. The United States, with few offshore bases and a "high seas" navy, wanted "heavy" cruisers of about 10,000 tons each, carrying 8-inch guns. The British, with many scattered naval bases, wanted many "light" cruisers of 7,500 tons each with 6-inch guns, and were eager to limit "heavy" cruisers in order to increase the naval importance of their million tons of fast merchant ships (which could be armed with 6- inch guns in an emergency). The United States accepted the British division of cruisers into two classes, but asked for limitation of both in accordance with the Washington ratios and with the lowest possible maximum tonnage. Britain wished to limit only 'heavy" cruisers, and fixed her own "absolute" cruiser needs at 70 vessels aggregating 562,000 tons, or twice the total suggested by the Americans. The British argued that their cruiser needs had nothing to do with the relative size of the American cruiser fleet, but depended on such "absolute" values as the size of the earth and the miles of shipping lanes to be patrolled. On this point Winston Churchill was adamant and was able to force the chief British delegate to the Geneva Conference (Lord Robert Cecil, who wanted to compromise) to resign from the Cabinet.  

The conference broke up in a recriminatory atmosphere, to the great joy of the lobbyists of shipbuilding companies and "patriotic" societies. These had harassed the delegates throughout the conference. Three American shipbuilding companies stood to lost contracts worth almost $54 million if the conference had been a success, and they did not hesitate to spend part of that sum to ensure that it would not be a success. Later they were sued for more money by their chief lobbyist at the conference, Mr. William B. Shearer. As a sequel to the conference, Britain signed a secret agreement with France by which France promised to support Britain against the United States on the cruiser and other issues, and Britain promised to support France in preventing limitation of trained infantry reserves at the approaching World Disarmament Conference. This agreement, signed in July 1928, was revealed by pro-American employees of the French Foreign Ministry to William Randolph Hearst and published in his newspapers within two months of its signature. France deported the Hearst reporter in Paris at once, deported Hearst himself on his next visit to France in 1930, and published the text of the agreement with Britain (October 1928).

The London Naval Conference of 1930 was able to reach the agreement which Geneva had failed to achieve. The publicity about Shearer's activities and about the Anglo-French agreement, as well as the arrival of the world depression and the advent of a more pacifist Labour government to office in London, contributed to this success. Cruisers, destroyers, and submarines were defined and limited for the three greatest naval Powers, and certain further limitations were set in the categories fixed at Washington. The agreements were as follows (in tons): 

Typed                  U. S.   Britain     Japan 

Heavy cruisers with 

guns over 6.1 inches  180,000  146,800    108,400 

Light cruisers with 

guns below 6.1 inches 143,500  192,200    100,450

Destroyers            150,000  150,000    105,500 

Submarines             52,700   52,700     52,700

This allowed the United States to have 18 heavy cruisers, Britain 15, and Japan 12, while in light cruisers the three figures would allow about 25, 35, and 18. Destroyers were limited at 1,850 tons each with 5.l-inch guns, and submarines to 2,000 tons each with 5.l-inch guns. This settlement kept the Japanese fleet where it was, forced Britain to reduce, and allowed the United States to build (except in regard to submarines). Such a result could, probably, have been possible only at a time when Japan was in financial stringency and Britain was under a Labour government.

This treaty left unsolved the rivalry in the Mediterranean between Italy and France. Mussolini demanded that Italy have naval equality with France, although his financial straits made it necessary to limit the Italian navy. The claim to equality on such a small basis could not be accepted by France in view of the fact that it had two seacoasts, a worldwide empire, and Germany's new 10,000-ton "pocket battleships" to consider. The Italian demands were purely theoretical, as both Powers, for motives of economy, were under treaty limits and making no effort to catch up. France was willing to concede Italian equality in the Mediterranean only if it could get some kind of British support against the German Navy in the North Sea or could get a general nonaggression agreement in the Mediterranean. These were rejected by Britain. However, Britain succeeded in getting a French-Italian naval agreement as a supplement to the London agreement (March 1931). By this agreement Italy accepted a total strength of 428,000 tons, while France had a strength of 585,000 tons, the French fleet being less modern than the Italian. This agreement broke down, at the last moment, because of the Austro-German customs union and Germany's appropriation for a second pocket battleship (March 1931). No evil effects emerged from the breakdown, for both sides continued to act as if it were in force. 

