The Economic Consequences of the Peace

Influential British economist John Maynard Keynes (1883-1946) wrote and published The Economic Consequences of the Peace in 1919. The book is an investigation of the economic impact of the Treaty of Versailles (1919) and the Paris Peace Conference (1919-1920) on post-World War I Europe. Keynes is one of the most important economists of the 20th century and the originator of “Keynesian” economics, which advocates for governments to create fiscal policies to help stabilize potentially volatile market economies. Keynes wrote The Economic Consequences of the Peace after resigning from his position as an economic representative for Britain during the Paris Peace Conference. The book became an immediate international bestseller and strongly influenced Americans’ and Europeans’ negative opinions about the Treaty of Versailles, which was designed to punish and permanently weaken Germany for causing World War I. History proved many of Keynes’s assessments about the detrimental impact of the treaty correct, and United States’ Marshall Plan, which helped rebuild Europe after World War II, used strategies similar to those Keynes proposed in The Economic Consequences of the Peace.

This guide uses the Heritage Illustrated Publishing 2014 paperback edition.

Summary

The Economic Consequences of the Peace is Keynes’s protest against what he believed were the harmful consequences of the Paris Peace Conference, not just for Germany, but for Europe at large. This argument makes him one of the earliest analysts to use economic analysis of prewar and postwar data as well as historical and cultural factors to arrive at an accurate prediction about the detrimental impact of this agreement.

Keynes was in a unique position as the war came to an end. He served as a delegate of the British Treasury and an advisor to the British Prime Minister David Lloyd George, until the author’s resignation in June 1919 as a form of protest. It was this protest that prompted him to write this book in just a few months and have it published later that same year. The book caused a stir because Keynes used his eyewitness experience at the Paris Peace Conference to document the looks, personalities, and interactions between the Big Four. His colorful descriptions of the Allied leadership are one of the most important aspects of this book.

Whereas the author considers the Treaty of Versailles to be fundamentally misguided, he does not challenge the assertion of Germany’s war guilt as historians had done later. Keynes believes that Germany should have some consequences for its belligerent role in World War I, but that the peace agreement should be more realistic rather than revanchist. After all, Germany was an economic powerhouse in Central Europe as part of an interconnected European economy. Punishing Germany too harshly meant destroying not only the future of at least one generation of Germans but that of the rest of Europe. Based on some estimates, Germany could be left paying the designated reparations indefinitely. Keynes’s overall argument is partly based on economic data and partly on ethical questions. Furthermore, once the desire for revanchism faded, and scholars began studying the causes of World War I, they determined that they were far more complex than Article 231 of the Treaty of Versailles, the so-called war-guilt clause, stated.

The Economic Consequences of the Peace has seven chapters. The first three chapters set the scene for Keynes’s numerical investigation and his main argument that harming Germany with unreasonable peace terms would negatively impact the rest of Europe too. He examines the way in which continental Europe became economically interconnected between the last decades of the 19th century and toward the eve of World War I. Beyond revanchism and nationalistic concern for borders, Keynes believes that the leaders’ personalities and domestic constraints, such as elections, played an important role at the Paris Peace Conference.

Once the author establishes this essential background information, he proceeds to examine the provisions of the treaty. He investigates several questions, ranging from Germany’s actual wealth that could be used to pay reparations to the exaggerated claims of the victors. The book is rich in data tables featuring a variety of information, such as prewar and postwar production levels. Everything in this postwar agreement, which he calls a “Carthaginian peace,” is interconnected. Furthermore, losing territories to the neighbors affected the logistical organization of German industries, the different features of which were housed in different regions. For example, certain mines were still located in Germany, but their processing facilities were now in Poland.

The final chapter of the book addresses an alternative solution to the question of German reparations without destroying Germany and with it, Europe at large. Keynes’s suggestions are not unlike some of the measures that were indeed implemented after the damage caused by the Treaty of Versailles became apparent. For example, Keynes insisted on a lifeline of loans to keep the German economy afloat. In 1924, the Americans introduced the Dawes Plan. This plan and the subsequent Young Plan (1929) sought to offer Germany loans, stabilize its currency, and restructure its central bank and its reparations.

In many ways, Keynes's pessimistic forecast turned out to be quite accurate. By 1923, Weimar Germany faced hyperinflation when bread cost 200,000 million German marks. That same year, France and Belgium invaded and occupied the industrial Ruhr area because Germany was unable to pay reparations. The Great Depression began in 1929, and the Young Plan ceased to operate. In 1933, Nazi leader Adolf Hitler rose to power in Germany, in part, motivated by the German populace’s grievances from the aftermath of World War I and the unfair terms of the Treaty of Versailles. Germany absorbed Austria in 1938 and invaded Poland in 1939.