The Online Library of Liberty

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• The Liberty Fund Library of the Works of Ludwig Von Mises
• Foreword to the Liberty Fund Edition
• Preface
• Omnipotent Government
• Introduction
• Part I: The Collapse of German Liberalism
• I: German Liberalism
• 1.: The Ancien Régime and Liberalism
• 2.: The Weakness of German Liberalism
• 3.: The Prussian Army
• 4.: The Constitutional Conflict In Prussia
• 5.: The “little German” Program
• 6.: The Lassalle Episode
• II: The Triumph of Militarism
• 1.: The Prussian Army In the New German Empire
• 2.: German Militarism
• 3.: The Liberals and Militarism
• 4.: The Current Explanation of the Success of Militarism
• Part II: Nationalism
• III: Etatism
• 1.: The New Mentality
• 2.: The State
• 3.: The Political and Social Doctrines of Liberalism
• 4.: Socialism
• 5.: Socialism In Russia and In Germany
• 6.: Interventionism
• 7.: Etatism and Protectionism
• 8.: Economic Nationalism and Domestic Monopoly Prices
• 9.: Autarky
• 10.: German Protectionism
• IV: Etatism and Nationalism
• 1.: The Principle of Nationality
• 2.: The Linguistic Group
• 3.: Liberalism and the Principle of Nationality
• 4.: Aggressive Nationalism
• 5.: Colonial Imperialism
• 6.: Foreign Investment and Foreign Loans
• 7.: Total War
• 8.: Socialism and War
• V: Refutation of Some Fallacious Explanations
• 1.: The Shortcomings of Current Explanations
• 2.: The Alleged Irrationality of Nationalism
• 3.: The Aristocratic Doctrine
• 4.: Misapprehended Darwinism
• 5.: The Role of Chauvinism
• 6.: The Role of Myths
• Part III: German Nazism
• VI: The Peculiar Characteristics of German Nationalism
• 1.: The Awakening
• 2.: The Ascendancy of Pan-germanism
• 3.: German Nationalism Within an Etatist World
• 4.: A Critique of German Nationalism
• 5.: Nazism and German Philosophy
• 6.: Polylogism
• 7.: Pan-germanism and Nazism
• VII: The Social Democrats In Imperial Germany
• 1.: The Legend
• 2.: Marxism and the Labor Movement
• 3.: The German Workers and the German State
• 4.: The Social Democrats Within the German Caste System
• 5.: The Social Democrats and War
• VIII: Anti-semitism and Racism
• 1.: The Role of Racism
• 2.: The Struggle Against the Jewish Mind
• 3.: Interventionism and Legal Discrimination Against Jews
• 4.: The “stab In the Back”
• 5.: Anti-semitism As a Factor In International Politics
• IX: The Weimar Republic and Its Collapse
• 1.: The Weimar Constitution
• 2.: The Abortive Socialization
• 3.: The Armed Parties
• 4.: The Treaty of Versailles
• 5.: The Economic Depression
• 6.: Nazism and German Labor
• 7.: The Foreign Critics of Nazism
• X: Nazism As a World Problem
• 1.: The Scope and Limitations of History
• 2.: The Fallacy of the Concept of “national Character”
• 3.: Germany’s Rubicon
• 4.: The Alternative
• Part IV: The Future of Western Civilization
• XI: The Delusions of World Planning
• 1.: The Term “planning”
• 2.: The Dictatorship Complex
• 3.: A World Government
• 4.: Planned Production
• 5.: Foreign Trade Agreements
• 6.: Monet Ary Planning
• 7.: Planning International Capital Transactions
• XII: Peace Schemes
• 1.: Armament Control
• 2.: A Critique of Some Other Schemes Proposed
• 3.: The Union of the Western Democracies
• 4.: Peace In Eastern Europe
• 5.: The Problems of Asia
• 6.: The Role of the League of Nations
• Conclusion

4.

The Treaty of Versailles

The four peace treaties of Versailles, Saint Germain, Trianon, and Sèvres together form the most clumsy diplomatic settlement ever carried out. They will be remembered as outstanding examples of political failure. Their aim was to bring lasting peace; the result was a series of minor wars and finally a new and more terrible World War. They were intended to safeguard the independence of small states; the results were the disappearance of Austria, Abyssinia, Albania, Czechoslovakia. They were designed to make the world safe for democracy; the results were Stalin, Hitler, Mussolini, Franco, Horthy.

