The Economic Consequences of the Peace

Summary

The Economic Consequences of the Peace is John Maynard Keynes's attack on the Treaty of Versailles, written in the summer of 1919 and published in London late that year. Keynes, a Cambridge economist, had served the British Treasury through the First World War and was its chief representative at the Paris Peace Conference until early June 1919, when he resigned because he saw no hope of changing the economic terms of the treaty. The book opens with a picture of Europe before 1914. Keynes describes a crowded, prosperous, and fragile continent whose people had grown used to rising wealth, free trade, and easy travel, and who forgot how unusual and unstable that order was. Its prosperity depended on Germany's industry and coal, on food bought from the Americas, and on a habit of saving by which the rich reinvested rather than consumed. The third chapter is a set of sharp portraits of the three leaders who made the treaty. Clemenceau of France is a clear-eyed old cynic who wants only to make France safe by crushing Germany; President Wilson is a high-minded but slow and inflexible man, outplayed by cleverer politicians; Lloyd George of Britain is quick and uncannily alert to everyone in the room, and Wilson is no match for him. Keynes argues that the Fourteen Points on which Germany had agreed to an armistice were betrayed in the drafting. The central chapters examine the treaty's economic clauses. Germany loses its merchant fleet, its colonies, its foreign property, much of its coal and iron, and control of its rivers and tariffs, and it must also pay reparations of a sum not yet fixed. Keynes estimates what Germany could really pay, about ten billion dollars, and argues that the Allies' claims, including pensions and separation allowances, were far beyond that and contrary to the armistice terms. He describes a Central Europe close to famine, with collapsing currencies and broken trade, and warns that inflation destroys the trust on which ordinary economic life rests. In the last chapter Keynes proposes remedies: revising the treaty through the League of Nations, cancelling the debts the Allies owed one another, an international loan to restart European production, and restored trade between Central Europe and Russia. He ends with a warning that a peace of vengeance would bring a far worse catastrophe. The book was a best seller in Britain and the United States and made Keynes famous. It helped turn opinion against the treaty, and historians still debate whether it was a prophecy of what followed or a polemic that weakened the peace.

Top Lessons

• Justice toward a defeated enemy

  Keynes argues that the reparation terms broke promises made at the armistice and would keep millions in poverty, and that such a policy would be wrong even if it enriched the victors. Students can weigh his argument against the real guilt of Germany for the war and the real suffering of France and Belgium.

• Honest money and public trust

  In Chapter VI Keynes warns that governments that pay their bills by inflation quietly confiscate their citizens' savings and break the trust between debtors and creditors. Honest weights and measures are an old moral principle; Keynes shows what happens to a society when money itself becomes dishonest.

• Character in leaders

  Keynes's portraits of Clemenceau, Wilson, and Lloyd George are vivid and often unkind. They teach students that treaties are made by persons with virtues and faults, and that a leader's pride, fatigue, or flattery can shape the lives of millions. Students should also ask whether Keynes was fair to them.

• Prophecy and its limits

  Keynes predicted that a peace of vengeance would bring a new catastrophe, and twenty years later a second world war began. Later critics such as Etienne Mantoux argued that Germany could have paid more and that the book weakened the will to enforce the treaty. Students can learn to test a famous argument against what actually happened.

Verified Quotes

Medical Lens

Keynes writes as an economist, but Chapter VI and its notes gather reports of hunger, malnourished children, and tuberculosis in Austria and Germany in 1919, and argue that famine and economic collapse feed each other.

• Chapter VI: Europe After the Treaty

  Footnoted reports from Vienna and Germany in 1919 of deaths from tuberculosis and of children stunted by malnutrition.