¹ Whereas screened property damage of Allied combatants other than the U.S.S.R. and Poland was estimated at $41 billion (according to unpublished papers of the 1945 Paris reparations conference) property damage estimates for the Soviet Union and Poland run to higher amounts. For official Soviet description, cf. Ministère des Affaires Étrangères, Notes, Documentaires et Études, La Conférence de Londres (Paris, 04, 1948), pp. 20–9Google Scholar; Voznesensky, N. A., Soviet Economy during the Second World War (New York, 1949), pp. 129 ff.Google Scholar

² Cf. Friedmann, W., The Allied Military Government of Germany (London, 1947), pp. 24 ff., 138 ff., 183 ff., 240 ff.Google Scholar; Warburg, J., Germany—Bridge or Battleground (New York, 1948), pp. 51 ff.Google Scholar; for estimates on amounts and machinery of collection, cf. note 15 below.

³ “Whatever the basic causes, the most striking indication to date of the flow of events toward partition is the Potsdam decision on reparations. Instead of treating Germany as a unit for reparations exactions, Russia is invited to collect her share from the eastern zone and the Western Powers from the western Zones …” ( Mason, E. S., “Economic Relationships Among European Countries,” Proceedings of the Academy of Political Science, XXI, 1946, p. 3).Google Scholar “The system that we have adopted (for reparations purposes) takes into account the same solid realities that were recognized in dividing Germany into Zones of armed occupation …” ( Pauley, E. S., Documents on American Foreign Relations, World Peace Foundation, 1948, vol. VIII, p. 223).Google Scholar Cf. also Byrnes, J. F., Speaking Frankly (New York, 1947), p. 83 Google Scholar—“I concluded that the only way out of the situation was to persuade each country to satisfy its reparations claims out of its Zone.” Cornides, W. and Volle, H., Um Den Frieden mit Deutschland (Europa Archiv, 1948), p. 38 Google Scholar—“Auf der Grundlage der in Potsdam beschlossenen getrennten Behandlung der Besatzungszonen in der Reparationsfrage erwiesen sich alle anderen Vereinbarungen, Deutschland wirtschaftlich und politisch als eine Einheit zu behandeln, als illusorisch.” Lubel, S., “The Shape of Peace” (Providence Journal Bulletin, 09 14, 1946)Google Scholar—“The extent to which the handling of reparations had produced the effects of an economic iron curtain splitting Europe in two is not generally appreciated.” Ginsburg, D., The Future of German Reparations (National Planning Association, Pamphlet no. 5718, 1947), p. 25 Google Scholar—“… use of zonal boundaries to define reparations areas was surely an unqualified evil … (and) the core of the problem.”

⁴ Absence of real intent to unify is perhaps best indicated by the failure to provide arrangements for the sharing of deficits which were clearly foreshadowed.

⁵ Cf. Joesten, J., Germany: What Now (Chicago, 1948), pp. 90–113 Google Scholar; Annals of the American Academy of Political and Social Science, 11, 1948, pp. 20 ff.Google Scholar; “Ansätze einer Deutscher Representation” (Europa-Archiv, 1948, pp. 1143–8)Google Scholar; “Report of the Military Governor (U.S.)” (Manpower, no. 32, pp. 11 ff.); no. 35, pp. 5 ff.; Die Arbeit (Soviet Zone trade union journal), Berlin, vol. I, pp. 2 ff., pp. 37 ff., pp. 137 ff., pp. 233 ff., pp. 329 ff.

