The Treaty of Versailles And The Economic Consequences Of The Peace I THE GREAT WAR 1919

The Treaty of Versailles And The Economic Consequences Of The Peace I THE GREAT WAR 1919

This episode of The Great War was made possible
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and make your pledge. And now on to the show. It’s December 1919, and an explosive new
book has hit the shelves. John Maynard Keynes’s “The Economic Consequences
of the Peace” criticizes the Treaty of Versailles and claims that Germany should be spared economic
ruin for the good of all. But the Britain and France have their own
problems, since across the Atlantic, a new superpower starts calling in its debts. Hi, I’m Jesse Alexander and welcome to the
Great War. The First World War was not only total war
in military terms, but also in terms of economic and industrial mobilization. Armies and economies clashed in the quest
for victory , and the final triumph of the Allies was in no small part due to their economic
superiority over the Central Powers. But once peace finally came, the question
of how to repair the wrecked economies of Europe took centre stage, and it would not
be an easy nut to crack. Four years of economic and financial desperation
had pushed all belligerents’ systems to the brink – and found them wanting. Very early in the conflict, it became clear
that business as usual was not good enough to maintain a nation at war. Trade was disrupted, industry was converted
to war production, and workers were sent to the army. Every state struggled to find the money to
keep up the fight. At first, Germany had hoped to rely on short
term tax hikes to pay for the war. However, Germany’s federal system meant
the central government in Berlin had little control over taxation in federal states. In any case, taxation would only cover around
14 percent of war costs. (Ferguson 115) The remainder was paid for through Kriegsanleihen,
or war bonds – that’s money lent by individuals and companies to the state. And for a while, it seemed to work. In fact, Germany’s war bonds campaigns were
so successful that it was even able to lend money to its Austro-Hungarian and Ottoman
allies. But despite this success, Germany’s war
debt continued to grow until it was over 90 percent of total government expenditure in
1918. The country’s leaders hoped that the eventual
spoils of victory would cover these debts, but this didn’t happen and may not have
worked out even if they had won. (Eichengreen 75) Germany’s food supplies,
which were poor even at the start of the war, reached crisis levels due to blockade and
a drop in international trade, resulting in the so called ‘Turnip Winter’ of 1916-17. By 1918, the black market price of meat in
Berlin was 25 times its 1914 level. (Demps and Materna 540) As for Britain and France, they had some advantages
over Germany in facing the strains of war, mostly due to their larger empires, more developed
banking sectors, and access to world trade. But even amongst the Allies, spending skyrocketed
and debt grew. Initially, France also believed it could self-finance
the war through taxation and war bonds, but it was soon forced to borrow from Britain. Then Britain exhausted its money reserves
and had to turn to American lenders for capital. At first, the US government allowed banks
to give loans to the Allies, but by 1917 the US government itself was also issuing loans
so Britain could buy food and munitions from American companies. By 1918, Britain was importing around 4 times
more from the US than it had in 1914, while its exports were negligible. (Horn 87) Once the war ended, much of Europe and the
Middle East was in a state of total economic collapse. Food shortages were severe in many regions,
especially where fighting continued into 1919 and 1920 , and millions were threatened by
famine. The situation was so serious, that the American
Relief Administration was sent to Europe to oversee the distribution of food to 23 countries,
in particular war-torn Russia. Its budget of 100 million dollars – that’s
1.5 billion in today’s money – which was matched by private donations, was testament
to the scale of the problem, but in spite of American efforts millions still went hungry. So, faced with an unprecedented crisis, in
immediate economic terms the Allies had little reason to celebrate when peace came. Instead, they now faced the daunting task
of piecing together their broken economies. In 1918, Britain and France were heavily in
debt, their empires weakened, and worst of all – their lenders were now demanding repayment. Luckily for them, they had a heavily industrialised
Germany to turn to for payments – and a treaty to enforce them. The Treaty of Versailles established a new
order in Europe, and, in a sense, the world. The League of Nations, new borders, demilitarization,
occupation, colonial mandate s – it was all laid out in the document signed in June
1919. One of the most controversial aspects was
Article 231, the so-called War Guilt Clause, which was added as a legal justification for
demanding reparations. By signing the treaty, Germany accepted responsibility
for the damage caused by the war, and for repaying the victors. Now, the Allies knew Germany would not be
able to pay for everything, but the treaty reserved the right to impose penalties for
