TUESDAY, AUGUST 5, 1919.

UNITED STATES SENATE,

COMMITTEE ON FOREIGN RELATIONS,

Washington, D. C.

The committee met at 10.30 o'clock a. m., pursuant to adjournment, in room 426, Senate Office Building, Senator Henry Cabot Lodge, presiding.

Present, Senators Lodge (chairman), McCumber, Brandegee, Fall, Knox, Harding, Johnson of California, Moses, Hitchcock, Williams, Swanson, Smith, and Pittman.

STATEMENT OF MR. NORMAN H. DAVIS- -Continued.

The CHAIRMAN. We will continue with Mr. Davis.

Senator JOHNSON of California. Mr. Davis, you were a member of two commissions, as I understood you, Finance and Reparation? Mr. DAVIS. Yes.

Senator JOHNSON of California. Did each commission have separate experts?

Mr. DAVIS. Yes. Sometimes they duplicated. Sometimes some of the same people were on both commissions, but they were separate bodies.

Senator JOHNSON of California. Did any of those experts resign at any time?

Mr. DAVIS. One of the British representatives resigned along at the last, who represented the British treasury. He resigned because of ill health.

Senator JOHNSON of California. Did the American experts resign? Mr. DAVIS. Not on any of the committees that I was on.

Senator JOHNSON of California. Do you recall that any resigned at all?

Mr. DAVIS. I recall that Mr. Bullitt, who was attached in some way to the peace delegation, resigned.

Senator JOHNSON of California. Did any of the experts resign that you recall?

Mr. DAVIS. No.

The CHAIRMAN. Was Mr. Bullitt the one who went to Russia?
Mr. DAVIS. Yes.

Senator MCCUMBER. Who went with Mr. Bullitt to Russia? There was some one else went with him.

The CHAIRMAN. Lincoln Steffens.

Mr. DAVIS. I am not positive, but I think it was Lincoln Steffens. Senator JOHNSON of California. They went there representing the United States?

135546-19 -7

97

Mr. DAVIS. Senator, I never did quite understand just in what capacity they went there, but apparently for the United States.

Senator JOHNSON of California. When you reached Paris and were engaged in that work, Mr. Bullitt was a regular official attached to the American Commission in some capacity, was he not?

Mr. DAVIS. Mr. Bullitt was, I understand, in some way connected with the State Department and was with the State Department staff there, and I did not come in contact with him at all, so I do not know just what he did.

Senator JOHNSON of California. Did you have any fundamental theory or any basis upon which you began your work in relation to reparations?

Mr. DAVIS. Yes; you mean as to arriving at Germany's capacity to pay?

Senator JOHNSON of California. Well, in arriving at the modus operandi ultimately of the collection of the debt, and the like?

Mr. DAVIS. Yes; we started out with a practical definition as to what Germany was liable for, which was defined in the interchange of notes between the President and the German Government and between the President and the allied powers.

Senator JOHNSON of California. Those notes to which you refer were written when-after the armistice or before the armistice? Mr. DAVIS. Leading up to the signing of the armistice.

Senator JOHNSON of California. And the armistice gave you the foundation, then, upon which to work?

Mr. DAVQs. We felt that an agreement was made.

Senator JOHNSON of California. And that that agreement had been that Germany should pay all of the damage that had been caused by her?

Mr. DAVIS. All of the damage to civilians and their property.
Senator JOHNSON of California. That alone?

Mr. DAVIS. I forget the exact wording. It was first defined in certain of the fourteen points, in the interchange of notes by the President with the Germans and the Allies, the Allies desired to clear this matter up definitely, and they replied that they would like to understand just what this damage referred to; that is, if it were all damage caused on the ocean, from the air, and on the land, and the President replied yes, and then that was presented to the Germans, and they said, "On those conditions we are prepared to sign the armistice."

Senator JOHNSON of California. Were these notes published at the time?

Mr. DAVIS. Oh, yes.

