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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. 37 [19], 17 May 1923, pp. 344–348.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

III. England and the possibilities
of Intermediation

“Happily there are but few cases in history in which the destinies of the world have got into such a hopeless cul de sac as we have experienced in the last few weeks.”

The Economist of March 17, thus characterizes the perplexity of English politicians. Asquith followed exactly the same train of thought when he spoke in the House of Commons of the “well meaning impotence” of English politics. To us it seems as if the English “wait and see” policy is the sole possible one for England at the present juncture. Moreover, that English policy is by no means as passive as it would appear.

The present English policy in the reparations question is the consistent continuation of Lloyd George’s policy. France’s hope that a change in the English government would be accompanied by a change in her policy with regard to the reparations question has proved unfounded. The opinion has indeed been expressed that England’s policy has changed in so far as Lloyd George was mainly supported by the large industrial bourgeoisie, while Bonar Law has closer relations with the financial capitalists and holders of government bonds, that is, with those strata most interested in bringing the dollar back to par. However, even if such a difference in policy does exist, we hold it to be unimportant with regard to England’s attitude in the reparations question. England’s present policy does not differ in any essential feature from that pursued by Lloyd George.

England’s position has been strengthened by two facts during the period covered by this report: 1. By the agreement reached with America on the debt question, which has been settled in a manner financially very favorable to England, and has simultaneously removed a serious stumbling block in the way of Anglo-American friendship. 2. The fact that the English fiscal year just concluded has closed with a surplus of 102 million pounds, despite payments already made on the American debt. Under these circumstances the English reparations policy can make itself fairly independent of budget considerations; as we already pointed out, should the improbable occur, and Germany prove capable of paying 3 milliards gold marks, England would only receive 22%, about 33 million pounds yearly. This is only about ½ of this year’s budget surplus, and about 3 to 4% of England’s tool expenditure. These are figure which play no decisive role in English state finance or for the English taxpayer.

On the other hand England’s position is rendered more difficult by the increasing obviousness of France’s military supremacy. In this regard the great debate on air armaments, held in the English Parliament on the 20th and 21st of march, is characteristic. The statements made by the secretary of state for the air service show England to be in possession of 371 first class military aeroplanes at the present time, while France has 1,200. Should the present building program be maintained, then, by the year 1925 the proportion will be: 575 : 2,180. Lord Birkenhead – formerly held to be Francophile – declared that: “he did not understand how a nation owing such gigantic sums to England could undertake these extensive armaments at a moment when there was not the slightest prospect of one penny of this debt being paid, either now or in the near future.” The secretary for the air service declared the situation to be rendered more difficult by the circumstance that three quarters of the collective French air fleet is stationed at home, in France, while two thirds of the English aeroplanes are kept permanently overseas.

If we further consider the fact that France is equipped with much superior and more numerous submarines than was Germany during the great war; that a submarine attack could be much more successfully carried out from the closely adjacent French ports than from the distant German ones, the military inferiority of England as compared with France becomes obvious; and with it the reason why England is vigilantly watching the Ruhr adventure, in the hope that this experiment will run into such a blind alley that English intervention and even participation in the spoil may become possible.

Therefore England continues to declare repeatedly that she is not in agreement with France’s methods; that she considers the attempt futile; but that everything notwithstanding she continues to be France’s ally, and will not undertake any intervention unless so desired by France. As early as Jan. 19, the Times wrote:

“Industry, especially in so highly developed a region as the Ruhr area, is a very delicate plant, and cannot be expected to hear fruit regularly if seized by violence and placed under foreign control, especially when national feeling is violently provoked. It would not he surprising if France were to decide, alter a brief trial, to mitigate the system of force for a while, and to seek milder methods.”

On Jan. 22, the Daily Telegraph refused to print an article by Lloyd George on account of its sharp anti-French tendency. Upon this the Times comments:

“If the German resistance is based on the hope of foreign intervention, then it is entirely misled. This country will certainly not intervene, and we do not see the slightest prospect of an American action.”

On the other hand, the English governmental press regrets again and again that the French policy of occupation is confronted with so many difficulties, and emphasizes England’s faithfulness. The Daily Telegraph writes on Feb. 22:

“However little we may agree with the French policy, and however seriously we may regard its possibilities, France still remains our Ally. This is the cardinal point, which must not be obscured, or hazarded by our conduct. In our opinion there is no doubt as to the justification of France’s action.”