damage to civilian and government property: “The Allied and Associated Governments recognise
that the resources of Germany are not adequate […] to make complete reparation for all
such loss and damage. The Allied and Associated Governments, however,
require, and Germany undertakes, that she will make compensation for all damage done
to the civilian population of the Allied and Associated Powers and to their property.” (Peace Treaty of Versailles, Part VIII – Article
232, page 138) The exact amount of reparations to was to
be determined by a separate inter-allied Reparation Commission after the treaty signing. For the victorious powers, especially France,
reparations were critical – since their own recovery and reconstruction of areas devastate
d by the fighting depended on German payments. So, the treaty wasn’t just about ending
the war and swapping territory, it had an important economic component that would shape
post-war Europe. This has been the cause of much controversy
amongst historians, but it was also hotly debated at the time. Foremost amongst the economists who opposed
the Versailles treaty was John Maynard Keynes , a British mathematician and British representative
at the Paris Peace Conference. Keynes was prominent, and was friends with
influential figures like Bertrand Russell , Duncan Grant, Vanessa Bell, and Virginia
Wolff. He also worked closely with British Prime
Minister David Lloyd George , and was central to developing one side of the great debate
which gripped the conference: should Germany be economically crippled for years to come,
or should it be allowed to rebuild and rejoin the international community? From the outset, Keynes – who was a conscientious
objector – was against the imposition of heavy reparations on Germany, and instead advocated
for leniency. Initially, it seemed Lloyd George was receptive
to his ideas, however he soon discovered the British public, and some of his economist
colleagues, did not share this point of view – most Britons wanted Germany to be punished. With Keynes’ ideas falling on deaf ears, he
became disillusioned and resigned his position at the peace conference before the treaty
was signed. He then began writing a blistering critique
of Versailles and its creators. “The Economic Consequences of the Peace”
was released in December 1919 and was a broadside against Versailles and the peace process , criticized
the Big Four, and made dark predictions for Europe’s future. Keynes argued that the continent was a single
economic unit, tied together not just through geography, but also via a trade system that
increased the well-being and quality of life for all Europeans. Disrupting this economic ecosystem with what
he saw as impossibly high reparations not only made poor economic sense, but was downright
dangerous. Instead, Keynes claimed the Treaty was mostly
dictated by vengeance, greed, political opportunism and even self-delusion, as states scrambled
to redraw borders and gain traditional great power prestige, while ignoring the economic
realities the war had created: “The Treaty includes no provisions for the
economic rehabilitation of Europe,– nothing to make the defeated Central Powers into good
neighbors, nothing to stabilize the new states of Europe, nothing to reclaim Russia; nor
does it promote in any way a compact of 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.” (Keynes 211) Now, Keynes was originally optimistic about
the idealism of US President Woodrow Wilson and his 14 Points, including the League of
Nations. But he would eventually criticise the actions
of all the national leaders at Versailles. For Keynes, Clemenceau just wanted to crush
Germany into oblivion, Lloyd George wanted to appease the British public in the short
term, while the US President became paralysed by domestic ambivalence and an ambiguous desire
to do justice – which was easily manipulated by others. Keynes proposed four revisions to the treaty. First, reparations payments – on which no
limit had yet been set – should be reduced. Second, Allied debts to the United States
should be reduced or forgiven altogether. Third, an international loan for reconstruction
should be created, and currency reformed. And fourth, Keynes called for a restoration
of relations and trade with Russia. But despite the success of his book, which
quickly became a bestseller, his recommendations were mostly ignored. Reparations were later partly reduced and
some loans were made available for redevelopment, but Russia appeared a lost cause, and the
US was under no obligation and in no mood to forgive war debt. So Keynes had written the most famous attack
against the Versailles Treaty, but the political leaders had other ideas, and the treaty came
into force in January 1920. And though the United States would not ratify
the treaty, the Americans definitely did want their money back. Now Keynes argued that inter-state war loans
had been forgiven between European nations in the past, and initially Wilson had flirted
with the idea of clearing some debts. But, by late 1919 his health was failing and
the prevailing political winds favoured US isolationism and debt repayment from Britain
and France. The need for the Allies to repay American
loans soon led to a game of economic musical chairs in Europe. France owed Britain, Britain owed the US,