⁶ Cf. particularly, Frederick, J., “Peace Settlement with Germany—Political and Military” (Annals of the American Academy of Political and Social Science, 05, 1948, passim)Google Scholar; Friedmann, , Allied Military Government of Germany, pp. 110 ff.Google Scholar

⁷ For general references to this evaluation of the Control Council régime, cf. notes 5, 6 above; Wells, R. H., “Interim Governments and Occupation Régimes” (Annals of the American Academy of Political and Social Science, 05, 1948, pp. 83 ff.)Google Scholar; Occupation of Germany, Policy and Progress (Department of State Publication no. 2785, 1947), pp. 13–24, pp. 25 ff.Google Scholar Concerning the Soviet Zone, composition of the early zonal administrations, the relatively open election of 1946, the role played by the C.D.U. leadership (Kaiser-Lemmer), Office of Military Government for Germany (U.S.), Government and Its Administration in the Soviet Zone of Germany (Berlin, 1947), pp. 8, 10, 12, 35 ff.Google Scholar; Joesten, , Germany, pp. 86 ff., 105 ff., 136 ff.Google Scholar; Nettle, P., “Inside Russia's Germany” (New Republic, 08 2, 1948, pp. 15 ff.)Google Scholar; Foreign Policy Report, 04 1, 1949, pp. 21 ff.Google Scholar

⁸ Byrnes cited reparations and the Ruhr, (Speaking Frankly, p. 194).Google Scholar Hynd, who served as British cabinet member in charge of German affairs, stated that “it has been the constant squabbles over the principles and distribution of reparations that have been the main occasion even if not the root cause of the divisions and disagreements that have held up so tragically a general solution of both the German and Austrian problems” ( New Statesman and Nation, 11 22, 1947, p. 404 Google Scholar). The trained American observer, Campbell, considered reparations the “decisive issue” ( The United States in World Affairs, 1947/8, New York, 1948, pp. 70 ff.Google Scholar). E. S. Mason, who served as economic advisor to Marshall at the Moscow Conference, clearly defined reparations as the “one great and overriding difference” the resolution of which could possibly have provided the leverage and setting for the solution of other outstanding issues. Cf. Mason, , “Reflections on the Moscow Conference” (International Organization, vol. I, 1947, pp. 483 ff.)Google Scholar, and Foreign Policy Report, 11 1, 1947, p. 211.Google Scholar Ginsburg, who played an important role in developing American reparation policy in Berlin, stated that “reparations will probably be the central issue before the Moscow Conference” (cf. Ginsburg, , The Future of German Reparations, pp. 48 ff.).Google Scholar Available materials on the Moscow Conference and on the preliminary work for it by the Control Council indicate the predominatirg role played by the reparations and related economic questions. Mosely, who served as advisor to the United States delegation at the Potsdam Conference, stated that “the problem of reparations was early recognized as holding the key to the success or failure of Allied cooperation” ( Face to Face with Russia, Foreign Policy Association, Headline Series, no. 70, 1948, p. 9 Google Scholar). The official British White Paper on the German question stated that “the main point of divergence between Soviet policy and that of the other Allies was the question of the economic unity of Germany … (and) the essence of the failure of the Four Powers to achieve economic unity lies, therefore, in a conflict between the Soviet Government's demands for reparations” (White Paper, Germany, no. 2, 10 11, 1948, Cmd. 7534, pp. 9 ff.Google Scholar).

⁹ Cf. Campbell, , The United States in World Affairs, p. 459 Google Scholar; Cornides, and Volle, , Um Den Frieden, pp. 28 ff., 42 ff.Google Scholar Marshall himself in his report on the London Conference described reparations as “the key issue” in the consideration of what he deemed “the heart of the problem—the harsh realities of the existing situation in Germany.”

¹⁰ Cf. Ratchford, B. U. and Ross, Wm. D., Berlin Reparations Assignment (Chapel Hill, 1947), p. 185 Google Scholar; Ginsburg, , Future of German Reparations, p. 22.Google Scholar

¹¹ On this unpublicized work, cf. Report of the Control Council to the Foreign Ministers (Berlin, 1947—hereafter cited as Cfm Report), pts. IV, VII.Google Scholar

¹² Cf. Ginsburg, Future of German Reparations, pp. 28 ff.Google Scholar, and the Cfm Report, pt. IV.

