18 
LAND &? WATER 
December 12, 1918 
Do Indemnities Hurt ? : By Hartley Withers 
IT seerfis curious, at first sight, that many people should 
be anxious about the purpose of the Allies, to make 
Germany pay the damage she has done in the course of 
the war, lest somehow its carrying out should do Ger- 
many good and the Allies harm. Such a notion seems 
to land us in the paradox that it is bad for a State or an 
individual to be paid its due debts and that it is good to be 
made to pay what they owe. Can this be so ? 
That this doctrine is causing our rulers very anxious 
searchings of heart is shown by their public utterances. 
Mr. .Lloyd George has said that "Germany ought to pay, 
she must pay, but we are not going to allow her to pay in 
such a way as to wreck our industries." Sir Eric Geddes 
has observed that Germany can only pay in gold, goods, or 
labour ; that Germany has no gold or not nearly enough to 
pay the bill, and that if she pays in goods it would "stagnate 
our production and labour market." These contentions seem 
to be an echo of Mr. Norman Angell's argument in his once 
popular book the Great Illusion, in which he set out to prove 
that war does not pay. In his eagerness to prove his case, 
he showed that France had made a wonderfully quick financial 
and industrial recovery from the effects of the war of 1870, 
having had to pay an indemnity of 200 millions ; while 
Germany, which had received this sum, had suffered from 
severe crises followed by acute depression. Not only did the 
indemnity not do Germany any good, but the payment of it 
seemed to have helped France. If these things are neces- 
sarily so, it would appear to be a short cut to economic 
prosperity to be chronically in debt, and that the road to 
ruin is a position in which people owe us money and have 
•to pay it. \Vhat a day of rejoicing it will be for all the 
unthrifty members of society if only this doctrine can be 
made good ! We shall all proceed to outrun the constable 
as far as our creditors will allow us to do so in the happy 
consciousness that we are thereby best serving our own 
economic interests. It seems too good to be true, and so it is. 
The analogy of a State with an individual is one that can 
easily be pressed too far, but it is often helpful if we do not 
allow ourselves to be run awaj' with by it. Let us take the 
case of an individual who has won a law-suit and finds himself 
entitled to damages from his opponent to the tune of £20,000. 
Is this going to be his ruin ? In one sense, it might ; but it 
will depend entirely on the use that he makes of it. If he 
gave up work and plunged into a vortex of dissipation and 
extravagance he would, at the end of a few months of hectic 
life, find himself with his windfall spent, his berth lost, his' 
habits of work forgotten, and himself a demoralised wastrel. 
If he put the money into safe investments at 5 per cent, he 
could settle down to comfort on £1,000 a year. Thereby, it may 
be contended, he would be spoilt for all time as a worker and 
producer ; he would live on the sweat of other men's brows, 
and would toil not, neither would he spin. Quite so ; but 
this is not exactly what is usually meant by ruin. He would 
be relieved of all care for the future, and might do extremely 
useful work of a kind that is not paid for in the world's market- 
place. His third course might be to put the money into his 
business, fill his factory with the latest machinery or his 
farm with scions of the noblest breeding strains, and the most 
up-to-date appliances, and multiply his production manifold. 
Or, again, he might use the money to pay off a debt, and so 
purge his balance-sheet and improve his credit. 
With a State in question, very much the same alternatives 
are open, except that no conceivable indemnity would be 
large enough to be parallel to £20,000 for an individual, 
because that sum, as we saw, sufficed, if he chose to use it in 
that way, to let him live happily ever after without having 
to do a stroke of work. We, as a nation, were estimated 
before the war to be consuming about £2,000 millions a year's 
worth of goods and services, and now our annual consumption 
must be very much higher in value owing to the depreciatjon 
of our currency's buying power (thanks to bad war finance) 
at the higher level of prices. To give us our pettifogging 
pre-war income of £2,000 millions, we should have to exact 
an indemnity of £40,000 millions, which is hardly practical 
politics in view of the more urgent claims on Germany's 
power to pay several of our Allies. If it were conceivable or 
possible it would hardly ruin us, would it ? It would mean 
that everything that we needed for life on a pre-war scale 
would be provided for us, and we should be able to devote 
all the energy that this relief would set free to beautifying 
every city in our coimtry, setting up a real system of educa- 
tion and a real standard of health, and generally advancing 
and improving ourselves, our surroundings, and our civilisa- 
tion^ which might then really begin to exist. Of course, some 
difficult questions would arise because the people who had 
hitherto earned a living by providing us with the goods and 
services necessary for subsistence would be thrown out of 
•work ; our whole economic system would have to be altered, 
and wealth would perhaps have to be distributed on quite a 
different basis. But the ptpblem, even if it arose in this 
extreme form, would by no 'means necessarily involve the 
economic detriment of the nation, and might, if properly 
handled, tend to its great benefit. 
