On Dec. 8, 1919, Macmillan Press published a book by a relatively obscure British Treasury official who had resigned from the government in protest over the Versailles treaty that brought the epochal trauma of the First World War to its conclusion.
The small treatise, the official wrote, sought to explain “the grounds of his objection to the treaty, or rather to the whole policy of the conference towards the economic problems of Europe.” A conservative print of 5,000 copies seemed right for a technocrat’s dissent, which featured meticulously detailed passages that pored over the history and prospects of things like Germany’s coal production and export markets.
The book, “The Economic Consequences of the Peace,” turned out to be a phenomenon. It swiftly went through six printings, was translated into a dozen languages, sold over 100,000 copies, and brought world fame to its 36-year-old author, John Maynard Keynes.
A brilliant and indefatigable scholar, public intellectual, journalist, government adviser and champion of the arts, Keynes would be at the center of things for the balance of his life. The Keynesian revolution reinvented economics in the 1930s, and continues to shape the field today. Keynes, again representing the British Treasury during World War II, was the principal intellectual architect of postwar international order. But he began his career in dissent.
“Economic Consequences” is majestically written — Keynes was close to the iconoclastic Bloomsbury cohort of artists and writers, and his incisive, candid portrayals of the peacemakers (Georges Clemenceau, David Lloyd George and Woodrow Wilson) reflected the no-holds-barred influence of Lytton Strachey’s recently celebrated “Eminent Victorians.” The book was also wildly controversial for its assessments of the capacity of Germany to pay the reparations demanded by the victorious Allied powers.
Keynes’s book is essentially correct with regard to its most important arguments. But it was, and remains today, largely misunderstood. The enduring contributions of the book are to be found not in Keynes’ first dissenting clause (his “objection the treaty”), but in the second, about “the economic problems of Europe.” Keynes was sounding an alarm about the fragility of the European order.
Keynes argued that while many Europeans were celebrating a new era in the continent’s economy, too much of what emerged from the war rested on longstanding, underappreciated and elaborately enmeshed networks and foundations. “Unstable elements, already present when war broke out,” he wrote, had been obliterated by years of total war — but then not replaced with something more stable. Reconstituting the general economic order, not exacting shortsighted retribution, was the imperative of the day. This, he believed, was the critical failure of the “peace” — not just Versailles, but the entire political and economic framework in which it was written.
And so when economists and historians, then and ever since, zeroed in on questions about, say, whether Keynes underestimated Germany’s capacity to pay its war reparations — they miss the larger point. Keynes could have surely been wrong. But his arguments about the crisis facing Europe, and about what the treaty failed to do, were exactly right.
Keynes recognized that the war had “so shaken this system as to endanger the life of Europe altogether.” But the treaty “includes no provisions for the economic rehabilitation of Europe — nothing to make the defeated Central empires into good neighbors, nothing to stabilize the new states of Europe,” nothing to restore “the disordered finances of France and Italy.” Forcing Germany into, essentially, servitude, he argued, “will sow the decay of the whole of civilized life of Europe.”
Keynes was well positioned to grasp the severity of this most perilous macroeconomic muddle. At the Treasury during the war, he had the task of larder of British finance to keep the war effort afloat. At the Paris Peace Conference he was the official representative of the Treasury; in addition, as the responsibilities of chancellor of the Exchequer, Austen Chamberlain, required him to stay in Britain, Keynes was deputized to represent him on the Supreme Economic Council.
Arriving in Paris on Jan. 10, he was quickly thrown into the maelstrom. Dispatched to meet with German financiers, the young Treasury man negotiated the terms of an emergency shipment of food to Germany, then on the brink of mass starvation.
Keynes would later describe those events in one of his finest long-form essays, “Dr. Melchior: A Defeated Enemy,” which he first read over two meetings in the privacy of the Memoir Club of Cambridge and Bloomsbury intimates. Virginia Woolf returned home from the second gathering and wrote an effusive note singing its literary praises; it was one of two brilliant works (“My Early Beliefs” was the other) that Keynes requested to be published posthumously.
His scene-setting has a cinematic quality:
A moment later we were called back to our saloon, since the German financiers were announced. The railway carriage was small, and both we and they were numerous. How were we to behave? Ought we to shake hands? We crushed together at one end of the carriage with a small bridge-table between us and the enemy. They pressed into the carriage, bowing stiffly. We bowed stiffly also, for some of us had never bowed before. We nervously made a movement as though to shake hands and then didn’t. I asked them, in a voice intended to be agreeable, if they all spoke English.
