THE defeat of Germany in the last war left vanquished, victors, and the world at large with an evil legacy in the shape of what came to be called "the German reparations problem." It helped to produce an embittered German people. It aroused friction between the erstwhile Allies. It bedevilled international economic relations. It acted as a barrier to the construction of a satisfactory political world order. In all these ways it helped to lay the ground for a second world war. In no quarter today will it be contended that the victors handled the issue wisely. But there is still much difference of opinion as to the nature of the errors made.

History is going to repeat itself in the form of another decisive defeat of Germany. It may repeat itself also in the form of a second German reparations problem, leading to a third world war. What few official pronouncements have been made and what public discussion has occurred reveal that for the most part what happened before has not been forgotten and that there is a determination not to repeat the errors then made. They do not reveal, however, either clearness or unity of opinion as to what these errors were, or that, if they are successfully avoided this time, there will not be substituted for them a new set of errors of perhaps equal trouble-breeding potentiality.

The issues involved are complex, both in their economic and political aspects. For the most part they are not of a kind for which certain and precise answers are available. The decisions concerning these issues must be such as are acceptable to the peoples of the United Nations at the time they are made. During the last war the important decisions were postponed until after the formal peace negotiations were under way. Except in England, there was no previous cool-headed survey of the possibilities of collecting reparations and of the economic and political implications of such collection. There had been no general conferences of the Allies on the reparations question on either the expert or the political level before the Armistice, and no consensus of opinion had been reached. When the meetings of the Peace Conference revealed that the reparations question was a major one, and that there was sharp conflict of attitude thereon between the Allies, President Wilson was taken by surprise. By this time fantastic expectations had been aroused and the politicians did not have the courage to disillusion their followers.

If the leaders of the United Nations are reluctant today to engage in reparations discussions among themselves, long before the enemy is beaten, this is natural enough. They are preoccupied with more pressing matters. They may not like to seem to be counting the chickens before the eggs are hatched. Merely acting like a good ally may exercise a sufficient strain on their capacity for statesmanship without raising troublesome questions the urgency of which has not yet become apparent to all. Nevertheless, before hostilities cease the United Nations will find it necessary to agree at least as to the general principles which shall govern the determination both of the reparations bill as a whole and its apportionment among the claimant countries -- that is, if the decisions to be made this time are to be wiser than those reached after the first World War. Public opinion must be cautioned against exaggerated expectations, and leaders must be warned in time against making policy commitments which are incapable of fulfilment or which render a satisfactory settlement difficult to reach. Public discussion is a necessary preliminary to the formulation and clarification of the issues involved, and it is only by participating in such discussion in as objective and coolheaded a temper as possible that the private citizen can make any contribution to a wise solution of the problem.

II

I start from certain assumptions, which seem to me axiomatic. The injury inflicted upon the United Nations by Germany's aggression is greater than her conceivable capacity to make amends. The German nation carries full moral responsibility for this aggression. The only limits to the demands made upon Germany for reparation should be those set by the genuine long-run economic and political interests of the peoples who have been the victims of her aggression.

Real payment of reparations can be made in only two ways: by the surrender to the claimant countries of external assets owned by the debtor government and its nationals; and by the debtor country exporting goods and services exceeding in value the goods and services which it imports. For Germany to borrow abroad the funds with which to pay reparations, as she did last time, does not represent a genuine third alternative. It merely either postpones the necessity for an export balance or postpones the date of obvious default.

The possibility of collecting reparations from Germany in substantial amount through seizure of the assets abroad owned by the German Government or its nationals may be discarded from consideration. If we exclude the assets acquired by Germany during the war, the German holdings abroad, whether of real property, of securities, or of patents, royalty rights, shares in business enterprises, etc., are of modest proportions; and a substantial proportion even of these is owned by refugees from the Nazi régime who have already suffered sufficiently for the sins of others. The valid claims of nationals of the United Nations on German government and German business antedating the war probably far exceed in amount all legitimate German assets outside Germany, and these private claims should probably be given priority over reparations claims. In so far as assets outside Germany were acquired by Germany during the war, they were acquired for the most part by theft, chicanery, or force and, in so far as they can be located and identified, will no doubt be repossessed and turned over to their rightful owners. They will not affect the issue of reparations proper although they will give rise to sufficiently difficult legal, administrative and political problems on their own account. Germany's capacity to develop an export surplus is, therefore, the sole possible source of substantial reparations payments.