The London Naval Conference of 1936 was of no significance. In 1931 the Japanese invasion of Manchuria violated the Nine-Power Pacific Treaty of 1922. In 1933 the United States, which had fallen considerably below the level provided in the Washington agreement of 1922, authorized the construction of 132 vessels to bring its navy to treaty level by 1942. In 1934 Mussolini decided to abandon orthodox financial policies, and announced a building program to carry the Italian fleet to treaty level by 1939. This decision was justified by a recent French decision to build two battle cruisers to cope with Germany's three pocket battleships.

All these actions were within treaty limitations. In December 1934, however, Japan announced its refusal to renew the existing treaties when they expired in 1936. The Naval Conference called for that date met in a most unfavorable atmosphere. On June 18, 1935, Britain had signed a bilateral agreement with Hitler which alloy. ed Germany to build a navy up to 35 percent of Britain's naval strength in each class and up to 100 percent in submarines. This was a terrible blow to France, which was limited to 33 percent of the British Navy in capital ships and carriers and had to distribute this lesser fleet on two coasts (to deal with Italy as well as Germany) as well as around the world (to protect the French colonial empire). This blow to France was probably the British answer to the French alliance with the Soviet Union (May 2, 1935), the increased German threat on the French northwest coast being intended to deter France from honoring the alliance with the Soviet Union, if Germany struck eastward. Thus France was once again reduced to dependence on Britain. Germany took advantage of this situation to launch twenty-one submarines by October 1935, and two battleships in 1936.

Under these conditions the Naval Conference at London in 1936 achieved nothing of importance. Japan and Italy refused to sign. As a result, the three signers soon were compelled to use the various escape clauses designed to deal with any extensive building by non-signatory Powers. The maximum size of capital ships was raised to 45,000 tons in 1938, and the whole treaty was renounced in 1939.  

The success achieved in naval disarmaments, limited as it was, was much greater than the success achieved in respect to other types of armaments, because these required that nations which felt politically insecure must be included in the negotiations. We have already indicated the controversy between the proponents of the "direct method" and the advocates of the "indirect method" in disarmament. This distinction was so important that the history of the disarmament of land and air forces can be divided into four periods: (a) a period of direct action, 1919-1922; (b) a period of indirect action, 1922-1926; (c) a new period of direct action, 1926-1934; and (d) a period of rearmament, 1934-1939.

The first period of direct action was based on the belief that the victories of 1918 and the ensuing peace treaties provided security for the victorious Powers. Accordingly, the task of reaching a disarmament agreement was turned over to a purely technical group, the Permanent Advisory Commission on Disarmament of the League of Nations. This group, which consisted exclusively of officers of the various armed services, was unable to reach agreement on any important issues: it could not find any method of measuring armaments or even of defining them; it could not distinguish actual from potential armaments or defensive from offensive. It gave answers to some of these questions, but they did not win general assent. For example, it decided that rifles in the possession of troops were war materials and so, also, were wood or steel capable of being used to make such rifles, but rifles already made and in storage were not war materials but "inoffensive objects of peace." 

As a result of the failure of the Permanent Advisory Commission, the Assembly of the League set up a Temporary Mixed Commission on which only six of twenty-eight members were officers of the armed services. This body attacked the problem of disarmament by the indirect method, seeking to achieve security before asking anyone to disarm. The Draft Treaty of Mutual Guarantee (1922) and the Geneva Protocol (1924) emerged from this commission. Both of these were, as we have said, vetoed by Britain, so that the disarmament portions of the negotiations were never reached. The achievement of the Locarno Pacts, however, provided, in the minds of many, the necessary security to allow a return to the direct method. Accordingly, a Preparatory Commission to the World Disarmament Conference was set up in 1926 to make a draft agreement which was to be completed at a World Disarmament Conference meeting at Geneva in 1932.

