THE question that I most often hear, both in America and in Europe, runs substantially like this: "Do you think the Dawes Plan is going to be a success?" Frequently it is coupled with the question: "Is it going to be possible to transfer in 1929-1930 the full 2½ milliards of gold marks which will have to be paid by Germany in that year?" And more recently there seems to be a growing tendency toward still a third question, as to just when it will be possible to sell in the security markets of the world all or some part of the 11 milliard gold marks of reparation bonds which have already been issued by the German Railway Company under the terms of the Plan.

I am not going to take on the rôle of a prophet and try to answer all of these questions for you to-night. On the contrary, it seems to me that the very questions themselves show a certain misconception of the Dawes Plan, or at least a tendency to some confusion of thought about it. The term "Dawes Plan" itself makes such a convenient phrase that people tend to use it blindly, without stopping to analyze what it really means. Like most phrases, it encourages loose thinking and that in turn leads to misunderstanding and confusion. All of you have heard a great deal about the Dawes Plan, -- sometimes, I imagine, too much about it. Some of you have undoubtedly read it, and probably most of you have given it some study and are acquainted with its general progress. But even in a gathering as well-informed as this, it seemed to me that it might be helpful if I were to try to interpret the Plan to you as I see it in operation. Without troubling you with details, therefore, I am going to outline as briefly as possible what the Dawes Plan proposed to do, how it is working in actual practice, and what it means not only from the point of view of the reparation question but also to the general reconstruction of Europe.

The "Dawes Plan" is the name commonly given to the Report presented by the First Committee of Experts in April, 1924, in response to the invitation of the Reparation Commission to "consider the means of balancing the budget and the measures to be taken to stabilize the currency" of Germany. It was adopted by agreement between the Allied and German Governments at the London Conference in August, 1924, and went into effect on September 1, 1924. It has now been in actual operation for over sixteen months, and stands to-day as the working agreement between the German Government and the Allied Governments on the subject of reparation payments. Enough time has now elapsed to give some perspective on the Plan itself, and to make it possible to examine it in its relation to the course of events.

To understand the Experts' Plan one must see it in its historical setting. It is necessary to look back to the conditions that preceded its adoption and to remember the situation that it was intended to meet. The whole question of reparations was then in deadlock, and Europe itself, for want of a settlement, seemed to be drifting toward disaster. Germany was on the verge of collapse, after an unprecedented period of inflation, and was in a state of extreme disorder and disorganization. This had followed a period of nearly five years of drifting on the reparation question. Under the Treaty of Versailles, Germany had undertaken to pay reparations to the Allied and Associated Powers, by way of compensation for damages suffered by their civilian population and for pensions and separation allowances. The Treaty itself had not fixed the total sum to be paid by Germany but referred this question to the Reparation Commission for determination. The Commission subsequently assessed the reparation liability at 132 milliards of gold marks. This debt the London Agreement of May 5, 1921, divided into three series of bonds, Series A amounting to 38 milliards, Series B amounting to 12 milliards and Series C amounting to 82 milliards. The Series C bonds were to be issued only as and when the Reparation Commission so decided, but the Series A and Series B bonds were issued at once, with interest at the rate of 5 per cent per annum and amortization at the rate of 1 per cent. The payments on the A and B bonds were to be made in the form of an Annuity of 2 milliards of gold marks, plus an amount equivalent to 26 per cent of all German exports, and provision was also made for the payment of part of the Annuity by means of deliveries in kind. The German currency, however, continued to depreciate in the face of these demands, and the schedule of payments drawn up by the Reparation Commission soon had to be suspended. On December 26, 1922, the Reparation Commission, by vote of three to one, declared Germany in default as to certain deliveries in kind under the Treaty. Subsequently, on January 11, 1923, French and Belgian troops occupied the Ruhr district. Then came passive resistance on the part of Germany and conditions grew steadily worse until they reached a crisis in the fall of 1923.

