Grand Pursuit

by Sylvia Nasar

  Keynes refused to backtrack, insisting that his £3 billion figure was probably too high. In the furious row that erupted inside the Treasury, he stood his ground, consistently representing the low end of estimates. Lloyd George started referring to him as “the Puck of economics,” after Shakespeare’s mischief maker and speaker of the immortal phrase “Lord, what fools these mortals be!”18

  While journalists, politicians, and the public were fixated on the amount Germany should pay, Keynes drew attention to how the indemnity might be collected. The easiest method was the oldest and the one that Germany had planned to use to extract reparations from Britain, France, and Belgium had she prevailed on the western front. It was the method proposed by the Hughes commission and involved stripping Germany of her portable public and private property, from stock certificates and gold reserves to ships and machinery. Keynes favored the second alternative, which was to leave Germany’s existing wealth more or less intact, supply her with raw material, and levy an annual tribute on her future export earnings. “Having thus nursed her back to a condition of high productivity,” Keynes explained, the Allies could “compel her to exploit this product under conditions of servitude for a long period of years.”19

  According to Skidelsky, Keynes went to Paris with twin objectives that were not easily reconciled; namely, reviving the European economy without damaging British export prospects. Two conditions were essential for his strategy to work: a relatively low German indemnity and the willingness of Americans to forgive Britain’s war debt. That was the only way Germany could avoid running huge trade surpluses—that is, export more than she imported in order to earn pounds or francs—and that Britain could avoid head-to-head competition with the German export juggernaut. Keynes refused to be daunted by the fact that neither part of his plan was remotely acceptable to the American, French, and British public, something their elected representatives could not possibly ignore.

  • • •

  Ten days after the German surrender, Keynes boasted to his mother, “I have been put in principal charge of financial matters for the Peace Conference.”20 This was an overstatement. His formal role at the conference involved relief, not the political tar baby of reparations. His immediate brief was to help Herbert Hoover work out the financial arrangements required for Europe’s transition from war to peace, especially the provision of food.

  The armistice called for continuing the blockade of Germany and Austria but permitted exceptions for needed food and medicine. The French had subsequently placed a lien on Germany’s remaining gold, hard currencies, and other liquid assets, arguing that they had to be set aside for reparations. With her accounts frozen, Germany could buy no food and faced slow starvation. Keynes was determined to overcome the obstacles placed by the French.

  Within a few days of his arrival in France, Keynes was on his way to an “extraordinary adventure” in occupied Germany. He had been asked to join a team of American and French financial experts in Trier, the ancient town on the Mosel River at the intersection of France, Germany, and Luxembourg, where Karl Marx had grown up. Adjacent to the headquarters of Marshal Ferdinand Foch of France and currently occupied by the US Army, Trier had been chosen as the site for renegotiating the November armistice. Though curious “whether the children’s ribs would be sticking out,” the Allied experts had hardly ventured from the train for three entire days except for a little shopping spree to buy wartime scrip, paper clothing, and other souvenirs.21 A bridge foursome had formed the first night, and Keynes played more or less around the clock.

  Keynes’s mission involved finance as well as food. Like Hoover, he was appalled at the blockade and, like President Wilson, convinced that “so long as hunger continued to gnaw, the foundations of government would continue to crumble.”22 He was in Trier ostensibly to find a way to get food trains rolling into Germany. Typical of all negotiations during the Peace Conference, however, things were not quite that simple. As an entirely separate matter, the Allies were determined to get hold of Germany’s merchant fleet, now anchored off the city of Hamburg, but were at somewhat of a loss about how to accomplish the takeover. They had not stipulated the surrender of the ships in the armistice, and sending the navy to seize them seemed politically unwise. So it occurred to Allied leaders that the food crisis might provide a convenient opportunity for getting the Germans to strike a deal. Keynes’s job was to convince them that “ships against food was . . . a reasonable bargain.” As he later admitted, there was an element of bluff involved, not to speak of the difficulty of making it clear to “bewildered, cowed, nerve-shattered and even hungry” financiers “to comprehend how the ground really lay.”

