"1. As the result of the English effort to stop all foreign commerce with Germany, Germany would do everything in her power to destroy English commerce and merchant shipping. There was, however, never at any time an intention to destroy or interfere with neutral commerce or to attack neutral shipping unless engaged in contraband trade. In view of the action of the British Government in arming merchant vessels and causing them to disguise their national character, the occasional destruction of a neutral ship was unavoidable. Naval officers in command of submarines had been instructed originally, and new and more stringent instructions had been issued repeatedly, to use the utmost care, consistent with their own safety, to avoid attacks on neutral vessels.

"2. In case a neutral ship should be destroyed by a submarine the German Government is prepared to make an immediate and formal expression of its regret and to pay an indemnity, without having recourse to a prize court.

"3. All reports with regard to the destruction of a neutral vessel by a German submarine are investigated at once by both the German Foreign Office and Admiralty and the result is communicated to the Government concerned, which is requested in return to communicate to the German Government the result of its own independent investigation. Where there is any material divergence in the two reports as to the presumed cause of destruction (torpedo or mine), the question is to be submitted to investigation by a commission composed of representatives of the two nations concerned, with a neutral arbiter whose decision will be final. This course has already been adopted in two cases, in which a Dutch and a Norwegian vessel, respectively, were concerned. The German Government reserves its right to refuse this international arbitration in exceptional cases where for military reasons the German Admiralty are opposed to its taking place."

Director Kriege told Mr. Jackson that a written communication in which the substance of the foregoing would be contained, would soon to be made to the Embassy.

Mr. Jackson put this conversation down in the form above given and showed Director Kriege a copy of it. Later in the day Geheimrat Simon called on Mr. Jackson at the Embassy and said that Dr. Kriege would like to have point two read as follows:

"In case throughanyunfortunatemistakeaneutralship," and continuing to the end; and that Dr. Kriege would like to change what was written on point three beginning with "Where there is" so that it should read, as follows:—"Where there is any material divergence in the two reports as to the presumed cause of destruction (torpedo or mine), the German Government has already in several instances declared its readiness to submit the question to the decision of an international commission in accordance with the Hague Convention for the friendly settlement of international disputes."

This had been suggested by Director Kriege in case it should be decided to make a communication to the American Press. Mr. Jackson told Geheimrat Simon that he would report the subject of his conversation to me, but that it would depend upon me whether any communication should be made to the American Government or to the press upon the subject.

Of course, the news of the torpedoing of the Lusitania on May seventh and of the great loss of American lives brought about a very critical situation, and naturally nothing was done with Kriege's propositions.

It is unnecessary here for me to go into the notes which were exchanged between the two governments because all that is already public property.

Sometime after I had delivered our first Lusitania Note of May 11th, 1915, Zimmermann was lunching with us. A good looking American woman, married to a German, was also of the party and after lunch although I was talking to some one else I overheard part of her conversation with Zimmermann. When Zimmermann left I asked her what it was that he had said about America, Germany, Mr. Bryan and the Lusitania. She then told me that she had said to Zimmermann that it was a great pity that we were to leave Berlin as it looked as if diplomatic relations between the two countries would be broken, and that Zimmermann told her not to worry about that because they had just received word from the Austrian Government that Dr. Dumba, the Austrian Ambassador in Washington, had cabled that the Lusitania Note from America to Germany was only sent as a sop to public opinion in America and that the government did not really mean what was said in that note. I then called on Zimmermann at the Foreign Office and he showed me Dumba's telegram which was substantially as stated above. Of course, I immediately cabled to the State Department and also got word to President Wilson. The rest of the incident is public property. I, of course, did not know what actually occurred between Mr. Bryan and Dr. Dumba, but I am sure that Dr. Dumba must have misunderstood friendly statements made by Mr. Bryan.

It was very lucky that I discovered the existence of this Dumba cablegram in this manner which savours almost of diplomacy as represented on the stage. If the Germans had gone on in the belief that the Lusitania Note was not really meant, war would have inevitably resulted at that time between Germany and America, and it shows how great events may be shaped by heavy luncheons and a pretty woman.

Before this time much indignation had been caused in Germany by the fact that the Lusitania on her eastward voyage from New York early in February, 1915, had raised the American flag when nearing British waters.

Shortly after this incident had become known, I was at the Wintergarten, a large concert hall in Berlin, with Grant Smith, First Secretary of the Embassy at Vienna and other members of my staff. We naturally spoke English among ourselves, a fact which aroused the ire of a German who had been drinking heavily and who was seated in the next box. He immediately began to call out that some one was speaking English and when told by one of the attendants that it was the American Ambassador, he immediately cried in a loud voice that Americans were even worse than English and that the Lusitania had been flying the American flag as protection in British waters.

The audience, however, took sides against him and told him to shut up and as I left the house at the close of the performance, some Germans spoke to me and apologised for his conduct. The next day the manager of the Wintergarten called on me also to express his regret for the occurrence.

About a year afterwards I was at the races one day and saw this man and asked him what he meant by making such a noise at the Wintergarten. He immediately apologised and said that he had been drinking and hoped that I would forget the incident. This was the only incident of the kind which occurred to me during all the time that I was in Germany.

Both before and after the sinking of the Lusitania, the German Foreign Office put forward all kinds of proposals with reference to American ships in the war zone. On one afternoon, Zimmermann, who had a number of these proposals drafted in German, showed them to me and I wrote down the English translation for him to see how it would look in English. These proposals were about the sailing from America of what might be called certified ships, the ships to be painted and striped in a distinctive way, to come from certified ports at certain certified times, America to agree that these ships should carry no contraband whatever. All these proposals were sternly rejected by the President.

On February sixteenth, the German answer to our note of February tenth had announced that Germany declined all responsibility for what might happen to neutral ships and, in addition, announced that mines would be allowed in waters surrounding Great Britain and Ireland. This note also contained one of Zimmermann's proposed solutions, namely, that American warships should convoy American merchantmen.

The German note of the sixteenth also spoke about the great traffic in munitions from the United States to the Allies, and contained a suggestion that the United States should induce the Allies to adopt the Declaration of London and omit the importation not only of food but also of all raw materials into Germany.

February twentieth was the date of the conciliatory note addressed by President Wilson to both Great Britain and Germany; and contained the suggestion that submarines should not be employed against merchant vessels of any nationality and that food should be allowed to go through for the civil population of Germany consigned to the agencies named by the United States in Germany, which were to see that the food was received and distributed to the civil population.

In the meantime the mines on the German coast had destroyed two American ships, both loaded with cotton for Germany; one called the Carib and the other the Evelyn.

In America, Congress refused to pass a law to put it in the power of the President to place an embargo on the export of munitions of war.

In April, Count Bernstorff delivered his note concerning the alleged want of neutrality of the United States, referring to the numerous new industries in war materials being built up in the United States, stating, "In reality the United States is supplying only Germany's enemies, a fact which is not in any way modified by the theoretical willingness to furnish Germany as well."

To this note, Secretary Bryan in a note replied that it was impossible, in view of the indisputable doctrines of accepted international law, to make any change in our own laws of neutrality which meant unequally affecting, during the progress of the war, the relations of the United States with the various nations at war; and that the placing of embargoes on the trade in arms which constituted such a change would be a direct violation of the neutrality of the United States.

But all these negotiations, reproaches and recriminations were put an end to by the torpedoing of the Lusitania, with the killing of American women and civilians who were passengers on that vessel.

I believed myself that we would immediately break diplomatic relations, and prepared to leave Germany. On May eleventh, I delivered to von Jagow the Lusitania Note, which after calling attention to the cases of the sinking of American boats, ending with the Lusitania, contained the statement, "The Imperial German Government will not expect the Government of the United States to omit any word or any act necessary to the sacred duty of maintaining the rights of the United States and its citizens and of safeguarding their free exercises and enjoyments."