In the meantime, on December 29, 1922, Secretary of State Hughes had made his now-famous New Haven speech. "The crux of the European situation," he said, "lies in the settlement of reparations. There will be no adjustment of other needs, however pressing, until a definite and accepted basis for the discharge of reparation claims has been fixed. It is futile to attempt to erect any economic structure in Europe until the foundation is laid." The Secretary then made the suggestion of the appointment of a committee of experts to make recommendations as to the amounts to be paid and a financial plan for working out the payments. "There ought to be a way," he said, "for statesmen to agree upon what Germany can pay, for no matter what claims may be made against her, that is the limit of satisfaction." "There ought to be a way to determine that limit and to provide a financial plan by which immediate results can be obtained, and the European nations can feel that the foundation has been laid for their mutual and earnest endeavors to bring about the utmost prosperity to which the industry of their people entitles them. If statesmen cannot agree, and exigencies of public opinion make their course difficult, then there should be called to their aid those who can point the way to a solution."

Here was the germ of the Experts' Plan, but it was not until about a year later that it began to take definite shape. Under date of October 12, 1923, Lord Curzon addressed to the United States Government a note expressing the British Government's approval of the suggestion of Secretary Hughes, and proposing an immediate inquiry. "The information which reaches America," Lord Curzon said, "will have acquainted the American Government with the extremely critical economic position that has arisen in Europe owing to failure to find any solution for the reparation problem, which daily becomes more acute as the financial and political condition of Germany grows worse. There does not appear to be among the European powers that unity of thought which either renders common action feasible or will be successful in finding an early solution. . . . And yet without such action, not merely Germany, but Europe, appears to be drifting into economic disaster." Secretary Hughes replied on October 15, 1923, indicating the willingness of the United States to coöperate, and reiterating the "deep interest of the United States in the economic situation in Europe and its readiness to aid in any practicable way to promote recuperation and a reëstablishment of economic stability." "It is believed," the Secretary said, "that present conditions make it imperative that a suitable financial plan should be evolved to prevent economic disaster in Europe, the consequence of which would be world wide. It is hoped that existing circumstances are propitious for the consideration of such a plan, inasmuch as the abandonment of resistance on the part of the German Government will present a freer opportunity and an immediate necessity for establishing an economic program." There followed an active discussion between the interested Governments, extending over the next two months, and, as a result, in December, 1923, the Reparation Commission appointed the two Committees of Experts. The First Committee, which has come to be known as the Dawes Committee, was asked to consider "the means of balancing the budget and the measures to be taken to stabilize the currency" of Germany. At the same time it necessarily considered the problem of reparation payments, and recommended the so-called "Dawes Plan" for the organization of those payments within Germany and their transfer to the creditor countries.

Such in brief was the history of the reparations problem up to the adoption of the Experts' Plan, and this was the situation that it was intended to meet. It was needed to bring order out of chaos, and to provide a foundation for the peaceful reconstruction of Europe. From this point of view it has already been a success. It has reduced the problem of reparations to a rational basis, and provided for a practical trial of its possibilities. It has substituted methods of patient inquiry and orderly administration for futile bickerings and speculations. Instead of endless discussion as to how much Germany might be able to pay and as to whether or not she was willing to pay, we are now in the course of finding out by actual experience what can safely be paid and transferred. The Plan has put an end to charges and countercharges on the question of Germany's good faith and substituted the test of actual performance under a schedule of reparation payments that, as the Experts said, adjusts itself to realities. As a result, the creditor countries are now actually getting reparations instead of merely talking about them, and Germany for the first time since the armistice has had that sense of security and renewed hope which was the essential condition not only of her own recuperation but of the payment of reparations itself.

