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 THE ECONOMIC JOURNAL
MARCH, 1929

THE GERMAN TRANSFER PROBLEM

THE Da e C mmi ee di ided he blem f he a men

f Ge man Re a a i n in a -in he B dge a
P blem f e ac ing he nece a m f m ne f he
cke f he Ge man e le and a ing hem he acc n
f he Agen -Gene al, and he T an fe P blem f c n e ing
he Ge man m ne ecei ed in f eign c enc .
A ime ha g ne n, ini n ha bec me e en m e ha l
di ided han i a n he e i n he he hi dich m ha
he e ical and ac ical ignificance. The ie ha been idel
e e ed ha he T an fe P blem i f i e ec nda
im ance and ha , l ng a he B dge a P blem i l ed,
he T an fe P blem ill, in- he main, l e i elf. The f ll ing
n e i di ec ed a he e ical di c i n f hi i e.
Th e h hink ha he T an fe P blem i ec nda
a g e h . The Ge man e le ecei e i inc me in e n
f i cen f g d and e ice . If an a ia e
a f hi inc me i e e a ed, he e ill be n b e f a
c e nding am n f g d , hich ill he ef e be a ailable
(in addi i n ha ld be a ailable he i e) e and
e in dimin i n f im . Since n all he c n-
m i n f g d and e ice , hich he Ge man e le a e
c m elled f g , i i able f e , he e ill ha e be
a ce ain am n f change- e in he cha ac e f d c i n.
The e i , h e e , n ea n e ha dina ec n mic
f ce ill n b ing hi ab i hin a ea nable ace f ime.
Th -acc ding hi ch l- he eal e i n i , h m ch
ca h can he Ge man G e nmen ai e b nd financial
me h d and a e he Agen -Gene al. Once hi i
e led, e can be e ha a a ill be f nd f l king af e
he T an fe P blem.
N I d n d b ha he e a e e f emi e f m
hich hi c ncl i n f ll . F e am le, he e i ne e
N . 153.-VOL. XXXIX. B

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2 THE ECONOMIC JOURNAL [MARCH

im le e f m hich i b i l f ll . F le e ha
he Ge man fac f d c i n d ce n hing b e
and c n me n hing b im ; in hi ca e i i e iden ha
he e i nl a B dge a P blem and n T an fe P blem;-
a he he T an fe P blem i em ed f m he h lde f
Ge man and bec me a blem a be een he eci ien f
e a a i n and he c n ie f m hich Ge man e i l
d e he im .
B , n he he hand, if e e ha Ge man i al ead
e ing all he g d hich he ha facili ie f d cing n
an e m n hich he e f he ld ill b hem- e,
f e am le, ha , n nlike R ia -da , he e a e
limi ed ca ia e and la in m, f hich he cann be
inc ea ed- hen he T an fe P blem i a am n and, indeed,
in l ble. O , again, le e ha , hil , a bef e, Ge -
man ' e a e limi ed ca ia e and la in m, he i , hi ime,
in a i i n inc ea e hei , b nf na el he demand
f he e f he ld f he e a icle ha an ela ici f le
han ni . In hi ca e he m e he e , he malle ill
be he agg ega e ceed . Again he T an fe P blem ill be
a h ele b ine .
The fi e i n c n ide i , he ef e, a e i n f fac
- he eab be een he e eme e em lified ab e i
e en -da Ge man i a ed ? In he d , fi
e i n i , he he he e e i an ideal di ib i n f Ge man '
fac f d c i n a be een diffe en e hich, if i c ld
be a anged, ld l e he T an fe P blem?
When hi e i n ha been deal i h, he e emain a ec nd
e i n,-H c m le el and b ha ain f ca a i n i he
machine f he Da e cheme ca able f b inging ab hi
ideal di ib i n ?

