relieving Great Britain, France and others
of their obligation to repay US govern-
ment loans totaling more than $11 billion
would lessen those countries’ dependence
on reparations from Germany. Thus, the
conferees could demand proportionately
lower reparation payments from Germany
and enable that country to regain a greater
degree of its lost economic strength. But
the American delegation strongly opposed
the cancellation of inter-Allied debts.
Throughout the spring, Keynes used let-
ters to friends and relatives to express his
feelings of disappointment and anger over
the punitive terms that were being inserted
into each draft of the treaty. He could not
believe the Allies would not provide suf-
ficient funds to address the mass starvation
occurring throughout Germany and Aus-
tria; he recognized the spirit of vindictive-
ness, not compassion, in the financial terms
of the reparations; and he regretted the
delegates’ failure to address the challenge of
rebuilding the economic system of Europe.
The Allies did not permit any German
representatives to participate in drafting
the terms of the peace treaty. In early May,
they allowed a delegation of German offi-
cials to see the final draft of that document.
Based on his earlier comments, Keynes’
resignation from the British delegation in
early June could not have surprised his
colleagues. Indeed, after listening to the
Germans’ outraged protests over many
provisions of the treaty, some members
of the Allied delegations began to ques-
tion the document’s harshest terms; sev-
eral of them also resigned. Ultimately,
the representatives of a divided German
government agreed to sign the Treaty of
Versailles by the conferees’ June 28 dead-
line, even though they continued to object
to provisions involving Germany’s losses
of territory and the requirement to pay
reparations. The latter issue had been so
controversial among the delegates that
the treaty deferred the calculation of the
amount and timing of those payments to
an inter-Allied Reparation Commission
that would be convened before May 1, 1921.
The treaty that ended the state of war
between Germany and the Allied and
Associated powers consisted of 15 parts,
445 articles and numerous annexes and
maps. Its harshest provisions called for:
• the acceptance of Germany’s guilt in
causing the war;
could have been attributed to Germany
in its conduct of the war. He estimated
that the Allies eventually would present
Germany with a bill for £32 billion. But in
analyzing Germany’s ability to use all its
monetary and physical resources to pay
reparations, Keynes suggested that it could
afford to disburse no more than £2 billion.
In comments sprinkled throughout the
rest of the book, he explained how many
other terms of the treaty would dam-
age the economies of both Germany and
Europe for the foreseeable future. Spe-
cifically, he delved into the problems that
would result from imposing terms such as
the following:
• the cessation of land;
Title page of The Economic Consequences of the
Peace, by John Maynard Keynes, 1920.
• the partial payment of reparations of £1
billion for injuries to civilians, damages
to non-military property and pensions
for war widows;
• the surrender of all overseas German
colonies;
• the elimination of Germany’s merchant
marine and its access to major water-
ways;
• restrictions on the size of the German
armed forces, and proscriptions against
tanks, artillery pieces, airships and sub-
marines;
• changes in Germany’s boundaries that
would cede Alsace-Lorraine and the
coal mines in the Saar to France, and
other property to Czechoslovakia and
Poland.
President Wilson’s “Fourteen Points”
had not envisioned any of these terms;
with the exception of a vague mention of
reparations, neither had the November
1918 armistice.
It is useful to separate Keynes’ objec-
tions over the Treaty of Versailles into
three components. Two were closely
related. He devoted 54 of The Economic
Consequences’ 142 pages to his analysis of
the most reasonable amount of relevant
damages in seven different categories that
28 FINANCIAL HISTORY | Fall 2019 | www.MoAF.org
• restrictions on Germanys’ access to
international waterways;
• the imposition of labor standards and
worker protections;
• requirements to grant special trade
terms while selling particular products
to specific countries;
• renouncing special trading privileges
Germany previously held;
• transferring tens of thousands of horses,
cows and sheep to France and Belgium;
• granting the full freedom of overland
navigation, as well as the international
use of all rivers and airfields.
Keynes concluded that these and other
terms would combine to keep Germany’s
economy in a constant state of disrepair.
Moreover, the economist asserted that
such a state of disorder would infect other
European countries and prevent the con-
tinent’s economic system from recovering
from the damage done to it during the
past four years. In justifying his concerns
over such matters, Keynes spent a good
deal of ink reviewing the important role of
Germany in the pre-1914 European econ-
omy. He noted that the country’s strength
rested on the combination of overseas
commerce, coal and iron resources, and
transport and tariff systems. Severely lim-
iting the country’s authority over those
strengths did not seem like a wise policy.
Separately, if it was not clear from hear-
ing or reading Keynes’ frequent comments
during the peace conference, it was cer-
tainly apparent from reading his book
that his most fervent objection was to
the vindictive and vengeful tone at Paris.