During this period I had constant conversations with von Jagow and Zimmermann, and it was during the conversations about this submarine warfare that Zimmermann on one occasion said to me: "The United States does not dare to do anything against Germany because we have five hundred thousand German reservists in America who will rise in arms against your government if your government should dare to take any action against Germany." As he said this, he worked himself up to a passion and repeatedly struck the table with his fist. I told him that we had five hundred and one thousand lamp posts in America, and that was where the German reservists would find themselves if they tried any uprising; and I also called his attention to the fact that no German-Americans making use of the American passports which they could easily obtain, were sailing for Germany by way of Scandinavian countries in order to enlist in the German army. I told him that if he could show me one person with an American passport who had come to fight in the German army I might more readily believe what he said about the Germans in America rising in revolution.

As a matter of fact, during the whole course of the war, I knew of only one man with American citizenship who enlisted in the German army. This was an American student then in Germany who enlisted in a German regiment. His father, a business man in New York, cabled me asking me to have his son released from the German army; so I procured the discharge of the young man who immediately wrote to me and informed me that he was over twenty-one, and that he could not see what business his father had to interfere with his military ambitions. I thereupon withdrew my request with reference to him, but he had already been discharged from the army. When his regiment went to the West front he stowed away on the cars with it, was present at the attack on Ypres, and was shot through the body. He recovered in a German hospital, received the Iron Cross, was discharged and sailed for America. What has since become of him I do not know.

I do not intend to go in great detail into this exchange of notes and the public history of the submarine controversy, as all that properly belongs to the history of the war rather than to an account of my personal experiences; and besides, as Victor Hugo said, "History is not written with a microscope." All will remember the answer of Germany to the American Lusitania Note, which answer, delivered on May twenty-ninth, contained the charge that the Lusitania was armed and carried munitions, and had been used in the transport of Canadian troops. In the meantime, however, the American ship, Nebraskan, had been torpedoed off the coast of Ireland on the twenty-sixth; and, on May twenty-eighth, Germany stated that the American steamer, Gulfflight, had been torpedoed by mistake, and apologised for this act.

Von Jagow gave me, about the same time, a Note requesting that American vessels should be more plainly marked and should illuminate their marking at night.

The second American Lusitania Note was published on June eleventh, 1915; and its delivery was coincident with the resignation of Mr. Bryan as Secretary of State. In this last Note President Wilson (for, of course, it is an open secret that he was the author of these Notes) made the issue perfectly plain, referring to the torpedoing of enemy passenger ships. "Only her actual resistance to capture or refusal to stop when ordered to do so for the purpose of visit could have afforded the commander of the submarine any justification for so much as putting the lives of those on board the ship in jeopardy." On July eighth the German answer to this American Lusitania Note was delivered, and again stated that "we have been obliged to adopt a submarine war to meet the declared intentions of our enemies and the method of warfare adopted by them in contravention of international law". Again referring to the alleged fact of the Lusitania's carrying munitions they said: "If the Lusitania had been spared, thousands of cases of munitions would have been sent to Germany's enemies and thereby thousands of German mothers and children robbed of breadwinners." The note then contained some of Zimmermann's favourite proposals, to the effect that German submarine commanders would be instructed to permit the passage of American steamers marked in a special way and of whose sailing they had been notified in advance, provided that the American Government guaranteed that these vessels did not carry contraband of war. It was also suggested that a number of neutral vessels should be added to those sailing under the American flag, to give greater opportunity for those Americans who were compelled to travel abroad, and the Note's most important part continued: "In particular the Imperial Government is unable to admit that the American citizens can protect an enemy ship by mere fact of their presence on board."

July twenty-first, the American Government rejected the proposals of Germany saying, "The lives of noncombatants may in no case be put in jeopardy unless the vessel resists or seeks to escape after being summoned to submit to examination," and disposed of the claim that the acts of England gave Germany the right to retaliate, even though American citizens should be deprived of their lives in the course of retaliation by stating: "For a belligerent act of retaliation is _per_se_ an act beyond the law, and the defense, of an act as retaliatory, is an admission that it is illegal." Continuing it said: "If a belligerent cannot retaliate against an enemy without injuring the lives of neutrals, as well as their property, humanity, as well as justice and a due regard for the dignity of neutral powers, should dictate that the practice be discontinued."

It was also said: "The United States cannot believe that the Imperial Government will longer refrain from disavowing the wanton act of its naval commander in sinking the Lusitania or from offering reparation for the American lives lost, so far as reparation can be made for the needless destruction of human life by an illegal act." And the meat of the Note was contained in the following sentence: "Friendship itself prompts it (the United States) to say to the Imperial Government that repetition by the commanders of German naval vessels of acts in contravention of those rights must be regarded by the Government of the United States, when they affect American citizens, as being deliberately unfriendly."

There the matter has remained so far as the Lusitania was concerned until now. In the meantime, the attack of the American ship, Nebraskan, was disavowed; the German Note stating that "the torpedo was not meant for the American flag and is to be considered an unfortunate accident."

The diplomatic situation with regard to the use of the submarine and the attack on many merchant ships without notice and without putting the passengers in safety was still unsettled when on August nineteenth, 1915, the British ship Arabic, was torpedoed, without warning, not far from the place where the Lusitania had gone down. Two Americans were among the passengers killed.

The German Government, after the usual quibbling, at length, in its Note of September seventh, claimed that the Captain of the German submarine, while engaged in preparing to sink the Dunsley, became convinced that the approaching Arabic was trying to ram him and, therefore, fired his torpedo. The Imperial Government refused to admit any liability but offered to arbitrate.

There followed almost immediately the case of the Ancona, sunk by a submarine flying the Austrian flag. This case was naturally out of my jurisdiction, but formed a link in the chain, and then came the sinking of the Persia in the Mediterranean. On this boat our consul to Aden lost his life.

In the Note of Count Bernstorff to Secretary Lansing, dated September first, 1915, Count Bernstorff said that liners would not be sunk by German submarines without warning, and without putting the passengers in safety, provided that the liners did not try to escape or offer resistance; and it was further stated that this policy was in effect before the sinking of the Arabic.

There were long negotiations during this period concerning the Arabic. At one time it looked as if diplomatic relations would be broken; but finally the Imperial Government consented to acknowledge that the submarine commander had been wrong in assuming that the Arabic intended to ram his boat, offered to pay an indemnity and disavowed the act of the commander. It was stated that orders so precise had been given to the submarine commanders that a "recurrence of incidents similar to the Arabic is considered out of the question."

In the same way the Austrian Government gave way to the demands of America in the Ancona case at the end of December, 1915. Ambassador Penfield, in Austria, won great praise by his admirable handling of this case.

The negotiations as to the still pending Lusitania case were carried on in Washington by Count Bernstorff and Secretary Lansing, and finally Germany offered to pay an indemnity for the death of the Americans on the Lusitania whose deaths Germany "greatly regretted," but refused to disavow the act of the submarine commander in sinking the Lusitania or to admit that such act was illegal.

About this time our State Department sent out a Note proposing in effect that submarines should conform to "cruiser" warfare, only sinking a vessel which defended itself or tried to escape, and that before sinking a vessel its passengers and crew should be placed in safety; and that, on the other hand, merchant vessels of belligerent nationality should be prohibited from carrying any armaments whatever. This suggestion was not followed up.

