The Economic Consequences of the Peace

Last updated

John Maynard Keynes in the 1920s Lopokova and Keynes 1920s cropped.jpg
John Maynard Keynes in the 1920s

The Economic Consequences of the Peace (1919) is a book written and published by the British economist John Maynard Keynes. [1] After the First World War, Keynes attended the Paris Peace Conference of 1919 as a delegate of the British Treasury. In his book, he argued for a much more generous peace, not out of a desire for justice or fairness these are aspects of the peace that Keynes does not deal with but for the sake of the economic well-being of all of Europe, including the Allied Powers, which the Treaty of Versailles and its associated treaties would prevent.

John Maynard Keynes English economist

John Maynard Keynes, 1st Baron Keynes, was a British economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. He built on and greatly refined earlier work on the causes of business cycles, and was one of the most influential economists of the 20th century. Widely considered the founder of modern macroeconomics, his ideas are the basis for the school of thought known as Keynesian economics, and its various offshoots.

Paris Peace Conference, 1919 peace conference 1919-1920

The Paris Peace Conference, also known as Versailles Peace Conference, was the meeting of the victorious Allied Powers following the end of World War I to set the peace terms for the defeated Central Powers.

Treaty of Versailles one of the treaties that ended the First World War

The Treaty of Versailles was the most important of the peace treaties that brought World War I to an end. The Treaty ended the state of war between Germany and the Allied Powers. It was signed on 28 June 1919 in Versailles, exactly five years after the assassination of Archduke Franz Ferdinand, which had directly led to World War I. The other Central Powers on the German side of World War I signed separate treaties. Although the armistice, signed on 11 November 1918, ended the actual fighting, it took six months of Allied negotiations at the Paris Peace Conference to conclude the peace treaty. The treaty was registered by the Secretariat of the League of Nations on 21 October 1919.


The book was a best-seller throughout the world and was critical in establishing a general opinion 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.

A Carthaginian peace is the imposition of a very brutal "peace" achieved by completely crushing the enemy. The term derives from the peace imposed on Carthage by Rome. After the Second Punic War, Carthage lost all its colonies, was forced to demilitarize and pay a constant tribute to Rome and could enter war only with Rome's permission. At the end of the Third Punic War, the Romans systematically burned Carthage to the ground and enslaved its population.

Central Powers group of countries defeated in World War I

The Central Powers, consisting of Germany, Austria-Hungary, the Ottoman Empire and Bulgaria—hence also known as the Quadruple Alliance —was one of the two main coalitions that fought World War I (1914–18).

Germany Federal parliamentary republic in central-western Europe

Germany, officially the Federal Republic of Germany, is a country in Central and Western Europe, lying between the Baltic and North Seas to the north, and the Alps to the south. It borders Denmark to the north, Poland and the Czech Republic to the east, Austria and Switzerland to the south, France to the southwest, and Luxembourg, Belgium and the Netherlands to the west.

The success of the book established Keynes' reputation as a leading economist, especially on the left. When Keynes was a key player in establishing the Bretton Woods system in 1944, he remembered the lessons from Versailles as well as the Great Depression. The Marshall Plan, which was promulgated to rebuild Europe after the Second World War, was similar to the system proposed by Keynes in The Economic Consequences of the Peace.

The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states. The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the IMF to bridge temporary imbalances of payments. Also, there was a need to address the lack of cooperation among other countries and to prevent competitive devaluation of the currencies as well.

Great Depression 20th-century worldwide economic depression

The Great Depression was a severe worldwide economic depression that took place mostly during the 1930s, beginning in the United States. The timing of the Great Depression varied across nations; in most countries it started in 1929 and lasted until the late-1930s. It was the longest, deepest, and most widespread depression of the 20th century. In the 21st century, the Great Depression is commonly used as an example of how intensely the world's economy can decline.

Marshall Plan U.S. initiative to help Western Europe recover from WWII

The Marshall Plan was an American initiative passed in 1948 to aid Western Europe, in which the United States gave over $12 billion in economic assistance to help rebuild Western European economies after the end of World War II. Replacing the previous Morgenthau Plan, it operated for four years beginning on April 3, 1948. The goals of the United States were to rebuild war-torn regions, remove trade barriers, modernize industry, improve European prosperity, and prevent the spread of Communism. The Marshall Plan required a lessening of interstate barriers, a dropping of many regulations, and encouraged an increase in productivity, as well as the adoption of modern business procedures.


Keynes left Cambridge University to work at the Treasury in 1915. 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.

HM Treasury United Kingdom government department

Her Majesty's Treasury, sometimes referred to as the Exchequer, or more informally the Treasury, is the British government department responsible for developing and executing the government's public finance policy and economic policy. The Treasury maintains the Online System for Central Accounting and Reporting (OSCAR), the replacement for the Combined Online Information System (COINS), which itemises departmental spending under thousands of category headings, and from which the Whole of Government Accounts (WGA) annual financial statements are produced.

