Papers Relating to the Foreign Relations of the United States, The Paris Peace Conference, 1919, Volume X

Paris Peace Conf. 180.0501/26

Supreme Economic Council: Twenty-sixth Meeting Held at the Ministry of Commerce [on 10th July, 1919, at 4:30 p.m.]

July 10, 1919, 4:30 p.m.

The Supreme Economic Council held its Twenty-sixth Meeting on Thursday, 10th July, 1919, at 4.30 p.m. under the Chairmanship of Monsieur Clémentel.

The Associated Governments were represented as follows:—

United Kingdom.	Mr. Wise.
	Mr. Waley.
	Mr. Barrie.
United States.	Mr. Hoover.
	Dr. Taylor.
	Mr. Dulles.
France.	M. Loucheur.
	M. Boret.
	M. Vilgrain.
	M. Seydoux.
Italy	Commendatore Volpi.
Belgium.	M. de Cartier de Marchienne.

250.

The minutes of the Twenty-fifth Meeting were approved.

251. Removal of Blockade on Germany.

(i) With reference to Minute 242 (iii) the following decision formulated by the Supreme Council at their Meeting held on 7th July was recorded:—¹

“That the commercial censorship as being part of the measures constituting the blockade on Germany should be abolished at the same time as the blockade.”

It was noted that each of the interested Governments would in due course take such steps as were necessary to carry the above decision into effect.

(ii) With further reference to Minute 242 (iii) a report from the Sub-Committee on Germany (231) regarding the execution of the Brussels Agreement and other Agreements entered into with Germany under the Armistice, in the event of the blockade on Germany being raised, was submitted for the information of the Council.

It was noted that in accordance with the decision reached by the Council at the last Meeting the report had been sent to the Committee on the organisation of the Reparation Commission established by the Council of Five.

(iii) (a) The Director-General of Relief submitted that as the above Committee would for the time being deal with all economic questions arising out of the Peace Treaty it would be desirable for the Sub-Committee on Germany to discontinue its activities immediately in order to prevent all risk of overlapping and duplication of activities.

The British Delegates pointed out that there were certain current matters with which the Sub-Committee on Germany were already dealing and which it might be desirable for them to complete and suggested that the Sub-Committee should continue its work until the dissolution of the Council.

It was agreed that the Sub-Committee should prepare a report for consideration by the Council at the next Meeting giving details of the matters still outstanding with which the Sub-Committee had been dealing. The Council would then decide to what organisation these matters should be allocated for final settlement.

(b) The British Delegate on the Finance Section pointed out that there were certain financial details in connection with the payment of food supplied to Germany which were requiring settlement and enquired what the policy of the Council would be as regards these.

It was agreed that the Finance Section should be authorised to continue its work with a view to adjusting all outstanding matters as soon as possible but that the Section should also prepare a report regarding the position for submission to the Council at the next Meeting.

(iv) A note from the British Delegates (232) embodying a draft resolution dealing with the termination of neutral trade agreements was submitted.

The resolution amended to read as follows was adopted:—

“The Allied blockade representatives in neutral countries bordering on Germany shall be informed that the date to be fixed for the termination of the existing blockade agreements by mutual consent will be the date when the Allied and Associated Governments are officially informed of the regular and full ratification of the Peace Treaty by the German Republic.”

252. Resumption of Work in Vieille-Montagne Factories.

A letter from the Belgian Delegates dated 7th July (233) referring to an enquiry made as to the views of the Allied and Associated Governments regarding the proposed resumption of work at the Vieille factories of Borbeck Oberhausen immediately after the conclusion of Peace, was submitted.

It was agreed that there was no objection to this proposal.

253. Supply of Coals From Czecho-Slovakia to Vienna.

With reference to Minute 230 a note from the French Minister at Prague dated 3rd [1st?] July (234) reporting that the Czech Government had not and did not intend to discontinue their shipments of coal to Vienna was noted.

254. Use of Fiume for Serbian Supplies.

A letter from the Serbian Delegation to the President of the Peace Conference dated 1st July (235) requesting that in order to facilitate the import of foodstuffs to Serbia, Croatia and Slovena sanction might be given for the entry of imports through the port of Fiume, was submitted.

The Italian Delegates stated that importations could be effected not only through Gravosa, but also through Salonika, Cattaro and Dalmatian Ports. There was, however, no blockade on Fiume as a port of entry for foodstuffs destined for the Kingdom of Serbia, Croatia and Slovena and the Italian Government was fully prepared to give all possible assistance to expedite the supply of foodstuffs required in those districts. They pointed out, however, that it would be necessary for supplies to be passed through the French or Italian naval or supply bases at Fiume and that the Italian Government would be unable to agree to the establishment there of a new naval or supply base by the Government of the Serbs, Croats and Slovenes.

It was agreed that the information supplied by the Italian Delegates should be transmitted by the French Delegates to the President of the Peace Conference.^1a

255. Relief Operations.

Statements (236) submitted by the Director-General of Relief formulating analyses of the respective contributions of the Allied and Associated Governments towards relief during the period from 1st December 1918 to 31st May 1919, were noted.

It was pointed out that there appeared to be certain discrepancies in the statements as compared with those prepared by the other Delegations and it was agreed that any modifications necessary should be communicated to the American Delegates.

256. Future Arrangements for Relief of German-Austria.

A letter from the German-Austrian Delegation at St. Germain dated 9th July (237) requesting the Allied and Associated Governments to assist further in the relief of German-Austria by granting additional credits for the supply of foodstuffs required for at least the months of August and September was submitted.