Senator JOHNSON of California. And these were notes that were subsequent to the fourteen points and prior to the armistice?

Mr. DAVIS. Absolutely.

Senator JOHNSON of California. Were they the notes upon which the armistice was based?

Mr. DAVIS. That was our understanding.

Senator JOHNSON of California. You started, then, so far as the American Commission was concerned, with a basis for computation and a basis for reparation provisions?

Mr. DAVIS. Absolutely.

Senator JOHNSON of California. And that basis was what, if you will please repeat it?

Mr. DAVIS. That Germany should repair the damage caused to the civilians and their property wherever found.

Senator JOHNSON of California. Was that basis adhered to through

out.

Mr. DAVIS. We understand that it was.

Senator JOHNSON of California. And so far as the provisions of the treaty are concerned, is that basis adhered to?

Mr. DAVIS. I think so, Senator. There were naturally some differences of opinion as to what would be included in that, but I think it was.

Senator JOHNSON of California. Now, that basis, you took it from the very beginning, without a real computation, would equal an amount greater than Germany could pay?

Mr. DAVIS. Well, we had experts working for several months computing damages under the various categories which came within that so-called agreement leading up to the armistice, and all of the Governments were filing statements of their specific damages, and our experts and their experts were going over these, comparing them with their own information, and we got at a comparatively reasonable estimate as to what the damage under the various categories would amount to. Senator JOHNSON of California. These experts began that work after you had gone to Paris?

Mr. DAVIS. Yes.

Senator JOHNSON of California. Now that estimate that you thus reached was conceived to be a reasonable estimate of the amount that ought to be paid upon the basis you have suggested?

Mr. DAVIS. We felt that that was a reasonable estimate of what Germany was liable for. Then the other question arose as to whether or not Germany could pay that amount.

Senator JOHNSON of California. And the conclusion reached on the latter subject was that she could not pay that amount?

Mr. DAVIS. That was our conclusion, Senator. Some people still hold that she can.

Senator JOHNSON of California. It is a part of the treaty, is it not? You have inserted it as a provision that it is recognized that Germany is unable to pay the full debt that is due from her?

Mr. DAVIS. No, I do not so understand that. My interpretation of the first article in the reparation chapter is that Germany is morally responsible for having caused all of the damage, all the war costs and everything else, but realizing her inability to make good, to restore all of that damage, the allied and associated governments had confined themselves to requiring Germany to pay to the utmost of her capacity the damages under the specific categories attached. Senator KNOX. Can you tell how much the war cost the world? Mr. DAVIS. Oh, that is very difficult. Of course, Senator, that depends very much on how you figure that. If you mean the economic loss, it is one thing. If you mean actual expendituresSenator KNOX. I mean actual expenditures.

Mr. DAVIS. The actual expenditures were probably between $200,000,000,000 and $250,000,000,000.

Senator HARDING. Does that include property destroyed by the war?

Mr. DAVIS. No, I am just referring to expenditures by the various Governments concerned.

Senator HITCHCOCK. Do you include what the German Government would have to expend now in reimbursing?

Mr. DAVIS. No, I mean the expenditures for conducting the war. Senator MCCUMBER. Is that on the part of the Allies alone, or on both sides?

Mr. DAVIS. That would include everything, the Germans and everybody.

Senator SWANSON. I have seen a statement made by some statisticians that the bonded indebtedness would amount to about $190,000,000,000 when the armies were disbanded, and that the residue, between that and $250,000,000,000 would be represented by the taxes that were collected in that time.

Mr. DAVIS. I think $190,000,000,000 is rather excessive, Senator. As I recall, England's bonded indebtedness will be about 10,000,000,000 pounds, or we will say, $50,000,000,000, and the United States $30,000,000,000. That would be $80,000,000,000. Ours probably will not go quite so high, say, $25,000,000,000. That will make $75,000,000,000 for England and the United States; France, $25,000,000,000, would be $100,000,000,000, and Germany about $35,000,000,000, or a total of $135,000,000,000. Italy increased her bonded indebtedness to about $12,500,000,000 during the war, and Austria increased hers about $12,500,000,000.