World War I 1914–1918 global war originating in Europe

World War I, also known as the First World War or the Great War, was a global war originating in Europe that lasted from 28 July 1914 to 11 November 1918. Contemporaneously described as "the war to end all wars", it led to the mobilisation of more than 70 million military personnel, including 60 million Europeans, making it one of the largest wars in history. It is also one of the deadliest conflicts in history, with an estimated nine million combatants and seven million civilian deaths as a direct result of the war, while resulting genocides and the 1918 influenza pandemic caused another 50 to 100 million deaths worldwide.

Bloomsbury Group influential group of associated English writers, intellectuals, philosophers and artists

The Bloomsbury Group—or Bloomsbury Set—was a group of associated English writers, intellectuals, philosophers and artists in the first half of the 20th century, including Virginia Woolf, John Maynard Keynes, E. M. Forster and Lytton Strachey. This loose collective of friends and relatives was closely associated with Cambridge University for the men and King's College London for the women, and they lived, worked or studied together near Bloomsbury, London. According to Ian Ousby, "although its members denied being a group in any formal sense, they were united by an abiding belief in the importance of the arts." Their works and outlook deeply influenced literature, aesthetics, criticism, and economics as well as modern attitudes towards feminism, pacifism, and sexuality.

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 program to restore Europe to prosperity as soon as possible.

World War I reparations were compensation imposed during the Paris Peace Conference upon the Central Powers following their defeat in the First World War by the Allied and Associate Powers. Each of the defeated powers was required to make payments in either cash or kind. Because of the financial situation Austria, Hungary, and Turkey found themselves in after the war, few to no reparations were paid and the requirements for reparations were cancelled. Bulgaria, having paid only a fraction of what was required, saw its reparation figure reduced and then cancelled. Historians have recognized the German requirement to pay reparations as the "chief battleground of the post-war era" and "the focus of the power struggle between France and Germany over whether the Versailles Treaty was to be enforced or revised".

His general concern was that the Versailles conference should set the conditions for economic recovery. However, the conference focused on borders and national security. Reparations were set at a level that Keynes perceived would ruin 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 program.

Woodrow Wilson 28th President of the United States

Thomas Woodrow Wilson was an American statesman and academic who served as the 28th president of the United States from 1913 to 1921. A member of the Democratic Party, Wilson served as the president of Princeton University and as the 34th governor of New Jersey before winning the 1912 presidential election. As president, he oversaw the passage of progressive legislative policies unparalleled until the New Deal in 1933. He also led the United States during World War I, establishing an activist foreign policy known as "Wilsonianism."

President of the United States Head of state and of government of the United States

The President of the United States (POTUS) is the head of state and head of government of the United States of America. The president directs the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces.

During the conference, Keynes' health deteriorated, and he resigned from his position in frustration as a protest [2] 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, [2] it has also been described as "a diatribe". [3]



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." [4]

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. [5]

French Prime Minister Georges Clemenceau shaped the outcome of the conference more than anyone else:

The signing of the Treaty of Versailles on June 28, 1919 in the Hall of Mirrors of the Palace of Versailles Dignitaries gathering in the Hall of Mirrors at the Palace of Versailles, France, to sign the Treaty of Versailles.jpg
The signing of the Treaty of Versailles on June 28, 1919 in the Hall of Mirrors of the Palace of Versailles

[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. [6]


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.

On 5 October 1918 the German government addressed a brief Note to the President accepting the Fourteen Points and asking for peace negotiations. The President's reply of 8 October asked if he was to understand definitely that the German government accepted 'the terms laid down' in the Fourteen Points and in his subsequent addresses and 'that its object in entering into discussion would be only to agree upon the practical details of their application.' He added that the evacuation of invaded territory must be a prior condition of an armistice. On 12 October the German government returned an unconditional affirmative to these questions; 'its object in entering into discussions would be only to agree upon practical details of the application of these terms'. … The nature of the contract between Germany and the Allies resulting from this exchange of documents is plain and unequivocal. The terms of the peace are to be in accordance with the addresses of the President, and the purpose of the peace conference is 'to discuss the details of their application.' The circumstances of the contract were of an unusually solemn and binding character; for one of the conditions of it was that Germany should agree to armistice terms which were to be such as would leave her helpless. Germany having rendered herself helpless in reliance on the contract, the honour of the Allies was peculiarly involved in fulfilling their part and, if there were ambiguities, in not using their position to take advantage of them. [7]

Keynes summarises the most important aspects of the Fourteen Points and other addresses by Wilson that were part of the Armistice agreement.

