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.

Maurice Vega

100 Responses

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

  2. 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.

  3. 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….

  4. "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.

  5. 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.

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

  7. 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!

  8. 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.

  9. 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 .

  10. 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….

  11. 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.

  12. 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.

  13. 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!

  14. 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.

  15. 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.

  16. 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.

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

  18. 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 .

  19. 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.

  20. You guys rely way too heavily on Keynes in this video. The Economic Consequences of the Peace has been shown as having over exaggerated its statistics by various economists and historians for decades. Moreover, it was well within Germany's capacity to pay for reparations. The Weimar governments could have increased their taxes and lowered the social subsidies which would have provided ample money for reparations. The Dawes and Young plans reduced Germany's reparation total as well, and helped boost their economy in the 1920s (which could've helped pay for reparations). Various statistics such as Germany's index of industrial production, growth of international trade, domestic coal consumption, and others showcase their capacity to pay. (main sources are sally marks and the myths of reparations & phillip bell the origins of the second world war in Europe)

  21. Clemenceau and the economist Alfred Sauvy had a diiferent vision. It was simply to put in place an occupation of Germany, as it happened in .. 1945. This solution in 1920 would have certainly prevented Hitler to get to power, and would help other European economies to restart.

    Germany suffered no damage in its territory during the war. At the same time, Germany occupied about 10% of France, and most of the WWI fight occured in France. According to Alfred Sauvy France accounted for 620 villages and cities totally destroyed (Reims for example had only 12 buildings left standing !), 1,334 destroyed above 50%, 2,349 partially destroyed, 293,043 buildings had been totally destroyed, 148,948 severely damaged. During the war, Germany set up a administrative service called Schutzverwaltung to seize all machines, plants and services that could be transferred in Germany. When Germany troops evacuated the areas they occupied they simply damaged everything they could not take; mines were flooded, plants were destroyed. During the war Germany set a special tax for occupied cities (about 184 million gold francs), and restricted food and organized a funding through the US Embassy in Belgium in to collect money from US (386,000,000 USD), France (205,000,000 USD) and UK (109,000,000 USD) in order to feed the population in occupied territories. In these territories all men above 9 years old and women were forced to work for the German war effort. 100,000 people were brought by force from France into Germany to support the German economy in camps like Holzminden. The ones who refused were shot. 8,000 civilians have been thus killed just because they did not accept to support war effort. Another 30,000 died in labor camps.

    In 1919 Germany was not even an occupied country, and in 3 years it organized its bankrupcy in order to ease the the pain of the repayment. As a reminder, when Germany won against France in 1870/1871 (called the Great War in Germany !), its troops stayed in France until 1873 when the last payment of the 5 billon gold francs was made by France to Germany as a war compensation. Definitely, in 1919-1923 Germany played a role of victim, and Keynes helped the country to take that role.

  22. I read Keynes book…what floored me at the time as a uni student studying economics was the ending….”…Our Sons will pay the price of this mistake”…or to that affect, I read it some 20 years ago (I couldn’t tell you the edition though)

  23. 41 million deaths deserve the hardest treated of all. Germany should still have to paid reparations to all those countries that destroy¡,,,

  24. Germany didn’t pay of USA from The Great War till 2010. Did Woodrow Wilson die of the Spanish flu? On the video by the typewriter is that a Great War wine flask?

  25. How can you talk about war loans without mention of the evil Rothschild empire.
    They made money from all sides, and from the misery of millions affected by war.

  26. Sad that so few people know "The Political Consequences of Peace" of Jacques Bainville. He predicted at the time the rise of a Germany relatively spared from the war and full of revenge against an exhausted France which with 40 million inhabitants is not in a position to make up against the 60 million inhabitants besides the Rhine. The Anschluss, the Sudetenland crisis, the German-Soviet pact against Poland, he had already said everything in 1920.

  27. so you imply blame on the USA- well , you european, perhaps we Americans should have simply denied you europeans any help at all…you would all be speaking German today…ooops- you are ruled by Germany today so the war was meaningless

  28. My country (Norway) was neutral in WW1 but here we think The treaty af Versallies was to hard for Germany. Germany alone was not the only country who was guilty for WW1. But Austria Hungary was guilty. They attack Serbia.

  29. Two main elements need to be known in order to understand the French political stance whili negociating the treaty of Versailles:

    -The war was fought on French soil, and the most industrialised regions of France were occupied and then destroyed by the Germans.
    -The Germans were twice as many as French people: there were 40 millions French people and almost 80 millions Germans. France lost the biggest proportion of its population.

    The French stance was to break Germany appart: meaning undoing what the 1870 war and Bismark had done: this would have prevented Germany to become a military power ever again.

    However, the British and USA did not want to understand that because it is impossible to conquer Britain or the USA from continental Europe.

    More than an hundred years after the British and Americans still refuse to see their mistakes, while Germany still uses the supposedly too harsh Versailles treaty (with the largest part of debt never paid by Germany by the way) as an excuse for nazism.

    More than a hundred years later, it is clear that the French politicians were right, the Versailles treaty should have been less harsh economically, but much harsher politicaly by reestablishing what Germany had always been, a bunsh of squabbling tiny states: Hitler would have never been able to rise to power or threaten France or the UK if Germany had been broken appart.

  30. Germany never should of took blame for World War one, keep in mind the Austro-Hungarian Empire, and Serbia were at fault.

  31. Fascinating how Keynes predicted what was going to happen yet nobody listened to him. In hindsight we can all say that Versailles was wrong but he knew it before everyone else. Was Versailles too harsh? Definitely. The French and the British became rich from their colonies. They could have easily paid their debt off themselves. During the great depression they imported raw materials from their colonies. Germany on the other hand struggeled to get raw materials since they didn't have money to pay for that. In 1914, the German empire made 18% of all goods produced in the world only being the 22% of the USA. After the war Germany made only 2% of the goods. No one wanted to trade with Germany and that is ultimately why democracy in the Weimar republic has failed. While in other countries the great depression started in 1927/28, economic depression was in Germany from 1918-1933.

  32. The Treaty of Versailles was not too hard, on the contrary it was quite normal, the Germans are still responsible for the war, they supported Austria-Hungary in their entry into the war, while their alliance had a defensive purpose. Also it is not because a person kills an archduke that it makes legitimate the invasion of the country of origin of the assassin (besides we are still not sure that the assassin was Serbian). It should not be forgotten that Germany caused huge damage to the countries it attacked, cities were literally razed to the ground, historical monuments were attacked, cities of no strategic interest were bombed, even today some land still cannot be used because of the conflict, landscapes were totally changed. One could say that France was not a victim of this war, but Belgium then?
    The treaty was not too hard, but rather badly executed, that and the fact of having cut Germany in two…

  33. The braces episode.!

    With constant demonetisation should I watch ads or not, I often put myself through them for the sake of the content creators.

  34. Question about 4:50, how could the American relief Administration working in Russia in 1920 if it was under the Bolsheviks at the time? I just find it unlikely that Lenin would have allowed foreign Interlopers of any kind, even a humanitarian one, as it sounds slightly counter-revolutionary. Did the organization only operate in the areas under the firm control of the white Russians then?

  35. Greed n corruption by the Allie's is the reason for the rise of Nazism and another terrible world war twenty years later 🦂

  36. No comment! The criminals are still in power! Probably, they are teling their wives how many Germans they killed every day…

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