And so when economists and historians, then and ever since, zeroed in on questions about, say, whether Keynes underestimated Germany’s capacity to pay its war reparations — they miss the larger point. Keynes could have surely been wrong. But his arguments about the crisis facing Europe, and about what the treaty failed to do, were exactly right.
Keynes recognized that the war had “so shaken this system as to endanger the life of Europe altogether.” But 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 restore “the disordered finances of France and Italy.” Forcing Germany into, essentially, servitude, he argued, “will sow the decay of the whole of civilized life of Europe.”
Keynes was well positioned to grasp the severity of this most perilous macroeconomic muddle. At the Treasury during the war, he had the task of larder of British finance to keep the war effort afloat. At the Paris Peace Conference he was the official representative of the Treasury; in addition, as the responsibilities of chancellor of the Exchequer, Austen Chamberlain, required him to stay in Britain, Keynes was deputized to represent him on the Supreme Economic Council.
Arriving in Paris on Jan. 10, he was quickly thrown into the maelstrom. Dispatched to meet with German financiers, the young Treasury man negotiated the terms of an emergency shipment of food to Germany, then on the brink of mass starvation.
Keynes would later describe those events in one of his finest long-form essays, “Dr. Melchior: A Defeated Enemy,” which he first read over two meetings in the privacy of the Memoir Club of Cambridge and Bloomsbury intimates. Virginia Woolf returned home from the second gathering and wrote an effusive note singing its literary praises; it was one of two brilliant works (“My Early Beliefs” was the other) that Keynes requested to be published posthumously.
His scene-setting has a cinematic quality:
A moment later we were called back to our saloon, since the German financiers were announced. The railway carriage was small, and both we and they were numerous. How were we to behave? Ought we to shake hands? We crushed together at one end of the carriage with a small bridge-table between us and the enemy. They pressed into the carriage, bowing stiffly. We bowed stiffly also, for some of us had never bowed before. We nervously made a movement as though to shake hands and then didn’t. I asked them, in a voice intended to be agreeable, if they all spoke English.
With some inspired back-channel improvisation, Keynes brought these modest, prefatory negotiations to a successful conclusion. The broader peace process, however, was a catastrophe — and Keynes had a front-row seat.
As the historian Eric Weitz described, German representatives reacted “with stunned disbelief” at the terms presented to them; when the details became public back home, the reaction was shock and anger. The two sides had bled each other white during the war, fighting to a stalemate until the late entry of the distant United States decisively tipped the balance of power. Germany, with no foreign troops on its soil, imagined it was bargaining for the loser’s share of a negotiated peace, not submitting to what amounted to unconditional surrender: colonies stripped, territory lost, navy sunk, army disbanded, reparations imposed.