The Fourteen Points – (3) 'The removal, so far as possible, of all economic barriers and the establishment of an equality of trade conditions among all the nations consenting to the peace and associating themselves for its maintenance.’ (4) 'Adequate guarantees given and taken that national armaments will be reduced to the lowest point consistent with domestic safety.’ (5) 'A free, open-minded, and absolutely impartial adjustment of all colonial claims', regard being had to the interests of the populations concerned. (6), (7), (8), and (11) The evacuation and 'restoration' of all invaded territory, especially of Belgium. To this must be added the rider of the Allies, claiming compensation for all damage done to civilians and their property by land, by sea, and from the air (quoted in full above). (8) The righting of 'the wrong done to France by Prussia in 1871 in the matter of Alsace-Lorraine'. (13) An independent Poland, including 'the territories inhabited by indisputably Polish populations' and 'assured a free and secure access to the sea'. (14) The League of Nations. [8]

Before the Congress, 11 February – 'There shall be no annexations, no contributions, no punitive damages.... Self-determination is not a mere phrase. It is an imperative principle of action which statesmen will henceforth ignore at their peril.... Every territorial settlement involved in this war must be made in the interest and for the benefit of the populations concerned, and not as a part of any mere adjustment or compromise of claims amongst rival States.' [9]

New York, 27 September – (1) 'The impartial justice meted out must involve no discrimination between those to whom we wish to be just and those to whom we do not wish to be just.' (2) 'No special or separate interest of any single nation or any group of nations can be made the basis of any part of the settlement which is not consistent with the common interest of all.' (3) 'There can be no leagues or alliances or special covenants and understandings within the general and common family of the League of Nations.' (4) 'There can be no special selfish economic combinations within the League and no employment of any form of economic boycott or exclusion, except as the power of economic penalty by exclusion from the markets of the world may be vested in the League of Nations itself as a means of discipline and control.' (5) 'All international agreements and treaties of every kind must be made known in their entirety to the rest of the world.' [10]

Poor collecting wood in the Vienna Woods and waiting for the trams to return to Vienna, winter of 1919-1920 BuscandoLenaEnViena19191920--timeshistoryofwa21londuoft.jpg
Poor collecting wood in the Vienna Woods and waiting for the trams to return to Vienna, winter of 1919-1920

Keynes points to the material violation of the terms regarding reparations, territorial adjustments, and an equitable economic settlement as a blot on the honour of the western allies and a primary cause of a future war. Given that he was writing in 1919, his prediction that the next war would begin twenty years hence had an uncanny accuracy.


One of the most serious charges Keynes leveled against the Treaty and the men who created it is that it paid almost no attention whatever to the economic future of Europe:

The Treaty includes no provisions for the economic rehabilitation of Europe, nothing to make the defeated Central Powers into good neighbors, nothing to stabilize the new states of Europe, nothing to reclaim Russia; nor does it promote in any way a compact of solidarity amongst the Allies themselves; no arrangement was reached at Paris for restoring the disordered finances of France and Italy, or to adjust the systems of the Old World and the New.

The Council of Four paid no attention to these issues, being preoccupied with others, Clemenceau to crush the economic life of his enemy, Lloyd George to do a deal and bring home something that would pass muster for a week, the President to do nothing that was not just and right. It is an extraordinary fact that the fundamental economic problems of a Europe starving and disintegrating before their eyes, was the one question in which it was impossible to arouse the interest of the Four. Reparation was their main excursion into the economic field, and they settled it as a problem of theology, of politics, of electoral chicane, from every point of view except that of the economic future of the States whose destiny they were handling. [11]

Keynes predicted the causes of high inflation and economic stagnation in postwar Europe:

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. ... Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. [12]

He explicitly pointed out the relationship between governments printing money and inflation:

The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance. [13]

Keynes also pointed out how government price controls discourage production:

The presumption of a spurious value for the currency, by the force of law expressed in the regulation of prices, contains in itself, however, the seeds of final economic decay, and soon dries up the sources of ultimate supply. If a man is compelled to exchange the fruits of his labors for paper which, as experience soon teaches him, he cannot use to purchase what he requires at a price comparable to that which he has received for his own products, he will keep his produce for himself, dispose of it to his friends and neighbors as a favor, or relax his efforts in producing it. A system of compelling the exchange of commodities at what is not their real relative value not only relaxes production, but leads finally to the waste and inefficiency of barter. [14]

The Economic Consequences of the Peace detailed the relationship between German government deficits and inflation:

In Germany the total expenditure of the Empire, the Federal States, and the Communes in 1919–20 is estimated at 25  milliards of marks, of which not above 10 milliards are covered by previously existing taxation. This is without allowing anything for the payment of the indemnity. In Russia, Poland, Hungary, or Austria such a thing as a budget cannot be seriously considered to exist at all. ... Thus the menace of inflationism described above is not merely a product of the war, of which peace begins the cure. It is a continuing phenomenon of which the end is not yet in sight. [15]

Keynes ended with this ominous warning:

Economic privation proceeds by easy stages, and so long as men suffer it patiently the outside world cares very little. Physical efficiency and resistance to disease slowly diminish, but life proceeds somehow, until the limit of human endurance is reached at last and counsels of despair and madness stir the sufferers from the lethargy which precedes the crisis. The man shakes himself, and the bonds of custom are loosed. The power of ideas is sovereign, and he listens to whatever instruction of hope, illusion, or revenge is carried to them in the air. ... But who can say how much is endurable, or in what direction men will seek at last to escape from their misfortunes? [16]