and Germany – according to Article 231 – owed everyone. To make matters worse for the Allied nations,
the US demanded that loans be repaid in hard currency – that’s dollars, gold or Treasury
bills – rather than in trade. This was to be achieved over a 25 year period
and covered all goods up until the US entered the war in 1917. It even covered arms sent after the declaration
of war, but before the arrival of US troops. Faced with the pressure to repay, Britain
and especially France, which had suffered extensive destruction during the war, leaned
on Germany as a source of income. But Germany soon defaulted on reparation payments,
and then it also turned to the US for loans. This meant that Germany was using American
money to cover reparation payments to France, which then covered French debt to Britain,
which then sent it back to the US. All the while, Germany’s debt just kept growing. Also, the disruption of German manufacturing,
which had been undamaged during the war, meant a potential trading partner for France and
Britain was out of action. Short term economic gain could also mean delayed
recovery – or worse – for everyone. So the combination of reparations payments
and Allied debt to the US had created a fragile economic situation in postwar Europe. In Germany, economic hard times and resentment
of the Treaty soon had political consequences beyond pure economics. The birth of the Weimar Republic was accompanied
by economic chaos. But in addition to the beginnings of inflation,
widespread unemployment, and the liquidation of personal savings, political violence became
a feature of German society . Political street violence was common, and the political centre,
which could not stabilize the country, weakened. Those who benefitted were those who proposed
extreme solutions, like the Communists and National Socialists. In the words of journalist-turned-historian
William Shirer: “Such times were heaven-sent for Adolf Hitler.” (Shirer 62) Keynes certainly felt that the treaty’s
economic provisions doomed Europe to a terrible fate: “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 war between the forces of Reaction and the despairing convulsions of Revolution,
before which the horrors of the late German war will fade into nothing.” (Keynes 250-251) All the same, Keynes has not been without
his critics. Some historians have assessed the impact of
the treaty differently, arguing that it did not predestine Europe to its eventual fate
in the 1930s. Some have questioned his claim that reparations
were too high to be paid. Others have accused him of focusing too narrowly
on utilitarian economics while ignoring the political realities of the post war climate,
in which voters in Britain and France wanted to see Germany punished. In any case the Treaty of Versailles and The
Economic Consequences of the Peace will no doubt continue to inspire debate. What is clear is that as readers cracked open
their fresh copies of Keynes’ book in late 1919, and the Treaty came into force in January
1920, Europe’s years of turbulence were by no means over. Alright, now that we’ve caught up on events
in Asia Minor, it’s time for our roundup segment, where we take a look at what else
is going on in December 1919. Let’s start in Britain, where on December
1st, Viscountess Astor became the first woman to take her seat in the British parliament. On the 8th, the Milner Commission was sent
to Egypt to investigate the political situation following pro-independence agitation. It was boycotted by most Egyptian leaders,
who opposed continued British rule. On the 23rd, the Government of India Act was
given royal assent. Responding to unrest against British rule,
the Act foresaw a gradual increase of Indian involvement in the government of India. Also in December, economist John Maynard Keynes
resigned as an expert member of the British delegation at the Paris Peace Conference. The same month, he published his influential
book “The Economic Consequences of the Peace” which criticized the reparations schemes imposed
on the Central Powers and portrayed the Big Four in a negative light. On the 18th, in the disputed city of Fiume,
the population voted to accept an offer of modus vivendi from the Italian government. But nationalist leader Gabriele D’Annunzio
refused to accept the results and the city remained in limbo. In Russia, the Red Army continued to push
the White Forces of General Denikin towards the Black Sea. Kharkiv fell to the Reds on December 11, followed
by Kiev on the 16th. And finally, in American news, on December
22 anarchists Emma Goldman and Alexander Berkman , along with nearly 250 others, were deported
to Russia under the 1918 Anarchist Exclusion Act. We want to thank Sherry Wise and Mark Newton
for their help with this episode. As usual, you can find all our sources for
this episode in the video description, including links to our amazon stores. To get access to all our podcast episodes
with expert interviews and other perks, you can also support us on Patreon or by clicking
the join button below. I’m Jesse Alexander and this is The Great
War 1919, a production of Real Time History and the only YouTube history channel that
is organizing an international commission to demand reparations from Youtube.

