Financial History Issue 131 (Fall 2019) - Page 28

Revisiting Keynes’ Economic Consequences By Michael A. Martorelli In June 1919, economist John Maynard Keynes resigned from his position as part of the British delegation at the Paris Peace Conference. He claimed that many provi- sions of the Treaty of Versailles made that document a Carthaginian Peace that was designed to be overly harsh and puni- tive. He especially warned that the call for reparations from Germany to the Allied and Associated powers would be prob- lematic for all parties and would hurt the European economy for years to come. In December 1919, he substantiated his argu- ments in The Economic Consequences of the Peace. That rather short book became a best seller and the subject of much com- mentary and debate. One hundred years after its publication, it seems an appropri- ate time to re-examine Keynes’ work. Keynes’ apprehensions about the unwise nature of the terms he feared would be forced upon the losing side in the Great War surfaced even before he attended the peace conference to establish the terms for ending that conflict. In January 1916, he co-authored a memorandum for the British Board of Trade suggesting that the indemnity paid by France to Germany after the Franco-Prussian War in 1871 had damaged the economies of both the vic- tor and the loser. Even with the on-going war’s outcome still in doubt, the memo advised against requiring what its authors hoped would be the losing coalition of Germany and the Central Powers to pay for the physical damages done throughout France, Belgium and other Allied coun- tries. Keynes particularly feared the nega- tive consequences that would result if a subsequent peace treaty did not permit Germany to regain a level of economic sta- bility that enabled the country to re-claim its role as perhaps the most important par- ticipant in the European economy. After several years of stalemated war- fare, by the autumn 1918, the presence of an increasing number of troops from the United States was shifting the tide of battle towards the Allies. In early October, German Chancellor Max von Baden telegraphed 26    FINANCIAL HISTORY  |  Fall 2019  | President Woodrow Wilson in Washing- ton and asked for an armistice based on Wilson’s “Fourteen Points” address of the previous January. That speech reflected the President’s hopes for a “peace without vic- tory” that would not involve a victor’s call for punitive terms against a loser. President Wilson reiterated his high-minded and principled ideas several times throughout 1918, stating that the United States would be committed to finding an eventual peace that would be without annexations, contribu- tions or punitive damages. He asserted that the treaty that would end the war between Germany and the Allies must not impose harsh terms on the losers in the conflict; it should neither humiliate them nor lead to resentment against the victors. German and American officials spent much of October 1918 in frustrating and Dignitaries gather in the Hall of Mirrors at the Palace of Versailles, France, to sign the Treaty of Versailles ending World War I, June 28, 1919.