6: Europe After the Treaty
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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 neighbors, 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.
The Council of Four paid no attention to these issues, being preoccupied with others, -
Clemenceau to crush the economic life of his enemy, Lloyd George to do a deal and bring
home something which would pass muster for a week, the President to do nothing that was
not just and right. It is an extraordinary fact that the fundamental economic problems 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. Reparation was their main excursion
into the economic field, and they settled it as a problem of theology, of politics, of
electoral chicane, from every point of view except that of the economic future of the
States whose destiny they were handling.
I leave, from this point onwards, Paris, the Conference, and the Treaty, briefly to
consider the present situation of Europe, as The War and the Peace have made it; and 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.
The essential facts of the situation, as I see them, are expressed simply. Europe
consists of the densest aggregation of population in the history of the world. This
population is accustomed to a relatively high standard of life, in which, even now, some
sections of it anticipate improvement rather than deterioration. In relation to other
continents Europe is not self-sufficient; in particular it cannot feed itself. Internally
the population is not evenly distributed, but much of it is crowded into a relatively
small number of dense industrial centers. This population secured for itself a livelihood
before the war, without much margin of surplus, by means of a delicate and immensely
complicated organization, of which the foundations were supported by coal, iron,
transport, and an unbroken supply of imported food and raw materials from other
continents. By the destruction of this organization and the interruption of the stream of
supplies, a part of this population is deprived of its means of livelihood. Emigration is
not open to the redundant surplus. For it would take years to transport them overseas,
even, which is not the case, if countries could be found which were ready to receive them.
The danger confronting us, therefore, is the rapid depression of the standard of life of
the European populations to a point which will mean actual starvation for some (a point
already reached in Russia and approximately reached in Austria). Men will not always die
quietly. For starvation, which brings to some lethargy and a helpless despair, drives
other temperaments to the nervous instability of hysteria and to a mad despair. And these
in their distress may overturn the remnants of organization, and submerge civilization
itself in their attempts to satisfy desperately the over whelming needs of the individual.
This is the danger against which all our resources and courage and idealism must now
co-operate.
On the 13th May, 1919, Count Brockdorff-Rantzau addressed to the Peace Conference of
the Allied and Associated Powers the Report of the German Economic Commission charged with
the study of the effect of the conditions of Peace on the situation of the German
population. "In the course of the last two generations," they reported,
"Germany has become transformed from an agricultural State to an industrial State. So
long as she was an agricultural State, Germany could feed forty million inhabitants. As an
industrial State she could insure the means of subsistence for a population of sixty-seven
millions; and in 1913 the importation of foodstuffs amounted, in round figures, to twelve
million tons. Before the war a total of fifteen million persons in Germany provided for
their existence by foreign trade, navigation, and the use, directly or indirectly, of
foreign raw material." After rehearsing the main relevant provisions of the Peace
Treaty the report continues: "After this diminution of her products, after the
economic depression resulting from the loss of her colonies, her merchant fleet and her
foreign investments, Germany will not be in a position to import from abroad an adequate
quantity of raw material. An enormous part of German industry will, therefore, be
condemned inevitably to destruction. The need of importing foodstuffs will increase
considerably at the same time that the possibility of satisfying this demand is as greatly
diminished. In a very short time, therefore, Germany will not be in a position to give
bread and work to her numerous millions of inhabitants, who are prevented from earning
their livelihood by navigation and trade. These persons should emigrate, but this is a
material impossibility, all the more because many countries and the most important ones
will oppose any German immigration. To put the Peace conditions into execution would
logically involve, therefore, the loss of several millions of persons in Germany. 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. No help, however great, or over however long a
period it were continued, could prevent these deaths en masse."
"We do not know, and indeed we doubt," the report concludes, "whether the
Delegates of the Allied and Associated Powers realize the inevitable consequences which
will take place if Germany, an industrial State, very thickly populated, closely bound up
with the economic system of the world, and under the necessity of importing enormous
quantities of raw material and foodstuffs, suddenly finds herself pushed back to the phase
of her development, which corresponds to her economic condition and the numbers of her
population as they were half a century ago. 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. The indictment is at least as true of the
Austrian, as of the German, settlement. This is the fundamental problem in front of us,
before which questions of territonal adjustment and the balance of European power are
insignificant. Some of the catastrophes of past history, which have thrown back human
progress for centuries, have been due to the reactions following on the sudden
termination, whether in the course of nature or by the act of man, of temporarily
favorable conditions which have permitted the growth of population beyond what could be
provided for when the favorable conditions were at an end.
The significant features of the immediate situation can be grouped under three heads:
first, the absolute falling off, for the time being, in Europe's internal productivity;
second, the breakdown of transport and exchange by means of which its products could be
conveyed where they were most wanted; and third, the inability of Europe to purchase its
usual supplies from overseas.
