The Economic Consequences of the Peace

“The Economic Consequences is a book written by J. M. Keynes, who was an economist. In this book, Keynes reveal the unseen consequence of the treaty of Versailles on Germany since there is no regard for the economic side of the unsolved problem, followed eventually by a “remedy” or a strategy to stop the problem. The book is begun in the introductory paragraph by blaming Germany for the war, and how it led itself into a continuous devastation.

Yet by taking the risk to achieve the treaty, France and England could be completing the process of devastation that might result an irreversible problem that was a lot greater than it was before the peace could be signed… Keynes indicates that England in his opinion is not a part of Europe; that is, France, Germany, Italy, Austria, Holland, Russia and Romania altogether are united and all built upon one foundation without England.

Looking upon Europe as one nation, Keynes regards the First World War as a “European Civil War”. Based upon this term, Keynes implies that Germany and Austria-Hungary are not the only victims of the Peace of Paris, but rather France and Italy are unconsciously calling out for their own destruction due to the foundation they were built upon with Germany.

In Chapter VI, the author pessimistically explains how the economic prospective and consequence of the Treaty of Versailles was not innovatively planned whereas all the other aspect were discussed; The Council of Four (George Lloyd of England, Orlando of Italy, Clemenceau of France and President Woodrow Wilson of America) had different desires but all joined under the need of reparation from the already economically disabled Germany. Keynes changes the subject to discuss the economic situation in Europe. He commences by saying that Europe is not self-sufficient; Europe is the densest continent in the world, it cannot feed itself.

However, the population was insured for a livelihood before the war; its foundation was supported by transport, iron, coal and an immense food supply from other continents, but a part of that population are no more advantageous due to the interruption of supplies’ shipment, emigration is not open to the unlimited surplus. Therefore, the danger would be the speeding economic depression that might lead to the starvation for a part of the European population; a problem already existing in Russia and approximately Austria.

Men will not always die quietly”, Keynes says; starvation will lead to a despair that might cause hysterias amongst the population and a collapse of the organization that Europe was based upon, not to mention the obscuration and the hiding of the civilization to desperately satisfy the immense need of the despaired individual. On the 13th of May 1919, Count Brockdorff-Rantzau addressed to the Peace Conference of the Allied and Associated Powers the Report of the German Economic commission.

He mentions that when Germany was an agricultural state, it was able to feed its population due to the agriculture. After the transformation to an industrial state, Germany could insure its population the existence by the importation of foreign food supply prior to the War. But after the loss of allies and emerging of its isolation, Germany will not be able to provide the means of living and of the food needed by the population, therefore unavoidably condemned to destruction.

As the need for food will increase as the possibility of importing the livelihood deteriorates. Brockdorff mentions that German people could emigrate, but that would be impossible due to the fact that no country will accept any German emigration whatsoever. Put the conditions of the Peace into action will lead to non-ceasing catastrophe that will lead the death of millions of Germans by starvation, not to mention is lack of ability to produce coal in Germany due to the occupation of the land to produce coal by France.

Brockdorff doubts that the Allied Powers will even consider the economic consequences of the peace and “those who sign the Treaty will sign the death sentence of millions of German men, women and children. ” Keynes divides the situation into three categories; the falling off of the European productivity, the difficulty of transport and exchange and Europe’s incapability to consume its supplies.

The decrease of Europe’s productivity is difficult to estimate and is evident without any proof or reasoning whatsoever, as it has been the main principle of Mr. Hoover’s warnings. What caused such problems was the violence in Russia and Hungary, Poland’s and Czechoslovakia’s inexperienced new government, lack of sufficient labor in Europe due to either army drifting or loss in war, agricultural insufficiency due to the ruining of the soil throughout the war, and above all the mental and physical unsettlement of the working class. Mr. Hoover addresses the unemployment rate due to the post-war exhaustion in Europe (15 million families were receiving unemployment allowance).