The Director-General of Relief stated that, in his opinion, the relief of German-Austria would have to continue for a very considerable period after the signing of Peace.

As the Supreme Economic Council had practically exhausted the resources available to them for this relief except in so far as the supply of a limited quantity of tonnage was concerned and in view of the fact that a Separation Commission would have control of German-Austrian finance, he submitted that the body when formed should consider immediately as its first duty what steps should be taken to ensure an adequate supply of foodstuffs and raw materials to German-Austria.

It was agreed that the letter from the German-Austrian Delegation should be sent to the Supreme Council together with a statement from the Supreme Economic Council, pointing out that the problem calls for immediate attention by the Separation Commission and recommending that the German-Austrian Government should be informed that this proposal will receive consideration immediately upon the formation of the Separation Commission.^1b

257. Allied Economic Policy in Hungary.

With reference to Minute 248 the letter dated 1st July (238) sent by the Director-General of Relief to the Supreme Council regarding the pressing economic situation in South Eastern Europe arising out of the political situation in Hungary was submitted for the information of the Council.

It was reported that no decision had yet been reached by the Supreme Council.

258. Allied Economic Policy in Russia.

With reference to Minute 244 draft recommendations prepared by the Sub-Committee on Russia (239) were submitted and amended by striking out the last sentence in Clause 5.

The Council took note of the report and decided to recommend to the interested Governments that the proposals made therein should be adopted.

It was further agreed that the reports from the various Sections of the Council (see Minute 244) regarding this matter should also be transmitted to the Governments concerned together with the recommendations put forward by the Sub-Committee.

259. Economic Co-operation After Peace.

(a) With reference to Minute 241 a report from the Committee on Policy was submitted and the recommendations made therein amended and approved for submission to the Governments of the Allied and Associated Powers.^1c

It was agreed that no public notification regarding these proposals should be made until they have been formally accepted by the Allied and Associated Governments.

(a) A memorandum from the Director-General of Relief dated 3rd July (240) regarding the Economic situation in Europe was submitted for the information of the Council.

260. Health Conditions in South Eastern Europe.

The French Delegates reported receipt of a communication from a Representative on the International Red Cross Committee at Geneva (241) regarding the necessity for establishing a sanitary cordon through Libau, Vilna, Yassy and Galatz in order to prevent the spread of disease to Western Europe.

It was agreed that reply should be made to the effect that this matter is already being dealt with by the Allied and Associated Governments in collaboration with the Governments of the Countries in Eastern and South Eastern Europe concerned.

Appendix 231²

[Report From the Sub-Committee on Germany Regarding] Trade Restrictions on Germany During the Period Between the Raising of the Blockade and the Coming Into Force of the Peace Treaty

“As regards the execution of the Brussels Agreement, and the other agreements entered into with Germany under the Armistice, that the Sub-Committee on Germany should be instructed to examine the position, and inform the Council what action, if any, will be necessary in connection therewith, in the event of the blockade on Germany being raised.”³

The Sub-Committee on Germany has considered the matter at a meeting held on the 1st July and minutes read as follows:—⁴

“It was pointed out that there would be an interim period between the raising of the blockade and the coming into force of the Peace Treaty, and that certain measures would be necessary to govern this situation. In this connection the following resolutions were adopted:—

‘(1) The Sub-Committee assumes that the commercial relations between the Nationals of Allied and Associated Governments and German subjects are to be resumed by joint agreement between the Associated Governments on the day when the German Republic having ratified the Peace Treaty, the blockade is raised, in accordance with the terms of the letter addressed to the President of the German Delegation at Versailles on the 27th June by M. Clemenceau.⁵

‘The Sub-Committee wishes to point out that, if resumption of these relations is not immediately authorised, neutrals will enjoy an unfair advantage over Nationals of Allied countries. In these circumstances, the Sub-Committee would be glad to be informed of the measures the Associated Governments propose to take to authorise their Nationals to resume commercial relations with Germany as from the date in question, in such a way that no prejudice shall be done to the execution of the clauses of the Peace Treaty during the period before the coming into operation of the Peace Treaty.

‘(2) The Sub-Committee assumes that, since the raising of the blockade will restore complete liberty to German trade, German exports will not be liable to seizure pursuant to belligerent right during the period between the raising of the blockade and the coming into operation of the Peace Treaty.

‘(3) As regards exports from Germany, the Sub-Committee assumes that the announcement made to Germany of the lifting of the blockade will imply a similar announcement as to the removal of any restrictions on exports contained in or arising from the Brussels Agreement. It will therefore be necessary to secure the execution of the clause of the Peace Treaty as to export of certain commodities during the period between the raising of the blockade, and the putting into operation of the Treaty.

‘The Sub-Committee would therefore be glad to know what measures can be taken to that end.’

It was agreed that the above resolutions should be referred to the Committee on Reparations, since the Supreme Economic Council expressed the opinion on the 30th June that that body should be responsible for dealing with all economic questions arising out of the Peace Treaty during the interim period before the Reparations Commission was set up and began operations under the Peace Treaty.

144–O. T. Relevant Clauses of the Peace Treaty with reference to the raising of the Blockade.

Telegrams from the I. A. R. C. and the Sub-Committee (No. 109) circulated.

It was agreed:—

(1) That the I. A. R. C. should be referred to the letter of M. Clemenceau stating that the blockade would be raised as soon as the German Republic ratified the Peace Treaty.

