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E. Varga

Economics

Survey of the World Economic Situation
in the 1st Quarter of 1923

(May 1923)

From International Press Correspondence, Vol. 3 No. 36 [18], 9 May 1923, pp. 323–327.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

II. Reparation question and Ruhr occupation

During the period covered by this report economic life in Europe has been completely dominated by the Ruhr occupation. We assume that our readers are acquainted with the events themselves, and shall only attempt to analyse them as clearly as possible.

Formally, the occupation of the Ruhr area was based on the failure of Germany io carry out her obligations with regard to the coal and wood deliveries. This was of course only a pretext. The real reason was that England and France had failed to come to any agreement on a wide range of international political questions. The Ruhr occupation is directed not against Germany alone, but simultaneously against England and America: the intention has been to force these countries to accept a solution favorable to France in the questions being contested. The accumulation of the Ruhr was the last card which France was able to play: “The French experiment must either definitely succeed or definitely fail”, writes the Times. Hence the persistent tenacity with which France clings to the occupation, and Germany to her passive resistance.

What are the points being contested between France on the one hand and Germany and England on the other?

1. The amount of reparations to be paid by Germany.
    
2. The distribution of the German payments.
    
3. The interallied debts.
    
4. The methods of securing the payments.
    
5. The coal question.
    
6. The military security of France.

We must here emphasize the fact that without exception, the governments and politicians of France, England, and Germany have no definite policy to pursue; all of them vacillate backwards and forwards; it seems that the European bourgeoisie is incompetent to master the problem.
 

The French standpoint

France’s standpoint is that the cost of restoring the devastated districts is to be covered by Germany’s payments. Until this is done France can pay no interest on the inter-allied debts, and cannot agree to any reduction of the reparations.

We must remind the reader that the addition of the pensions to the reparations has much damaged France’s position. Such a step would have been of advantage to France had Germany really been in position to pay the whole of the 132 milliard gold marks imposed upon her by the London ultimatum. This is not the case. And now France awakens to the fact that she has struck a bad bargain with England in having the pensions added to her claim. For if Germany’s reparation obligations were confined to the replacement of actual damage, then England would not be entitled to 22% of the German payments, but to perhaps 1–2%. England has received the sunken ships back again from Germany “ton for ton”; in material loss there is only the cargo of the sunken ships to be counted, and the slight damage done by bombardment of the coast and air attacks, – not half of the damage done in France, perhaps the fiftieth part. France’s demand that the reduction of the German reparation payments be combined with a revision of the plan of distribution, in France’s favor, is thus fully justified.

Similarly with the interallied debts. Even the Balfour note provided for the cancellation of the excess of the allied debt to England over England’s debt to America, if the other political questious could be regulated, England would certainly go much further in the reduction of the debts.

The acute antagonisms do not begin with purely economic questions, but with questions involving power.

France is not solely desirous of receiving reparations from Germany, and of having her interallied debts remitted, – she also wants security against a future attack on the part of Germany. Moreover. French heavy industry wants decisive participation in Rhenish-Westphalian heavy industry. It is these demands which induced Poincaré to reject brusquely the English reparations plan (which provided the possibility of rapid payment of the reparation debt by Germany), and to proceed with the occupation of the Ruhr. This is clearly and unequivocally contained in Poincaré’s criticism of the English plan; we recall this criticism to our readers’ memory

“The English program is completely delusive; it appears even more dangerous when we examine into the facilitations which it grants Germany to free herself of an easily bearable debt.”

At the present time Germany has no other debts. In consequence of the collapse of the mark her inner debt has shrunk proportionally, so that at present it does not exceed a few milliards gold marks, and will be reduced to zero if German securities depreciate further. Hence, if Germany were burdened with but one debt, her reparation obligations, and it this were reduced to about 20 milliards by the system of discounting provided by the British plan – the debt would be amortized in about 15 years, and would amount to less than a third of the French national debt – then Germany would, within a few years, be the sole country in Europe with no foreign debts; with her growing population, her efficient, industry, which would not fail to take advantage of an exceptional situation, with her untouched natural treasures of coal, wood, and potash. Germany would become the master of Europe. “German hegemony over Europe, which the war was intended to destroy, would be restored and consolidated by the allies.”

