John Maynard Keynes.

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The Economic Consequences of the Peace, which
I published in December 1919, has been reprinted
from time to time without revision or correction.
So much has come to our knowledge since then,
that a revised edition of that book would be out
of place. I have thought it better, therefore, to
leave it unaltered, and to collect together in this
Sequel the corrections and additions which the
flow of events makes necessary, together with my
reflections on the present facts.

But this book is strictly what it represents it-
self to be — a Sequel; I might almost have said an
Appendix. I have nothing very new to say on
the fundamental issues. Some of the Remedies
which I proposed two years ago are now every-
body's commonplaces, and I have nothing startling
to add to them. My object is a strictly limited
one, namely to provide facts and materials for an
intelligent review of the Reparation Problem as it
now is.

''The great thing about this wood," said M.
Clemenceau of his pine forest in La Vendee, "is
that, here, there is not the slightest chance of


meeting Lloyd George or President Wilson.
Nothing liere but the squirrels." I wish that I
could claim the same advantages for this book.

J. M. Keynes.
King's College, Cambridge,
December 1921.



The State op Opinion . 3


Fbom the Ratification of the Treaty of Versailles to

THE Second Ultimatum of J^ondon 11

Excursus I. — Coal 44

Excursus II. — Tiie Legality of Occupyinq Ger-
many East of the Khine 57


The Burden of the London Settlement . ... 64
Excursus III. — The Wiesbaden Agreement . . 02
Excursus IV. — The Mark Exchange . . . 100


The Reparation Bill 106

Excursus V. — Receipts and Expenses prior to

May 1, 1!)21 131

Excursus VI. — The Division of Receipts be-
tween THE Allies 138

The Legality of the Clalm for Pensions . . . .144


Repabation, Inteb-Ally Debt, and Inteenational Trade . 163





TuE Revision of the Treaty and the Settlement of



I. Summary of Spa Agreement (July 1920)
II. The Decisions of Paris (January 1921) .

III. The Claims Submitted to the Reparation Commis

sioN (February 1921)

IV. The First Ultimatum of London (March 1921)
V. The German Counter-Proposal (April 1921) .

VI. The Reparation Commission's Assessment (April


VII. The Second Ultimatum of London (May 1921)
VIII. Summary of the Wiesbaden Agreement (October


IX. Tables of Inteb-Govebnmental Indebtedness .






INDEX ......... ., . . . 240



The State of Opinion

It is the method of modern statesmen to talk as
much folly as the public demand and to practise
no more of it than is compatible with what they
have said, trusting that such folly in action as
must wait on folly in word will soon disclose itself
as such, and furnish an opportunity for slipping
back into wisdom, — the Montessori system for the
child, the Public. He who contradicts this child
will soon give place to other tutors. Praise, there-
fore, the beauty of the flames he wishes to touch,
the music of the breaking toy ; even urge him for-
ward ; yet waiting with vigilant care, the wise and
kindly savior of Society, for the right moment to
snatch him back, just singed and now attentive.

I can conceive for this terrifying statesmanship
a plausible defense. Mr. Lloyd George took the
responsibility for a Treaty of Peace, which was
not wise, which was partly impossible, and which
endangered the life of Europe. He may defend
himself by saying that he knew that it was not
wise and was partly impossible and endangered
the life of Europe; but that public passions and
public ignorance play a part in the world of which



he wlio aspires to lead a democracy must take ac-
count; that the Peace of Versailles was the best
momentary settlement which the demands of the
mob and the characters of the chief actors con-
joined to permit ; and for the life of Europe, that
he has spent his skill and strength for two years
in avoiding or moderating the dangers.

Such claims would be partly true and cannot be
brushed away. The private history of the Peace
Conference, as it has been disclosed by French
and American participators, displays Mr. Lloyd
George in a partly favorable light, generally striv-
ing against the excesses of the Treaty and doing
what he could, short of risking a personal de-
feat. The public history of the two years which
have followed it exhibit him as protecting Europe
from as many of the evil consequences of his own
Treaty, as it lay in his power to prevent, with a
craft few could have bettered, preserving the
peace, though not the prosperity, of Europe, sel-
dom expressing the truth, yet often acting under
its influence. He would claim, therefore, that by
devious paths, a faithful servant of the possible,
he was serving Man.

