The Economic Consequences of the Peace
by John Maynard Keynes

 Chapter 6: Europe After the Treaty

     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 neighbours,
 nothing to stabilise 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 problem 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
 centres. This population secured for itself a livelihood before
 the war, without much margin of surplus, by means of a delicate
 and immensely complicated organisation, 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 organisation 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
 organisation, and submerge civilisation itself in their attempts
 to satisfy desperately the overwhelming needs of the individual.
 This is the danger against which all our resources and courage
 and idealism must now co-operate.
     On 13 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 40 million inhabitants. As an
 industrial state she could ensure the means of subsistence for a
 population of 67 millions; and in 1913 the importation of
 foodstuffs amounted, in round figures, to 12 million tons. Before
 the war a total of 15 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 realise 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 territorial 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 favourable conditions which have permitted
 the growth of population beyond what could be provided for when
 the favourable 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 Czechoslovakia; the loss throughout the continent of
 efficient labour, through the casualties of war or the
 continuance of mobilisation; 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 labouring classes on the
 fundamental economic issues of their lives. But above all (to
 quote Mr Hoover), 'there is a great 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
 bureaux in Europe in July 1919 showed that 15 million 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 labour 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 livestock 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
     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
 neighbours. 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 million 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 incompetence, 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 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
 extra-ordinary 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. This was not so in England twenty-five years ago,
 any more than it is now in the United States. Then the
 capitalists believed in themselves, in their value to society, in
 the propriety of their continued existence in the full enjoyment
 of their riches and the unlimited exercise of their power. Now
 they tremble before every insult -- call them pro-Germans,
 international financiers, or profiteers, and they will give you
 any ransom you choose to ask not to speak of them so harshly.
 They allow themselves to be ruined and altogether undone by their
 own instruments, governments of their own making, and a Press of
 which they are the proprietors. Perhaps it is historically true
 that no order of society ever perishes save by its own hand. In
 the complexer world of Western Europe the Immanent Will may
 achieve its ends more subtly and bring in the revolution no less
 inevitably through a Klotz or a George than by the
 intellectualisms, too ruthless and self-conscious for us, of the
 bloodthirsty philosophers of Russia.
     The inflationism of the currency systems of Europe has
 proceeded to extraordinary lengths. The various belligerent
 governments, unable or too timid or too short-sighted to secure
 from loans or taxes the resources they required, have printed
 notes for the balance. In Russia and Austria-Hungary this process
 has reached a point where for the purposes of foreign trade the
 currency is practically valueless. The Polish mark can be bought
 for about 1 1/2d and the Austrian crown for less than 1d, but
 they cannot be sold at all. The German mark is worth less than 2d
 on the exchanges. In most of the other countries of Eastern and
 south-eastern Europe the real position is nearly as bad. The
 currency of Italy has fallen to little more than a half of its
 nominal value in spite of its being still subject to some degree
 of regulation; French currency maintains an uncertain market; and
 even sterling is seriously diminished in present value and
 impaired in its future prospects.
     But while these currencies enjoy a precarious value abroad,
 they have never entirely lost, not even in Russia, their
 purchasing power at home. A sentiment of trust in the legal money
 of the state is so deeply implanted in the citizens of all
 countries that they cannot but believe that some day this money
 must recover a part at least of its former value. To their minds
 it appears that value is inherent in money as such, and they do
 not apprehend that the real wealth which this money might have
 stood for has been dissipated once and for all. This sentiment is
 supported by the various legal regulations with which the
 governments endeavour to control internal prices, and so to
 preserve some purchasing power for their legal tender. Thus the
 force of law preserves a measure of immediate purchasing power
 over some commodities and the force of sentiment and custom
 maintains, especially amongst peasants, a willingness to hoard
 paper which is really worthless.
     The preservation of a spurious value for the currency, by the
 force of law expressed in the regulation of prices, contains in
 itself, however, the seeds of final economic decay, and soon
 dries up the sources of ultimate supply. If a man is compelled to
 exchange the fruits of his labours for paper which, as experience
 soon teaches him, he cannot use to purchase what he requires at a
 price comparable to that which he has received for his own
 products, he will keep his produce for himself, dispose of it to
 his friends and neighbours as a favour, or relax his efforts in