This trend of thought recurs in Poincaré’s speech before the Chamber on January 12, and on innumerable other occasions. France, whose population stagnates, fears Germany with its rapidly increasing population. France will not accept any reparation plan capable of rapid execution, even were such a plan economically advantageous, unless it provided, at the same time, the possibility of keeping Germany in economic and political subjugation. To Poincaré the policy best adapted to this purpose is the dismemberment of Germany; hence the plan for “internationalizing” the Ruhr area.

On the other hand, however, France’s difficult financial position compels her to seek large reparation sums from Germany as soon as possible. For this reason France will not agree to the moratorium which England is willing to grant. The French moratorium plan submitted to the Reparations Commission after the Ruhr occupation provides for a capital levy of 25% in bonds to the Reich, and a gold loan on German industry to the amount of 3 milliards gold marks, 500 millions of which are to be used for stabilizing the mark, and the remaining 2,500 millions, as reparations, until November 1924.

Thus French policy vacillates to and fro. The occupation of the Ruhr was tried, although nobody was quite certain of its aims. This uncertainty still exists. Something different is stated every week as the object of the occupation. The official policy oscillates between simple “security of coal deliveries”, “productive pledges”, and “sanctions”. Germany’s successful passive resistance has upset France’s original plans and created a hopeless situation. Every political group regards the Ruhr occupation from a different point of view.

On the 2nd of March the minister of war Maginot declared in the Senate: “The military power of Germany cunei ihires a serious danger to us ... In case of war we should have to be in a position to cross the frontier at once, and carry the war into the enemy’s country ... Our victory of 1918 gives us the advantage in this regard; it would be unpardonable to throve away this advantage.”

Ergo: Poincaré intends to remain in occupation of the Rhine.

“Poincaré recently declared to the representatives of the leading Parisian newspapers that ... the financial situation is not the most important point. The main object is the permanent occupation of the left bank of the Rhine ... Poincaré fears submission on the part of the Germans, as this might lead to the evacuation of the Rhine provinces ...” (General Percin in Ere nouvelle of March 7.)

On March 19, Loucheur declared, in the course of a speech at Grenoble.

“For me there is another question besides that of reparations ... The question of security ... The settlement of the Ruhr question must be continued with the regulation of the question of France’s security ... We must create a special a me under which these provinces are subordinated from a military point of view; the railways must be controlled by an interallied commission ...”

In the Petit Parisien of March 7, Millet publishes the following program:

“The struggle now begun must lead to the final settlement of the Franco-German problem; there must be a collective regulation of all those great questions which the Versailles treaty has left open between Germany and France.

1. The amount of reparations and the nature of the pledges which are to guarantee payment.
    
2. Guarantees for the permanent neutralization of the left bank of the Rhuie, a necessity for our security. Postponement of evacuation of the Rhine districts.
    
3. The third great matter is the intended plebiscite which is to take place in the Saar district after 15 years. Is it advisable to leave the future fate of the Saar district and of the Mate mines thus undecided for another ten years, and to run the danger of making a new crisis between Germany and France inevitable at the end of this term?
    
4. The question of the deliveries of coal and coke, which the Versailles treaty aimed at regulating for 10 years only.”

We could cite innumerable further extracts from the French press, showing that despite an attitude which changes from day to day, and despite the continual vacillations, bourgeois public opinion in France attaches more importance to the creation of a guard against a possible attack from Germany (in the form of the neutralization, occupation, demilitarization, or control of the railways, etc. in the Ruhr area) than to the amount of reparations to be paid by Germany.

The final opinion of the French bourgeoisie seems to me to be best expressed in a speech held on the 8 February by the former minister of finance Marsal, in which he openly declares that France would be satisfied to receive just enough reparation payments front Germany to pay the interest on France’s actual expenditure for restoration purposes.

That the French bourgeoisie does not attach such overwhelming importance to receiving reparations from Germany is proved by the circumstance that France herself laid no claim to the deliveries in kind provided in the moratorium for 1922. According to official statistics, the distribution was as follows [1]:

Coal and Iron

The plans relating to occupation, annexation, and intent nationalization, are the puns of French heavy industry. Although it has suffered severely through the occupation of the Ruhr, it clings tenaciously to the policy of a forced participation in Rhenish heavy industry.

The cause of this tenacity lies in the situation of the foundries. It is only possible to smelt iron ore advantageously In districts which have coat and coke in the immediate vicinity. As the smelting of iron ores requires a larger quantity of coal and coke than of ore, the consideration of transport costs obliges the iron ore to be brought to the coal, not the coal to the district where ore occurs.