(1) If ?1 i aken f m and gi en me and I ch e

inc ea e m c n m i n f eci el he ame g d a h e
f hich a e c m elled dimini h , he e i n T an fe
P blem. Th e h minimi e hQ e i n f an fe eem
me ime im l ha he ab e i a fai e e en a i n f
he e en fac . T he e en ha high a a i n ca e
Ge man c n me b le f eign g d , i i a fai e e-
en a i n. B clea l nl a i n f hei ab en i n
f m c n ming ill be in e ec f f eign g d , and, fa
a ne can j dge a e en , n a e la ge i n. M e-
e , he Ge man balance f ade al ead ha m f he benefi

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 1929] THE GERMAN TRANSFER PROBLEM 3

f hi , ina m ch a indi id al Ge man a e al ead a ing

en gh, nea l en gh, a e l e he B dge a P blem,
and a e, he ef e, al ead ed cing hei e nal c n m i n
he e i i e e en .
(2) F he la h ee ea he T an fe P blem ha
been em a il l ed b Ge man b ing ab ad f ca i al
e a h me, ca h hich he d e n b ing h me in he
ha e f im . She ha been ing hi ca h b back
f m he Agen -Gene al he ceed f a e aid e him,
f hich he hen a he age f Ge man kmen
em l ed n ca i al im emen i hin Ge man . Clea l hi
ce f b ing f m ab ad cann g n indefini el .
When i c me an end, i ill be nece a di e he lab
hich i n em l d cing f e .
Th i ill n be-in he main-a e i n f ed cing
Ge man c n m i n. In fa a he B dge a P blem ha
been al ead l ed, he nece a ed c i n f c n m i n i
al ead effec i e. When he f eign b ing c me an end,
i ill be a e i n, n f ed cing c en c n m i n in
Ge man , b f an fe ing lab f m ca i al k in
Ge man he e ade . Onl in fa a addi i nal
a ing i hin Ge man ake he lace in f e f f eign l an
ill he e be an l f e ce hich e e e i l
di ec ed l ing Ge man c n me . On he he hand,
he e he f ca i al im emen , financed b f eign l an
i n in an e able f m (and m ch f i ill n be in ch a
f m), he di e i n f d c i n f he em l men in
he e ade ( d ce g d e i l im ed) ill
ha e be n a g ea e cale han i e i ed b he a men f
Re a a i n al ne, ince i ill be nece a ide al f
he in e e n he f eign l an .
(3) I c ncl de, he ef e, ha he l i n f he T an fe
P blem m c me ab , in he main, n b he elea e
f eign c n me f g d n c n med b Ge man (e.g.
hea , ga , c n), b b he di e i n f Ge man fac f
d c i n f m he em l men in he e ind ie .l
(4) N , ha e en Ge man f m ha ing a g ea e
l ae f e a he e en ime? I i ha he e
ade cann a ac m e lab a he e en le el f em ne a-
i n ? O i i ha he cann ell an inc ea ed a a
fi nle he can fi ed ce hei c f d c i n? The
a ailable fac eem indica e ha he fi , namel , inade a e
1 F b e i , I incl de in he e in ha f ll he d c i n f g d
e i l im ed.
B 2

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4 THE ECONOMIEC JOURNAL [MARCE

lie f lab a he e en a e f em ne a i n, la
li le n a , and ha he ec nd i he eal e lana i n.
Tha i a , he l i n f he T an fe P blem e i e
a ed c i n f Ge man g ld-c f d c i n ela i el ch
c el e he e. The e a e h ee a f b inging hi ab . Ei he
Ge man ind iali m inc ea e hei efficienc fa e han
ind iali el e he e; he a e f i i e e in Ge man m
be l e han el e he e; he g ld- a e f efficienc - age
m be ed ced c m a ed i h el e he e. Since Ge man ind -
iali a e e ed be al ead a a fai l high le el f effi-
cienc la i el h e f he c n ie , I d n kn h
e h ld a me ha he ill i e f he . F
i i n en gh ha he h ld inc ea e hei efficienc ( ha
he ill d b le d ); he m inc ea e i fa e han he
inc ea e hei efficienc . N i he e an ec f ela i el
chea m ne f Ge man ; h gh he e ma be me f e
gain f m a fall f Ge man in e e a e bel hei e en high
le el. I f ll ha he T an fe P blem e i e a ed c i n
in he e en g ld- a e f efficienc - age in Ge man ela i el
efficienc - age el e he e.
Tha i he fi in e abli h. The e endi e f he
Ge man e le m be ed ced, n nl b he am n f he
e a a i n- a e hich he m a f hei ea ning , b
al b a ed c i n in hei g ld- a e f ea ning bel ha he
ld he i e be. Tha i a , he e a e blem ,
and n -a h e main ain h beli le he diffic l ie f an fe
- ne blem. Indeed, a h a f ing he ca e i hi .
The T' an fe P blem c n i in ed cing he g ld- a e f
efficienc -ea ning f he Ge man fac f d c i n fficien l
enable hem inc ea e hei e an ade a e agg ega e
al; he B dge a P blem c n i in e ac ing f he e
ed ced m ne -ea ning a fficien am n f e a a i n- a Q .
The B dge a P blem de end n he eal h and e i f
he Ge man e le; he T an fe P blem n he c m e i i e
i i n f he ind ie n he in e na i nal ma ke .
(5) If i he e cen age b hich Ge man efficienc - age in
e m f g ld ha e be ed ced in de de el an e ce f
e fficien a f Re a a i n , - e ma a -i he
mea e f he g a i f he T an fe P blem.
S fa e ha e n e e ience g ide a he al e f .
N hall e, l ng a he Re a a i n a men a e ided
b b ing ab ad. I i i e ce ain ha hi m c me
an end me da . B hen, n ne can a . Mean hile
he ne C mmi ee, n i ing in Pa i , ha e li le m e