 producing it. A system of compelling the exchange of commodities
 at what is not their real relative value not only relaxes
 production, but leads finally to the waste and inefficiency of
 barter. If, however, a government refrains from regulation and
 allows matters to take their course, essential commodities soon
 attain a level of price out of the reach of all but the rich, the
 worthlessness of the money becomes apparent, and the fraud upon
 the public can be concealed no longer.
     The effect on foreign trade of price-regulation and
 profiteer-hunting as cures for inflation is even worse. Whatever
 may be the case at home, the currency must soon reach its real
 level abroad, with the result that prices inside and outside the
 country lose their normal adjustment. The price of imported
 commodities, when converted at the current rate of exchange, is
 far in excess of the local price, so that many essential goods
 will not be imported at all by private agency, and must be
 provided by the government, which, in re-selling the goods below
 cost price, plunges thereby a little further into insolvency. The
 bread subsidies now almost universal throughout Europe are the
 leading example of this phenomenon.
     The countries of Europe fall into two distinct groups at the
 present time as regards their manifestations of what is really
 the same evil throughout, according as they have been cut off
 from international intercourse by the blockade, or have had their
 imports paid for out of the resources of their allies. I take
 Germany as typical of the first, and France and Italy of the
     The note circulation of Germany is about ten times(2*) what
 it was before the war. The value of the mark in terms of gold is
 about one-eighth of its former value. As world prices in terms of
 gold are more than double what they were, it follows that mark
 prices inside Germany ought to be from sixteen to twenty times
 their pre-war level if they are to be in adjustment and proper
 conformity with prices outside Germany.(3*) But this is not the
 case. In spite of a very great rise in German prices, they
 probably do not yet average much more than five times their
 former level, so far as staple commodities are concerned; and it
 is impossible that they should rise further except with a
 simultaneous and not less violent adjustment of the level of
 money-wages. The existing maladjustment hinders in two ways
 (apart from other obstacles) that revival of the import trade
 which is the essential preliminary of the economic reconstruction
 of the country. In the first place, imported commodities are
 beyond the purchasing power of the great mass of the
 population,(4*) and the flood of imports which might have been
 expected to succeed the raising of the blockade was not in fact
 commercially possible.(5*) In the second place, it is a hazardous
 enterprise for a merchant or a manufacturer to purchase with a
 foreign credit material for which, when he has imported it or
 manufactured it, he will receive mark currency of a quite
 uncertain and possibly unrealisable value. This latter obstacle
 to the revival of trade is one which easily escapes notice and
 deserves a little attention. It is impossible at the present time
 to say what the mark will be worth in terms of foreign currency
 three or six months or a year hence, and the exchange market can
 quote no reliable figure. It may be the case, therefore, that a
 German merchant, careful of his future credit and reputation, who
 is actually offered a short-period credit in terms of sterling or
 dollars, may be reluctant and doubtful whether to accept it. He
 will owe sterling or dollars, but he will sell his product for
 marks, and his power, when the time comes, to turn these marks
 into the currency in which he has to repay his debt is entirely
 problematic. Business loses its genuine character and becomes no
 better than a speculation in the exchanges, the fluctuations in
 which entirely obliterate the normal profits of commerce.
     There are therefore three separate obstacles to the revival
 of trade: a maladjustment between internal prices and
 international prices, a lack of individual credit abroad
 wherewith to buy the raw materials needed to secure the working
 capital and to re-start the circle of exchange, and a disordered
 currency system which renders credit operations hazardous or
 impossible quite apart from the ordinary risks of commerce.
     The note circulation of France is more than six times its
 prewar level. The exchange value of the franc in terms of gold is
 a little less than two-thirds its former value; that is to say,
 the value of the franc has not fallen in proportion to the
 increased volume of the currency.(6*) This apparently superior
 situation of France is due to the fact that until recently a very
 great part of her imports have not been paid for, but have been
 covered by loans from the governments of Great Britain and the
 United States. This has allowed a want of equilibrium between
 exports and imports to be established, which is becoming a very
 serious factor, now that the outside assistance is being
 gradually discontinued.(7*) The internal economy of France and
 its price level in relation to the note circulation and the
 foreign exchanges is at present based on an excess of imports
 over exports which cannot possibly continue. Yet it is difficult
 to see how the position can be readjusted except by a lowering of
 the standard of consumption in France, which, even if it is only
 temporary, will provoke a great deal of discontent.
     The situation of Italy is not very different. There the note
 circulation is five or six times its pre-war level, and the
 exchange value of the lira in terms of gold about half its former
 value. Thus the adjustment of the exchange to the volume of the
 note circulation has proceeded further in Italy than in France.
 On the other hand, Italy's 'invisible' receipts, from emigrant
 remittances and the expenditure of tourists, have been very