(2) That the text of the resolutions in 143, above, should be forwarded to the I. A. R. C.[”]

Appendix 232

Note From British Delegates [Regarding] Termination of Neutral Trade Agreements

The Foreign Office have told the British representatives on the Inter-Allied Trade Committees in northern neutral countries, and the British representative on the Inter-Allied Commission at Berne, that the Supreme Economic Council will communicate to them as soon as possible the date which should be arranged for the termination of existing blockade agreements with neutrals, and that this date will probably be the date of the notification of the ratification of the Peace Treaty by Germany.

The British Delegates submit the following draft resolution:—

Resolved.

“That the Allied Blockade representatives in neutral countries bordering on Germany be informed that the date to be fixed for the termination of the existing blockade agreements by mutual consent will be as above.”

July 7, 1919.

Appendix 233

Paris, July 7, 1919.

[Letter From the Belgian Delegate (Bemelmans) to Miss Gertrude Dixon, Secretary, Supreme Economic Council]

Dear Miss Dixon: I enclose herewith copy of a letter received by the Belgian Government from the Société anonyme des Mines et Fonderies de Zinc de la Vieille-Montagne. It appears to me that the Allied Governments should raise no objection to the proposal made by the above-mentioned society, and the Belgian Government are quite ready to give their support to it.

They wish, however, to act in this respect in conformity with the Allies, especially with England and France, and they propose that the matter should be placed before the Supreme Economic Council for their consideration.

As it is probable, however, that the Council will not meet for some time, and as the matter is urgent, I thought it advisable, in order to save time, to approach the British and French Delegations separately in this respect.

I should be very grateful if you could let me have the views of your Delegation⁶ on the principal points raised by the Société de la Vieille-Montagne as early as possible.

I am [etc.]

Bemelmans

[Enclosure]

Revival of Work in the Factories of the Vieille-Montagne in Germany

Société Anonyme des Mines et Fonderies de
Zinc de la Vieille-Montagne,
35, Avenue des Arts, Brussels, July 1, 1919.

To the Minister: In agreement with the decision taken by the Council of the Vieille-Montagne which reads as follows:—

“The Director-General asks whether there are any objections to the revival of work in the factories of Borbeck and Oberhausen immediately after the conclusion of Peace. The Committee are of the opinion that the work could be restarted after due enquiry has been made of the Belgian, English and French Governments.”

I have the honour to inform you that I propose taking into my own hands the management of our affairs in Germany and the exploitation of the factories of Borbeck (foundries) and of Oberhausen (rolling-mills).

It is understood that the exploitation of our industry in Germany will be considered in a way most favourable to the interests of Belgium.

Should you or the Allied Government desire to raise any objection to this decision, I should be much obliged if you will let me know.

I should like to add that we have in Germany, in marks, the necessary funds for our industry, which we intend to use for the export of finished articles if we are authorised to do so.

We are, &c.

(Signed)

Appendix 234

[Note From the French Delegate Regarding the] Supply of Coals by Czechoslovakia to Vienna

The French Minister at Prague reports on the 1st July that the Czech Government never stopped their shipments of coals to Vienna, although no actual agreement is in force with Austria concerning these supplies.

The Czech Government has threatened to discontinue the shipments in order to secure by that means shipments of arms and ammunitions; but they never intended to carry out their threat, and in fact neither arms nor ammunition ever went to Czecho-Slovakia, while the supply of coal to Austria has been continued.

M. Clément-Simon confirms the accuracy of the above statements by the Czech Government as well as the sincereness of their good will.

Seydoux

Paris , July 3, 1919.

Appendix 235

Paris, July 1, 1919.

[Letter From the] Delegation of the Kingdom of the Serbs, Croats and Slovenes [to the President of the Peace Conference (Clemenceau) Regarding] Utilisation of Fiume for the Provisioning of Serbia

Your Excellency: The port of Gruza (Gravosa) near Ragusa, which is at present the only port used for imports to the Serb-Croat-Slovene State is obstructed on account of its small size and the large quantities of goods which have arrived. Consequently, the provisioning of the kingdom has been rendered very difficult at a time when the country is in the greatest need of imported goods.

With a view to facilitating the import of the provisions necessary to the country the Delegation of the Kingdom of the Serbs, Croats and Slovenes has the honour to request the Peace Conference to be so good as to give orders that import for the Serb-Croat-Slovene Kingdom should also be authorised through the port of Fiume.

Accept &c.

(For the Delegation of the Serbs, Croats, and Slovenes),

Nik. P. Pachitch

Appendix 236

Analyses of Contributions of the Various Countries Towards Relief From 1st December, 1918, to 31st May, 1919

Mr. Herbert Hoover,
Director-General of Relief.

At your request I have formulated the following analyses of the respective contributions of the various countries towards relief during the period from the 1st December, 1918, to the 31st May, 1919.

The first three tables give respectively summaries of:—

• Total delivered by each country (Table I).
• Proportion furnished on credit and for cash (Table II).
• Origin of the tonnage (Table III).

The detailed tables give the deliveries to each of the relief countries during this period by:—

• United States (Table IV).
• United Kingdom (Table V).
• France (Table VI).
• Italy (Table VII).
• Joint Allied Finance (Table VIII).
• All other countries (Table IX).

Frank M. Surface

Chief, Statistical Division,
American Relief Administration.