Zimmermann (not the one in the Foreign Office) wrote an article in the _Lokal_Anzeiger_ of which he is an editor, saying that the United States had something on their side in the question of the export of munitions. I heard that von Kessel, commander of the _Mark_of_Brandenburg_ said that he, Zimmermann, ought to be shot as a traitor. Zimmermann hearing of this made von Kessel apologise, but was shortly afterwards mobilised.

Colonel House had arrived in Germany at the end of January, 1916, and remained only three days. He was quite worried by the situation and by an interview he had had with Zimmermann in which Zimmermann expressed the readiness of Germany to go to war with the United States.

In February, 1916, the Junkers in the Prussian Lower House started a fight against the Chancellor and discussed submarine war, a matter out of their province. The Chancellor hit back at them hard and had the best of the exchange. At this period it was reported that the Emperor went to Wilhelmshafen to warn the submarine commanders to be careful.

About March first it was reported that a grand council of war was held at Charleville and that in spite of the support of von Tirpitz by Falkenhayn, the Chief of Staff, the Chancellor was supported by the Emperor, and once more beat the propositions to recommence ruthless submarine war.

In March too, the "illness" of von Tirpitz was announced, followed shortly by his resignation. On March nineteenth, his birthday, a demonstration was looked for and I saw many police near his dwelling, but nothing unusual occurred. I contemplated a trip to America, but both the Chancellor and von Jagow begged me not to go.

From the time of the Lusitania sinking to that of the Sussex all Germany was divided into two camps. The party of the Chancellor tried to keep peace with America and did not want to have Germany branded as an outlaw among nations. Von Tirpitz and his party of naval and military officers called for ruthless submarine war, and the Conservatives, angry with Bethmann-Hollweg because of his proposed concession as to the extension of the suffrage, joined the opposition. The reception of our last Lusitania Note in July, 1915, was hostile and I was accused of being against Germany, although, of course, I had nothing to do with the preparation of this Note.

In August, 1915, the deputies representing the great industrials of Germany joined in the attack on the Chancellor. These men wished to keep Northern France and Belgium, because they hoped to get possession of the coal and iron deposits there and so obtain a monopoly of the iron and steel trade of the continent. Accelerators of public opinion, undoubtedly hired by the Krupp firm, were hard at work. These Annexationists were opposed by the more reasonable men who signed a petition against the annexation of Belgium. Among the signers of this reasonable men's petition were Prince Hatzfeld (Duke of Trachenberg) head of the Red Cross, Dernburg, Prince Henkel Donnersmarck, Professor Delbruck, von Harnack and many others.

The rage of the Conservatives at the Arabic settlement knew no bounds, and after a bitter article had appeared in the Tageszeitung about the Arabic affair, that newspaper was suppressed for some days,—a rather unexpected showing of backbone on the part of the Chancellor. Reventlow who wrote for this newspaper is one of the ablest editorial writers in Germany. An ex-naval officer, he is bitter in his hatred of America. It was said that he once lived in America and lost a small fortune in a Florida orange grove, but I never succeeded in having this verified.

In November, 1915, after the Arabic settlement there followed a moment for us of comparative calm. Mrs. Gerard was given the Red Cross Orders of the first and third classes, and Jackson and Rives of the Embassy Staff the second and third class. The third class is always given because one cannot have the first and second unless one has the third or lowest.

There were rumours at this time of the formation of a new party; really the Socialists and Liberals, as the Socialists as such were too unfashionable, in too bad odour, to open a campaign against the military under their own name. This talk came to nothing.

The Chancellor always complained bitterly that he could not communicate in cipher via wireless with von Bernstorff. On one occasion he said to me, "How can I arrange as I wish to in a friendly way the Ancona and Lusitania cases if I cannot communicate with my Ambassador? Why does the United States Government not allow me to communicate in cipher?" I said, "The Foreign Office tried to get me to procure a safe-conduct for the notorious von Rintelen on the pretense that he was going to do charitable work for Belgium in America; perhaps Washington thinks you want to communicate with people like that." The Chancellor then changed the subject and said that there would be bad feeling in Germany against America after the war. I answered that that idea had been expressed by a great many Germans and German newspapers, and that I had had private letters from a great many Americans who wrote that if Germany intended to make war on America, after this war, perhaps we had better go in now. He then very amiably said that war with America would be ridiculous. He asked me why public opinion in America was against Germany, and I answered that matters like the Cavell case had made a bad impression in America and that I knew personally that even the Kaiser did not approve of the torpedoing of the Lusitania. The Chancellor said, "How about the Baralong?" I replied that I did not know the details and that there seemed much doubt and confusion about that affair, but that there was no doubt about the fact that Miss Cavell was shot and that she was a woman. I then took up in detail with him the treatment of British prisoners and said that this bad treatment could not go on. This was only one of the many times when I complained to the Chancellor about the condition of prisoners. I am sure that he did not approve of the manner in which prisoners of war in Germany were treated; but he always complained that he was powerless where the military were concerned, and always referred me to Bismarck's memoirs.

During this winter of submarine controversy an interview with von Tirpitz, thinly veiled as an interview with a "high naval authority," was published in that usually most conservative of newspapers, the _Frankfurter_Zeitung_. In this interview the "high naval authority" advocated ruthless submarine war with England, and promised to bring about thereby the speedy surrender of that country. After the surrender, which was to include the whole British fleet, the German fleet with the surrendered British fleet added to its force, was to sail for America, and exact from that country indemnities enough to pay the whole cost of the war.

After his fall, von Tirpitz, in a letter to some admirers who had sent him verses and a wreath, advocated holding the coast of Flanders as a necessity for the war against England and America.

The successor of von Tirpitz was Admiral von Holtzendorff, whose brother is Ballin's right hand man in the management of the Hamburg American Line. Because of the more reasonable influence and surroundings of von Holtzendorff, I regarded his appointment as a help towards peaceful relations between Germany and America.

I have told in another chapter how the Emperor had refused to receive me as Ambassador of a country which was supplying munitions to the Allies.

From time to time since I learned of this in March, 1915, I kept insisting upon my right as Ambassador to be received by the Emperor; and finally early in October, 1915, wrote the following letter to the Chancellor:

"Your Excellency:

Some time ago I requested you to arrange an audience for me with his majesty.

Please take no further trouble about this matter.

Sincerely yours,

JAMES W. GERARD."

This seemed to have the desired effect. I was informed that I would be received by the Emperor in the new palace at Potsdam on October twenty-second. He was then to pay a flying visit to Berlin to receive the new Peruvian Minister and one or two others. We went down in the train to Potsdam, von Jagow accompanying us, in the morning; and it was arranged that we should return on the train leaving Potsdam a little after one o'clock. I think that the authorities of the palace expected that I would be with the Emperor for a few minutes only, as when I was shown into the room where he was, a large room opening from the famous shell hall of the palace, the Peruvian Minister and the others to be received were standing waiting in that hall.

The Emperor was alone in the room and no one was present at our interview. He was dressed in a Hussar uniform of the new field grey, the parade uniform of which the frogs and trimmings were of gold. A large table in the corner of the room was covered with maps, compasses, scales and rulers; and looked as if the Emperor there, in company with some of his aides, or possibly the chief of staff, had been working out the plan of campaign of the German armies.

The Emperor was standing; so, naturally, I stood also; and, according to his habit, which is quite Rooseveltian, he stood very close to me and talked very earnestly. I was fortunately able to clear up two distinct points which he had against America.

The Emperor said that he had read in a German paper that a number of submarines built in America for England had crossed the Atlantic to England, escorted by ships of the American Navy. I was, of course, able to deny this ridiculous story at the time and furnish definite proofs later. The Emperor complained because a loan to England and France had been floated in America. I said that the first loan to a belligerent floated in America was a loan to Germany. The Emperor sent for some of his staff and immediately inquired into the matter. The members of the staff confirmed my statement. The Emperor said that he would not have permitted the torpedoing of the Lusitania if he had known, and that no gentleman would kill so many women and children. He showed, however, great bitterness against the United States and repeatedly said, "America had better look out after this war:" and "I shall stand no nonsense from America after the war."

