Financial History Issue 131 (Fall 2019) - Page 30

relieving Great Britain, France and others of their obligation to repay US govern- ment loans totaling more than $11 billion would lessen those countries’ dependence on reparations from Germany. Thus, the conferees could demand proportionately lower reparation payments from Germany and enable that country to regain a greater degree of its lost economic strength. But the American delegation strongly opposed the cancellation of inter-Allied debts. Throughout the spring, Keynes used let- ters to friends and relatives to express his feelings of disappointment and anger over the punitive terms that were being inserted into each draft of the treaty. He could not believe the Allies would not provide suf- ficient funds to address the mass starvation occurring throughout Germany and Aus- tria; he recognized the spirit of vindictive- ness, not compassion, in the financial terms of the reparations; and he regretted the delegates’ failure to address the challenge of rebuilding the economic system of Europe. The Allies did not permit any German representatives to participate in drafting the terms of the peace treaty. In early May, they allowed a delegation of German offi- cials to see the final draft of that document. Based on his earlier comments, Keynes’ resignation from the British delegation in early June could not have surprised his colleagues. Indeed, after listening to the Germans’ outraged protests over many provisions of the treaty, some members of the Allied delegations began to ques- tion the document’s harshest terms; sev- eral of them also resigned. Ultimately, the representatives of a divided German government agreed to sign the Treaty of Versailles by the conferees’ June 28 dead- line, even though they continued to object to provisions involving Germany’s losses of territory and the requirement to pay reparations. The latter issue had been so controversial among the delegates that the treaty deferred the calculation of the amount and timing of those payments to an inter-Allied Reparation Commission that would be convened before May 1, 1921. The treaty that ended the state of war between Germany and the Allied and Associated powers consisted of 15 parts, 445 articles and numerous annexes and maps. Its harshest provisions called for: • the acceptance of Germany’s guilt in causing the war; could have been attributed to Germany in its conduct of the war. He estimated that the Allies eventually would present Germany with a bill for £32 billion. But in analyzing Germany’s ability to use all its monetary and physical resources to pay reparations, Keynes suggested that it could afford to disburse no more than £2 billion. In comments sprinkled throughout the rest of the book, he explained how many other terms of the treaty would dam- age the economies of both Germany and Europe for the foreseeable future. Spe- cifically, he delved into the problems that would result from imposing terms such as the following: • the cessation of land; Title page of The Economic Consequences of the Peace, by John Maynard Keynes, 1920. • the partial payment of reparations of £1 billion for injuries to civilians, damages to non-military property and pensions for war widows; • the surrender of all overseas German colonies; • the elimination of Germany’s merchant marine and its access to major water- ways; • restrictions on the size of the German armed forces, and proscriptions against tanks, artillery pieces, airships and sub- marines; • changes in Germany’s boundaries that would cede Alsace-Lorraine and the coal mines in the Saar to France, and other property to Czechoslovakia and Poland. President Wilson’s “Fourteen Points” had not envisioned any of these terms; with the exception of a vague mention of reparations, neither had the November 1918 armistice. It is useful to separate Keynes’ objec- tions over the Treaty of Versailles into three components. Two were closely related. He devoted 54 of The Economic Consequences’ 142 pages to his analysis of the most reasonable amount of relevant damages in seven different categories that 28    FINANCIAL HISTORY  |  Fall 2019  | • restrictions on Germanys’ access to international waterways; • the imposition of labor standards and worker protections; • requirements to grant special trade terms while selling particular products to specific countries; • renouncing special trading privileges Germany previously held; • transferring tens of thousands of horses, cows and sheep to France and Belgium; • granting the full freedom of overland navigation, as well as the international use of all rivers and airfields. Keynes concluded that these and other terms would combine to keep Germany’s economy in a constant state of disrepair. Moreover, the economist asserted that such a state of disorder would infect other European countries and prevent the con- tinent’s economic system from recovering from the damage done to it during the past four years. In justifying his concerns over such matters, Keynes spent a good deal of ink reviewing the important role of Germany in the pre-1914 European econ- omy. He noted that the country’s strength rested on the combination of overseas commerce, coal and iron resources, and transport and tariff systems. Severely lim- iting the country’s authority over those strengths did not seem like a wise policy. Separately, if it was not clear from hear- ing or reading Keynes’ frequent comments during the peace conference, it was cer- tainly apparent from reading his book that his most fervent objection was to the vindictive and vengeful tone at Paris.