1919 : KEYNES PREDICTS ECONOMIC CHAOS:
At the Palace of Versailles outside Paris, Germany signs the Treaty of
Versailles with the Allies, officially ending World War I. The English
economist John Maynard Keynes, who had attended the peace conference
but then left in protest of the treaty, was one of the most outspoken
critics of the punitive agreement. In his The Economic Consequences of
the Peace, published in December 1919, Keynes predicted that the stiff
war reparations and other harsh terms imposed on Germany by the treaty
would lead to the financial collapse of the country, which in turn
would have serious economic and political repercussions on Europe and
the world.
By the fall of 1918, it was apparent to the leaders of Germany that
defeat was inevitable in World War I. After four years of terrible
attrition, Germany no longer had the men or resources to resist the
Allies, who had been given a tremendous boost by the infusion of
American manpower and supplies. In order to avert an Allied invasion
of Germany, the German government contacted U.S. President Woodrow
Wilson in October 1918 and asked him to arrange a general armistice.
Earlier that year, Wilson had proclaimed his "Fourteen Points," which
proposed terms for a "just and stable peace" between Germany and its
enemies. The Germans asked that the armistice be established along
these terms, and the Allies more or less complied, assuring Germany of
a fair and unselfish final peace treaty. On November 11, 1918, the
armistice was signed and went into effect, and fighting in World War I
came to an end.
In January 1919, John Maynard Keynes traveled to the Paris Peace
Conference as the chief representative of the British Treasury. The
brilliant 35-year-old economist had previously won acclaim for his
work with the Indian currency and his management of British finances
during the war. In Paris, he sat on an economic council and advised
British Prime Minister David Lloyd George, but the important
peacemaking decisions were out of his hands, and President Wilson,
Prime Minister Lloyd George, and French Prime Minister Georges
Clemenceau wielded the real authority. Germany had no role in the
negotiations deciding its fate, and lesser Allied powers had little
responsibility in the drafting of the final treaty.
It soon became apparent that the treaty would bear only a faint
resemblance to the Fourteen Points that had been proposed by Wilson
and embraced by the Germans. Wilson, a great idealist, had few
negotiating skills, and he soon buckled under the pressure of
Clemenceau, who hoped to punish Germany as severely as it had punished
France in the Treaty of Frankfurt that ended the Franco-Prussian War
in 1871. Lloyd George took the middle ground between the two men, but
he backed the French plan to force Germany to pay reparations for
damages inflicted on Allied civilians and their property. Since the
treaty officially held Germany responsible for the outbreak of World
War I (in reality it was only partially responsible), the Allies would
not have to pay reparations for damages they inflicted on German
civilians.
The treaty that began to emerge was a thinly veiled Carthaginian
Peace, an agreement that accomplished Clemenceau's hope to crush
France's old rival. According to its terms, Germany was to relinquish
10 percent of its territory. It was to be disarmed, and its overseas
empire taken over by the Allies. Most detrimental to Germany's
immediate future, however, was the confiscation of its foreign
financial holdings and its merchant carrier fleet. The German economy,
already devastated by the war, was thus further crippled, and the
stiff war reparations demanded ensured that it would not soon return
to its feet. A final reparations figure was not agreed upon in the
treaty, but estimates placed the amount in excess of $30 billion, far
beyond Germany's capacity to pay. Germany would be subject to invasion
if it fell behind on payments.
Keynes, horrified by the terms of the emerging treaty, presented a
plan to the Allied leaders in which the German government be given a
substantial loan, thus allowing it to buy food and materials while
beginning reparations payments immediately. Lloyd George approved the
"Keynes Plan," but President Wilson turned it down because he feared
it would not receive congressional approval. In a private letter to a
friend, Keynes called the idealistic American president "the greatest
fraud on earth." On June 5, 1919, Keynes wrote a note to Lloyd George
informing the prime minister that he was resigning his post in protest
of the impending "devastation of Europe."
The Germans initially refused to sign the Treaty of Versailles, and it
took an ultimatum from the Allies to bring the German delegation to
Paris on June 28. It was five years to the day since the assassination
of Archduke Francis Ferdinand, which began the chain of events that
led to the outbreak of World War I. Clemenceau chose the location for
the signing of the treaty: the Hall of Mirrors in Versailles Palace,
site of the signing of the Treaty of Frankfurt that ended the
Franco-Prussian War. At the ceremony, General Jan Christiaan Smuts,
soon to be president of South Africa, was the only Allied leader to
protest formally the Treaty of Versailles, saying it would do grave
injury to the industrial revival of Europe.
