An Analysis of the Versailles Treaty

JOHN MAYNARD KEYNES, The Economic Consequences of the Peace (1920)

Of all the observers at Versailles, British economist John Maynard Keynes was one of the most prescient. Upset that negotiators had given insufficient thought to the economic consequences of the treaty, Keynes warned Europe’s leaders that their actions would lead to economic disaster, a prediction that seemed to come true in 1923, with the German economic collapse, and again in 1929 with the U.S. stock market crash and ensuing Great Depression. As you read Keynes’s criticism of the treaty, pay particular attention to the connections he makes between economic policy and political stability.

The Treaty includes no provisions for the economic rehabilitation of Europe,—nothing to make the defeated Central Empires1 into good neighbors, nothing to stabilize the new States of Europe,2 nothing to reclaim Russia; nor does it promote in any way a compact of economic solidarity amongst the Allies themselves; no agreement was reached at Paris for restoring the disordered finances of France and Italy, or to adjust the systems of the Old World and the New.

The Council of Four3 paid no attention to these issues, being preoccupied with others,—Clemenceau to crush the economic life of his enemy, Lloyd George to do a deal and bring home something which would pass muster for a week, the President to do nothing that was not just and right. It is an extraordinary fact that the fundamental economic problems of a Europe starving and disintegrating before their eyes, was the one question in which it was impossible to arouse the interest of the Four. Reparation was their main excursion into the economic field, and they settled it as a problem of theology, of politics, of electoral chicane, from every point of view except that of the economic future of the States whose destiny they were handling. . . .

For the immediate future events are taking charge, and the near destiny of Europe is no longer in the hands of any man. The events of the coming year will not be shaped by the deliberate acts of statesmen, but by the hidden currents, flowing continually beneath the surface of political history, of which no one can predict the outcome. In one way only can we influence these hidden currents,—by setting in motion those forces of instruction and imagination which change opinion. The assertion of truth, the unveiling of illusion, the dissipation of hate, the enlargement and instruction of men’s hearts and minds, must be the means.

In this autumn of 1919, in which I write, we are at the dead season of our fortunes. The reaction from the exertions, the fears, and the sufferings of the past five years is at its height. Our power of feeling or caring beyond the immediate questions of our own material well-being is temporarily eclipsed. The greatest events outside our own direct experience and the most dreadful anticipations cannot move us.

We have been moved already beyond endurance, and need rest. Never in the lifetime of men now living has the universal element in the soul of man burnt so dimly.

From John Maynard Keynes, The Economic Consequences of the Peace (New York: Harcourt, Brace and Howe, 1920), pp. 226-227, 296-297.