The Experts' Plan would never have been able to achieve this result if it had not been inspired by a sense of fairness and justice and illuminated all the way through by a deep understanding of human nature and of human relations. It was grounded, first of all, on the fundamental principle of self-interest. At the outset of their Report, for example, the Experts said: "Convinced as we are that it is hopeless to build any constructive scheme unless this finds its own guarantee in the fact that it is to the interest of all the parties to carry it out in good faith, we put forward our plan relying upon this interest. We hope the character of our plan will itself assist in securing this guarantee, which is essential for its execution; but in the main, of course, it must be for others to take such measures as are necessary to maintain or assure it." It was manifest that any plan, if it were to succeed, must give Germany new hope for the future and the incentive to work again for her own rehabilitation. Recognizing this, the Experts framed their Plan on the theory of helping the German people to help themselves. It wisely avoided any system of foreign controls that would take away from the German authorities the responsibility for their own administration and provided instead for foreign participation and coöperation in a way that would assist in the work of reconstruction. "If, as we believe," the Experts said, "the payments which we have suggested can be made without compromising budget stability, it is in our opinion not impossible to establish a system in which a combination of self-interest and latent pressure will suffice to assure sound financial administration." With this in view, certain specific revenues, that is to say, those from the customs, beer, tobacco and sugar, and the net return from the alcohol monopoly, were assigned to and under the control of Germany's creditors, as security for the payment of the budget contributions and as further security for the payment of the charges on German railroads and industry. But no general budgetary control was imposed, and this safeguard was expressly reserved for the case of "Germany's wilful failure to meet the obligations now laid upon her." The responsibility remains with Germany to administer her own institutions, and primarily it is the German people themselves who will suffer from bad management.

The Plan also recognized that a fundamental condition of recuperation was the restoration of confidence. The principle of self-help pre-supposed that Germany must be given an opportunity to workouther own salvation. The Experts accordingly aimed to provide a sense of security that would permit the reconstruction of the German economy to proceed in an orderly way. It fixed, for example, the total amount that Germany should be called upon to pay each year and provided that this should be all-inclusive, thus putting an end to the threat of new or unexpected demands. It recognized the necessity for expert regulation of the transfer of reparation payments abroad, and set up the Transfer Committee for the protection of the German exchange. It emphasized the vital importance of restoring the economic and fiscal unity of Germany, and, as supplemented by the London Agreement of August, 1924, it limited in many ways the possibilities of sanctions outside of the Plan. It recognized to the full the principle of arbitration and provided in detail for arbitrations of such disputed points as might arise.

Enough has been said to indicate the philosophy underlying the Plan and the basis on which it aimed to provide a practical test of the possibilities of reparations. This involved on the one hand a test of what Germany could do by way of internal payments, and on the other a test of what the German economy could afford to pay and the creditor countries could afford to receive in the form of payments abroad. In order to assure a fair determination of the capacity of Germany to pay internally, the Plan set up a system of internal controls which it is unnecessary here to do more than summarize. The Reichsbank was reconstituted and made independent of the Government. A number of foreign members were placed on its General Council, and one of them was designated as Commissioner for the Reichsbank, with the duty of supervising the note issue of the Reichsbank to see that it keeps within the legal limitations. The German railways were transferred to a private company, independent of the Government, and subjected to a first mortgage of 11 milliards of gold marks for the payment of reparations. Generally speaking, the responsibility for the management of the railways was left in German hands, in the absence of any default on the bonds, but a number of foreign members were placed on its General Board of Administration and a foreign Railway Commissioner was also appointed, with important powers of supervision. A foreign Trustee for the German Railway Bonds was appointed, to safeguard the interests of the holders of the bonds. Then the Plan provided, as you know, for a reparation charge of 5 milliards of gold marks on German industry, with a foreign Trustee to supervise the arrangements for imposing the charge and to safeguard the interests of the bondholders. The controlled revenues, of which mention has already been made, were assigned under the general supervision of a Commissioner for Controlled Revenues. In order to coördinate these various offices, and assure their harmonious operation in relation to the Plan as a whole, the Plan provided for the Agent General for Reparation Payments. All payments for the account of reparations are paid in gold marks or their equivalent in German currency into the account of the Agent General with the Reichsbank. This payment, the Plan provides, "is the definitive act of the German Government in meeting its financial obligations under the Plan."

This brings us to the second phase of the practical problem which the Plan aimed to meet, as to the transfer of the payments abroad. On this question, the Experts said: "We are convinced that some kind of coördinated policy with continuous expert administration in regard to the exchange, lies at the root of the reparation problem and is essential to any practicable scheme in obtaining the maximum sums from Germany for the benefit of the Allies." The Plan accordingly created the Transfer Committee and gave it control over "the use and withdrawal" of the moneys deposited by the German Government to the Agent General's account. It stated that "this Committee will regulate the execution of the program for deliveries in kind and payments under the Reparation Recovery Act in such a manner as to prevent difficulties arising with the foreign exchange. They will also control the transfer of cash to the Allies by purchase of foreign exchange and generally so act as to secure the maximum transfers without bringing about instability of the currency."

