Senator MCCUMBER. As a matter of fact, do you not think that the United States will be equally interested in bringing about a condition in which all the industries of Europe can be again put into operation, for our own financial gain? Mr. BARUCH. Unquestionably so. Senator MCCUMBER. For instance, Great Britain up to the time of the war bought from the United States about one-half of all of our exports. She was our greatest customer. Our trade with Great Britain was more than double our trade with Germany prior to the war, on an average. Senator JOHNSON of California. Did the Senator mention textiles? Senator MCCUMBER. No; I say our commercial trade with Great Britain was about double our trade with Germany, and the balance. of trade in our favor, of course, was about double. Take the year ending June 30, 1914. We sold to Great Britain nearly $600,000,000 worth of goods and bought back from Great Britain less than $300,000,000, giving us over $300,500,000 in our favor. Mr. BARUCH. That was in 1914? Senator McCUMBER. In 1914; while to Germany we sold $344,000,000 and purchased $189,000,000, leaving but $154,000,000 in our favor. Now, inasmuch as Great Britain as well as Germany is a heavy purchaser of our goods-and Italy likewise should not our policy be to assist all those nations to be put on their feet as soon as possible? Mr. BARUCH. Unquestionably. Senator MCCUMBER. And that assistance should not be given any more to one nation of the Old World than another? Mr. BARUCH. I think they all ought to be assisted, but I think good judgment should be used in the way they should be assisted, and to whom assistance should be given. Senator MCCUMBER. But our allies at least have an equal claim with our enemies upon our generosity? Mr. BARUCH. Oh, unquestionably. Senator JOHNSON of California. Does that apply to China? Mr. BARUCH. I think so. Senator SWANSON. To get my own mind clear. There is nothing in this treaty that prohibits the nationals of Germany individually from buying all the raw material that they see proper, in order to develop their own factories, is there? Mr. BARUCH. Yes; there is. Senator SWANSON. Do you mean that an individual factory in Germany can not make purchases of raw materials except through the reparation commission? Mr. BARUCH. No, sir; they can not. Senator SWANSON. Where is that clause? Mr. BARUCH. Article 235. Mr. Norman Davis is more familiar with that than I am, but article 235 provides that— Out of this sum the expenses of the armies of occupation subsequent to the armistice of November 11, 1918, shall first be met, and such supplies of food and raw materials as may be judged by the governments of the principal allied and associated powers to be essential to enable Germany to meet her obligations for reparation may also, with the approval of the said governments, be paid for out of the above sum. Senator SWANSON. That refers to the first $5,000,000,000? Senator SWANSON. That is applicable to the reparation fund, is it not? Mr. BARUCH. Yes; but out of that the amount of cash that Germany could pay in the first few years is limited, and in order to give her an opportunity to buy raw materials they said she shall have so much out of this as is necessary to buy them. Now, a man can not go and buy copper or jute or some other raw material and send credit out of the country unless the reparation commission let him do so, because it might affect the payment of this first $5,000,000,000 in cash. Senator SWANSON. Do you mean that individuals can not do it? Mr. BARUCH. They can not if it conflicts with the first cash pay ment. Senator SWANSON. I do not catch that. I had an idea that there was a reparation commission provided, but that a concern in Germany could buy raw material if it had the money or credit individually, and then, in addition to that, that the reparation commission could make loans to enable them to get raw material if they could not get it on their own individual credit. Mr. BARUCH. No, sir; no plans for the reparation commission to make loans. Senator SWANSON. I wanted to get my mind clear on that. And such supplies of food and raw materials as may be judged by the governments of the principal allied and associated powers to be essential to enable Germany to meet her obligations for reparation may also, with the approval of the said governments, be paid for out of the above sum. That is the reason why it is necessary for us to have a man to represent us on that commission. Senator SWANSON. It says Out of this sum the expenses of the armies of occupation subsequent to the armistice of November 11, 1918, shall first be met. That is the reparation sum? Mr. BARUCH. Yes. Senator SWANSON. Further it says: And such supplies of food and raw materials as may be judged by the Governments of the principal allied and associated powers to be essential to enable Germany to meet her obligations for reparation may also, with the approval of the said Governments, be paid for out of the above sum. Mr. BARUCH. If she can put up more than $5,000,000,000 then there will be cash available to individuals. Senator SWANSON. What I want to get clear in my mind is this: Here is a manufacturing concern in Germany that has money or credit, and it wants copper