The categories of damage the Allies were entitled to claim were not invented at Versailles. They were set by Wilson's Fourteen Points as modified by the Allied qualifying Note of 5 November 1918, formally communicated as the basis of peace: compensation for damage to civilians and their property by German aggression on land, by sea, and from the air. Wilson's speech of 11 February, an express part of the contract, added "no contributions" and "no punitive damages." Some later argued that a preamble to the Armistice, reserving future Allied claims, wiped those limits away. Keynes treats that phrase as ordinary drafting, not a repeal of weeks of solemn notes, and the Allies' own reply to German observations later admitted that Reparation must follow the November Note. Lawyers stretched "civilian damage" until it meant the whole cost of the war, because taxation hurts civilians. Keynes will not have it. At the Armistice, responsible men were thinking of invaded ground, air raids, bombardments, and the submarine, not of a general indemnity. He then does the unwelcome work of guessing a payable bill: Belgium not above $2,500,000,000 even with war advances; France about $4,000,000,000 against ministerial claims running to $13,000,000,000, $15,000,000,000, even $26,800,000,000; Britain, mostly ships, about $2,850,000,000; other Allies about $1,250,000,000. Total, $10,600,000,000, certainly more than $8,000,000,000 and less than $15,000,000,000. A wise settlement, he thinks, would have asked Germany for $10,000,000,000 and divided it by need. The question was not settled on its merits.
A month after the Armistice the atmosphere had changed. Germany was helpless; unconditional surrender could have been had. Lloyd George, needing a cry before his Coalition cooled, decreed a General Election. His 22 November manifesto spoke of a just and lasting peace and said nothing of hanging the Kaiser or of a great indemnity. By 29 November at Newcastle, Germany "must pay as far as she can." Party managers wanted ginger. Hughes and Northcliffe wanted a vast indemnity. Sir Eric Geddes promised to squeeze Germany until the pips squeaked. On 11 December the Six Points included "Fullest Indemnities from Germany," and at Bristol the Prime Minister laid down that the Allies had an absolute right to the whole cost of the war and proposed to demand it. A new House arrived looking, a Conservative friend told Keynes, like hard-faced men who had done very well out of the war. France and Italy, unlike Britain, had already written vast receipts from the enemy into budgets that would not otherwise balance. Clemenceau wanted Germany weak more than he wanted her solvent; Klotz needed the pretence of payment. Between them they produced incompatible clauses. Article 231 made Germany accept moral responsibility for all loss from the war. Article 232 then limited payment, in the published text, to civilian damage, until Annex I quietly added pensions and separation allowances, a British device to enlarge the British share without quite naming the whole cost of the war. With pensions Keynes's upper guess leaps from $15,000,000,000 to about $40,000,000,000. No total was written into the Treaty. Politicians could not name a capacity figure the public would accept, nor a damage figure the Germans could not attack. The safest course was to mention no figure at all.
What the Treaty did write down was machinery. $5,000,000,000 before 1 May 1921, including occupation costs and, at Allied discretion, food and raw materials; then $10,000,000,000 more in bearer bonds, then another $10,000,000,000 when the Commission is satisfied Germany can do better; then further bonds until the whole of Annex I is covered. Interest at 5 per cent rolls up on whatever is not covered. If Germany pays $750,000,000 a year until 1936, she may still owe more than she does now. Keynes's word is that she has engaged to hand over her surplus production in perpetuity. He then asks, in three forms, what she can actually pay: gold, ships, and foreign securities; property in ceded territory for which credit is often refused; and an annual tribute in cash and kind. After shipping, gold, and securities are taken, and after ceded forests and state property are scored at little or nothing, the remaining question is export surplus. Even a generous guess, $500,000,000 a year over thirty years, capitalises at about $8,500,000,000. Including everything, $10,000,000,000 is a safe maximum of capacity, and he does not believe she can pay as much. $40,000,000,000, or even $25,000,000,000, is not within reasonable possibility. Those who say she can pay hundreds of millions sterling a year must name the goods and the markets. Until they do, they do not deserve to be believed. Nursing her trade for a decade, a collapse in gold, or a scientific revolution could change the arithmetic. None of those is a reason to say she can pay $50,000,000,000 now.
Because the sum is unfixed and unpayable, a body must extract the utmost year by year. The Reparation Commission sits in Paris as party and judge, with diplomatic privileges and salaries paid by Germany, who has no voice in them. It fixes the bill by May 1921, schedules thirty years of interest, may demand any German property whatever until that date, expropriates overseas utilities, decides how much life to leave in the patient, values the Saar and the ships without appeal, and may trigger reoccupation under Article 430 if it finds default. The German Financial Commission at Versailles said German democracy was being annihilated and the country placed in the hands of a receiver with greater rights than the Emperor. The Allies answered that the Commission was not an engine of oppression. Keynes calls that reply uncandid. Germany's counter-offer of an alleged $25,000,000,000 was conditional on abandoning most of the rest of the Treaty and, after disallowed credits and interest-free deferral, was worth about $7,500,000,000 against a Treaty demand he puts near $40,000,000,000. The Allies would hear a lump-sum offer only inside the categories already settled. The bill could be named. Capacity could not. Keynes will not leave the matter as pledges and arithmetic alone. A policy of reducing Germany to servitude for a generation, of degrading millions of lives, should be abhorrent even if it were possible, even if it enriched the victors, even if it did not sow the decay of the civilised life of Europe. Nations are not authorised to visit on the children of their enemies the misdoings of parents or of rulers.
