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Until 1924 Germany was on a paper standard. Reparation payments under London settlement did indeed cause the mark to depredate, to a value finally of one billionth of a dollar, but exports did not exceed imports. In 1924 came the Dawes Plan. It adopted for the first time as a rule of procedure the principle of capacity to pay. It passed no judgment on capacity, and was less concerned with immediate than with ultimate capacity. It sought chiefly to establish the conditions which would develop and test capacity. This was indeed a great advance, it put the problem in a new and hopeful setting. The Dawes Plan set up the necessary condition to test capacity to pay. The gold standard was restored, and protected by transfer clauses conditioning reparation payments upon its maintenance. The budget was to be balanced, and for the first time reparation payments were budgeted. The plan sought to adjust the tax burden by gradual stages to German capacity, and it relied on a preliminary foreign loan to ease the transfer process.

The article discusses the relationships between the foreign trade and reparation payments of Germany in 1921. The relationship between the ability of Germany to pay reparations and its foreign trade showed an economic paradox. In order for the country to pay its reparations, its export trade must expand over imports. The opposite happened in the case of Germany. The factors that contributed to this reverse condition are mentioned, including depreciating exchange, rising prices and increased demand for credit. A discussion of the composition of the exports and import of the country is presented.