The Nazi Party rally at Nuremberg in 1933 Bundesarchiv Bild 183-1987-0410-501, Nurnberg, Reichsparteitag, SA-Aufmarsch.jpg
The Nazi Party rally at Nuremberg in 1933

Not too many years later. Adolf Hitler was to write in Mein Kampf :

What a use could be made of the Treaty of Versailles. ... How each one of the points of that treaty could be branded in the minds and hearts of the German people until sixty million men and women find their souls aflame with a feeling of rage and shame; and a torrent of fire bursts forth as from a furnace, and a will of steel is forged from it, with the common cry: "We will have arms again!" [17]

Samuel W. Mitcham Jr. comments:

Niccolo Machiavelli advised the prince to never inflict small hurts. This is exactly what the Allies did with the armistice and the Treaty of Versailles. The German people were humiliated, and their faith in democracy which was fragile to begin with was almost totally destroyed. However, they were not annihilated. ... The Allies should have either totally destroyed and dismembered Germany or else have made a sincere effort to make a fair and just peace with her and bring her into the family of nations as a full partner. But doing neither, they set the stage for Adolf Hitler and the Second World War. In my view, it is not going too far to state that the Nazi dictator should have worn a stamp on the seat of his pants with three words on it: "Made at Versailles." [18]

German influence on Keynes

While at Versailles, Keynes had a series of meetings with Carl Melchior of Max Warburg's bank in Hamburg. Melchior was a lawyer and one of the German representatives at the peace conference. Through Melchior, Keynes received a dire picture of the social and economic state of Germany at the time, which he portrayed as being ripe for a Communist revolution. Keynes accepted this representation, and parts of the text of The Economic Consequences roughly parallel the language of the German counter-proposals to the draft Allied proposal of terms. [19]

According to historian Niall Ferguson:

To say that Keynes's argument in the book was the same as that put forward by German financial experts at the conference would be to exaggerate. But the resemblances are very close; nor did Keynes deny their influence on him. Like them, he blamed the French for the 'Carthaginian' economic provisions of the Treaty and denounced the Reparations Commission as 'an instrument of oppression and rapine'. Like them, he insisted that Germany 'had not surrendered unconditionally, but on agreed terms as to the general character of the peace' {the Fourteen Points and subsequent American notes}. And like them, he stressed that the loss of Germany's merchant marine, her overseas assets, her coal-rich territories and her sovereignty in matters of trade policy severely limited her capacity to pay reparations. ... Nor did Keynes omit the apocalyptic warnings he had heard from Melchior at Versailles, predicting a Malthusian crisis in Germany, and the destruction of capitalism in Central Europe... [19]

Keynes himself characterized the German counter-proposals as "somewhat obscure, and also rather disingenuous." [20]

[The German negotiators] assumed ... that [the Allied negotiators] were secetly as anxious as the Germans themselves to arrive at a settlement which bore some relation to the facts, and that they would therefore be willing, in view of the entanglements which they had gotten themselves into with their own publics [in promising that "Germany will pay"], to practice a little collusion in drafting the Treaty, a supposition which in slightly different circumstances might have had a good deal of foundation. As matters actually were, this subtlety did not benefit them, and they would have done much better with a straightforward and candid estimate of what they believed to be the amount of their liabilities on the one hand, and their capacity to pay on the other. [21]

In addition to his meetings in Versailles, at the invitation of Max Warburg's brother Paul Warburg, Keynes attended an Amsterdam conference of bankers and economists in October 1919, and he drafted there with Paul Warburg a memorandum of appeal to the League of Nations calling for a reduction in German reparations. [19]


Keynes' book was released in late 1919 and was an immediate success: [3] it became a bestseller on both sides of the Atlantic: it was released in the United States in 1920. The scathing sketches of Wilson, Lloyd George and Clemenceau proved to be very popular and the work established Keynes' reputation with the public as a leading economist. In six months, the book had sold 100,000 copies with translations into 12 languages. It restored Keynes' reputation with the Bloomsbury Group, which had been tarnished by his work for the Treasury during the war. Keynes returned to Cambridge to work as an economist, where he was regarded as the leading student of Alfred Marshall.