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 1929] THIE GERMAN TRANSFER PROBLEM 5

e idence g ide i a he al e f han he Da e C mmi ee

had fi e ea ag .
In nd fig e Ge man e (incl ding deli e ie in kind)
n and a ab ?600,000,000 e ann m. I l k -again
in nd fig e -a if hei e ce e im ld -ha e
inc ea e b ab ?150,000,000 ( e ha e en b ?200,000,000)
in de balance he acc n i h b ing. Since Ge man
ind i la gel de enden n f eign ce f a
ma e ial , hi mean a ill la ge inc ea e in he g fig e f
e . The Agen -Gene al c ncl de ha Ge man m l k
mainl an inc ea e in he e f fini hed g d , hich
came a al f ?434,000,000 la ea . Ve ghl , he e-
f e, Ge man ha inc ea e he al e f he e f fini hed
g d b ( a ) 40 e cen . I i a f midable a k.
N , a ed c i n in he m ne - a e f efficienc - age d e
n hel he , and ma inj e he , in he f ll ing ca e :
(i) Whe e he , e.g. e nal e ice b ilding ,
cann be e ed an h ;
(ii) Whe e he ld' demand f Ge man ' g d ha an
ela ici f le han ni , i.e. he e a ed c i n in ice
im la e demand le han in i n, ha he g ea e
an i ell f a le agg ega e m;
(iii) Whe e Ge man ' f eign c m e i figh e ain
hei e en ade c nnec i n b ed cing hei n a e f
age a i a ;
(i ) Whe e Ge man ' f eign c me , el c an all
hi m e in en i e c m e i i n i h hei h me d ce , mee
i b ai ing hei a iff .
M e e , if a ed c i n-in ice f 10 e cen . im la e he
l me f ade b 20 e cen ., hi d e n inc ea e he al e
f he e b 20 e cen ., b nl b 8 e cen . (1*20
90 = 108).
T in h ld be n ed in a ing. The ed c i n in
eal age ld be b n mean la ge a he ed c i n in
m ne - age , ince he ice f h me-g d f h me c n m -
i n migh be e ec ed fall.' I d e n f ll , h e e , ha
i ld be an he ea ie ed ce m ne - age , a - e ha e
f nd in hi c n in he la f ea . On he he hand,
ch ed c i n in eal age a d e cc ma ed ce efficienc ,
in hich ca e a ill g ea e ed c i n in m ne - age e head
ld be nece a ec e a gi en ed c i n in efficienc - age .
1 F he e e e hen men n ee he fig e ed n he ne age, f m
hich i a ea ha he ecen inc ea e in m ne - age ha ca ed he c f
li ing i e b m e han half he am n f he inc ea e in m ne - age .

