Financial History Issue 131 (Fall 2019) - Page 31

He criticized the motives and abilities of Wilson, Lloyd George and Clemenceau, and he accused them of violating both the spirit and the letter of President Wilson’s “Fourteen Points.” He expressed regret that the conferees had not included in the treaty any ideas for helping the economics of Germany or Europe to recover back to their pre-war levels. In Keynes’ opinion, not including any German representatives in the crafting of the treaty was yet another indicator of the Allied negotiators’ primary interest in punishment and vengeance, not in reconciliation. Importantly, by attacking the basic morality of the treaty as soon as he did after its signing, Keynes was largely responsible for establishing the tone of the debate over its effectiveness. The reaction to Keynes’ book was swift. Many observers praised his detailed analy- sis of the reparations issue and the likely impact of other economic terms. But even those who supported the essence of his arguments had to acknowledge their own inability to verify Keynes’ economic assumptions and calculations. Therefore, it was difficult for any reader to validate his prediction of economic doom for Germany and Europe. Some reviewers did question his version of the pre-1914 European econ- omy. None, however, were able to marshal the amount of facts Keynes presented as he documented his assertions about Ger- many’s past strengths and the need for the treaty to recognize their future importance. More fundamentally, many critics believed the author’s unflattering por- traits of the main Allied negotiators and their actions during the crafting of the treaty undermined his economic analysis. They viewed the book not as a dispas- sionate commentary on the treaty’s eco- nomic terms, but as an emotional argu- ment against the basic premise of both the peace conference and the treaty. For the most part, readers expressing their agreement or disagreement with Keynes’ political or economic observations did so because they validated their own personal or institutional opinions. Few commented on the wisdom or feasibility of his spe- cific suggestions for improving the treaty. Indeed, it quickly became apparent that the exhausted negotiators would not con- sider any of them. During the past 100 years, many authors have examined the accuracy of Keynes’ analysis and predictions. Few have done so without the benefit of hindsight, that is without referring to the way the flow of events in the 1920s and 1930s affected Germany’s fortunes and Keynes’ financial predictions. It’s worthwhile pointing out that in 1920, no one knew the following realities: • A weak German government would be unable to prevent the rampant inflation that ruined their economy during the 1920s. • The Reparations Commission would be unable to develop one simple level of reparations that Germany could reason- ably be expected to pay over a defined period of time. Moreover, the decisions made by the commission in 1921 would have to be revisited by the Dawes Plan in 1924 and the Young Plan in 1929. • Changes in the purchasing power of various currencies would materially affect the value of the amounts of cur- rency and payments in kind to be deliv- ered by Germany. • German officials and ordinary citizens alike would use Keynes’ vitriolic state- ments about the proceedings and the results at Versailles as a justification for their own rejection of the treaty’s most problematic terms. • No Allied country would be able to enforce most of the territorial and mili- tary restrictions called for in the treaty. • The US Senate’s refusal to ratify the treaty would remove that country from any role in helping rehabilitate Europe. • Economic downturns around the world during the 1920s would exacerbate problems Keynes had not even men- tioned. • In subsequent decades, Keynes himself would materially modify his beliefs in the economic orthodoxy he advocated and supported in 1919. • A disillusioned young war veteran would exploit the difficult economic and social conditions in post-war Ger- many and feed his misguided version of nationalistic, anti-Semitic, anti-capital- ist, anti-Marxist pride to the detriment of millions of innocent souls. Some of Keynes’ economic analysis did turn out to be accurate. Germany would claim great difficulty in struggling to pay reparations. But he could not have known how its leaders’ rejection of the treaty’s principles affected their willing- ness, not their ability, to comply with its terms. Keynes’ apprehensions about the economic revitalization of Germany and Europe were on point. But it seems improper to ignore the impact of domestic politics in Germany’s economic problems in the 1920s, let alone the impact in the later years of the Great Depression. Given the intensity of the economic troubles Germany and all of Europe encountered throughout the two decades following the publication of The Economic Consequences, it is easy to conclude that Keynes was very accurate in his analy- ses and projections. Unfortunately, it’s impossible to examine the counterfactual question of how those economics would have progressed if Keynes had not writ- ten his book. Did Keynes really predict the future? Or did he give fellow analysts of the Treaty of Versailles sufficient data points they could accept or reject in order to justify their own version of the treaty’s impact? The controversy continues.  Michael A. Martorelli is a Director Emeritus at Fairmount Partners and a frequent contributor to Financial His- tory. He earned his MA in History from American Military University. Sources Hession, Charles H. John Maynard Keynes: A Personal Biography of the Man Who Revo- lutionized Capitalism and the Way We Live. Macmillan Publishing Company. 1984. Keynes, John Maynard. The Economic Conse- quences of the Peace. Macmillan & Co. 1919. Lepper, Larry. “The Rhetorical Consequences of Mr. Keynes: Intellectuals and the Com- munication of Economic Ideas.” Thesis sub- mitted to Victoria University of Wellington. 2010. Mantoux, Etienne, R.C.K. Ensor, et al. The Carthaginian Peace or The Economic Con- sequences of Mr. Keynes. Oxford University Press. 1946. www.MoAF.org  |  Fall 2019  |  FINANCIAL HISTORY  29