At Smuts' urging, Keynes began work on The Economic Consequences of
the Peace. It was published in December 1919 and was widely read. In
the book, Keynes made a grim prophecy that would have particular
relevance to the next generation of Europeans: "If we aim at the
impoverishment of Central Europe, vengeance, I dare say, will not
limp. Nothing can then delay for very long the forces of Reaction and
the despairing convulsions of Revolution, before which the horrors of
the later German war will fade into nothing, and which will destroy,
whoever is victor, the civilisation and the progress of our
generation."
Germany soon fell hopelessly behind in its reparations payments, and
in 1923 France and Belgium occupied the industrial Ruhr region as a
means of forcing payment. In protest, workers and employers closed
down the factories in the region. Catastrophic inflation ensued, and
Germany's fragile economy began quickly to collapse. By the time the
crash came in November 1923, a lifetime of savings could not buy a
loaf of bread. That month, the Nazi Party led by Adolf Hitler launched
an abortive coup against Germany's government. The Nazis were crushed
and Hitler was imprisoned, but many resentful Germans sympathized with
the Nazis and their hatred of the Treaty of Versailles.
A decade later, Hitler would exploit this continuing bitterness among
Germans to seize control of the German state. In the 1930s, the Treaty
of Versailles was significantly revised and altered in Germany's
favor, but this belated amendment could not stop the rise of German
militarism and the subsequent outbreak of World War II.
In the late 1930s, John Maynard Keynes gained a reputation as the
world's foremost economist by advocating large-scale government
economic planning to keep unemployment low and markets healthy. Today,
all major capitalist nations adhere to the key principles of Keynesian
economics. He died in 1946.
history.com/tdih.do
1519 : Charles elected Holy Roman emperor
history.com/tdih.do?action=tdihArticleCategory&id=5130
1914 : Archduke Ferdinand assassinated
history.com/tdih.do?action=tdihArticleCategory&id=5131
1969 : The Stonewall Riot
history.com/tdih.do?action=tdihArticleCategory&id=5132
#########################################
At the Palace of Versailles outside Paris, Germany signs the Treaty of
Versailles with the Allies, officially ending World War I. The English
economist John Maynard Keynes, who had attended the peace conference
but then left in protest of the treaty, was one of the most outspoken
critics of the punitive agreement. In his The Economic Consequences of
the Peace, published in December 1919, Keynes predicted that the stiff
war reparations and other harsh terms imposed on Germany by the treaty
would lead to the financial collapse of the country, which in turn
would have serious economic and political repercussions on Europe and
the world.
By the fall of 1918, it was apparent to the leaders of Germany that
defeat was inevitable in World War I. After four years of terrible
attrition, Germany no longer had the men or resources to resist the
Allies, who had been given a tremendous boost by the infusion of
American manpower and supplies. In order to avert an Allied invasion
of Germany, the German government contacted U.S. President Woodrow
Wilson in October 1918 and asked him to arrange a general armistice.
Earlier that year, Wilson had proclaimed his "Fourteen Points," which
proposed terms for a "just and stable peace" between Germany and its
enemies. The Germans asked that the armistice be established along
these terms, and the Allies more or less complied, assuring Germany of
a fair and unselfish final peace treaty. On November 11, 1918, the
armistice was signed and went into effect, and fighting in World War I
came to an end.
In January 1919, John Maynard Keynes traveled to the Paris Peace
Conference as the chief representative of the British Treasury. The
brilliant 35-year-old economist had previously won acclaim for his
work with the Indian currency and his management of British finances
during the war. In Paris, he sat on an economic council and advised
British Prime Minister David Lloyd George, but the important
peacemaking decisions were out of his hands, and President Wilson,
Prime Minister Lloyd George, and French Prime Minister Georges
Clemenceau wielded the real authority. Germany had no role in the
negotiations deciding its fate, and lesser Allied powers had little
responsibility in the drafting of the final treaty.