The Preparatory Commission had delegates from all the important countries of the world, including the defeated Powers and the chief nonmembers of the League. It held six sessions over three years and drew up three drafts. In general, it encountered the same difficulties as the Permanent Advisory Committee. This latter group, acting as a subcommittee of the Preparatory Commission, used up 3,750,000 sheets of paper in less than six months but still was not able to find answers to the same questions which had baffled it earlier. The chief problems arose from political disputes, chiefly between Britain and France. These two countries produced separate drafts which diverged on almost every point.  

The French wanted war potential counted but wanted trained reserves of men excluded from limitation; the British wanted war potential excluded but wanted to count trained reserves; the French wanted supervision by a permanent commission to enforce fulfillment of any agreement, while the Anglo-Americans refused all supervision. Eventually a draft was prepared by including all divergences in parallel columns.

The Preparatory Commission lost more than one full session in denouncing the disarmament suggestions of Litvinoff, the Soviet representative. His first draft, providing for immediate and complete disarmament of every country, was denounced by all. A substitute draft, providing that the most heavily armed states would disarm by 50 percent, the less heavily armed by 33 percent, the lightly armed by 25 percent, and the "disarmed" by o percent, with all tanks, airplanes, gas, and heavy artillery completely prohibited, was also rejected without discussion, and Litvinoff was beseeched by the chairman of the commission to show a more "constructive spirit" in the future. After an impressive display of such constructive spirit by other countries, a Draft Convention was drawn up and accepted by a vote which found only Germany and the Soviet Union in the negative (December 1930).  

The World Disarmament Conference which considered this draft was in preparation for six years (1926-1932) and was in session for three years (February 1932 to April 1935), yet it achieved nothing notable in the way of disarmament. It was supported by a tremendous wave of public opinion, but the attitudes of the various governments were becoming steadily less favorable. The Japanese were already attacking China; the French and Germans were deadlocked in a violent controversy, the former insisting on security and the latter on arms equality; and the world depression was growing steadily worse, with several governments coming to believe that only a policy of government spending (including spending on arms) could provide the purchasing power needed for economic revival. Once again, the French desire for an international police force was rebuffed, although supported by seventeen states; the British desire to outlaw certain "aggressive" armaments (like gas, submarines, and bombing planes) was rejected by the French, although accepted by thirty states (including the Soviet Union and Italy).

Discussion of these issues was made increasingly difficult by the growing demands of the Germans. When Hitler came to office in January 1933, he demanded immediate equality with France, at least in "defensive" arms. This was refused, and Germany left the conference.

Although Britain tried, for a time, to act as an intermediary between Germany and the Disarmament Conference, nothing came of this, and the conference eventually dispersed. France would make no concessions in regard to armaments unless she obtained increased security, and this was shown to be impossible when Britain, on February 3, 1933 (just four days after Hitler came to office), publicly refused to make any commitments to France beyond membership in the League and the Locarno Pacts. In view of the verbal ambiguities or these documents and the fact that Germany withdrew from both the League and the Disarmament Conference in October 1933, these offered little security to France. The German budget, released in March 1934, showed an appropriation of 210 million marks for the air force (which was forbidden entirely by Versailles) and an increase from 345 million to 574 million marks in the appropriation for the army. A majority of the delegates wished to shift the attention of the Disarmament Conference from disarmament to questions of security, but this was blocked by a group of seven states led by Britain. Disarmament ceased to be a practical issue after 1934, and attention should have been shifted to questions of security. Unfortunately, public opinion, especially in the democratic countries, remained favorable to disarmament and even to pacifism, in Britain until 1938 at least and in the United States until 1940. This gave the aggressor countries, like Japan, Italy, and Germany, an advantage out of all proportion to their real strength. The rearmament efforts of Italy and Germany were by no means great, and the successful aggressions of these countries after 1934 were a result of the lack of will rather than of the lack of strength of the democratic states.  