He may judge rightly that this is the best of
which a democracy is capable, — to be jockeyed,
humbugged, cajoled along the right road. A pref-
erence for truth or for sincerity as a method may
be a prejudice based on some esthetic or personal


standard, inconsistent, in politics, with practical

We cannot yet tell. Even the public learns by
experience. Will the charm work still, when the
stock of statesmen's credibility, accumulated be-
fore these times, is getting exhausted?

In any event, private individuals are not under
the same obligation as Cabinet Ministers to sac-
rifice veracity to the public weal. It is a per-
mitted self-indulgence for a private person to
speak and write freely. Perhaps it may even con-
tribute one ingredient to the congeries of things
which the wands of statesmen cause to work to-
gether, so marvelously, for our ultimate good.

For these reasons I do not admit error in hav-
ing based The Economic Consequences of the
Peace on a literal interpretation of the Treaty of
Versailles, or in having examined the results of
actually carrying it out. I argued that much of
it was impossible; but I do not agree with many
critics, who held that, for this very reason, it was
also harmless. Inside opinion accepted from the
beginning many of my main conclusions about
the Treaty.^ But it was not therefore unimpor-

* "Its merely colorable fulfilment of solemn contracts with a
defeated nation, its timorous failure to reckon with economic
realities," as Professor Allyn Young wrote in a review of my
book. Yet Professor Young has thought right, nevertheless, to
make himself a partial apologist of the Treaty, and to describe
it as "a forward-looking document."


tant that outside opinion should accept them also.

For there are, in the present times, two opin-
ions ; not, as in former ages, the true and the false,
but the outside and the inside ; the opinion of the
public voiced by the politicians and the news-
papers, and the opinion of the politicians, the jour-
nalists and the civil servants, upstairs and back-
stairs and behind-stairs, expressed in limited cir-
cles. In time of war it became a patriotic duty
that the two opinions should be as different as pos-
sible; and some seem to think it so still.

This is not entirely new. But there has been a
change. Some say that Mr. Gladstone was a
hypocrite; yet if so, he dropped no mask in pri-
vate life. The high tragedians, who once ranted
in the Parliaments of the world, continued it at
supper afterwards. But appearances can no
longer be kept up behind the scenes. The paint
of public life, if it is ruddy enough to cross the
flaring footlights of to-day, cannot be worn in
private, — which makes a great difference to the
psychology of the actors themselves. The mul-
titude which lives in the auditorium of the world
needs something larger than life and plainer than
the truth. Sound itself travels too slowly in this
vast theater, and a true word no longer holds
when its broken echoes have reached the furthest


Those who live in the limited circles and share
the inside opinion pay both too much and too lit-
tle attention to the outside opinion ; too much, be-
cause, ready in words and promises to concede
to it everything, they regard open opposition as
absurdly futile ; too little, because they believe that
these words and promises are so certainly destined
to change in due season, that it is pedantic, tire-
some, and inappropriate to analyze their literal
meaning and exact consequences. They know all
this nearly as well as the critic, who wastes, in
their view, his time and his emotions in exciting
himself too much over what, on his own showing,
cannot possibly happen. Nevertheless, what is
said before the world is, still, of deeper conse-
quence than the subterranean breathings and well-
informed whisperings, knowledge of which allows
inside opinion to feel superior to outside opinion,
even at the moment of bowing to it.

