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The Economic Consequences of the Peace Paperback – 1 Oct 2001
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The most important economic document relating to World War I and its aftermath. - John Kenneth Galbraith; ""This is a very great book.... Mr. Keynes writes with a fullness of knowledge, an incisiveness of judgment, and a penetration into the ultimate causes of economic events.... The style is like finely hammered steel. It is full of unforgettable phrases and of vivid portraits etched in the biting acid of a passionate moral indignation."" - H. J. Laski, The Nation --This text refers to the Hardcover edition.
About the Author
John Maynard Keynes (1883-1946) was one of the greatest economic theorists of the twentieth century. He was chairman of the liberal journal of opinion The Nation and economics advisor for more than thirty years to British governments. He wrote several books, including his masterpiece, The General Theory of Employment, Interest and Money, the two-volume Treatise on Money, and A Tract on Monetary Reform. David Felix is professor of history emeritus at the City University of New York. His books include Biography of an Idea: John Maynard Keynes and The General Theory of Employment, Interest and Money and Keynes: A Critical Life. --This text refers to the Hardcover edition.
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What comes across is the need to 'punish'. In some circles, a desire to turn the clock back not just to pre-1914 but to pre-1870. Or as Mr Keynes puts it, a desire for a 'Carthaginian peace'.
The most famous aspect of this book concerns Mr Keynes forensic analysis of the economics of the peace proposals, especially the rapaciousness of the reparations and his prediction of the consequences. He doesn't just carp from the sidelines. He offers a more logical alternative based on an economic analysis of Germany's ability to pay. However, emotion, not logic, was uppermost in most people's minds after the deluge. So like a judge passing twenty life sentences on a murderer, the reparations bill grew higher. It should be noted that Mr Keynes was writing in 1919 and the final, even higher Rechnung, was not put before Germany until 1921.
Equally fascinating is the personal account of the roles and characters of the key players; Wilson, Clemenceau and Lloyd-George. This is a 'gloves off' contemporary assessment. One can labour through too many hagiographies of these protagonists and still not grasp their mettle. Mr Keynes pulls no punches in his assessment of this mixture of nascent and moribund Super Power leaders. This section of the book was compelling.
His outlook is based in economics but backed by a deeply moral Utilitarian conviction. He decribes as 'abhorrent and detestable' the policy of depriving generations of Germans the 'right of happiness' . Many historians have subsequently discussed whether the Treaty 'caused' the Second World War and countless exam questions been written on the same theme. One can take sides in this debate but it is also possible to see other less controversial predictions in this work; he foreshadows a European Economic Union based on free trade and a putative World Bank.
Most profoundly he focuses on War Debt, a topic more likely to raise yawns among many history students but of crucial importance in understanding the realpolitik of future decades. Effectively, the USA funded the 'European Civil War' using the British Empire as security for the loan.
You may approach such a dry sounding tome with trepidation but this brilliant book could deeply affect the way you interpret the world since 1919.
Keynes wrote this in 1919, with the horrors of Flanders, the Somme, etc., still raw, so this cogent public argument for magnanimity on the part of the victors took courage, as did the naming of those who failed to show it and who thereby failed the next generation.
In my judgement the key observations Keynes made in this book about the state of Europe in 1919 and about the Versailles Treaty were:
1. Not only Germany but also much of Europe (excluding Britain) was in a poor economic condition and would find recovery difficult.
2. One particular factor he noted was the existence of inflation and the danger of it continuing, worsening and damaging economies. He said the problem was serious throughout Europe and particularly Germany, which already had a large budget deficit.
3. The Treaty contributed nothing towards creating a fair, functioning and integrated economic system in Europe.
4. The Treaty breached the terms of the Armistice Agreement in the level of reparations and territorial adjustment, which was morally reprehensible. Germany had not surrendered unconditionally but was treated as though she had.
5. Germany could not possibly pay the full amount of reparations on given knowledge and all reasonable assumptions about the immediate economic future. In addition reparations were unfair in that unlike an indemnity the amount was unknown and unknowable.
6. The combination of points 4 and 5 (plus the obnoxious and inaccurate "war guilt" clause) meant that Germany would feel victimized and betrayed, whereas the Treaty should have sought the reconciliation of nations. Keynes predicted a future war.
The only point on which one might conceivably say that Keynes was not fully vindicated was the first: much (but not all) of Europe boomed in the 1920s. However, it can be argued that Keynes was not fundamentally wrong even on this issue. Those who believe there were structural weaknesses in the major economies, or who follow the line of the Austrian School in arguing that the Great Depression arose from an expansion of the money supply in the 1920s that artificially inflated the economy with an inevitable slump to follow the boom, will argue Keynes was right about the fragility of European economies.
Among the dissenting voices to the view that Keynes was largely correct on almost all issues was Étienne Mantoux, who in 1945 wrote "The Carthaginian Peace, or the Economic Consequences of Mr. Keynes". Mantoux ignored almost all the six points listed above and concentrated instead on showing that German coal and iron production were higher than Keynes predicted, and that Germany was better off than he supposed. However, Mantoux's figures are all based on the actual inter-war situation, where Germany paid only one-eighth of the reparations and developed with the aid of American loans, whereas Keynes' predictions depended on the Allies squeezing Germany until the pips squeaked. In addition Keynes had stressed that predictions cannot be perfect, and changing circumstances change outcomes.
Keynes was correct in his assessment of the effect of reparations and the weakness of Germany in 1919, for when the Allies attempted to extract maximum payments in the years 1919-23 Germany suffered from economic disasters without parallel in a democracy. With a desperate economic situation and unable to pay reparations, Germany suffered the occupation of the Ruhr by the French in January 1923. It meant that Germany had no goods to trade. The result was that Germany resorted to printing (even more) money to repay reparations and loans. This led to hyperinflation. Keynes was also vindicated in his prophecy of inflation elsewhere in Europe by the inflations in Danzig, Estonia, Hungary, Latvia, Poland and Russia. Mantoux's specific points about iron and steel not only ignored the fact that the production was with the aid of US loans and the non-payment of reparations, but also ignored myriad other contrary economic indicators, including not only the 1923 hyperinflation but also the fact that Germany had 30% of its workforce unemployed in 1932.
Keynes was correct in saying that the Treaty would not bring peace. A hatred of the Treaty and the oppressive French occupation of the Ruhr helped to undermine the Weimar Republic, bringing Hitler to power and precipitating the Second World War. Keynes played a role in the settlement after the Second World War. His words of wisdom about the failures of the Versailles Treaty were heeded, and principles of cooperation and rebuilding meant a prolonged period of peace and prosperity in Europe after 1945 - a striking contrast to the failure of Versailles to achieve this.
Finally, it has been claimed that the book created (or at least encouraged) appeasement in the 1930s by convincing Britain and the US that the Treaty was unfair to Germany. This is impossible to prove. More important in creating sympathy for Germany was the French occupation of the Ruhr 1923-25, and the main causes of appeasement were anyway miscalculation and the desire for a quiet life among people who had lived through the horrors of the 1914-18 war. It should be noted that Keynes was one of the earliest and most passionate opponents of appeasement. On this too Keynes was proved right.
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