The Winners Compensate the Losers? Thoughts on Armistice Day + 90

Ken Houghton

Not Veteran’s Day, which is a U.S. construction to make certain we don’t have to give another Federal holiday to Those Who Served. And arguably not Remembrance Day, the version here in Canada, since (as Rob[ert] Farley notes) there are “only” ten known survivors remaining of The War to End All Wars, which ended ninety (90) years ago today. (Ten is pretty good, if you think about it; the youngest two are 107.)

So let’s talk, in broad terms, about why it was not The War to End All Wars, why remembrance of mustard gas and Verdun and the Somme didn’t cause everyone to realize we never wanted to do it again, at any price.

As I said, we’re using wide brush strokes here, and this is an economics blog. SO let’s talk about the Treaty of Versailles.

The U.S. was in the War to End All Wars for just over 18 months (6 April 1917 – 11 November 1918). For the time running up to the declaration of war, they sold equipment to both sides. Not necessarily equally, and maybe at a reduced pace to the German side after 7 May 1915, but there was commerce going on. (Same story in World War II, as followers of Henry Ford’s career know all too well.)

France, by contrast, lost 1,400,000 soldiers in that war. There is a generation taken from the country, and a country to rebuild without those on whose backs such building usually occurs.

Can anyone wonder that France wanted the Germans penalized to the extent that they would not be able to support an armed force again? There would be no one to fight.*

And yet all one ever hears is the John Maynard Keyneses and Bernard Baruchs decrying the terms of the Treaty—how they were unfair to Germany.

And the subsequent talk has all been about how Keynes and Baruch and the others were correct, and it was a mean, evil thing to make poor Germany suffer after they destroyed the breeding-age male population (and then some) of another country. From that perspective, it is difficult to imagine a different Treaty being agreed, since anything less penurious would make France worse off, and therefore not be even weakly Pareto-optimal.

Which is where we turn this into an economics post.

Because there is a way to improve the solution: Compensating Variation. Everyone’s lot is improved by some reallocations. And while Hicks does the mathematics in 1939, it isn’t as if such a general pattern cannot be seen on the schoolyards of Flanders and Eton.

In this case, the United States was the clear winner of the War to End All Wars. THe British did not suffer so much as the French. And in both cases, prominent public officials (Baruch from the United States, Keynes from Britain) spoke out about the Treaty, forcing one to the suspicion*** that leaders in both countries suspected from the start that the terms were penurious, and would lead to resentment among the German people.

Which brings us to Compensating Variation. Why would not the U.S. and the U.K. (such as it were) not be offering aid to France, in exchange for terms in the Treaty of Versailles that would lessen the likelihood that Flanders Field would again be invoked?

The next time someone tells you that all will be well when a Treaty is executed, because all we need is that some of the winners offer compensating variation to the losers, ask them why Armistice Day now must honor not only its own dead, but also the dead of the wars that followed The War to End All Wars.

*And, indeed, the demographics corroborate this. In 1940, the total population of France is 42 million people. The population of Germany and Austria is 78 million. 1.86 to 1. More significantly, the Armed Forces of the respective countries stand at 4.6 and 17.9 million: 3.9 to 1.

The result is inevitable: the French have more civilian casualties (470K) than the U.S. does military ones (405K).**

**Canada, by the way, loses 3.57% of its military force in World War II: more by percentage than France, the U.S., Australia, or the Netherlands.

***I said I’m talking broad strokes here, but the 1919 publication of The Economic Consequences of the Peace and the necessity of publishing The Making of the Reparation and Economic Sections of the Treaty in 1920 makes it clear that the arguments over the harshness of the treaty were contemporaneous. (Baruch, in fairness, was one of the negotiators of the Treaty, and only later became discouraged as he saw both how the results were handled, and how Ford maligned and slimed him while profiteering.

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