Table I

total delivered december 1, 1918, to may 31, 1919

Delivered by	Total Tonnage	Estimated Value
		Dollars.
United Status	2,053,485	529,550,763
United Kingdom	238,832	48,190,157
France	12,842	2,402,500
Italy	325	72,000
Financed jointly by United States,Italy,France,and England	228,535	59,362,575
Other Countries	85,792	16,950,430
Total	2,619,811	656,528,425

Table II

Of the above values approximately the following proportions have been furnished on credits and for cash (or in exchange for goods):—

Supplies furnished by	Paid for in Cash	Financed on Credit	Percentage		Percentage of Total
			Cash	Credit	Cash	Credit
	Dollars.	Dollars.
United Status	118,161,548	411,389,215	22.3	77.7	18.0	62.7
United Kingdom	32,140,569	16,049,588	66.7	33.3	4.9	2.4
France	1,600,500	802,000	66.6	33.4	.2	.1
Italy	72,000		100.0		.01
Financed jointly by United States, Italy, France, and England		59,362,575		100.0		9.0
Other Countries	16,950,430		100.0		2.6
Total	168,925,047	487,603,378	25.7	74.2	25.7	74.2

Table III

The shipping for the above 2,619,811 tons of relief supplies has been furnished by the several countries in approximately the following proportion:—

Shipping furnished by	Total Tons	Percentage of Total
United States	1,451,034	55.4
United Kingdom	439,107	16.7
France	12,842	0.5
Italy	113,486	4.3
Ex-enemy Tonnage	38,908	1.5
Other Countries	185,539	7.1
Unknown	378,895	14.5
Total	2,619,811	100.0

Table IV

total belief deliveries by united states of america, december 1, 1918, to may 31, 1919

(Metric Tons.)

	Bread-stuffs	Rice	Beans and Peas	Meat Products	Condensed Milk	Clothing	Miscellaneous	Total	Estimated Value
									Dollars.
Finland	87,523	85	324	1,963	210		171	90,276	16,384,635
Esthonia	5,632	37	10	493	46		64	6,282	1,478,830
Latvia	2,186	8	25	142	36		3	2,400	548,130
Lithonia	2,040		8	12	60		17	2,137	438,440
Russia	1,307						13,770	15,077	10,050,945
Poland	146,116	4,000	1,766	17,247	3,612	4,406	93,918	271,065	94,624,647
Germany	207,997	28,913	27,899	40,822	7,370			313,001	73,637,045
Russian prisoners in Germany	379						49	428	60,965
Denmark	10,030							10,030	1,354,050
Holland	24,552							24,552	3,314,520
Belgium	607,878	34,187	15,180	62,446	14,733	7,854	26,165	768,443	150,854,010
Northern France	6,647	10,920	5,193	12,511	6,414	1,882	20,003	63,570	20,748,305
Czecho-Slovakia	168,687		62	14,782	1,965	105	45,629	231,230	62,541,065
German Austria	2,860	2,056	1,226	2,507	577		159	9,385	3,400,970
Hungary				633				633	430,440
Greater Serbia	42,659	27	512	2,703	416	1,413	11,004	58,734	32,503,516
Italy	15,034							15,034	3,006,800
Roumania	90,301		531	2,959	2,961	4,189	21,117	122,058	43,741,562
Bulgaria	20,818							20,818	4,371,780
Turkey	15,170							15,170	3,109,850
Armenia	12,030		619		513			13,162	2,950,258
Total	1,469,846	80,233	53,355	159,220	38,913	19,849	232,069	2,053,485	529,550,763

Table V

total relief deliveries by united kingdom, december 1, 1918, to may 31, 1919

(Metric Tons.)

	Bread-stuffs	Rice	Beans and Peas	Meat Products	Condensed Milk	Clothing	Miscellaneous	Total	Estimated Value
									Dollars.
Finland		750	420		40		2,257	3,467	766,100
Poland	2,845		1,327	107			844	5,123	970,655
Estonia	5,400		800				3,000	9,200	1,537,000
Czecho-Slovakia	1,623	20		5	20			1,668	236,505
Greater Serbia	14,544		3,788	270	375		1,318	20,295	3,713,680
Germany				24,026	7,531		115,566	147,123	31,374,469
Roumania	49,332		268				2,356	51,956	9,591,748
Total	73,744	770	6,603	24,408	7,966		125,341	238,832	48,190,157

Table VI

total relief deliveries by france, december 31, 1918, to may 31, 1919

(Metric Tons.)

	Bread-stuffs	Rice	Beans and Peas	Meat Products	Condensed Milk	Clothing	Miscellaneous	Total	Estimated Value
									Dollars.
Czecho-Slovakia	50		22	260				332	188,950
Russian prisoners in Germany	400			1,050			170	1,620	802,000
Germany	1,402			283			9,205	10,890	1,411,550
Total	1,852		22	1,593			9,375	12,842	2,402,500

Table VII

total belief deliveries by italy, december 1, 1918, to may 81, 1919

(Metric Tons.)

	Bread-stuffs	Rice	Beans and Peas	Meat Products	Clothing	Miscellaneous	Total	Estimated Value
								Dollars.
Czecho-Slovakia	225	100					325	72,000

Table VIII

total relief deliveries on account of joint allied finance, december 1, 1918, to may 31, 1919

(Metric Tons.)

	Bread-stuffs	Rice	Beans and Peas	Meat Products	Condensed Milk	Clothing	Miscellaneous	Total	Estimated Value
To German Austria—									Dollars.
By Italy	113,513	9,558	4,209	29,204	1,435		2,069	159,988	45,672,186
” France	21,669							21,669	4,008,780
Great Britain	45,789				1,089			46,878	9,681,609
Total	180,971	9,558	4,209	29,204	2,524		2,069	228,535	59,362,575

Table IX

total relief deliveries by all other countries, december 1, 1918, to may 31, 1919

(Metric Tons.)

