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Senator JOHNSON of California. And that basis was what, if you will please repeat it?
Mr. Davis. That Germany should repair the damage caused to the civilians and their property wherever found.
Senator JOHNSON of California. Was that basis adhered to throughout.
Mr. Davis. We understand that it was.
Senator JOHNSON of California. And so far as the provisions of the treaty are concerned, is that basis adhered to ?
Mr. Davis. I think so, Senator. There were naturally some differences of opinion as to what would be included in that, but I think it was.
Senator JOHNSON of California. Now, that basis, you took it from the very beginning, without a real computation, would equal an amount greater than Germany could pay?
Mr. Davis. Well, we had experts working for several months computing damages under the various categories which came within that so-called agreement leading up to the armistice, and all of the Governments were filing statements of their specific damages, and our experts and their experts were going over these, comparing them with their own information, and we got at a comparatively reasonable estimate as to what the damage under the various categories would amount to.
Senator JOHNSON of California. These experts began that work after you had gone to Paris?
Mr. Davis. Yes.
Senator JOHNSON of California. Now that estimate that you thus reached was conceived to be a reasonable estimate of the amount that ought to be paid upon the basis you have suggested ?
Mr. Davis. We felt that that was a reasonable estimate of what Germany was liable for. Then the other question arose as to whether or not Germany could pay that amount.
Senator JOHNSON of California. And the conclusion reached on the latter subject was that she could not pay that amount?
Mr. Davis. That was our conclusion, Senator. Some people still hold that she can.
Senator JOHNSON of California. It is a part of the treaty, is it not? You have inserted it as a provision that it is recognized that Germany is unable to pay the full debt that is due from her ?
Mr. Davis. No, I do not so understand that. My interpretation of the first article in the reparation chapter is that Germany is morally responsible for having caused all of the damage, all the war costs and everything else, but realizing her inability to make good, to restore all of that damage, the allied and associated governments had confined themselves to requiring Germany to pay to the utmost of her capacity the damages under the specific categories attached.
Senator Knox. Can you tell how much the war cost the world ?
Mr. Davis. Oh, that is very difficult. Of course, Senator, that depends very much on how you figure that. If you mean the economic loss, it is one thing. If you mean actual expenditures
Senator Knox. I mean actual expenditures.
Mr. Davis. The actual expenditures were probably between $200,000,000,000 and $250,000,000,000.
Senator HARDING. Does that include property destroyed by the war?
Mr. Davis. No, I am just referring to expenditures by the various Governments concerned.
Senator HITCHCOCK. Do you include what the German Government would have to expend now in reimbursing?
Mr. Davis. No, I mean the expenditures for conducting the war.
Senator McCUMBER. Is that on the part of the Allies alone, or on both sides?
Mr. Davis. That would include everything, the Germans and everybody.
Senator SWANSON. I have seen a statement made by some statisticians that the bonded indebtedness would amount to about $190,000,000,000 when the armies were disbanded, and that the residue, between that and $250,000,000,000 would be represented by the taxes that were collected in that time.
Mr. Davis. I think $190,000,000,000 is rather excessive, Senator. As I recall, England's bonded indebtedness will be about 10,000,000,000 pounds, or we will say, $50,000,000,000, and the United States $30,000,000,000. That would be $80,000,000,000. Ours probably will not go quite so high, say, $25,000,000,000. That will make $75,000,000,000 for England and the United States; France, $25,000,000,000, would be $100,000,000,000, and Germany about $35,000,000,000, or a total of $135,000,000,000. Italy increased her bonded indebtedness to about $12,500,000,000 during the war, and Austria increased hers about $12,500,000,000.
Senator WILLIAMS. Does that computation take in Turkey and Bulgaria?
Mr. Davis. No, but they were very small. I should say both those Governments combined would not increase the figure over $5,000,000,000. Certainly $150,000,000,000 of bonded indebtedness would about cover it.
Senator SWANSON. I think that estimate was for the time when the armies were disbanding and peace declared. Mr. Davis. I am calculating up to the present.
