Winston Churchill on the economics consequences of the Treaty of Versailles



The economic clauses of the Treaty were malignant and silly to an extent that made them obviously futile. Germany was condemned to pay reparations on a fabulous scale. These dictates gave expression to the anger of the victors, and to the failure of their peoples to understand that no defeated nation or community can ever pay tribute on a scale which would meet the cost of modern war.

The multitudes remained plunged in ignorance of the simples economic facts, and their leaders, seeking their votes, did not dare to undeceive them. The newspapers, after their fashion, reflected and emphasized the prevailing opinions. Few voices were raised to explain that payment of reparations can only be made by services or by the physical transportation of goods in wagons across land frontiers or in ships across salt water; or that when these goods arrive in the demanding countries they dislocate the local industry except in very primitive or rigorously-controlled societies. In practice, as even the Russians have now learned, the only way of pillaging a defeated nation is to cart away any movables which are wanted, and to drive off a potion of its manhood as permanent or temporary slaves. But the profit gained from such processes bears no relation to the cost of the war. No one in great authority had the wit, ascendancy, or detachment from public folly to declare these fundamental, brutal facts to the electorates; nor would anyone have believed if he had. The triumphant Allies continued to assert that they would squeeze Germany “till the pips squeaked”. All this had a potent bearing on the prosperity of the world and the mood of the German Race.

In fact, however, these clauses were never enforced. On the contrary, whereas about £1,000 million of German assets were appropriated by the victorious Powers, more than £1,500 millions were lent a few years later to Germany principally by the United States and Great Britain, thus enabling the ruin of the war to be rapidly repaired in Germany. As this apparently magnanimous process was still accompanied by the machine-made howling of the unhappy and embittered populations in the victorious countries, and the assurances of their statesmen that Germany should be made to pay “to the uttermost farthing”, no gratitude or good-will was to be expected or reaped.

Germany only paid, or was only able to pay, the indemnities later extorted because the United States was profusely lending money to Europe, and especially to her. In fact, during the three years 1926 to 1929 the United States was receiving back in the form of debt-instalments indemnities from all quarters about one-fifth of the money which she was lending to Germany with no chance of repayment. However, everybody seemed pleased and appeared to think this might go on for ever.

History will characterise all these transactions as insane. They helped to breed both the martial curse and the “economic blizzard”, of which more later. Germany now borrowed in all directions, swallowing greedily every credit which was lavishly offered her Misguided sentiment about aiding the vanquished nation, coupled with a profitable rate of interest on these loans, led British investors to participate, though on a much smaller scale than those of the United States. Thus Germany gained about fifteen hundred million pounds sterling in loans as against the one thousand millions of indemnities which she paid in one form or another by surrender of capital assets and valuta in foreign countries, or by juggling with the enormous American loans. All this is a sad story of complicated idiocy in the making of which much toil and virtue was consumed.


  1. Churchill, Winston. The Gathering Storm. Boston: Published in Association with the Cooperation Pub. Houghton Mifflin, 1948. Print. 6-9.



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Filed under Economics, History, Notes on Economics, Notes on History, Politics

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