	Bread-stuffs	Rice	Beans and Peas	Meat Products	Condensed Milk	Clothing	Miscellaneous	Total	Estimated Value
									Dollars.
Finland	4,442							4,442	599,670
Esthionia	2,133				50			2,183	290,205
German Austria	12,471	1,241	465	554	473		59,293	74,497	14,562,905
Germany	160			680			23	863	488,600
Czecho-Slovakia	30			520			3,257	3,807	1,009,050

Appendix 237

Saint-Germain-en-Laye, July 9, 1919.

Letter From the [German-]Austrian Delegation to the Chairman of the Supreme Economic Council, Paris

Sir: The enclosed bills⁷ concerning the securities for the credits for provisions were passed by the German-Austrian National Assembly on the 8th July. They will immediately be executed; the foreign securities and gold coins of private individuals will be requisitioned, and the list of the requisitioned values will be submitted as soon as possible to the Supreme Economic Council. The proceeds of the exportation of timber will be delivered to the Central Office for the Supervision of Exchange (“Devisenzentrale”) and will by the latter be forwarded to whatever place shall be indicated to us.

Since, in conformity with the request of the Supreme Economic Council, we have put at the disposal of the latter all foreign securities in the inland as well as in neutral countries, while our foreign securities available in the Allied and Associated States are under sequestration, we are at present totally unable to procure for ourselves in good time, from another source, credits for the purchase of foodstuffs. The credits granted us by the Supreme Economic Council are being quickly exhausted. Even at the present moment we only obtain grain and flour, while the provisioning with meat, fats, rice and condensed milk has ceased. Our alimentation position has therefore become considerably worse again, and is already now very critical. In the month of August the credits for grain and flour will also be exhausted. If in consequence the imports should cease, a large portion of our population, especially the population of Vienna and the Industrial centres, would be exposed to starvation. The new crop can only cover one fourth of our requirements; moreover, since with us small holdings prevail, it will only be available in the course of a few months. Even with the greatest efforts it will not be possible to raise in the inland even the small rations on which the population of Vienna is living at present. We further absolutely need meat, fats, rice and condensed milk from abroad. If the supplies on the part of the Allied Great Powers cease, the famine, which for a time was mitigated by these supplies, would fall upon us again with full vigour, and it would be impossible to maintain social order.

That we cannot, in spite of all our efforts, hope to get regular supplies from the other States emerged from the former Monarchy, the Delegates of the Inter-Allied Commission, who have assisted us in a very much appreciated way, will confirm.

Since we have put at the disposal of the Supreme Economic Council all the realisable assets, we are obliged to make the urgent appeal that further credits be provisionally granted us, at least for the months of August and September. By that time we shall have carried through the demanded requisitioning of foreign values, which proceeding we will expedite with the greatest speed, and the Supreme Economic Council will be in a position to judge what credits it can grant us for the bonds given by us or what bonds it can release for our use elsewhere.

As the Supreme Economic Council is well aware, we are up to that time unable to help ourselves. The moment in which the credits granted us will be entirely exhausted is already in dismal proximity. The suspension of the food supply would lead to a catastrophe and would destroy all the effects of the relief action of the Supreme Economic Council. We therefore beg the Supreme Economic Council once more, to be kind enough to take immediate steps that the food supply be for the present continued.

Awaiting your favourable reply &c.

Renner

Appendix 238

Paris, July 1, 1919.

Letter of the Director-General of Relief Respecting the Allied Economic Policy in Hungary

Hon. Robert Lansing
Secretary of State,
Hotel Crillon, Paris.

My Dear Mr. Secretary: At the meeting of the Supreme Economic Council yesterday I was requested to lay before the Council of the Heads of States the pressing economic situation in South-Eastern Europe which arises out of the political situation in Hungary. Due to the special geographical and economic position of the territory now held by Bela Kuhn’s Government, the whole economic destiny of the surrounding States is almost absolutely in his hands, and it is therefore impossible to re-establish economic life or public order until this situation is dealt with.

With the coming arrival of Peace in the surrounding States and of the harvests, it is critical that some solution should be found at once or there can be no economic rehabilitation upon which Peace can be maintained. Furthermore, unless the various international traffic can be established across Hungary, it is hopeless to expect the surrounding territories to provide themselves with food or employ their people, thus necessitating continued charitable relief and outside financial support. I have had the advantage of conference with not only the American representatives throughout the old Austrian Empire, the visit of Colonel Logan, who is the chief of our staff to that territory, but with conferences with the Allied officials who are on the many economic missions which were maintained in this area. I have asked Colonel Logan to formulate a memorandum as to the facts as believed by these representatives with regard to Bela Kuhn, and to also formulate some suggestions made by the American representatives on the Danube River Commission as a possible solution. These memoranda are forwarded herewith.⁸

There appear to be four alternative courses open:—

1. A military occupation of Budapest under the control of the principal Allies and the expulsion of Bela Kuhn’s Government. If this course were adopted it should be done with a declaration that a freely elected National Assembly would be called at once to elect a Government and to sign Peace.

2. To continue refusal to recognise Bela Kuhn’s Government, but to open economic negotiations through the informal commissions, preferably the Danube River Commission, and possibly also the Kail-ways Mission, which we have installed in the old Austrian Empire, and as result of so doing to abandon the blockade, but not formally to recognise the Bela Kuhn Government.

