June 4th, 2004


The Economic Consequences of the Peace, John Maynard Keynes

The Economic Consequences of the Pea...
John Maynard Keyne...
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John Maynard Keynes was a noted economist. At the time he wrote this book, he wasn't quite so well known. This is what put him on the map, although his later work is much better. Keynes was on the negotiating team for the U.K. at the Treaty of Versailles. He resigned on principles because he felt that the treaty was not true to the promises of the armistice and, more importantly, would lead to the economic ruinof Germany and Europe. So after resigning he wrote this polemic against the treaty. History proved him prescient.

The principle argument of the book is that the level of reparations required from Germany were unprecedented in scope and unconscionably high. The sums exacted from Germany were higher than the entire pre-war output of Germany. Given the devastation to the German economy wrought by the war effort, he felt there was no way for Germany to ever repay. In addition, the treaty removed from Germany the only feasible ways for it to repay any war reparations. The entire German merchant marine was confiscated. As was her entire holdings of foreign securities. In other words, we took away all of Germany's external wealth. And we took away her only means of getting more wealth (exports). Then saying You owe us more. The only other source for Germany to repay would be in internal wealth, denominated in worthless German marks. Germany's only hope to repay would be to exact taxes on her population so high that everything above subsistence income would go to reparations. Which leaves little incentive for people to work hard.

In reality, the reparations had to be renegotiated several times during the 1920s because Germany was unable to repay. And they were sitll high enough to breed the resentment in Germany that led the National Socialist Party to power. Which was something Keynes warned about in the book, though he did not (and could not have) predicted the form of political unrest that ultimately did happen.

Keynes, John Maynard, 1880-1946.
The economic consequences of the peace / John Maynard Keynes; introduction by Robert Lekachman.
p. cm.
ISBN 0-14-018805-3
1. Treaty of Versailles (1919). 2. Economic History—1918-1945. 3. World War, 1914-1918—Economic aspects. I. Title
HC57 .K4 1988
940.3'14 2188-013975