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

by John Maynard Keynes

It is fashionable at the present time to urge a reduction of the Alliesʼ claims on Germany and of Americaʼs claims on the Allies, on the ground that, as such payments can only be made in goods, insistence on these claims will be positively injurious to the claimants.

That it is in the self–interest of the Allies and of America to abate their respective demands, I hold to be true. But it is better not to use bad arguments, and the suggestion that it is necessarily injurious to receive goods for nothing is not plausible or correct. I seek in this chapter to disentangle the true from the false in the now popular belief that there is something harmful in compelling Germany (or Europe) to “fling goods at us.”

The argument is a little intricate and the reader must be patient.

1. It does not make very much difference whether the debtor country pays by sending goods direct to the creditor or by selling them elsewhere and remitting cash. In either case the goods come on to the world market and are sold competitively or coöperatively in relation to the industries of the creditor, as the case may be, this distinction depending on the nature of the goods rather than on the market in which they are sold.

2. It is not much use to earmark non–competitive goods against the payment of the debt, so long as competitive goods are being sold by the debtor country in some other connection, e.g., to pay for its own imports. This is simply to bury oneʼs head in the sand. For example, out of the aggregate of goods which Germany would naturally export in the event of her exports being forcibly stimulated, it might be possible to pick out a selection of non–competitive goods; but it would not affect the situation in the slightest degree to pretend that it was these particular goods, and not the others, which were paying the debt. It is therefore useless to prescribe that Germany shall pay in certain specified commodities if these are commodities which she would export in any case, and useless, equally, to forbid her to pay in certain specified commodities, if that merely means that she will export these commodities to some other market to pay for her imports generally. No expedient on our part for making Germany pay us, or on Americaʼs part for making us pay her, in the shape of particular commodities affects the position, except in so far as it modifies the form of the paying countryʼs exports as a whole.

3. On the other hand, it does us no harm to receive for nothing the proceeds of goods, even when they are sold competitively, if these goods would be sold on the worldʼs market in any case.

4. If the result of pressing the debtor country to pay is to cause it to offer competitive goods at a lower price than it would otherwise, the particular industries in the creditor country which produce these goods are bound to suffer, even though there are balancing advantages for the creditor country as a whole.

5. In so far as the payments made by the debtor country accrue, not to the country with which the debtorʼs goods are competing, but to a third party, clearly there are no balancing advantages to offset the direct disadvantages under 4.

6. The answer to the question, whether the balancing advantages to the creditor country as a whole outweigh the injury to particular industries within that country, depends on the length of the period over which the creditor country can reasonably expect to go on receiving the payments. At first the injury to the industries which suffer from the competition and to those employed in them is likely to outweigh the benefit of the payments received. But, as in the course of time the capital and labor are absorbed in other directions, a balance of advantage may accrue.

The application of these general principles to the particular case of ourselves and Germany is easy. Germanyʼs exports are so preponderantly competitive with ours, that, if her exports are forcibly stimulated, it is certain that she will have to sell goods against us. This is not altered by the fact that it is possible to pick out a few exports or potential exports, such as potash or sugar, which are not competitive. If Germany is to have a large surplus of exports over imports, she must increase her competitive sales. In the Economic Consequences of the Peace (pp. 175–185) I demonstrated this at some length on the basis of pre–war statistics. I showed not only that the goods she must sell, but the markets she must sell them in, were largely competitive with our own. The statistics of post–war trade show that the former argument still holds good. The following table shows the proportions in which her export trade was divided between the principal articles of export, (1) in 1913, (2) in the first nine months of 1920 (the latest period for which I have figures in this precise form), and (3) in the four months June to September 1921, these last figures representing, I think, a not exactly comparable classification, and being provisional only: