The Economic Consequences of the Peace (1919) is a book written and published by the British economist John Maynard Keynes. After the First World War, Keynes attended the Paris Peace Conference of 1919 as a delegate of the British Treasury and deputy to the Chancellor of the Exchequer on the Supreme Economic Council. Becoming ill, he resigned from the position and returned early from the conference, believing that there was 'no hope' of an economically sustainable settlement. In this book, he presents his arguments for a much less onerous treaty, not just for the sake of German civilians but for the sake of the economic well-being of all of Europe and beyond, including the Allied Powers, which in his view the Treaty of Versailles and its associated treaties endangered.
The book was a commercial success, and a central influence in creating the popular view that the treaties were a "Carthaginian peace" designed to crush the defeated Central Powers, especially Germany. It helped to consolidate American public opinion against the treaties and against joining the League of Nations. The perception by much of the British public that Germany had been treated unfairly was, in turn, a crucial factor in later public support for the appeasement of Hitler.
However, in the preface to the French translation of the book, Keynes did not apportion blame in the same way. He wrote: "However, we do not hold France solely responsible for the disastrous treaty. All the countries that took part in the negotiations played a role. England, it may be said, was quick to satisfy her selfish interests, and it is she, above all others, who must be blamed for the form of the chapter on Reparations. She took Germany's colonies and navy and a larger share of the compensation than she was entitled to.""Nous ne chargeons cependant pas la France de toute la responsabilité du traité désastreux. Tous les pays qui participèrent aux négociations en ont leur part. L'Angleterre, on peut le dire, ne tarda pas à satisfaire ses intérêts égoïstes et c'est elle surtout qui doit être blâmée de la forme du chapitre des Réparations. Elle a pris les colonies, la marine de l'Allemagne et une part de l'indemnité plus considérable que celle à laquelle elle avait droit." : Les conséquences économiques de la paix. on Université du Québec. See Patrick Weill, The Madman in the White House p. 292 for details
The success of the book established Keynes' reputation as a leading economist.
Context As an academic, Keynes had worked on his Treatise on Probability, which includes a critique of conventional economic thinking under conditions that are unusual, unstable, complicated and/or unreliable. In 1915 Keynes left Cambridge University to work at the Treasury. He worked daily on financing the war effort during World War I. That disturbed many of the pacifist members of the Bloomsbury Group of which he was a member. Lytton Strachey sent him a note in 1916 asking Keynes why he was still working at the Treasury.
Keynes quickly established a reputation as one of the Treasury's most able men and travelled to the Versailles Conference as an advisor to the British Government. In preparation for the conference, he argued that there should preferably be no reparations or that German reparations should be limited to £2,000 million. He considered that there should be a general forgiveness of war debts, which, he considered, would benefit Britain. Lastly, Keynes wanted the US government to launch a vast credit programme to restore Europe to prosperity as soon as possible.
His general concern was that the Versailles conference should set the conditions for economic recovery. However, the conference focused on borders and national security. Keynes believed that the reparations being proposed at the time of writing in 1919 (the monetary value and terms of payment were not decided until the 1921 London schedule was agreed), would result in the ruin of the Europe. Woodrow Wilson, the President of the United States, who represented his country at the conference, refused to countenance forgiveness of war debts and US Treasury officials would not even discuss the credit programme.
During the conference, Keynes' health deteriorated, and he resigned from his position in frustration as a protest on 26 May 1919, before the Treaty of Versailles was signed on 28 June. He returned to Cambridge and wrote The Economic Consequences of the Peace over two months in the summer. Although a best seller, and highly influential, especially to those who already had doubts about the Treaty, it has also been described as "a diatribe". Keynes went on to publish his Treatise, expanding on the theme of his Introductory and then updated his views on a revision to the treaty.
Contents
Introductory Keynes diagnosed the situation leading up to the war thus: The power to become habituated to his surroundings is a marked characteristic of mankind. Very few of us realize with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organization by which Western Europe has lived for the last half century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent, and to be depended on, and we lay our plans accordingly. On this sandy and false foundation we scheme for social improvement and dress our political platforms, pursue our animosities and particular ambitions, and feel ourselves with enough margin in hand to foster, not assuage, civil conflict in the European family. Moved by insane delusion and reckless self-regard, the German people overturned the foundations on which we all lived and built. But the spokesmen of the French and British peoples have run the risk of completing the ruin, which Germany began, by a Peace which, if it is carried into effect, must impair yet further, when it might have restored, the delicate, complicated organization, already shaken and broken by war, through which alone the European peoples can employ themselves and live.
Europe before the War
Keynes continues: The inhabitant of London ... regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.
Conference Keynes described the conference as a clash of values and world views of the principal leaders, pitting what has been called "the cynical traditions of European power politics [against] the promise of a more enlightened order." My purpose in this book is to show that the Carthaginian Peace is not practically right or possible. Although the school of thought from which it springs is aware of the economic factor, it overlooks, nevertheless, the deeper economic tendencies which are to govern the future. The clock cannot be set back. You cannot restore Central Europe to 1870 without setting up such strains in the European structure and letting loose such human and spiritual forces as, pushing beyond frontiers and races, will overwhelm not only you and your "guarantees," but your institutions, and the existing order of your Society.
Keynes describes Wilson as guardian of the hopes of men of good will of all nations.
When President Wilson left Washington he enjoyed a prestige and a moral influence throughout the world unequalled in history. His bold and measured words carried to the peoples of Europe above and beyond the voices of their own politicians. The enemy peoples trusted him to carry out the compact he had made with them; and the Allied peoples acknowledged him not as a victor only but almost as a prophet. In addition to this moral influence the realities of power were in his hands. The American armies were at the height of their numbers, discipline, and equipment. Europe was in complete dependence on the food supplies of the United States; and financially she was even more absolutely at their mercy. Europe not only already owed the United States more than she could pay; but only a large measure of further assistance could save her from starvation and bankruptcy. Never had a philosopher held such weapons wherewith to bind the princes of this world. How the crowds of the European capitals pressed about the carriage of the President! With what curiosity, anxiety, and hope we sought a glimpse of the features and bearing of the man of destiny who, coming from the West, was to bring healing to the wounds of the ancient parent of his civilisation and lay for us the foundations of the future.
French Prime Minister Georges Clemenceau shaped the outcome of the conference more than anyone else:
[Clemenceau] took the view that European civil war is to be regarded as a normal, or at least a recurrent, state of affairs for the future, and that the sort of conflicts between organised Great Powers which have occupied the past hundred years will also engage the next. According to this vision of the future, European history is to be a perpetual prize-fight, of which France has won this round, but of which this round is certainly not the last. From the belief that essentially the old order does not change, being based on human nature which is always the same, and from a consequent scepticism of all that class of doctrine which the League of Nations stands for, the policy of France and of Clemenceau followed logically. For a peace of magnanimity or of fair and equal treatment, based on such 'ideology' as the Fourteen Points of the President, could only have the effect of shortening the interval of Germany's recovery and hastening the day when she will once again hurl at France her greater numbers and her superior resources and technical skill.
Treaty The heart of the book is his two profound criticisms of the treaty. Firstly, he argues as an economist that Europe could not prosper without an equitable, effective and integrated economic system, which was impossible by the economic terms of the treaty. Secondly, the Allies had committed themselves in the Armistice agreement to critical principles regarding reparations, territorial adjustments, and evenhandedness in economic matters, which were materially breached by the treaty.
Keynes reviews the facts whereby the Armistice was based on acceptance by the Allies and Germany of Wilson's Fourteen Points and other terms referred to in making the Armistice.