Senator WILLIAMS. There are many of them coming every day. Senator BRANDEGEE. That is what I am trying to find out. I did not know whether they were coming or not.

Senator MOSES. In naming fifteen billions as the amount of bonds to be issued, you had reference to the provisions at the bottom of page 267 and on page 269 of the committee print, did you not, paragraphs 1 and 2?

Mr. DAVIS. Yes.

Senator MOSES. Fifteen billions surely will be issued?
Mr. DAVIS. Yes.

Senator MOSES. And possibly ten billions more?

Mr. DAVIS. Well, possibly. I hope that the financial condition of Germany will be so good that those can be delivered; but it entirely depends on that, because those $10,000,000,000 under (3) are not to be delivered until the reparation commission are unanimously of the opinion that Germany can meet the interest and sinking fund on these obligations.

Senator POMERENE. May I ask a question there?
Senator MOSES. Oh, yes.

Senator POMERENE. In view of certain suggestions which have been made, perhaps outside of the committee, I will ask you this question: You have called attention to the manner in which these bonds are to be trusteed, the manner in which the certificates are to be issued to the several parties. Is there anything in this treaty which makes the commissioners or the State or the Government which they represent individually or collectively liable for the redemption of either these bonds or the certificate?

Mr. DAVIS. No; there is not.

The CHAIRMAN. Does any other member of the committee desire to ask any questions?

Senator SWANSON. Mr. Davis, let me ask you a question on something that we were discussing with Mr. Baruch.

After this treaty is ratified, how will the trade relations between Germany and the United States and other allied countries be resumed? To what extent will the reparation commission have control of that?

Mr. DAVIS. Theoretically they can come and trade. Anyone who has got the money to buy something-any German who has the money to buy something can come and get it. From a practical standpoint it will probably be rather difficult, for the first two years, without the permission of the reparation commission. If you can conceive of this reparation chapter as something that we were discussing pro and con for several months, you will understand that people's views changed, more and more as they got into the facts. It was first thought that Germany could pay $5,000,000,000 within the first two years, I personally, always contended that it would be impossible, or that if she did, she would not be able to pay anything else, because it would leave her so weak; it would just take all her capital they had; and that instead of Germany paying $5,000,000,000 the first two years, I thought those Governments would have to help Germany; either land her money, or let her keep some capital which she had; and that unless Germany could get food and raw materials, they would not be able to do anything.

So that, in substance, my interpretation of that first payment of $5,000,000,000 is that Germany shall pay to the reparation commission $5,000,000,000, less what she may requiré in food and raw materials during those first two years, which may perhaps mean that Germany can pay only $2,000,000,000; because, in addition to that, she has to pay the armies of occupation; and the United States will have a rather large bill there.

Senator SWANSON. Let me ask you this question, for the understanding of the treaty. If a German factory or manufacturing establishment had the money, and desired to purchase raw material in this country, lumber or cotton, or elsewhere rubber, could she do it without the consent of the reparation commission? Mr. DAVIS. My judgment is, yes.

Senator SWANSON. Mr. Baruch had an idea that she could not. Mr. DAVIS. Here is the point. Germany can not export securities or gold during the first two years without the consent of the reparation commission. For instance, during the armistice period Germany could not export gold without the consent of the supreme economic council, which was the body that controlled such matters.

Senator SWANSON. Nothing would prevent a foreign concern from extending credit to a German manufacturing establishment for raw materials?

Mr. DAVIS. No. It might be possible, however, that anyone extending credit, in order to avoid any misunderstanding, would like to have the approval of the reparation commission.

Senator KNOX. Are not the French selling to the Germans now? Mr. DAVIS. Yes; and I think that if any American wants to sell anything to a German, he will sell it to him and ship it to him. Senator WILLIAMS. You do not mean if it involves the export of gold or securities from Germany?

Mr. DAVIS. No. If it does, it can not be done.