Whatever reparations payments Germany will make must be made through German governmental channels. In so far as they are made from stocks of goods -- machinery, rolling-stock, ships, merchandise, etc. -- existing in Germany when hostilities cease, the German Government can expropriate them and make such arrangements for repayment of their previous German owners as it wishes. In so far as the payments come from the flow of currently-produced German goods and services, whether these are purchased by individuals in the creditor countries or are turned over in kind by the German Government to the creditor governments, the German Government must tax its people sufficiently, or borrow from them sufficiently, to acquire the German funds with which to reimburse their producers. Assuming a stable price level within postwar Germany and given the size of its reparations obligations in terms of German currency, the capacity of the German Government to raise by taxation or internal borrowing sufficient sums to meet its reparations obligations over and above its other budget requirements will depend on the size of the German national income, its distribution, the efficiency of the German taxing and borrowing machinery, and the attitudes of the German taxpayers. At some point, not determinable in advance, the demands on the taxpayers would exceed their capacity or their willingness to meet them. Persistence in making demands beyond this point would result in the overthrow, by parliamentary or other methods, of the government making them. If a German Government should resort to currency inflation to stave off both default on reparations and its own overthrow, the result would be economic disorganization and social strains which would impair the capacity to pay for many years.

On the other hand, governments of many countries, and notably the Nazi Government, have in recent years managed to carry taxation to heights which no one in the 1920's would have believed attainable. We know also from past experience, including that of Germany, that if something like full employment can be maintained during a postwar period the loss of economic productivity resulting from wartime destruction of manpower and of material resources can soon be repaired. Only a comparatively short period of time is needed to bring national output to a higher level than it was in the prewar period, provided that for a trading country like Germany the export market situation is not unfavorable.

It may be presumed that Germany will be disarmed. The savings in military expenditures alone would free huge resources of labor and materials and would make possible both substantial provision for reparations and a considerable increase in the German standard of living above its level under Hitler. It was not a low level before the war, compared to the standard in some of the countries which will claim reparations. But this will be possible, and will result in the actual payment of sizeable reparations, only if substantially full employment is maintained and if the German people can be persuaded or coerced into giving up for reparations an appreciable fraction of what they gave up without real resistance for Hitler, Nazism, and dreams of world-empire. It will be possible, moreover, only if the claimant countries are willing to accept reparations in the kinds of goods and services which Germany can produce.

III

This brings up the "transfer problem" about which economists wrote so much -- and so much nonsense or half-sense -- after the first World War. Everyone is agreed that there may be a vital difference between the capacity of a German Government to collect a given sum in a sound German currency for reparations payments and its capacity to convert these internal receipts into correspondingly large payments to other countries in terms of their currencies. As Germany tries to obtain the necessary foreign funds by pushing its exports on world markets, it is argued, the prices of these export commodities will fall. With such a fall in prices the quantity of German exports of goods and services necessary to redeem a given reparations liability will correspondingly increase. This increase will extend not only to the exports which pay the reparations bill but also to the exports which pay for the necessary German imports. It has even been argued -- most notably by Keynes -- that as German exports were pressed on the world markets, the fall in the prices of exported articles per unit might well exceed the rise in the number of units sold, so that the greater the physical volume of German exports the further away from meeting its reparations liabilities Germany would be.

Appeal to experience, unfortunately, throws little light on this issue. The only historical instances of net unilateral payments by one country to other countries on a large scale and for a long period consist of: (a), wartime loans and subsidies, when the hunger of the receiving countries for goods prevents any transfer problem from arising; and (b), capital exports by England and France before 1914 and by the United States after 1919, where the voluntary character both of the lending and of the borrowing would tend to lead automatically to a cessation of the flow if any sign of impending transfer difficulty made its appearance. In the few pre-1914 cases of appreciable reparations payments -- or "indemnities" as they were then called -- notably after the Napoleonic, the Franco-Prussian and the Russo-Japanese Wars, the demands were for definite and moderate payments, and these were made within a short period through surrender of external assets and from the proceeds of external borrowing.

In the first years after the first World War, substantial net reparations payments were made by Germany mainly by surrender of external assets and by payments in kind from existing stocks of goods. In each year from 1924 to 1929, Germany borrowed abroad net more than she paid in reparations, so that the net transfer was to Germany rather than from Germany; and from 1932 on, reparations payments practically ceased. In 1930 and 1931, Germany did make and transfer fairly substantial payments of reparations. They amounted to more than $750,000,000 for the two years combined, if liquidation of indebtedness is included as the economic equivalent of payments in arrears on reparations account, as it should be. The economic transfer was accomplished by a shift in the German commodity trade balance from an import surplus of approximately $850,000,000 in 1927 and $460,000,000 in 1928 to an export surplus of approximately $230,000,000 in 1930 and $715,000,000 in 1931. This, if anything, is evidence indicating that the transfer problem, whatever its degree of reality, was not an insuperable barrier to real reparations payments.