However, one reproach generally cast upon the Treaty of Versailles is entirely unfounded. German propaganda succeeded in convincing public opinion in the Anglo-Saxon countries that the terms of the treaty were extremely unfair to Germany, that the hardships they inflicted upon the Germans drove them to despair, and that Nazism and the present war are the outcome of the mistreatment of Germany. This is wholly untrue. The political order given to Europe by the four treaties was very unsatisfactory. The settlement of East European problems was done with such disregard of the real conditions that chaos resulted. But the Treaty of Versailles was not unfair to Germany and it did not plunge the German people into misery. If the provisions of the treaty had been enforced, it would have been impossible for Germany to rearm and to attack again. The mischief was not that the treaty was bad so far as Germany was concerned, but that the victorious powers permitted Germany to defy some of its most important clauses.

The treaty obliged Germany to cede non-German territories that Prussia had conquered, and whose mainly non-German-speaking population was decidedly opposed to German rule. Germany’s only title to these countries was previous conquest. It was not—as the German propagandists used to say—the most scandalous robbery ever committed that the Reich was forced to give back what the Hohenzollerns had seized in earlier years. The favorite subject of German propaganda was the Polish Corridor. What, shouted the Nazi speakers and their foreign friends, would the British or the French have said if a piece of land had been cut out from their country, dividing it into two disconnected parts, in order to give a passage way to some other nation? Such utterances impressed public opinion all over the world. The Poles themselves threw little light upon this subject. In all those years they were ruled by an incompetent and corrupt oligarchy, and this ruling clique lacked the intellectual power to combat the German propaganda.

The true facts are these. In the Middle Ages the Teutonic Knights conquered the country which is today known as the Prussian province of East Prussia. But they did not succeed in their attempts to conquer the territory which in 1914 was the Prussian province of West Prussia. Thus East Prussia did not adjoin the German Empire. Between the western boundaries of East Prussia and the eastern borders of the Holy Empire there lay a piece of land ruled by the Kings of Poland, forming a part of Poland, and inhabited by Poles. This piece of land, namely, West Prussia, was in 1772 annexed by Prussia at the first partition of Poland. It is important to realize that West Prussia (and the same is true for the Prussian province of Posen) was annexed by Prussia, not by the German Empire. These provinces belonged neither to the Holy Empire, which disintegrated in 1806, nor to the German Confederation, which from 1815 to 1866 was the political organization of the German nation. They were the “private property,” as it were, of the kings of Prussia. The fact that the King of Prussia in his capacity as Elector-marquis of Brandenburg and as Duke of Pomerania was a member of the Holy Empire and of the German Confederation had legally and constitutionally no more significance for these eastern provinces than the fact once had for Great Britain that the King of England was in his capacity as Elector (and later as King) of Hanover a prince of the Holy Empire and later a member of the German Confederation. Until 1866 the relation of these provinces to Germany was like the relation of Virginia or Massachusetts to Germany between 1714 and 1776 and of Scotland from 1714 to 1837. They were foreign countries ruled by a prince who happened at the same time to rule a German country.

It was only in 1866 that the King of Prussia incorporated these provinces by his own sovereign decision into the Norddeutscher Bund and in 1871 into the Deutsches Reich. The people living in these countries were not asked whether they agreed or not. In fact they did not agree. They returned Polish members to the German Reichstag and they were anxious to preserve their Polish idiom and their allegiance to Polish traditions. For fifty years they resisted every endeavor of the Prussian Government to germanize them.

When the Treaty of Versailles renewed Poland’s independence and restored the provinces of Posen and of West Prussia to Poland, it did not give a corridor to Poland. It simply undid the effects of earlier Prussian (not German) conquests. It was not the fault of the peacemakers or of the Poles that the Teutonic Knights had conquered a country not adjoining the Reich.

The Treaty of Versailles returned Alsace-Lorraine to France and northern Schleswig to Denmark. It did not rob Germany in these cases either. The population of these countries violently opposed German rule and longed to be freed from its yoke. Germany had but one title to oppress these people—conquest. The logical outcome of defeat was ceding the spoils of earlier conquest.

The second provision of the treaty which used to be criticized severely concerned reparations. The Germans had devastated a great part of Belgium and of northeastern France. Who was to pay for the reconstruction of these areas? France and Belgium, the assailed, or Germany, the aggressor? The victorious or the defeated? The treaty decided that Germany ought to pay.

We need not enter into a detailed discussion of the reparations problem. It is sufficient here to determine whether the reparations really meant misery and starvation for Germany. Let us see what Germany’s income and reparation payments were in the period from 1925 to 1930.

It is a grotesque misrepresentation of the facts to assert that these payments made Germany poor and condemned the Germans to starvation. They would not have seriously affected the German standard of living even if the Germans had paid these sums out of their own pockets and not, as they did in fact, out of money borrowed from abroad.