Senator WILLIAMS. But if it involved some credit that a German bank could arrange with a bank in New Orleans which did not involve the export of gold or securities from Germany, then no consent of anybody would be necessary?

Mr. DAVIS. My opinion is that it would not require the consent of anybody.

Senator KNOX. That is, to-day, if the United States Steel Corporation wanted to sell to a German railroad 20,000 tons of steel rails, they could do it and give them credit for it?

Mr. DAVIS. Yes.

Senator WILLIAMS. Or if a New Orleans bank wanted to extend a credit to a Hamburg bank and the Hamburg bank wanted to buy cotton, that could be done?

Mr. DAVIS. Yes.

Senator WILLIAMS. It is only where gold or securities come into consideration that that becomes operative?

Mr. DAVIS. That is perfectly true. It is I think, however, that a banking institution or an exporting house would like to know just what the reparation commission's policy is going to be before extending any very large line of credit. They might want to know that.

Senator WILLIAMS. Undoubtedly, because any very large line of credit would have to be based, ultimately, upon gold or securities.

96

Senator SWANSON. But there is nothing in the treaty to prohibit anything except the export of gold and securities?

Mr. DAVIS. No.

Senator KNOX. That might involve the policy of whether the reparation commission were going to permit the export of gold or securities in connection with that transaction.

Senator WILLIAMS. In a transaction such as I have indicated in cotton, or in a steel products transaction such as Senator Knox indicated, a good deal of this payment would be made through clearinghouse balances, would it not clearances of one sort or anotherwithout resulting in the shipment of gold or securities?

Mr. DAVIS. Yes.

Senator WILLIAMS. Germany will be wanting to buy steel from us, and we will be wanting to buy a good deal from Germany, too, pretty

soon.

Mr. DAVIS. Yes.

Senator KNOX. Is there any limitation upon the importation of gold into Germany?

Mr. DAVIS. No, sir.

Senator KNOX. So that if we wanted to buy now, and pay in gold, we could do it?

Mr. DAVIS. Yes.

Senator WILLIAMS. Yes; and that very gold might later be treated, as a part of a balance of trade settled by the reparation commission, as being in an exceptional attitude?

Mr. DAVIS. Germany will want to withdraw the gold if she can. The CHAIRMAN. Are there any further questions to be asked Mr. Davis. If not, Mr. Davis, we will excuse you.

Senator KNOX. Senator Johnson indicated that he would like to have Mr. Davis return to-morrow. He was compelled to leave, and

he wanted to ask him some questions.

The CHAIRMAN. Very well; then Mr. Davis will come back to

morrow.

The committee has said hitherto that they would like to hear the Secretary of State, and I think we can finish with Mr. Davis to-morrow and I could ask Mr. Lansing to come.

Senator MOSES. To come on the following day, do you mean, Mr. Chairman?

The CHAIRMAN. No; to come to-morrow. I do not know how long Senator Johnson desires to examine Mr. Davis. I will take the pleasure of the committee on that. Shall I ask the Secretary of State to appear the day after to-morrow?

Senator SWANSON. I think it would be better. hour and a half each morning.

We sit only an

The CHAIRMAN. Very well; then I will ask the Secretary to come. on Wednesday.

There is no other witness to be heard this morning, that I am aware of. The committee will stand adjourned until to-morrow morning at half past 10, and I will ask you to be here then, Mr. Davis, if you

can.

Mr. DAVIS. Yes, sir.

(Thereupon, at 11.55 o'clock a. m. the committee adjourned until to-morrow, Tuesday, August 5, 1919, at 10.30 o'clock a. m.

TUESDAY, AUGUST 5, 1919.

UNITED STATES SENATE,

COMMITTEE ON FOREIGN RELATIONS,

Washington, D. C. The committee met at 10.30 o'clock a. m., pursuant to adjournment, in room 426, Senate Office Building, Senator Henry Cabot Lodge, presiding.

