Keynes and The Treaty of Versaille

John Maynard Keynes was an economist in Great Britain during World War I. Keynes also served as a representative of the Treasury of Great Britain and was an outspoken member at Versailles. Since Keynes was an economist he saw the consequences that the sanctions on Germany would do not only to their economy but what it would do to the rest of the world economy. He saw that since Germany would have to pay large sums of money they would not be able to provide for their people and Germany was already facing food shortages because of the Allied blockade. The food shortages and debt sanctions would not allow Germany to import goods, most of Germany’s economy is industrial, and cause the other surrounding economies to suffer the consequences of peace. Keynes stated that instituting this treaty, which would not only force Germany to take drastic measures but would result in the endangering of millions of German people. We can look at Keynes’ argument and know it is strong because of our hindsight that tells us what kind of state Germany becomes in the future.

Depression after Destruction

John Maynard Keynes, as stated in the beginning of the article was an English Economist famous for his economic theories called Keynesian economics. After the treaty of Versailles was published, he became very depressed about the state in which Europe would be in as a result of the treaty. In the Treaty of Versailles, Germany is essentially cut off from all trade which Keynes states will make it difficult for a rising Industrial country. He states that by agreeing with the treaty it will be similar to signing over the lives of millions of German men, women and children. In his writing he talks about the destruction that will occur across Europe because of the Treaty that is tearing apart the Industrial societies across Europe apart. Prior to World War One, many countries across Europe we rapidly expanding as a result of Industrialization. Boarders were changing, and technology was becoming more advance. World War One however, brought to surface the growing tensions within nations regarding misrepresented populations as well as conflict between larger nations. I believe Keynes was upset by the Treaty because prior to the war he saw millions of people across Europe finally putting an end to suffering, middle classes were being formed, and people’s lives were seemingly better. After the war and the Treaty of Versailles, it seemed as though Europe would be taking a step back.

 

Why was Keynes so upset by this treaty? Do you think the treaty was a good idea? Could the situation have been handled better? Should Germany have been involved in the process

Keynes and the Treaty of Versailles

In reading the “Treaty of Versailles,” it becomes clear that the idea behind the treaty was to limit the powers and territories of Germany and have them surrender during the Great War; making them go from a very powerful country to a very weak country in the blink of an eye.  In his piece titled “The Economic Consequences of the Peace,”, English economist John Maynard Keynes spoke to the negative effects that the Versailles settlement would have on the nation of Germany.  Keynes’ highlighted that Germany would lose “her colonies, her merchant fleet and her foreign investments,” (Keynes) after signing this treaty.  Furthermore, due to these losses, Keynes argued that the industry of Germany will “be condemned inevitably to destruction,” (Keynes) and made it clear that German citizens will suffer many deaths due to the poor quality of life that will occur once the treaty is signed.  And while Keynes believed that the next logical step for German citizens would be to move to other places, for no work would be available in Germany, “many countries and the most important ones will oppose any German immigration,” (Keynes) forbidding them to move out of Germany, for once the treaty is signed they would want nothing to do with them.

Keynes believed that if Germany were to sign the Treaty of Versailles, they would be making a rash decision and could “throw back human progress for centuries.” (Keynes)  Rather than jump at this idea of a treaty, Keynes believed that Germany should wait it out and see if something more favorable might pop up.  And while Keynes’ piece was passionate and provided key points as to why the German community should not sign the treaty, Germany ended up signing anyway, ending the misery that the Great War provided them.  In signing this treaty, the German population displayed the exhaustion that the Great War had caused them and proved that they were willing to give up many of their powers in order to end their involvement in the war.  Ultimately, I think the biggest takeaway from Keynes’ piece is that Germany was willing to give up all their powers and territory in order to get out of World War I.  This is important because it showed that Germany was weak and exhausted.  By displaying their weakness in signing this treaty, a man named Adolf Hitler was able to take notice and developed a plan that involved him taking over Germany; a plan that became successful and with his leadership, Germany became a rather violent nation and caused another World War to begin.

Keynesian Economics

3 Points:

Keynes compares the livelihood of Europe before and after the war. He boasts about how self-sufficient Europe was, with the population secured for itself with dedicated organization and steady income of supplies. He believes the disruption of this system has contributed to the decline in livelihood.

To follow his first point, Keynes warns the population of the lurking danger of the rapid decline in the standard of living that will leave people starved, as well as mentally and physically disabled. He fears that the population’s distress will eventually disrupt the organization and lead individuals to doing whatever they can in order to satisfy their own desires.

