The Economic Consequences of the Peace
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. At the conference as a representative of the British Treasury and deputy to the Chancellor of the Exchequer on the Supreme Economic Council he had publicly urged and secretly arranged on behalf of 'Rosie' Wemyss for a discontinuing of the food blockade of Germany but became ill and on his return found that there was 'no hope' of an economically sustainable settlement, and so resigned. In this book, he presents his arguments for a much less onerous treaty for a wider readership, 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 the Treaty of Versailles and its associated treaties endangered.[2]
Author
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.[3] 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.
The success of the book established Keynes' reputation as a leading economist,[4][3]
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.
Context[edit]
As an academic, Keynes had worked on his Treatise on Probability,[5] 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. 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 programme.
During the conference, Keynes' health deteriorated, and he resigned from his position in frustration as a protest[6][2][7] 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,[7] it has also been described as "a diatribe".[8] Keynes went on to publish his Treatise,[5] expanding on the theme of his Introductory and then updated his views on a revision to the treaty.[9]
Impact in the United States[edit]
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[edit]
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 amongst 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.
World War II[edit]
The continuing blockade of Germany after the Armistice 'was most effectively exploited by Hitler, and most useful to him in building up his position of propaganda against the Treaty and the Treaty-makers of Versailles.'[48][49]
Keynes was a highly influential advisor to the British government during the Second World War. He was also responsible for negotiating financial support for Britain during the 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.
After the war, Keynes headed 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 argued for.
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.[50] 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 where world industrial production grew fitfully in the 1920s until it was hit by the Great Depression.
Informational notes
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