Present, Senators Lodge (chairman), McCumber, Brandegee, Fall, Knox, Harding, Johnson of California, Moses, Hitchcock, Williams, Swanson, Smith, and Pittman.

STATEMENT OF MR. NORMAN H. DAVIS-Continued.

The CHAIRMAN. We will continue with Mr. Davis.

Senator JOHNSON of California. Mr. Davis, you were a member of two commissions, as I understood you, Finance and Reparation? Mr. DAVIS. Yes.

Senator JOHNSON of California. Did each commission have separate experts ?

Mr. DAVIS. Yes. Sometimes they duplicated. Sometimes some of the same people were on both commissions, but they were separate bodies.

Senator JOHNSON of California. Did any of those experts resign at any time?

Mr. DAVIS. One of the British representatives resigned along at the last, who represented the British treasury. He resigned because of ill health.

Senator JOHNSON of California. Did the American experts resign? Mr. DAVIS. Not on any of the committees that I was on.

Senator JOHNSON of California. Do you recall that any resigned at

all?

Mr. DAVIS. I recall that Mr. Bullitt, who was attached in some way to the peace delegation, resigned.

Senator JOHNSON of California. Did any of the experts resign that you recall?

Mr. DAVIS. No.

The CHAIRMAN. Was Mr. Bullitt the one who went to Russia?
Mr. DAVIS. Yes.

Senator MCCUMBER. Who went with Mr. Bullitt to Russia? There was some one else went with him.

The CHAIRMAN. Lincoln Steffens.

Mr. DAVIS. I am not positive, but I think it was Lincoln Steffens. Senator JOHNSON of California. They went there representing the United States?

Mr. DAVIS. Senator, I never did quite understand just in what capacity they went there, but apparently for the United States.

Senator JOHNSON of California. When you reached Paris and were engaged in that work, Mr. Bullitt was a regular official attached to the American Commission in some capacity, was he not?

Mr. DAVIS. Mr. Bullitt was, I understand, in some way connected with the State Department and was with the State Department staff there, and I did not come in contact with him at all, so I do not know just what he did.

Senator JOHNSON of California. Did you have any fundamental theory or any basis upon which you began your work in relation to reparations?

Mr. DAVIS. Yes; you mean as to arriving at Germany's capacity to pay?

Senator JOHNSON of California. Well, in arriving at the modus operandi ultimately of the collection of the debt, and the like?

Mr. DAVIS. Yes; we started out with a practical definition as to what Germany was liable for, which was defined in the interchange of notes between the President and the German Government and between the President and the allied powers.

Senator JOHNSON of California. Those notes to which you refer were written when-after the armistice or before the armistice? Mr. DAVIS. Leading up to the signing of the armistice.

Senator JOHNSON of California. And the armistice gave you the foundation, then, upon which to work?

Mr. DAVQS. We felt that an agreement was made.

Senator JOHNSON of California. And that that agreement had been that Germany should pay all of the damage that had been caused by her?

Mr. DAVIS. All of the damage to civilians and their property.
Senator JOHNSON of California. That alone?

Mr. DAVIS. I forget the exact wording. It was first defined in certain of the fourteen points, in the interchange of notes by the President with the Germans and the Allies, the Allies desired to clear this matter up definitely, and they replied that they would like to understand just what this damage referred to; that is, if it were all damage caused on the ocean, from the air, and on the land, and the President replied yes, and then that was presented to the Germans, and they said, "On those conditions we are prepared to sign the armistice.'

Senator JOHNSON of California. Were these notes published at the time?

Mr. DAVIS. Oh, yes.

Senator JOHNSON of California. And these were notes that were subsequent to the fourteen points and prior to the armistice?

Mr. DAVIS. Absolutely.

Senator JOHNSON of California. Were they the notes upon which the armistice was based?

Mr. DAVIS. That was our understanding.

Senator JOHNSON of California. You started, then, so far as the American Commission was concerned, with a basis for computation and a basis for reparation provisions?

Mr. DAVIS. Absolutely.