Senator JOHNSON of California. With the estimates made by your experts of the total damage, what was the reason why you did not in the treaty fix the total amount to be paid by Germany? Probably you stated that yesterday, but possibily I have forgotten it.
Mr. Davis. I should say principally, Senator, because, according to the judgment of most of us at any rate, Germany could not pay anything like the full amount of the damage for which she was liable; and because the amount which she could pay was smaller than the full bill, we were principally anxious to have Germany sign a note for the full amount, and then determine later on what reductions should be made on that.
Senator JOHNSON of California. And so you consider the treaty to be the signing of a note for the full amount, with the power in the Reparations Commission to make deductions subsequently, which shall be determined. Now your Reparation Commission consists in reality of the Big Five?
Mr. Davis. Not the Big Five. It is really the Big Four and Belgium.
Senator JOHNSON of California. The Big Four and Belgium. I think we have one-fifth of the voting power.
Mr. Davis. Yes.
Senator JOHNSON of California. And in some instances, where Belgium is not concerned, as I recall the treaty, probably one-fourth of the voting power.
Mr. Davis. No; where Belgium is not concerned some one else sits in Belgium's place.
Senator JOHNSON of California. So that in any event we will never have more than one-fifth of the voting power.
Mr. Davis. No; but we provided that that one-fifth would be a very powerful vote, because in most important matters a unanimous vote is required.
Senator JOHNSON of California. Yesterday you said what I think is quite the fact in all of our experience, that when men sit by themselves around a table it is not difficult to reach a unanimous conclusion. That is correct, isn't it?
Mr. Davis. Yes.
Senator JOHNSON of California. And that is your experience in practice?
Mr. Davis. It takes time. It can not always be done. Sometimes there may be such conflicting conditions that it may take some time, and you may have to go at it gradually to accomplish it.
Senator JOHNSON of California. But ultimately-
Senator JOHNSON of California. So that now we have Germany signing a note admittedly for more than she can pay. We can start with that premise, can we not?
Mr. Davis. Well, it is no more than some of the interested parties think she can pay?
Senator JOHNSON of California. I am, of course, taking the view that you gentlemen took.
Mr. Davis. The American view is that, absolutely.
Senator JOHNSON of California. I take our American view in preference to any other.
Mr. Davis. Yes.
Senator JOHNSON of California. And you gentlemen have reached the conclusion that it was a note for a greater sum than Germany was able to pay?
Mr. Davis. Yes.
Senator JOHNSON of California. You look forward, however, finally to the reparation commission, composed as you have indicated, scaling that down so that she can pay. The scaling down would depend upon obtaining the unanimous consent of the reparation commission hereafter, would it not?
Mr. Davis. Yes.
Senator JOHNSON of California. And without that unanimous consent the world is confronted to-day with a bill that has been placed against Germany greater than it is possible for her to pay, and under the terms of this treaty she may be required in various fashions, as they are indicated, to attempt to pay that bill.
Mr. Davis. I think not. In the first place, Germany delivers bonds for only $15,000,000,000, except the small extra amount that she will deliver for Belgium, which probably would run it up to $16,000,000,000, and Germany can not be called upon to deliver any more bonds without the unanimous consent of the reparation commission. In other words, we insisted that Germany must not be put in the position of having obligations, bonds outstanding, which might be in excess of what she could reasonably be expected to pay, and we avoid that danger in that way.
Senator JOHNSON of California. With the debt hanging over her?
Mr. Davis. Yes; it is a book account, that is true; there is that book account.
Senator JOHNSON of California. Is there any mode by which that book account may be collected or enforced ?
Mr. Davis. No.
Senator Johnson of California. To what extent, then, may the reparation commission enforce its collection hereafter?
Mr. Davis. My interpretation is that the reparation commission can not enforce the collection of anything beyond the bonds which they have in their possession or that have been delivered to them.
Senator JOHNSON of California. Is that your reading of the treaty?
Mr. Davis. Yes.
Senator Johnson of California. And is that your reading concerning the taxation clause, the industrial clauses, and the like?