Keynes on The Council of Four
Premier Georges Clemenceau of France.jpg
Georges Clemenceau ,
Premier of France
"...a foremost believer in the view of German psychology that the German understands and can understand nothing but intimidation, that he is without generosity or remorse in negotiation, that there is no advantage he will not take of you, and no extent to which he will not demean himself for profit, that he is without honor, pride, or mercy. Therefore you must never negotiate with a German or conciliate him; you must dictate to him." [22]
President Wilson 1919-bw.jpg
Woodrow Wilson ,
President of the United States
"[I]f ever the action of a single individual matters, the collapse of The President has been one of the decisive moral events of history. ... He had no plan, no scheme, no constructive ideas whatever for clothing with the flesh of life the commandments which he had thundered from the White House. ... [N]ot only was he ill-informed, but his mind was slow and unadaptable ... There can seldom have been a statesman of the first rank more incompetent than the President in the agilities of the council chamber." [23]
David Lloyd George ,
Prime Minister of the United Kingdom
"[he had an] unerring, almost medium-like sensibility to every one around him ... watching the company, with six or seven senses not available to ordinary men, judging character, motive, and subsconscious impulse, perceiving what each [man] was thinking and even what each was going to say next, and compounding with telepathic instinct the argument or appeal that best suited the vanity, weakness, or self-interest of his auditor..." [24]
VittorioEmanuelleOrlando28379v cropped.jpg
Vittorio Emanuele Orlando ,
Prime Minister of Italy
"[Clemenceau] alone amongst the Four could speak and understand both languages [that is, French and English], Orlando knowing only French and the Prime Minister and President only English; and it is of historical importance that Orlando and the President had no direct means of communication." [25]

Impact in the United States

As well as being highly successful in commercial terms in the US, the book proved to be highly influential. The book was released just before the US Senate considered the treaty and confirmed the beliefs of the "irreconcilables" against American participation in the League of Nations. As well, the book also heightened the doubts of the "reservationists", led by Henry Cabot Lodge, over the terms of the treaty and created doubts in the minds of Wilson's supporters. Lodge, the Republican Senate leader, shared Keynes' concerns about the severity of the treaty on Germany and believed that it would have to be renegotiated in the future. Keynes played a critical role in turning American public opinion against the treaty of Versailles and the League of Nations, but it was Wilson's poor management of the issue and a number of strokes he had that would be decisive: America would not participate in the League of Nations.

Impact in the United Kingdom

Keynes' portrayal of the treaty as a "Carthaginian peace" a brutal peace which has the intent of crushing the losing side quickly became the orthodoxy in academic circles and was a common opinion in the British public. It was widely believed in Britain that the terms of the treaty were unfair. That was influential in determining a response to the attempts by Adolf Hitler to overturn the Versailles Treaty especially in the period leading up to the Munich Agreement. In Germany, the book confirmed what the overwhelming majority of the people already believed: the unfairness of the treaty. France was reluctant to use armed force to enforce the treaty without the support of the British Government. Prior to late 1938, the strength of public opposition to prospective involvement in another war meant that British support for the French position was unreliable.


The French economist Étienne Mantoux criticised the impact of Keynes' book in his book The Carthaginian Peace: or the Economic Consequences of Mr. Keynes by saying that it did more than any other writing to discredit the Treaty of Versailles. Mantoux compared The Economic Consequences of the Peace to Edmund Burke's Reflections on the Revolution in France because of the immediate influence on public opinion. Mantoux sought to discredit Keynes' predictions of what the consequences of the Treaty would be. For example, Keynes believed European output in iron would decrease, but by 1929, iron output in Europe was up 10% from the 1913 figure. Keynes predicted that German iron and steel output would decrease, but by 1927, steel output had increased by 30% and iron output increased by 38% from 1913 (within the pre-war borders). Keynes also argued that German coal mining efficiency would decrease, but labour efficiency by 1929 had increased on the 1913 figure by 30%. Keynes contended that Germany would be unable to export coal immediately, but German net coal exports had grown to 15 million tons within a year and by 1926 the tonnage exported had reached 35 million. Keynes also claimed that German national savings in the years after the treaty would be less than 2 billion marks: however, in 1925, the German national savings figure was estimated at 6.4 billion marks and, in 1927, 7.6 billion marks.

Keynes also believed that Germany would be unable to pay the more than 2 billion marks in reparations for the next 30 years, but Mantoux contends that German rearmament spending was seven times as much as that figure in each year between 1933 and 1939. [26] René Albrecht-Carrié in 1965 claimed that Weimar Germany, well before Hitler secretly began to rebuild the German military, could not keep up its reparations payments, which were renegotiated several times, and were later the subject of several reorganizational schemes such as the Dawes Plan and the Young Plan. He also argued that reparation payments and other requirements of the Treaty crippled the German economy, a view shared by the British, who proposed in 1922 the cancellation of all reparations and debts arising from the war including Allied debts to the United States [notes 1] a proposal which did not find favour in France or the US. However, the historian Sally Marks, writing in 2013, claimed that Germany had the financial capacity to pay reparations. [27] She also claimed that Germany paid minimal reparations after 1921 and that "it is hard to conceive that something that was not happening or that was occurring only minimally could have caused all that is often attributed to reparations, including the great inflation". [28]

