The Allied distribution of reparations after World War I - Political agency and the performativity of accounting
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The Allied distribution of
reparations after World War I
Political agency and the performativity of accounting
Tobias Vogelgsang∗
10th November 2014
∗
t.vogelgsang@lse.ac.ukContents 2 Contents List of Tables 3 List of Figures 3 1 Introduction 4 1.1 The reparations problem in a nutshell . . . . . . . . . . . . . . . . . 4 1.2 The Spa percentages . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.3 Argument and structure of the paper . . . . . . . . . . . . . . . . . 6 2 Agency problem 7 2.1 Post-war environment . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.2 Public constraint: reparations as a matter of justice . . . . . . . . . 9 2.3 Private constraint: reparations as a matter of expedience . . . . . . 13 3 Ideas and the agency problem 16 3.1 The ideas approach of institutionalism . . . . . . . . . . . . . . . . 16 3.2 Ideas and the distribution of reparations . . . . . . . . . . . . . . . 19 3.3 The transfer problem as policy paradigm . . . . . . . . . . . . . . . 20 4 Performative accounting and the Spa percentages 24 4.1 Performativity and provisional numbers . . . . . . . . . . . . . . . . 24 4.2 Making the Spa percentages . . . . . . . . . . . . . . . . . . . . . . 25 4.3 Solidifying the Spa percentages . . . . . . . . . . . . . . . . . . . . 28 5 Conclusion 33 Appendix 36 References 39 Primary sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Secondary sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
LIST OF TABLES 3 List of Tables 1 Costs of World War I . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2 Reparation Commission’s compilation of damage claims . . . . . . . 30 3 Reparation Commission’s recalculation of claims . . . . . . . . . . . 32 List of Figures 1 Spa percentages in Daily Mail of 17 July 1920 . . . . . . . . . . . . 5 2 Daily Mail of 7 May 1920: Ll.George’s election promise of 1918 . . 9 3 Daily Mail of 23 June 1920: ‘Letting Off The Huns’ . . . . . . . . . 12 4 The Times of 2 July 1920: ‘France’s Account For Reparation’ . . . 26 5 The Times of 2 July 1920: Percentages and damage estimates . . . 27 6 Reparation Commission’s compilation of damage claims . . . . . . . 37 7 Reparation Commission’s recalculation of claims . . . . . . . . . . . 38
1 Introduction 4
1 Introduction
1.1 The reparations problem in a nutshell
The armistice between the Allies and Germany was signed on 11 November
1918.1 Once the armed conflict ended, the conflict over who would pay for the
war broke out, see table 1, p. 4.
Table 1: Costs of World War I (in $m)
Gross cost Advances to allies Net cost Net cost/capita
Great Britain 44,029 8,695 35,334 766
Rest of British Empire 4,494 4,494 13
France 25,813 1,547 24,266 613
Russia 22,594 22,594 135
Italy 12,314 12,314 343
United States 32,080 9,455 22,625 229
Other Allies 3,964 3,964 127
Total Allies 145,288 19,697 125,591
Germany 40,150 2,375 37,775 557
Austria-Hungary 20,623 20,623 352
Turkey and Bulgaria 2,245 2,245 85
Total Central Powers 63,018 2,375 60,643
Total 208,306 22,072 186,234
Source: Broadberry and Harrison, ‘The economics of World War I : an overview’, p. 23.
The US insisted on repayment of her wartime loans, a total of $9.5bn, of which
$4.9bn had gone to Great Britain and $4bn to France.2 Britain was herself a net
creditor, but her main debtors were hard-pressed for money; Russia’s debt to
Britain were $2.7bn, France’s $2.1bn and Italy’s $2.0bn.3 Defaulting on their
American loans was neither an option for Britain nor France. The two remaining
1
There was a separate armistice between Russia and the Central Powers, signed on 15 December
1917.
2
Broadberry and Howlett, ‘The United Kingdom during World War I’, pp. 221-1. Hautcoeur,
Was the Great War a watershed? The economics of World War I in France, p. 191.
3
Broadberry and Howlett, ‘The United Kingdom during World War I’, pp. 221-2.1 Introduction 5
options were domestic taxation and the extraction of reparations from Germany.
Resistance to domestic taxation mounted quickly, which led to high reparation
demands at the Paris Peace Conference. There, the reparation question could
not be resolved but the Treaty of Versailles, signed on 16 June 1919, codified
extensive damage categories and a formal procedure to establish a Reparation
Commission and settle the matter by 1 May 1921.
1.2 The Spa percentages
The distributional aspect of reparations was settled by an Allied agreement that
was reached on 16 July 1920 in Spa, Belgium. France would receive 52% of all
reparations that Germany would pay, the British Empire would receive 22%,
Italy 10%, Japan 0.75%, Belgium 8% and Portugal 0.75%; the remaining 6.5%
were reserved for other nations. This set of numbers became known as the Spa
percentages and was one of the first steps to formally conclude the reparation
issue that had occupied the Allies, Germany and the US since the end of the war.
The actors in the making of the Spa percentages belonged to a small core of
leading Allied politicians and financial experts around French President
Alexandre Millerand and Prime Minister Ll. George. The public learned of the
national shares on 17 July through the press, see fig. 1, p. 5.
Figure 1: Source: Daily Mail from 17 July 1920, reporting the so-called Spa
percentages, the Allied agreement on the distribution of Germany’s reparation pay-
ments.
11 Introduction 6
The reason why this paper begins with the outcome, the Spa percentages, is that
their genesis was a non-trivial matter. The constraints at the time blocked the
straightforward route to determine the distribution of reparations based on
actual damage figures. Nonetheless, a core of Allied politicians and financial
experts managed to create and stabilise these numbers in an environment of
instability and uncertainty. Valid numbers relating to reparations were hard to
come by and had a very short half-life in the decade after the war. The London
Schedule of Payments of 1921 was replaced by the Dawes Plan of 1924, which
was replaced by the Young Plan of 1929. Reparations were suspended in 1931,
they were cancelled altogether in 1932.4 The Spa percentages, in comparison,
were valid from mid-1920 until June 1929, when the Young Plan reduced the
British share by 2.4%.5
1.3 Argument and structure of the paper
This paper argues that the Spa percentages were created and stabilised in two
separate steps through the performativity of accounting numbers and methods.