The interview lasted about an hour and a quarter, and when I finally emerged from the room the officers of the Emperor's household were in such a state of agitation that I feel sure they must have thought that something fearful had occurred. As I walked rapidly towards the door of the palace in order to take the carriage which was to drive me to the train, one of them walked along beside me saying, "Is it all right? Is it all right?"

The unfortunate diplomats who were to have been received and who had been standing all this time outside the door waiting for an audience missed their train and their luncheon.

At this interview, the Emperor looked very careworn and seemed nervous. When I next saw him, however, which was not until the end of April, 1916, he was in much better condition.

I was so fearful in reporting the dangerous part of this interview, on account of the many spies not only in my own Embassy but also in the State Department, that I sent but a very few words in a roundabout way by courier direct to the President.

The year, 1916, opened with this great question still unsettled and, in effect, Germany gave notice that after March first, 1916, the German submarines would sink all armed merchantmen of the enemies of Germany without warning. It is not my place here to go into the agitation of this question in America or into the history of the votes in Congress, which in fact upheld the policy of the President. A proposal as to armed merchantmen was issued by our State Department and the position taken in this was apparently abandoned at the time of the settlement of the Sussex case to which I now refer.

In the latter half of March, 1916, a number of boats having Americans on board were torpedoed without warning. These boats were the _Eaglejoint_, the _Englishman_, the _Manchester_Engineer_ and the _Sussex_. One American was killed or drowned on the _Englishman_, but the issue finally came to a head over the torpedoing of the channel passenger boat, _Sussex_ which carried passengers between Folkstone and Dieppe, France.

On March twenty-fourth the Sussex was torpedoed near the coast of France. Four hundred and thirty-six persons, of whom seventy-five were Americans, were on board. The captain and a number of the passengers saw the torpedo and an endeavour was made to avoid it. After the boat was struck the many passengers took to the boats. Three Americans were injured and over forty persons lost their lives, although the boat was not sunk but was towed to Boulogne.

I was instructed to inquire from the German Government as to whether a German submarine had sunk the _Sussex_. The Foreign Office finally, at my repeated request, called on the Admiralty for a report of the torpedoing of the _Sussex_; and finally on the tenth of April the German Note was delivered to me. In the meantime, and before the delivery of this Note I had been assured again and again that the _Sussex_ had not been torpedoed by a German submarine. In this Note a rough sketch was enclosed, said to have been made by the officer commanding the submarine, of a vessel which he admitted he had torpedoed, in the same locality where the _Sussex_ had been attacked and at about the same time of day. It was said that this boat which was torpedoed was a mine layer of the recently built _Arabic_ class and that a great explosion which was observed to occur in the torpedoed ship warranted the certain conclusion that great amounts of munitions were on board. The Note concluded: "The German Government must therefore assume that injury to the _Sussex_ was attributable to another cause than attack by a German submarine." The Note contained an offer to submit any difference of opinion that might develop to be investigated by a mixed commission in accordance with the Hague Convention of 1907. The _Englishman_ and the _Eaglepoint_, it was claimed, were attacked by German submarines only after they had attempted to escape, and an explanation was given as to the _Manchester_Engineer_. With reference to the _Sussex_, the note continued: "Should the American Government have at its disposal other material at the conclusion of the case of the _Sussex_, the German Government would ask that it be communicated, in order to subject this material also to investigation."

In the meantime, American naval officers, etc., had been engaged in collecting facts as to the sinking of the Sussex, and this evidence, which seemed overwhelming and, in connection with the admissions in the German note, absolutely conclusive, was incorporated in the note sent to Germany in which Germany was notified: "Unless the Imperial Government should now immediately declare and effect abandonment of this present method of submarine warfare against passenger and freight carrying vessels, the Government of the United States can have no choice but to sever diplomatic relations with the German Empire altogether."

The issue was now clearly defined.

I have already spoken of the fact that for a long time there had been growing up two parties in Germany. One party headed by von Tirpitz in favour of what the Germans called rucksichtloser, or ruthless submarine war, in which all enemy merchant ships were to be sunk without warning, and the party then headed by the Chancellor which desired to avoid a conflict with America on this issue.

As I have explained in a former chapter, the military have always claimed to take a hand in shaping the destinies and foreign policies of Germany. When the Germans began to turn their attention to the creation of a fleet, von Tirpitz was the man who, in a sense, became the leader of the movement and, therefore, the creator of the modern navy of Germany. A skilful politician, he for years dominated the Reichstag and on the question of submarine warfare was most efficiently seconded by the efforts of the Navy League, an organization having perhaps one million members throughout Germany. Although only one of the three heads of the navy (he was Secretary of the Navy), by the force of his personality, by the political position which he had created for himself, and by the backing of his friends in the Navy League he really dominated the other two departments of the navy, the Marine Staff and the Marine Cabinet.

Like most Germans of the ruling class, ambition is his only passion. These Spartans do not care either for money or for the luxury which it brings. Their life is on very simple lines, both in the Army and Navy, in order that the officers shall not vie with one another in expenditure, and in order that the poorer officers and their wives shall not be subject to the humiliation which would be caused if they had to live in constant contact with brother officers living on a more luxurious footing.

Von Tirpitz' ambition undoubtedly led him to consider himself as a promising candidate for Bethmann-Hollweg's shoes. The whole submarine issue, therefore, became not only a question of military expediency and a question for the Foreign Office to decide in connection with the relations of America to Germany, but also a question of internal politics, a means of forcing the Chancellor out of office. The advocates for the ruthless war were drawn from the Navy and from the Army, and those who believed in the use of any means of offence against their enemies and particularly in the use of any means that would stop the shipment of munitions of war to the Allies. The Army and the Navy were joined by the Conservatives and by all those who hoped for the fall of the Chancellor. The conservative newspapers, and even the Roman Catholic newspapers were violent in their call for ruthless submarine war as well as violent in their denunciations of the United States of America.

American passengers on merchant ships of the enemy were called Schutzengel (guardian angels), and caricatures were published, such as one which showed the mate reporting to the Captain of an English boat that everything was in readiness for sailing and the Captain's inquiry, "Are you sure that the American Schutzengel is on board?" The numerous notes sent by America to Germany also formed a frequent subject of caricature and I remember particularly one quite clever one in the paper called Brummer, representing the celebrations in a German port on the arrival of the one hundredth note from America when the Mayor of the town and the military, flower girls and singing societies and Turnverein were drawn up in welcoming array.

The liberal papers were inclined to support the Chancellor in his apparent intention to avoid an open break with America. But even the liberal papers were not very strong in their stand.

The military, of course, absolutely despised America and claimed that America could do no more harm by declaring war than it was doing then to Germany; and that possibly the war preparations of America might cut down the amount of the munitions available for export to the enemies of the Empire. As to anything that America could do in a military way, the Navy and the Army were unanimous in saying that as a military or naval factor the United States might be considered as less than nothing. This was the situation when the last Sussex Note of America brought matters to a crisis, and even the crisis itself was considered a farce as it had been simmering for so long a period.

I arranged that Colonel House should have an interview with the Chancellor at this time, and after dinner one night he had a long talk with the Chancellor in which the dangers of the situation were pointed out.

With this arrival of the last American Sussex Note, I felt that the situation was almost hopeless; that this question which had dragged along for so long must now inevitably lead to a break of relations and possibly to war. Von Jagow had the same idea and said that it was "fate," and that there was nothing more to be done. I myself felt that nothing could alter public opinion in Germany; that in spite of von Tirpitz' fall, which had taken place some time before, the advocates of ruthless submarine warfare would win, and that to satisfy them Germany would risk a break with America.