Senator WILLIAMS. Does that computation take in Turkey and Bulgaria?

Mr. DAVIS. No, but they were very small. I should say both those Governments combined would not increase the figure over $5,000,000,000. Certainly $150,000,000,000 of bonded indebtedness would about cover it.

Senator SWANSON. I think that estimate was for the time when the armies were disbanding and peace declared.

Mr. DAVIS. I am calculating up to the present.

Senator JOHNSON of California. With the estimates made by your experts of the total damage, what was the reason why you did not in the treaty fix the total amount to be paid by Germany? Probably you stated that yesterday, but possibily I have forgotten it.

Mr. DAVIS. I should say principally, Senator, because, according to the judgment of most of us at any rate, Germany could not pay anything like the full amount of the damage for which she was liable; and because the amount which she could pay was smaller than the full bill, we were principally anxious to have Germany sign a note for the full amount, and then determine later on what reductions should be made on that.

Senator JOHNSON of California. And so you consider the treaty to be the signing of a note for the full amount, with the power in the Reparations Commission to make deductions subsequently, which shall be determined. Now your Reparation Commission consists in reality of the Big Five?

Mr. DAVIS. Not the Big Five. It is really the Big Four and Belgium.

Senator JOHNSON of California. The Big Four and Belgium. I think we have one-fifth of the voting power.

Mr. DAVIS. Yes.

Senator JOHNSON of California. And in some instances, where Belgium is not concerned, as I recall the treaty, probably one-fourth of the voting power.

Mr. DAVIS. No; where Belgium is not concerned some one else sits in Belgium's place.

Senator JOHNSON of California. So that in any event we will never have more than one-fifth of the voting power.

Mr. DAVIS. No; but we provided that that one-fifth would be a very powerful vote, because in most important matters a unanimous vote is required.

Senator JOHNSON of California. Yesterday you said what I think is quite the fact in all of our experience, that when men sit by themselves around a table it is not difficult to reach a unanimous conclusion. That is correct, isn't it?

Mr. DAVIS. Yes.

Senator JOHNSON of California. And that is your experience in practice?

Mr. DAVIS. It takes time. It can not always be done. Sometimes there may be such conflicting conditions that it may take some time, and you may have to go at it gradually to accomplish it.

Senator JOHNSON of California. But ultimately

Mr. DAVIS. Ultimately, I think it can be done.

Senator JOHNSON of California. So that now we have Germany signing a note admittedly for more than she can pay. We can start with that premise, can we not?

Mr. DAVIS. Well, it is no more than some of the interested parties think she can pay?

Senator JOHNSON of California. I am, of course, taking the view that you gentlemen took.

Mr. DAVIS. The American view is that, absolutely.

Senator JOHNSON of California. I take our American view in preference to any other.

Mr. DAVIS. Yes.

Senator JOHNSON of California. And you gentlemen have reached the conclusion that it was a note for a greater sum than Germany was able to pay?

Mr. DAVIS. Yes.

Senator JOHNSON of California. You look forward, however, finally to the reparation commission, composed as you have indicated, scaling that down so that she can pay. The scaling down would depend upon obtaining the unanimous consent of the reparation commission hereafter, would it not?

Mr. DAVIS. Yes.

Senator JOHNSON of California. And without that unanimous consent the world is confronted to-day with a bill that has been placed against Germany greater than it is possible for her to pay, and under the terms of this treaty she may be required in various fashions, as they are indicated, to attempt to pay that bill.

Mr. DAVIS. I think not. In the first place, Germany delivers bonds for only $15,000,000,000, except the small extra amount that she will deliver for Belgium, which probably would run it up to $16,000,000,000, and Germany can not be called upon to deliver any more bonds without the unanimous consent of the reparation commission. In other words, we insisted that Germany must not be