Keynes declares this chapter 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, nothing to reclaim Russia, and no compact of economic solidarity among the Allies. Paris reached no arrangement to restore French and Italian finance or to adjust the Old World and the New. Clemenceau sought to crush Germany's economic life; Lloyd George wanted a deal that would pass muster for a week at home; Wilson refused anything that was not just. Reparation was their main excursion into economics, settled as theology and electoral chicane rather than as the future livelihood of the states they handled. Leaving Paris, Keynes surveys Europe as the war and the peace have made it. The continent holds the densest population in history, accustomed to a relatively high standard of life, crowded into industrial centres, and unable to feed itself without imports. Before the war a delicate organisation resting on coal, iron, transport, and overseas food barely sustained livelihood. That organisation is destroyed. Emigration cannot absorb the surplus in time. The danger is a rapid fall toward starvation, already reached in Russia and nearly in Austria. Starvation brings lethargy to some and hysteria to others, who may overturn what organisation remains.
On 13 May 1919 Count Brockdorff-Rantzau laid before the Peace Conference the report of Germany's Economic Commission. In two generations Germany had become an industrial state that could feed sixty-seven million where an agricultural Germany could feed forty million, and fifteen million people lived by foreign trade, navigation, and imported materials. The Treaty, the Commission warned, would push this industrial Germany back half a century and cost several million lives through famine and unemployment. Those who signed would sign a death sentence. Keynes says he knows no adequate answer for Germany or for Austria. This, he insists, is the fundamental problem; territorial adjustments are secondary beside it. Productivity has already collapsed through disorder, casualties, exhausted soil, underfeeding, and what Hoover called the reflex of physical exhaustion. In July 1919 some fifteen million European families were on unemployment allowances financed by inflation. In Germany, if the Reparation terms are taken literally, anything produced beyond subsistence will be taken away for years. Coal output for Europe as a whole has fallen about thirty percent. German soil productivity is down forty percent and livestock quality fifty-five. Hungary was pillaged by the Romanians after harvest. Austria will have eaten its entire 1919 harvest before the year ends.
Even when coal can be got and grain harvested, broken railways prevent carriage, and even when goods can be manufactured, broken currencies prevent sale. Russia's rolling-stock is believed desperate; Poland, Romania, and Hungary are not much better. Hoover estimates that Europe holds at least a hundred million more people than can be supported without imports. Rural districts can still feed themselves but have no surplus for the towns; industrial populations lack food, materials, and therefore the exports that would pay for imports. Lenin understood that debauching a currency overturns society quietly. Inflation confiscates wealth arbitrarily, creates profiteers as universal enemies, and turns lasting debt relations into a lottery. German note circulation is about ten times its prewar level and the mark about one-eighth of its gold value, yet home prices of staples have not risen in step, so imports sit beyond most buyers. France and Italy are still expanding note issues to cover deficits. Italy's Prime Minister Nitti told the electorate that state spending ran three times revenue, that railways, telegraphs, and telephones were being run at a loss, and that the national debt was rising by about a thousand million lire a month. In Germany, even without the indemnity, tax covers at most ten thousand million marks of a twenty-five thousand million expenditure. In Russia, Poland, Hungary, and Austria a budget can hardly be said to exist.
Inflation is not a wartime episode that peace begins to cure. It is still running, impairing the credit Europe needs for working capital. A writer who accompanied Hoover's mission to the Erzgebirge found children of seven who looked like infants, and one child who hid bread under a straw mattress because the fear of hunger had become worse than hunger itself. Yet some people, Keynes notes, still think justice requires such beings to pay tribute until they are forty or fifty, in relief of the British taxpayer. As he writes, the harvest keeps off the worst privations and Peace has been declared at Paris, but winter approaches and there will be little fuel for the towns. The Council of Four, preoccupied with crushing, with a deal that would last a week, and with doing nothing unjust, could not be interested in the one question every expert could see: a Europe starving and disintegrating before their eyes.