3. To undertake a middle course, such as outlined in the attached memorandum, of opening the country by economic agreement with Bela Kuhn, and at the same time policing it with troops under Allied direction to see that order was maintained and agreements carried out.

4. To present the Peace Terms to Bela Kuhn, thus recognising fully and trusting him not to disturb the world outside of Hungary.

Some definite policy is critically necessary if the disorganisation of German Austria is to be prevented, and if the economic collapse of the surrounding States is to be prevented.

Herbert Hoover

Appendix 239

Report From Sub-Committee Regarding Economic Policy in Russia

With reference to Minute 244 of the Supreme Economic Council, the Sub-Committee on Russia presents the following report:—

1. The Committee considers that any discussion of the ultimate economic rehabilitation of Russia is at present purely academic.

2. The Committee considers that economic assistance should at once be given to those areas of Russia now under the jurisdiction of the so-called “Provisional Government of Russia,” in conformity with the terms of the telegrams exchanged by the Council of Four and Admiral Koltchak.⁹

3. This assistance should take the form of credits from the various Allied Governments, to be expended in purchase and transportation of commodities from the countries furnishing such credits.

4. The nature of these credits and the commodities to be supplied and their distribution should be determined by a Commission organised for this purpose from the countries supplying the credits and the goods. The commodities to be furnished should be of such character as are necessary to rehabilitate transportation and the production of manufactures. Their distribution should be organised in such a manner as to reconstitute commercial life.

5. It appears to the Committee that credits to the amount of 50,000,000l. would cover the amount of commodities (exclusive of arms and munitions) that could advantageously be supplied and used within a period of twelve months. The following is a rough estimate of what might be supplied:—

• 5,000,000l. to 10,000,000l. of manufactured goods.
• 5,000,000l. of food.
• 1,000 locomotives.
• 10,000 to 15,000 railway wagons.
• An adequate supply of rails and spare parts.

• Loucheur
• Hoover
• Barrie
• Della Torretta
• De Lescaille

July 9, 1919.

Appendix 240

Memorandum by the Director-General of Belief on the Economic Situation of Europe

The economic difficulties of Europe as a whole at the signature of Peace may be almost summarised in the phrase “demoralised productivity.” The production of necessaries for this 450,000,000 population (including Russia) has never been at so low an ebb as at this day.

A summary of the unemployment bureaux in Europe will show that 15,000,000 families are receiving unemployment allowances in one form or another, and are, in the main, being paid by constant inflation of currency. A rough estimate would indicate that the population of Europe is at least 100,000,000 greater than can be supported without imports, and must live by the production and distribution of exports, and their situation is aggravated not only by lack of raw materials imports, but by low production of European raw materials. Due to the same low production, Europe is to-day importing vast quantities of certain commodities which she formerly produced for herself and can again produce. Generally, not only in [is] production far below even the level of the time of the signing of the Armistice, but far below the maintenance of life and health without unparalleled rate of import.

Even prior to the war these populations managed to produce from year to year but a trifling margin of commodities over necessary consumption or to exchange for deficient commodities from abroad. It is true that in pre-war times Europe managed to maintain armies and navies, together with a comparatively small class of non-producers, and to gain slowly in physical improvements and investments abroad, but these luxuries and accumulations were only at the cost of a dangerously low standard of living to a very large number. The productivity of Europe in pre-war times had behind it the intensive stimulus of individualism and of a high state of economic discipline, and the density of population at all times responded closely to the resulting volume of production. During the war the intensive organisation of economy in consumption, the patriotic stimulus to exertion, and the addition of women to productive labour largely balanced the diversion of man power to war and munitions. These impulses have been lost.

II

It is not necessary to review at length the causes of this decrease of productivity. They comprise in the main as follows:—

The industrial and commercial demoralisation arising originally out of the war but continued out of the struggle for political rearrangements during the Armistice, the creation of new Governments, the inexperience and friction between these Governments in the readjustment of economic relations.

The proper and insistent demand of labour for higher standards of living and a voice in administration of their effort has, unfortunately, become impregnated with the theory that the limitation of effort below physical necessity will increase the total employment or improve their condition.

There is a great relaxation of effort as the reflex of physical exhaustion of large sections of the population from privation, mental and physical strain of the war.

To a minor degree, considering the whole volume, there has been a destruction of equipment and tools and loss of organisation and skill due to war diversions with a loss of man power. This latter is not at present pertinent in the face of present unemployment.

(The demoralisation in production of coal in Europe to-day is an example in point of all these three forces mentioned above, and promises a coal famine, and with industrial disaster, unless remedied. It is due to a small percentage from the destruction of man power or the physical limitation of coal mines or their equipment. It is due in the largest degree to the human factor of the limitation of effort.)

The continuation of the blockade after the Armistice has undoubtedly destroyed enterprise even in open countries, and, of course, prevented any recovery in enemy countries. The shortage in overseas transportation and the result of uncertainties of the Armistice upon international credits have checked the flow of raw materials and prevented recovery in the production of commodities especially needed for exchange for imports from overseas. The result of this delay has been unemployment, stagnation, absorption of capital in consumable commodities to some extent all over Europe.

From all these causes, accumulated to different intensity in different localities, there is the essential fact that unless productivity can be rapidly increased, there can be nothing but political, moral, and economic chaos, finally interpreting itself in loss of life on a scale hitherto undreamed of.