By 1931, however, economic depression was in full sweep in Germany, and that country's economic difficulties had led to a moratorium on German reparations payments, declared at President Hoover's initiative. There can be no question but that the economic crisis in Germany was intensified by the burden of reparations. It should be remembered, however, that the depression was world-wide. The United States, which had no reparations to pay, which had been receiving on inter-Allied debt account payments in excess of Germany's actual reparations payments, and which had ceased to export capital before the onslaught of the depression, was suffering from an economic crisis even more severe than the German one. The record of the episode offers no concrete support to those who claim that the transfer problem is an insuperable barrier to substantial reparations payments. But it does not prove the contrary.

Our only hope of reaching a conclusion about the transfer problem is by resort to theoretical analysis. Reduced to its essentials, the problem makes its appearance, if at all, only when the attempt of the paying country to transfer its payments through increased exports[i] results in a significant fall in the prices of its export commodities on world markets. In Germany's case, such a fall in export prices could result from three main causes: (a), the natural behavior of markets when they are asked to absorb increased quantities in the absence of an increased demand [ii]; (b), the onset of a world depression simultaneously with the initiation of substantial reparations payments; and (c), the existence, and especially the increase, of tariff and other barriers to German exports, tending to make the prices of German export commodities especially susceptible to sharp declines when attempt is made to expand the physical volume of exports. With respect to the two first factors, either nothing can be done, or what can be done should be done for much more pressing reasons than to facilitate the transfer of German reparations. The third factor, however, is more subject to control, and therefore is entitled to fuller examination.

Countries which impose such restraints on the inflow of German goods that German exports find it impossible or abnormally difficult to overcome them, demonstrate by that fact their unwillingness to receive reparations in the only practicable way in which they can be delivered. It is of course impossible, even in a world devoted to the gold standard and multilateral trade, for any country without rich gold mines to make payments in foreign currencies year after year unless it is permitted to procure these currencies by selling its commodities abroad.

In so far as the transfer problem is real, it is made so mainly by the trade barriers of the claimant countries. After the last war, the reparations-receiving countries erected special barriers against the inflow of German goods! The first principle in any sensible reparations settlement should be that no country's claims for reparations will be recognized except to the extent that it is willing to guarantee that it will accept additional shipments from Germany of types of goods which Germany can effectively produce at prices not far below those which could be expected to prevail in the absence of reparations.

IV

Many persons, including many economists, grossly exaggerate the extent to which the substitution of payments in kind removes or reduces the transfer problem. Payments in kind, whether to meet reparations liabilities or any other kind of debt, are a primitive form of conducting economic transactions. They are clumsy, inflexible, difficult to administer, and open the way to limitless disputation and chicanery, turning on qualities, types, modes of delivery, etc. They lead to serious waste of the goods involved or of the labor and materials entering into their production. Moreover, unless the payments received in kind represent imports of types of goods which are an addition to those which would come from any outside source in the absence of reparations, they contribute nothing to the solution of the transfer problem. They merely concentrate it on the non-reparations segment of Germany's trade relations with the outside world or shift its incidence to third countries. There is nothing in the inherent nature of payments in kind to facilitate the transfer of reparations. The only advantage they have in this respect is that they lend themselves more readily to specifications of the form and character of the reparations liabilities than do payments in money. They can thus be made partially to assure that the movement of goods and services on reparations account shall be an additional movement over and above normal non-reparations trade. Full assurance of this is in practice impossible. To approach the maximum attainable it would be necessary to provide not only that the reparations liabilities be specified in terms of types of goods and quantities, instead of in money -- or better, as well as in money -- but also that: (1) either the goods eligible for reparations payments must be of types not normally imported from any source by the claimant countries, or only quantities in excess of normal imports are eligible; (2) the eligible goods must be of types not requiring for their production substantial quantities of raw materials not abundant within Germany, unless the claimant countries are willing to undertake to provide Germany with the required materials without charge; (3) the eligible goods must be of types which can be produced in Germany at reasonable costs; (4) the receiving countries must pledge themselves not to reëxport any of the reparations-goods and not to export similar goods of domestic production in excess of the normal quantities without German consent; (5) the receiving countries must pledge themselves not to destroy, waste, or accumulate indefinitely the commodities received as reparations.