The Plan goes on to provide that on their side "the German Government and the (Reichs) Bank shall undertake to facilitate in every reasonable way within their power the work of the Committee in making transfers of funds, including such steps as will aid in the control of foreign exchange." The Committee is also authorized under the Plan to inform the President of the Reichsbank if, in the opinion of the Committee, the Bank's discount rate is not in relation to the necessity of making important transfers. The Committee is further given broad powers to defeat any concerted financial manœuvres that may be made for the purpose of preventing transfers.

The task of the Transfer Committee, in other words, is to make the maximum transfers consistent with the stability of the exchange. With the Reichsbank, it is the guardian of the German exchange, and at the same time it is responsible for obtaining the utmost possible transfers to the creditor Governments consistent with the protection of the exchange. Its work, up to this time, has related chiefly to deliveries in kind and recovery act payments, since these, for the first two years of the Plan, are the principal forms of transfer. Deliveries and payments in these forms are going forward currently to the creditor Powers, and without as yet raising difficulties of transfer.

It would be idle to attempt to speculate now on the possibilities of future transfers. The Experts themselves carefully refrained from such speculations, and pointed out, as clearly as could be, that the answer could only be determined by the test of actual experience. It will necessarily depend on a multitude of factors, operating not only in Germany but all over the world, and no one can predict with any assurance what course the problem may take. It may be worth while, however, for the sake of clarifying the issue, to mention some of the influences that will be controlling. Manifestly, much will depend on the course of world trade, and on the extent to which it develops and readjusts its directions. Payments between the nations, on anything like the scale of reparations or of the inter-allied debts, still represent almost an untried factor, and it remains to be seen how far their tendency may be to stimulate the growth of trade and the movement of goods. A gradual increase, moreover, in the total volume of business between the nations would throw the whole problem of transfers into different proportions and greatly help in its ultimate solution. Much will depend, also, on the gradual return of other countries to more stable conditions, on the progress of civilization in the more remote sections of the world, and on the general advancement of science and the growth of human demands. The course of affairs in Russia, the progress of South America, the development of Africa, will all have a direct bearing on the problem.

On the other side, there will be the contending influence of new national industries in the countries surrounding Germany or with which before the war she did a large volume of business, and the general problem of tariffs and other barriers to trade. The growth of Germany's foreign trade, and, correspondingly, of her capacity to make important payments abroad, will largely depend on how these various factors develop in the years immediately ahead. In the field of reparations, much depends also on the willingness of the creditor countries to receive German goods, particularly in the form of deliveries in kind. In the past opposition to these deliveries on the part of domestic industries has greatly restricted the possibilities of direct reparations in the regions devastated by the war, and even now there are occasional indications of difficulties of this kind.

The capacity of Germany to make payments abroad is also going to be subject to many unpredictable factors arising out of the German economy itself. There will always be the question of the year's harvest, not only in Germany but elsewhere in the world, since Germany is to a certain extent dependent on imported foodstuffs. Much will also depend on the extent to which German business and industry prove capable of readjusting themselves to new conditions and on the progress that can be made in reorganizing production and in liquidating the remains of the inflation. More important still will be the effect of domestic credit and currency policy, not only on the course of domestic prices and domestic consumption but even on the course of imports and exports.

The business of the Transfer Committee is to make the largest volume of transfers that can possibly be made without upsetting the stability of the exchange. The Committee, in other words, will be dealing constantly with the net result of all of these various factors, which will themselves be reflected in the state of the exchange. To some extent, of course, the Committee will be able to mold the situation, particularly through the pressure of its policy on credit and currency conditions and by its powers to deal with financial manœuvres calculated to prevent transfers. But there will always remain a multitude of influences outside of its control, many of them beyond the control of the German economy itself. For these things, it is clear, the Committee cannot assume responsibility, much as it might like to have the opportunity of controlling them.