The total failure of the disarmament efforts of 1919-1935 and the Anglo-American feeling that these efforts handicapped them later in their conflicts with Hitler and Japan have combined to make most people impatient with the history of disarmament. It seems a remote and mistaken topic. That it may well be; nevertheless, it has profound lessons today, especially on the relationships among the military, economic, political, and psychological aspects of our lives. It is perfectly clear today that the French and their allies (especially Czechoslovakia) were correct in their insistence that security must precede disarmament and that disarmament agreements must be enforced by inspection rather than by "good faith." That France was correct in these matters as well as in its insistence that the forces of aggression were still alive in Germany, although lying low, is now admitted by all and is supported by all the evidence. Moreover, the Anglo-Americans adopted French emphasis on the priority of security and the need for inspection in their own disarmament discussions with the Soviet Union in the early 1960's. The French idea that political questions (including military) are more fundamental than economic considerations is now also accepted, even in the United States, which opposed it most vigorously in the 1920's and early 1930's. The fact that the secure states could have made errors such as these in that earlier period reveals much about the nature of human thinking, especially its proclivity to regard necessities as unimportant when they are present (like oxygen, food, or security), but to think of nothing else when they are lacking.

Closely related to all this, and another example of the blindness of experts (even in their own areas), is the disastrous influence which economic, and especially financial, considerations played in security, especially rearmament, in the Long Armistice of 1919- 1939. This had a double aspect. On the one hand, balanced budgets were given priority over armaments; on the other hand, once it was recognized that security was in acute danger, financial considerations were ruthlessly subordinated to rearmament, giving rise to an economic boom which showed clearly what might have been achieved earlier if financial consideration had been subordinated to the world's economic and social needs earlier; such action would have provided prosperity and rising standards of living which might have made rearming unnecessary.

Chapter 18

Reparations, 1919-1932 

No subject occupied a larger portion of statesmen's energies than reparations during the decade after the war. For this reason, and because of the impact which reparations had on other issues (such as financial or economic recovery and international amity), the history of reparations demands a certain portion of our attention. This history can be divided into six stages, as follows: 

1. The preliminary payments, 1919-1921

2. The London Schedule, May 1921-September 1924

3. The Dawes Plan, September 1924-January 1930

4. The Young Plan, January 1930-June 1931

5. The Hoover Moratorium, June 193 l-July 1932

6. The Lausanne Convention, July 1932

The preliminary payments were supposed to amount to a total of 20,000 million marks by May 1921. Although the Entente Powers contended that only about 8,000 million of this had been paid, and sent Germany numerous demands and ultimatums in regard to these payments, even going so far as to threaten to occupy the Ruhr in March 1921 in an effort to enforce payment, the whole matter was dropped in May when the Germans were presented with the total reparations bill of 132,000 million marks. Under pressure of another ultimatum, Germany accepted this bill and gave the victors bonds of indebtedness to this amount. Of these, 82 billions were set aside and forgotten. Germany was to pay on the other 50 billion at a rate of 2.5 billion a year in interest and 0.5 billion a year to reduce the total debt.

Germany could pay these obligations only if two conditions prevailed: (a) if it had a budgetary surplus and (b) if it sold abroad more than it bought abroad (that is, had a favorable balance of trade). Under the first condition there would accumulate in the hands of the German government a quantity of German currency beyond the amount needed for current expenses. Under the second condition, Germany would receive from abroad an excess of foreign exchange (either gold or foreign money) as payment for the excess of her exports over her imports. By exchanging its budgetary surplus in marks for the foreign-exchange surplus held by her citizens, the German government would be able to acquire this foreign exchange and be able to give it to its creditors as reparations. Since neither of these conditions generally existed in the period 1921-1931, Germany could not, in fact, pay reparations.