Keynes notes that Germany, which was once an abundant agricultural state, has become completely dependent on industry. Following the economic depression, Germany will have suffered the loss of foreign investments and will be unable to import from abroad, which will ultimately lead to the diminishing of food and lives.

 2 Questions

Why does Keynes believe those who sign the Treaty are essentially “signing the death sentence of millions of German men, women and children?”

Whom or what does Keynes blame for Europe’s growing insufficiencies?

Interesting

It is clear that Keynes is vehemently against the treaty, however, I find it rather strange that he offers no possible solutions or resolutions to the problems he addresses.

Keynes’ Opposition to the Treaty of Versailles

Keynes’ argument is based on the fact that he believes the environment in Germany established by the Treaty of Versailles will create conditions that force desperate men and women to political instability and radical forms of government in order to survive. When a group of people are pushed into a position of survival, they do not go quietly into the night; rather, they group together to fight for their common interests and survive as a whole. In regards to the 14 points, Keynes seems to argue in favor of them by arguing against the Treaty of Versailles. He states that the War Guilt Clause of the treaty will create the conditions established above. Because of Germany’s economy based around industry rather than agriculture, Germany was required to import food in order to sustain its population. However, with the new reparations and damage to its economy, Germany would no longer be able to subsidize these imports, leading to increased food prices and shortages all around. This is especially critical to the German population due to the fact that Germany was already facing food shortages for the past four years due to the Allied blockade. Keynes states that by instituting this treaty, not only will the Allied powers force Germany to drastic measures (possibly even communism), it will result in the deaths of millions of Germans. Keynes’ argument looks particularly strong to us, especially with our hindsight, and the fact that arguments that said the treaty was just and would support German growth are ignored in this general overview of a class. Further research is needed to see whether Keynes was an outlier in his prediction or if many economists of the time agreed in distaste for the oppression that this treaty created.

Comparison of Keynes and Versailles Treaty/Wilson’s Fourteen Points

As the founder of his eponymous economic school of thought, John Maynard Keynes contributed many influential theses on the economics of his day.  Nowhere is this more notable than in 1920’s The Economic Consequences of Peace, his controversial criticism of the Treaty of Versailles.  Keynes asserted that the Treaty would do little other than prolong and perhaps exacerbate the period of postwar unrest in Europe, noting that “the Treaty includes no provisions for the economic rehabilitation of Europe” (Keynes).  Instead, the major powers responsible for the Treaty (i.e. France, the United Kingdom, the United States) used it to advocate their own national interests.  With the exception of the U.S., who primarily viewed the Treaty as means of implementing President Wilson’s somewhat unrealistically idealistic Fourteen Points, Keynes argued that the aforementioned nations utilized the Versailles Treaty to reprimand Germany for the damage it caused during WWI , particularly by crippling its economy.  Keynes’ ultimate qualm about these tactics was that because Germany, a formerly thriving industrial nation, had become so firmly established as a staple of European industry and commerce, its virtual elimination from this economic community would cripple not only Germany, but all of Europe.  Although this excerpt did not offer any explicit alternatives to the Versailles Treaty, Keynes was noted several years later (1933) as an advocate of “economic nationalism…the autonomy which individual states had gained over policy as a result of the collapse of a unified international economy” (Mazower, 137).  It is then perhaps reasonable to infer that in the wake of this interwar economic crisis, Keynes felt that a Europe composed of economically independent states would be more stable than the tightly interdependent economic climate that dominated the decades prior.

The Economic Consequences of the Peace

In this section of his book The Economic Consequences of the Peace, John Maynard Keynes discusses what he believes to be the failings of the Treaty of Versailles.  He believes that the treaty will cause the economic situation in Europe to worsen, as well as fail to prevent future animosity amongst the opposing countries, stating that it contains “…nothing to make defeated Central Europe into good neighbors.”  Keynes’ views appear to be more similar to those of Woodrow Wilson in his 14 Points than those expressed in the official treaty, arguing that the treaty did too much to harm Germany.

Keynes offers many predictions as to how the treaty will throw Germany and blames the selfish wants of the leaders who drafted it for this.  He writes that the treaty has given Germany no means as to care for its people–most of the war debts have been placed upon them, making importing necessary resources from other countries near impossible.  Germany had already been weakened by the Allied Blockade during the war, making famine and death on a large scale inevitable under the conditions which the treaty created.  Immigrating out of Germany was also a challenge due to the large amounts of animosity directed toward them after the war, and the Treaty of Versailles forced them to take all blame for the war.  All of these harsh punishments both directly and indirectly imposed on Germany created a lasting bitterness which eventually led to even greater conflict.