100 thoughts on “The Treaty of Versailles And The Economic Consequences Of The Peace I THE GREAT WAR 1919

  1. Please make a pledge for The Great War on Patreon: – in light of YouTube's move against history channels, the channel needs to rely on your support on Patreon. Thank you.

  2. General Mark Clarke remarked that nobody ever heard from those pesky Carthaginians again.
    Versailles was nowhere near harsh enough for the purpose.
    Rome learnt from the ''woe the vanquished!'' peace treaty after the Battle on the Allia – and resolved to wipe the Carthaginians out.

  3. I feel like it should be pointed out that the Prussians had imposed the The Treaty of Versailles (1871) with crippling indemnities intended to remove France as a military power and threat to German ascension. But since France's economy expanded rapidly, the indemnities no longer matter that much to France's military strength and thus was able to win the next great war: WWI.

  4. I think the treaty of Versailles was overreaching and was a guaranteed path towards another conflict as you pointed out many foresaw a future conflict. It was a perfect backbone for a new party to build on and use as a just cause for new war on every nation that pushed the treaty on them. If you put yourself in a German shoes the idea of payback for such unfair demands was a perfect rallying call for war. Hitler took advantage of that and the strong history that Germany had that the allies very much wanted to erase like frederick the great.

  5. You guys should make an episode about the "sister work" to this, "The political consequences of the peace" by historian Jacques Bainville. It was published in 1920, and fights Keynes on many groups.

    It wisely foresaw the dismantling of new eastern European states that succumbed to German or Soviet influence, etc… Bainville was mostly anti-German but it doesn't make his insight any less valid.

  6. Great episode as always! I recommend taking a look at Kissinger's book "Diplomacy", he explains very well why Versailles was too lenient to give France safety and too severe to prevent resentment. Versailles is a difficult mix of classic European balance of power ideas and American idealism, which in the end pleased nobody.

  7. Why have described Keynes as an economist in the description and then said he was a mathematician in the script? Yes, Keynes started out as a mathematician but his most famous work is in economics, i.e. Keynesian economics.

  8. The Versailles Treaty is both too harsh and too light. It is too light because it is unenforceable in the long term (An armstice for twenty years). Germany is not permanently occupied or broken up. This is what Machiavelli calls doing someone a small injury. It make enmity worse while not in the long run impairing the capacity to act on that emnity.

    It is too harsh because it blame in the wrong place. Only Belgium and the Ottoman Empire are not responsible for their own involvement and thus deserving of reparations. Belgium because they were invaded without provocation and the Ottomans because they joined the war in response to a false flag attack.Serbia was a terrorist sponsoring state and the Hapsburgs were as right to invade Serbia as NATO was to invade Afganistan in this century. Unrestricted Submarine Warfare was a measured response to a starvation blockade and the UK, while not using submarines, declared it would sink any non-British ship in a defined war zone during the Falklands War. The only difference is that no neutral ships tried. An honest assessment of guilt would have France and Russia paying reparations to Germany and the Hapsburg empire while Germany in turn paid reparations to Belgium and the Ottoman Empire.

    American held war debt at least should have been forgiven. Anyone involved in a war is a moronic credit risk and should only be lent money as a disguised grant for fighting a common enemy. No nations involved except Russia after their revolution were legitimately enemies of America. If we had behaved as principled neutrals and refused to lend money to any of the belligerents the war would have ended sooner with less bloodshed and economic disruption. Possibly early enough that troop schedules wouldn't have exacerbated the "Spanish" flu. We should not have been rewarded for such foolish and unethical lending.

  9. Versailles was too easy on Germany, very few territories were lost, the industries were not destroyed by war. Only German pride was affected which led to the rise of revanchism and later the NSDAP. The Allies should have taken full control of Germany.

  10. I cannot imagine what the end of World War Two would bring. If World War One was this dire, World War Two would seem like the irreversible collapse of the world economy… ouch.

  11. If y'all would've made this video during my Junior year in high school, I would've aced my history final. Thank you nonetheless.

  12. "If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp."
    John Maynard Keynes

  13. Why is it everytime the stale phrase of Versailles was too harsh another was inevitable its just accepted.The allies never fully enforced it nor were there any concrete agreements amongst them to do so.Had the france britian and america acted with unity and either enforced Versailles possibly making some concessions along the way then another war could have been avoided.

  14. Not harsh enough… Churchill said "Germany should be bombed every 20 years, if you don't know why, they do". If they had destroyed Germany back then, we wouldn't have to deal with those assholes now. Look what they're doing to Europe now.

  15. You can never go far enough with the Germans, they have a cultural imperative to overrun and dominate everything they touch combined with a child like adoration for authority and the legitimacy of the state. This wouldn't be such a big deal if they weren't so damn good at everything. The EU is just the continuation of the German Empire by other means and look how that's turning out, not in anyone but the German stat's favour.

  16. The French – undertandably – dictated the severity of the terms, but the terms of Versailles were comparatively lenient when compared to Brest-Litovsk. As ye sow, so shall ye reap.

