Democracy’s Defeat Started at Versailles

The Paris Peace Conference at Versailles in 1919–20 has generally been regarded as a failure. The negotiations dragged on; national interests clashed; the gathered statesmen and their aides maneuvered, intrigued, and compromised back and forth; the populace at home was impatient and pushed for punishment of war crimes; no one was happy with the proceedings; and critiques abounded. The most famous and most influential critique was written by John Maynard Keynes. In The Economic Consequences of the Peace (1920), Keynes argued that damage from the war was defined too broadly, and the reparations demanded of Germany were set too high. As a consequence, he believed, Germany would not be able to pay. Keynes thus assumed that, because of Versailles, present and future generations of Germans were condemned to poverty, hunger, and suffering. Worst of all, he thought, was that the German economy was going to be ruined, which would have a negative impact on the whole of Europe.

Keynes’s main charge against the negotiators at Versailles was that they did not understand the importance of the “economic problems of Europe” and, instead, got lost in politics and politicking. They did not know economics, and thus the reparations imposed on Germany had no scientific basis.

In his critique, Keynes claimed scientific authority as an economist. Yet his calculations were not incontrovertible; indeed, they have been disproven. He underestimated both the amount of capital the United States was able and willing to pour into Europe and the strength of the German economy. While the Germans claimed they could not pay for the war damage, they invested in armaments a sum several times higher than that demanded for reparations, with no apparent strain.

The main point here, however, is not to question the accuracy of Keynes’s “science.” Instead, it is to critique the assumption he authoritatively promoted: that the economy was the important issue, and that, consequently, economic considerations and economic science must guide postwar Europe. Scoffing at concerns about frontiers, national sovereignty, or elections, Keynes believed that political issues were “unreal issues.” Issues that really mattered were “financial and economic,” or, as he put it, “food, coal, and transport.”¹

What Keynes had to say about politics shows he didn’t understand the politics of the Versailles peace conference. More important, his critique of the conference also indicates something else beyond Keynes’s understanding: a shift in the nature of politics.

While Keynes railed against politics and believed the economy was being neglected, negotiators at Versailles were actually placing economic considerations above political concerns. Yet that did not mean that politics was eliminated. To the contrary, the emphasis on economics was a political move. The conference was one of the key places where politics began to be conducted in the name of economy, for the economy, through the medium of economy, and, progressively, from the position of economy.

History was actually moving in Keynes’s direction. His argument for the economy (and against politics) was not an isolated case. It was, for example, contemporaneous with the praise of the fascists, across Europe, for having saved the Italian economy. Saving the economy, in fact, excused the Italian fascists’ terrorism and crimes. This marriage of crime and economy was strengthened under the Nazi regime, where, as Franz Neumann wrote, business was ever more a crime, and crime a business. Indeed, even now the marriage shows no sign of an impending divorce. As I will argue, it is integral to our late liberalism, and it has radically eroded democracy.

Browse

How Versailles Still Haunts the World

By Joanne Randa Nucho

Let us first look at Keynes’s failure to grasp the politics of the Versailles peace conference. That failure was most incisively exposed by Thorstein Veblen, in a review of the American edition of The Economic Consequences of the Peace.

Keynes, in Veblen’s view, disappointedly took the Treaty of Versailles at its face value: as a “conclusive settlement rather than a strategic point of departure for further negotiations and a continuation of warlike enterprise.” And Keynes neglected the question of the treaty’s design, that is, “the consequences which were designed to follow from it or the uses to which it is lending itself.” Veblen argued that Keynes, disregarding the facts, missed “the central and most binding provision of the Treaty,” which Veblen detected in “an unrecorded clause by which the governments of the Great Powers are banded together for the suppression of Soviet Russia.”²

The “unacknowledged compact” for the “reduction of Soviet Russia” was the only “binding force” of the treaty. Veblen saw that unwritten “compact for continued warlike operations” as the “parchment upon which the text [of the treaty] was written.” The “campaign against Russian Bolshevism”—Western powers did in fact militarily intervene in the Russian Soviet Republic while they were negotiating peace—was the imperative that had “shaped the working-out of the Treaty … beyond any other consideration” and was the “only interest which the Elder Statesmen of the Great Powers hold in common.”³

Veblen’s judgment is supported by sources related to the conference. Some later historians, moreover, also wrote that the Big Four in the Versailles conference “spent more time and energy on the Russian question than on any other major issue,” or that the specter of Bolshevism haunted the conference halls at Versailles.⁴

Contrary to Keynes, German reparations for the war damage were not too harsh. Any observer could easily see, Veblen wrote, that the Allied powers were treating Germany with excessive leniency, “amounting to something like collusive remissness.” The impression they made was that they were tacitly forgiving the Germans their debts. They had the same lenient attitude toward the provisions of the peace treaty covering German disarmament and the “discontinuance of warlike industries and organization.”⁵

The reason was not that hard to fathom. The Allies were anxious not to paralyze Germany so much as to make its imperial government too weak for the fight against Bolshevism abroad and revolutionary radicalism at home. The objective was not punishment or the prevention of future war. Instead, negotiators at Versailles sought to rehabilitate the country “needed to reinstate the reactionary regime in Germany and erect it into a bulwark against Bolshevism.”⁶

Power elites after World War I transformed the relationship between private economic power and the state as public authority.