 injuriously affected; the disruption of Austria has deprived her
 of an important market; and her peculiar dependence on foreign
 shipping and on imported raw materials of every kind has laid her
 open to special injury from the increase of world prices. For all
 these reasons her position is grave, and her excess of imports as
 serious a symptom as in the case of France.(8*)
     The existing inflation and the maladjustment of international
 trade are aggravated, both in France and in Italy, by the
 unfortunate budgetary position of the governments of these
     In France the failure to impose taxation is notorious. Before
 the war the aggregate French and British budgets, and also the
 average taxation per head, were about equal; but in France no
 substantial effort has been made to cover the increased
 expenditure. 'Taxes increased in Great Britain during the war',
 it has been estimated, 'from 95 francs per head to 265 francs,
 whereas the increase in France was only from 90 to 103 francs.'
 The taxation voted in France for the financial year ending 30
 June 1919 was less than half the estimated normal post bellum
 expenditure. The normal budget for the future cannot be put below
 £3880 million (22 milliard francs), and may exceed this figure;
 but even for the fiscal year 1919-20 the estimated receipts from
 taxation do not cover much more than half this amount. The French
 Ministry of Finance have no plan or policy whatever for meeting
 this prodigious deficit, except the expectation of receipts from
 Germany on a scale which the French officials themselves know to
 be baseless. In the meantime they are helped by sales of war
 material and surplus American stocks and do not scruple, even in
 the latter half of 1919, to meet the deficit by the yet further
 expansion of the note issue of the Bank of France.(9*)
     The budgetary position of Italy is perhaps a little superior
 to that of France. Italian finance throughout the war was more
 enterprising than the French, and far greater efforts were made
 to impose taxation and pay for the war. Nevertheless, Signor
 Nitti, the Prime Minister, in a letter addressed to the
 electorate on the eve of the General Election (October 1919),
 thought it necessary to make public the following desperate
 analysis of the situation: (1) The state expenditure amounts to
 about three times the revenue; (2) all the industrial
 undertakings of the state, including the railways, telegraphs,
 and telephones, are being run at a loss. Although the public is
 buying bread at a high price, that price represents a loss to the
 government of about a milliard a year; (3) exports now leaving
 the country are valued at only one-quarter or one-fifth of the
 imports from abroad; (4) the national debt is increasing by about
 a milliard lire per month; (5) the military expenditure for one
 month is still larger than that for the first year of the war.
     But if this is the budgetary position of France and Italy,
 that of the rest of belligerent Europe is yet more desperate. In
 Germany the total expenditure of the empire, the federal states,
 and the communes in 1919-20 is estimated at 25 milliards of
 marks, of which not above 10 milliards are covered by previously
 existing taxation. This is without allowing anything for the
 payment of the indemnity. In Russia, Poland, Hungary, or Austria
 such a thing as a budget cannot be seriously considered to exist
 at all.(10*)
     Thus the menace of inflationism described above is not merely
 a product of the war, of which peace begins the cure. It is a
 continuing phenomenon of which the end is not yet in sight.
     All these influences combine not merely to prevent Europe
 from supplying immediately a sufficient stream of exports to pay
 for the goods she needs to import, but they impair her credit for
 securing the working capital required to re-start the circle of
 exchange and also, by swinging the forces of economic law yet
 further from equilibrium rather than towards it, they favour a
 continuance of the present conditions instead of a recovery from
 them. An inefficient, unemployed, disorganised Europe faces us,
 torn by internal strife and international hate, fighting,
 starving, pillaging, and lying. What warrant is there for a
 picture of less sombre colours?
     I have paid little heed in this book to Russia, Hungary, or
 Austria.(11*) There the miseries of life and the disintegration
 of society are too notorious to require analysis; and these
 countries are already experiencing the actuality of what for the
 rest of Europe is still in the realm of prediction. Yet they
 comprehend a vast territory and a great population, and are an
 extant example of how much man can suffer and how far society can
 decay. Above all, they are the signal to us of how in the final
 catastrophe the malady of the body passes over into malady of the
 mind. Economic privation proceeds by easy stages, and so long as
 men suffer it patiently the outside world cares little. Physical
 efficiency and resistance to disease slowly diminish,(12*) but
 life proceeds somehow, until the limit of human endurance is
 reached at last and counsels of despair and madness stir the
 sufferers from the lethargy which precedes the crisis. Then man
 shakes himself, and the bonds of custom are loosed. The power of
 ideas is sovereign, and he listens to whatever instruction of
 hope, illusion, or revenge is carried to him on the air. As I
 write, the flames of Russian Bolshevism seem, for the moment at
 least, to have burnt themselves out, and the peoples of Central
 and Eastern Europe are held in a dreadful torpor. The lately
 gathered harvest keeps off the worst privations, and peace has
 been declared at Paris. But winter approaches. Men will have
 nothing to look forward to or to nourish hopes on. There will be
 little fuel to moderate the rigours of the season or to comfort
 the starved bodies of the town-dwellers.
     But who can say how much is endurable, or in what direction
 men will seek at last to escape from their misfortunes?