Each step had its own set of producers and consumers of numbers, with different
ways of counting and different numbers. Performativity is a concept that
philosopher John Austin developed. It is the quality of words, images, numbers,
calculations etc, to do something, hence to act, and not to describe a state of
affairs.6 Performativity was one of the very limited means of political agency to
which the creators of the Spa percentages could resort under the constraints of
their time.
Section 2 of the paper lays out the constraints of the first step, to agree on a
distribution of reparations. These constraints were a challenge to the political
agency of Allied politicians and experts. Section 3 details the recourse to ideas,
the preferred institutionalist approach to mitigate the agency problem, and
claims that it does not explain the creation of the Spa percentages. Section 4
4
Gomes, German Reparations, 1919-1932 , pp. 65-212.
5
Ibid., p. 172.
6
Austin, How To Do Things With Words. Bredekamp, Theorie des Bildakts. MacKenzie, An
Engine, Not a Camera.2 Agency problem 7
introduces Austin’s notion of performativity and Lampland’s concept of
provisional numbers. Section 4 furthermore argues that the performativity of
numbers was the mode of political agency by which the Spa percentages were
created and stabilised.7 Section 5 concludes.
2 Agency problem
2.1 Post-war environment
Uncertainty and coordination failure are the dominant themes of the literature
on the interwar period. To Jari Eloranta and Mark Harrison (2010), the First
and the Second World War were part of ‘a single historical process’ that was a
‘thirty-year conflict of empires and nationalisms’.8 Nikolaus Wolf (2010) argues
in the same vein that the ‘war had not yet come to an end’ in 1918, only in
1945.9 Other scholars share this assessment and see the years from 1914 to 1939
as a smouldering war.10 For the financial system, Barry Eichengreen (1996)
argues that the gold standard lost its stability because the war had drastically
reduced ‘credibility and cooperation’ between central banks and governments.11
To Albrecht Ritschl and Tobias Straumann (2010), trade and payments on the
eve of World War II had become a ‘new, extreme version of mercantilism whose
principal aim was to utilise trade as a weapon in international conflict’.12
On reparations, Feldman’s assessment is that current historiography is engaged
in the same battle that already the contemporary witnesses John Maynard
Keynes and Étienne Mantoux fought, except with ‘new evidence, recycled old
evidence and theoretical speculation’.13 Keynes (1919) in his Economic
Consequences of the Peace was the first to famously assign blame, based on
7
Lampland, ‘False numbers as formalizing practices’.
8
Eloranta and Harrison, ‘War and disintegration, 1914-1950’, p. 134.
9
Wolf, ‘Europe’s Great Depression: coordination failure after the First World War’, pp. 340,
347, 363.
10
Steiner, ‘The Treaty of Versailles Revisited’, p. 20.
11
Eichengreen, Golden Fetters, p. 12.
12
Ritschl and Straumann, ‘Business cycles and economic policy, 1914-1945’, p. 179.
13
Feldman, The Great Disorder , p. 309.2 Agency problem 8
diagnosing Allied politicians and experts, in particular those of France, with a
flawed understanding of the matter.14 Mantoux (1946) put forward a counter-
diagnosis with his Carthaginian Peace and parcelled out responsibility
accordingly.15 Mark Trachtenberg (1980) and others have added a perspective
that is critical of the British role and shows French diplomacy in reasoned
nuances and differentiations.16 Bruce Kent (1989) does not take sides for either
party but aims for a balanced and all around critical account.17 Feldman’s work
(1996) dispels the idea that Germany’s role was ‘a simple tale of treaty evasion
and bad faith’.18
While there is no consensus on the responsibilities of the various parties and
actors, there is certainly agreement that the contemporaries were overburdened
by the reparations problem. This historical assessment underpins the work of
economic historians, who are typically concerned with the weight of reparations
on the German economy, her failure to fulfil any of the various payments schemes
that were adopted from spring 1921 until the cancellation of reparation payments
in 1932, e.g., Ritschl (2012), Ritschl and Straumann (2010) or Ferguson (2000).19
Zara Steiner (2001) remarks that the statesmen who dealt with reparations
‘barely understood’ the ‘highly technical’ issue, far less so than modern historians
do.20
The synthetic assessment of past events and periods is a privilege of hindsight.
In its time, the reparations matter presented itself to the Allied governments, in
particular to the British and French, in concrete terms. It was a practical
challenge to their political agency. In resolving the reparations issue, they had to
achieve two objectives that appeared mutually exclusive. First, their constituents
expected high reparations that reflected actual war damages. To the public,
reparations were a matter of absolute justice. Second, by mid-1920 the consensus
14
Keynes, The Economic Consequences of the Peace. Keynes, A revision of the treaty.
15
Mantoux, The Carthaginian Peace.
16
Trachtenberg, Reparation in World Politics.
17
Kent, The Spoils of War .
18
Feldman, The Great Disorder , p. 309.
19
Ritschl, ‘The German transfer problem’. Ritschl and Straumann, ‘Business cycles and eco-
nomic policy, 1914-1945’. Ferguson, ‘How (Not) to Pay For the War’.
20
Steiner, ‘The Treaty of Versailles Revisited’, p. 20.2 Agency problem 9
amongst the core of Allied politicians and financial experts (France, Britain,
Belgium and Italy) was that the amount of reparations that could actually be
obtained from Germany was far less than the war damage, due to the limits of her
capacity to pay and the Allies ability to make her pay.21 In private, to the core of
Allied politicians and experts, reparations were a matter of feasibility.
2.2 Public constraint: reparations as a matter of justice
Figure 2: Clipping from an article on reparations in the Daily Mail from 7 May
1920, citing Ll. George on his election promise of 11 December 1918.