I was sitting in my office in a rather dazed and despairing state when Professor Ludwig Stein, proprietor of a magazine called _North_and_South_ and a writer of special articles on Germany's foreign relations for the _Vossische_Zeitung_, under the name of "Diplomaticus," called to see me.

He informed me that he thought the situation was not yet hopeless, that there was still a large party of reasonable men in Germany and that he thought much good could be done if I should go to the great general headquarters and have a talk with the Kaiser, who, he informed me, was reported to be against a break.

I told Dr. Stein that, of course, I was perfectly willing to go if there was the slightest chance of preventing war; and I also told the Chancellor that if he was going to decide this question in favor of peace it would be possibly easier for him if the decision was arrived at under the protection, as it were, of the Emperor; or that, if the decision lay with the Emperor, I might possibly be able to help in convincing him if I had an opportunity to lay the American side of the case before him. I said, moreover, that I was ready at any time on short notice to proceed to the Emperor's headquarters.

Dr. Hecksher, a member of the Reichstag, who must be classed among the reasonable men of Germany, also advocated my speaking directly to the Kaiser.



CHAPTER XIII

MAINLY COMMERCIAL

Nothing surprised me more, as the war developed, than the discovery of the great variety and amount of goods exported from Germany to the United States.

Goods sent from the United States to Germany are mainly prime materials: approximately one hundred and sixty million dollars a year of cotton; seventy-five million dollars of copper; fifteen millions of wheat; twenty millions of animal fats; ten millions of mineral oil and a large amount of vegetable oil. Of course, the amount of wheat is especially variable. Some manufactured goods from America also find their way to Germany to the extent of perhaps seventy millions a year, comprising machinery such as typewriters and a miscellaneous line of machinery and manufactures. The principal exports from Germany to America consist of dye stuffs and chemical dyes, toys, underwear, surgical instruments, cutlery, stockings, knit goods, etc., and a raw material called potash, also known as kali. The last is a mineral found nowhere in the world except in Germany and a few places in Austria. Potash is essential to the manufacture of many fertilizers, fertilizer being composed as a rule of potash, phosphates and nitrates. The nitrates in past years have been exported to all countries from Chile. Phosphate rock is mined in South Carolina and Florida and several other places in the world. Curiously enough, both nitrates and potash are essential ingredients also of explosives used in war. Since the war, the German supply from Chile was cut off; but the Germans, following a system used in Norway for many years before the war, established great electrical plants for the extraction of nitrates from the atmosphere. Since the war, American agriculture has suffered for want of potash and German agriculture has suffered for want of phosphates, possibly of nitrates also; because I doubt whether sufficient nitrogen is extracted from the air in Germany to provide for more than the needs of the explosive industry.

The dyestuff industry had been developed to such a point in Germany that Germany supplied the whole world. In the first months of the war some enterprising Americans, headed by Herman Metz, chartered a boat, called _The_Matanzas_, and sent it to Rotterdam where it was loaded with a cargo of German dyestuffs. Th boat sailed under the American flag and was not interfered with by the English. Later on the German Department of the Interior, at whose head was Delbruck, refused to allow dyestuffs to leave Germany except in exchange for cotton, and, finally, the export of dyestuffs from Germany ceased and other countries were compelled to take up the question of manufacture. This state of affairs may lead to the establishment of the industry permanently in the United States, although that industry will require protection for some years, as, undoubtedly, Germany in her desperate effort to regain a monopoly of this trade will be ready to spend enormous sums in order to undersell the American manufacturers and drive them out of business.

The commercial submarines, Deutschland and Bremen, were to a great extent built with money furnished by the dyestuff manufacturers, who hoped that by sending dyestuffs in this way to America they could prevent the development of the industry there. I had many negotiations with the Foreign Office with reference to this question of dyestuffs.

The export of toys from Germany to the United States forms a large item in the bill which we pay annually to Germany. Many of these toys are manufactured by the people in their own homes in the picturesque district known as the Black Forest. Of course, the war cut off, after a time, the export of toys from Germany; and the American child, having in the meantime learned to be satisfied with some other article, his little brother will demand this very article next Christmas, and thus, after the war, Germany will find that much of this trade has been permanently lost.

Just as the textile trade of the United States was dependent upon the German dyestuffs for colours, so the sugar beet growers of America were dependent upon Germany for their seed. I succeeded, with the able assistance of the consul at Magdeburg and Mr. Winslow of my staff, in getting shipments of beet seed out of Germany. I have heard since that these industries too, are being developed in America, and seed obtained from other countries, such as Russia.

Another commodity upon which a great industry in the United States and Mexico depends is cyanide. The discovery of the cyanide process of treating gold and silver ores permitted the exploitation of many mines which could not be worked under the older methods. At the beginning of the war there was a small manufactory of cyanide owned by Germans at Perth Amboy and Niagara Falls, but most of the cyanide used was imported from Germany. The American German Company and the companies manufacturing in Germany and in England all operated under the same patents, the English and German companies having working agreements as to the distribution of business throughout the world.

The German Vice-Chancellor and head of the Department of the Interior, Delbruck, put an export prohibition on cyanide early in the war; and most pigheadedly and obstinately claimed that cyanide was manufactured nowhere but in Germany, and that, therefore, if he allowed cyanide to leave Germany for the United States or Mexico the English would capture it and would use it to work South African mines, thus adding to the stock of gold and power in war of the British Empire. It was a long time before the German manufacturers and I could convince this gentleman that cyanide sufficient to supply all the British mines was manufactured near Glasgow, Scotland. He then reluctantly gave a permit for the export of a thousand tons of cyanide; and its arrival in the United States permitted many mines there and in Mexico to continue operations, and saved many persons from being thrown out of employment. When Delbruck finally gave a permit for the export of four thousand tons more of cyanide, the psychological moment had passed and we could not obtain through our State Department a pass from the British.

I am convinced that Delbruck made a great tactical mistake on behalf of the German Government when he imposed this prohibition against export of goods to America. Many manufacturers of textiles, the users of dyestuffs, medicines, seeds and chemicals in all forms, were clamouring for certain goods and chemicals from Germany. But it was the prohibition against export by the Germans which prevented their receiving these goods. If it had been the British blockade alone a cry might have arisen in the United States against this blockade which might have materially changed the international situation.

The Germans also refused permission for the export of potash from Germany. They hoped thereby to induce the United States to break the British blockade, and offered cargoes of potash in exchange for cargoes of cotton or cargoes of foodstuffs. The Germans claimed that potash was used in the manufacture of munitions and that, therefore, in no event would they permit the export unless the potash was consigned to the American Government, with guarantees against its use except in the manufacture of fertilizer, this to be checked up by Germans appointed as inspectors. All these negotiations, however, fell through and no potash has been exported from Germany to the United States since the commencement of the war. Enough potash, however, is obtained in the United States for munition purposes from the burning of seaweed on the Pacific Coast, from the brines in a lake in Southern California and from a rock called alunite in Utah. Potash is also obtainable from feldspar, but I do not know whether any plant has been established for its production from this rock. I recently heard of the arrival of some potash from a newly discovered field in Brazil, and there have been rumours of its discovery in Spain. I do not know how good this Spanish and Brazilian potash is, and I suppose the German potash syndicate will immediately endeavour to control these fields in order to hold the potash trade of the world in its grip.