 1. Professor Starling's Report on Food Conditions in Germany
 (Cmd. 280).

 2. Including the Darlehenskassenscheine somewhat more.

 3. Similarly in Austria prices ought to be between twenty and
 thirty times their former level.

 4. One of the most striking and symptomatic difficulties which
 faced the Allied authorities in their administration of the
 occupied areas of Germany during the armistice arose out of the
 fact that even when they brought food into the country the
 inhabitants could not afford to pay its cost price.

 5. Theoretically an unduly low level of home prices should
 stimulate exports and so cure itself. But in Germany, and still
 more in Poland and Austria, there is little or nothing to export.
 There must be imports before there can be exports.

 6. Allowing for the diminished value of gold, the exchange value
 of the franc should be less than forty per cent of its previous
 value, instead of the actual figure of about sixty per cent if
 the fall were proportional to the increase in the volume of the

 7. How very far from equilibrium France's international exchange
 now is can be seen from the following table:

   Monthly      Imports     Exports     Excess of imports
    average     (£31,000)    (£31,000)        (£31,000)
    1913         28,071      22,934           5,137
    1914         21,341      16,229           5,112
    1918         66,383      13,811          52,572
 Jan-Mar 1919    77,428      13,334          64,094
 Apr-June 1919   84,282      16,779          67,503
 July 1919       93,513      24,735          68,778

     These figures have been converted at approximately par rates,
 but this is roughly compensated by the fact that the trade of
 1918 and 1919 has been valued at 1917 official rates. French
 imports cannot possibly continue at anything approaching these
 figures, and the semblance of prosperity based on such a state of
 affairs is spurious.

 8. The figures for Italy are as follows:

    Monthly      Imports     Exports     Excess of imports
    average      (£31,000)    (£31,000)        (£31,000)
  1913            12,152       8,372           3,780
  1914             9,744       7,368           2,376
  1918            47,005       8,278          38,727
 Jan-Mar 1919     45,848       7,617          38,231
 Apr-June 1919    66,207      13,850          52,357
 July-Aug 1919    44,707      16,903          27,804

 9. In the last two returns of the Bank of France available as I
 write (2 and 9 October 1919) the increases in the note issue on
 the week amounted to £318,750,000 and £318,825,000 respectively.

