DAWES PLAN.REPARATIONS, 1919–1923
THE DAWES COMMITTEE
PROVISIONS OF THE PLAN
CREDITOR AND DEBTOR ADVANTAGES
The Dawes Plan was an international agreement regarding Germany's payment of war reparations following World War I.
The Treaty of Versailles obligated Germany to pay reparations for damages done to Allied life and property during World War I. The treaty specified no total sum, nor did it determine how the receipts were to be divided. Reparations were apportioned among the major creditor powers—France, Belgium, Britain, and Italy—at a conference at Spa in July 1920. The total sum to be paid in money and in kind was set at a conference in London in April 1921. There a schedule of payments was established (the London schedule), and an ultimatum was sent to the German government. After months of incomplete efforts to meet the schedule, Germany was declared to be in default. At the initiative of Raymond Poincaré, the premier of France, engineers and troops from France and Belgium occupied the Ruhr district of Germany in January 1923 to impose sanctions and to collect reparations-in-kind from the coal mines there. German railroad and mine workers adopted a strategy of passive resistance, went on strike, and were supported by payments from the government. The serious inflation that had begun in Germany in June 1922 became astronomical. The chancellor and foreign minister, Gustav Stresemann, unilaterally ended passive resistance in September. The British Foreign Office took the lead in setting up an international committee of experts to examine the problem of reparations.
Two committees convened in Paris on 14 January 1924 and issued their reports on 9 April. The most important was chaired by Charles G. Dawes, a prominent businessman from the American Midwest, director of the office of the budget, future vice president, and subsequent winner of the Nobel Peace Prize. It was composed of leading banking figures and financial experts from each of the major creditor powers and the United States. The task before it was to devise a scheme Germany could pay. That there was consensus regarding the plan the committee produced owed much to the good judgment and the negotiating skills of the other American member, Owen D. Young, a lawyer from upstate New York and chairman of the board of directors of the General Electric Company and of the Radio Corporation of America.
What came to be known as the Dawes Plan did not reduce Germany's total reparation obligation as determined in 1921, nor did it alter the ratio by which it was distributed. It changed the rate at which Germany would pay. Germany was scheduled to pay a series of graduated annuities beginning at 1 billion gold marks per year in 1924–1925 (approximately one-half of the London schedule) and increasing to 2.5 billion in 1928–1929 (the standard Dawes annuity). These figures amounted to 1.8–3.2 percent of German national income. This was a level that Young thought high enough to indemnify France and to prevent German industry and commerce from dominating the world economy. Funds from German transportation, excise, and customs revenues were earmarked for the reparation account. To prevent a recurrence of inflation, the German central bank was reorganized and placed under the supervision of both German and foreign officials. An agent general for reparations was appointed to see that payment of the annuities would not weaken the economy and that the transfer abroad of large sums of currency would not threaten the stability of the mark. S. Parker Gilbert, a lawyer from New York and undersecretary of the U.S. Treasury, was named to this post. To the consternation of the Germans and the British, an end to the military occupation of the Ruhr was not made part of the plan. Dawes in particular was willing to see it continue as a means of coercing German payment. However, the direct exploitation of the Ruhr mines and the customs barrier between the Ruhr and the rest of Germany imposed during the 1923 occupation were ended. The report of the experts affirmed the fiscal and economic unity of the Reich. Sanctions could be imposed in the future only in the event of what was termed a "flagrant failure" to perform the terms of the plan.
The Dawes Plan was not inherently unsatisfactory to the reparation creditors. They gained what had eluded them since the end of the war—Berlin's voluntary agreement to pay reparation. And because the Dawes Plan did not reestimate Germany's total debt, they were spared a payment schedule based on estimates of German capacity in the aftermath of a financial crisis. Meanwhile it held potential advantages for Germany. Stresemann expected access to foreign capital, sustained Anglo-American mediation in favor of Germany, an end to the military occupation of the Ruhr, the beginning of the end of the military occupation of the Rhineland, and further downward revision of reparations before the payment of the first full Dawes annuity was due. He regarded the Dawes Plan as provisional, a temporary settlement, and envisioned a full examination of Germany's capacity to pay by the year 1928. This was in fact what Young intended. The American expert did not think that Germany could transfer the standard Dawes annuity. He expected the plan to become unworkable at that time, and a new scheme devised.
The Dawes Plan was adopted at a conference attended by the creditors and Germany in London in July–August 1924. There Édouard Herriot, the new French premier, agreed that France would withdraw all troops from the Ruhr within one year and, at American and British insistence, not again impose sanctions against Germany unilaterally. In 1925–1926 the governments of Belgium, Italy, and France settled their respective war debts to the United States, and France settled its debt to Britain. (Britain settled its debt to the U.S. government in 1923.) With the creditor powers certain of their war debt obligations, a second committee of experts was convened to determine a permanent reparations settlement. Headed by Young, it reported in June 1929. The Young Plan reduced German payments below the standard Dawes annuity. They were scheduled out to 1988, the year French war debt payments to the United States were to end. Payment of both reparations and war debts ended in the aftermath of a conference in Lausanne in 1932—without the formal consent of the United States.
Jacobson, Jon. "The Reparation Settlement of 1924." In Konsequenzen der Inflation, edited by Gerald D. Feldman, Carl-Ludwig Holtfrerich, Gerhard A. Ritter, and Peter-Christian Witt, 79–108. Berlin, 1989.
Leffler, Melvin P. The Elusive Quest: America's Pursuit of European Stability and French Security, 1919–1933. Chapel Hill, N.C., 1979.
Moulton, Harold G. The Reparation Plan. New York and London, 1924.
Schuker, Stephen A. The End of French Predominance in Europe: The Financial Crisis of 1924 and the Adoption of the Dawes Plan. Chapel Hill, N.C., 1976.
Jon S. Jacobson
DAWES PLAN, which was adopted in August 1924, resulted from Germany's failure to pay its World War I reparations. Germany began defaulting on its payments in January 1923 as a consequence of its refusing to raise taxes and allowing spiraling inflation to destroy the value of the mark. Beginning in January 1924, a group of business experts headed by the Chicago banker Charles G. Dawes devised a system for currency stabilization and payment reductions. Under the Dawes Plan, American and British bankers provided loans to enable Germany to expand production and make reparations payments to the Allies; these payments rose gradually until 1929, when the Young Plan again reduced the final amount owed. But with the onset of the Great Depression, Germany ceased reparations payments, and in 1932 the Allies canceled them altogether. Germany transferred a total of 16.8 billion marks to the Allies while receiving 44.7 billion in speculative mark purchases and loans, resulting in investors paying "reverse reparations."
Kent, Bruce. The Spoils of War: The Politics, Economics, and Diplomacy of Reparations, 1918–1932. Oxford: Clarendon Press, 1989.
Schuker, Stephen A. American "Reparations" to Germany, 1919– 33: Implications for the Third-World Debt Crisis. Princeton, N.J.: Princeton University Press, 1988.