The Economic Consequences of the Peace: Quick Book Report

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.  The Economic Consequences of the Peace, John Maynard Keynes, 1919


John Maynard Keynes, the British economist to whom one of the dichotomous branches of modern economics is frequently attributed, was attached to the British Treasury during World War I, and was its official representative at the Paris Peace Conference.  Recall that the Great War had finally been halted by an Armistice in which Germany and the other Enemy countries agreed to capitulate and await the terms of the peace from the Allies.  Those terms were all but dictated by the Allies, with Germany able to respond with counter-proposals but with no real authority over the final outcome.  After observing the drawing up of those terms by the so-called Big Four, in 1919 Keynes quit his post and ended up writing this book in a protest of sorts, with his own opinion of the key players, their motives and the final terms of the Treaty; and finally with what he calls “remedies” for its fatal faults.

I found the book to be a compelling and at times poignant account of the Treaty proceedings and Keynes’ cautionary reaction to them regarding the future of Europe.  I intentionally haven’t looked for critiques of the work, but rather wanted to simply read and report my impressions.  I’m sure other points of view, just as compelling and strongly made, exist.  To be honest I expected more economics and less history and analysis from the book.  So admitting the one-sidedness of this report, which is more summary than review, here are the main points I took away:

  • Germany started the war and was beat, but the Allied terms were so harsh as to threaten the future of continental Europe.
  • Germany was the production and trading powerhouse of Europe as of 1913.  However, accumulation of wealth, while in some respects understandable, was an economic model with two potential pitfalls:  population growth outstripping production, and the outbreak of continental war that would consume any capital stockpiles.
  • The post-war Paris Peace Conference was led by Georges Clemenceau of France whom Keynes describes as a cynical old man mistrustful of Germans (their nature) and the other Allies (their incompetence) alike.  Woodrow Wilson was viewed as a naive and vain idealist who was easily outmaneuvered by the other Allied leaders, thus leading to impossibly harsh treaty terms that Germany was obliged to follow.
  • Keynes goes into great detail as to the terms of the Treaty and of follow-on reparation; summarizing Germany’s debt as up to $65B to be paid over several decades, which he presents as a burden more likely to cause continent civil war than repayment.
  • Keynes’ analysis of Germany’s ability to pay the reparation indicates that no matter what reserves were used (physical gold, shipping, or even an “austerity” program to tilt a favorable export/import ratio), Germany could at best raise $8B spread over 30 years.
  • Keynes warns of economic ruin and social upheaval if the terms being discussed in 1919 were carried through.  He offers a series of “corrections” to the terms to limit the effect on Germany’s ability to recovery economically.

So, knowing as we do what then went on to happen in Europe—oppressive reparation imposed on Germany, economic collapse of Germany and the west, the rise of German nationalism and the Nazis, World War II and the Holocaust, and the carving up of Europe with half going to the atheistic communist Soviet Union—a number of thoughts and questions come to mind.

Were the Treaty and reparations the eventually cause of all of it?  Was “total victory” ultimately worth it?

What instruction might we take away about justice, mercy, and charity?

Should one ever destroy a human enemy, once he is at your mercy?  Under what circumstances?

If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation.  Ibid

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