For the years 1925–29 there are figures available concerning the increase of German capital. These increases are, in millions of Reichsmarks:†

From September, 1924, until July, 1931, Germany paid as reparations under the Dawes and Young plans 10,821 million Reichsmarks. Then the payments stopped altogether. Against this outflow Germany’s private and public indebtedness abroad, most of which originated in the same period, amounted to something over 20,500 million Reichsmarks. To this may be added approximately 5,000 million Reichsmarks of direct foreign investments in Germany. It is obvious that Germany did not suffer from lack of capital. If any more proof were needed it may be found in the fact that Germany invested in the same period approximately 10,000 million Reichsmarks abroad.*

The reparations were not responsible for Germany’s economic distress. But if the Allies had insisted on their payment, they would have seriously hampered Germany’s rearmament.

The antireparations campaign resulted in a complete fiasco for the Allies and in the full success of Germany’s refusal to pay. What the Germans did pay they paid out of foreign borrowings which they later repudiated. Thus the whole burden in fact fell on foreigners.

With regard to possible future reparations it is extremely important to know the basic causes of this previous failure. The Allies were from the very beginning of the negotiations handicapped by their adherence to the spurious monetary doctrines of present-day etatist economics. They were convinced that the payments represented a danger to the maintenance of monetary stability in Germany, and that Germany could not pay unless its balance of trade were “favorable.” They were concerned by a spurious “transfer” problem. They were disposed to accept the German thesis that “political” payments have effects radically different from payments originating from commercial transactions. This entanglement in mercantilist fallacies led them not to fix the total amount due in the Peace Treaty itself but to defer the decision to later negotiations. In addition it induced them to stipulate deliveries in kind, to insert the “transfer protection” clause, and finally to agree to the Hoover moratorium of July, 1931, and the cancellation of all reparation payments.

The truth is that the maintenance of monetary stability and of a sound currency system has nothing whatever to do with the balance of payments or of trade. There is only one thing that endangers monetary stability—inflation. If a country neither issues additional quantities of paper money nor expands credit, it will not have any monetary troubles. An excess of exports is not a prerequisite for the payment of reparations. The causation, rather, is the other way round. The fact that a nation makes such payments has the tendency to create such an excess of exports. There is no such thing as a “transfer” problem. If the German Government collects the amount needed for the payments (in Reichsmarks) by taxing its citizens, every German taxpayer must correspondingly reduce his consumption either of German or of imported products. In the second case the amount of foreign exchange which otherwise would have been used for the purchase of these imported goods becomes available. In the first case the prices of domestic products drop, and this tends to increase exports and thereby the amount of foreign exchange available. Thus collecting at home the amount of Reichsmarks required for the payment automatically provides the quantity of foreign exchange needed for the transfer. None of this, of course, depends in any way on whether the payments are “political” or commercial.

The payment of reparations, it is true, would have hurt the German taxpayer. It would have forced him to restrict his consumption. Under any circumstances, somebody had to pay for the damage inflicted. What the aggressors did not pay had to be paid by the victims of the aggression. But nobody pitied the victims, while hundreds of writers and politicians all over the world wept both crocodile and real tears over the Germans.

Perhaps it would have been politically wiser to choose another method for fixing the amount to be paid every year by Germany. For instance, the annual payment could have been brought into some fixed relation to the sums spent in future for Germany’s armed forces. For every Reichsmark spent on the German Army and Navy a multiple might have had to be paid as an installment. But all schemes would have proved ineffective as long as the Allies were under the spell of mercantilist fallacies.

The inflow of Germany’s payments necessarily rendered the receiving countries’ balance of trade “unfavorable.” Their imports exceeded their exports because they collected the reparations. From the viewpoint of mercantilist fallacies this effect seemed alarming. The Allies were at once eager to make Germany pay and not to get the payments. They simply did not know what they wanted. But the Germans knew very well what they wanted. They did not want to pay.

Germany complained that the trade barriers of the other nations rendered its payments more burdensome. This grievance was well founded. The Germans would have been right, if they had really attempted to provide the means required for cash payments by an increase of exports. But what they paid in cash was provided for them by foreign loans.

The Allies were mistaken to the extent that they blamed the Germans for the failure of the treaty’s reparation clauses. They should rather have indicted their own mercantilist prejudices. These clauses would not have failed if there had been in the Allied countries a sufficient number of influential spokesmen who knew how to refute the objections raised by the German nationalists.