III

Coincident with this demoralisation in production, other disastrous economic phenomena have developed themselves, the principal one of which is that the very large wage paid special workers and the large sums accumulated by speculation and manufacture during the war have raised the standard of living in many individuals from the level of mere necessities to a high level of luxuries. Beyond this class there is a reflex in many other classes from the strenuous economies against waste and the consumption of non-essentials in all countries, and, as a result, there is to-day an outbreak of extravagance to a disheartening degree.

Another economic change of favourable nature from a human point of view, but intensifying the problems of the moment, has been the rise in the standard of living in large sections of the working classes through the larger and better wage distribution, separation allowances, &c., during the war. Parallel with these classes are those of fixed income, the unorganised workers, the unemployed to whom the rising cost of living is inflicting the greatest hardship.

IV

During some short period, it may be possible for the Western Hemisphere, which has retained and even increased its productivity, to supply the deficiencies of Europe. Such deficiencies would have to be supplied in large degree upon credits; but, aside from this, the entire surplus productivity of the Western Hemisphere is totally incapable of meeting the present deficiency in European production if it is long continued. Nor, as a practical fact, could credits be mobilised for this purpose for more than a short period, because all credits must necessarily be simply an advance against the return of commodities in exchange, and credits will break down the instant that the return of commodities becomes improbable. Further, if such credits be obtained in more than temporary purposes, it would result in economic slavery of Europe to the Western Hemisphere, and the ultimate end would be war again.

The solution, therefore, of the problem, except in purely temporary aspects, does not lie in a stream of commodities on credit from the Western Hemisphere, but lies in a vigorous realisation of the actual situation in each country of Europe and a resolute statesmanship based on such a realisation. The populations of Europe must be brought to a realisation that productivity must be instantly increased.

V

The outcome of social ferment and class consciousness is the most difficult of problems to solve. Growing out of the yearning for relief from the misery imposed by the war, and out of the sharp contrasts in degree of class suffering, especially in defeated countries, the demand for economic change in the status of labour has received a great stimulus, leading to violence and revolution in large areas, and a great impulse to radicalism in all others. In the main, these movements have not infected the agricultural classes, but are essentially a town phenomena.

In this ferment, Socialism and Communism has embraced to itself the claim to speak for all the downtrodden, to alone bespeak human sympathy, and to alone present remedies, to be the lone voice of liberalism. Every economic patent medicine has flocked under this banner. Europe is full of noisy denunciation of private property as necessarily being exploitation. Considerable reliance upon some degree of Communism has been embraced by industrial labour even in non-revolutionary countries. Its extremists are loud in assertion that production can be maintained by the impulse of altruism alone, instead of self-interest. Too often they are embracing criminal support and criminal methods to enforce their ideals of human betterment. Every country is engaged in political experimentation with varying degrees of these hypotheses, and so far every trial has reduced production. The Western Hemisphere, with its more equitable division of property, its wider equality of opportunity, still believes that productivity rests on the stimulus from all the immutable human qualities of selfishness, self-interest, altruism, intelligence, and education. It still believes that the remedy of economic wrong lies, not in tampering with the delicate and highly developed organisation of production and distribution, but in a better division of the profits arising from them. It still believes in the constitutional solution of these problems by the will of the majority, while Europe is drifting toward the domination of extremist minorities. The Western Hemisphere’s productivity is being maintained at a surplus over its own needs.

The first and cardinal effort of European statesmanship must be to secure the materials and tools to labour, and to secure its return to work. They must also secure a recognition of the fact that, whatever the economic theory or political cry, it must embrace the maximum individual effort, for there is no margin of surplus productivity in Europe to risk revolutionary experimentation. No economic policy will bring food to those stomachs or fuel to those hearths that does not secure the maximum production. There is no use of tears over rising prices: they are, to a great degree, a visualisation of insufficient production.

VI

During the period of reconstruction and recovery from reduced productivity, the conservation in the consumption of non-essential commodities is more critical than any time during the war. The relaxation of restriction on imports and on consumption of articles of this character since the Armistice is disheartening in outlook. It finds its indication in the increased consumption of beverages and articles de luxe in many countries, even above a pre-war normal. Never has there been such a necessity for the curtailment of luxury as exists to-day.

VII

The universal practice in all the countries at war of raising funds by inflation of currency is now bringing home its burden of trouble, and in extreme cases the most resolute action must be taken, and at once. In other countries of even the lesser degree of inflation, such currency must be reduced and included in the funded debt, or alternately the price of wages, living, and international exchange must be expected to adjust itself to this depression. The outcry against the high cost of living, the constant increase of wages, and the fall in exchange that is going on, is, in a considerable degree, due to this inevitable readjustment.