The great speech held by Bonar Law in Parliament on Feb. 19, was in the same tone.

And this tone, determinedly maintained by the governmental press, is not lessened in importance by the sharply antagonistic view expressed by many radical and oppositional organs. The New Statesman for instance, writes as follows:

“... It is true that France is now our enemy, the bitterest and most dangerous enemy we have in the whole world. Can any one of our critics dispute this statement? Can one name a more outspoken or more dangerous enemy? Can he find – even in Moscow – a press which attacks us as the Paris newspapers do? Can he mention a single important question in Europe, or outside of the continent, in which French policy does not run in diametrical opposition to ours, or in which the French government does not either openly combat us or, as at Lausanne, secretly frustrate our ends? Can he dispute that France is the main obstacle in the way of the creation of a real League of Nations, and of the acceptance of every proposal towards general disarmament? And if France is thus plainly the enemy of Great Britain, and of all the wishes and endeavors of Great Britain, why should we not use this word? It is necessary to do so.”

Despite a certain growth of oppositional feeling in England, the policy pursued by the ministry has remained unaltered up to the present day. France’s repeated declarations that she will regard any intervention as a hostile act are met by the English government with the denial of any intention to intervene officially, and the expression of an intention to intervene only when both parties are agreed to it. In the middle of March the English government officially denied the intervention rumours and announced that Germany must take the first step. The suggestion of the English opposition, that the decision be left to the League of Nations, is equally rejected. The under secretary of state McNeill, of pro-French tendencies, declares openly that “the League of Nations is not rooted deeply enough in the minds of the peoples”, and he “could well imagine that the League of Nations could be shattered by the first attempt to set it in motion”. On the other hand the English government has by no means been as inactive as might appear from its official dementis. As a matter of fact England has succeeded in isolating Fiance more and more. Italy is not actually taking any part m the occupation action, and a dilettante attempt on Mussolini’s part to form a Franco-Italian-Belgian-German continental bloc against England, was repulsed and defeated by England in a somewhat brutal manner. At the Lausanne conference England succeeded in giving the proceedings such a turn that they went to pieces for the time being on France’s demands. England managed to work upon Belgium so effectively that the Brussels conference ended in Poincaré’s retreat. And finally, it can scarcely be doubted that the German resistance is approved by England, though not officially. As to America, it is entirely at one with England in this matter.

On the other hand, England persists in spreading reports, through the medium of her Paris correspondents, of France’s readiness to negotiate. Thus the Times of March 14th:

The time seems to be quite near when England will be called upon to take part in the solution of the Ruhr problem. In this way England has prepared the soil for a solution which will accord with her own interests.
 

Attempts at solutions and intermediation

It is not our task to discuss here all the purely diplomatic, open and secret negotiations which have been carried on, almost uninterruptedly, among the great powers during the last 3 months. The fact is that the question has lately begun to resolve around the problem of who is going to take the first step. The leading question is whether the negotiations are to take place before the Ruhr area is evacuated, as demanded by France, or after evacuation, as desired by Germany. Here it must be observed that Germany’s policy in this matter is completely inconsistent, and changes from bay to day under the pressure of the nationalists. Rosenberg, in his speech of Mar. 27, refers to the suggestion made by the American secretary of state Hughes on Nov. 29, 1922, approves in principle the suggested ascertainment of Germany’s paying capacity by an international commission of business men, and declares Germany’s readiness to grant to a loan consortium all securities designated as necessary for a reparations loan. He spoke further to the following effect:

“In the course of diplomatic conversations the German government has imparted these views to the most important powers interested in the late of Europe, but not directly taking part in the Ruhr conflict; the German government has done this without putting forward any claims or expressing any wishes, but at the same time has drawn attention to the difficulties offered by the problem of what security can be given to Germany that the territories occupied beyond the limits stated in the Versailles treaty will be evacuated, and the conditions prescribed by the treaty restored in the Rhine country. Apart from the daily increasing sufferings of the population, and the attendant danger of an outbreak of the passions thus roused among the people, the problem is extremely important, for the government cannot imagine it as possible for any expert commission to form any certain judgment on Germany’s actual paying capacity until this violent intervention in German economic life, and the resultant destruction of values, has been put an end to. The German government also sees no possibility that the German people can lay aside their sole weapon, that of passive resistance, unless their opponents also withdraw along the line of status quo ante.”