The failure to obtain a budgetary surplus was solely the responsibility of the German government, which refused to reduce its own expenditures or the standards of living of its own people or to tax them sufficiently heavily to yield such a surplus. The failure to obtain a favorable balance of trade was the responsibility equally of the Germans and of their creditors, the Germans making little or no effort to reduce their purchases abroad (and thus reduce their own standards of living), while the foreign creditors refused to allow a free flow of German goods into their own countries on the argument that this would destroy their domestic markets for locally produced goods. Thus it can be said that the Germans were unwilling to pay reparations, and the creditors were unwilling to accept payment in the only way in which payments could honestly be made, that is, by accepting German goods and services.  

 Under these conditions, it is not surprising that the London Schedule of reparations payments was never fulfilled. This failure was regarded by Britain as proof of Germany's inability to pay, but was regarded by France as proof of Germany's unwillingness to pay. Both were correct, but the Anglo-Americans, who refused to allow France to use the duress necessary to overcome German unwillingness to pay, also refused to accept German goods to the amount necessary to overcome German inability to pay. As early as 1921, Britain, for example, placed a 26 percent tax on all imports from Germany. That Germany could have paid in real goods and services if the creditors had been willing to accept such goods and services can be seen in the fact that the real per capita income of the German people was about one-sixth higher in the middle 1920's than it had been in the very prosperous year 1913. 

Instead of taxing and retrenching, the German government permitted an unbalanced budget to continue year after year, making up the deficits by borrowing from the Reichsbank. The result was an acute inflation. This inflation was not forced on the Germans by the need to pay reparations (as they claimed at the time) but by the method they took to pay reparations (or, more accurately, to avoid payment). The inflation was not injurious to the influential groups in German society, although it was generally ruinous to the middle classes, and thus encouraged the extremist elements. Those groups whose property was in real wealth, either in land or in industrial plant, were benefited by the inflation which increased the value of their properties and wiped away their debts (chiefly mortgages and industrial bonds). The German mark, which at par was worth about 20 to the pound, fell in value from 305 to the pound in August 1921 to 1,020 in November 1921. From that point it dropped to 80,000 to the pound in January 1923, to 20 million to the pound in August 1923, and to 20 billion to the pound in December 1923. 

In July 1922, Germany demanded a moratorium on all cash payments of reparations for the next thirty months. Although the British were willing to yield at least part of this, the French under Poincaré pointed out that the Germans had, as yet, made no real effort to pay and that the moratorium would be acceptable to France only if it were accompanied by "productive guarantees." This meant that the creditors should take possession of various forests, mines, and factories of western Germany, as well as the German customs, to obtain incomes which could be applied to reparations. On January 9, 1923, the Reparations Commission voted 3 to 1 (with Britain opposing France, Belgium, and Italy) that Germany was in default of her payments. Armed forces of the three nations began to occupy the Ruhr two days later. Britain denounced this act as illegal, although it had threatened the same thing on less valid grounds in 1921. Germany declared a general strike in the area, ceased all reparations payments, and adopted a program of passive resistance, the government supporting the strikers by printing more paper money.

The area occupied was no more than 60 miles long by 30 miles wide but contained 10 percent of Germany's population and produced 80 percent of Germany's coal, iron, and steel and 70 percent of her freight traffic. Its railway system, operated by 170,000 persons, was the most complex in the world. The occupation forces tried to run this system with only 12,500 troops and 1,380 cooperating Germans. The non-cooperating Germans tried to prevent this, not hesitating to use murder for the purpose. Under these conditions it is a miracle that the output of the area was brought up to one-third its capacity by the end of 1923. German reprisals and Allied countermeasures resulted in about 400 killed and over 2,100 wounded—most of the casualties (300 and 2,000 respectively) being inflicted by Germans on Germans. In addition almost 150,000 Germans were deported from the area.

