Tuesday, January 12, 2010

Keynes on reparations

Finished reading Keynes's The Economic Consequences of the Peace, published in 1920. A few notes:

-Keynes recommended that Germany should be made to pay no more than £2 billion in reparations. The actual size of the bill was initially settled at £24 billion, which Germany is still paying. The antagonists of the story are the French, who wanted Germany to bleed (going as far as insisting that German private property abroad should be expropriated), and Wilson, who was just too weak to resist the French. In fact, the book could be used to argue that France caused the Second World War.
-In retrospect, it seems that Keynes was wrong about the economic consequences of the peace. As the German economy grew in the '20s, it became more apparent that the problem with reparations was political and that Germany regained its status as an industrial powerhouse faster than expected (at least until the Crash of 1929). The reparations didn't ruin the economy but the psychological effects of the Treaty of Versailles were effectively used by the nazis to seize power. Before Versailles, Germans were led to believe by the Allies that peace would be built on Wilson's Fourteen Points. Because of French opposition and Wilson's weakness, it didn't turn out that way.
-Two numbers struck me, as they always do. Germany had a population of nearly 70 million in 1914, before the outbreak of the war. Russia had a population of 150 million around the same time. Today Germany has just 80 million and Russia 140 million inhabitants. To get a better picture of the effects of the two world wars on the populations of these two countries, compare their demographic story to that of the United States which had around 100 million inhabitants in 1914 and has 310 million inhabitants today.
-Keynes recommended arranging some huge international loan to help Europe rebuild. Keynes argued that in practice the lender would have to be the United States. This didn't come to fruition but this is exactly what happened after the Second World War in the form of the Marshall Plan. Also, apart from the Soviet Union, the Allies turned out to be far more lenient toward Germany after the Second, at least after initially contemplating plans to turn Germany into a cripple. (The onset of the Cold War surely contributed to this.)

Some quotes:
"The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable, -abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if [it] did not sow the decay of the whole civilised life of Europe. Some preach it in the name of Justice. 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 auhorised, by religion or by natural morals, to visit on the children of their enemies the misdoings of parents or of rulers."
"If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war fill fade into nothing, and which will destroy, whoever is victor, the civilisation and the progress of our generation."
"But who can say how much is endurable, or in what direction men will seek at last to escape from their misfortunes?"

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