Thus, although the terms of peace have accorded France 21 million tons of Germany’s annual iron ore output of 28.6 mill. t., and although France has 40% of the total iron ore output of Europe in her hands at the present time, she is not in a position to maintain a smelting industry capable of competing on the world market without a supply of Ruhr Coal and Ruhr coke. The import of English or Belgian coal or coke for any length of time is prohibited by the high transport costs. Moreover, these countries cannot cover France’s requirements. England has already limited the export of coal to France.

Germany, on the other hand, being in possession of the fuel needed for smelting, is in a position to do without French iron ore, and to maintain a competitive smelting industry with the iron ore imported from elsewhere. When coal and iron ore are divided, the former is the more important. This explains the tenacity with which French heavy industry, the notorious Comité des Forges, clings to the demand for participation in Ruhr industry.

We give the following figures for the quantitative clarification of these conditions:

In 1913 the coal output of Europe amounted to over 600 million tons:

With the present political frontiers, Europe’s coal output is distributed as follows:

France’s coal output has thus dropped from 44 million tons in 1913 to 31 millions in 1922.

The output of iron ore has developed in the opposite direction, as shown by the following figures:

Europe’s iron ore output amounted to 107 million tons in 1913:

Deprived of the Lothringian mines and cut off from its Eastern districts, Germany’s iron ore output (on the basis of 1913) has shrunk 28.6 mill. tons to 7.3, or to about France’s output has meanwhile risen by 21.1 million tons, i.e., speaking in round figures, it has doubled.

The following table shows the distribution of the iron ore output from the present political districts of the whole of Europe, in pre- and post-war times.

From this may be seen that France’s iron ore output, with her present boundaries, amounted in the year 1913 to 40% of the total iron production of Europe. The result is thus:

7% coal output as compared with 40% iron ore output.

We may further observe that the distribution of minable iron ore (in the earth) has changed even more in France’s favor; France, within her present frontiers, possesses:

55% of the total iron ore supply of Europe.

If French heavy industry were able to force for itself a decisive participation in the Rhenish-Westphalian coal and iron industry, it would thus not only secure the requisite coke for the smelting works of eastern France, and with this the desired competitive capacity, but at the same time with the aid of the powerful French influence on Czecho-Slovakian and Polish heavy industry – the actual monopoly on the European continent. The interests of French heavy industry thus coincide precisely with the annexation policy advocated by Millerand, with the endeavor to separate the Rhine country from – Prussia: a policy which was most precisely formulated by General Castelnau in the words: “Here I am, and here I remain.”
 

Germany’s resistance

Almost 3 months have passed since the beginning of the Ruhr occupation. But up to now the Gentian resistance – though somewhat weakened – has been successful. The French have not succeeded in getting either coal or reparation payments out of the Ruhr. At the present time, after three months of struggle, the amount of coal delivered – according to French statements – does not exceed 2,500–3,000 tons daily. In point of fact, the amount is probably considerably smaller. (Between the 21st and 24th of March only1,000 tons daily, according to L’Usine.) At best, the monthly amount is less than 100,000 tons, so that it is approximately the twentieth part of the quantity supplied before the occupation. The German resistance is thus successful; the rapid capitulation prophesied for Germany by the French has not taken place; German economics have not suffered any catastrophe; it was even possible to stabilize the mark during the Ruhr occupation.
 

The motives for resistance

The motives for resistance are plain. Now that France has played her last card, the occupation of the Ruhr, everything is at stake for Germany. Can she keep up her resistance until England and America interfere, until the anti-imperialist elements of French society, the workers and peasants, adopt an energetic attitude against this policy; until that current in French politics which sets more value on reparation payments and peaceful disentanglement of the chaos, gains the upper hand over the imperialist-annexationist current? If she can hold out so long, she may force a “final” solution of the reparations question. She may succeed in regaining the right to participate as an equal in the negotiations; in putting an end to France’s check on Germany and the allies which the former has by virtue of the Ruhr occupation; in having the reparation payments fixed a ta bearable amount, and a moratorium and foreign loans granted as provided for in the German project submitted to the Paris conference. In a word, the German bourgeoisie may succeed in forcing a reduction of the reparation payments to a bearable amount, and in thrusting the entire burden, with the agreement of the French bourgeoisie, onto the shoulders of the German proletariat. As to the participation of French industry in German heavy industry, the German coal and iron barons have nothing against this in principle; but they want the lead, that is, they want to retain at least 51 per cent for themselves. While the French annexationists cry for “security”, the French heavy, industrials cry “shares”, and deem the reparations as of secondary importance; the German-bourgeoisie is meanwhile anxious to be released from the reparation burdens – seizure of real values, gold loan – and is prepared to join forces with the French bourgeoisie. In this way it is quite possible for the two bourgeoisies to come to an understanding; but the first premise for such an understanding is the failure of the Ruhr action. Hence the determined German resistance – despite the attempts at negotiations made by the German industrialists and by the German government.
 

