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imposed upon Germany might likewise be scaled back to a level that the Germans could afford to pay without bankrupting themselves. Keynes and several other aides floated this proposal behind the scenes at the peace conference.¹⁰ It went nowhere, for a host of very good reasons. The French were more worried about the military threat from Germany than about war debts. The Americans saw no reason why they should bear the costs of the war when they had played no role in starting it.

      Keynes feared that the twin burdens of German reparations and inter-ally war debts would weigh heavily upon the international financial system for years to come. The transfer of vast amounts of gold to the United States in payment of debts would foster a boom in the creditor country at the expense of debtor economies. In the decades before the war, the automatic adjustment mechanisms of the gold standard prevented nations from running up large international debts. Now, after the war, the world was awash in debt, much of it owed to the United States, a nation with little experience as an international creditor and world economic power—and, to make matters worse, a country used to protecting its domestic markets from foreign competitors. Keynes understood (though he did not press the point in his book) that Great Britain stood to lose its financial preeminence due to its debt position with the United States. Thus, in pressing for a solution to the debt issue at the conference, he acted more as a representative of British interests than as a disinterested analyst of the treaty. In any case, he was right to worry that accumulated debts from the war might destabilize the international economy in the postwar period. In confirmation of these fears, the Allied powers—led by the United States—made continuous efforts during the 1920s to reduce or restructure war debts and reparations, with limited success. After the stock market crash in 1929, the issues of debt and reparations gave way to new and bigger problems.

      In the broader message of the book, Keynes argued that the ideals and institutions of the prewar era could no longer serve as the foundations for progress. “The forces of the nineteenth century have run their course and are exhausted,” he wrote. “The economic motives and ideals of that generation no longer satisfy us. We must find a new way and must suffer again the malaise, and finally the pangs of a new industrial birth.”¹¹ From his point of view, the fundamental assumptions of Europe’s liberal civilization had been badly shaken. Faith in automatic progress via saving and self-discipline was crushed. National currencies and terms of trade were distorted by wartime inflation. Workers would henceforth demand a larger share of the fruits of capitalism than they were willing to accept prior to 1914. Governments would have to take the lead in feeding their populations, establishing stable currencies, and restarting commercial activity. Keynes concluded that all this pointed toward new roles for the state, labor unions, and corporations in the evolution of capitalism.

      This was something that (according to Keynes) the statesmen at the time did not grasp as they negotiated over borders, reparations, and the League of Nations while the populations of Europe starved and established states were overturned in revolutions. They did not see “that the most serious of the problems that claimed their attention were not political or territorial but financial and economic, and that the perils of the future lay not in frontiers or sovereignties but in food, coal, and transport.”¹²

      The Economic Consequences of the Peace was an early intervention of the academic expert into the practical world of international politics and finance. As some have written, it may be read as an extended lecture on the errors of politicians from the standpoint of the professional economist and intellectual. Keynes wrote in 1922, “The economist is not king; quite true. But he ought to be. He is a better governor than the general or the diplomatist or the oratorical lawyer.”¹³ This appears to be one of the lessons he took from the Paris Peace Conference: that it would be up to economists, experts, and intellectuals to step in where the politicians had failed to chart a path out of the European crisis.

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      Keynes’s indictment of the Versailles Treaty, though widely popular in intellectual circles, was not so enthusiastically received in diplomatic quarters in Washington, Paris, or London. There, The Economic Consequences of the Peace was condemned as too pessimistic about the future course of world affairs, too sympathetic toward Germany, too negative about President Wilson’s role at the peace conference, and too heavily focused on the economic aspects of the treaty. One prominent reviewer branded it “an angry book,” which was undoubtedly true. Some later blamed Keynes for legitimizing German efforts to undermine the treaty in the 1920s and 1930s and for laying the groundwork for appeasement in the 1930s.¹⁴ This was partly true: German leaders took advantage of Keynes’s book in their campaign to discredit the treaty. Nevertheless, his critics have overstated the influence of the book. It did not wreck the treaty or create German resistance to it or cause the disorders of the 1920s and 1930s. More fundamental forces were at work; and farsighted though Keynes may have been, he could not have anticipated all of these outcomes. In any case, he wrote from a wish to see the treaty revised but not entirely discarded.¹⁵

      But his critics had a point. Keynes’s manifesto was an exaggerated production in several important respects. Written in the form of an indictment, it was a one-sided brief against the treaty, focused excessively on the reparations issue. The central idea was that the reparations regime would cripple Germany financially and unleash forces that might set off a revolution or another war. While such events did unfold during the 1920s and 1930s, it is not true that reparations or the treaty was their primary cause.

      To a significant degree, the Allied representatives in Paris presented Germany with a bill designed to placate anti-German sentiment at home, a point that Keynes did not fully appreciate.¹⁶ By 1921, the reparations commission set up by the Allies scaled back the levies to $33 billion (about 132 billion gold marks) to be paid at interest over thirty or so years, a sum that was lower than Keynes’s initial estimates but still much higher than he thought Germany could afford to pay. Nearly two-thirds of this sum was assessed in the form of “C bonds,” which carried no interest and would be due at an indeterminate date when the commission decreed that the Weimar government could pay it. The C bonds were, as many said at the time, a phantom assessment. Thus the commission, bowing to economic reality, effectively slashed the reparations down to a level close to what Keynes estimated that Germany could afford.

      Even at these reduced rates, however, the German government balked at making payments because the German people regarded reparations as a national humiliation—although Germany had imposed a war indemnity upon France at the conclusion of the Franco-Prussian War only fifty years earlier. The payments were made erratically until they were deferred after the stock market crash and then canceled when Hitler took power in 1933.

      Scholars estimate that between 1920 and 1930 Germany paid approximately 20 billion gold marks in reparations, a fraction of the amount assessed, and a figure that was dwarfed by loans that poured into Germany from primarily American sources.¹⁷ At these levels, the reparations could not have caused all of the problems attributed to them: the German hyperinflation in 1923, the stock market collapse, or Hitler’s rise to power. The reparations in the end were more of a throbbing political problem that discredited the Weimar government within Germany and impeded international economic cooperation across Europe. Economists who have looked at these figures generally agree that the Germans could have afforded to pay the levies—that is, the 50 billion gold marks—if they had wanted to do so.¹⁸ As events proved, the massive debts run up by the belligerent powers during the war were far more consequential than German reparations in destabilizing the international economy in the 1920s.

      Nor was it accurate for Keynes to claim that the treaty imposed a “Carthaginian Peace” upon Germany, because while the German army collapsed in the field in the autumn of 1918 and the German government disintegrated into chaos at home, German territory was never occupied by Allied troops and the country suffered little actual war damage. The war ended in an armistice rather than in national capitulation. Most of the war damage was localized in areas of Belgium and northern France. This was the basic problem: Germany was never subjected to the tribulations of foreign occupation and plunder that usually accompany defeat in war. For this reason, Germans never fully accepted the fact that they had lost the war. The Allies imposed harsh terms on Germany but set up no mechanism to enforce them against a recalcitrant government and population. Once the

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