Economic Consequences

The Economic Consequences of the Peace

by John Maynard Keynes

 published in November 1919


Great Quotes from one of the 20th Century’s Great Books



The grounds of his [Keynes’] objection to the Treaty, or rather to the whole policy of the Conference towards the economic problems of Europe, will appear in the following chapters.

J.M. Keynes, Preface November 1919




Very few of us realize with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organization by which Western Europe has lived for the last half century…On this sandy and false foundation we scheme for social improvement and dress our political platforms…


Moved by insane delusion and reckless self-regard, the German people overturned the foundations on which we all lived and built. But the spokesmen of the French and British peoples have run the risk of completing the ruin, which Germany began, by a Peace which, if it is carried into effect, must impair yet further…the delicate, complicated organization, already shaken and broken by war, through which alone the European peoples can employ themselves and live.


In continental Europe the earth heaves and no one but is aware of the rumblings. There it is not just a matter of extravagance or “labour troubles”; but of life and death, of starvation and existence, and of the fearful convulsions of a dying civilization.




But he [Clemenceau] did not trouble his head to understand either the Indemnity or poor M. Klotz’s overwhelming financial difficulties…these demands must not be allowed to interfere with the essential requirements of a Carthaginian Peace. The abomination of the “real” policy of M. Clemenceau on unreal issues, with M. Klotz’s policy of pretence on what were very real issues indeed, introduced into the Treaty a whole set of incompatible provisions…


What had really happened was a compromise between the Prime Minister’s pledge to the British electorate to claim the entire costs of the war and the pledge to the contrary which the Allies had given to Germany at the Armistice.


The Allies made the supply of foodstuffs to Germany during the Armistice, mentioned above, conditional on the provisional transfer to them of the greater part of the Mercantile Marine, to be operated by them for the purpose of shipping foodstuffs to Europe generally, and to Germany in particular. The reluctance of the Germans to agree to this was productive of long and dangerous delays in the supply of food, but the abortive Conferences of Treves [Trier] and spa (January 16, February 14-16, and March 4-5, 1919) were at last followed by the Agreement of Brussels (March 14, 1919). The unwillingness of the Germans to conclude was mainly due to the lack of any absolute guarantee on the part of the Allies that, if they surrendered the ships, they would get the food.


Germany’s most important fields of foreign investment before the war were not, like ours, oversea, but in Russia, Austria-Hungary, Turkey, Roumania, and Bulgaria. A great part of these has now become almost valueless…


We cannot expect to legislate for a generation or more.


…the exactions in this case are not yet determinate, and the sum when fixed will prove in excess of what can be paid in cash and in excess also of what can be paid at all.


In the great events of man’s history, in the unwinding of the complex fates of nations, Justice is not so simple. And if it were, nations are not authorized, by religion or by natural morals, to visit on the children of their enemies the misdoings of parents or of rulers.


Europe after the Treaty


This chapter must be one of pessimism. The Treaty includes no provisions for the economic rehabilitation of Europe,--nothing to make the defeated Central Empires into good neighbours, nothing to stabilize the new States of Europe, nothing to reclaim Russia; nor does it promote in any way a compact of economic solidarity amongst the Allies themselves, no arrangement 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.


It is an extraordinary fact that the fundamental economic problem 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.


…it will no longer be part of my purpose to distinguish between the inevitable fruits of the War and the avoidable misfortunes of the Peace.


Men will not always die quietly…and these in their distress may overturn the remnants of organization, and submerge civilization itself in their attempts to satisfy desperately the overwhelming needs of the individual. This is the danger against which all our resources and courage and idealism must now co-operate.


This catastrophe would not be long in coming about, seeing that the health of the population has been broken down during the War by the Blockade, and during the Armistice by the aggravation of the Blockade of famine…Those who sign this Treaty will sign the death sentence of many millions of German men, women and children…I know of no adequate answer to these words.


This is the fundamental problem in front of us, before which questions of territorial adjustment and the balance of European power are insignificant.

Yet modern industrial life essentially depends on efficient transport facilities…


Lenin is said to have declared that the best way to destroy the Capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. ..and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.


…all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.


Lenin was certainly right. There is not subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.


These “profiteers” are broadly speaking, the entrepreneur class of capitalists, that is to say, the active and constructive element in the whole capitalist society, who in a period of rapidly rising prices cannot but get rich quick whether they wish it or desire it or not…the fatal process…


Thus the menace of inflationism described above is not merely a product of the war, of which peace begins the cure. It is a continuing phenomenon of which the end is not yet in sight.


An inefficient, unemployed, disorganized Europe faces us, torn by internal strife and international hate, fighting, starving, pillaging, and lying. What warrant is there for a picture of less somber colours?


But winter approaches…But who can say how much is endurable, or in what direction men will seek at last to escape from their misfortunes?




It is difficult to maintain true perspective in large affairs…and that modern society is not immune from the very greatest evils.


The replacement of the existing Governments of Europe is, therefore, an almost indispensable preliminary.


I am therefore a supporter of an international loan in some shape or form, such as has been advocated in many quarters in France, Germany, and England, and also in the United States…In whatever way the ultimate responsibility for repayment is distributed, the burden of finding the immediate resources must inevitably fall in major part upon the United States.


She [Poland] is to be strong, Catholic, militarist, and faithful, the consort, or at least the favourite, of victorious France, prosperous and magnificent between the ashes of Russia and the ruin of Germany. Roumania, if only she could be persuaded to keep up appearances a little more, is a part of the same scatter-brained conception. Yet, unless her great neighbours are prosperous and orderly, Poland is an economic impossibility with no industry but Jew-baiting.


If trade is not resumed with Russia, wheat in 1920-21 (unless the seasons are specially bountiful) must be scarce and very dear. The blockage of Russia, lately proclaimed by the Allies, is therefore a foolish and short-sighted proceeding; we are blockading not so much Russia as ourselves.


…let us encourage and assist Germany to take up again her place in Europe as a creator and organizer of wealth for her Eastern and southern neighbours.


Even now, the world markets are one.


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.


To the formation of the general opinion of the future I dedicate this book.