The breakdown of the German economy brought great distress to the German people, which caused them to lose the minimal faith in democracy they possessed, and made them more sympathetic to the appeals of Hitler and the Nazi Party, for whom the overthrow of the "dictat" of Versailles was a primary goal. When the economy rebounded, and foreign loans especially from the United States became available to Germany, the Weimar government compounded the problems by borrowing prodigious amounts, even using funds from foreign loans to pay their reparations. Then, when Wall Street crashed in 1929, beginning the Great Depression, and Germany's loans were called, a period of deep unemployment, hyperinflation and the collapse of the German currency ensued, which Germany was not in any way able to deal with, due to its economic infrastructure being decimated by the requirements of the Versailles Treaty although the Weimar government bears part of the responsibility for using its foreign loans not to rebuild the basic economy but to expand it in unrealistic and sometimes frivolous ways. [29]

The historian A. J. P. Taylor has written:

The war, far from weakening economic resources, stimulated them too much. The most serious blow inflicted by the war economically was to men's minds, not to their productive powers. The old order of financial stability was shaken, never to be restored. Depreciated currencies, reparations, war debts, were the great shadows of the inter-war period all imaginary things, divorced from the realities of mine and factory. [30]

Taylor also claimed that Mantoux's book refuted Keynes' thesis. [31] Albrecht-Carrié in 1965 argued that Keynes was overall prescient in his long-term analysis of the impact of the Treaty. [3]

The historian Ruth Henig wrote in 1995 that "most historians of the Paris peace conference now take the view that, in economic terms, the treaty was not unduly harsh on Germany and that, while obligations and damages were inevitably much stressed in the debates at Paris to satisfy electors reading the daily newspapers, the intention was quietly to give Germany substantial help towards paying her bills, and to meet many of the German objections by amendments to the way the reparations schedule was in practice carried out". [32] Sally Marks claimed in 2013 that for "nearly forty years, historians of twentieth-century diplomacy have argued that the Versailles treaty was more reasonable than its reputation suggests and that it did not of itself cause the Depression, the rise of Hitler, or World War II". [33] Marks also claimed that Keynes' book was a "brilliant but warped polemic" that is "long discredited by scholars" and which Keynes regretted writing. [34] [35]

Some scholars have portrayed it as less harsh than it was seen to be in the immediate aftermath of the Paris Peace Conference. Gideon Rose, for instance, sees it as "more balanced" than it seemed at the time, and "a mixture of discordant elements that was neither Carthaginian nor Metternichian", [36] while Max Hastings calls the peace treaty "clumsy" but writes that "[I]f the Germans had instead been dictating the terms as victors, European freedom, justice and democracy would have paid a dreadful forfeit.". [37] David Stevenson argues that neither the Armistice nor the Peace Treaty made World War II inevitable as claimed by many scholars and that "the peacemakers have had an undeservedly bad press. ... [T]hey were feeling their way in unprecedented circumstances, but the settlement that was constructed was more flexible than its critics acknowledged, and could either have accommodated a lasting reconciliation with the new Republican regime in Germany or ensured that it remained militarily harmless. The real tragedy of the inter-war years is that it did neither... The Treaty could have stopped another bloodbath if it had been upheld." [38] This, of course, is antithetical to the arguments of Keynes, or at least his followers, who draw a direct line between the economic conditions created by the Peace Treaty and the rise of belligerent regimes in Europe. For his part, revisionist historian Niall Ferguson is another who does not share the view that the Treaty of Versailles was punitive and an economic disaster:

In reality, the peace terms were not unprecedented in their harshness, and the German hyperinflation was mainly due to the irresponsible fiscal and monetary policies adopted by the Germans themselves. They thought they could win the peace by economic means. In British minds they did. The Germans were also more successful than any other country in defaulting on their debts, including the reparations demanded from them by the Allies. However, this victory was pyrrhic: it was won by democratic politicians at the expense of democracy and their own power. [39]

Keynes on rearmament

During the 1930s, Keynes, unlike many of his followers, was an early advocate of rearmament to deter what he referred to as the "brigand powers" of Germany, Japan and Italy. In July 1936, Keynes wrote a letter to the editor of the New Statesman :

A state of inadequate armament on our part can only encourage the brigand powers who know no argument but force, and will play, in the long run, into the hands of those who would like us to acquiesce by inaction in these powers doing pretty much what they like in the world. [...] Can I not persuade you that the collective possession of preponderant force by the leading pacific powers is, in the conditions of today, the best assurance of peace. [40]

After World War II

Keynes was a highly influential advisor to the British government during the Second World War. He was head of the British team that negotiated the Bretton Woods Agreement with the American team led by Harry Dexter White. In general, the Agreement suggested a monetary system similar to that proposed by Keynes in The Economic Consequences of the Peace.

His proposal for an International Clearing Union formed the basis of proposals for the International Monetary Fund and the International Bank for Reconstruction and Development later the World Bank and Bank for International Settlements. However, the operation of these institutions was not as liberal as Keynes would have wished.

Keynes was also responsible for negotiating financial support for Britain during the Second World War. While Britain struggled to afford the terms offered during the war, the credit offered by the US was much more generous. Furthermore, the Western powers did not ask for reparations from the defeated powers, although the Soviet Union forced reparations from East Germany, which it controlled.