Means of Payment 
■ 
But, as need hardly be said, the problem is not going to 
arise in this extreme form or in anything like it. It would 
be a most untimely act for anyone who is not in possession 
of all the facts of the case to attempt to forecast the amount 
that our Government can claim from Germany on account 
of the reparation that is due from her. But, whatever it is, 
it will depend on the use that we make of it whether it hurts 
* us or does us good. There need be no question of wrecking 
' our industries. Sir Eric Geddes' analysis of the modes in 
which Germany, can make payment was not quite complete, 
and also, seems (perhaps because he was not reported very 
fully) to imply -a misapprehension. Gold, goods, or labour, 
yes ; but also, perhaps, securities. We have during the 
course of the war paid for many millions' worth of munitions 
and food for ourselves and our Allies by selling our American 
and other securities to neutral countries who were providing 
our war needs. Before the war, Germany (or her citizens) 
had considerable investments in foreign countries. Probably 
she has parted with most of them ; but our economic blockade 
made it difficult for her to dispose of them freely, and it is 
possible that she has some left. ' Again, besides goods actually 
to be produced in the future, there are factories and plant in 
Alsace-Lorraine owned by German capitalists, though these, 
if taken in part payment of the reparation bill, would naturally 
go to France. And there are merchant ships and many other 
things which may be called capital assets, and are not usually 
included in the term goods. 
Apart from articles such as these, and any gold and securi- 
ties that may be available, it is verj' evident that the only 
source from which Germany can pay her bill of damages is 
the surplus of her production of goods and services over and 
above what is required to keep her population alive and 
efficient and to maintain her working plant and equipment. 
But it does not follow (as Sir Eric and the Prime Minister 
both seem to imply) that any country which demands a 
payment from Germany will have to receive itself these goods 
and services in payment. The world-market will be as open 
to Germany as ever it was unless a general boycott is laid 
upon her, which certainly would prevent her paying debts to 
anybody. The actual mode of payment will, no doubt, be 
a matter of arrangement at the Peace Conference ; but the 
natural way would seem to be for each Power that has a 
claim against Germany to demand payment in its own cur- 
rency. If, for example, we claimed so many millions that 
sum would be payable, by annual instalments or otherwise, 
in sterling in London. Germany could provide that sterling 
directly by selling goods and services to England ; but if 
we found that our own goods and services were cheaper and 
better we should not be compelled to take Germany's. She 
could sell her goods and services to America, Argentina, 
Scandinavia, or any other country, and these sales would 
give her claims, or bills of exchange, on those countries. 
These claims she could then sell, through the ordinary 
machinery of the exchange market, in London, and so would 
create a sterling balance for herself out of which she could 
meet her debt to us. "That won't do," our Protectionist 
friends will say, who are always horrified at the idea of goods 
of any kind coming into this country from abroad ; " these 
claims on America, Argentina, etc., that Germany sells to 
, us will have to be met, by the countries drawn on, in goods 
or services ; they will have to export to us, and their goods 
will knock our industries into a cocked hat." We need not 
stop, to argue this point, whether getting goods for nothing 
can really ruin a country, because, unfortunately, it will not 
arise for a very long time. We owe debts abroad — thanks to 
the war — to the time of 1,300 millions, to say nothing of all 
those securities sold that we should like to get back. And 
claims on other countries in which Germany paid our bill 
for damages would be a most useful means of payment of 
those debts. 