The German resistance in the Ruhr was a great strain on Germany, both economically and financially, and a great psychological strain on the French and Belgians. At the same time that the German mark was being ruined, the occupying countries were not obtaining the reparations they desired. Accordingly, a compromise was reached by which Germany accepted the Dawes Plan for reparations, and the Ruhr was evacuated. The only victors in the episode u, ere the British, who had demonstrated that the French could not use force successfully without British approval.  

The Dawes Plan, which was largely a J. P. Morgan production, was drawn up by an international committee of financial experts presided over by the American banker Charles G. Dawes. It was concerned only with Germany's ability to pay, and decided that this would reach a rate of 2.5 billion marks a year after four years of reconstruction. During the first four years Germany would be given a loan of $800 million and would pay a total of only 5.17 billion marks in reparations. This plan did not supersede the German reparations obligation as established in 1921, and the difference between the Dawes payments and the payments due on the London Schedule were added to the total reparations debt. Thus Germany paid reparations for five years under the Dawes Plan (1924-1929) and owed more at the end than it had owed at the beginning. 

The Dawes Plan also established guarantees for reparations payments, setting aside various sources of income within Germany to provide funds and shifting the responsibility for changing these funds from marks into foreign exchange from the German government to an agent-general for reparations payments who received marks within Germany. These marks were transferred into foreign exchange only when there was a plentiful supply of such exchange within the German foreign-exchange market. This meant that the value of the German mark in the foreign-exchange market was artificially protected almost as if Germany had exchange control, since every time the value of the mark tended to fall, the agent-general stopped selling marks. This allowed Germany to begin a career of wild financial extravagance without suffering the consequences which would have resulted under a system of free international exchange. Specifically, Germany was able to borrow abroad beyond her ability to pay, without the normal slump in the value of the mark which would have stopped such loans under normal circumstances. It is worthy of note that this system was set up by the international bankers and that the subsequent lending of other people's money to Germany was very profitable to these bankers. 

Using these American loans, Germany's industry was largely reequipped with the most advanced technical facilities, and almost every German municipality was provided with a post office, a swimming pool, sports facilities, or other nonproductive equipment. With these American loans Germany was able to rebuild her industrial system to make it the second best in the world by a wide margin, to keep up her prosperity and her standard of living in spite of the defeat and reparations, and to pay reparations without either a balanced budget or a favorable balance of trade. By these loans Germany's creditors were able to pay their war debts to England and to the United States without sending goods or services. Foreign exchange went to Germany as loans, back to Italy, Belgium, France, and Britain as reparations, and finally back to the United States as payments on war debts. The only things wrong with the system were (a) that it would collapse as soon as the United States ceased to lend, and (b) in the meantime debts were merely being shifted from one account to another and no one was really getting any nearer to solvency. In the period 1924-1931, Germany paid 10.5 billion marks in reparations but borrowed abroad a total of 18.6 billion marks. Nothing was settled by all this, but the international bankers sat in heaven, under a rain of fees and commissions. 

The Dawes Plan was replaced by the Young Plan at the beginning of 1930 for a variety of reasons. It was recognized that the Dawes Plan was only a temporary expedient, that Germany's total reparations obligation was increasing even as she paid billions of marks, because the Dawes Plan payments were less than the payments required by the London Schedule; that the German foreign-exchange market had to be freed in order that Germany might face the consequences of her orgy of borrowing, and that Germany "could not pay" the standard Dawes payment of 2.5 billion marks a year which was required in the fifth and following years of the Dawes Plan. In addition, France, which had been forced to pay for the reconstruction of her devastated areas in the period 1919-1926, could not afford to wait for a generation or more for Germany to repay the cost of this reconstruction through reparations payments. France hoped to obtain a larger immediate income by "commercializing" some of Germany's reparations obligations. Until this point all the reparations obligations were owed to governments. By selling bonds (backed by German's promise to pay reparations) for cash to private investors France could reduce the debts she had incurred for reconstruction and could prevent Britain and Germany from making further reductions in the reparations obligations (since debts to private persons would be less likely to be repudiated than obligations between governments).  