In reply to Rosenberg’s speech, Poincaré recently declared that France has no inclination whatever to let Germany’s reparation debt, the amount of which is already fixed, be revised by non-participants; and in the English parliament McNeill declared that Rosenberg’s speech does not bring us any further forward, and the government cannot regard his proposition a fruitful or profitable at the present moment.

It seems that the German government is not inclined to make any concrete proposal towards the solution of the reparations question until the Ruhr area is evacuated. The close of the 1st quarter of 1923 thus leaves the situation deadlocked.
 

The issue of the struggle

Although it would thus appear that the German bourgeoisie is prepared to carry on the resistance for an unlimited period, still we are of the opinion that this will not be possible for long. In the struggle between armed France and disarmed Germany, France is bound to gain the upper hand in the count of time. Many signs of lessened resistance are to be actually observed. The French are succeeding – very slowly it is true, but steadily – in gaining ground. The railways are being controlled by the French to an increasing extent; the export of coal and coke is on the upgrade, though this is very slow; the cases become more and more numerous where German officials undertake French service, and where German firms ignore the prohibitions of the German government and make use of the French export and import offices, etc. Although French heavy industry suffers severely from the shortage of coal and coke, still it seems to us that the economic life of France can stand this trial longer than that of Germany. And as the interests of German and French heavy industry are by no means irreconcilable, an understanding will be arrived at before long.

It now appears that Loucheur has taken up the initiative in this question. At the beginning of April he travelled to London, conferred there with Lloyd George and Bonar Law; and the fact that the organ of English foreign trade, the Daily Telegraph occupied itself in detail with the question, proves that this plan is seriously considered. The essence of the plan is a return to the original project of a joint regulation of the reparations and debt question. Stated briefly, this plan is as follows:

The debts owed by the Entente powers to the United States are to be taken over by Germany. Besides this. Germany is to pay France the sum of 26 milliard marks, the Ruhr area is to be demilitarized by stages but rapidly; but the Rhine country is to be separated from Prussia,and to form an independent federal state, which would then be demilitarized under the supervision of the League of Nations. In order to render these financial measures possible, the mark is to be stabilized at about its present level, and a great reparations loan raised, guaranteed by the possessing classes in Germany.

This plan has been received very coldly by the German bourgeois press. But on the other hand the plan is likely to remain in abeyance until the United States agree to pass the debts owed them by the Entente countries – England excepted of course – onto Germany; and at present there is not much prospect of this.

Though this plan may perhaps not be the final one, still there can be little doubt but that a solution will soon be reached on the basis of a similar project. The essential feature of the step taken by Loucheur, in which he is obviously acting with Poincaré’s agreement, is that Poincaré has at last abandoned his standpoint that the Ruhr question is a purely Franco-German affair. The Ruhr occupation is now to be dealt with as affecting all the allies The French press has already given notice of a new conference of Entente ministers to be held shortly, to discuss reparation and Ruhr questions. This would signify a retreat on the part ot France, but by no means a German victory. Should the Loucheur plan – or one similar to it – be accepted, it would mean that of the three possible ways of colonizing Germany (as explained in our last report: by France alone, by America alone, or internationally as England wishes) the last of the three possibilities is victorious!

*

II. Special section

The economic situation of the separate countries. Germany

During the period of this report, Germany’s economic situation has been dominated by two facts: the occupation of the Ruhr and the stabilization of the mark. We may sum up the result by saying that both of these events have further damaged Germany’s economic position, the Ruhr occupation has divided Germany into two parts, which are only enabled to hold intercourse with one another under the greatest difficulties. While the occupied territory continues to draw supplies of food and money from unoccupied Germany, it receives but few materials from here. The occupied territory appears to form a very large passive item for the unoccupied. We are unfortunately obliged to admit that we are very inefficiently informed on the economic conditions obtaining in the Ruhr; we only know the little which we have already stated in the general section; lessened production, for stock, rendered possible by comprehensive aid given to the industrialists by the Ruhr and credit reliefs; compliance to the demands of the workers in questions of wages and unemployment benefit, in order to avoid all social struggles.

If we glance through the general surveys officially issued on the economic situation in the months of January, February, and March, the worsening of the position is undeniable, despite the endeavor to present as favorable a picture as possible. On the other hand German capitalism has again given proof of its great elasticity by accommodating itself excellently to the altered conditions.

