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

by John Maynard Keynes

[58] Any one, who can fully persuade himself of the unalterable truth of the proposition that every day the sales of exchange must exactly equal the purchases, will have gone a long way towards understanding the secret of the exchanges.

[59] Furthermore, every improvement in the value of the mark increases the real burden of what Germany owes to foreign holders of marks and also the real burden of the Public Debt on the Exchequer. A rate of exchange exceeding 400 marks to the dollar has at least this advantage that it has reduced these two burdens to very moderate dimensions.

CHAPTER IV

The Reparation Bill

The Treaty of Versailles specified the classes of damage in respect of which Germany was to pay Reparation. It made no attempt to assess the amount of this damage. This duty was assigned to the Reparation Commission, who were instructed to notify their assessment to the German Government on or before May 1, 1921.

An attempt was made during the Peace Conference to agree to a figure there and then for insertion in the Treaty. The American delegates in particular favored this course. But an agreement could not be reached. There was no reasonable figure which was not seriously inadequate to popular expectations in France and the British Empire.[60] The highest figure to which the Americans would agree, namely, 140 milliard gold marks, was, as we shall see later, not much above the eventual assessment of the Reparation Commission; the lowest figure to which France and Great Britain would agree, namely, 180 milliard gold marks, was, as it has turned out, much above the amount to which they were entitled even under their own categories of claim.[61]

Between the date of the Treaty and the announcement of its decision by the Reparation Commission, there was much controversy as to what this amount should be. I propose to review some of the details of this problem, because, if men are in any way actuated by veracity in international affairs, a just opinion about it is still relevant to the Reparation problem.

The main contentions of The Economic Consequences of the Peace were these: (1) that the claims against Germany which the Allies were contemplating were impossible of payment; (2) that the economic solidarity of Europe was so close that the attempt to enforce these claims might ruin every one; (3) that the money cost of the damage done by the enemy in France and Belgium had been exaggerated; (4) that the inclusion of pensions and allowances in our claims was a breach of faith; and (5) that our legitimate claim against Germany was within her capacity to pay.

I have made some supplementary observations about (1) and (2) in Chapters III. and VI. I deal with (3) here and in Chapter V. with (4). These latter are still important. For, whilst time is so dealing with (1) and (2) that very few people now dispute them, the amount of our legitimate claim against Germany has not been brought into so sharp a focus by the pressure of events. Yet if my contention about this can be substantiated, the world will find it easier to arrange a practical settlement. The claims of justice in this connection are generally thought to be opposed to those of possibility, so that even if the pressure of events drives us reluctantly to admit that the latter must prevail, the former will rest unsatisfied. If, on the other hand, restricting ourselves to the devastations in France and Belgium, we can demonstrate that it is within the capacity of Germany to make full reparation, a harmony of sentiment and action can be established.

With this end in view it is necessary that I should take up again, in the light of the fuller information now available, the statements which I made in The Economic Consequences of the Peace (p. 120) to the effect that “the amount of the material damage done in the invaded districts has been the subject of enormous, if natural, exaggeration.” These statements have involved me in a charge, with which Frenchmen as eminent as M. Clemenceau[62] and M. Poincaré have associated themselves, that I was actuated not by the truth but by a supposed hostility to France in speaking thus of the allegations of M. Klotz and M. Loucheur and some other Frenchmen. But I still urge on France that her cause may be served by accuracy and the avoidance of overstatement; that the damage she has suffered is more likely to be made good if the amount is possible than if it is impossible; and that, the more moderate her claims are, the more likely she is to win the support of the world in securing priority for them. M. Brenier, in particular, has conducted a widespread propaganda with the object of creating prejudice against my statistics. Yet to add a large number of noughts at the end of an estimate is not really an indication of nobility of mind. Nor, in the long run, are those persons good advocates of Franceʼs cause who bring her name into contempt and her sincerity into doubt by using figures wildly. We shall never get to work with the restoration of Europe unless we can bring not only experts, but the public, to consider coolly what material damage France has suffered and what material resources of reparation Germany commands. The Times, in a leading article which accompanied some articles by M. Brenier (December 4, 1920), wrote with an air of noble contempt—“Mr. Keynes treats their losses as matter for statistics.” But chaos and poverty will continue as long as we insist on treating statistics as an emotional barometer and as a convenient vehicle of sentiment. In the following examination of figures let us agree that we are employing them to measure facts and not as a literary expression of love or hate.