Keynes’ views on post-war European economics are similar to those of Mark Mazower, who ascertains in Dark Continent that “Europe’s economic life was in chaos” (Mazower 104).  While Keynes focuses on Germany, he also argues that the rest of Europe is unprepared for such a great economic disaster that is to come.  His predictions that this economic turmoil will lead to even more conflict are accurate, as it allowed for the rise of vengeful leaders.  The poor economic conditions of post-war Europe are one of the greatest indirect causes of World War II.

John Maynard Keynes: The Economic Consequences of the Peace, 1920.

In this article, Keynes talks about the Treaty of Versailles, and it’s failure to address the economic issues of a post-Great War Europe. He states that victorious Allied powers fail to realize that the stability of Europe, and thereby the stability of both France and Britain as well, is reliant on a complicated system of continental and global trade, which the Treaty attempts to disintegrate.

He focusses on Germany and uses them as a representative of post-war Europe. He believes that the booming population levels, in relation to the rapidly increasing pre-war industrial levels, would not be able to survive with the territorial and financial sanctions the Treaty proposes. His prediction is proven by Mazower in his text “Dark Continent”. Mazower states that because the smaller Central and European nations did not have sufficient resources, they suffered in the post-Great War period. It was only with American loans were they able to initially recover, and thus through American liquidation during the Great Depression they were thrown back into economic turmoil. Alternatively, Russia was self-sufficient during the interwar period, and thus was an economic success, admittedly with a large human cost (Mazower, p.124-5). Finally, Mazower states that while autarky was a good short term plan, in the long run it was detrimental to the Russian economy (Mazower, p.119), especially in comparison to the trading-centric post-World War Two continental economies.

While Keynes’ criticisms are economically valid, he fails to address the volatile political situation of 1919. A perfect example of this revenge-based politics is the War guilt clause written into the Treaty of Versailles. This was unnecessary addition economically, but was an important political addition, especially to the democratic governments in Britain and France. In my opinion, Keynes, while economically correct, fails to acknowledge the context of the Treaty signing, and thus fails to provide viable alternative solutions.

Europe’s Economies after the First World War

When the Allies met in Paris to negotiate the terms for peace after the First World War, their main goal was ostentatiously to create stability in Europe, but each representative came to the table with his own specific interests in mind. This led to major issues in the Treaty of Versailles, such as its questionable economic feasibility. In his book, The Economic Consequences of the Peace, John Maynard Keynes discusses how the preoccupation of the Allies caused them to deal with economic issues using politics and without considering the future of Europe’s economies. While the Treaty of Versailles set many future events in motion, the economic turmoil it created was the most dramatic and disastrous effect it had on the European Continent.

As Mark Mazower writes in Dark Continent, “After the Great War, Europe’s economic life was in chaos.” He goes on to describe the hunger and rapidly falling prices that ensued in Europe following the war. (Mazower 104) Keynes elaborates on the same point, stating that, “In relation to other continents Europe is not self-sufficient; in particular it cannot feed itself.” The people of the industrialized cities of Europe need to obtain supplies like food from outside their cities if they are going to survive. When war breaks out, these supply lines are broken, and because of “… the interruption of the stream of supplies, a part of this population is deprived of its means of livelihood.”(Keynes) After the war, no agreement to eliminate economic tariffs is made, as was suggested by President Wilson in his Fourteen Points, causing even more economic stress in Europe.

A large part of the economic wrongdoing in the Treaty of Versailles was directed at Germany. Not only did Germany have to accept blame for the war, it also had to pay reparations to the Allies for the damage it caused. Germany was also stripped of its colonies, leaving it little economic prospect for paying the Allies.  In response to these terms in the treaty, Count Brockdorff-Rantzau identified that the terms of the peace treaty would literally and economically starve Germany, and that, “Those who sign this Treaty will sign the death sentence of many millions of German men, women and children” (Keynes).

The Treaty of Versailles possessed many economic faults, and, writing in 1920, Keynes foreshadows many of the consequences that these faults will have on Europe. The treaty doesn’t help to restore Europe’s economic vitality or create stability in Central Europe, leaving Europe liable for depression and bloodshed.