The economic possibility of resistance

The three mouths of resistance which Germany has already passed through are a fresh proof of the elasticity of modern capitalism, who could have imagined that Germany’s economic life could continue to run after the Ruhr area has been separated for months; that no economic catastrophe would occur either in Germany or in the separated area?

The significance of the occupied territory may be gathered from the following figures supplied by Economics and Statistics:

The survey gives an idea of the coal output of the occupied territory:

Stated in round numbers. 65% of the total German coal output thus falls to the occupied territory, and of this 71% approximately three quarters, to the Ruhr district on the right bank of the Rhine.

With regard to the production of iron and steel, we have only data for the year 1920, as no statistics were published in the last few years.

The following table elucidates the importance of the iron and steel output of the occupied territory:

From this may be seen that through the occupation of the Ruhr area Germany has been rubbed in round figures of 80 % of her iron and steel production.

The occupation was bound to bring about a shortage of coal and iron in unoccupied Germany, and in consequence of the prohibition of exports, a surplus of these goods and stagnation of production in the occupied territory. This is now actually the case; but up to now it has led to no catastrophe. And for the following reasons:

1. The German bourgeoisie, its wits sharpened by previous experience, had already transfer led its coal reserves from the Ruhr area into unoccupied territory.
    
2. The absence of Ruhr coal was relieved by the increased import of English coal. In 1922 the coal import from England was 8.1 million tons – almost as much as in 1913. The import was even greater in tie first months of 1923.
    
3. It must be remembered that although 71% of Germany’s coal has been produced in the Ruhr area, this does not signify that the coal supply suffers to this extent when the Ruhr area is cut off from Germany; for a great part of this coal was consumed in the colliery district itself, or delivered to the Entente.

About one third of the coal produced is coked in the Ruhr area. The coal produced in the Ruhr district (including the collieries on the right bank of the Rhine), amounting in round figures to 89 million tons in the first eleven months of 1922, was distributed as follows:

• consumption of the collieries, including payments in kind to the workers, about 10 million tons;
   
• consumption for coke making, about 30 million tons;
   
• coal sent away about 49 million tons.

These 49 million tons of coal and the 22½ million tons of coke were distributed as follows:

From this it may be seen that unoccupied Germany received no more than 2 million tons of coal and 0.7 million tons of coke monthly; as there was enough coal on hand for household fuel, it was possible to avoid a catastrophe by using reserves and by importing English, American, and Czech coal.
 

The organization of resistance in the Ruhr area

But in order to realize this successful resistance, organizatory measures had to be taken. The bourgeoisie only orders resistance when the costs are borne by the community at large. The measures pressed into service are:

1. The Ruhr relief. All the losses suffered by the capitalists in the Ruhr area, through any action of the trench occupation troops, are immediately, and probably generously, paid from the Ruhr relief fund. Thus for instance, there are many undertakings in which the workers are kept in the factories all day, but only one part of the work counts as productive; the workers receive full wages, part of which comes from the Ruhr relief found on the claim that no productive work is being done.
    
2. The credit relief. In order to enable the industrialists to manufacture for stock, they receive the so-called “credit relief”, that is, they actually receive, from the Reichsbank, credits for the payment of wages and purchase of raw materials, al ihe Reichsbank rate of interest. This makes it possible for production to be carried on on a large scale, even though the reach hinder export. (It is said that German firms are exporting goods through English trading firms in Cologne; how true this is, and what quantity of goods is exported, is beyond our knowledge, but the powerful and continuous pressure put on the government by the English press, to protect the freedom of English trade in Cologne, indicates that intermediary transactions are being carried on here on an extensive scale.) The results of the “Ruhr relief” are to be felt in the enormous increase of paper money in circulation; we shall come back to this point later.

A daily unemployment dole of 12,000 marks is being paid in the Ruhr area, that is, four times as much as anywhere else in Germany. In this manner it has been possible to prevent the social consequences which would otherwise have arisen from the unemployment.
 