Again, the stabilization of the mark has made one fact obvious which we have often enough emphasized; that production in Germany is costly, that when the mark is stabilized German prices are higher than those of the world market. On this point the speech held by Siemens at a general meeting has roused much discussion. Following is an extract:

“The small interest yielded by the capital invested – the Siemens-Schuckert works pay 80% dividends, but only 0.016 % of this in gold – is a great danger for German industry. There could not be a situation in which the motto: stagnation is retrogression, is more applicable than here; If the capital invested in Germany cannot earn suitable interest, it will turn to other markets. Apparent speculative gains have hitherto supplied the place of the lacking interest, but cannot be permanent.

“We pointed out in our report that the orders received are noticeably fewer. This movement continues. Our prices in Germany are higher than the world market prices ...

“If we cannot succeed in reducing expenses to their former level and in increasing production, so that capital can earn a suitable rate of interest, and the costs of manufacture can be levelled up with the world market prices, then it will not be possible to carry on German industry any longer.”

It is precisely the same train of thought as we find m the utterances of Stinnes and Thyssen, quoted in our last report More work, less real wages, fewer unproductive officials – this is the program of the large German bourgeoisie.

Unemployment has greatly increased during the period of this report. The number of unemployed among members of trade unions was as follows:

We observe that even in January the labor market was in the midst of a crisis. Data for March have not yet been published.

Coal. Neither Germans nor French have issued any data on production in the Ruhr since the occupation. In the other colliery districts production is unaltered; some collieries are working extra shifts, but as a rule this is not being done. According to our estimate, production is about 60% that of 1922.

The resultant shortage is being chiefly covered by the import of foreign coal. This coal comes mainly from England, in the second place from the United States, and more recently even from South Africa, from Czecho-Slovakia, and Poland. The importance of the import must not be over-estimated; the import from England, which supplies the most, scarcely exceeded, in January and February, that of some of the months of last year.

For England this export is of great importance, it amounts to 13–15% of the total export.

As regards lignite, the production has almost invariably increased steadily since 1918, and has exceeded coal production since June of last year. Its heating value is of course much lower. Until the middle of February the coal prices rose greatly; a slight reduction in price followed the improvement of the mark; the coal tax was also reduced from 40% to 30% at the end of March. Up to the end of March the occupation of the Ruhr had not led to any coal catastrophe.

The iron industry, whose most important centers are in the Ruhr area, has been less damaged by the Ruhr occupation; there are ample supplies of coal and coke; the blast furnaces are working; much is produced for stock. Large reserves of iron ore have accumulated.

Iron and iron goods are accumulating in the Ruhr area, while there is a shortage of iron in the unoccupied territory.

The export of iron and goods from the occupied territory is prevented by the fees imposed by the French.

The position of the textile industry is favorable to a certain extent, as about one fifth of the spinning and weaving mills fall to the occupied territory, inhabited by one fifth of the population, so that their products can be sold within these limits. It must not be forgotten that the occupied territory comprises 12 million inhabitants, as many as a Balkan state – so it is possible to keep house here for a while! It is only in the silk industry that business is worse, and more and more workers are working part time only.

Traffic has as yet been little disturbed by the Ruhr occupation. The number of trains run has been reduced somewhat, out nothing is heard of transport difficulties. The same applies to water traffic. German maritime shipping is developing rapidly again; the shipyards are working at top speed. Hamburg’s shipping traffic is again the greatest on the continent.

The following figures sum up the foreign trade results for the year 1922 and January 1923.

We observe a great shrinkage of the whole of foreign trade; only the importation of finished goods has increased. A conspicuous detail is the decreased import of fodder barley (10% of 1913), rice, tropical and other fruits, butter, cheese, and lard. On the other hand the importation of brandy has increased twenty fold. Among the raw materials, the importation of cotton has been reduced by half; the decrease is still greater in timber, oil-cake, etc. Coal has become an import article.

In January imports amounted to 47.3 million double cwt., export to 13.1 double cwt. The consequences of the Ruhr occupation are already to be observed here.

The foreign trade values, expressed in millions gold marks, are as follows:

We must observe that the correctness of these foreign trade data is continually doubted in Germany itself. We need not occupy ourselves with this question at the moment; but it is difficult to discover how these 2½ milliards of deficit have been covered. Germany received no loans, private credit at most. Mark notes were scarcely bought at all this year as speculation! How was it paid in spite of this?