But there is a further complication. In Eng-
land (and perhaps elsewhere also), there are two
outside opinions, that which is expressed in the
newspapers and that which the mass of ordinary
men privately suspect to be true. These two de-
grees of the outside opinion are much nearer to
one another than they are to the inside, and under
some aspects they are identical ; yet there is under
the surface a real difference between the dog-


matism and definiteness of the press and the liv-
ing, indefinite belief of the individual man. I
fancy that even in 1919 the average Englishman
never really believed in the indemnity ; he took it
always with a grain of salt, with a measure of in-
tellectual doubt. But it seemed to him that for the
time being there could be little practical harm in
going on the indemnity tack, and also that, in re-
lation to his feelings at that time, a belief in the
possibility of boundless payments by Germany
was in better sentiment, even if less true, than the
contrary. Thus the recent modification in British
outside opinion is only partly intellectual, and is
due rather to changed conditions; for it is seen
that perseverance with the indemnity does now
involve practical harm, whilst the claims of sen-
timent are no longer so decisive. He is there-
fore prepared to attend to arguments, of whicli
he had always been aware out of the corner of
his eye.

Foreign observers are apt to heed too little these
unspoken sensibilities, which the voice of the press
is bound to express ultimately. Inside opinion
gradually affects them by percolating to wider and
wider circles ; and they are susceptible in time to
argument, common sense, or self-interest. It is
the business of the modern politician to be accu-
rately aware of all three degrees; he must have


enough intellect to understand the inside opinion,
enough sympathy to detect the inner outside opin-
ion, and enough brass to express the outer outside

Whether this account is true or fanciful, there
can be no doubt as to the immense change in pub-
lic sentiment over the past two years. The desire
for a quiet life, for reduced commitments, for
comfortable terms with our neighbors is now para-
mount. The megalomania of war has passed
away, and every one wishes to conform himself
with the facts. For these reasons the Repara-
tion Chapter of the Treaty of Versailles is
crumbling. There is little prospect now of the
disastrous consequences of its fulfilment.

I undertake in the following chapters a double
task, beginning with a chronicle of events and a
statement of the present facts, and concluding
with proposals of what we ought to do. I nat-
urally attach primary importance to the latter.
But it is not only of historical interest to glance
at the recent past. If we look back a little closely
on the two years which have just elapsed (and the
general memory unaided is now so weak that we
know the past little better than the future), we
shall be chiefly struck, I think, by the large ele-
ment of injurious make-believe. My concluding
proposals assume that this element of make-be-


lieve has ceased to be politically necessary; that
outside opinion is now ready for inside opinion to
disclose, and act upon, its secret convictions ; and
that it is no longer an act of futile indiscretion to
speak sensibly in public.


From the RATrFiCATiON of the Treaty of

Versailles to the Second Ultimatum

of London

I. The Execution of the Treaty and the Plebiscites

The Treaty of Versailles was ratified on January
10, 1920, and except in the plebiscite areas its ter-
ritorial provisions came into force on that date.
The Slesvig plebiscite (February and March,
1920) awarded the north to Denmark and the south
to Germany, in each case by a decisive majority.
The East Prussian plebiscite (July, 1920) showed
an overwhelming vote for Germany. The Upper
Silesian plebiscite (March, 1921) yielded a ma-
jority of nearly two to one in favor of Germany
for the province as a whole,^ but a majority for
Poland in certain areas of the south and oast. On
the basis of this vote, and having regard to the
industrial unity of certain disputed areas, the
principal Allies, with the exception of France,

'More exactly, out of 1,220,000 entitled to vote and 1,180,000
actual voters, 707,000 votca or seven-elevenths were cast for
Germany, and 470,000 votes or four-elevenths for Poland. Out
of 1022 communes, 844 showed a majority for Germany and 678
for Poland. Tiie Polish voters were mainly rural, as is shown by
the fact that in '.MS towns Germany polled 207,000 votes against
70,000 for Poland, and in the country 440,000 votes against
409,000 for Poland.



