The Economic Consequences of the Peace: inevitable fruits of the War and the avoidable misfortunes of the Peace

“We will get out of her all you can squeeze out of a lemon and a bit more. I will squeeze her until you can hear the pips squeak.”


BY NURAN YILDIRIM

In the autumn of 1919, British economist John Maynard Keynes (1883-1946) wrote his well-known book titled “The Economic Consequences of the Peace” and he indicated in some detail the economic and financial provisions of the Treaty of Peace with Germany. He is mainly concerned about the wisdom and the consequences of the Treaty, – neither about the demand for penal justice against the enemy, nor about the obligations of contractual justice on the victor. Throughout the book, Keynes mostly focuses on two different kinds of statements which have been widely promulgated, as to Germany’s capacity to pay, the other as to the amount of the Allies’ just claims in respect of the devastated areas. His insights were in retrospect, a reaction to the exertions, the fears and the sufferings of the five years of the First World War.

As the basis of peace on November 5, 1918, the Allied Governments were entitled to ask for Reparation for the categories of damage which are governed by the relevant passages in President Wilson’s Fourteen Points of January 8, 1918. That is to say, governed by the President’s Note of November 5. Keynes claims that the Allies have modified these passages of the President Wilson in their qualifying Note, “Compensation will be made by Germany for all damage done to the civilian population of the Allies and to their property by the aggression of Germany by land, by sea, and from the air.”

This Note takes important place in the book of Keynes and he attempts to elucidate the precise force of the phrase – “all damage done to the civilian population of the Allies and to their property by the aggression of Germany by land, by sea, and from the air.”

Initially, Keynes claims that this sentence is apparently simple and ambiguous statement, besides whether the term of this Note is binding or not. He writes:

“But there are not only the limitations of the phrase in its natural meaning and the emphasis on civilian damages as distinct from military expenditure generally; it must also be remembered that the context of the term is in elucidation of the meaning of the term “restoration” in the President’s Fourteen Points. The Fourteen Points provide for damage in invaded territory – Belgium, France, Romania, Serbia, and Montenegro (Italy being unaccountably omitted) – but they do not cover losses at sea by submarine, bombardments from the sea (as at Scarborough), or damage done by air raids.”

Keynes asks how far Germany can be made contingently liable for damage done, not by itself, but its co-belligerents, Austria-Hungary, Bulgaria, and Turkey. He claims that it is an act of gross unfairness and infidelity to make Germany pay the aggregate demand:

“This is one of the many questions to which the Fourteen Points give no clear answer; on the one hand, they cover explicitly in Point 11 damage done to Romania, Serbia and Montenegro, without qualification as to the nationality of the troops inflicting the damage; on the other hand, the Note of the Allies speaks of “German” aggression when it might have spoken of the aggression of “Germany and her Allies”. On a strict and literal interpretation, I doubt if claims lie against Germany for damage done, – e.g. by the Turks to the Suez Canal, or by Austrian submarines in the Adriatic. But it is case where, if the Allies wished to strain a point, they could impose contingent liability on Germany without running seriously contrary to the general intention of their engagement.”

Indeed, the Treaty of Versailles was an unfair punishment. As Keynes writes: “I believe that the campaign for securing out of Germany the general costs of the war was one of the most serious acts of political unwisdom for which our statesmen have ever been responsible.” However, it should be noted that Allies also imposed significant reparation payments and a series of harsh treaties upon Austria-Hungary, Ottoman Empire and Bulgaria. The Ottoman Empire, for instance, has signed The Armistice of Mudros on October 30, 1918. As part of several conditions to the armistice, the Ottoman army was discharged immediately; the Allies were granted the right to occupy forts controlling the Straits of the Dardanelles and the Bosporus; and the right to occupy any Ottoman territory in the event of a threat to their security.