It soon became apparent that the treaty would bear only a faint
resemblance to the Fourteen Points that had been proposed by Wilson
and embraced by the Germans. Wilson, a great idealist, had few
negotiating skills, and he soon buckled under the pressure of
Clemenceau, who hoped to punish Germany as severely as it had punished
France in the Treaty of Frankfurt that ended the Franco-Prussian War
in 1871. Lloyd George took the middle ground between the two men, but
he backed the French plan to force Germany to pay reparations for
damages inflicted on Allied civilians and their property. Since the
treaty officially held Germany responsible for the outbreak of World
War I (in reality it was only partially responsible), the Allies would
not have to pay reparations for damages they inflicted on German
civilians.
The treaty that began to emerge was a thinly veiled Carthaginian
Peace, an agreement that accomplished Clemenceau's hope to crush
France's old rival. According to its terms, Germany was to relinquish
10 percent of its territory. It was to be disarmed, and its overseas
empire taken over by the Allies. Most detrimental to Germany's
immediate future, however, was the confiscation of its foreign
financial holdings and its merchant carrier fleet. The German economy,
already devastated by the war, was thus further crippled, and the
stiff war reparations demanded ensured that it would not soon return
to its feet. A final reparations figure was not agreed upon in the
treaty, but estimates placed the amount in excess of $30 billion, far
beyond Germany's capacity to pay. Germany would be subject to invasion
if it fell behind on payments.
Keynes, horrified by the terms of the emerging treaty, presented a
plan to the Allied leaders in which the German government be given a
substantial loan, thus allowing it to buy food and materials while
beginning reparations payments immediately. Lloyd George approved the
"Keynes Plan," but President Wilson turned it down because he feared
it would not receive congressional approval. In a private letter to a
friend, Keynes called the idealistic American president "the greatest
fraud on earth." On June 5, 1919, Keynes wrote a note to Lloyd George
informing the prime minister that he was resigning his post in protest
of the impending "devastation of Europe."
The Germans initially refused to sign the Treaty of Versailles, and it
took an ultimatum from the Allies to bring the German delegation to
Paris on June 28. It was five years to the day since the assassination
of Archduke Francis Ferdinand, which began the chain of events that
led to the outbreak of World War I. Clemenceau chose the location for
the signing of the treaty: the Hall of Mirrors in Versailles Palace,
site of the signing of the Treaty of Frankfurt that ended the
Franco-Prussian War. At the ceremony, General Jan Christiaan Smuts,
soon to be president of South Africa, was the only Allied leader to
protest formally the Treaty of Versailles, saying it would do grave
injury to the industrial revival of Europe.
At Smuts' urging, Keynes began work on The Economic Consequences of
the Peace. It was published in December 1919 and was widely read. In
the book, Keynes made a grim prophecy that would have particular
relevance to the next generation of Europeans: "If we aim at the
impoverishment of Central Europe, vengeance, I dare say, will not
limp. Nothing can then delay for very long the forces of Reaction and
the despairing convulsions of Revolution, before which the horrors of
the later German war will fade into nothing, and which will destroy,
whoever is victor, the civilisation and the progress of our
generation."
Germany soon fell hopelessly behind in its reparations payments, and
in 1923 France and Belgium occupied the industrial Ruhr region as a
means of forcing payment. In protest, workers and employers closed
down the factories in the region. Catastrophic inflation ensued, and
Germany's fragile economy began quickly to collapse. By the time the
crash came in November 1923, a lifetime of savings could not buy a
loaf of bread. That month, the Nazi Party led by Adolf Hitler launched
an abortive coup against Germany's government. The Nazis were crushed
and Hitler was imprisoned, but many resentful Germans sympathized with
the Nazis and their hatred of the Treaty of Versailles.
A decade later, Hitler would exploit this continuing bitterness among
Germans to seize control of the German state. In the 1930s, the Treaty
of Versailles was significantly revised and altered in Germany's
favor, but this belated amendment could not stop the rise of German
militarism and the subsequent outbreak of World War II.
In the late 1930s, John Maynard Keynes gained a reputation as the
world's foremost economist by advocating large-scale government
economic planning to keep unemployment low and markets healthy. Today,
all major capitalist nations adhere to the key principles of Keynesian
economics. He died in 1946.
history.com/tdih.do
1519 : Charles elected Holy Roman emperor
history.com/tdih.do?action=tdihArticleCategory&id=5130
1914 : Archduke Ferdinand assassinated
history.com/tdih.do?action=tdihArticleCategory&id=5131
1969 : The Stonewall Riot
history.com/tdih.do?action=tdihArticleCategory&id=5132
#########################################