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 6 THE ECONOMIC JOURNAL [MARCH

In he ligh f he e c n ide a i n , ha ed c i n in he
m ne - a e f Ge man age ill be e i ed inc ea e Ge man
e f fini hed g d b 40 e cen . ? I d n en e
g e -e ce ha I h ld e ec i be b an ial. Onl
h e h belie e ha he f eign demand f Ge man e i
e ela ic, ha a ifling ed c i n in Ge man ice ill d
ha i e i ed, a e j ified in h lding ha he T an fe P blem
i f n g ea ignificance a a f m he B dge a P blem.
M n ie i ha a a gi en ime he ec n mic c e f
a c n , in ela i n he ec n mic c e f i neighb ,
e mi f a ce ain " na al " le el f e , and ha a bi-
a il effec a ma e ial al e a i n f hi le el b delibe a e
de ice i e emel diffic l . Hi icall , he l me f f eign
in e men ha ended, I hink, adj i elf-a lea a
ce ain e en - he balance f ade, a he han he he a
nd, he f me being he en i i e and he la e he in en i-
i e fac . In he ca e f Ge man Re a a i n , n he he
hand, e a e ing fi he l me f f eign emi ance and
c m el he balance f ade adj i elf he e . Th e h
ee n diffic l in hi -like h e h a n diffic l in G ea
B i ain' e n he g ld anda d-a e a l ing he he
f li id ha i , if n a lid, a lea a ick ma i h
ng in e nal e i ance .
Mean hile- fa f m a a ha ing been made in ed cing
age - he b ea hing ace all ed b f eign b ing ha
eakened Ge man ' c m e i i e i i n b all ing Ge man
age i e again f m he e de e ed i i n hich he
cc ied in 1924 af e he G ea Infla i n. M . Pa ke Gilbe
eck n ha m ne - age in Ge man ha e i en b 40 e
cen . ince 1924 and eal age b 23 e cen ., i h he e l
ha eal- age a e n e ima ed a 8 e cen . highe han he
e e bef e he a .

II

Th he T an fe P blem in l e a ed c i n f e cen .
in he a e f g ld- age in Ge man ela i el a e el e-
he e, he al e f being de e mined b he fac lined
ab e. The ne e i n i -H d e he Da e cheme
e b ing ab hi ed c i n f age ? The an e i
ha i make alm n c n ib i n he l i n f hi blem.
The ea ie me h d ld be all he e change al e f
he Ge man ma k fall b he am n e i ed gi e he
nece a b n e and hen e i an agi a i n

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1929] THE GERMAN TRANSFER PROBLEM 7

ai e m ne - age . B i i eci el hi me h d hich he

Da e cheme' de ice f " an fe ec i n " e e l f bid .
N -a I ead he Da e cheme-i he e an c m l
defla i n hen he " an fe ec i n " c me in la and
he ceed f he e a a i n- a e acc m la e i hin Ge man ,
ince he e ceed a e be in e ed in he h -l an ma ke .
If, h e e , e e ha , b ag eemen i h he
Reich bank, defla i n i enf ced, h ill hi hel ? Onl
if, b c ailing he ac i i f b ine , i h men
f k, ha , hen a fficien n mbe f milli n a e
f k, he ill hen acce he e i i e ed c i n f hei
m ne - age . Whe he hi i li icall and h manl fea ible
i an he ma e . M e e , an a em b f eign financie
i hd a me a f hei a h - e m l an he
Ge man M ne Ma ke , e ima ed a ?300,000,000, migh be a
b - d c f a i len li ical and ec n mic ggle aimed
a he ed c i n f age in he in e e f f eign c edi .

The c mf f Ge man ' i i n nde he Da e cheme

i hi . The l , f ni hed b e and f eign l an ,
ill be d l emi ed he am n f he ann i .
B if in an ea e and f eign l an fail f ni h
a fficien l -and he me e fac ha he ann i ha
been c llec ed b a a i n i n g a an ee ha e e ha hi
l ill be fficien - hen he Da e cheme ide n
effec i e mean f e e inc ea e he l . One ma
a me, he ef e, ha he Ge man G e nmen ill be e a-
dina il el c an f g " an fe ec i n "-a an a e
n il he e i m e e idence han e i a e en a he am n
f he l hich e lef hem el e a e likel f ni h.
B he e en i n f " an fe ec i n " ma be de i able
f m he in f ie han Ge man ' . Add e ing he
ha eh lde f Ba cla ' Bank la Jan a , M . F. C. G den gh
aid:-," I ill be f g ea im ance ha he am n be
fi ed h ld be n nl acce able he Allie , b ch a
ill b ia e, a fa a ible, f cing Ge man in e ce i e
ind ial c m e i i n i h he e f he ld h gh c m-
elling he e le acce l a anda d f li ing." If
M . G den gh i igh , me mea e f " an fe ec i n "
h ld be e ained.
J. M. KEYNES
King'8 C llege,
Camb idge.

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