Iii the Dawes Report

The report set out the varying economic principles underlying the payment of reparations—principles which, up to that time, had not been generally recognized by the public or acted upon by politicians. In this connection it was laid down, for example, that : There has been a tendency in the past to confuse two distinct though related questions, i.e., first the amount of revenue which Ger many can raise available for reparation account, and, second, the amount which can be transferred to foreign countries. The funds raised and transferred to the Allies on reparation account cannot, in the long run, exceed the sums which the balance of payments makes it possible to transfer without currency and budget instability ensu ing. But it is quite obvious that the amount of budget surplus which can be raised by taxation is not limited by the entirely distinct ques tion of the condition of external transfer. We propose to distinguish sharply between the two problems, and first deal with the problem of the maximum budget of surplus and afterwards with the problem of payment to the Allies. In the past, the varying conclusions formed as to Germany's "capacity" have often depended upon which of these two methods has been chosen.

Schedule of Payments.

The provisions made for payment under the treaty were as follows:— Million Budget ; Moratorium Period: gold marks First year: from foreign loan and part interest (200 millions) on railway bonds ; Total of . . . . . . . . 1,000 Second year: from interest on railway bonds (in cluding 130 millions balance from first year) and interest on industrial debentures and budget con tribution, including sale of railway shares ; Total of . . . . • • . . 1,220 Transition Period: Third year: from interest on railway bonds and industrial debentures, from transport tax and from budget ; Total of . . . . . . . . 1,200 Subject to contingent addition or reduction not ex ceeding 25o million gold marks.* Fourth year: from interest on railway bonds and in dustrial debentures, from transport tax and from budget ; Total of . . . . . . . . 1,75o Subject to contingent addition or reduction not ex ceeding 25o million marks.* Standard Year: Fifth year: from interest on railway bonds and in dustrial debentures, from transport tax and from budget ; Total of . . . . . . . . 2,50o *By subsequent agreement, Sept. 8, 1926, these two contingent pay ments were replaced by a single definite payment of 30o million gold marks during the third Annuity year.

The first year was to begin to run from the date when the Plan should have been accepted and made effective. These payments were to be absolutely inclusive of all the various expenses for military purposes that were being thrown upon Germany. They

were also to include the value of deliveries in kind.

Securities for Payment.

The "securities" proposed were of three kinds : Taxes, railways and industrial debentures. As re gards railways, the whole system was to be made over to a corn pany and be no longer directly under the Reich. Railway bonds were to be set up. Eleven milliards of first mortgage railway bonds against a capital cost of 26 milliards to be created for reparations; these bonds to bear 5% interest and 1% sinking fund per annum ; in view of reorganization, interest to be accepted as follows :— 1924-5 33o million gold marks. 1925-6 465 million gold marks. 1926-7 55o million gold marks. 1927-8 and thereafter: 66o million gold marks.

Behind the bonds there were to be created :— 2 milliards of preference shares to be reserved for sale to the public and 13 milliards of common stock.

Three-fourths of the proceeds of the preference shares was to be applied, as required, to the payment of debt and for capital expenditure of the railways. The remaining 500 millions of preference shares and all the common shares were to go to the German Government. They assigned the Transport Tax to the extent of the first 290 million gold marks for reparations. Indus trial debentures were recommended : Five milliards of industrial debentures were to be provided for reparation ; these bonds to bear 5% interest and 1% sinking fund, i.e., 30o million gold marks per annum. Pending economic restoration, interest and sinking fund were to be accepted as follows : First year Nothing.

Second year 125 million gold marks.

Third year 25o million gold marks.

Thereafter 30o million gold marks.

As further guarantee, they proposed to pledge certain revenues as collateral security, i.e., the taxes on alcohol, tobacco, beer and sugar, and the customs, but only up to definite limits. An arrange ment for control, simple in the ordinary course, but becoming drastic if circumstances demanded, was recommended. The new organization therefore required a trustee for railway and industrial bonds, three commissioners of (I) railways, (2) the bank, (3) controlled revenues, and they recommended an agent for repara tion payments to co-ordinate the activities of the above and to preside over the transfer committee. The feature of the plan on which its whole inception depended was the raising of a foreign loan of Boo million gold marks, which had to serve the double purpose of a gold reserve and also financing the internal payment for the treaty in 1924-25. The report claimed to take the question of "what Germany can pay" out of the field of speculation and put it in the field of practical demonstration.