Gilbert Note

In the third week of last month Seymour Parker Gilbert, Agent General for Reparation Payments, perhaps the most powerful official in Germany, penned a stern, firm, yet friendly warning to the German Government that its extravagances were endangering the fiscal equilibrium of the Reich and imperiling the Dawes Plan.

Not a word concerning the despatch of the note appeared in the German press. A few days later, however, Berlin heard about it from Manhattan. Angered, the German press demanded full publication of the report, loudly denounced the Government's secrecy.

The Government at first denied the very existence of the Gilbert note. Later on it admitted that it had asked for a report, but minimized its importance. Finally, driven into a corner, it promised publication, but warned all those who were expecting revelations of critical financial conditions that they would be disappointed.

Last week the note was published. Far from showing that the Reich's financial ship was sailing smoothly and serenely, Mr. Gilbert bluntly asserted that the whole fiscal system of the Reich, together with reparation payments, was imperiled by ill-considered overspending and overborrowing. Said he in the opening paragraph of his note:

"I am presenting this memorandum for the purpose of calling attention to the dangers involved in the present economic situation, in the hope that by doing so fully and frankly at this time I may render some service to the German Government and to German economy, as well as to the international situation generally."

The chief points made by Mr. Gilbert were:

1) That the Government, by sponsoring: a) increases in salaries of Federal employes, b) a costly new school measure, and c) indemnification of German nationals for property lost abroad during the War, a measure involving 1,000,000,000 marks ($250,000,000), had set in motion a serious financial crisis that could be overcome only by immediate retrenchment.

2) That the Government, by increasing its own expenses, had led to extravagance in the state governments. In particular the Agent General scored the system of collecting taxation, which is carried out by the Federal authorities, who then allot a certain share to each of the states. Mr. Gilbert's opinion is that this system in itself leads to unnecessary spending.

3) That there is a general lack of supervision over spending and borrowing, as a result of the aforementioned conditions.

4) That the Governments fiscal policy tends to increase the cost of production and the cost of living.

In conclusion the Agent General said:

"I have attempted to bring together the accumulating evidences of overspending and overborrowing on the part of the German public authorities, and some of the indications of artificial stimulation and overexpansion that are already manifesting themselves.

"These tendencies, if allowed to continue unchecked, are almost certain, on the one hand, to lead to severe economic reaction and depression, and are likely, on the other, to encourage the impression that Germany is not acting with due regard to her reparation obligations."

The answer of the German Government to these charges agreed with Mr. Gilbert's contention that it was its duty to develop all productive forces, but denied that loans raised had not been used to this end. Admitting that the budget was causing some anxiety, the note went on to justify each of the exceptions that Mr. Gilbert had made.

The effect of the Agent General's note was to shake the position of Dr. Koehler, the Minister of Finance. On taking office he had promised rigorous economy and had viewed the financial situation with gloomy utterances, which Mr. Gilbert quoted in his note. Indeed, even the Chancellor, Dr. Wilhelm Marx, was full of vague insinuations concerning the expediency of holding a general election at either in the late winter or early spring.

The most notable effect of the note was the publication by the Finance Ministry of new regulations concerning the supervision of foreign loans. Under them the Government, through the reorganization of the Advisory Board, will be in a position to control all loans raised abroad by public bodies throughout the Reich. The creation of an Appeal Board, on which the Reichsbank President, Dr. Hjalmar Schacht, will sit, and whose decisions will be final, is approved by Mr. Gilbert and by Dr. Schacht.