(originally published on H-German 13 November 1995)
From the time that the Treaty of Versailles was signed in 1919 to the present day, economists and historians have debated whether Germany could have paid the required reparations. John Maynard Keynes thought not, but was immediately rebuffed by the experts associated with the Dawes Plan. Since the 1920s, both sides have thrown numbers at one another to prove their point. Perhaps some day, a definite consensus will emerge on the macroeconomic level, but historians must complete the Herculean task of trying to measure Gross Domestic Products in order to compare the German burden of 1919 to the French burden of 1815 or 1871. This would be the work of a lifetime.
Alfred C. Mierzejewski, Assistant Professor of History at Athens State College in Alabama and the author of an important book on the last year of the Nazi war economy, has now written an article examining a microeconomic aspect of reparations. Drawing on an impressive array of primary sources, Professor Mierzejewski examines the operation of the German National Railroad Company during the middle and late years of the Weimar Republic.
The railroad played an important role in reparations payments. Under the Dawes Plan of 1924, the Reichsbahn would pay annuities on eleven billion Gold Marks' worth of bonds held by the Agent-General for Reparations, S. Parker Gilbert. This payment would be supplemented by revenue from the transportation tax. These arrangements were slightly modified by the Young Plan of 1929. From 1924 to 1932, the Reichsbahn paid out nearly five billion marks. The provisions of the Dawes Plan further required that the Reichsbahn be put under international supervision. Former Belgian Foreign Minister Leon Delacroix headed the international railroad commission.
Professor Mierzejewski contends that a close examination of the Reichsbahn is valuable because it was the single biggest employer in Germany; its gross revenue made up about six per cent of the entire economy and about five per cent of the entire German population was dependent upon the railroad for its livelihood. The Reichsbahn had been formed in 1920, merging the state railroads of the old empire. It carried seventy-eight per cent of freight traffic and sixty-seven per cent of passenger traffic in Germany.
Critics of the reparations payments have always believed that the burden on the Reichsbahn caused economic damage since the Germans had to charge higher tariffs and couldn't compete with cheaper lines. Mierzejewski, drawing from Gerhard Bry's Wages in Germany, shows in an impressive chart that passenger and freight fares actually remained lower than the cost of living index. He also asserts that freight charges in Germany were lower than those of Britain, the Netherlands, Sweden, and Switzerland.
Professor Mierzejewski also demolishes the argument that the reparations kept the Reichsbahn from making needed repairs. The reports of the German Railroad Society show a very profitable system at work. The railroad network had been completed by 1900 and Germany actually came out of the war with surplus equipment, including five thousand engines. The track replacement work kept up at a steady level. Salaries were raised so that personnel costs grew 23.4% in the late 1920s. The only reason electrification of the railroads was delayed was the military consideration that the electrical stations would be vulnerable to air attack.
The Great Depression brought an end to this prosperity. Beginning in 1930, both passenger and freight traffic declined precipitously. The volume of unsecured debt soared. While Reichsbahn debt doubled from 1925 to 1929, two-thirds of that debt was based on the issue of stock. This growth of debt would seem to contradict Mierzejewski's statement that the Reichsbahn's expansions and additions were paid for out of operating income. From 1929 to 1932 debt grew by another fifty per cent and most of this was from loans. Most of this money went directly to the national government, not to the Reichsbahn.
This is a very good article and I hope that it presages a monograph on railroads and reparations during the Weimar period. I trust that in a longer discussion Mierzejewski would bring in the countless attempts of the Weimar government to use the railroad bonds for various schemes. To cite but one example, the money from railroad bond sales was supposed to pay for the repurchase of Eupen and Malmedy and the early return of the Saarland, according to the scheme pitched by Stresemann to Briand at Thoiry in 1926.
Mierzejewski has done a fine job looking at the microeconomic level to make his point that Germany had the economic ability to pay reparations, but not the political will. Until we make a full macroeconomic study, we must rely on microeconomic studies such as this and some simple common sense: an economy that could build and support the war machine of 1914 and 1939 was certainly capable of paying out billions in reparations over a lengthy period.