The stabilisation of the mark

Since the beginning of February, the mark – after having dropped to M. 50,000 per dollar due to the Ruhr occupation – has been stabilized on the approximate level of M. 20,000 to the dollar. The main object of the stabilizing action was to put an end to the continually rising cost of living which threatened to lead to social unrest, and to collapse of the resistance. Since the stabilization the prices have fluctuated but slightly, and tend rather to fan than rise.

The improvement of the value of the mark and the attendant stabilization of the rate of exchange, was brought about by giving out fairly large quantities of foreign securities which had accumulated at the Reichsbank, and by utilizing a part of the gold reserve of the Reichsbank (gold was sent from the Reicnsbank abroad, as a credit basis for the sale of securities). The amount of gold thus sent abroad has not been officially published, but according to newspaper reports it is likely to amount to about 100 to 150 million gold marks up to now.

If we follow the course of the curve of depreciation of the German mark, we find that the drop to M. 50,000 per dollar did not correspond to the actual economic conditions, but was the result of the fear of a fresh war, caused by the Ruhr occupation. It is easily comprehensible that the rate of exchange could be pressed back to M. 20,000 to the dollar, for even this level seems to us to be higher than was warranted by the real value of the mark in the period between January 1st and the end of March. It must further be taken into consideration that in the 1st quarter of 1923, Germany had nothing to pay in foreign securities to the Entente, except some small sums in redemption of treasury bonds given to Belgium.

Besides this favorable circumstance, the stabilization has been essentially aided by the fairly large amount of securities, and a part of the gold reserve of the Reichsbank which have been “sacrificed to the cause”. And it can be calculated with mathematical accuracy that the depreciation will recommence as soon as Germany has to pay reparations again, and as soon as the Reichsbank has exhausted its means for supporting the mark artificially. The fact that the mark has been stabilized for 2 months is no proof whatever that a final stabilization is possible under the given economic conditions. [2]

Theoretically, it is interesting to note that while the mark is being held stable by artificial means, the paper money in circulation is being increased to the value of milliards; this is a tangible proof of the entire incorrectness of the quantity theory, which makes the rate of exchange and the prices directly dependent on the sum total of paper money in circulation.

The influence of the stabilization of the mark on income and property conditions is of greater importance. We may confidently assert that the great industrialists have drawn the largest profits from the stabilization of the mark. The process is as follows: The Reichsbank throws securities and bonds on the market at a cheap rate; at the same time it grants gigantic credits in mark currency to the great industrialists who use this credit to buy up the securities thrown on the market by the Reichsbank. In this process those who have sinlered have been the small holders of securities, who have not had money enough to enable them to hold on to their notes and securities; they have been obliged to sell at lower prices than they bought. It is rumoured that the Reichsbank has succeeded in buying back from the small holders – and at much lower prices – the same amount of foreign securities and bonds as that originally thrown on the market by the Reichsbank. We do not know if this is really the case. One thing is certain however, and that is, that this manoeuvre cannot be repeated several times. The small holders are not in a position to renew their stock of securities again, and will not be on hand when the Reichsbank desires to deprive them of their property again in order to manoeuvre a renewal of the stabilization of the mark.
 

The failure of the gold loan

A gold loan of 200 million gold marks was going to yield further means for supporting the mark. It proves, however, that the German bourgeoisie has absolutely no inclination to put gold values at the disposal of the German state, despite the fact that repayment was guaranteed in gold, with a rate of interest of over The attempt was a complete failure. The sum proposed, 200 millions, was very small in itself; we may recollect that the defence contribution levied before the war yielded a sum of one milliard gold marks, and that in pre-war times an imperial loan of 200 million marks was a trifle. There can be no doubt that, although German economics are greatly impoverished, even at the present time the German bourgeoisie could have raised 200 million gold marks with the greatest ease if it had been anxious to do so. Despite this, 50 millions only were subscribed; further 50 millions were then guaranteed by the banks which had guaranteed the loan. Newspaper reports show that the private subscriptions have been chiefly nude by the lower middle class. The big bourgeoisie, above all big industry, gave an unequivocal vote of mistrust to the present German government and the present German state by their refusal to subscribe.

*

Footnotes

1. La Temps, 16 March 1921.

2. The renewed fall of the mark during the printing of this report proves the weak basis of the ramp.

 
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