¹³ See Byrnes, , Speaking Frankly, p. 84 Google Scholar for implicit reference to the 50 per cent formula; Hull, Cordell, The Memoirs of Cordell Hull (New York, 1948), vol. II, p. 1304 Google Scholar (for use of property destruction as the sole tandard); the agreed Yalta formula (Appendix A to Ratchford, and Ross, , Berlin Reparations Assignment, p. 202, para. 1 of Protocol).Google Scholar However by the time of the Paris Reparations Conference (November, 1945) for the purpose of regulating the distribution of reparations controlled by the Western Zones, the United States with British support sponsored a distributional formula which laid great weight on military expenditures and thus automatically credited the United States with an appreciable reparations share. On the Paris Conference, cf. United States Economic Policy toward Germany (Department of State Publication 2630, 1946), pp. 21 ff.Google Scholar

¹⁴ For the two formulas, cf. Ratchford, and Ross, , Berlin Reparations Assignment, p. 202 Google Scholar; and Cornides, and Volle, , Um Den Frieden, p. 26.Google Scholar

¹⁵ The possible magnitude of the offsets ranges from an official (though unsupported) British estimate of $7 billion (Um Den Frieden, p. 35) to an official but unpublished United States (Berlin) estimate which ran up over $10 billion. For the single known instance of “bargaining” noted in the text, cf. Byrnes, , Speaking Frankly, p. 83.Google Scholar For other published efforts at valuation see the review in the American Economic Review, 1948, pp. 924–32Google Scholar by Furth, J. H.; “Reparations—Claimed and Collected” (Facts about Occupied Germany, VI, 06, 1947)Google Scholar by the American Association for a Democratic Germany; the famous Harmssen, report, Reparationen, Sozialproduct, Lebens standard: Versuch einer Wirtschaftsbilanz (Bremen, 1947).Google Scholar Current product reparations apparently ran between $250 to 400 million annually. Cf. Wolf, Eduard “Aufwendungen fur die Besatzungmächte … in die Einzelnen Zonen” (Wirtschafts-probleme der Besatzungszonen, Berlin, 1948, published by the Deutsches Institut für Wirtschaftsforschung, pp. 120 ff.Google Scholar); Franz Seume, “Organizationsformen der Industrie in der Sowjet-ischen Besatzungszone” (ibid., pp. 203–68); “Die Reparationsleistungen der Sovijetischen Besatzungszone Deutschlands” (Europa-Archiv, IV, 04, 1949, pp. 2029–34).Google Scholar Our estimate is consistent with the 17 per cent of net industrial production for 1948 which the Soviet Zone German government officially admitted (see Die Wirtschaft, Sonderheft “Der Wirtschaftsplan 1949/50,” Berlin, 07, 1948, p. 28 Google Scholar). Our estimate jibes with Polish data on reparations receipts valued at $20 and $40 millions for 1946 and 1947. Since the Polish share of German reparations flowing eastward was 15 per cent this would place the total current Soviet take at 120 and 240 million current dollars during 1946 and 1947. Cf. Gerschenkron, Alexander, “Russia's Trade in the Postwar Years” (Annals of the American Academy of Political and Social Science, 05, 1949).Google Scholar

¹⁶ For the stretching of time-periods, cf. Cornides, and Volle, , Um Den Frieden, p. 26 Google Scholar; Byrnes, Speaking Frankly, p. 26. Concerning the principle of “early and prompt” reparations payment, see the list of “principles on reparations” which were elaborated in the 1945 Moscow meeting of the Reparations Commission ( Rueff, J., “Les Nouvelles Reparations Allemandes,” Nouveaux Aspects du Problem Allemand, edited by Hartmann, P., Paris, 1947, pp. 195 ff.).Google Scholar

¹⁷ For detailed discussion of these and related propositions, cf. a forthcoming paper by the author, “German Economic Potertial and Reparations,” scheduled for publication in Social Research, 1950.

¹⁸ For an impassioned and detailed statement of the Western doctrinal position, cf. Ginsburg, , Future of German Reparations, pp. 21 ff.Google Scholar There is no place here for tedious textual analysis that would expose the three layers of issues involved in the problem of “legalities” and the weaknesses in both the official Eastern and Western positions.

¹⁹ For details and an attempt at quantitative measurement, cf. paper referred to in note 17.

²⁰ Cf. United States Economic Policy toward Germany, p. 99.