The decrease of productivity cannot be easily estimated, and may be the subject of
exaggeration. But the prima facie evidence of it is overwhelming, and this factor
has been the main burden of Mr. Hoover's well-considered warnings. A variety of causes
have produced it ; - violent and prolonged internal disorder as in Russia and Hungary; the
creation of new governments and their inexperience in the readjustment of economic
relations, as in Poland and Czecho-Slovakia; the loss throughout the Continent of
efficient labor, through the casualties of war or the continuance of mobilization; the
falling-off in efficiency through continued underfeeding in the Central Empires; the
exhaustion of the soil from lack of the usual applications of artificial manures
throughout the course of the war; the unsettlement of the minds of the laboring classes on
the above all (to quote Mr. Hoover), "there is a great fundamental economic issues of
their lives. But relaxation of effort as the reflex of physical exhaustion of large
sections of the population from privation and the mental and physical strain of the
war." Many persons are for one reason or another out of employment altogether.
According to Mr. Hoover, a summary of the unemployment bureaus in Europe in July, 1919,
showed that 15,000,000 families were receiving unemployment allowances in one form or
another, and were being paid in the main by a constant inflation of currency. In Germany
there is the added deterrent to labor and to capital (in so far as the Reparation terms
are taken literally), that anything, which they may produce beyond the barest level of
subsistence, will for years to come be taken away from them.
Such definite data as we possess do not add much, perhaps, to the general picture of
decay. But I will remind the reader of one or two of them. The coal production of Europe
as a whole is estimated to have fallen off by 30 per cent; and upon coal the greater part
of the industries of Europe and the whole of her transport system depend. Whereas before
the war Germany produced 85 per cent of the total food consumed by her inhabitants, the
productivity of the soil is now diminished by 40 per cent and the effective quality of the
live-stock by 55 per cent.(1) Of the European countries
which formerly possessed a large exportable surplus, Russia, as much by reason of
deficient transport as of diminished output, may herself starve. Hungary, apart from her
other troubles, has been pillaged by the Roumanians immediately after harvest. Austria
will have consumed the whole of her own harvest for 1919 before the end of the calendar
year. The figures are almost too overwhelming to carry conviction to our minds; if they
were not quite so bad, our effective belief in them might be stronger.
But even when coal can be got and grain harvested, the breakdown of the European
railway system prevents their carriage; and even when goods can be manufactured, the
breakdown of the European currency system prevents their sale. I have already described
the losses, by war and under the Armistice surrenders, to the transport system of Germany.
But even so, Germany's position, taking account of her power of replacement by
manufacture, is probably not so serious as that of some of her neighbors. In Russia (about
which, however, we have very little exact or accurate information) the condition of the
rolling-stock is believed to be altogether desperate, and one of the most fundamental
factors in her existing economic disorder. And in Poland, Roumania, and Hungary the
position is not much better. Yet modern industrial life essentially depends on efficient
transport facilities, and the population which secured its livelihood by these means
cannot continue to live without them. The breakdown of currency, and the distrust in its
purchasing value, is an aggravation of these evils which must be discussed in a little
more detail in connection with foreign trade.
What then is our picture of Europe? A country population able to support life on the
fruits of its own agricultural production but without the accustomed surplus for the
towns, and also (as a result of the lack of imported materials and so of variety and
amount in the saleable manufactures of the towns) without the usual incentives to market
food in return for other wares; an industrial population unable to keep its strength for
lack of food, unable to earn a livelihood for lack of materials, and so unable to make
good by imports from abroad the failure of productivity at home. Yet, according to Mr.
Hoover, "a rough estimate would indicate that the population of Europe is at least
100,000,000 greater than can be supported without imports, and must live by the production
and distribution of exports."
The problem of the re-inauguration of the perpetual circle of production and exchange
in foreign trade leads me to a necessary digression on the currency situation of Europe.
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. By this method
they not only confiscate, but they confiscate arbitrarily; 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. Those to whom the system brings windfalls, beyond their deserts
and even beyond their expectations or desires, become "profiteers," who are the
object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less
than of the proletariat. As the inflation proceeds and the real value of the currency
fluctuates wildly from month to month, 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 no 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.
In the latter stages of the war all the belligerent governments practised, from
necessity or in-competence, what a Bolshevist might have done from design. Even now, when
the war is over, most of them continue out of weakness the same malpractices. But further,
the Governments of Europe, being many of them at this moment reckless in their methods as
well as weak, seek to direct on to a class known as "profiteers" the popular
indignation against the more obvious consequences of their vicious methods. 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 help but get rich quick whether they wish it or
desire it or not. If prices are continually rising, every trader who has purchased for
stock or owns property and plant inevitably makes profits. By directing hatred against
this class, therefore, the European Governments are carrying a step further the fatal
process which the subtle mind of Lenin had consciously conceived. The profiteers are a
consequence and not a cause of rising prices. By combining a popular hatred of the class
of entrepreneurs with the blow already given to social security by the violent and
arbitrary disturbance of contract and of the established equilibrium of wealth which is
the inevitable result of inflation, these Governments are fast rendering impossible a
continuance of the social and economic order of the nineteenth century. But they have no
plan for replacing it.
We are thus faced in Europe with the spectacle of an extraordinary weakness on the part
of the great capitalist class, which has emerged from the industrial triumphs of the
nineteenth century, and seemed a very few years ago our all-powerful master. The terror
and personal timidity of the individuals of this class is now so great, their confidence
in their place in society and in their necessity to the social organism so diminished,
that they are the easy victims of intimidation.
[The rest of Keynes' book contains obsolete material, excluded from this electronic
edition.]
1. Professor Starling's Report on Food Conditions in Germany
[Cmd. 280]
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