Foreign observers have entirely misunderstood the role played by the Treaty of Versailles in the agitation of the Nazis. The nucleus of their propaganda was not the unfairness of the treaty; it was the “stab in the back” legend. We are, they used to say, the most powerful nation in Europe, even in the world. The war has evidenced anew our invincibility. We can, if we want to, put to rout all other nations. But the Jews have stabbed us in the back. The Nazis mentioned the treaty only in order to demonstrate the full villainy of the Jews.

“We, the victorious nation,” they said, “have been forced to surrender by the November crime. Our government pays reparations, although nobody is strong enough to force us to do that. Our Jewish and Marxian rulers abide by the disarmament clauses of the treaty, because they want us to pay this money to World Jewry.” Hitler did not fight the treaty. He fought those Germans who had voted in the German Parliament for its acceptance and who objected to its unilateral breach. For that Germany was powerful enough to annul the treaty the nationalists considered already proved by the “stab in the back” legend.

Many Allied and neutral critics of the Treaty of Versailles used to assert that it was a mistake to leave Germany any cause for grievance. This view was erroneous. Even if the treaty had left Germany’s European territory untouched, if it had not forced it to cede its colonies, if it had not imposed reparation payments and limitation of armaments, a new war would not have been averted. The German nationalists were determined to conquer more dwelling space. They were eager to obtain autarky. They were convinced that their military prospects for victory were excellent. Their aggressive nationalism was not a consequence of the Treaty of Versailles. The grievances of the Nazis had little to do with the treaty. They concerned Lebensraum.

There have been frequent comparisons of the Treaty of Versailles with the settlements of 1814 and 1815. The system of Vienna succeeded in safeguarding European peace for many years. Its generous treatment of the vanquished French allegedly prevented France from planning wars of revenge. If the Allies had treated Germany in a similar way, it is contended, they would have had better results.

A century and a half ago France was the paramount power in continental Europe. Its population, its wealth, its civilization, and its military efficiency eclipsed those of the other nations. If the French of those days had been nationalists in the modern sense, they would have had the opportunity to attain and hold hegemony on the continent for some time. But nationalism was foreign to the French of the revolutionary period. They were, it is true, chauvinists. They considered themselves (perhaps on better grounds than some other peoples) the flower of mankind. They were proud of their newly acquired liberty. They believed that it was their duty to assist other nations in their struggle against tyranny. They were chauvinists, patriots, and revolutionaries. But they were not nationalists. They were not eager for conquest. They did not start the war; foreign monarchs attacked them. They defeated the invaders. It was then that ambitious generals, foremost among them Napoleon, pushed them toward territorial expansion. The French certainly connived at the beginning; but they grew more and more reluctant as they began to realize that they were bleeding for the sake of the Bonaparte family. After Waterloo they were relieved. Now they no longer had to worry about the fate of their sons. Few Frenchmen complained about the loss of the Rhineland, the Netherlands, or Italy. No Frenchman wept because Joseph was no longer King of Spain or Jerome no longer King of Westphalia. Austerlitz and Jena became historical reminiscences; the citizen’s conceit derived edification from the poetry praising the late Emperor and his battles, but no one was now eager to subdue Europe.

Again, later, the events of June, 1848, directed attention to the Emperor’s nephew. Many expected him to overcome the new domestic troubles in the same way his uncle had dealt with the first revolution. There is no doubt that the third Napoleon owed his popularity solely to the glory of his uncle. Nobody knew him in France, and he knew nobody; he had seen the country only through prison bars and he spoke French with a German accent. He was only the nephew, the heir of a great name; nothing more. Certainly the French did not choose him because they wanted new wars. He brought them to his side by persuading them that his rule would safeguard peace. The empire means peace, was the slogan of his propaganda. Sevastopol and Solferino did not advance his popularity; they rather injured it. Victor Hugo, the literary champion of the first Napoleon’s glory, unswervingly vilified his successor.

The work of the Congress of Vienna could endure, in short, because Europe was peaceloving and considered war an evil. The work of Versailles was doomed to fail in this age of aggressive nationalism.

What the Treaty of Versailles really tried to achieve was contained in its military clauses. The restriction of German armaments and the demilitarization of the Rhineland did not harm Germany, because no nation ventured to attack it. But they would have enabled France and Great Britain to prevent a new German aggression if they had been earnestly resolved to prevent it. It is not the fault of the treaty that the victorious nations did not attempt to enforce its provisions.

[† ]“Zuwachs an bereitgestelltem Geldkapital,” Vierteljahrshefte zur Konjunkturforschung, Special number 22 (Berlin, 1931), p. 29.

[* ]Stolper, German Economy 1870–1940 (New York, 1940), p. 179.