  In Trier, Keynes watched curiously as the German financiers, dressed like undertakers, approached their train. They walked “stiffly and uneasily,” lifting their feet “like men in a photograph or a movie.” After they climbed into the railway carriage, they did not extend their hands but only bowed stiffly. They were a sad lot “with drawn, dejected faces and tired staring eyes, like men who had been hammered on the Stock Exchange.”23

  The head of the Reichsbank looked like “an old, broken umbrella.” The “sly Corps type” from the Foreign Office had a “face cut to pieces with dueling.” The spokesman for the German team was a third figure, “a very small man, exquisitely clean, very well and neatly dressed, with a high stiff collar which seemed cleaner and whiter than an ordinary collar” and with “eyes gleaming straight at us, with extraordinary sorrow in them, yet like an honest animal at bay.” This was Carl Melchior, a Jewish banker from Hamburg. He was a liberal, a critic of submarine warfare, and a partner of the banker Max Warburg who had extensive connections in the United States.

  Keynes spoke first and asked whether everyone understood English. In his memoir, Max Warburg described Keynes’s face as an expressionless mask but said that his voice and his phrasing of questions conveyed sympathy. When it was Melchior’s turn to speak, he did so in “moving, persuasive, almost perfect English.” The banker used ingenious arguments to plead for a loan, while Keynes endeavored “clearly and coldly” to communicate the idea that a loan was politically out of the question.24 They managed to agree that the Germans would immediately hand over £5 million in gold and hard currencies in exchange for milk and butter, but that was all.

  When Keynes next met the Germans a month later, again in Trier, a stalemate had developed on the question of ships for food. The Germans were determined to hold on to their ships as long as possible, because they saw them as their best bargaining chip in the upcoming peace negotiations and were determined not to give them up without a quid pro quo. What’s more, the Germans were under the impression that the United States would be willing to advance them the funds needed to purchase the first few installments of food—a sizeable chunk of which was to consist of surplus American pork.

  By the end of the second meeting, the Germans had declared that large-scale food imports couldn’t be financed without a loan. If an Allied loan should prove politically impossible, as Keynes had warned would likely be the case, then they would not deliver the ships. If the negotiations broke down and Germany couldn’t get food, no one could prevent “the flooding of Bolshevism over the whole of Europe.”25 The negotiators had reached an impasse. Nothing could be done except by the Big Four—the leaders of the United States, England, France, and Italy—but the Big Four were busy arguing over the number of members of the Brazil delegation and hearing proposals from “Copts, Armenians, Slovaks and Zionists.” T. E. Lawrence, ostensibly the interpreter for Emir Faisal of Saudi Arabia, took advantage of the Emir’s decision to quote several passages from the Koran to propose a scheme for Arab self-rule in the old Ottoman territories.26

  The next meeting between Keynes and Melchior took place at the beginning of March in Spa, in Belgium, at the former headquarters of the German high command amid hills covered in black pines “far also from the starved cities and growling mob.”27 But the talks again went nowhere, and Keynes was fe
eling desperate that two months had passed since the first meeting in Trier with no progress toward freeing up gold to pay for food. He sensed that Melchior might feel the same way and asked for permission to sound him out. Getting past Melchior’s sullen clerks, Keynes caught him alone and, quivering with excitement, asked if they could speak privately. He recalled:

  Melchior wondered what I wanted . . . I tried to convey to him what I was feeling, how we believed his prognostications of pessimism, how we were impressed, not less than he, with the urgency of starting food supplies, how personally I believed that my Government and the American Government were really determined that the food should come, but that . . . if they, the Germans, adhered to their attitude of the morning a fatal delay was inevitable; that they must make up their minds to the handing over the ships.28

  Melchior promised that he would do his best but held out little hope. “German honor and organization and morality were crumbling; he saw no light anywhere; he expected Germany to collapse and civilization to grow dim; we must do what we could; but dark forces were passing over us.”29 Keynes’s meetings with Melchior confirmed his own pessimism about the war’s devastating consequences, and, not surprisingly given the uprisings in Berlin and elsewhere in Germany, he shared Melchior’s fears that Germany would succumb to Bolshevism if the treaty terms were too onerous.