It was a long time after the commencement of the war before England declared cotton a contraband. I think this was because of the fear of irritating the United States; but, in the meantime, Germany secured a great quantity of cotton, which, of course, was used or stored for the manufacture of powder. Since the cotton imports have been cut off the Germans claim that they are manufacturing a powder equally good by using wood pulp. Of course, I have not been able to verify this, absolutely.

Germany had endeavoured before the war in every way to keep American goods out of the German markets, and even the Prussian state railways are used, as I have shown in the article where I speak of the attempt to establish an oil monopoly in Germany, in order to discriminate against American mineral oils. This same method has been applied to other articles such as wood, which otherwise might be imported from America and in some cases regulations as to the inspection of meat, etc., have proved more effective in keeping American goods out of the market than a prohibitive tariff.

The meat regulation is that each individual package of meat must be opened and inspected; and, of course, when a sausage has been individually made to sit up and bark no one desires it as an article of food thereafter. American apples were also discriminated against in the custom regulations of Germany. Nor could I induce the German Government to change their tariff on canned salmon, an article which would prove a welcome addition to the German diet.

The German workingman, undoubtedly the most exploited and fooled workingman in the world, is compelled not only to work for low wages and for long hours, but to purchase his food at rates fixed by the German tariff made for the benefit of the Prussian Junkers and landowners.

Of course, the Prussian Junkers excuse the imposition of the tariff on food and the regulations made to prevent the entry of foodstuffs on the ground that German agriculture must be encouraged, first, in order to enable the population to subsist in time of war and blockade; and, secondly, in order to encourage the peasant class which furnishes the most solid soldiers to the Imperial armies.

The nations and business men of the world will have to face after the war a new condition which we may call socialized buying and socialized selling.

Not long after the commencement of the war the Germans placed a prohibitive tariff upon the import of certain articles of luxury such as perfumes; their object, of course, being to keep the German people from sending money out of the country and wasting their money in useless expenditures. At the same time a great institution was formed called the Central Einkauf Gesellschaft. This body, formed under government auspices of men appointed from civil life, is somewhat similar to one of our national defence boards. Every import of raw material into Germany falls into the hands of this central buying company, and if a German desires to buy any raw material for use in his factory he must buy it through this central board.

I have talked with members of this board and they all unite in the belief that this system will be continued after the war.

For instance, if a man in Germany wishes to buy an automobile or a pearl necklace or a case of perfumery, he will be told, "You can buy this if you can buy it in Germany. But if you have to send to America for the automobile, if you have to send to Paris for the pearls or the perfumery, you cannot buy them." In this way the gold supply of Germany will be husbanded and the people will either be prevented from making comparatively useless expenditures or compelled to spend money to benefit home industry.

On the other hand, when a man desires to buy some raw material, for example, copper, cotton, leather, wheat or something of that kind, he will not be allowed to buy abroad on his own hook. The Central Einkauf Gesellschaft will see that all those desiring to buy cotton or copper put in their orders on or before a certain date. When the orders are all in, the quantities called for will be added up by this central board; and then one man, representing the board, will be in a position to go to America to purchase the four million bales of cotton or two hundred million pounds of copper.

The German idea is that this one board will be able to force the sellers abroad to compete against each other in their eagerness to sell. The one German buyer will know about the lowest price at which the sellers can sell their product. By the buyer's standing out alone with this great order the Germans believe that the sellers, one by one, will fall into his hands and sell their product at a price below that which they could obtain if the individual sellers of America were meeting the individual buyers of Germany in the open market.

When the total amount of the commodity ordered has been purchased, it will be divided up among the German buyers who put in their orders with the central company, each order being charged with its proportionate share of the expenses of the commission and, possibly, an additional sum for the benefit of the treasury of the Empire.

Before the war a German manufacturer took me over his great factory where fifteen thousand men and women were employed, showed me great quantities of articles made from copper, and said: "We buy this copper in America and we get it a cent and a half a pound less than we should pay for it because our government permits us to combine for the purpose of buying, but your government does not allow your people to combine for the purpose of selling. You have got lots of silly people who become envious of the rich and pass laws to prevent combination, which is the logical development of all industry."

The government handling of exchange during the war was another example of the use of the centralised power of the Government for the benefit of the whole nation.

In the first year of the war, when I desired money to spend in Germany, I drew a check on my bank in New York in triplicate and sent a clerk with it to the different banks in Berlin, to obtain bids in marks, selling it then, naturally, to the highest bidder. But soon the Government stepped in. The Imperial Bank was to fix a daily rate of exchange, and banks and individuals were forbidden to buy or sell at a different rate. That this fixed rate was a false one, fixed to the advantage of Germany, I proved at the time when the German official rate was 5.52 marks for a dollar, by sending my American checks to Holland, buying Holland money with them and German money with the Holland money, in this manner obtaining 5.74 marks for each dollar. And just before leaving Germany I sold a lot of American gold to a German bank at the rate of 6.42 marks per dollar, although on that day the official rate was 5.52 and although the buyer of the gold, because the export of gold was forbidden, would have to lose interest on the money paid me or on the gold purchased, until the end of the war. What the Germans thought of the value of the mark is shown by this transaction.

The only thing that can maintain a fair price after the war for the products of American firms, miners and manufacturers is permission to combine for selling abroad. There is before Congress a bill called the Webb Bill permitting those engaged in export trade to combine, and this bill, which is manifestly for the benefit of the American producer of raw materials and foods and manufactured articles, should be passed.

It was also part of our commercial work to secure permits for the exportation from Belgium of American owned goods seized by Germany. We succeeded in a number of cases in getting these goods released. In other cases, the American owned property was taken over by the government, but the American owners were compensated for the loss.

Germany took over belligerent property and put it in the hands of receivers. In all cases where the majority of the stock of a German corporation was owned by another corporation or individuals of belligerent nationality, the German corporation was placed in the hands of a receiver. The German Government, however, would not allow the inquiry into the stock ownership to go further than the first holding corporation. There were many cases where the majority of the stock of a German corporation was owned by an English corporation and the majority of the stock of the English corporation, in turn, owned by an American corporation or by Americans. In this case the German Government refused to consider the American ownership of the English stock, and put the German company under government control.

With the low wages paid to very efficient workingmen who worked for long hours and with no laws against combination, it was always a matter of surprise to me that the Germans who were in the process of getting all the money in the world should have allowed their military autocracy to drive them into war.

I am afraid that, after this war, if we expect to keep a place for our trade in the world, we may have to revise some of our ideas as to so-called trusts and the Sherman Law. Trusts or combinations are not only permitted, but even encouraged in Germany. They are known there as "cartels" and the difference between the American trust and the German cartel is that the American trust has, as it were, a centralised government permanently taking over and combining the competing elements in any given business, while in Germany the competing elements form a combination by contract for a limited number of years. This combination is called a cartel and during these years each member of the cartel is assigned a given amount of the total production and given a definite share of the profits of the combination. The German cartel, therefore, as Consul General Skinner aptly said, may be likened to a confederation existing by contract for a limited period of time and subject to renewal only at the will of its members.

It may be that competition is a relic of barbarism and that one of the first signs of a higher civilisation is an effort to modify the stress of competition. The debates of Congress tend to show that, in enacting the Sherman Law, Congress did not intend to forbid the restraint of competition among those in the same business but only intended to prohibit the forming of a combination by those who, combined, would have a monopoly of a particular business or product. It is easy to see why all the coal mines in the country should be prohibited from combining; but it is not easy to see why certain people engaged in the tobacco business should be prohibited from taking their competitors into their combination, because tobacco is a product which could be raised upon millions of acres of our land and cannot be made the subject of a monopoly.

The German courts have expressly said that if prices are so low that the manufacturers of a particular article see financial ruin ahead, a formation of a cartel by them must be looked upon as a justified means of self-preservation. The German laws are directed to the end to which it seems to be such laws should logically be directed; namely, to the prevention of unfair competition.

