Paris Peace Conf. 185.119/40
Memorandum by Mr. John Foster Dulles
Observations on Memorandum by Mr. Cravath Entitled, “Preliminary Suggestions Regarding Indemnities”18
While the limiting factor in the indemnity which Germany will pay will doubtless be her ability to pay in a manner satisfactory to the Allies, we must, nevertheless, not demand indemnity in this form, but present a somewhat itemized bill of damages. Mr. Cravath recognizes this, but I think in specifying the items he emphasizes too much the property losses and too little the loss of life and of labor. The character of the bill which we present to Germany will have [Page 620] important political consequences, and may be utilized by the laboring classes as an index of the relative importance which the several Governments attribute to vested property rights on the one hand and life and labor on the other; and, accordingly, I think that considerable prominence should be given to damage items of the latter class. Mr. Cravath, for instance, suggests that reparation can be claimed for all Allied ships and cargoes destroyed or damaged by Germany, even if in the lawful exercise of the rights of war. On the other hand, he does not feel that compensation should be made for damages suffered by civilians due to the death or incapacitation of soldiers upon whom they were dependent for support. Similarly, the memorandum contemplates compensation for damages to the property of civilians in the occupied districts, but does not contemplate compensation for loss of labor by civilians in occupied districts who were compelled to devote themselves to unremunerative tasks.
In formulating an international bill for damages we should not be too much governed by the common law principles, which give to vested property rights a peculiar degree of protection against which our laboring classes have long complained.
On page 13 the memorandum19 estimates the “cash items” which the Allies could extract from Germany, were she required to give up all her resources of this kind. The estimate of German property and investments in foreign countries totals three billion dollars. I am quite convinced that this is a very great underestimate. The Bureaus of War Trade Intelligence and Enemy Trade, of the War Trade Board, have estimated such German property at six billion dollars, and the estimates of Germans themselves place the value of such property at over six billion dollars, at pre-war values.
The memorandum does not attribute any value to the German colonies as distinct from the private investments of the German government and citizens therein, stating that sovereignty over the German colonies “will probably not be looked upon as having a money value.” I am not aware that there has ever been any transfers of sovereignty except for or as a consideration, and I see no reason why a substantial value should not be attributed to the German colonies in view of the great potential resources which many of them possess.
A further conceivable cash item upon which Germany or Austria could realize would be sales of small portions of their territory to adjacent neutrals. If, for instance, all or some portion of Schleswig-Holstein [Page 621] is given to Denmark, there is no reason why Denmark, whose financial position is very strong, should not make a substantial payment therefor to the Allies for the account of Germany.
If my estimate of German investments abroad is correct and if other cash items of the character indicated ate added, there is no reason why the cash items which may be exacted from Germany should not be doubled over the amounts recommended by Mr. Cravath on page 23.19a
With reference to the “deferred”—distinct from the “cash”—items, it is, of course, clear that such deferred payments can only be made by Germany creating credits abroad through an excess of commodities and labor exported and services rendered over similar goods, labor or services received from abroad. This being so, the proper test of what deferred payments should be demanded lies not, in my opinion, in the ability of Germany to create such a credit balance, but in the desirability, from the point of view of the Allies, of permitting Germany so to do. Mr. Cravath leaves the question of deferred payments to be made in terms purely of dollars. It should rather be expressed in terms of the commodities which we can advantageously receive from Germany, or the labor which she can render us. When desirable imports or services are thus estimated and balanced against imports into Germany which we will desire to make, or services which we will desire to render her, the difference will be the amount we should demand as deferred payment from Germany. Once this calculation is made, it should be expressly provided that indemnity shall be paid by commodities and labor in a specified form and no other; otherwise, we will again give Germany an ascendency in our markets which, while it will permit of the ready payment of a large indemnity, will, when the indemnity has been paid, leave her a commanding position in the trade of the world at the expense of the merchants of the Allied countries.
The memorandum takes no account of the ability of Austria-Hungary, Bulgaria and Turkey to contribute. While the ability of these countries to make any cash payment is almost nil, their ability to make deferred payments should be very material in view of their basic economic resources. Even assuming the dismemberment of a considerable proportion of these countries, there should be left a residue capable of making substantial payments, which payments are possible of estimation.