The gulf that existed in mid-1920 between public and private perceptions of the
reparation matter dates back to the populations’ war experiences. Immediately
after the war these experiences had been coupled with political promises to make
Germany pay. Ever since then, the governments were struggling to make good on
their promises and to somehow manage the discrepancy to the amount that
would actually be forthcoming. The press constantly made them aware of their
near failure to do either. In the British case the Daily Mail and others routinely
reminded Ll. George and the public of the promise he had given on 11 December
1918 before election. In a speech in Bristol he had coined the language for the
attitude that large parts of the British public held towards reparations for the
first three years after the war and that the press would iterate over and over,
e.g., in an article on reparations from 7 May 1920, see fig. 2, p. 9:
Those who started [the war] must pay to the uttermost farthing, and
we shall search their pockets for it.22
21
Kent, The Spoils of War , p. 103, 110.
22
Daily Mail, “Search their Pockets”. Farthing was a quarter of a penny, the smallest coin in
circulation. It was abolished in 1960.2 Agency problem 10 For the French government, admitting that there was a gulf between the expected and the feasible reparations amounts was the insight of a drawn-out process into the limits of Germany’s capacity and combined Allied means of enforcement.23 In the British case, which is detailed in the following, key members of the government wanted low reparations for a host of reasons since late 1918. Up until early 1917, according to Bruce Kent (1989), the Empire held a general position of strong moderation with respect to reparations.24 Trade and the return to prewar trade patterns were most important. To not disturb these trade patterns, Germany should not be burdened heavily. Further factors for moderation were domestic left-wing groups and the possibility of Allied defeat. Within the British Empire, there were few that thought differently and an early but lonely voice to demand a large indemnity was Joseph Ward, Finance Minister of New Zealand. In January 1918, Ll. George spoke of compensation for losses incurred at sea and in the invaded territories, i.e., only for physical damage. Still in September the same year, although in martial rhetoric, this position was corroborated by Alfred Harmsworth, Britain’s Director of Propaganda, who demanded compensation for everything that Germany had ‘gorged and stolen, sacked and burnt’.25 The tide began to turn, according to Kent, as the end of the war approached and the US insisted on the repayment of her loans. The Canadian and Australian governments, just like Britain’s, were indebted to the US. In anticipation of increasing taxation, British men of property and their media outlets joined British conservative and nationalist politicians. They claimed that Germany should not just compensate the physical damage she had done, but also pay indemnities, i.e., military pensions. Responding to the public pressure, Ll. George’s government created a committee to investigate Germany’s financial capacities. The committee, headed by Australia’s Prime Minister William Hughes, also took the liberty to estimate the total damage. It concluded that Germany should and could pay a total of £24bn, or £1.2bn annually [How much 23 Provide reference. 24 For the development of the British position, see: Kent, The Spoils of War , pp. 28-40. 25 Cited in: ibid., p. 32.
2 Agency problem 11 is this in gold mark?].26 In private, Ll. George, Bonar Law and others thought that the figures of the Hughes Committee were a ‘wild and fantastic chimera’.27 Closing in on the general elections of 14 December 1918, however, Ll. George publicly adopted the same stance as the Hughes Committee. Technically, Britain came out of the war as a net creditor. She was owed a total of $11.1bn by other states, according to Leonard Gomes (2010), of which a large sum would not be forthcoming though.28 The Russian Bolsheviks refused to honour the debt the Czarist regime had accumulated.29 The French debt was $3bn, but repayment depended on the amount of reparations France would receive from Germany. The British position towards reparations derived from her aspirations in the post-war world. This aspiration, according to Alan Dobson (1995), was to regain her previous position as global power in finance and commerce, which had been increasingly challenged by the US throughout the war. To resume that position, Britain did not want to default on her American loans so that she preserved her reputation as good creditor and maintained an intact relationship with the US. The defaults of her own debtors, hence, had to be absorbed and balanced through other receipts.30 These had to come either from taxation or reparation. Reelected on his reparation promise, see fig. 2, p. 9, Ll. George attempted two routes at the Peace Conference in March 1919 to secure a sum that would satisfy his electorate. The first route, reports Kent, was to demand 30% of the total that Germany would pay for Britain; France should receive 50% and the remaining countries 20%. Louis Loucheur, principal economic adviser of French President Clemenceau, refuted the proposal as he was not willing to fix France’s share below 55%, leaving a maximum of 25% to Britain. Ll. George’s second route was to press for the inclusion of allowances for widows and orphans into military pensions. There he succeeded and overcame opposition by admitting categories of civilian damages to the reparation claim that were suitable to 26 Kent, The Spoils of War , pp. 37-8. 27 Cited in: ibid., p. 40. 28 Gomes, German Reparations, 1919-1932 , pp. 5-6. 29 What was the amount? 30 Dobson, Anglo-American Relations, p. 47.
2 Agency problem 12
France. American resistance to the French-British dealings faltered, according to
Kent, once Wilson realised that he could argue that detailed reparation
categories made the peace agreement more transparent and thereby more just.31
Thus, such damage categories were codified in the Versailles Treaty that a
damage accounting would yield a high figure.
In Britain, the gap between what was expected and what would actually be
forthcoming had begun to decrease since the signing of the Treaty, due to the
gathering momentum of financial revisionism, see, e.g., Gomes (2010). Keynes
had published his Economic Consequences of the Peace in late 1919 and what
was formerly ‘piecemeal criticism’, according to Kent, had been given ‘force and
cohesion’ by April 1920.32 Nonetheless, also in mid-1920 there was still a
significant gap. At Boulogne in June Allied politicians tested the waters by
floating figures of what Germany might have to pay in reparations. The response
by the Daily Mail was that the Allies were ‘letting off the huns’, see fig. 3,
p. 12.
Figure 3: Header of an article on Allied meetings on reparations at Boulogne, Daily
Mail from 23 June 1920.
The article went on to compare the proposed reparation settlement with the
burden of the British taxpayer:
The decision at Boulogne to reduce the reparation payable to
Germany to an annual amount of £150,000,000 for 35 years rates
the taxable capacity of the Germans far too low. Their resources and
population are superior to ours; yet in Great Britain, in the last two
years, no less than £500,000,000 of additional imperial and local
taxation had been imposed. The pockets of the hapless British
31
Kent, The Spoils of War , p. 74.