 10. On 3 October 1919 M. Bilinski made his financial statement to
 the Polish Diet. He estimated his expenditure for the next nine
 months at rather more than double his expenditure for the past
 nine months, and while during the first period his revenue had
 amounted to one-fifth of his expenditure, for the coming months
 he was budgeting for receipts equal to one-eighth of his
 outgoings. The Times correspondent at Warsaw reported that 'in
 general M. Bilinski's tone was optimistic and appeared to satisfy
 his audience'!

 11. The terms of the peace treaty imposed on the Austrian
 republic bear no relation to the real facts of that state's
 desperate situation. The Arbeiter Zeitung of Vienna on 4 June
 1919 commented on them as follows: 'Never has the substance of a
 treaty of peace so grossly betrayed the intentions which were
 said to have guided its construction as is the case with this
 treaty... in which every provision is permeated with ruthlessness
 and pitilessness, in which no breath of human sympathy can be
 detected, which flies in the face of everything which binds man
 to man, which is a crime against humanity itself, against a
 suffering and tortured people.' I am acquainted in detail with
 the Austrian treaty and I was present when some of its terms were
 being drafted, but I do not find it easy to rebut the justice of
 this outburst.

 12. For months past the reports of the health conditions in the
 Central empires have been of such a character that the
 imagination is dulled, and one almost seems guilty of
 sentimentality in quoting them. But their general veracity is not
 disputed, and I quote the three following, that the reader may
 not be unmindful of them: 'In the last years of the war, in
 Austria alone at least 35,000 people died of tuberculosis, in
 Vienna alone 12,000. To-day we have to reckon with a number of at
 least 350,000 to 400,000 people who require treatment for
 tuberculosis... As the result of malnutrition a bloodless
 generation is growing up with undeveloped muscles, undeveloped
 joints, and undeveloped brain' (Neue Freie Presse, 31 May 1919).
 The commission of doctors appointed by the medical faculties of
 Holland, Sweden, and Norway to examine the conditions in Germany
 reported as follows in the Swedish Press in April 1919:
 'Tuberculosis, especially in children, is increasing in an
 appalling way, and, generally speaking, is malignant. In the same
 way rickets is more serious and more widely prevalent. It is
 impossible to do anything for these diseases; there is no milk
 for the tuberculous, and no cod-liver oil for those suffering
 from rickets... Tuberculosis is assuming almost unprecedented
 aspects, such as have hitherto only been known in exceptional
 cases. The whole body is attacked simultaneously, and the illness
 in this form is practically incurable... Tuberculosis is nearly
 always fail now among adults. It is the cause of ninety per cent
 of the hospital cases. Nothing can be done against it owing to
 lack of foodstuffs... It appears in the most terrible forms, such
 as glandular tuberculosis, which turns into purulent
 dissolution.' The following is by a writer in the Vossische
 Zeitung, 5 June 1919, who accompanied the Hoover mission to the
 Erzgebirge: 'I visited large country districts where ninety per
 cent of all the children were rickety and where children of three
 years are only beginning to walk... Accompany me to a school in
 the Erzgebirge. You think it is a kindergarten for the little
 ones. No, these are children of seven and eight years. Tiny
 faces, with large dull eyes, overshadowed by huge puffed, rickety
 foreheads, their small arms just skin and bone, and above the
 crooked legs with their dislocated joints the swollen, pointed
 stomachs of the hunger oedema... "You see this child here," the
 physician in charge explained; "it consumed an incredible amount
 of bread, and yet did not get any stronger. I found out that it
 hid all the bread it received underneath its straw mattress. The
 fear of hunger was so deeply rooted in the child that it
 collected stores instead of eating the food: a misguided animal
 instinct made the dread of hunger worse than the actual pangs".'
 Yet there are many persons apparently in whose opinion justice
 requires that such beings should pay tribute until they are forty
 or fifty years of age in relief of the British taxpayer.

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