or it wants cotton. It can buy it individually without asking any credit from the reparation commission, without borrowing any of this money. Can that concern come here and buy cotton or buy copper, or must it get it through the reparation commission? Mr. BARUCH. Not through it, but the reparation commission must be satisfied that it is going to get this sum of money. Germany has no right to go outside and get these materials for cash unless the reparation commission are satisfied that Germany is going to pay them this first cash sum of $5,000,000,000. If they are satisfied that Germany can pay that first cash sum, that will permit them to let these men go out and buy their cotton or copper-so much as is necessary; but it has got to be done under the reparation commission. Senator SWANSON. Do you think that is provided for under section 235? Mr. BARUCH. Yes. Senator JOHNSON of California. And it is wholly discretionary whether it be allowed, or in what proportion it shall be allowed. That is discretionary with the reparation commission. Mr. BARUCH. Yes; otherwise, you see, the individuals might, through some excuse or other, send out every dollar of gold and credit and securities that there was in Germany. Senator SWANSON. After they put the taxes as high as they were in Great Britain, and after the taxes have been paid, then if a concern has something left after paying its taxes it can not, as I understand from you, use any surplus after paying its taxes to purchase any raw materials anywhere in the world without the consent of the reparation commission. Mr. BARUCH. That is partly correct, and I will tell you why. If a man had the right to use his money and send it out of the country, they might leave absolutely nothing but a shell in Germany. The German Government themselves are going to set up machinery to see that all the money that can be taxed does not escape. Otherwise, if there was no overseer of this thing, every dollar of gold, every bit of securities, everything that would have any cash value, could be shipped out of Germany and there would not be anything left there to be taxed or for the Allies to get their reparation from. Senator SWANSON. If they bought property, if the money was exchanged for goods that were brought into Germany, the property could be taxed by the Government when it came back, could it not? Mr. BARUCH. Yes; that is right. The way this will work out will be that the very trade you speak of will go on continuously, and it will have to be done under the general eye of this machinery of the reparation commission, and that is one of the reasons why it is necessary for us to be represented on that commission, and why some provisional arrangement should be set up so that Germany can start now. Senator SWANSON. I had obtained the idea that the nationals of Germany after they paid their taxes could use any balance they had for the purchase of raw material, and in addition to that, out of the sum given to the reparation commission, they could also get credit to help them get raw material. That is the idea I got from reading this. But you say that is mistaken, and that they can not buy any raw material except through the reparation commission. Mr. BARUCH. Except with the assent of the reparation commission. But the reparation commission will not stop the buying of raw materials. The Germans and the Allies will discuss this matter and it will probably work out in this way. They will say, "You can proceed to use all you want for raw materials," when they see that the property so purchased will come back into Germany and be just as taxable and be more valuable than the credit they send out. It will work out just the way you say it will practically. But the reparation commission is set up over the whole machinery to see that cash payments are made. Senator JOHNSON of California. Unless you have already done so, will you explain article 236, which says: Germany further agrees to the direct application of here conomic resources to reparation as specified in Annexes III, IV, V, and VI, relating, respectively, to merchant shipping, to physical restoration, to coal and derivatives of coal, and to dyestuffs and other chemical products. Just what is meant by that section, and just what is its effect? Mr. BARUCH. Germany agrees to the direct application of her economic resources, that is production and manufacturing, to reparation as specified in Article III. Now if you will turn to Article III and the following Articles IV, V, and VI, you will find that those refer to certain manufactured goods and raw materials, to replacements of machinery in factories, and to certain coal which it was insisted Germany should give to those countries whose coal mines had been ruthlessly and deliberately destroyed, and to certain contractual relations which existed before the war and which were insisted upon for a certain term of years, so that Germany could not stop the coal that she had previously sold; and to the sale of certain dyestuffs and chemical products that the Allies wanted to have an opportunity to use in the manufacture of their textiles. And there were some particular medicines that the Allies were very insistent upon, as being very necessary for the