32
Ibid., pp. 92-3.2 Agency problem 13
taxpayer are being search for the last farthing, while the German
taxpayer is spared in every possible way.33
Despite financial revisionism, 35 annuities of £150m were evidently not
considered a just sum in mid-1920. In comparing this reparation figure to the
additional tax revenue in Britain since the end of the war, the article echoes Ll.
George’s promise of December 1918. The pockets that are being searched are not
those of the Germans. In France, the discrepancy between public expectations
and actual reparation payments was unabated at that time. Revisionism played
no role and the reception of Keynes, according to Kent, ‘varied from indifferent
to vitriolic’.34
2.3 Private constraint: reparations as a matter of expedience
In private, the core of Allied politicians and financial experts held a very
different view of the reparation matter in mid-1920. Their common view is
captured in a letter that John Bradbury, the Principal British Delegate on the
Reparation Commission, sent to Austen Chamberlain, Chancellor of the
Exchequer, on 2 June:
[Chairman Dubois, the French Delegate,] was as emphatic as any of
us [members of the Commission] as to the impossibility of carrying
out the assessment provisions of the Treaty as it stands by 1st May,
1921, and, while he naturally abstained from giving us any precise
indication of what his own views or the views of his Government are
in regard to a “lump sum settlement”, he accepted without demur the
principle that the only question of serious importance was to fix the
largest amount which Germany could afford to pay and the best
method of making the payment available at the earliest practicable
date, and that the total amount of damages (which was necessarily
33
Daily Mail, Letting off the Huns. Figures in bold in original.
34
Gomes, German Reparations, 1919-1932 , pp. 47-50. Kent, The Spoils of War , pp. 93-4.2 Agency problem 14
vastly in excess of such a sum) had little more than academic
importance.35
To the core of Allied politicians and experts the relevant question was not the
total damage of the war, but to fix the largest amount that Germany could
actually be made to pay as soon as possible. Reparations were not a matter of
justice, but of expedience. Within the British government moderate elements
had silently held this position since before the Peace Conference. To them,
macroeconomic and strategic consideration also suggested low reparations. In
Inter-Allied negotiations the British government had pushed for a capacity to
pay approach at the latest since March 1920, according to Kent, and the French
government eventually adopted this stance out of necessity.36
The Ll. George government had three reasons to adopt a capacity to pay
approach in dealing with Germany, all of which related to its general preference
for moderate reparations. First, the government thought of it as a means to
deflate public expectation and harmonise it with what was realistically possible
and economically desirable. As such, a consideration of Germany’s means had
been part of the communication strategy ever since late 1918, when the
government adopted the tough rhetoric of its political opponents.37 Second,
Britain’s interest was not to receive reparation in material goods, but in
payments.38 Third, British willingness to extract reparations by coercive means
was much lower than French.39
The French government provisionally accepted the capacity to pay approach as it
ran out of other options during the first half of 1920. The general elections of
November 1919 had brought a nationalist government to power, which at first
‘strengthened the rhetoric of French reparation policy’.40 France, unlike Britain,
had an interest in receiving material goods as reparations, particularly coal, and
was willing to coerce Germany. Through the French occupation of the Ruhr on 6
35
Reparation Commission, T194/273 , p. 28.
36
Kent, The Spoils of War , p. 92.
37
Reference to Ll. George speech at Bristol in December 1918.
38
Gomes, German Reparations, 1919-1932 , pp. 48-9.
39
Reference Feldman..
40
Kent, The Spoils of War , p. 89-90.2 Agency problem 15
April 1920 the government conclusively realised, however, that it did not have
Britain’s support.41 Quite the opposite, Britain replied to the French occupation
by suspending coal deliveries to France and Ll. George countered Millerand’s call
for a joint occupation with the ‘hitherto unthinkable suggestion’ that the German
government should be included into the process of determining reparations.42
The French government accepted the approach under the reservation that only
Germany’s immediate liability was derived from her capacity to pay.43
Bradbury’s letter to Chamberlain from 2 June 1920 continued by reporting that
there was also agreement on how to obtain the ‘largest sum possible’ from
Germany:
[Dubois] also concurred very definitely [...] that the most useful first
step would be to secure a completion of the arrangement for
percentage distribution already arrived at between Great Britain,
France, and Serbia by bringing in the other powers entitled to
reparation.44
Public expectations aside, in order to secure reparations from Germany the Allies
had to take a joint position towards her. That meant that there could be no
quarrelling amongst the Allies about who had suffered more damages and who
would receive how much reparations. Hence, an agreement on the distribution
was a necessary prerequisite to negotiate and enforce any settlement with
Germany. Chamberlain replied to Bradbury that he was ‘in full agreement that
the first step is to get the Allies’ percentages settled’.45
The challenge that the key actors in mid-1920 faced, can be couched in Alain
Desrosières (2009) conclusion on the reality of statistics:
The way in which producers and users of statistics talk about ‘reality’
is informed by [...] several attitudes to reality. The mix of these
41
Gomes, German Reparations, 1919-1932 , pp. 49.
42
Kent, The Spoils of War , p. 92.
43
Ibid., p. 95.
44
Reparation Commission, T194/273 .
45
Ibid.3 Ideas and the agency problem 16
attitudes and the links between them vary according to [...] the
specific constraints prevailing in different situations.46
The public reality of reparations was that they would create justice. By paying a
certain amount, those who were perceived to be responsible for the war had to
make good for its damages. Their private reality was that reparations would be
an expedient amount, This amount would not reflect a moral judgement but
Germany’s ability and willingness to pay on the one hand and on the other the
combined Allied ability to coerce payment. The problem for political agents at
the time was to create reparation numbers that were equally real, i.e., socially
valid, in the public and the private sphere, when the constraints seemed to make
just that impossible.
3 Ideas and the agency problem
3.1 The ideas approach of institutionalism
The institutionalist literature on political economy attempts to solve the agency
problem by invoking the role of ideas. The literature can be distinguished into
two strands, depending on the diagnosis of the agency problem, how ideas are
conceptualised and where they supplement the research program. The following
will detail both approaches and argue that neither was instrumental in
overcoming the agency problem laid out above.