On the above basis of claims, Keynes asks, what would the aggregate demand amount to? Since there are no figures on which to base any exact or scientific estimate, Keynes attempts to estimate the economic damage as a result of the invasion, particularly in Belgium. Despite its neutrality, the German army invaded Belgium on August 4th, 1914. It is clear that the sacrifice of Belgium was the greatest of any of the Allies in the war’s early stages. According to Keynes, a special situation occupied by Belgium due to

“The destruction in France was on an altogether more significant scale, not only as regards the length of the battle line, but also on account of the immensely deeper area of country over which the battle swayed from time to time. It is popular delusion to think of Belgium as the principal victim of the war; it will turn out, I believe, that taking account of casualties, loss of property and burden of future debt, Belgium has made the least relative of all the belligerents except the United States.”

The economic clauses of the treaty are comprehensive, and based on the destruction of the Allied countries, especially of Belgium and France, the treaty demands the payments of money from Germany. In this respect, Keynes talks about the principal economic provisions of the Treaty and Germany’s capacity to meet the payments that are demanded from it. Before the war the German economic system depended on the overseas connections of her merchants and the overseas commerce as represented by its mercantile marine, its colonies, its foreign investments, its exports; its oal and iron industries; and its transport and tariff system. Keynes claims that the Treaty aims to destruct all three of these, especially the first two:

“It is evident that Germany’s pre-war capacity to pay an annual foreign tribute has not been unaffected by the almost total loss of her colonies, her overseas connections, her mercantile marine, and her foreign properties, by the cession of ten per cent of her territory and population, of one-third of her coal and of three-quarters of her iron ore, by two million casualties amongst men in the prime of life, by the starvation of her people for four years, by the burden of a vast war debt, by the depreciation of her currency to less than one-seventh its former value, by the disruption of her allies and their territories, by Revolution at home and Bolshevism on her borders, and by all the unmeasured ruin in strength and hope of four years of all-swallowing war and final defeat.”

It is clear that the Allies governments’ aim was to weaken and destroy Germany in every possible way. Following the war, it was the British Conservative politician Sir Eric Geddes’s policy to take every bit of property belonging to Germans in neutral and Allied countries: “We will get out of her all you can squeeze out of a lemon and a bit more,” he cried, “I will squeeze her until you can hear the pips squeak.”

In order to weaken and revenge a dangerous and strong enemy, Allies set an unjust and unworkable economic basis for the Treaty with Germany. Nevertheless, the future and the means of livelihood of Europe was not their concern. Keynes claims that these were all about competing interests of France and Belgium. “Why had the world been so credulous (too ready to believe things) of the unveracities of politicians?” Keynes asks. He explains this particular credulity:

“In the first place, the vast expenditures of the war, the inflation of prices, and the depreciation of currency, leading up to a complete instability of the unit of value have made us lose all sense of number and magnitude in matters of finance. What we believed to be the limits of possibility have been so enormously exceeded, and those who founded their expectations on the past have been so often wrong, that the man in the street is now prepared to believe anything which is told him with some show of authority, and the larger the figure the more readily he swallows it.”

Keynes has hitherto criticized the work of Paris and represented the condition of Germany. Throughout the final chapter of his book, Keynes gives some remedies and depicts an economic system which is free of the objections of a privileged and avowedly imperialistic scheme of exclusion and discrimination. He writes:

“If we take the view that for at least a generation to come Germany cannot be trusted with even a modicum of prosperity, that while all our recent Allies are angels of light, all our recent enemies, Germans, Austrians, Hungarians, and the rest, are children of the devil, that year by year Germany must be kept impoverished and her children starved and crippled, and that she must be ringed round the enemies; then we shall reject all the proposal of this chapter, and particularly those which may assist Germany to regain a part of her former material prosperity and find a means of livelihood for the industrial population of her towns.”

For the future of international relations and the Peace of the World, Keynes claims, Allies should not feel a national, racial, or political hatred for German or Russian population or their governments. Otherwise, Allies should be prepared to face the consequences of such feelings.

“Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation. Even though the result disappoint us, must not base our actions on better expectations, and believe that prosperity and happiness of one country promotes that of others, that the solidarity of man is not a fiction, and that nations can still afford to treat other nations as fellow-creatures?”

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s