Foreign capital. Only one possibility remains; that foreigners have invested corresponding sums in the country in the course of the year. Our last report furnished characteristic detailed data. Since then data have been published on the extensive purchase of houses by foreigners in Berlin, Cologne, and Breslau. But no comprehensive data are at our disposal. This foreignization proceeds rapidly; a great part of the foreign trade deficit and reparations is covered by it. There is scarcely any other explanation possible, if we do not wish to assume that the whole of German statistics – not only the foreign trade statistics – are systematically falsified, as is actually maintained by many people.

State finances have grown catastrophic during the 1st quarter of 1923. The twelfth supplementary budget for the current fiscal year was accepted on March 20th. The probable deficit for the current financial year closing on March 31, is estimated at 7,100 milliards. The monthly increase of the deficit is shown by the following figures, in milliards of marks:

In March the revenues cover 10% of the expenditures only, – a situation much worse than in Soviet Russia!

This enormous increase of state expenditure is an immediate result of the Ruhr occupation. We append a very interesting compilation of Helfferich’s from a Reichstag communication:

In the current fiscal year the finances of the state were as follows:

From this may be seen that during the first four months Germany’s “home” finances showed a surplus of 20.5 milliard paper marks, at that lime about 205 million gold marks. Germany would thus have been able to pay about 800 million gold marks annually without incurring any deficit in her state finances. Since then the situation has become considerably worse, and is in this year catastrophic. The cause of this is the depreciation of the mark, which brings about a corresponding increase of state expenditure, but not an increase in revenue, for the direct taxes paid by the propertied classes are paid in the nominal amounts prescribed by laws based on a currency which has since sunk to a fraction of its original value. The wage tax of the workers, deducted weekly from their wages, is of course an exception to this rule. In this manner a state of affairs is arrived at which is calculated to rouse the utmost indignation, the fact that, despite the nominal progressivity of income tax as applied to high incomes, 80 % of the sum raised by income tax was obtained from the wages tax; at the present time the share of income tax paid by the propertied classes amounts to about 5%. And still Helfferich [1] has the cheek to speak of the “heroic exertions of the German people” in tax paying. In the month of February the total revenue from taxation amounted to 310 milliard marks, equal to about 60 millions gold marks. Of this sum the indirect taxes and the income tax were paid by the proletariat. And what did the rich man pay?

We have detailed data for the month of January. The amounts received were:

In gold marks, about 15 millions. This is the “heroic exertion” of the German bourgeoisie. The latest taxation reform will bring no essential changes.

The increase of paper currency. The number of banknotes in circulation naturally increases with the growing floating debt of the country. The rate of increase has been as follows:

It may be observed that the period required for the amount of paper money in circulation to double becomes shorter and shorter.

The action in support of the mark. Under the influence of the Ruhr octhipation, the dollar rose to 44,000 on January 31, and even reached 50,000 for a short time; the Reichsbank then commenced its action in support of the mark, and within two weeks the rate of exchange of the dollar had been forced back to 20,000–22,000 [2] at which level it has since remained.

We already dealt with this action in the introductory section. We have only to observe here that the mark buyers in France also contribute to the support of the mark. On this subject the Bergwerkszeitung writes on March 13, as follows: “The Reichsbank’s present policy with regard to securities is closely bound up with the political events and the resultant change of attitude abroad; the policy has only been reudered possible at all by France’s defiance of the rights of nations. The mighty masses of troops sent by the French republic had to be equipped with German money in order to maintain themselves in the Ruhr area. The French government had marks bought in New York to the approximate value of 16½ milliards, and this purchase, combined with those undertaken bv the Belgian government in Rotterdam. Amsterdam, and London, led to a stabilization of the mark. This situation was skilfully utilized by the Reichsbank, which at once threw on the market the reserves of securities which were to pay the Franco-Belgian reparation instalments, thus forcing the dollar back to half its relative value.”

The situation of the working class has not been improved in the least by the stabilization or the mark. The stabilization of the mark is the universal signal for the capitalist to stop all increases m wages – except in the Ruhr area – and as the retail prices have continued to rise, and the cost of living with them, the situation of the working class has become worse. Unemployment and part-time work are greatly on the increase.

*

Footnotes

1. Helfferich was minister of finance during the war, and is still the leader of the German nationalists.

2. Today’s (May 15) quotation is 45,000 marks to the dollar.

 
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