Historical institutionalists, e.g., Peter A. Hall (1989, 1993), Mark Blyth (2002) or
James Morrison (2012, 2013), arrive at the agency problem from above, i.e., from
existing institutions.47 Morrison (2012), e.g., reexamines the origin of the
international order of the 19th century, the first period of economic openness
under British hegemony.48 He raises the agency problem by showing that
46
Desrosières, ‘How real are statistics?’, p. 339.
47
Hall, The Political Power of Economic Ideas. Hall, ‘Policy Paradigms, Social Learning and the
State’. Blyth, Great Transformations. Morrison, ‘Before Hegemony’. Morrison, ‘Shocking
Intellectual Austerity’.
48
Morrison, ‘Before Hegemony’.3 Ideas and the agency problem 17 Britain’s shift to openness took hold in the ‘multipolar world’ of the 1780s, forty years prior to what is commonly taken as the starting point of British hegemony. The policy shift of the 1780s, Morrison argues, is under-determined by materialist factors alone, i.e., ‘structure of interests, institutions and power at the international and domestic levels’.49 Britain’s shift to openness, according to Morrison, was brought about by the collaboration of an intellectual and a policy maker, Adam Smith and William Petty, Earl of Shelburne.50 Historical institutionalists bring to the agency problem a wide notion of ideas that is akin to world views. They solve the agency problem by adapting Kuhn’s structure of scientific revolution more or less closely to the political realm. The notion of a political paradigm is explicitly developed by Hall. In his account, underlying collective agency is a ‘realm of discourse’ of policy-making, which under normal conditions is governed by an ‘interpretive framework’ or a ‘policy paradigm’.51 This paradigm is rendered contingent if material factors change, as in Morrison’s account, or when anomalies occur that the paradigm fails to explain, e.g., Blyth’s account of stagflation and Britain’s Keynesian economic policy in the early 1970s.52 As the paradigm weakens, agency becomes increasingly difficult until a new paradigm has emerged. The shift to a new paradigm is eventually brought about by a small number of individuals, adherents of different ideas, who through persuasion and pressure succeed to alter the mode of policy-making.53 Historical institutionalist diagnose the agency problem as uncertainty on the collective level. To solve it, they narrow the focus on key individuals or a less aggregated level of agency, where there is no uncertainty. Then, as uncertainty recedes, the focus is widened again. Rationalist institutionalists, e.g., Douglass North (1990), Judith Goldstein and Robert O. Keohane (1993) or Douglass North, John Joseph Wallis and Barry Weingast (2009), arrive at the agency problem from below and see it as a riddle of individual choice. North et al. (2009), e.g., examine the relationship between 49 Morrison, ‘Before Hegemony’, pp. 396-7. 50 Ibid., pp. 396-7. 51 Hall, ‘Policy Paradigms, Social Learning and the State’, p. 279. 52 ibid., pp. 284-5. 53 Ibid., pp. 286-7.
3 Ideas and the agency problem 18 the social order of states and their economic development. They broadly distinguish between ‘natural states’ and ‘open access orders’, of which only the latter are capable of sustained economic development. ‘Natural states’ control violence by allocating rents to members of the elite, a process based on personal relationships.54 ‘Open access orders’, in comparison, control violence through an impersonal process of economic and political competition.55 In their account, North et al. assume that individuals ‘are trying to accomplish the best outcomes with their limited resources and choices’; that is, individuals are rational and intentional within the boundaries of what they know and believe.56 Knowledge and beliefs, in turn, are consequences of experience and education.57 Accordingly, agency under stable conditions in either social order is explained by the rationality of agents. At the margin, however, where ‘changes in the environment are novel, without precedent’ and require a ‘changing structure of human interaction’, this explanation fails.58 In such situations of ‘Knightian uncertainty’, diagnose North et al., the theories of the social sciences fall short because they are ‘predicated on the notion of an ergodic, repeated and predictable world’.59 Responding to the agency problem, North et al. argue that a ‘necessary preliminary is to understand how the brain interprets signals received by the senses and how the mind structures the result into coherent beliefs’.60 In this, they work with a notion of ideas akin to a person’s convictions or first beliefs, which is much narrower than that of the historical institutionalists. Faced with uncertainty, according to Goldstein and Keohane, ideas work like ‘road maps’ that ‘clarify causal principles and conceptions of causal relationships’; as such, ideas are forerunners of institutions and ‘continue to guide action’ once they are ‘institutionalised’.61 Rationalist institutionalists thus identify the agency problem 54 North, Wallis and Weingast, Violence and Social Orders, pp. 18. 55 Ibid., pp. 22. 56 Ibid., p. 28. 57 Ibid., p. 28. 58 Ibid., p. 251. 59 Ibid., p. 251. 60 Ibid., p. 251. 61 Goldstein and Keohane, Ideas and Foreign Policy, pp. 8, 5.
3 Ideas and the agency problem 19
where individuals face Knightian uncertainty. Ideas are then introduced as first
beliefs, as a kind of proto-rationality, which guides agency under uncertainty.
How such beliefs work exactly, North et al. admit, is not yet understood.
3.2 Ideas and the distribution of reparations
The political agency that allowed making the Spa percentages cannot be
explained by recourse to the historical or rationalist conception of ideas. There
are two reasons for this. First, the structure of the agency problem that the
Allies faced in 1920 does not match the structure of the agency problem that
historical and rationalist institutionalists describe. Second, the actors that made
the Spa percentages did not succeed in doing so by drawing on new ideas.
For historical institutionalists, an agency problem is a situation where political
institutions and the agents in those institutions adhere to an idea, broadly
conceived, that is ineffective, e.g., Hall and Blyth, or less effective than others,
e.g., Morrison. In this set-up, a solution to the agency problem requires a supply
of alternative ideas and some degree of freedom on behalf of the agents to choose
and adopt them. The agency problem in determining the distribution of
reparations, however, was not solved through a new idea, because the actors were
constrained in a way, actually or putatively, that prevented them from adopting
new ideas. These constraints resonate in the common historiographical motive
where contemporary politicians of Europe are accused of cowardice because they
did not adopt a truthful stance on the entire reparations matter towards the
public, e.g., Marks or Kent.62 Underlying such criticism is the counterfactual
reasoning that there was room for manoeuvre that contemporary politicians did
not use.63 A similar reproach goes to the US when historians argue that she
could have deflated the entire matter by deciding not to collect Europe’s wartime
debt.64
62
Marks, ‘The Myths of Reparations’. Kent, The Spoils of War .