Britain, which had funded her war debts to the United States at 4.6 billion dollars in 1923, was quite prepared to reduce German reparations to the amount necessary to meet the payments on this war debt. France, which had war debts of 4 billion dollars as well as reconstruction expenses, hoped to commercialize the costs of the latter in order to obtain British support in refusing to reduce reparations below the total of both items. The problem was how to obtain German and British permission to "commercialize" part of the reparations. In order to obtain this permission France made a gross error in tactics: she promised to evacuate all of the Rhineland in 1930, five years before the date fixed in the Treaty of Versailles, in return for permission to commercialize part of the reparations payments.  

This deal was embodied in the Young Plan, named after the American Owen D. Young (a Morgan agent), who served as chairman of the committee which drew up the new agreements (February to June 1929). Twenty governments signed these agreements in January 1930. The agreement with Germany provided for reparations to be paid for 59 years at rates rising from I.7 billion marks in 1931 to a peak of 2.4 billion marks in 1966 and then declining to less than a billion marks in 1988. The earmarked sources of funds in Germany were abolished except for 660 million marks a year which could be "commercialized," and all protection of Germany's foreign-exchange position was ended by placing the responsibility for transferring reparations from marks to foreign currencies squarely on Germany. To assist in this task a new private bank called the Bank for International Settlements was established in Switzerland at Basel. Owned by the chief central banks of the world and holding accounts for each of them, the Bank for International Settlements was to serve as "a Central Bankers' Bank" and allow international payments to be made by merely shifting credits from one country's account to another on the books of the bank.

The Young Plan, which was to have been a final settlement of the reparations question, lasted for less than eighteen months. The crash of the New York stock market in October 1929 marked the end of the decade of reconstruction and opened the decade of destruction between the two wars. This crash ended the American loans to Germany and thus cut off the flow of foreign exchange which made it possible for Germany to appear as if it were paying reparations. In seven years, 1924-1931, the debt of the German federal government went up 6.6 billion marks while the debts of German local governments went up 11.6 billion marks. Germany's net foreign debt, both public and private, was increased in the same period by 18.6 billion marks, exclusive of reparations. Germany could pay reparations only so long as her debts continued to grow because only by increasing debts could the necessary foreign exchange be obtained. Such foreign loans almost ceased in 1930, and by 1931 Germans and others had begun a "flight from the mark," selling this currency for other monies in which they had greater confidence. This created a great drain on the German gold reserve. As the gold reserve dwindled, the volume of money and credit erected on that reserve had to be reduced by raising the interest rate. Prices fell because of the reduced supply of money and the reduced demand, so that it became almost impossible for the banks to sell collateral and other properties in order to obtain funds to meet the growing demand for money.  

At this point, in April 1931, Germany announced a customs union with Austria. France protested that such a union was illegal under the Treaty of Saint-Germain, by which Austria had promised to maintain its independence from Germany. The dispute was referred to the World Court, but in the meantime the French, to discourage such attempts at union, recalled French funds from both Austria and Germany. Both countries were vulnerable. On May 8, 1931, the largest Austrian bank, the Credit-Anstalt (a Rothschild institution), with extensive interests, almost control, in 70 percent of Austria's industry, announced that it had lost 140 million schillings (about 520 million). The true loss was over a billion schillings, and the bank had really been insolvent for years. The Rothschilds and the Austrian government gave the Credit-Anstalt 160 million to cover the loss, but public confidence had been destroyed. A run began on the bank. To meet this run the Austrian banks called in all the funds they had in German banks. The German banks began to collapse. These latter began to call in all their funds in London. The London banks began to fall, and gold flowed outward. On September 2lst England was forced off the gold standard. During this crisis the Reichsbank lost 200 million marks of its gold reserve and foreign exchange in the first week of June and about 1,000 million in the second week of June. The discount rate was raised step by step to 15 percent without stopping the loss of reserves but destroying the activities of the German industrial system almost completely.