In 1948 the United States initiated the Marshall Plan of aid to assist in the rebuilding of Europe, Allies and Axis countries alike except for the Soviet Union, which refused to participate, and its Eastern European satellites, which were blocked from receiving aid by the Soviets. The Plan was in many ways similar to what Keynes had proposed at Versailles after World War I. [41] As Keynes predicted, reparations and war debts were paid for by loans from the US, leaving no one better off.

The postwar system led to one of the greatest general increases in prosperity in human history. From 1948 to 1971, world trade increased by an average annual rate of 7.27% and industrial production grew by an average of 5.6%. That contrasts with the interwar period where world trade actually fell in the 1930s, and world industrial production grew fitfully in the 1920s and was hit by the Great Depression.

See also

Related Research Articles

Fourteen Points peace treaty

The Fourteen Points was a statement of principles for peace that was to be used for peace negotiations in order to end World War I. The principles were outlined in a January 8, 1918 speech on war aims and peace terms to the United States Congress by President Woodrow Wilson. But his main Allied colleagues were skeptical of the applicability of Wilsonian idealism.

Locarno Treaties multilateral treaties negotiated in Locarno, Switzerland during October 1925

The Locarno Treaties were seven agreements negotiated at Locarno, Switzerland, on 5–16 October 1925 and formally signed in London on 1 December, in which the First World War Western European Allied powers and the new states of Central and Eastern Europe sought to secure the post-war territorial settlement, and return normalizing relations with defeated Germany. It also stated that Germany would never go to war with the other countries. Locarno divided borders in Europe into two categories: western, which were guaranteed by Locarno treaties, and eastern borders of Germany with Poland, which were open for revision.

Aftermath of World War I Period after the conclusion of World War I

The aftermath of World War I saw drastic political, cultural, economic, and social change across Eurasia, Africa, and even in areas outside those that were directly involved. Four empires collapsed due to the war, old countries were abolished, new ones were formed, boundaries were redrawn, international organizations were established, and many new and old ideologies took a firm hold in people's minds.

Raymond Poincaré 10th President of the French Republic

Raymond Nicolas Landry Poincaré was a French statesman who served three times as 58th Prime Minister of France, and as President of France from 1913 to 1920. He was a conservative leader, primarily committed to political and social stability.

Peace treaty agreement between two or more hostile parties which formally ends a state of war

A peace treaty is an agreement between two or more hostile parties, usually countries or governments, which formally ends a state of war between the parties. It is different from an armistice, which is an agreement to stop hostilities, or a surrender, in which an army agrees to give up arms, or a ceasefire or truce in which the parties may agree to temporarily or permanently stop fighting.

War reparations are payments made after a war by the vanquished to the victors.

Treaty of Saint-Germain-en-Laye (1919) treaty signed on 10 September 1919

The Treaty of Saint-Germain-en-Laye was signed on 10 September 1919 by the victorious Allies of World War I on the one hand and by the Republic of German-Austria on the other. Like the Treaty of Trianon with Hungary and the Treaty of Versailles with Germany, it contained the Covenant of the League of Nations and as a result was not ratified by the United States but was followed by the US–Austrian Peace Treaty of 1921.

Article 231, often known as the War Guilt Clause, was the opening article of the reparations section of the Treaty of Versailles, which ended the First World War between the German Empire and the Allied and Associated Powers. The article did not use the word "guilt" but it served as a legal basis to compel Germany to pay reparations for the war.

Occupation of the Ruhr Occupation of a German region by France and Belgium in 1923 to 1925

The Occupation of the Ruhr was a period of military occupation of the German Ruhr valley by France and Belgium between 11 January 1923 and 25 August 1925. The occupation was a response to the German Weimar Republic widely and regularly defaulting on reparation payments in the early 1920s. The total reparation sum of £6.6 billion had been dictated by the victorious powers in the Treaty of Versailles, and the reparation payments were due to last several decades.

Genoa Conference (1922)

The Genoa Economic and Financial Conference was a formal conclave of 34 nations held in Genoa, Italy from 10 April to 19 May 1922. It was planned by British prime minister David Lloyd George to resolve the major economic and political issues facing Europe, and to deal with the pariah nations of Germany and Russia, both of which had been excluded from the Paris Peace Conference of 1919. The conference was particularly interested in developing a strategy to rebuild defeated Germany, as well as central and eastern Europe, and to negotiate a relationship between European capitalist economies and the new Bolshevik regime in Soviet Russia. However Russia and Germany signed a separate agreement at Rapallo and the result at Genoa was a fiasco with few positive results. The conference did come up with a proposal for resuming the gold standard that was largely put in place by major countries.

Carl Melchior German lawyer, judge and banker

Carl Melchior was born in Hamburg. Melchior studied law and eventually was appointed a judge, and later became a German banker and vice-president of the Bank for International Settlements.

Étienne Mantoux was a French economist, born in Paris. He was the son of Paul Mantoux. He is probably best known for his book The Carthaginian Peace, or the Economic Consequences of Mr. Keynes published two years after it was completed and one year after his death. In it, he sought to demonstrate that much of John Maynard Keynes' beliefs about the consequences of the Treaty of Versailles for Germany as expressed in The Economic Consequences of the Peace were wrong.