63
Reference Antony Lentin (Appeasement at the PPC) to the introduction to show that the
interwar period was a time of a stalemate of ideas. Hence, agency moved to numbers and
accounting.
64
Provide reference.3 Ideas and the agency problem 20 For rational institutionalists, an agency problem is a riddle of explaining choice under uncertainty. They argue that in such a situation ideas come to bear, understood as causal beliefs, which structure the mind with a proto-rationality. This, in turn, makes choice possible even under uncertainty. The rationalist approach effectively pushes the agency problem into the the black box of the mind and makes it a subject of the cognitive sciences, see North et al..65 This approach creates a void in the social sciences, which Robert Bates (2010) criticises in direct response to North et al. and the rationalist development literature more broadly: It misses out on ‘micro-level reasoning’ and the role it plays for ‘active agents’.66 This paper cannot make statements about the ways the mind does or does not work. It can, however, respond to Bates criticism and put the focus on active agents and try to understand how they did the things they did. In the case of the Spa percentages, this paper argues, actors overcame the agency problem not through ideas, but through the performativity of provisional accounting numbers and methods. 3.3 The transfer problem as policy paradigm The major battle in the 1920s in the realm of discourse to which historical institutionalists point was over the so-called transfer problem. This refers to the changes of relative prices, expenditure and production as a consequence of the financial transfer of wealth between two countries.67 Similar to Keynes in his Economic Consequences in 1919, the German government and its financial experts argued in 1920 and 1921 that the reparation burden would destroy the German economy.68 The argument was that Germany ran a trade deficit, amongst others through the import of vital foodstuffs. Reparations, however, had to come out of a trade surplus if they were not to erode the country’s capacity to pay. If Germany had to pay reparations beyond its capacity, the German experts 65 North, Wallis and Weingast, Violence and Social Orders, p. 251. 66 Bates, ‘Review of Violence and Social Orders’, p. 755. 67 Brock, Transfer Problem. 68 Arnhold et al., ‘Economical effects of the Paris resolution’.
3 Ideas and the agency problem 21
argued in 1920, the government was ultimately forced into ‘a debauch of
borrowing [to which] an unlimited increase of paper issue must follow’.69
The design of the London Schedule of May 1921, the first of three reparation
regimes, did not take account of the transfer problem argument that Keynes and
the Germans advanced. Keynes reiterated his point in numerous publications
throughout the following years and Germany’s hyperinflation from summer 1921
to 1924 seemed to be proof that the transfer of reparations was indeed a
significant problem.70 As a consequence the Dawes Plan was intentionally
designed to mitigate it. From 1924 to 1929 Germany’s currency was protected
through a stabilisation loan, she should return to the gold standard, her currency
reserves were protected from reparation payments and commercial debt was
given seniority over reparations.71
The most vocal advocates of the transfer problem, economists like Keynes, Isaiah
Stamp or Carl Bergmann, celebrated the shift in the approach towards
reparations as the triumph of economics over politics they had been waiting for
since the Peace Conference. Carl Bergmann, the eminent German expert who
had accompanied negotiations and technical discussions around reparations from
the beginning, dedicated an entire chapter to the transfer problem in his 1926
History of Reparations.72 His book was published in English in 1927 and widely
disseminated. On the transfer problem he remarked:
Throughout the world the conviction is gaining ground that, after all,
a country can make payments abroad for which it receives no
counterpart only from the surplus of its production — in other words,
only up to the amount that it can sell to foreign countries in goods
and services, after its internal requirements have been met.73
The technical discussion on the transfer problem peaked in 1929 in the Keynes-
Ohlin debate. At that time a committee lead by American industrialist Owen D.
69
Auswärtiges Amt (German Foreign Office), Germany’s Solvency, p. 16.
70
Keynes, A revision of the treaty. Keynes, Germany’s Capacity.
71
Ritschl, ‘The German transfer problem’, p. 951.
72
The German title was Der Weg der Reparation.
73
Bergmann, The History of Reparations, p. 304.3 Ideas and the agency problem 22
Young was preparing the third reparation regime under which Germany would
actually have to pay reparations. Keynes was editor of the Economic Journal
and argued in the March issue that in addition to the net transfer of wealth,
reparations would also impact Germany’s terms of trade.74 In June and
September Bertil Ohlin and Jacques Rueff argued against Keynes that this was
not necessarily the case.75 If all income effects were taken into account, Ohlin
and Rueff maintained, then a net transfer did not have to alter the terms of
trade, but could lead exclusively to a change in consumption in the receiving
countries and Germany.76
In the debate on the transfer problem Paul Samuelson named Keynes the Goliath
and Ohlin the David.77 In their time, however, Keynes was the apparent victor.
With his campaign of the 1920s he had swung the approach to reparations in the
direction he advocated. As editor he also had the last word over Ohlin and Rueff
in the Economic Journal and did in fact publish their articles with his own
immediate replies. Samuelson’s David is victorious only in hindsight. Modern
transfer theory validates the position of Ohlin and Rueff and maintains that in a
two-country, two-commodity model the terms of trade can change in favour of
either, or remain stable.78 The judgement of the history of economics on Keynes’
technical argument of 1929 is unflattering. To Samuelson, the core of Keynes’
argument was ‘rhetorical bluster and political resentment against the Treaty of
Versailles’.79 Harry Johnson argues that Keynes’ contribution was ‘technically
incompetent’ and that his replies to Ohlin were made in bad faith.80 Robert
Mundell calls it ‘one of the great puzzles of the history of economic thought’ to
explain why Keynes took such an ‘absurd position’ in the matter.81
74
Keynes, ‘The German Transfer Problem’. Gomes, German Reparations, 1919-1932 , p. 229-32.
75
Ohlin and Keynes, ‘The Reparation Problem: A Discussion’. Rueff, Ohlin and Keynes, ‘Mr.
Keynes’ Views of the Transfer Problem’.
76
Gomes, German Reparations, 1919-1932 , p. 229-32.
