Just Finished Reading: The Economic Consequences of the Peace by John Maynard Keynes (FP: 1919)

The war was finally, and thankfully, over. But large swaths of the European continent lay in ruin. But worse was the economic dislocation caused by 5 years of total warfare with mines destroyed, forests cut down, farmland unusable, shipping at the bottom of the ocean and crushing debt on both sides. With winter coming something needed to be done to bring the intricate and complex economic relations back ‘on-line’ and get trade moving again. The Paris Peace Conference was an ideal place to debate such issues and come up with solutions. But its main protagonists had other ideas. More than aware of the problems facing the victorious allies they had a solution before them they could not resist – they would make Germany pay for the war.

As someone who attended the conference as part of the British delegation Keynes had a ring-side seat to one of the most important periods in European and human history. Germany had surrendered – though not unconditionally. They had agreed to lay down their arms on the understanding that they had voiced initial agreement to US President Wilson’s 14 Points. The European victors, and particularly the French, had other ideas. Attacked twice in less than 50 years they were determined to secure their Eastern border by ensuring that Germany could never attack them again – by beggaring her for generations to come. By giving away her productive regions to Poland and taking enormous quantities of coal and other commodities for herself France intended to ensure that Germany could not use her growing economic and technological prowess to rise again to threaten the peace of Europe. Taking her shipping, waterway, coastal and deep sea, taking her colonies and foreign investments wherever they were and even taking part of her gold reserves putting great pressure on her currency they turned the screw at every opportunity. But there was one last demand that had to be met: Reparations – not just to cover the cost of the war to the Allies but punitive damages and a rate (with interest) that many knew was simply beyond Germany’s power to pay. Forced to agree by a belligerent population back home the British could only hope that the provisions of the Peace Settlement could be fixed later by the League of Nations. The Americans meanwhile could do little but look on as they were outmanoeuvred time and again by far more sophisticated politicians from France and Britain.

Seeing clearly what was about to happen Keynes wrote the book that brought him to public attention and pointed out the folly of imposing dangerously punitive demands on the Germans whilst, at the same time, denying her the opportunity to grow her economy in order to pay her debt to the rest of Europe. Clearly, he argued with staggering prescience, at some point in the future the forces of reaction would rise motivated by the call of ‘can’t pay, won’t pay’ at which point all hell would break loose. Sadly Keynes was not listened to and sadly he was right in his assessment. Whilst the results of the Peace Conference cannot be said to have caused the Second World War they most certainly primed the gun and aimed it at the heart of Europe. Maybe without the Crash of ’29 it might have been possible to revisit Germany’s economic straightjacket and to resolve the underlying tensions and, therefore, avoid the next war. Somehow I don’t think this would’ve happened. There was far too much animosity within the European family to ‘let Germany off easy’. The Crash cocked the gun in 1929 and, ten years later, Hitler pulled the trigger. Without the crushing consequences of the Peace Conference Hitler would’ve been unlikely to be in a position to do so and would have been unlikely to have had a gun to fire in the first place. This important and significant book shows exactly why the conditions existed in 1929 for the Wall Street Crash to have such a huge impact on the German economy and on European history. To understand the origins of the Second World War you really need to read this. Recommended to all those interested in the making of WW2. 

More on the end of and the consequences of the First World War and more on Economics to follow.