So long as the question of monopoly is not involved, competition can always be looked for when a combination is making too great profits; and the new and competing corporation and individuals should be protected by law against the danger of price cutting for the express purpose of driving the new competitor out of business. However, it must be remembered that a combination acting unfairly in competition may be more oppressive than a monopoly. I myself am not convinced by the arguments of either side. It is a matter for the most serious study.

The object of the American trust has been to destroy its competitors. The object of the German cartel to force its competitors to join the cartel.

In fact the government in Germany becomes part of these cartels and takes an active hand in them, as witness the participation of the German Government in the potash syndicate, when contracts made by certain American buyers with German mines were cancelled and all the potash producing mines of Germany and Austria forced into one confederation; and witness the attempt by the government, which I have described in another chapter, to take over and make a monopoly of the wholesale and retail oil business of the country.

The recent closer combination of dyestuff industries of Germany, with the express purpose of meeting and destroying American competition after the war, is interesting as showing German methods. For a number of years the dye-stuff industry of Germany was practically controlled by six great companies, some of these companies employing as high as five hundred chemists in research work. In 1916 these six companies made an agreement looking to a still closer alliance not only for the distribution of the product but also for the distribution of ideas and trade secrets. For years, these great commercial companies supplied all the countries of the world not only with dyestuffs and other chemical products but also with medicines discovered by their chemists and made from coal tar; which, although really nothing more than patent medicines, were put upon the market as new and great and beneficial discoveries in medicine. The Badische Anilin and Soda Fabrik, with a capital of fifty-four million marks has paid dividends in the ten years from 1903 to 1913, averaging over twenty-six per cent.

The Farbwerke Meister Lucius und Bruning at Hoeckst, near Frankfort, during the same period, with a capital of fifty million marks, has paid dividends averaging over twenty-seven per cent; and the chemical works of Bayer and Company, near Cologne, during the same period with a capital of fifty-four millions of marks has paid dividends averaging over thirty per cent.

Much of the commercial success of the Germans during the last forty years is due to the fact that each manufacturer, each discoverer in Germany, each exporter knew that the whole weight and power of the Government was behind him in his efforts to increase his business. On the other hand, in America, business men have been terrorized, almost into inaction, by constant prosecutions. What was a crime in one part of the United States, under one Circuit Court of Appeals, was a perfectly legitimate act in another.

If we have to meet the intense competition of Germany after the war, we have got to view all these problems from new angles. For instance, there is the question of free ports. Representative Murray Hulbert has introduced, in the House of Representatives, a resolution directing the Secretary of the Treasury, the Secretary of War and the Secretary of Commerce to report to Congress as to the advisability of the establishment of free ports within the limits of the established customs of the United States. Free ports exist in Germany and have existed for a long time, although Germany is a country with a protective tariff. In a free port raw goods are manufactured and then exported, of course to the advantage of the country permitting the establishment of free ports, because by this manufacture of raw materials and their re-export, without being subject to duty, money is earned by the manufacturers to the benefit of their own country and employment is given to many workingmen. This, of course, improves the condition of these workingmen and of all others in the country; as it is self-evident that the employment of each workingman in an industry, which would not exist except for the existence of the free port, withdraws that workingman from the general labour market and, therefore, benefits the position of his remaining fellow labourers.

Although free ports do not exist in the United States, an attempt has been made to give certain industries, by means of what are known as "drawbacks," the same benefit that they would enjoy were free ports existant in our country.

Thus the refiners of raw sugar from Cuba pay a duty on this sugar when it enters the United States, but receive this duty back when a corresponding amount of refined sugar is exported to other countries.

There has lately been an attack made upon this system in the case, however, of the sugar refiners only, and the question has been treated in some newspapers as if these refiners were obtaining some unfair advantage from the government, whereas, as a matter of fact, the allowance of these "drawbacks" enables the sugar refiners to carry on the refining of the sugar for export much as they would if their refineries existed in free ports modelled on the German system.

The repeal of the provision of allowing "drawbacks" in this and other industries will probably send the industries to Canada or some other territory where this system, equivalent to the free port, is permitted to exist.

A few days before I left Germany I had a conversation with a manufacturer of munitions who employs about eighteen thousand people in his factories, which, before the war, manufactured articles other than munitions. I asked him how the government treated the manufacturers of munitions, and he said that they were allowed to make good profits, although they had to pay out a great proportion of these profits in the form of taxes on their excess or war profits; that the government desired to encourage manufacturers to turn their factories into factories for the manufacture of all articles in the war and required by the nation in sustaining war; and that the manufacturers would do this provided that it were only a question as to how much of their profits they would be allowed to keep, but that if the Government had attempted to fix prices so low that there would have been a doubt as to whether the manufacturer could make a profit or not, the production of articles required for war would never have reached the high mark that it had in Germany.

As a matter of fact, about the only tax imposed in Germany since the outbreak of the war has been the tax upon cost or war profits. It has been the policy of Germany to pay for the war by great loans raised by popular subscription, after authorisation by the Reichstag. I calculate that the amounts thus raised, together with the floating indebtedness, amount to date to about eighty billions of marks.

For a long time the Germans expected that the expenses of the war would be paid from the indemnities to be recovered by Germany from the nations at war with it.

Helfferich shadowed this forth in his speech in the Reichstag, on August 20, 1915, when he said: "If we wish to have the power to settle the terms of peace according to our interests and our requirements, then we must not forget the question of cost. We must have in view that the whole future activity of our people, so far as this is at all possible, shall be free from burdens. The leaden weight of billions has been earned by the instigators of this war, and in the future they, rather than we, will drag it about after them."

Of course, by "instigators of the war" Helfferich meant the opponents of Germany, but I think that unconsciously he was a true prophet and that the "leaden weight of the billions" which this war has cost Germany will be dragged about after the war by Germany, the real instigator of this world calamity.

In December, 1915, Helfferich voiced the comfortable plea that, because the Germans were spending their money raised by the war loans in Germany, the weight of these loans was not a real weight upon the German people. He said: "We are paying the money almost exclusively to ourselves; while the enemy is paying its loans abroad—a guarantee that in the future we shall maintain the advantage."

This belief of the Germans and Helfferich is one of the notable fallacies of the war. The German war loans have been subscribed mainly by the great companies of Germany; by the Savings Banks, the Banks, the Life and Fire Insurance and Accident Insurance Companies, etc.

Furthermore, these loans have been pyramided; that is to say, a man who subscribed and paid for one hundred thousand marks of loan number one could, when loan number two was called for, take the bonds he had bought of loan number one to his bank and on his agreement to spend the proceeds in subscribing to loan number two, borrow from the bank eighty thousand marks on the security of his first loan bonds, and so on.

There is an annual increment, not easily ascertainable with exactness, but approximately ascertainable to the wealth of every country in the world. Just as when a man is working a farm there is in normal years an increment or accretion of wealth or income to him above the cost of the production of the products of the soil which he sells, there is such an annual increment to the wealth of each country taken as a whole. Some experts have told me they calculated that, at the outside, in prosperous peace times the annual increment of German wealth is ten billion marks.

Now when we have the annual interest to be paid by Germany exceeding the annual increment of the country, the social and even moral bankruptcy of the country must ensue. If repudiation of the loan or any part of it is then forced, the loss naturally falls upon those who have taken the loan. The working-man or small capitalist, who put all his savings in the war loan, is without support for his old age, and so with the man who took insurance in the Insurance Companies or put his savings in a bank. If that bank becomes bankrupt through repudiation of the war loan, you then have the country in a position where the able-bodied are all working to pay what they can towards the interest of the government loan, after earning enough to keep themselves and their families alive; and the old and the young, without support and deprived of their savings, become mere poor-house burdens on the community.

