A Revision of the Treaty / Being a Sequel to The Economic Consequence of the Peace

by John Maynard Keynes

The German Government is in rather a dilemma in this matter. An increase in the coal tax is one of the most obvious sources for an increased revenue, and such a tax would be, from the standpoint of the exchequer, twice blessed, since it would increase correspondingly the Reparation credits. But on the other hand, such a proposal unites two groups against them, the industrialists, who want cheap coal for industry and the Socialists who want cheap coal for the domestic stove. From the revenue standpoint the tax would probably stand an increase from 20 per cent to 60 per cent; but from the political standpoint an increase from 20 per cent to 30 per cent is the highest contemplated at present, with a differential price in favor of domestic consumers.[24]

I take this opportunity of making a few corrections or amplifications of the passages in The Economic Consequences of the Peace which deal with coal.

1. The fate of Upper Silesia is highly relevant to some of the conclusions about coal in Chapter IV of The Economic Consequences of the Peace (pp. 77–84). I there stated that “German authorities claim, not without contradiction, that to judge from the votes cast at elections, one–third of the population would elect in the Polish interest, and two–thirds in the German,” which forecast turned out to be in almost exact accordance with the facts. I also urged that, unless the plebiscite went in a way which I did not expect, the industrial districts ought to be assigned to Germany. But I felt no confidence, having regard to the policy of France, that this would be done; and I allowed, therefore, in my figures for the possibility that Germany would lose this area.

The actual decision of the Allies, acting on the advice of the Council of the League of Nations to whom the matter had been referred, which we have discussed briefly above (pp. 12–14), divides the industrial triangle between the two claimants to it. According to an estimate of the Prussian Ministry of Trade 86 per cent of the total coal deposits of Upper Silesia fall to Poland, leaving 14 per cent to Germany. Germany retains a somewhat larger proportion of pits in actual operation, 64 per cent of the current production of coal falling to Poland and 36 per cent to Germany.[25]

The figure of 100,000,000 tons, given in The Economic Consequences of the Peace for the net German production (i.e., deducting consumption at the mines themselves) in the near future excluding Upper Silesia, should, therefore, be replaced by the figure of (say) 115,000,000 tons, including such part of Upper Silesia as Germany is now to retain.

2. I beg leave to correct a misleading passage in a footnote to p. 79 of The Economic Consequences of the Peace. I there spoke of “Polandʼs pre–war annual demand” for coal, where I should have said “pre–war Polandʼs pre–war annual demand.” The mistake was not material, as I allowed for Germanyʼs diminished requirements for coal, due to loss of territory, in the body of the text. But I confess that the footnote, as published, might be deemed misleading. At the same time it is, I think, a tribute to the general accuracy of The Economic Consequences that partizan critics should have fastened so greedily on the omission of the word “pre–war” before the word “Poland” in the footnote in question. Quite a considerable literature has grown up round it. The Polish Diet devoted January 20, 1921, to the discussion and patriotic analysis of this footnote, and concluded with a Resolution ordering the chief speech of the occasion (that of Deputy A. Wierzlicki) to be published throughout the world in several languages at the expense of the State. I apologize for any depreciation in the Polish mark for which I may have been so inadvertently responsible. Mr. Wierzlicki begins: “A book appeared by Keynes ... the author of a well–known work on India, that pearl of the English crown, that land which is a beloved subject of study to the English. Through such studies a man may win himself name and fame,”—which was certainly a little unscrupulous of me. And he concludes: “But England too must believe in facts! And if Keynes, whose book is impregnated with a humanitarian spirit and with understanding of the necessity to get up beyond selfish interests, if Keynes is convinced by actual data that he has done a wrong, that he has wrought confusion in the ideas of statesmen and politicians as regards Upper Silesia, then he too will see with his eyes and must become the friend of Poland, of Poland as an active factor in the development of the natural wealth of Silesia.” I owe it to so generous and eloquent a critic to quote the corrected figures, which are as follows: the Polish lands, united by the Peace Treaty into the new Polish State, consumed in 1913 19,445,000 tons of coal, of which 8,989,000 tons were produced within that area and 7,370,000 tons were imported from Upper Silesia (the total production of Upper Silesia in that year being 43,800,000 tons).[26] The Silesian Plebiscite has been preceded and followed by a mass of propagandist literature on both sides. For the economic questions involved see, particularly, on the Polish side: Wierzlicki, The Truth about Upper Silesia; Olszewski, Upper Silesia, Her Influence on the Solvability and on the Economic Life of Germany, and The Economic Value of Upper Silesia for Poland and Germany respectively; and on the German side: Sidney Osborne, The Upper Silesian Question and Germanyʼs Coal Problem, The Problem of Upper Silesia (papers by various authors, not all on the German side, with excellent maps, edited by Sidney Osborne), various pamphlets by Professor Schulz–Gavernitz, and documents circulated by the Breslau Chamber of Commerce.

3. My observations on Germanyʼs capacity to deliver reparation coal have been criticized in some quarters[27] on the ground that I made insufficient allowance for the compensation which is available to her by the more intensive exploitation of her deposits of lignite or brown coal. This criticism is scarcely fair, because I was the first in popular controversy to call attention to the factor of lignite, and because I was careful from the outset to disclaim expert knowledge of the subject.[28] I still find it difficult, in the face of conflicting expert opinions, to know how much importance to attach to this material. Since the Armistice there has been a substantial increase in output, which was 36 per cent higher in the first half of 1921 than in 1913.[29] In view of the acute shortage of coal this output must have been of material assistance towards meeting the situation. The deposits are near the surface, and no great amount of capital or machinery is needed for its production. But lignite briquette is a substitute for coal for certain purposes only, and the evidence is conflicting as to whether any further material expansion is economically practicable.[30]

The process of briquetting the rough lignite is probably a wasteful one, and it is doubtful whether it would be worth while to set up new plant with a view to production on a larger scale. Some authorities hold that the real future of lignite and its value as an element in the future wealth of Germany lie in improved methods of distillation (the chief obstacle to which, as also to other uses, lies in its high water content), by which the various oils, ammonia and benzine, latent in it can be released for commercial uses.

It is certainly the case that the future possibilities of lignite should not be overlooked. But there is a tendency at present, just as was the case with potash some little time ago, to exaggerate its importance greatly as a decisive factor in the wealth–producing capacity of Germany.