Seeking Keynes – The Treaty


A previous post Seeking Keynes – the cake introduced John Maynard Keynes   and his book  THE ECONOMIC CONSEQUENCES OF THE PEACE.  Keynes wrote the book in 1919 following his resignation from the British delegation to the  Paris Peace Conference, when it became evident that there was no hope of substantial modification in the draft Terms of Peace.  The following is a condensed version of selected parts in which Keynes considered the nature of Europe and the Treaty of Versailles.

In England the outward aspect of life does not yet teach us to feel or realize in the least that an age is over. We are busy picking up the threads of our life where we dropped them, with this difference only, that many of us seem a good deal richer than we were before. Where we spent millions before the war, we have now learnt that we can spend hundreds of millions and apparently not suffer for it. Evidently we did not exploit to the utmost the possibilities of our economic life.[1]

All classes alike thus build their plans, the rich to spend more and save less, the poor to spend more and work less.

England still stands outside Europe. Europe’s voiceless tremors reparationsdo not reach her. Europe is apart and England is not of her flesh and body. But Europe is solid with herself. France, Germany, Italy, Austria and Holland, Russia and Romania and Poland, throb together, and their structure and civilization are essentially one. They flourished together, they have rocked together in a war, which we, in spite of our enormous contributions and sacrifices (like – though in a less degree – than America), economically stood outside, and they may fall together. In this lies the destructive significance of the Peace of Paris.

1919-the-executioners-await-germany

German satirical magazine Simplissimus, 3 June 1919.

If the European Civil War is to end with France and Italy abusing their momentary victorious power to destroy Germany and Austria-Hungary now prostrate, they invite their own destruction also, being so deeply and inextricably intertwined with their victims by hidden psychic and economic bonds.

Paris was a nightmare, and every one there was morbid. A sense of impending catastrophe overhung the frivolous scene; the futility and smallness of man before the great events confronting him; the mingled significance and unreality of the decisions; levity, blindness, insolence, confused cries from without,—all the elements of ancient tragedy were there.

781px-Big_four

THE BIG FOUR (L – R) Prime Minister David Lloyd George (Great Britain) Premier Vittorio Orlando, Italy, French Premier Georges Clemenceau, President Woodrow Wilson

In Paris, where those connected with the Supreme Economic Council, received almost hourly the reports of the misery, disorder, and decaying organization of all Central and Eastern Europe, allied and enemy alike, and learnt from the lips of the financial representatives of Germany and Austria unanswerable evidence, of the terrible exhaustion of their countries, an occasional visit to the hot, dry room in the President’s house, where the Four fulfilled their destinies in empty and arid intrigue, only added to the sense of nightmare.

London believed that Paris was making a great confusion of its business, but remained uninterested. In this spirit the British people received the Treaty without reading it.

The significant features of the immediate post-war situation can be grouped under three heads: first, the absolute falling off, for the time being, in Europe’s internal productivity; second, the breakdown of transport and exchange by means of which its products could be conveyed where they were most wanted; and third, the inability of Europe to purchase its usual supplies from overseas.

The problem of the re-inauguration of the perpetual circle of production and exchange in foreign trade leads me to the currency situation of Europe. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. [2] The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. [JMK]

NOTES:

  1. Only in 2020, a hundred years after the end of World War I, will Germany have paid all the reparation costs laid down in the 1919 Treaty of Versailles.
  2. In Versailles had any except Keynes worried about the shocks which the transfer of foreign exchange mountains triggers. 
  1. Erst im Jahre 2020, gut hundert Jahre nach dem Ende des Ersten Weltkriegs, wird Deutschland alle Folgekosten der 1919 in den Versailler Verträgen festgelegten Reparationen bezahlt haben.
  2. In Versailles hatte sich außer Keynes keiner um die Erschütterungen gesorgt, welche der Transfer von Devisengebirgen auslöst.

Berliner Zeitung  09.10.1999

[1] It’s somewhat paradoxical that successive governments by subverting the application of Keynesian economics  – post WWII –  have eventually brought us to a similar impasse (Progressive Self Destruction).

[2] There is no paradox in a government servicing the debt it has created by debauching its own currency and stealing the from its own people (Financial Repression).

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