In reality, the chief contribution which substitution of payment in kind for payment in money can make to the solution of the transfer problem is to provide a procedure whereby the demands of claimant countries can be limited to what they are actually willing to accept. But this is a major contribution toward the solution of the transfer problem, and indirectly toward a solution of the reparations problem as a whole. For countries relish the abstract idea of receiving reparations much more than they do the reparations themselves. If they were obliged to face in advance the necessary implications of the process of getting them their eagerness for huge reparations would evaporate.

Many countries now believe that receipt of reparations in the form of an increased inflow of goods and services is not in their economic interest. This belief would be a useful safeguard against excessive demands if these countries would recognize the fact that no more should be demanded in monetary terms than was sufficient to pay for the quantities of goods and services they were genuinely prepared to accept. Straight thinking calls, however, for careful distinction between the circumstances under which this belief is valid and those under which it is pernicious nonsense. It is closely related, in the minds of most of those who hold it, to the fear of cheap imports, as if they were a plague instead of, normally, a blessing. It belongs with a wide and strange assortment of related views, such as that the value of production is in the employment it involves rather than in the product it yields, that imports are an unfortunate prerequisite for exports instead of being the purpose for which exports are made, and that general prosperity can be promoted by artificially created scarcity.

It is topsy-turvy economics; but even in a world which is only partly topsy-turvy there are occasions when it makes real sense. In an economic system permeated by price-rigidities, by monopolistic restrictions on output, and by occupational and regional immobilities of labor resulting from trade-union regulations, defective education, malnutrition, racial and religious barriers, and so forth, an extra inflow of goods from abroad may, for a time at least, merely replace a corresponding amount of domestic production, instead of providing greater abundance for the people as a whole. Our own American economic system is to a deplorable extent a system of just that kind, partly as the result of chance and circumstance, partly because men in office and men out of it have planned it that way. Given that sort of economy, and assuming that reparations would continue long enough to strain the limited capacity of the system for a flexible absorption of the increased quantities of desirable goods but not long enough to break down the rigidities which limit its capacity for such absorption, there is reasonable doubt whether the benefit which the receiving country derives from reparations matches the injury they inflict.

For reasons to be presented later, it is urgent that the period during which Germany shall be liable to pay reparations shall not be protracted. There is much talk of reshaping the economies of the world after the war is over. What is in sight so far, however, offers little basis for the expectation that any very substantial structural changes will come quickly after the close of hostilities or that what changes do occur will increase the flexibility and adjustability of most economies. If the immediate postwar world conforms to my rather dismal prognostications, then most of the United Nations should, in their own economic interest, move very cautiously before they commit themselves to accepting substantial amounts of German reparations, beyond the short period of universal scarcities which will in all probability prevail immediately after the termination of the war. They should at the very least bear in mind that, given the nature of their economic systems, there will be no "automatic" absorption of substantial extra inflows of goods without serious disturbance to their own economies; and that it will not take place at all except with the aid of much more rational and skillful central planning than has commonly prevailed in the recent past.

Another idea of the same order is that heavy reparations demands on Germany, which keep her industries fully employed, give her wide business connections, and make her products familiar to other peoples, will work to her long-run advantage by building up her productive facilities and giving her a predominant position in the export markets of the world. The idea is basically absurd. If it were not, it would be sensible to tell General Motors that it can grow rich by giving its cars away instead of trying to sell them, or to tell the United Nations that they can keep Germany poor and weak after the war by paying reparations to her. Absurd though the idea may be, however, its prevalence may exercise a useful restraint on the demands made on Germany.

A much sounder economic reason for self-restraint is that it is in the interests of the world at large, and of the United Nations as a whole, not to impose heavier obligations on Germany than she can carry without serious impairment of her productive capacity. A peaceful and productive Germany serves the rest of the world by providing it with desirable commodities and services at lower prices than those at which they can otherwise be procured. Germany, when she is behaving herself, is, like every other country which engages in peaceful economic competition in the world's markets, a goose which lays golden eggs for other countries. Killing or maiming the goose means accepting a long-run loss for the sake of a much smaller, and possibly spurious, short-run gain.