  By the next evening, it was obvious that Melchior’s effort had come to nothing and that the new German government in Weimar was digging in its heels. At times, Keynes seemed more anxious than the Germans about the threat of revolution and the glacial pace of the negotiations. He couldn’t be sure whether Germany’s food supplies were really as depleted as the British thought. Convinced that a dramatic gesture was required to break the logjam, Keynes proposed a public rupture and convinced the team to order its train back to Paris in the middle of the night so that the Germans would awaken in the morning to find them gone. Back in Paris, Keynes found that his ploy had succeeded in capturing the attention of the Big Four. As Lord Riddell, newspaper baron and Britain’s wartime press secretary, wrote in his diary on March 8, 1919:

  The Council decided to victual the Germans, provided they hand over their ships and pay for the food in bills of exchange on other countries, goods or gold. The French strongly opposed this. LG said to me afterwards that the French are acting very foolishly, and will, if they are not careful, drive the Germans into Bolshevism. He told me that he had made a violent attack on Klotz, the French Minister of Finance, in which he said that if a Bolshevist state is formed in Germany, three statues will be erected—one to Lenin, one to Trotsky, and the third to Klotz. Klotz made no reply . . . The Americans are pleased . . . All the commercial people, British and American, favor abolishing the blockade and urge an early settlement with Germany so that the world may again get to work.30

  Four days later, Keynes was on a train bound for Trier in the company of the British admiral Rosslyn Wemyss, whom the Big Four had deputized to deliver the ultimatum to the Germans. The French had succeeded on one point: the Germans had to agree unconditionally to hand over the ships before they were to be told about the food. “D’you think you could see to it that they don’t make any unnecessary trouble?” the admiral asked Keynes. So Keynes once again sought out Melchior in private and told him that if the Germans declared their willingness unconditionally, there would be a quid pro quo. “Can you assure me von Braun will do this?” Keynes asked, referring to the head of the German delegation. Melchior paused for a moment before “he looked at me again with his solemn eyes. ‘Yes,’ he replied, ‘there shall be no difficulty about that.’ ” The next day, everyone stuck to their script: “All was settled now and the food trains started for Germany.”31

  With considerably less difficulty, Keynes also convinced the Allies to approve a loan to pay for British food shipments to Austria by early 1919. After this small triumph, Keynes had the Germans installed at the Château de Villette outside Paris. A plan was afoot to collect financiers from many countries to discuss reconstruction. As it turned out, Keynes visited the chateau only once or twice. Not long after the Germans moved in, the Peace Conference turned away from the issue of reconstruction and became terminally entangled in the matter of reparations.

  • • •

  “The subject of reparations caused more trouble, contention, hard feeling, and delay at the Paris Peace Conference than any other point in the Treaty,” Thomas Lamont, the US Treasury representative, wrote afterward.32 Harold Nicolson remarked that while the conference was often portrayed as a duel between the forces of darkness and light—Wilson versus Georges Clemenceau of France, Carthaginian versus Wilsonian peace, Keynes versus Klotz—in fact, it was “not so much a duel as a general melee.”33

  The Allies were at loggerheads among themselves. President Wilson opposed saddling Germans with the entire cost of the war. It was reasonable to demand that Germany pay for the damage inflicted by her troops, he argued, but that was all. Then there was the tricky question of what share of the levy on Germany each of the victors would be entitled to and how long. When Lloyd George suggested that payments cease after thirty years, Clemenceau said they should extend for a thousand years if necessary. As late as March 1919, the Allies could not agree over the issue. The French were calling for £25 billion while the United States refused to countenance any figure over £5 or £6 billion. The official British figure was £11 billion. In early March, Keynes finally suggested leaving the total amount of reparations to be paid out of the treaty. That solution was ultimately adopted.