VIII

The stimulation of production lies in the path of avoidance of all limitations of the reward to the actual producer. In other words, attempts to control prices (otherwise than in the sense of control of vicious speculation) is the negation of stimulation to production, and can only result in further curtailment of the total of commodities available for the total number of human beings to be fed, clothed, and housed. There still exist in Europe great bureaucracies created from the necessity of control of price and distribution by the conditions of the war who are loath to recognise that with world markets open no such acute situation exists, and that their continued existence is not essential except in the control of speculation. The argument so much advanced that world shortage may develop and justifies continued control of distribution and price is based upon the fallacious assumption that even if the world markets are freed of restraint that there is a shortage to-day in any commodity so profound as to endanger health and life. From any present evidence, thanks to the high production outside Europe, no shortage exists that will not find its quick remedy in diminished consumption or substitution of other commodities through minor alteration and price. All attempts at international control of price, with view to benefiting the population in Europe at the cost of the producer elsewhere, will inevitably produce retrogression in production abroad, the impact of which will be felt in Europe more than elsewhere. A decrease of 20 per cent, of Western Hemisphere wheat would not starve the West; it would starve Europe. It must never be overlooked that control of price and distribution cannot stop with a few prime commodities, but, once started, its repercussions drive into a succeeding chain of commodities, and that on the downward road of price control there can be no stoppage until all commodities have been placed under restriction, with inevitable stifling of the total production. It is also often overlooked by the advocates of price control that, whereas the high level of production was maintained during the war even under a restraint of price, this high production was obtained by the most vivid appeal to patriotic impulse on both sides of the front. This stimulus to production and distribution no longer maintains, and the world must go back to the prime impulse, and that is the reward to the individual producer and distributor.

That body of advocates who have deduced from war phenomena that production and distribution can be increased and maintained by appealing to altruism as the equivalent of patriotism or self-interest, should observe the phenomena of Russia, where the greatest food exporting country is to-day starving.

IX

It must be evident that the production cannot increase if political incompetence continues in blockade, embargoes, censorship mobilisation, large armies, navies, and war.

X

There are certain foundations of industry in Europe that, no matter what the national or personal ownership or control may be, they yet partake of the nature of the public utilities in which other nations have a moral right. For instance, the discriminatory control of ships, railways, waterways, coal, and iron, in such a manner as to prevent the resumption of production by other States, will inevitably debar economic recuperation and lead to local spats of economic chaos, with its ultimate infection abroad, to say nothing of the decrease in productivity. These misuses are already too evident.

XI

The question of assistance from the Western Hemisphere during a certain temporary period and the devotion of its limited surplus productivity to Europe is a matter of importance, and one that requires statesmanlike handling and vision. It is but a minor question compared to those stated above, and it is in a great degree dependent upon the proper solution of the factors already touched upon. It is a service that the Western Hemisphere must approach in a high sense of human duty and sympathy. This sense will, however, be best performed by the insistence that their aid would not be forthcoming to any country that did not resolutely set in order its internal, financial, and political situations, that did not devote itself to the increase of productivity, that did not curtail consumption of luxuries and the expenditure upon armament, and did not cease hostilities, and did not treat their neighbors fairly. If these conditions were complied with, it is the duty of the West to put forth every possible effort to tide Europe over this period of temporary economic difficulties. Without the fulfilment of these conditions the effort is hopeless. With Europe turned toward Peace, with her skill and labour aligned to overcome the terrible accumulation of difficulty, the economic burden upon the West should not last over a year, and can be carried and will be repaid. To effect these results the resources of the Western Hemisphere and here must be mobilised.

Herbert Hoover

July 3, 1919.

Appendix 241

Communication From the Representative of [Inter]National Red Cross [Committee] at Geneva [Regarding the] Typhus Epidemic in the South-Eastern Countries of Europe

Mr. Edward A. Frick, Delegate on the International Red Cross Committee, informed M. Seydoux, on the 9th July, that the International Committee has taken under its protection an office which was established at Vienna, and where the Delegates of the principal countries of the old Austro-Hungarian Empire interested, including Hungary and Poland, meet to deal with the campaign against typhus. It is essential to establish a sanitary cordon round the line Libau–Vilna–Rowno–Yassy and Galatz to prevent the disease spreading further West.

The States represented at Vienna are prepared to make a renewable advance in crowns; the advance made by each State can only be spent on the territory of that State. The International Committee ask if they could obtain, on the deposit of this advance in crowns which will amount to about 3 million of crowns, an advance in francs, pounds, dollars, &c.

Further, Mr. Sautter, of Geneva, is endeavouring to get a larger sum which could be deposited in Switzerland, in other coinage than crowns.

The International Committee of the Red Cross state that the French Under-Secretary of State has promised them surplus French sanitary stocks; further, the Red Cross League may have American and English material which it is proposed should be forwarded to the International Committee.

It was remarked to Mr. Frick how difficult it would be in the actual state of affairs to obtain from the Associated Governments an advance on crowns; they insisted on the interest there would be if the International Committee appealed to individuals to assist, especially those possessing funds other than in crowns, and who could procure, for example, Swiss francs at Geneva.

There would then be no financial difficulty. Mr. Frick said that was the object Mr. Sautter had in mind.

Mr. Frick requests that the matter should be placed before the Supreme Economic Council on behalf of the International Committee of the Red Cross.

July 9, 1919.

1. See HD–1. minute 7. vol. vii, p. 40.
2. See appendix B to HD–16, vol. vii, p. 354.
3. For text of reply sent to the German-Austrian delegation on July 17, 1919, see HD–9, minute 2, vol. vii, pp. 173, 176.
4. For text of resolution of July 10, see Organization of American Relief in Europe, p. 626.
2. Appendixes 231 to 241 are filed separately under Paris Peace Conf. 180.0501/35.
3. See minute 242 (b), p. 431.
4. The quotation begins at minute 143 of the 16th meeting of the Sub-Committee on Germany.
5. See CF–95, minute 2, vol. vi, p. 720.
6. British Delegation.
7. Bills not attached to file copy of minutes.
8. The memoranda are not attached to the file copy of the minutes.
9. See appendix I to CF–37, appendix II to CF–60, and appendix I to CF–62, vol. vi, pp. 73, 321, and 356.