Economic Consequences enjoyed an outright favourable reception in Turkey. This chapter illuminates the circumstances that made this possible. Of the Carthaginian peace-imposing treaties of the Paris Conference (1919), only the Treaty of Sèvres (1920) concerning the Ottoman Empire was annulled after a battleground victory (1922), and replaced by the Treaty of Lausanne (1923). An officer and a diplomat, Ali Fethi (Okyar), soon to become prime minister of Turkey, was a prisoner of war in Malta when he heard of Keynes’s book, acquired a copy, and translated it in 1920. Because the national leaders were anxious to know what awaited them in the peace talks, given the huge Ottoman debt they inherited, impending war reparations, and the discriminatory treatment they suspected, upon Ali Fethi’s release and return, the translation was published in 1922 by the official press in Ankara. It helped prepare the Turkish delegation to the Lausanne conference. This case provides us with an early example of Economic Consequences as a policy instrument in favour of a new international integration serviceable to peace and reconstruction in the face of an international conflict.

War reparations have been a common feature in peace settlements for thousands of years. The chapter provides an overview of how historical reparations were paid, and then an overview of the literature on the transfer problem, one hundred years after Keynes started the debate. Whether direct transfers of money or indirect transfers of assets, transfers affect trade flows and future income in the short or the long run. Financing a transfer is a budgetary problem in the short run, and if a country can borrow the money, the constraint is a willingness to pay, not the capacity to pay. But a transfer can also have second-order effects on savings, investments, consumption, and output, because interest rates or the terms of trade might mitigate or exacerbate the economic costs of the transfer. I show that the terms of trade, for the most part, improved in the years following the announcement of reparations, and that sovereign debt markets allowed countries to finance reparations by borrowing.

What happens when countries cannot default on their debt? This history of war reparations shows that state survival trumps economics. This chapter introduces and summarises the book.

Chapter 2 introduces a framework for how to think about war reparations. It discusses how a reparation transfer can be smoothed out over time by borrowing the money. I then discuss other ways a transfer can be paid, by taxes or printing money, and the effects this has on the balance of payments and the terms of trade. Finally, in a technical section, I show how changed terms of trade affect the current account and national income.