  17. NO NO AND NO Versailles was not even enforced or the guilty German did only pay 20% of what was due….. it was just a politician excuse for the effect of their socialist agenda

  18. So can a bunch a free marketers, classical liberals, and Austrian School of Economist fans get you to give equal treatment to Ludwig von Mises book "Nation, State, and Economy?"
    The guilt clause and reparations were not unique to the Treaty of Versailles. Prussia forced similar terms on France at the end of the Franco-Prussian War. Of course, this led to militarism, irridentism, and revanchism in France, one of the factors that led to the First World War. The other Allied Powers should have paid attention. Then again, so should have Imperial Germany. What they did to Russia at the Treaty of brest-litovsk far exceeded what was done to them.
    But if you are looking at damage wrought by treaty, I don't think any country came out worse than Hungary.

  19. If anything, I think they were too lenient, but hindsight is 20/20. We all know how badly those grievances were exploited by evil people.

  20. after the franco-prussian war , the french ha to pay punitive reparation similar to the Versailles threaty; France was occupied until full payment; France even had to be the occupation costs. France paid in full. But for the german , the superior race nation has always a double standard. No punishment for us….only for the others….

  21. "Demand retribution from YouTube" 😂😂 that's is F'ing funny.
    Be careful though you might bred the next Hitler if those reparations are too harsh.

  22. Read the book 1927 by Bill Bryson. By 1927 the US had to deflate the interest rate we were loaning money to Germany so they could pay their debts. This started a run on money which did not end until the crash in 1929.

  23. Keynes book about the versaille treaty is really intersting. He calls the great war the "european civil war" which is actually more fitting.

  24. I love you guys! Thank you for what you do in spite of the stupidity youtube insists on imposing on history! You all do God's work! Thank you again!

  25. Regarding Keynes' criticisms of the terms of the Versailles treaty:
    (1) After the Franco-Prussian war of 1870, Germany imposed reparations on France, which France paid without catastrophic consequences.
    (2) After the war, Germany devoted much of its energies to resisting the Allied occupation and the fulfillment of the terms of the treaty. As a result, Germany deliberately inflicted hyperinflation on its people, destroying their savings and thus sowing unrest for years to come. Instead, Germany should have devoted itself to paying the reparations and to restoring Germany's economy.
    (3) The Allies were not responsible for the relief of hardship throughout Europe. They didn't cause it, and they were not capable of relieving it. Similarly, they were not responsible for ensuring the stability of new regimes throughout Europe. Ethnic groups came to Versailles, asking that their new nations be recognized. If those groups created nations without foreseeing the need to ensure the stability of those nations, the consequences were their fault, not that of the Allies.

  26. If anybody that thinks the Versailes reparations were too severe on Germany , from what I have read the Germans slammed the French in a similiar manner after they lost the 1870 war with Germany .

  27. It's like in civil law, you can't sue and get compensation from a homeless man. They have to have the money to pay.

    This could have gone better if no one placed time frames on how fast debts and reparations had to be paid….

  28. Keynes was a total piece of puke. Every bit of "economic theory" he'd ever come up with has been to the detriment of the entire world ever since.

  29. Thank you for all the content. These are great. The last one about the early days of the NSDAP was your best in my opinion.

  30. 16:20 This once more makes me wonder why our modern propaganda posters are so dull. They sure knew how to do the job 100 years ago!

  31. Keynes was apparently prophetic but then again the Versailles boot on people that had no say-so would logically end in violence; revolution and war.

  32. In 1970 I found a history book written in 1919. The last chapter was on the Great War. I remember this for one reason. The author stated that if the Treaty arrangements didn't solve all the problems after the war, a new war was certain.

  33. Keynes was ahead of his time; perceived that European prosperity depended on inter-European trade – and he seems to have foreseen the European Union that didn't come about until after the Second World War. However, expecting the US to forego repayment was ridiculous.

  34. The reparations demanded from YouTube should make those demanded of Germany in the Treaty of Versailles seem mild by comparison.

  35. The way I see it , Britain and France wanted to save their power , wealth , colonies , and Empires So they wanted to cripple Germany which was competition . They dived in to divy up German colonies . I never understood why Germany was blamed for the war . A Serb fired the assassination shot that started it . I guess Serbia didn't have any colonies or wealth that Britain and France wanted .

  36. yes the treaty was too harsh. who knew blaming germany solo for a war that all the great powers of europe made happen would cause resentment.
    and no it wasnt americas fault for expecting loan repayment. the usa bent over backwards to work with the allies and some of the loans werent fully repaid for nearly a century after the war.

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