were of opinion that, apart from the southeastern
districts of Pless and Rybnik which, although they
contain undeveloped coalfields of great impor-
tance, are at present agricultural in character,
nearly the whole of the province should be as-
signed to Germany. Owing to the inability of
France to accept this solution, the whole problem
was referred to the League of Nations for final
arbitration. This body bisected the industrial
area in the interests of racial or nationalistic jus-
tice; and introduced at the same time, in the en-
deavor to avoid the consequences of this bisection,
complicated economic provisions of doubtful effi-
ciency in the interests of material prosperity.
They limited these provisions to fifteen years,
trusting perhaps that something will have oc-
curred to revise their decision before the end of
that time. Broadly speaking, the frontier has been
drawn, entirely irrespective of economic consid-
erations, so as to include as large as possible a
proportion of German voters on one side of it and
Polish voters on the other (although to achieve
this result it has been thought necessary to as-
sign two almost purely German towns, Kattowitz
and Konigshiitte, to Poland). From this limited
point of view the work may have been done fairly.
But the Treaty had directed that economic and
geographical considerations should be taken into
account also.


I do not intend to examine in detail the wisdom
of this decision. It is believed in Germany that
subterranean influence brought to bear by France
contributed to the result. I doubt if this was a
material factor, except that the officials of the
League were naturally anxious, in the interests
of the League itself, to produce a solution which
would not be a fiasco through the members of the
Council of the League failing to agree about it
amongst themselves; which inevitably imported a
certain bias in favor of a solution acceptable to
France. The decision raises, I think, much more
fundamental doubts about this method of settling
international affairs.

Difficulties do not arise in simple cases. The
League of Nations will be called in where there is
a conflict between opposed and incommensurable
claims. A good decision can only result by im-
partial, disinterested, very well-informed and au-
thoritative persons taking everything into ac-
count. Since International Justice is dealing with
vast organic units and not with a multitude of
small units of which the individual particulari-
ties are best ignored and left to average them-
selves out, it cannot be the same thing as the cut-
and-dried lawyer's justice of the municipal court.
It will be a dangerous practice, therefore, to en-
trust tlie settlement of the ancient conflicts now
inherent in the tangled structure of Europe, to


elderly gentlemen from South America and the
far Asiatic East, who will deem it their duty to
extract a strict legal interpretation from the
available signed documents, — who will, that is to
say, take account of as few things as possible, in
an excusable search for a simplicity which is not
there. That would only give us more judgments
of Solomon with the ass's ears, a Solomon with
the bandaged eyes of law, who, when he says "Di-
vide ye the living child in twain," means it.

The Wilsonian dogma, which exalts and digni-
fies the divisions of race and nationality above the
bonds of trade and culture, and guarantees fron-
tiers but not happiness, is deeply embedded in the
conception of the League of Nations as at present
constituted. It yields us the paradox that the
first experiment in international government
should exert its influence in the direction of inten-
sifying nationalism.

These parenthetic reflections have arisen from
the fact that from a certain limited point of view
the Council of the League may be able to advance
a good case in favor of its decision. My criti-
cism strikes more deeply than would a mere al-
legation of partiality.

With the conclusion of the plebiscites the fron-
tiers of Germany were complete.

In January 1920 Holland was called on to sur-
render the Kaiser; and, to the scarcely concealed


relief of the Governments concerned, she duly re-
fused (January 23, 1920). In the same month the
surrender of some thousands of "war criminals"
was claimed, but, in the face of a passionate pro-
test from Germany, was not insisted on. It was
arranged instead that, in the tirst instance at
least, only a limited number of cases should be
pursued, not before Allied Courts, as provided by
the Treaty, but before the High Court of Leipzig.
Some such cases have been tried; and now, by
tacit consent, we hear no more about it.

On March 13, 1920, an outbreak by the reaction-
aries in Berlin (the Kapp "Putsch") resulted in
their holding the capital for five days and in the
flight of the Ebert Government to Dresden. The
defeat of this outbreak, largely by means of the
weapon of the general strike (the first success of
which was, it is curious to note, in defense of es-
tablished order), was followed by Communist dis-
turbances in Westphalia and the Ruhr. In deal-
ing with this second outbreak, the German Govern-
ment despatclicd more troops into the district than
was permissible under the Treaty, w^itli the re-
sult that France seized the opportunity, without
the concurrence of her Allies, of occupying Frank-
furt (April 6, 1920) and Darmstadt, this being the
immediate occasion of the first of the series of
Allied Conferences recorded below — the Confer-
ence of San Remo.