Germany begged for relief on her reparations payments, but her creditors were reluctant to act unless they obtained similar relief on their war-debt payments to the United States. The United States had an understandable reluctance to become the end of a chain of repudiation, and insisted that there was no connection between war debts and reparations (which was true) and that the European countries should be able to pay war debts if they could find money for armaments (which was not true). When Secretary of the Treasury Mellon, who was in Europe, reported to President Hoover that unless relief was given to Germany immediately on her public obligations, the whole financial system of the country would collapse with very great loss to holders of private claims against Germany, the President suggested a moratorium on inter-governmental debts for one year. Specifically, America offered to postpone all payments owed to it for the year following July 1, 1931, if its debtors would extend the same privilege to their debtors. 

Acceptance of this plan by the many nations concerned was delayed until the middle of July by French efforts to protect the payments on commercialized reparations and to secure political concessions in return for accepting the moratorium. It sought a renunciation of the Austro-German customs union, suspension of building on the second pocket battleship, acceptance by Germany of her eastern frontiers, and restrictions on training of "private" military organizations in Germany. These demands were rejected by the United States, Britain, and Germany, but during the delay the German crisis became more acute. The Reichsbank had its worst run on July 7th; on the following day the North German Wool Company failed with a loss of 200 million marks; this pulled down the Schröder Bank (with a loss of 24 million marks to the city of Bremen where its office was) and the Darmstädter Bank (one of Germany's "Big Four Banks") which lost 20 million in the Wool Company. Except for a credit of 400 million marks from the Bank for International Settlements and a "standstill agreement" to renew all short-term debts as they came due, Germany obtained little assistance. Several committees of international bankers discussed the problem, but the crisis became worse, and spread to London. 

By November 1931 all the European Powers except France and her supporters were determined to end reparations. At the Lausanne Conference of June 1932 German reparations were cut to a total of only 3 billion marks, but the agreement was never ratified because of the refusal of the United States Congress to cut war debts equally drastically. Technically this meant that the Young Plan was still in force, but no real effort was made to restore it and, in 1933, Hitler repudiated all reparations. By that date, reparations, which had poisoned international relations for so many years, were being swallowed up in other, more terrible, problems.

Before we turn to the background of these other problems, we should say a few words about the question of how much was paid in reparations or if any reparations were ever paid at all. The question arose because of a dispute regarding the value of the reparations paid before the Dawes Plan of 1924. From 1924 to 1931 the Germans paid about 10.5 billion marks. For the period before 1924 the German estimate of reparations paid is 56,577 billion marks, while the Allied estimate is 10,426 billion. Since the German estimate covers everything that could possibly be put in, including the value of the naval vessels they themselves scuttled in 1918, it cannot be accepted; a fair estimate would be about 30 billion marks for the period before 1924 or about 40 billion marks for reparations as a whole.  

It is sometimes argued that the Germans really paid nothing on reparations, since they borrowed abroad just as much as they ever paid on reparations and that these loans were never paid. This is not quite true, since the total of foreign loans w as less than 19 billion marks, while the Allies' own estimate of total reparations paid was over 21 billion marks. However, it is quite true that after 1924 Germany borrowed more than it paid in reparations, and thus the real payments on these obligations were all made before 1924. Moreover, the foreign loans which Germany borrowed could never have been made but for the existence of the reparations system. Since these loans greatly strengthened Germany hy rebuilding its industrial plant, the burden of reparations as a whole on Germany's economic system was very slight.

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Part Seven—Finance, Commercial and Business Activity: 1897-1947    269s