In Germany, there is an avoiding to labor and the capital that anything they might produce after the barest level of existence will be taken away from them eventually. Keynes then reminds the reader some of the problems; the production in Europe has decreased 30%. Before the war, Germany produced 85% of food consumed by its population, the fertility of the soil has now diminished by 40% and food stock diminished by 55%. Russia which always exports food may starve, Hungary pillaged by Romania.

Coal can be imported/exported but the breakdown of the prevents the process along with the breakdown of the European currency system prevents another option which is the manufacturing of the goods. But even in spite of Germany’s losses in the war, Germany’s position is probably not so serious as its neighbors. Russia’s condition in the stocks is desperate and at the same time is the most fundamental factor in its economic crisis. Modern industrial life depends on transportation, and people can not live without that option.

Keynes also regards Europe as “a country population able to support life on the fruits of its own agricultural production but without the accustomed surplus”. He mentions that Europe’s industrialization causes the lack of livelihood and may not import. Lenin says that the best way to destroy the Capitalist system was to debauch the currency. Inflation is continued to be diminished. There are, however, some profiteers who are “object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat.

And, according to Keynes, Lenin was right. “Equilibrium of wealth is an inevitable result of the inflation, but they have no plan for replacing it”, Keynes said. Capitalists allow themselves to be ruined by their instrument, governments.. etc. Inflation is dramatically increasing in Europe; in Germany (1 Mark = less than 1 cent), in Italy it’s fallen down to its half, France is living in an uncertainty. But they never lost their value for the world beyond.

But amongst the nation, the currency is a worthless piece of paper… But even so, the problem is found in foreign trade. The price of imported commodities, when converted at a current rate of exchange, is far in excess of the local price cannot be imported by the private agencies and must be given by the government due to the lack of a chance to trade. Keynes divides Europe into two groups: one that cannot import due to the Blockade (Germany) and one that cannot import except with the help of the allies (Italy).

There are three separate obstacles to the resumption of the trade; imbalance in the internal prices and international price due the currency price difference amongst the nation, few credit abroad for the individual and disordered currency system due to the increasing note circulation. In France, money circulation is 6 times more than it was before the war, and the exporting rate is 40% percent less; France imports are a lot more than the exports. In July 1919, the import rate is 200% percent higher than the export rate in France.

Italy and Austria not differ a lot in terms of the economical crisis overshadowing the European continent. In Italy, there are fewer crises than in France, for throughout the war Italian finance was more enterprising than the French, and were made to impose taxes and pay for the war. The peace, in summary, will result a mass starvation and unemployment that will tear Europe apart leaving incurable wounds from there the blood will eternally bleed.. In chapter VII titled “Remedies”, however, Keynes becomes more optimistic and provides a “remedy” that will, in his opinion at least, solve the post peace crises.

In this chapter as well he excludes Britain from “Europe”. The problems in England are serious. More industrialization, less agriculture and increasing population in Europe, increasing of note circulation… etc. What is then to be done? Keynes suggests the “Revision of the Treaty”, “the settlement of inter-ally indebtedness and an international loan and the reform of the currency and establishing relations between Central Powers to Russia. The Revision of the Treaty Basically, there are territorial disputes after the Treaty was signed.

He uses article V of the treaty that says “Except where otherwise expressly provided in this Covenant or by the terms of the present Treaty, decisions at any meeting of the Assembly or of the Council shall require the agreement of all Members of the League represented at the meeting and article X by which “The Members of the League undertake to respect and preserve as against external aggression the territorial integrity and existing political independence of all Members of the League”.

Those two articles together destroy the concept of the League as an instrument for progress and peace with a fatal result for the status quo, but, however, articles XI and XVII have the possibility of preventing the war amongst the nations excluding Germany, which was forced to sign for it.

Keynes afterwards offers a strategy for Reparation; if the amount is more than needed by the Allies, it should be condensed to 10 billion dollars, then he suggests the armistice of Germany reckoned as 2. 5 billion dollars without evaluation as item by item, dissolve the Reparation Commission and must be a part of the League of Nation that includes Germany looked upon as representative within it.