77
Samuelson, ‘Bertil Ohlin (1899-1979)’, pp. 109, 112.
78
Gomes, German Reparations, 1919-1932 , p. 229-30.
79
Cited in: ibid., p. 232.
80
Cited in: ibid., p. 232-3.
81
Cited in: ibid., p. 233.3 Ideas and the agency problem 23 The discourse on the transfer problem in the 1920s did eventually produce a dominant paradigm. Concerning the relationship of ideas and political agency two points have to be noted though. First, the process took several years, which was much too slow to provide a solution to the Allies’ agency problem imminent in determining the distribution of reparations. Second, Keynes’ view prevailed as an idea not due to its analytical merit, but in spite of it. The superiority of Keynes’ ideas was the level of support that was rallied around it. This begs the question whether ideas are the right analytical unit to explain political agency. An entirely different view of reparations goes beyond either interpretation of the transfer problem and was first advanced by contemporary practitioners.82 It maintains that the real determinant was Germany’s willingness to pay, rather then her capacity or the effects of her payments. The French economist Étienne Mantoux, son of the Peace Conference’s principal translator Paul Mantoux, reiterated this point in 1946 and again Albrecht Ritschl in 2012.83 Ritschl argues that casting reparations as a possible transfer problem prevented contemporaries from addressing the real issue of Germany’s willingness. Furthermore, policy focus on the transfer problem eventually created an actual transfer problem. Through transfer protection under the Dawes Plan Germany was incentivised to borrow excessively abroad. Under the Young Plan from 1929, however, reparations had again seniority over commercial debt. With the onset of the Great Depression Germany then had an incentive not to transfer reparations, which she did, hoping that her creditors would once again reverse seniority to protect their own markets.84 82 Reference to Belgian expert who participated in negotiations. 83 Mantoux, The Carthaginian Peace. Ritschl, ‘The German transfer problem’. 84 Ibid., pp. 954-7.
4 Performative accounting and the Spa percentages 24
4 Performative accounting and the Spa percentages
4.1 Performativity and provisional numbers
The notion of performativity was coined by philosopher John Austin (1975) to
distinguish verbal statements that do something from those that report a state of
affairs.85 The concept has been widely adopted and was extended to include not
just language but ways of doing things in general, e.g., history of art applies
performativity to the configuration of visual materials, the sociology of
economics applies it to the modelling of financial markets.86 In the sociology of
accounting, Mahmoud Ezzamel (2009) argues that accounting in ancient Egypt
was a ‘performative ritual’, which ‘created and sustained order’ and thereby
‘legitimised and preserved the status quo’; embedded in a religious context,
Ezzamel argues, accounting was a ‘mediating institution between gods, Pharaohs
(kings) and the populace’.87
There are several ways in which a verbal statement or a way of doing things can
be performative. MacKenzie (2004) distinguishes between generic and Austinian
performativity.88 Generic performativity is endemic and simply means that social
categories, such as gender or a company’s profit figure, are not naturally given
but the ‘result of endless performances’.89 Austinian performativity, in
comparison, is much less frequent but makes the stronger claim that an utterance
‘makes itself true’, e.g., when an absolute monarch calls a person an outlaw.90
For financial economics, MacKenzie elaborates, Austinian performativity could
mean that the application of a certain model has the effect of making actual
price patterns more similar to the way they are modelled.
85
Austin, How To Do Things With Words.
86
Bredekamp, Theorie des Bildakts. MacKenzie, An Engine, Not a Camera.
87
Ezzamel, ‘Order and accounting as a performative ritual’, pp. 349-50, 377-8.
88
MacKenzie, ‘The big, bad wolf and the rational market’, pp. 305-6.
89
Ibid., p. 305.
90
Austin, How To Do Things With Words. Cited in: MacKenzie, ‘The big, bad wolf and the
rational market’, p. 305.4 Performative accounting and the Spa percentages 25
The notion of provisional numbers is adopted from Martha Lampland’s work
(2010) in the sociology of science and accounting.91 She shows that such numbers
are crucial to the formalisation of dynamic processes. Numbers are provisional,
according to Lampland, either in a temporary or in a conditional sense.
Temporary numbers can be found in formalisation processes that are iterative,
e.g., economic forecasting in quarterly reports that guide investment decisions.
Conditional numbers occur in formalisation processes that are partially open.
One example is scientific modelling, which has to be open for epistemic reasons.
Another example is the determination of property value for tax purposes in
California in the 1950s. There, the numbers were a ‘product of recurring political
machinations [where] tax assessors were in the habit of privileging supporters
and currying favour with shifting voting allegiance’.92 As these processes evolve,
their formal structures evolve as well, according to Lampland, and provisional
numbers ‘decay’ or are updated. In Lampland’s framework provisional numbers
are used by investors to make decisions, scientists use them to creatively solve a
problem and politicians use them as incentive.93
4.2 Making the Spa percentages
When the distribution of reparations became public on 17 July 1920, it appeared
in a frame that had been carpentered during the previous weeks. On 29 May the
French President Millerand had publicly valued the damage between 200bn and
210bn francs (approx. £4.3bn).94 The Reparation Commission drew on Keynes’
figures in the Economic Consequences and estimated France’s damage at
£3.2bn.95 Louis Dubois, who had agreed with his colleagues on the Reparation
Commission on the impossibility of carrying out a bottom-up accounting,
publicised a detailed French damage account on 1 July in the Liberté. A day
later Dubois’ figures appeared in The Times. They amounted to 248bn francs
91
Lampland, ‘False numbers as formalizing practices’.
92
Ibid., pp. 384-5.
93
Ibid., pp. 384-7.
94
The Times, France’s claim at Spa. The conversion rate is 48 francs to a pound, which was
used in the Times article of 2 July.
95
Reparation Commission, T194/6 .4 Performative accounting and the Spa percentages 26
(£5.2bn) and were published under the header ‘France’s Account For
Reparation’, see fig. 4, p. 26.96
Figure 4: Header of an article in the The Times from 2 July 1920, reporting
on France’s war damages alongside the distribution of reparations that France and
Britain were working out.