human race to get. Senator KNOX. Were those hydrocarbon products? Mr. BARUCH. I do not know whether they call them by that name, but there was one particular medicine. Senator JOHNSON of California. Derivatives of coal, dyestuffs, and other chemical products. Does that mean that Germany's economic resources and industrial resources shall be applied as the reparation commission may in the future direct? Mr. BARUCH. No; it applies to the production of those things. They can go ahead and produce them, but the Allies are entitled to certain options and purchases. You will find that, outside of coal, the other provisions are of short duration, and the provision as to coal lasts only ten years. Senator JOHNSON of California. The direction or application of them is within the discretion of the reparation commission? Mr. BARUCH. Yes; they have certain options, and the reason the powers were given to the reparation commission was because it was the purpose not to interfere with industrial and economic conditions Senator JOHNSON of California. One reading of the treaty, or such reading as we are able to give it in the limited time at our disposal, will enable none except the most brilliant intellect which I do not possess to grasp all of the features of the treaty; but as I read it, I see substantially a supergovernment imposed upon the economic resources and industries of Germany in order to determine that she shall comply with what the Allies have required. Mr. BARUCH. That is quite correct; not only to see that she can comply, but that she does comply. To see that she can comply is a very important part of it. Senator JOHNSON of California. The question whether she can comply is within the jurisdiction of this supergovernment. They determine that as well as determining the fact that she must comply. Mr. BARUCH. After giving Germany a hearing and taking all the evidence. There could not be anybody else who could decide it. Senator NEW. They determine that she can and then determine that she must. That is the point you make? Mr. BARUCH. Yes. Senator JOHNSON of California. You will observe that article 237 contemplates that— The successive installments, including the above sum, paid over by Germany in satisfaction of the above claims, will be divided by the allied and associated Governments in proportions which have been determined upon by them in advance on a basis of general equity and of the rights of each. As I infer from what you said in your previous testimony, those proportions have not yet been determined upon. Mr. BARUCH. That is my understanding. That is correct. Senator JOHNSON of California. And that determination will be made ultimately by the allied and associated Governments; and then the division will be made in the proportions that they determine? Mr. BARUCH. Yes, sir. Senator JOHNSON of California. There is one of the things that some of us were talking of yesterday that I want to explain to you, so that you may make it clear to us. The allied and associated Governments determine, now, that a certain sum shall be paid to Germany. I am speaking roughly, now, without reference to technical provisions of the treaty. Mr. BARUCH. Yes. Senator JOHNSON of California. We say, in our altruistic position, that the division of this sum which is to come to the United States we do not desire; but all of the Governments have determined that a certain sum shall come, which sum includes that to which we might be entitled, but which ultimately, for ourselves, we remit. May not the reparation commission levy that sum, notwithstanding our remission, upon Germany and that part of the sum which would have come to us be divided, then, among others? Mr. BARUCH. I should think that would be a part of the determination at the time they fixed the sum. That could be determined at the time they fixed the sum. Senator JOHNSON of California. And then eliminate entirely the right of the United States to any part of the sum? Mr. BARUCH. That might be a part of the negotiation. It would be impossible for me to say what would be done, but that might be a part of the negotiation. They might say, "Well, we will remit. this," or, "We will make the sum less by that which is being eliminated." You see, it might be a part of the negotiation, Senator. Senator JOHNSON of California. But, the sum having been determined as one which Germany is able to pay, is it not likely, then, that the full sum will be levied? Mr. BARUCH. Yes, that is so; but as a part of the reasons for making a certain fixed sum that is reasonable, we might say that we will not take a share of what is a reasonable sum. I do not say we would. Senator MOSES. Would article 234 have any bearing on that? Mr. BARUCH. That might be so. You mean the last sentence? Senator MOSES. Yes. Mr. BARUCH. This commission has the right to fix a certain sum. The commission has plenary powers, if that is the right adjective. They can fix X billions dollars. They have that right. Senator KNOX. Will you pardon me a moment, for a question? Senator MOSES. Yes. Senator KNOX. Suppose you determined, after consideration, that the maximum sum that Germany should pay would be $25,000,000,000 and suppose you determined that the share of the United States was |