V

No one can now know in what condition German productive facilities will be when the war ends. Bombing-damage and the destruction caused by invading armies, the extra wear-and-tear resulting from intensive wartime use and from skimped maintenance and replacement and the depletion of raw materials supplies will make Germany seem, and feel, very poor indeed. On the other hand, there has undoubtedly been great expansion of productive capacity in all branches of industry serviceable for military purposes, and much of it -- probably very near all -- will be convertible to peacetime uses. If a breathing spell is given for relief and reconstruction, there seems to me to be little ground for doubt that Germany's capacity to pay reparations will be substantially greater than it was in the 1920's, as far as German productive capacity in excess of minimum German needs is concerned. And the Germans have learnt much since the 1920's as to ways of keeping production going full-blast and of tapping the product for governmental purposes.

With respect to the transferability of reparations, and also to the German ability to pay for her essential imports of foodstuffs and materials, the situation of Germany may be worse in the early postwar period than it was in the 1920's. Tariffs then were high and rising. Since that time they have everywhere risen still further, and exchange controls and import quotas have been added as even more powerful devices for smothering foreign trade. It is anyone's guess as to whether there is real willingness in any major country to return even to the trade-barrier levels of the 1920's, let alone those of the pre-1914 period, when they were already higher on the whole than ever before. Germany in the 1920's borrowed abroad both to reconstruct and expand her industrial facilities and to pay reparations -- and then defaulted on her debts. It seems improbable that foreign money markets will be opened to her this time on a lavish scale for any purpose, or on any scale for enabling her to go through the motions while avoiding the substance of reparations payment. Next time the world will surely see to it that if the reparations requirements are reasonable she shall meet them genuinely; and the unavailability of external financing, even for postponement in good faith, will make things harder for her.

But Germany should this time be enabled, and compelled, to avoid going through the agonies and the destructiveness of a runaway inflation. Taking it all in all, it seems reasonable to suppose that, after a comparatively short breathing spell when restitution of stolen property on as grand a scale as proves feasible will be in order, and when Germany will even be given relief from outside to prevent starvation and to enable her to get on her feet again, she will be able to pay at least as much reparations as the claimant countries -- with one important exception -- would be willing to accept and absorb into their economies. The exception, of course, is Soviet Russia. Her type of economy gives her practically unlimited ability to accept imports without involving difficult problems of internal adjustment, and in all probability her willingness to accept German reparations will also be unlimited as far as purely economic considerations are concerned.

We may conclude that if the claimant countries can be persuaded to restrict their demands to what they are genuinely willing to accept in the form of imports of goods and services, there will not be, on economic grounds, any need to set additional limitations on their demands. Considerations of a political order, however, point to the urgent need for such limitations.

If the world is to be reasonably harmonious and peaceful the German people must before long be admitted as members in good standing in the family of nations. It will be unrealistic to expect that the degree of coöperation necessary to make this possible and safe will be obtainable from the German people until reparations obligations have been fully liquidated or at least a definite and early end is in sight.

A people like the German people, abundantly supplied with courage, pride and will-power, but with less even than the normal meager capacity for consciousness of guilt or remembrance of the penalties of past intransigence, will not accept a tributary status without looking around anxiously for means, even desperate means, of possible escape. It goes against all experience to expect that the German people would accept reparations payments as a debt whose default would involve a stain on their national honor. Intergovernmental obligations of less arguable validity have had a feeble enough status as it is, and few of the claimant countries would be in a position to cast stones in this regard. The Germans will carry out their reparations obligations only as long as they believe that the costs to them of default will be greater than the costs of fulfilment, and they will be capable of grossly underestimating the former and grossly exaggerating the latter. No German government will be tolerated by its people which honors its reparations obligations for a day longer than the people take to be unavoidable. And military sanctions in the form of occupation or the threat of occupation of German territory are likely to be the only sanctions, the only penalty for non-compliance, which the Germans will take seriously. In effect, reparations will be collectible in substantial quantities only by resort to force or the threat of force. Whatever may be desirable on other grounds, policing of Germany by the United Nations will be necessary, therefore, so long as she has unliquidated reparations obligations which the creditors insist must be paid. If a world police force under wider auspices than the United Nations were to be set up, it is unlikely that it would relish taking over the function of collection. The prolonged demand for reparations payments may therefore prove a barrier to the organization on a genuinely universal basis of an adequate system of collective security.