The Times article briefly introduced the proposed 55% to 25% split between
France and Great Britain, see fig. 5a, p. 27. Then it went on and delivered a
detailed description of the items on Dubois’ account, see fig. 5b, p. 27. It
reported that France had suffered industrial damages of 7,260,269,456 francs and
non-industrial damages of 54,774,000,000. Damages for the Department du Nord,
the region most affected by the war, were at 3,700,000,000. The damage in
agriculture was given as 16,249,000,000; hunting and fishing 88,000,000;
agricultural water-power 46,000,000; woods and forests 1,400,000,000; railways of
general importance 468,000,000; canals 276,000,000; maritime ports 78,000,000;
roads and bridges 1,218,000,000; posts, telegraphs and telephones 295,000,000;
taxes and war contributions 2,500,000,000. The total of damages were 248bn
francs.97
On 3 July, the Daily Mail reported that 1 there was still no agreement, but that
France should receive 52% and the Empire 22%; Belgium was to receive 8% and
Italy 14%, while demanding 20%.98 For France, the Empire and Belgium these
were the shares that were eventually agreed at Spa on 16 July while Italy had to
settle for 10%.
In making the Spa percentages, the two principal consumers of numbers were the
public and the core of Allied individuals who also produced the numbers. For the
96
The Times, France’s Account For Reparation. Conversion rate is 48 francs in one pound, as
used in the article.
97
Ibid.
98
Daily Mail, No Agreement.4 Performative accounting and the Spa percentages 27
(a) (b)
Figure 5: Clippings from The Times article on ‘France’s Account For Reparation’,
2 July 1920. The article begins with the French-British agreement to split repar-
ations 55% to 25%, (a). These percentages were presented in conjunction with a
detailed French damage account that totals at 248bn francs, (b).
The distributional agreement was necessary for Allied politicians to take a joint pos-
ition towards Germany and extract reparations. The damage figures were produced
by Louis Dubois, the Principal French Member on the Reparation Commission,
1
1 to
frame the distributional agreement as if it satisfied also the publics desire for retri-
bution via reparations. In private, Dubois knew that a complete damage accounting
was practically impossible and would yield an infeasible total.
public, the producers had to frame the discussion over distribution as if the
shares correlated with absolute damage figures. These damage figures were
circulated by Louis Dubois and President Millerand in the French case, who
believed that an actual damage accounting was practically impossible and would
yield a total greater than what Germany could pay. As provisional numbers,
however, the damage numbers were indispensable because they created the
political manoeuvring space to agree on the Spa percentages. The totals of 200bn
or 248bn francs, which were arrived at through some statistical estimate, were
provisional both in a temporary and a conditional sense. They were temporary,
because an actual damage assessment would have revised them. They were
conditional, because they had to be higher rather than lower in order to appear4 Performative accounting and the Spa percentages 28
as if the French and other Allied governments kept their promises to the public
and to conservative political forces.99
The producers of numbers used the performativity of provisional damage
numbers in two ways. First, they were uttered by high-ranking political figures in
the public sphere, where they played back the public’s expectations about
reparations. In this way, they were generically performative. The damage figures
were certainly based on some method of estimation, their relevant feature,
however, was their magnitude and the suggestion to the public that reparations
would create absolute justice. Second, the nexus of provisional damage figures
with reparation shares made the ‘Reparation Share-Out Pact’ possible. The Spa
agreement consolidated the Allies’ position towards Germany and increased their
capacity to extract reparations from her. In this way, provisional damage
numbers increased reparation amounts in the eventual settlement, i.e., the
provisional numbers made actual numbers more like themselves. Hence, they
were performative in an Austinian sense.100
For the key actors behind the Spa percentages, the performativity of numbers
was a means of political agency. Provisional damage numbers were used to
simulate a relationship between damages and reparation shares. This allowed
Allied agreement on the shares, which in turn made a later reparation settlement
possible. The Spa percentages were the first socially valid numbers in the
reparation matter.
4.3 Solidifying the Spa percentages
When they were agreed in July 1920, it was not evident that the Spa percentages
would survive for very long. Bilateral negotiations between France and Germany
took place during summer and autumn, which failed eventually. But had they
succeeded, the Allied agreement on reparation shares would have come apart
99
Kent, The Spoils of War , p. 111-2.
100
Read MacKenzie (2006) again.4 Performative accounting and the Spa percentages 29
again.101 As it was though, the reparation shares were solidified in the months
after the agreement due to the work of the Reparation Commission.
The principal members of the Reparation Commission were high-ranking
politicians or public servants from the Allied nations, often with a strong
background in finance. John Bradbury, the British representative, had been at
the Treasury from 1905 until he took his post at the Commission. He was the
governments chief financial adviser throughout the war and was appointed to the
committee on currency and foreign exchanges in January 1918.102 Louis Dubois,
the French representative since 19 May 1920, was member of the Assemblée
Nationale since 1910. From 27 November 1919 to 20 January 1920 he was
Minister of Commerce in charge of maritime transport and the merchant
marine.103 104
Starting with the Spa Conference, the Allied governments, led by France and
Britain, and the Reparation Commission dealt directly with the German
government. Although Allied politicians were still trying to supersede the
Commission by pursuing a negotiated settlement with Germany, they no longer
prevented the Commission from carrying out the tasks that the Treaty
stipulated. Consequently, the Commission tried to determine Germany’s capacity
to pay and prepared to reconcile it with Allied damage claims by 1 May 1921.105
The Commission naturally expected that the German side would try to exploit
inconsistencies between national positions amongst the Allies and the position of
the Commission as Inter-Allied body. Germany would also contest the
Commission’s numbers as too high, in order to argue for lower reparations.
Consequently, the Commission’s strategy was to create consistency amongst the
national elements of its position and to present a minimal damage figure to
Germany.106
101
Reference France’s attempt to negotiate directly with Germany, Kent.
102
Howson, Bradbury, John Swanwick, first Baron Bradbury (1872-1950).
103
Assemblée Nationale, Dubois, Louis Joseph Marie (1859-1946).
104
Add details on Italian and Belgian representatives. The Belgian representative was called
Bemelmans.
105
Reference in Kent, Feldman
106
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