These events, and also doubts as to the capac-
ity of the Central German Government to enforce
its authority in Bavaria, led to successive post-
ponements of the completion of disarmament, due
under the Treaty for March 31, 1920, until its final
enforcement by the London Ultimatum of May 5,

There remains Reparation, the chief subject of
the chronicle which follows. In the course of
1920 Germany carried out certain specific deliv-
eries and restitutions prescribed by the Treaty.
A vast quantity of identifiable property, removed
from France and Belgium, was duly restored to
its owners.^ The Mercantile Marine was surren-
dered. Some dyestuffs were delivered, and a cer-
tain quantity of coal. But Germany paid no cash,
and the real problem of Reparation was still post-

With the Conferences of the spring and summer
of 1920 there began the long series of attempts
to modify the impossibilities of the Treaty and
to mold it into workable form.

^ Up to May 31, 1920, securities and other identifiable assets to
the value of 8300 million francs and 500,000 tons of machinery
and raw material had been restored to France {Report of Finance
Commission of French Chamber, June 14, 1920), also 445,000 head
of live stock.

^ Up to May, 1921, the cash receipts of the Reparation Com-
mission amounted to no more than 124,000,000 gold marks.


II. The Conferences of San R&mo {April 19-26,
1920), Ilijthe {May 15 and June 19, 1920),
Boulogne {June 21, 22, 1920), Brussels {July
2-3, 1920), and Spa {July 5-16, 1920)

It is difficult to keep distinct the series of a
dozen discussions between the Premiers of the
Allied Powers which occupied the year from April
1920 to April 1921. The result of each Confer-
ence was generally abortive, but the total effect
was cumulative ; and by gradual stages the project
of revising the Treaty gained ground in every
quarter. The Conferences furnish an extraordi-
nary example of Mr. Lloyd George's methods. At
each of them he pushed tlie French as far as he
could, but not as far as he wanted; and then came
home to acclaim the settlement provisionally
reached (and destined to be changed a month
later) as an expression of complete accord between
himself and his French colleague, as a nearly per-
fect embodiment of wisdom, and as a settlement
which Germany would be well advised to accept
as final, adding about every third time that, if she
did not, he would support the invasion of her ter-
ritory. As time went on, his reputation with the
French was not improved ; yet he steadily gained
his object, — though this may be ascribed not to
the superiority of the method as such, but to facts
being implacably on his side.


The first of the series, the Conference of San
Remo (April 19-26, 1920), was held under the
presidency of the Italian Premier, Signer Nitti,
who did not conceal his desire to revise the Treaty.
M. Millerand stood, of course, for its integrity,
whilst Mr. Lloyd George (according to The Times
of that date) occupied a middle position. Since
it was evident that the French would not then ac-
cept any new formula, Mr. Lloyd George concen-
trated his forces on arranging for a discussion
face to face between the Supreme Council and the
German Government, such a meeting, extraordi-
nary to relate, having never yet been arranged,
neither during the Peace Conference nor after-
wards. Defeated in a proposal to invite German
representatives to San Remo forthwith, he suc-
ceeded in carrying a decision to summon them to
visit Spa in the following month ''for the discus-
sion of the practical application of the Reparation
Clauses." This was the first step; and for the
rest the Conference contented itself with a Dec-
laration on Gorman Disarmament. Mr. Lloyd
George had had to concede to M. Millerand that
the integrity of the Treaty should be maintained ;
but speaking in the House of Commons on his re-
turn home, he admitted a preference for a not
**too literal" interpretation of it.

In May the Premiers met in privacy at Hythe
to consider their course at Spa. The notion of


the sliding scale, which was to play a great part
in the Paris Decisions and the Second Ultimatum
of London, now came dejSnitely on the carpet. A
Committee of Experts was appointed to prepare
for examination a scheme by which Germany

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Online LibraryJohn Maynard KeynesA revision of the Treaty : being a sequel to The economic consequences of the peace → online text (page 1 of 15)