²¹ Cf. Die Deutsche Frage auf der Moskauer Konferenz der Aussenminister (issued by Europa-Archiv, 07, 1947), p. 706 Google Scholar; Cornides, and Volle, , Um Den Frieden, pp. 13 ff., 95, 99 Google Scholar; A Summary of Agreements and Disagreements on Germany (a United States compilation issued by O.M.G.U.S., Berlin, 02 15, 1948), pp. 132, 134, 227 Google Scholar; the billion dollar estimate cited in the text is based upon official (though unpublished) studies made by the United States Army Headquarters in Frankfurt, Germany.

²² It would be tedious to cite supporting references to the above argument which is based upon studies carried on by the author while serving in O.M.G.U.S. as United States representative on a Control Council committee on occupation costs.

²³ Implicit in the latterday ideology of the occupation was the thought that prerogative of rule was justified by incurment of expense, though this was more frequently stated in the converse: “voice in administration” must be “commensurate with the share of the costs” or that the fact of deficit precluded parting with “authority” (cf. Herter Committee, Report on Germany, 80 Congress House, Feb. 28, 1948, p. 3; ACA Berlin, DECO P(46) 76, Annex C). On the policy of collecting the deficit through ordinary processes of commercial trade, see the warning of a congressional committee on the “unnatural pressure on German exports to compete at uneconomic and abnormal prices in the American market against American products” (Colmer Committee, Postwar Economic Policy and Planning, supplement to 11th Report 2737, 79 Congress, 2nd Session, p. 33). Candour would require the admission that the German deficit was large partly because the real desire to exact repayment was limited, partly because management was inept and in the case of the Ruhr blundering, partly because of failure to restrict inflationary conditions by some form of early bank closing or account-blockage, and partly because of a long-run policy interest in nursing along an institutional setting which entailed short-run wastage of resources.

²⁴ See Morgenthau, Henry Jr., Germany Is Our Problem (New York, 1945), pp. 78 ff.Google Scholar Byrnes, , Speaking Frankly, p. 28.Google Scholar Pauley was instructed to “oppose any reparation plan based upon the assumption that the United States or any other country will finance directly or indirectly any reconstruction in Germany or reparation by Germany” ( Pauley, Edwin, “The Potsdam Program Means Security,” Prevent World War III, 1947, pp. 39 ff.Google Scholar). See also Lubin's, Isadore report, “Reparations Problems” (Proceedings of the Academy of Political Science, XXI, 01, 1946, p. 64)Google Scholar; the definitive formulation in United States Economic Policy toward Germany, p. 23; and Rueff, J., “Les Nouvelles Reparations Allemandes,” p. 196 Google Scholar (Rueff was the French delegate on the Reparation Commission).

²⁵ For sample cries, cf. Bevin, House of Commons, Oct. 23, 1946; Colmer Committee, Postwar Economic Policy and Planning, supplement, p. 35 Google Scholar; Stolper, G., German Realities (New York, 1948), p. 310 Google Scholar; Warburg, J., Put Yourself in Marshall's Place (New York, 1948)Google Scholar; Ginsburg, , Future of German Reparations, pp. 36 ff.Google Scholar

²⁶ During the late fall months of 1946 General Clay and his principal economic advisers strongly advocated a compromise on current product reparations and the issue was closely contested within the American delegation at Moscow. See Galbraith, K., “Is There a German Policy?” (Fortune, 1946, p. 186 Google Scholar). One reflection of Clay's stand was the famous United States “compromise” on current product reparations presented at a secret session of the Moscow Conference (cf. Ratchford, and Ross, , Berlin Reparations Assignment, p. 254 Google Scholar; Die Deutsche Frage auf der Moskauer Konferenz, p. 712). The “compromise” was so doctored up with restrictive clauses that it did not even serve as a basis for negotiations. The compromise, in effect, would obtain Soviet assent to a sizeable reduction of plant dismantling committed in March, 1946 from 2,000, for example, to 800 plants, and would yield the Soviets in current reparations a dollar-for-dollar value of a small segment of the 1,200 “rescued” plants provided that certain highly restrictive conditions were fulfilled.