Broadly speaking, the task of the Transfer Committee must be to do the best it can under the conditions given to it, and to make the maximum transfers that experience indicates may be made without danger to the exchange. It will be its constant effort to discharge that duty to the best of its ability and with justice to the interests of all concerned. That may or may not mean the full transfer to the creditor Powers of the available Annuity in any given year. But it will mean that the Plan has operated as it was intended to operate, and that reparation transfers will have been made to the maximum extent permitted by conditions as they actually develop.

So far as the operation of the Plan up to this time is concerned, it is unnecessary to do more than summarize the principal results. Generally speaking, those charged with the administration of the Plan have approached their task, like the Experts themselves, "as business men anxious to obtain effective results." The Plan itself is functioning smoothly and in ano rderly way. The two preliminary objects for which the Experts were originally appointed have been attained. Germany now has a stable currency and the German budget is balanced. These were the essential conditions of German economic recovery, as well as of reparation payments. The budget, in fact, has thus far shown a considerable surplus, even in the face of mounting expenditure. For the time being it has given the German Government, to an unusual degree, the problem of wise administration of its public funds, and in the long run the more fundamental problem of better adaptation of the public revenue to essential expenditures.

In the field of reparation payments the Plan has also had notable results. The first Annuity of 1,000 million gold marks was all paid within the year, four-fifths out of the proceeds of the German External Loan and the balance by the German Railway Company in the form of interest on its reparation bonds. In the second Annuity year, over four months of which have now elapsed, the amount to be paid rises to 1,220 millions of gold marks, and involves for the first time a charge on the German budget. These payments Germany is making each month with the utmost promptitude. At the same time she has coöperated helpfully in making arrangements for future payments that will facilitate the even flow of deliveries and payments to the creditor countries. The various creditor Powers, on their part, have been receiving reparation deliveries and payments regularly and in accordance with expectations, ever since the Plan went into effect.

From the point of view of German reconstruction, the Plan has certainly marked the turning point in the recovery from the disorder and disorganization of the inflation. The first year was regarded by the Experts themselves as giving an opportunity for economic rehabilitation, and it accordingly placed no burden for reparations on the German budget and but little on the German economy. It has been more than anything a period of gradual readjustment and rebuilding. Much progress has been made, but the readjustment is still actively in process and many difficulties remain to be overcome. German business and industry are still greatly in need of working capital, and in many fields face serious problems of reorganization. In some directions this has produced conditions approaching crisis, but generally speaking the present difficulties must be regarded as the inevitable accompaniments of deflation and of the return to stable conditions, and in that sense as necessary phases of the recovery itself.

As to the ultimate possibilities of reparations under the Plan and the future of the reparation problem, it is too early to draw conclusions. The fact remains, however, that the Plan has already succeeded in placing the whole problem on a new basis. The world has been able, for the first time in many years, to stop talking about reparations, and instead to find out in a practical way what the payments mean and how far it is feasible in actual practice for reparations to be paid by Germany and transferred to the creditor Powers. The best answer to speculations about the future is that the Plan has within itself the seeds of growth and the flexibility that should make it feasible to keep pace with changing conditions. This is a fact of the highest significance to its future progress, and it should not be overlooked that in concluding their Report, the Experts themselves said: "We would point out, finally, that while our plan does not, as it could not properly, attempt a solution of the whole reparation problem, it foreshadows a settlement extending in its application for a sufficient time to restore confidence, and at the same time is so framed as to facilitate a final and comprehensive agreement as to all the problems of reparation and connected questions as soon as circumstances make this possible." The Plan itself is truly a living thing, and it has within itself the best protection against future deadlocks on the reparation question.

The Experts also emphasized, in concluding their report, that the reconstruction of Germany was not an end in itself, but was only part of the larger problem of the reconstruction of Europe. From this broader point of view, the Plan has set an example of taking problems in their proper order and of moving step by step to the larger goal of European reconstruction. By taking the reparation problem out of the field of political controversy it has greatly helped in the creation of a better atmosphere in Europe and has played a vital part in preparing the way for the recent pacts of arbitration and security. It has given practical encouragement to the spirit of conciliation, and has made it possible for Germany to assist in a tangible way with the reconstruction of the countries which suffered so much from the destruction and devastation of the war. As its operation continues it should contribute in increasing measure to the progress of economic restoration and the general return of stability in Europe.

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