The Big Four (World War I)

The Big Four or The Four Nations refer to the four top Allied powers of the World War I and their leaders who met at the Paris Peace Conference in January 1919. The Big Four is also known as the Council of Four. It was composed of Woodrow Wilson of the United States, David Lloyd George of the United Kingdom, Vittorio Emanuele Orlando of Italy, and Georges Clemenceau of France.

Heavenly Twins (Sumner and Cunliffe)

The Heavenly Twins was the name assigned to two British delegates, the Judge Lord Sumner and the Banker Lord Cunliffe, during the 1919 Treaty of Versailles negotiations who were to set the terms of the peace to be imposed on Germany following the end of World War I. The two lords, together with the Prime Minister of Australia Billy Hughes, were responsible for presenting the British and British Dominions' case concerning the amount of compensatory payments, or war reparations, that were to be extracted from Germany.

International relations (1919–1939) covers the main interactions shaping world history in this era, with emphasis on diplomacy and economic relations. The coverage here follows Diplomatic history of World War I and precedes Diplomatic history of World War II. The important stages of interwar diplomacy and international relations included resolutions of wartime issues, such as reparations owed by Germany and boundaries; American involvement in European finances and disarmament projects; the expectations and failures of the League of Nations; the relationships of the new countries to the old; the distrustful relations of the Soviet Union to the capitalist world; peace and disarmament efforts; responses to the Great Depression starting in 1929; the collapse of world trade; the collapse of democratic regimes one by one; the growth of economic autarky; Japanese aggressiveness toward China; Fascist diplomacy, including the aggressive moves by Mussolini's Italy and Hitler's Germany; the Spanish Civil War; the appeasement of Germany's expansionist moves toward the Rhineland, Austria, and Czechoslovakia, and the last, desperate stages of rearmament as another world war increasingly loomed.


Informational notes

  1. The UK was overall a creditor nation in relation to World War I, so the proposal was not, as it may first appear, self-serving. [3]


  1. Keynes 1919.
  2. 1 2 Strachan 2003, p. 333.
  3. 1 2 3 4 Albrecht-Carrié 1965, p. 114.
  4. Stevenson 2004, p. 417.
  5. Keynes 1919, pp. 34–35.
  6. Keynes 1919, pp. 31–32.
  7. Keynes 1919, pp. 52, 55.
  8. Keynes 1919, pp. 56–57.
  9. Keynes 1919, p. 57.
  10. Keynes 1919, pp. 57–58.
  11. Keynes 1919, pp. 211–12.
  12. Keynes 1919, p. 220.
  13. Keynes 1919, p. 223.
  14. Keynes 1919, pp. 224–25.
  15. Keynes 1919, p. 232.
  16. Keynes 1919, pp. 233–35.
  17. Hochschild 2011, p. 358.
  18. Mitcham 1996, p. 43.
  19. 1 2 3 Ferguson 1999, pp. 400–03.
  20. Keynes 1919, p. 204.
  21. Keynes 1919, p. 205.
  22. Keynes 1919, p. 29.
  23. Keynes 1919, pp. 34, 39-40.
  24. Keynes 1919, p. 37.
  25. Keynes 1919, p. 27.
  26. Heilperin 1946, pp. 930-34.
  27. Marks, Sally (September 2013). "Mistakes and Myths: The Allies, Germany, and the Versailles Treaty, 1918–1921". The Journal of Modern History . 85 (3): 644–645. doi:10.1086/670825. JSTOR   10.1086/670825.
  28. Marks 2013, pp. 645.
  29. Mitcham 1996, pp. 39–43, 112–13, 128–29.
  30. Taylor 1963, p. 280.
  31. Taylor, A. J. P. (1991) The Origins of the Second World War. London: Penguin. p.344
  32. Henig, Ruth (1995). Versailles and After, 1919-1933 (second ed.). Routledge. p. 65. ISBN   978-1-134-79873-5.
  33. Marks 2013, pp. 632.
  34. Marks 2013, p. 636, p. 656.
  35. According to Elizabeth Wiskemann: "On the morning after the German “election” [the Reichstag election of 29 March 1936] I travelled to Basle; it was an exquisite liberation to reach Switzerland. It must have been only a little later that I met Maynard Keynes at some gathering in London. “I do wish you had not written that book”, I found myself saying (meaning The Economic Consequences, which the Germans never ceased to quote) and then longed for the ground to swallow me up. But he said, simply and gently, “So do I.”" Elizabeth Wiskemann, The Europe I Saw (London: Collins, 1968), p. 53.
  36. Rose 2010, p. 48.
  37. Hastings 2013, p. 563.
  38. Stevenson 2004, pp. 411–12, 430.
  39. Ferguson 1999, p. 397.
  40. Bredel 2007, p. 35 n59.
  41. Reinert & Jomo 2008.