Revisiting Keynes’
Economic Consequences
By Michael A. Martorelli
In June 1919, economist John Maynard
Keynes resigned from his position as part
of the British delegation at the Paris Peace
Conference. He claimed that many provi-
sions of the Treaty of Versailles made that
document a Carthaginian Peace that was
designed to be overly harsh and puni-
tive. He especially warned that the call for
reparations from Germany to the Allied
and Associated powers would be prob-
lematic for all parties and would hurt the
European economy for years to come. In
December 1919, he substantiated his argu-
ments in The Economic Consequences of
the Peace. That rather short book became
a best seller and the subject of much com-
mentary and debate. One hundred years
after its publication, it seems an appropri-
ate time to re-examine Keynes’ work.
Keynes’ apprehensions about the unwise
nature of the terms he feared would be
forced upon the losing side in the Great
War surfaced even before he attended the
peace conference to establish the terms
for ending that conflict. In January 1916,
he co-authored a memorandum for the
British Board of Trade suggesting that the
indemnity paid by France to Germany
after the Franco-Prussian War in 1871 had
damaged the economies of both the vic-
tor and the loser. Even with the on-going
war’s outcome still in doubt, the memo
advised against requiring what its authors
hoped would be the losing coalition of
Germany and the Central Powers to pay
for the physical damages done throughout
France, Belgium and other Allied coun-
tries. Keynes particularly feared the nega-
tive consequences that would result if a
subsequent peace treaty did not permit
Germany to regain a level of economic sta-
bility that enabled the country to re-claim
its role as perhaps the most important par-
ticipant in the European economy.
After several years of stalemated war-
fare, by the autumn 1918, the presence of
an increasing number of troops from the
United States was shifting the tide of battle
towards the Allies. In early October, German
Chancellor Max von Baden telegraphed
26 FINANCIAL HISTORY | Fall 2019 | www.MoAF.org
President Woodrow Wilson in Washing-
ton and asked for an armistice based on
Wilson’s “Fourteen Points” address of the
previous January. That speech reflected the
President’s hopes for a “peace without vic-
tory” that would not involve a victor’s call
for punitive terms against a loser. President
Wilson reiterated his high-minded and
principled ideas several times throughout
1918, stating that the United States would be
committed to finding an eventual peace that
would be without annexations, contribu-
tions or punitive damages. He asserted that
the treaty that would end the war between
Germany and the Allies must not impose
harsh terms on the losers in the conflict; it
should neither humiliate them nor lead to
resentment against the victors.
German and American officials spent
much of October 1918 in frustrating and
Dignitaries gather in the Hall of Mirrors at the
Palace of Versailles, France, to sign the Treaty of
Versailles ending World War I, June 28, 1919.