Mr. Davis. Yes; it is.
Senator JOHNSON of California. And in respect to shipping and the various things that Germany is to deliver, is that your reading of the treaty ?
Mr. Davis. That will all be credited.
Senator JOHNSON of California. I understand that, that that will all be credited, but the point is, has not the reparation commission the power—whether it will exercise it or not is a different proposition—to endeavor to collect this bill that Germany now owes ?
Mr. Davis. I do not understand that they can do anything toward collecting anything except the bonds that they have, that have been delivered to them.
Senator JOHNSON of California. Do you interpret the treaty to mean that the reparation commission can do anything concerning the compelling the performance of the terms of the treaty by Germany except the collection of the bonds ?
Mr. Davis. From a practical standpoint and from a reading of the treaty I do not see how they can do anything else.
Senator JOHNSON of California. I am very glad to have your construction of it because, as I understand the terms, I had quite a different view.
Senator Harving. Right there, then, what is the object in giving to the reparation commission the power to see that the German rate of taxation is made equivalent to that of any other power engaged in the war?
Mr. Davis, Senator, as I stated yesterday, I do not think that was a necessary clause to put in the treaty. Some of the other powers wanted it in the treaty, partly for political reasons, and we could see no objection to it, and we agreed to its going in; but, as I explained yesterday, the German rate of taxation may or may not have any relation to Germany's capacity to pay in foreign currency, because her taxes will be collected in German currency.
Senator HARDING. If you have covered that already, I am sorry to have taken the time to-day.
Senator McCUMBER. Is not the effect of that agreement simply this: That the reparation commission will not release any part of the sum which Germany agrees to pay if the taxation in Germany is not as heavy as it is in the other countries? In other words, if her taxation is less than that of the countries to which she owes the debt, those countries will insist that she shall pay, if it requires a taxation equal to their own, and that they will not release any part of it until her taxation comes up to the taxation of the other countries.
Mr. Davis. That is, provided they are of the opinion that an increase in her taxes will increase her power to comply with her obligations.
Senator McCUMBER. Yes; I understand, but that is the purpose of it? Mr. Davis. Yes
Senator McCUMBER. And if they find that she can not even pay the taxation equivalent to what is paid in France or in Great Britain, they may still relieve her from a portion of the debt, provided the effect of increasing her taxation would be to destroy her ability to pay.
Mr. Davis. Absolutely. In other words, if they expect to collect from Germany they have got to treat that situation in an intelligent manner, or they will destroy Germany's capacity to pay.
Senator JOHNSON of California. Exactly, and you look to see the reparation commission treat it in an intelligent manner, so that they will take up to Germany's capacity and no more?
Mr. Davis. Yes.
Senator JOHNSON of California. But there is the power to do more, is there not?
Mr. Davis. Yes; they have the power. That is, they have the power to take measures or fail to take measures which would not be intelligent and constructive.
Senator JOHNSON of California. Exactly; so that with your bill that Germany has signed in blank, your reparation commission have the discretion to do as they see fit. We assume that the reparation commission will act intelligently, of course, and not press the debtor to the wall, but the reparation commission has the power to do otherwise.
Mr. Davis. I do not see how the reparation chapter of the treaty can be construed beyond the fact that the reparation commission can only enforce compliance on the part of Germany in respect to the bonds which have been delivered to the reparation commission.
Senator JOHNSON of California. How do you look for the enforcement of the sums that will be fixed otherwise-for reparation in those sums?
Mr. Davis. That is left rather vague, and I do not see how it can be enforced.
Senator JOHNSON of California. Do you mean that if the reparation commission, outside of these bonds, determine that Germany shall pay a certain sum, there is no means of enforcement of it?
Mr. Davis. No; but I say the reparation commission must first determine that Germany shall deliver additional bonds, and that that requires a unanimous vote.
Senator JOHNSON of California. All right, but under the bill which has been admitted by Germany and is now indefinite in amount, if they require that a certain sum shall be delivered in bonds, Germany must deliver them.