²⁷ Keynes, J. M., The Economic Consequences of the Peace (New York, 1920), p. 208.Google Scholar

²⁸ Cf. any standard account of the reparations problem in the twenties, for example, Dulles, E., “The Evolution of Reparation Ideas” (Facts and Factors in Economic History, Cambridge, 1932, pp. 568 ff.Google Scholar).

²⁹ See the collection of studies on the “Transfer” problem in Readings in the Theory of International Trade (Blakiston Series, 1949), vol. IV, pp. 161–201 Google Scholar; particularly p. 167.

³⁰ Under the Bizonal Fusion Agreement Category A subsidies were to be repaid out of a surplus of export proceeds over commercial imports (cf. Cornides, and Volle, , Um Den Frieden, p. 95 Google Scholar). The caginess of formulation involved in drawing the distinction noted in the text between the “contingency” principle and its corollary was clearly indicated in the final United States-British statement of principles presented to the London 1947 Conference.

³¹ Byrnes, , Speaking Frankly, p. 28.Google Scholar

³² At first the principle involved trading on a strict “cash-basis” for individual transactions and only in 1948 was the principle temporized to permit trade-agreements involving some form of mutual obligation to purchase and sell.

³³ In the current controversy now raging concerning the quantitative measurement of demand elasticity for exports, the author is inclined to favour the “optimist” position providing sufficient time is given for the full benefits of reduced prices to become effective (cf. Readings in Theory of International Trade, p. 548 ff.).

³⁴ Concerning German foreign trade patterns, cf. discussion and references in my “Economic Potential” paper referred to in note 17 above. O.E.E.C. policy was built on the forced exportation at “administered” prices of coal products and timber. Most important of all, the German 30 cent mark rate was initially calculated on the crude basis of purchasing power parties without any consideration being given to the need for adjustment to worsened terms or the existence of J.E.I.A. data which clearly showed the hampering effects on German exportation of a 30 cent rate (the author here is drawing upon unpublished studies conducted while he was a staff economist in O.M.G.U.S., Berlin).

³⁵ At London the Soviet offered to postpone a 10 per cent reparations quota until the German industrial output index reached 70 per cent on a 1938 index basis. Cf. Cornides, and Volle, , Um Den Frieden, p. 31.Google Scholar

³⁶ Cf. O.M.G.U.S., Agreements and Disagreements on Germany, p. 113.Google Scholar

³⁷ Keynes, J. M., A Revision of the Treaty (New York, 1922), p. 164.Google Scholar

³⁸ See the final report of the Agent-General for Reparations Payments, Bericht des General-agenten für Reparationszahlungen, Berlin, 05 21, 1930, pp. 64 ff.Google Scholar For the five years closing Aug. 31, 1929, 42 per cent of 8 billion goldraarks were “transferred” by internal purchases on German commodity markets and corresponding deliveries in kind (Sachlieferungen); while another 9 per cent was utilized for expenditure in Germany to maintain the Occupation Forces in the Rhineland. An interesting development was the use made of construction contracts by which German construction and engineering firms undertook a considerable mass of investment and construction work (canals, entire factories, hydro-electric work, etc.).

³⁹ Cf. Ginsburg, , Future of German Reparations, p. 38.Google Scholar “Will Germany be able to give these nations reparations … and at the same time sell them enough to maintain a tolerable standard of life within Germany's own borders?” Ginsburg admitted that reparations from the so-called restricted industries (chiefly metal and equipment) would not impair German export markets. But his argument that export markets for light consumer goods would be weakened by reparations within that category is self-defeating since he admits that Western European nations “have never looked to Germany for textiles or clothing” and Russia “now or in the long run cannot be expected to offer a commercial market” for products of this category (p. 39). What then makes the conclusion “unmistakable” that “recurring reparations from the light peaceful industries would be, in all probability, at the expense of Germany's commercial exports from these industries.” Yet Ginsburg's tract played an important role in “firming up” American reparations policy.

⁴⁰ Cf. United States Economic Policy toward Germany, p. 106 (assuming the United States share is washed away).