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

by John Maynard Keynes

In the summer of 1921 much interest was excited by reports of confidential interviews between M. Loucheur and Herr Rathenau, the Ministers of Reconstruction in France and Germany respectively. An agreement was provisionally reached in August 1921 and was finally signed at Wiesbaden on October 6, 1921[53]; but it does not come into force until it has received the approval of the Reparation Commission. This Commission, whilst approving the general principles underlying it, have referred it to the principal Allied Governments on the ground that it involves departures from the Treaty of Versailles beyond their own competence to authorize. The British delegate, Sir John Bradbury, has advised his Government that the Agreement should be approved subject to certain modifications which he sets forth; and his Report has been published.[54]

The Wiesbaden Agreement is a complicated document. But the essence of it is easily explained. It falls into two distinct parts. First, it sets up a procedure by which private French firms can acquire from private German firms materials required for reconstruction in France, without France having to make payment in cash. Secondly, it provides that, whilst Germany is not to receive payment at once for any part of these goods, only a proportion of the sum due is credited to her immediately in the books of the Reparation Commission, the balance being advanced by her to France for the time being and only brought into the Reparation account at a later date.

The first set of provisions has met with unqualified approval from every one. An arrangement which may possibly stimulate payment of Reparation in the form of actual materials for the reconstruction of the devastated districts satisfies convenience, economics, and sentiment in a peculiarly direct way. But such supplies were already arranged for under the Treaty, and the chief value of the new procedure lies in its replacing the machinery of the Reparation Commission by direct negotiation between the French and German authorities.[55]

The second set of provisions is, however, of a different character, since it interferes with the existing agreements between the Allies themselves as to the order and proportions in which each is to share in the available receipts from Germany, and seeks to secure for France a larger share of the earlier payments than she would receive otherwise. A priority to France is, in my opinion, desirable; but such priority should be accorded as part of a general re–settlement of Reparation, in which Great Britain should waive her claim entirely. Further, the Agreement involves an act of doubtful good faith on the part of Germany. She has been protesting with great vehemence (and, I believe, with perfect truth) that the Decisions of London exact from her more than she can perform. But in such circumstances it is an act of impropriety for her to enter voluntarily into an agreement which must have the effect, if it is operative, of further increasing her liabilities even beyond those against which she protests as impossible. Herr Rathenau may justify his action by the arguments that this is a first step towards replacing the Decisions of London by more sensible arrangements, and also that, if he can placate Germanyʼs largest and most urgent creditor in the shape of France, he has not much to fear from the others. M. Loucheur, on the other hand, may know as well as I do, though speaking otherwise, that the Decisions of London cannot be carried out, and that the time for a more realistic policy is at hand; he may even regard his interviews with Herr Rathenau as a foretaste of more intimate relationships between business interests on the two sides of the Rhine. But these considerations, if we were to pursue them, would lead us to a different plane of argument.

Sir John Bradbury in his Report[56] on the Agreement to the British Government has proposed certain modifications which would have the effect of preserving the advantages of the first set of provisions, but of nullifying the latter so far as they could operate to the detriment of Franceʼs Allies.

I consider, however, that exaggerated importance has been attached to this topic, since the actual deliveries of goods made under the Wiesbaden or similar agreements are not likely to be worth such large sums of money as are spoken of. Deliveries of coal, dyestuffs, and ships, dealt with in the Annexes to Part VIII. of the Treaty are specifically excluded from the operation of the Wiesbaden Agreement which is expressly limited to deliveries of plant and material, and these France undertakes to apply solely to the reconstitution of the devastated regions. The quantities of goods, which French firms and individuals will be ready to order from Germany at the full market price, and which Germany can supply, for this limited purpose (so great a part of the cost of which is necessarily due to labor employed on the spot and not to materials capable of being imported from Germany), are not likely to amount, during the next five years, to a sum of money which the other Allies need grudge France as a priority claim.

My other reserve relates to the supposed importance of the Wiesbaden Agreement as a precedent for similar arrangements with the other Allies, and raises the general issue of the utility of arrangements for securing that Germany should pay in kind rather than in cash, for other purposes than those of the devastated areas.

It is commonly believed that, if our demands on Germany are met by her delivering to us not cash but particular commodities selected by ourselves, we can thus avoid the competition of German products against our own in the markets of the world, which must result if we compel her to find foreign currency by selling goods abroad at whatever cut in price may be necessary to market them.[57]

Most suggestions in favor of our being paid in kind are too vague to be criticized. But they usually suffer from the confusion of supposing that there is some advantage in our being paid directly in kind even in the case of articles which Germany might be expected to export in any case. For example, the Annexes to the Treaty which deal with deliveries in kind chiefly relate to coal, dyestuffs, and ships. These certainly do not satisfy the criterion of not competing with our own products; and I see very little advantage, but on the other hand some loss and inconvenience, in the Alliesʼ receiving these goods direct, instead of Germanyʼs selling them in the best market and paying over the proceeds. In the case of coal in particular, it would be much better if Germany sold her output for cash in the best export markets, whether to France and Belgium or to the neighboring neutrals, and then paid the cash over to France and Belgium, than that coal should be delivered to the Allies for which the latter may have no immediate use, or by transport routes which are uneconomical, when neutrals need the coal and what the Allies really require is the equivalent cash. In some cases the Allies have re–sold the coal which Germany has delivered to them,—a procedure which, in the case of an article for which freight charges cover so large a proportion of the whole value, involves a preposterous waste.

If we try to stipulate the precise commodities in which Germany is to pay us, we shall not secure from her so large a contribution, as if we fix a reasonable sum which is within her capacity, and then leave her to find the money as best she can. If, moreover, the sum fixed is reasonable, the annual payments will not be so large, in proportion to the total volume of international trade, that Great Britain need be nervous lest the payments upset the normal equilibrium of her economic life in any greater degree than is bound to result in any case from the gradual economic recovery of so formidable a trade rival as pre–war Germany.