Already the mere interest of the war loan of Germany amounts to four billions of marks a year; to this must be added, of course, the interest of the previous indebtedness of the country and of each political subdivision thereof, including cities, all of which have added to their before-the-war debt, by incurring great debts to help the destitute in this war; and, of course, to all this must be added the expenses of the administration of the government and the maintenance of the army and navy.

It is the contemplation of this state of affairs, when he is convinced that indemnities are not to be exacted from other countries, that will do most to persuade the average intelligent German business man that peace must be had at any cost.



CHAPTER XIV

WORK FOR THE GERMANS

The interests of Germany in France, England and Russia were placed with our American Ambassadors in these countries. This, of course, entailed much work upon our Embassy, because we were the medium of communication between the German Government and these Ambassadors. I found it necessary to establish a special department to look after these matters. At its head was Barclay Rives who had been for many years in our diplomatic service and who joined my Embassy at the beginning of the war. First Secretary of our Embassy in Vienna for ten or twelve years, he spoke German perfectly and was acquainted with many Germans and Austrians. Inquiries about Germans who were prisoners, negotiations relative to the treatment of German prisoners, and so on, came under this department.

One example will show the nature of this work. When the Germans invaded France, a German cavalry patrol with two officers, von Schierstaedt and Count Schwerin, and several men penetrated as far as the forest of Fontainebleau, south of Paris. There they got out of touch with the German forces and wandered about for days in the forest. In the course of their wanderings they requisitioned some food from the inhabitants, and took, I believe, an old coat for one of the officers who had lost his, and requisitioned a wagon to carry a wounded man. After their surrender to the French, the two officers were tried by a French court martial, charged with pillaging and sentenced to be degraded from their rank and transported to Cayenne (the Devil's Island of the Dreyfus case). The Germans made strong representations, and our very skilled Ambassador in Paris, the Honourable William C. Sharp, took up the matter with the Foreign Office and succeeded in preventing the transportation of the officers. The sending of the officers and men, however, into a military prison where they were treated as convicts caused great indignation throughout Germany. The officers had many and powerful connections in their own country who took up their cause. There were bitter articles in the German press and caricatures and cartoons were published.

I sent Mr. Rives to Paris and told him not to leave until he had seen these officers. He remained in Paris some weeks and finally through Mr. Sharp obtained permission to visit the officers in the military prison. Later the French showed a tendency to be lenient in this case, but it was hard to find a way for the French Government to back down gracefully. Schierstaedt having become insane in the meantime, a very clever way out of the difficulty was suggested, I believe by Mr. Sharp. Schierstaedt having been found to be insane was presumably insane at the time of the patrol's wandering in the forest of Fontainebleau. As he was the senior officer, the other officer and the men under him were not responsible for obeying his commands. The result was that Schwerin and the men of the patrol were put in a regular prison camp and Schierstaedt was very kindly sent by the French back to Germany, where he recovered his reason sufficiently to be able to come and thank me for the efforts made on his behalf.

I made every endeavour so far as it lay in my power to oblige the Germans. We helped them in the exchange of prisoners and the care of German property in enemy countries.

There were rumours in Berlin that Germans taken as prisoners in German African Colonies were forced to work in the sun, watched and beaten by coloured guards. This was taken up by one of the Grand Dukes of Mecklenburg who had been Governor of Togoland and who also took great interest in sending clothes, etc., to these prisoners. Germany demanded that the prisoners in Africa be sent to a more temperate climate.

Another royalty who was busied with prisoners' affairs was Prince Max of Baden. He is heir to the throne of Baden, although not a son of the reigning Duke. He is very popular and, for my part, I admire him greatly. He travels with Emerson's essays in his pocket and keeps up with the thought and progress of all countries. Baden will be indeed happy in having such a ruler. Prince Max was a man so reasonable, so human, that I understand that von Jagow was in favour of putting him at the head of a central department for prisoners of war. I agreed with von Jagow that in such case all would go smoothly and humanely. Naturally, von Jagow could only mildly hint at the desirability of this appointment. A prince, heir to one of the thrones of Germany, with the rank of General in the army, he seemed ideally fitted for such a position, but unfortunately the opposition of the army and, particularly, of the representative corps commanders was so great that von Jagow told me the plan was impossible of realisation. I am sure if Prince Max had been at the head of such a department, Germany would not now be suffering from the odium of mistreating its prisoners and that the two million prisoners of war in Germany would not return to their homes imbued with an undying hate.

Prince Max was very helpful in connection with the American mission to Russia for German prisoners which I had organised and which I have described in the chapter on war charities.

All complaints made by the Imperial Government with reference to the treatment of German prisoners, and so forth, in enemy countries were first given to me and transmitted by our Embassy to the American Ambassadors having charge of German interests in enemy countries. All this, with the correspondence ensuing, made a great amount of clerical work.

I think that every day I received one or more Germans, who were anxious about prisoner friends, making inquiries, and wishing to consult me on business matters in the United States, etc. All of these people showed gratitude for what we were able to do for them, but their gratitude was only a drop in the ocean of officially inspired hatred of America.



CHAPTER XV

WAR CHARITIES

As soon as the war was declared and millions of men marched forward intent upon killing, hundreds of men and women immediately took up the problem of helping the soldiers, the wounded and the prisoners and of caring for those left behind by the men who had gone to the front.

The first war charity to come under my observation was the American Red Cross. Two units containing three doctors and about twelve nurses, each, were sent to Germany by the American National Red Cross. Before their arrival I took up with the German authorities the questions as to whether these would be accepted and where they would be placed. The German authorities accepted the units and at first decided to send one to each front. The young man assigned to the West front was Goldschmidt Rothschild, one of the last descendants of the great Frankfort family of Rothschild. He had been attached to the German Embassy in London before the war. The one assigned to the unit for the East front was Count Helie de Talleyrand. Both of these young men spoke English perfectly and were chosen for that reason, and both have many friends in England and America.

Talleyrand was of a branch of the celebrated Talleyrand family and possessed German citizenship. During the Napoleonic era the great Talleyrand married one of his nephews to a Princess of Courland who, with her sister, was joint heiress of the principality of Sagan in Germany. The share of the other sister was bought by the sister who married young Talleyrand, and the descendants of that union became princes of Sagan and held the Italian title of Duke de Dino and the French title of Duke de Valencay.

Some of the descendants of this nephew of the great Talleyrand remained in Germany, and this young Talleyrand, assigned to the Red Cross unit, belonged to that branch. Others settled in France, and among these was the last holder of the title and the Duke de Dino, who married, successively, two Americans, Miss Curtis and Mrs. Sampson. It was a custom in this family that the holder of the principal title, that of the Prince of Sagan, allowed the next two members in succession to bear the titles of Duke de Dino and Duke de Valencay. Before the last Prince of Sagan died in France, his son Helie married the American, Anna Gould, who had divorced the Count Castellane. On the death of his father and in accordance with the statutes of the House of Sagan the members of the family who were German citizens held a family council and, with the approval of the Emperor of Germany, passed over the succession from Anna Gould's husband to her son, so that her son has now the right to the title and not his father, but the son must become a German citizen at his majority.

The younger brother of the husband of Anna Gould bears the title of Duke de Valencay and is the divorced husband of the daughter of Levi P. Morton, formerly Vice-President of the United States. This young Talleyrand to whom I have referred and who was assigned to the American Red Cross unit, although he was a German by nationality, did not wish to fight in this war against France in which country he had so many friends and relations and, therefore, this assignment to the American Red Cross was most welcome to him.