If the United Nations wish the German people to have a genuinely democratic government, they will find that acceptance of such a government will depend in large degree on its ability to bring reparations obligations to an end within a comparatively short run of years. The United Nations also may have conflicting interests as to the political complexion of Germany, and these may produce divergences in their reparations policies. It is conceivable, for instance, that neither Soviet Russia nor a leftist postwar England will want to continue for long to impose reparations on a people of similar political complexion. It is conceivable also that Soviet Russia or England may find cancellation of reparations suitable bait to offer to the Germans as incentive for moving in the desired political direction. The American interest in reparations will probably not be much greater than it was after the last war. Of all the major countries, we have the greatest aversion to imports, and the less we have to pay for them the less we like them. Our own territory will not have been devastated and our own people manhandled, and we will not have a strong emotional drive for punitive reparations. The substitution of lend-lease for loans to our Allies will remove one reason for hesitation about pressing them for restraint in their demands.

There will not this time be a powerful France, clamoring for the last extractable mark, unwilling to expend the marks she did receive on the purchase of German commodities, and toying with the idea that default was not an unmixed evil since it might be exploited to justify the reoccupation of German territory. It will be the smaller countries, like Czechoslovakia, Holland, Norway, Belgium, Poland, Greece, who will have the strongest moral claims to reparations and the strongest emotional drive for exacting them; but it will be the military strength of the major powers among the United Nations which will have to be relied upon to do the actual collecting. Their ardor in collecting on behalf of other countries will shrink as passing time weakens both their sympathies for the sufferings of their weaker allies and their anger against the country guilty of inflicting them.

VI

To sum up. To facilitate the return of Germany to the family of nations; to limit reparations to the period in which the United Nations can reasonably be expected to maintain a united front on this question; and to prevent reparations from being an obstacle to the evolution of a sound system of collective security, the reparations bill must run only for a definite period of years. It should certainly not exceed ten years.

If there is merit in the views here expressed, then a program of early action is called for, under two main headings:

1. A United Nations conference should be called in the near future with the purpose of reaching agreement on the main principles which should govern the handling of the reparations question. These principles should include, as a minimum, all of the following:

(a) Each of the United Nations should agree that it will not at any time take separate action or conduct separate negotiations with Germany on questions relating to reparations.

(b) There should be agreement that no country should be given any claims on Germany on account of reparations beyond the amounts for which that country is prepared to offer guarantees that she will absorb the commodities involved into her economy without disturbance of her normal trade relations with Germany and with third countries.

(c) There should be no "punitive" reparations, i.e., no reparations should be imposed on Germany solely for the sake of the injury they render her.

(d) All reparations liabilities of Germany should terminate within a short number of years, provided she has met or in good faith attempted to meet all of her prior obligations as fully as practicable.

(e) Where the approved demands of the claimant countries exceed the limits of either what it is possible for Germany to provide or what Germany can provide without impairing her long-run productive efficiency, these limits should be made applicable and the allotment of the quantities available and the decisions as to priorities shall be made by joint agreement of the United Nations.

2. A Reparations Commission should be set up by the United Nations before the cessation of hostilities, with the duty of putting into operation the principles previously agreed upon by the United Nations and of recommending, in the light of experience and of representations made by Germany, by any of the United Nations, or by neutral governments, modifications and extensions of these principles.

A program such as this would go far, I believe, toward minimizing the chances that the reparations question would again operate as a serious disturbing factor in international political and economic relations. Conflicts of interest and of purpose would still arise. No magic recipe is offered here for the elimination of all differences. No guarantee is possible that all the decisions made will be wise and dispassionate. But the procedure here proposed will enable decisions to be made promptly when an issue arises, will provide a hearing for all interested parties, and will place the power of ultimate decision in a body with such wide membership that on every question which arises there will be some at least among those participating in the decision who will be able to maintain an objective and judicial attitude. It is not clear to me that any better alternative is available.

[i] It can transfer them also in part through decreased imports, with a consequent tendency, favorable to itself, of the prices of its import commodities to fall.

[ii] The receipt of reparations payments, if used to reduce internal taxation or to increase government expenditures, would operate to increase demand for commodities in general in the creditor countries, and some fraction of this increased demand would even in the first instance normally be directed to German commodities. This is a partial answer to Keynes' argument that if the foreign elasticity of demand for German goods were less than unity (i.e., if, other things being equal, an increase in the amount of German goods offered for sale in export markets resulted in a more than proportionate decrease in their unit prices), transfer would be technically impossible. It may be worth noting that if the German Government exercised tight control over the volume of exports, and if the unit prices of these varied in inverse direction to and in greater degree than the variations in their physical quantities, this would furnish the ideal conditions for paying reparations. Germany could meet her reparations obligations by reducing the physical volume of her exports!

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  • JACOB VINER, Professor of Political Economy at the University of Chicago; Consultant, Treasury Department, since 1936; Editor of The Journal of Political Economy
  • More By Jacob Viner