With some inspired back-channel improvisation, Keynes brought these modest, prefatory negotiations to a successful conclusion. The broader peace process, however, was a catastrophe — and Keynes had a front-row seat.
As the historian Eric Weitz described, German representatives reacted “with stunned disbelief” at the terms presented to them; when the details became public back home, the reaction was shock and anger. The two sides had bled each other white during the war, fighting to a stalemate until the late entry of the distant United States decisively tipped the balance of power. Germany, with no foreign troops on its soil, imagined it was bargaining for the loser’s share of a negotiated peace, not submitting to what amounted to unconditional surrender: colonies stripped, territory lost, navy sunk, army disbanded, reparations imposed.
Keynes, as he would write in “Economic Consequences” and emphasize repeatedly in the wake of its publication, was concerned “not with the justice of the treaty,” but with its “wisdom and with its consequences.” Behind the scenes, he fought for a more farsighted approach.
A flickering moment in April saw hope that his “grand scheme” might be embraced: modest reparations (with Britain’s share ceded to other victims of German aggression), cancellation of all inter-Allied war debts (America would bear the brunt of that burden), the establishment of a European free trade zone (to sidestep likely chaos in international commerce from the confused patchwork of new nations emerging in the east), and a new international loan to nurse the continent through a difficult period of economic disequilibrium.
This bordered on political naïveté: The Americans would not easily part with their money, nor the French with their vengeance. And in the elections of 1918, British politicians had famously (if fatuously) promised to hold Germany accountable for the full cost of the war, one promising to squeeze the country like a lemon “until the pips squeak.”
But for Keynes, the stakes were so high as to demand the effort. Historians have focused on his light-handed reparations proposal, but in the moment he was even more exercised over the issue of inter-Allied debts. Those obligations, he wrote in an internal Treasury brief, were “a menace to financial stability everywhere,” imposed a “crushing burden,” and would be “a constant source of international friction.” An international financial order that was little more than a tangle of debts and reparations could hardly “last a day.”
On May 14, 1919, he sent an anguished note to his mother, telling her of his plans to resign, but hung on, “so sick at what goes on,” for three more weeks. He submitted his formal letter of resignation to Prime Minister Lloyd George on June 5, returned home to lick his wounds, and then channeled his passions into writing “Economic Consequences.”
Keynes waged an intellectual campaign alongside his book, which, despite its runaway success, did little to influence the foreign policies of the relevant powers. Writing in the magazine Everybody’s Monthly to an American audience, he echoed the arguments found on the first page of his book: “Germany bears a special and peculiar responsibility for the war” and “for its universal and devastating character.” But the treaty “leaves Europe more unsettled than it found it,” and interest, not vengeance, must guide policy. It “will be a disaster for the world if America isolates herself,” he added.
In the preface to the French edition of the book he asked rhetorically, “Will France be safe because her sentries stand on the Rhine” yet “bloodshed, misery and fanaticism prevail from the Rhine eastwards through two continents?”
Few listened. The Americans’ brief flirtation with Wilsonian internationalism yielded to a resurgence of nationalism and nativism. Prioritizing domestic demands over global concerns, the United States stubbornly and shortsightedly added to Europe’s economic woes with an unyielding stance on the question of war debts.
France sought to enforce the treaty as written, going so far as to occupy the Ruhr Valley region in January 1923, in response to Germany’s failure to meet its reparation obligations. The occupation, which lasted two and a half years and was met with passive resistance and hyperinflation, seemed to prove Keynes’s point.
The balance of the 1920s limped along, with glimmers of progress and cooperation doing little to overcome the big problems Keynes had identified at the outset — fragile finances and political anxieties simmering just below the surface. One strong push would send it all tumbling down, and the 1931 global financial crisis, worsened by France’s search for political advantage as Austria and Germany’s banks teetered, did just that.
As Keynes noted at the time, “The shattering German crisis of 1931, which took the world more by surprise than it should, was in essence a banking crisis, though precipitated, no doubt, by political events and political fears.”
Those politics meant that the crisis was not contained. It spiraled out of control, sending the world economy tumbling into the depths of the Great Depression, and contributing directly to the rise of fascism in Germany and Japan.
“Men will not always die quietly,” Keynes warned in “The Economic Consequences of the Peace,” and “in their distress may overturn the remnants of organization, and submerge civilization itself.” A generation later, the American diplomat George F. Kennan would argue that the foreign policy horrors of the 1930s could be traced to the “lost opportunities” of the 1920s. Keynes would surely have agreed.
Jonathan Kirshner is a professor of political science and international studies at Boston College.