The Economic Consequences of the Peace

by John Maynard Keynes

In addition to the Fourteen Points of January 18, 1918, the Addresses of the President which form part of the material of the Contract are four in number,—before the Congress on February 11; at Baltimore on April 6; at Mount Vernon on July 4; and at New York on September 27, the last of these being specially referred to in the Contract. I venture to select from these Addresses those engagements of substance, avoiding repetitions, which are most relevant to the German Treaty. The parts I omit add to, rather than detract from, those I quote; but they chiefly relate to intention, and are perhaps too vague and general to be interpreted contractually.[8]

The Fourteen Points.—(3). "The removal, so far as possible, of all economic barriers and the establishment of an equality of trade conditions among all the nations consenting to the Peace and associating themselves for its maintenance." (4). "Adequate guarantees given and taken that national armaments will be reduced to the lowest point consistent with domestic safety." (5). "A free, open-minded, and absolutely impartial adjustment of all colonial claims," regard being had to the interests of the populations concerned. (6), (7), (8), and (11). The evacuation and "restoration" of all invaded territory, especially of Belgium. To this must be added the rider of the Allies, claiming compensation for all damage done to civilians and their property by land, by sea, and from the air (quoted in full above). (8). The righting of "the wrong done to France by Prussia in 1871 in the matter of Alsace-Lorraine." (13). An independent Poland, including "the territories inhabited by indisputably Polish populations" and "assured a free and secure access to the sea." (14). The League of Nations.

Before the Congress, February 11.—"There shall be no annexations, no contributions, no punitive damages.... Self-determination is not a mere phrase. It is an imperative principle of action which statesmen will henceforth ignore at their peril.... Every territorial settlement involved in this war must be made in the interest and for the benefit of the populations concerned, and not as a part of any mere adjustment or compromise of claims amongst rival States."

New York, September 27.—(1) "The impartial justice meted out must involve no discrimination between those to whom we wish to be just and those to whom we do not wish to be just." (2) "No special or separate interest of any single nation or any group of nations can be made the basis of any part of the settlement which is not consistent with the common interest of all." (3) "There can be no leagues or alliances or special covenants and understandings within the general and common family of the League of Nations." (4) "There can be no special selfish economic combinations within the League and no employment of any form of economic boycott or exclusion, except as the power of economic penalty by exclusion from the markets of the world may be vested in the League of Nations itself as a means of discipline and control." (5) "All international agreements and treaties of every kind must be made known in their entirety to the rest of the world."

This wise and magnanimous program for the world had passed on November 5, 1918 beyond the region of idealism and aspiration, and had become part of a solemn contract to which all the Great Powers of the world had put their signature. But it was lost, nevertheless, in the morass of Paris;—the spirit of it altogether, the letter in parts ignored and in other parts distorted.

The German observations on the draft Treaty of Peace were largely a comparison between the terms of this understanding, on the basis of which the German nation had agreed to lay down its arms, and the actual provisions of the document offered them for signature thereafter. The German commentators had little difficulty in showing that the draft Treaty constituted a breach of engagements and of international morality comparable with their own offense in the invasion of Belgium. Nevertheless, the German reply was not in all its parts a document fully worthy of the occasion, because in spite of the justice and importance of much of its contents, a truly broad treatment and high dignity of outlook were a little wanting, and the general effect lacks the simple treatment, with the dispassionate objectivity of despair which the deep passions of the occasion might have evoked. The Allied governments gave it, in any case, no serious consideration, and I doubt if anything which the German delegation could have said at that stage of the proceedings would have much influenced the result.

The commonest virtues of the individual are often lacking in the spokesmen of nations; a statesman representing not himself but his country may prove, without incurring excessive blame—as history often records—vindictive, perfidious, and egotistic. These qualities are familiar in treaties imposed by victors. But the German delegation did not succeed in exposing in burning and prophetic words the quality which chiefly distinguishes this transaction from all its historical predecessors—its insincerity.

This theme, however, must be for another pen than mine. I am mainly concerned in what follows, not with the justice of the Treaty,—neither with the demand for penal justice against the enemy, nor with the obligation of contractual justice on the victor,—but with its wisdom and with its consequences.

I propose, therefore, in this chapter to set forth baldly the principal economic provisions of the Treaty, reserving, however, for the next my comments on the Reparation Chapter and on Germany's capacity to meet the payments there demanded from her.

The German economic system as it existed before the war depended on three main factors: I. Overseas commerce as represented by her mercantile marine, her colonies, her foreign investments, her exports, and the overseas connections of her merchants; II. The exploitation of her coal and iron and the industries built upon them; III. Her transport and tariff system. Of these the first, while not the least important, was certainly the most vulnerable. The Treaty aims at the systematic destruction of all three, but principally of the first two.