But why was suppression of the Soviet Union so important for Western power elites? The answer to this question is simple, but the answer to the problem was not.

The simple answer is that Soviet Russia was proof that a different society was possible. It was a real, existing alternative to the capitalist system (“capitalism” was widely accepted as a technical term in that period). One could describe Soviet Russia as the fountainhead of great hopes for the subordinate population of capitalist countries, and, thus, also as the source of a mortal threat to Western power elites and their system. The threat was so serious because—no matter how much the apologists of the existing political-economic system tried to represent the “Bolshevik infection” as coming from outside—the revolutionary menace was generated by the existing system itself.

Finding answers to that problem was a challenging task for the power elites. Their representatives at Versailles proved equal to the task. The anti-Bolshevik mobilization was only part of their answer. The elites formulated a positive program, too.

World War I changed economic conditions and the political landscape. It brought about, as Veblen wrote, “a new alignment of economic forces and of economic classes” and required a transformation of power relations on both the national and international levels.⁷

In response, the ruling elites organized, or rather reorganized, themselves. “Organization” was the spirit of the age. At the core of the reorganization of power elites was a transformation of the relationship between economic forces and political forces, or, to speak more conceptually, between private economic power and the state as public authority.

President Woodrow Wilson, for example, defined his job as “looking after the industrial interest of the United States,” not the national interest.⁸ Such a reorientation of politicians—even the US president—wasn’t the most influential change. More important was big business representatives entering into the sphere of political decision making. Wilson was the first American president to mobilize “the new Wall Street power for political ends.”⁹

The representatives of J.P. Morgan bank, for example, were so active and ubiquitous at the Versailles conference that they were seen as “running the show.” They even took part in drafting financial provisions of the peace treaty. Thus, the arbiters of the world economy and politics had become, in the words of a chief US negotiator at Versailles, “the business men, bankers, and investors of the world.”¹⁰

Browse

Money Is the Gatekeeper of Politics

By Raymond La Raja

These new arbiters brought economic interests to the center of political decision making. Keynes’s fears about the disregard of the economy at Versailles were misplaced. In fact, the main objective of power elites after World War I was the revival of the world economy; but, as Wilson put it, a revival on the basis of a “solid structure of credit.”¹¹

“Relations between debtors and creditors,” Keynes correctly recognized, formed “the ultimate foundation of capitalism.” And since, after the war, “every one [was] owing every one else immense sums of money,” international relations were financialized.¹² As such, the revival of capitalist economy in the aftermath of the war necessarily involved shaping a new system of power and dependence.

The Versailles peace conference paved the way for a massive influx of American capital to Europe. “Practically every merchant bank and Wall Street firm, from J.P. Morgan and Brown Brothers on down,” wrote John McCloy (a typical American businessman/politician/statesman and a key figure in the shaping of Europe in the aftermath of World War II), “was over there [in Europe] picking up loans.”¹³ The common people, too, were buying $50 foreign bonds and the illusion that everyone could become Jack Morgan. Meanwhile, the big players were consciously reordering European economies—and thus the world economy—with the United States in the leading position.

In the process, Allied Europe became financially indebted to the United States. John Foster Dulles, a member of the American delegation as a nephew of Secretary of State Robert Lansing, defended huge American loans to Europe before the Senate: “Successful financial and economic rehabilitation of Europe depended on Europe’s ability to repay what she owes and her ability to buy from us what we wish to sell.”¹⁴

American loans, as is well known, helped finance German rearmament. As such, the Versailles peace conference did lead to World War II, but not because it imposed unreasonably high reparations on Germany.

By the end of World War II, big business could increasingly control and direct the working of the state apparatus.

At Versailles, Western power elites observed that the war had disrupted all business. Yet they not only worked for a quick resumption of business; their long-term goal was more ambitious. They sought to immunize business from the negative effects of war. As such, there was no need for Western power elites to avoid war. One of the legacies of Versailles was that war became coordinated and harmonized with business, and business with war.

Such coordination was not an aberration of the international system promoted by the Versailles peace conference. The conference was a key moment in birthing and consolidating a historical transformation: when economic power assumed an ever-greater role in shaping domestic policies and international order.

Just a few decades later, private economic power was able to command public authority. And it did so both in the formative experience of Nazi rule and—especially—in the industrial mobilization for war in the United States. By war’s end, big business could increasingly control and direct the working of the state apparatus; in particular, it could command the channels through which the government normally operates. That implied a progressive elimination of legal limits to and public control over economic power, which in turn implied devolution of democracy.

After World War I, power elites faced pressure to extend democracy to the sphere of economy (which is how Veblen described Bolshevism). Their response was to stifle democracy in the political sphere as well.

Thus, Versailles inaugurated both economic liberalism and antidemocratic politics. That is why, in fact, there was no irreconcilable conflict between liberalism and fascism. And it is why war was not to be averted, so long as it was in the interest of economic power.

The Versailles peace conference was not a failure. Indeed, it succeeded in its own goals for nearly a century. The world order it introduced is only now falling apart. Even so, its worst elements seem to be staying with us.

This article was commissioned by Joanne Randa Nucho.