  Lloyd George, annoyed by constant press leaks, suggested that the Big Four meet privately. Thus, the second half of the Peace Conference, from mid-March to mid-May, took place in Woodrow Wilson’s “tiny study.” At first alone except for one interpreter, the heads of state of the United States, UK, France, and Italy—Woodrow Wilson, David Lloyd George, Georges Clemenceau, and Vittorio Orlando—sat around a fire in overstuffed chairs, recalled Nicolson, “with maps spread out on the floor which they were sometimes obliged to crawl about on their hands and knees to study, the big Four managed to hammer out what was, in effect, the penultimate version of the settlement.”34

  April turned out to be the cruelest month. As the weather turned warm, the formerly festive atmosphere in Paris suddenly became frenetic. The reservations that many participants had had about holding the conference in Paris were confirmed: bedbugs, medieval plumbing, and price gouging were the least of it. The press had turned vituperative. “The constant clamour of their newspapers, the stridency of their personal attacks, increased in volume,” observed British diplomat Harold Nicholson. “The cumulative effect of all this shouting outside the very doors of the Conference produced a nervous and as such unwholesome effect.”35 Lloyd George had to face down a rebellion in Parliament, where conservatives feared he was not being tough enough on Germany. Clemenceau became the bête noir of the French press, which was convinced that he was being outmaneuvered by the English and Americans. Orlando left the conference. And Woodrow Wilson became terribly ill with either food poisoning or influenza. By May the fights among the four grew so bitter that on one occasion Wilson was forced to intervene physically between Lloyd George and Clemenceau.

  The conference within the conference not only froze out the representatives of the smaller countries but left experts like Keynes in the cold too. The Big Four made far-reaching economic decisions on the fly with hardly any input. President Wilson considered the British plea for debt forgiveness for a few minutes before summarily rejecting it. The British prime minister consulted Keynes when he wanted “to wriggle out of his commitments,” observed Lloyd George’s biographer, but “he never thought of taking his advice.”36 After twelve-hour days climbing in and out of drafty cars and racing from one overheated room to another, Keynes often had dinner with Jan Smuts, a South African member of the British war cabinet and strong proponent of the League of Nations and reconciliation with Germany.

  Poor Keynes often sits with me
at night after a good dinner and we rail against the world and the coming flood . . . Then we laugh, and behind the laughter is Hoover’s horrible picture of thirty million people who must die unless there is some great intervention. But then again we think things are never really as bad as that; and something will turn up, and the worst will never be.37

  • • •

  On May 7, 1919, Herbert Hoover, who was solid and square and struck most Europeans as gratuitously pugnacious in his day-to-day dealings, was heading down the Champs-Elysees before dawn. The streetlights still glimmered, and the avenue was deserted. He walked slowly and kept his head down, like a pugilist after a losing match. He did not expect to meet anyone he knew. Except for a few ascetic French generals, the delegates at the Peace Conference liked to linger over their Times of London and English marmalade at breakfast. So he was surprised to see two familiar figures in bowlers crossing the boulevard in his direction. Keynes and Smuts were talking animatedly, heads together and seemingly oblivious to his presence. What were those two doing out at this hour?

  When they got close enough to recognize him, they too gave little starts of surprise. It dawned on all three at once: each had been up since at least four in the morning, when the freshly printed draft treaty was delivered to their rooms by messenger. None had seen the treaty in its entirety before, although Keynes had read, with mounting dismay, parts of the draft as early as May 4. Despite their insider’s knowledge and Keynes’s and Smuts’s cynicism about the proceedings, they were shocked. Each had been driven out of doors by anger, disbelief, and awful premonitions. After this flash of telepathy, Hoover, Keynes, and Smuts all began to talk at once. As Hoover recalled, “We agreed that it was terrible.”38