John Maynard Keynes (1883–1946)

Keynes' The Economic Consequences of the Peace is a good companion piece to Margaret MacMillan's Paris 1919. Keynes participated as an expert in the Paris peace treaty negotiations which were mainly one-sided negotiations among the Allies themselves (mainly the French and Italians vs. the Anglo-Americans). The Germans, the Austrians and the Hungarians (the latter had to wait for the Treaty of Trianon in 1920) were only consulted post factum. Keynes holds Woodrow Wilson to be the main show more culprit, considering him to be too slow, ignorant and inflexible. One in a long line of US presidents not ready for the international parquet, whose failure, however, had the gravest of consequences. Similar to Bush's crazy adventure in Iraq, Wilson claimed the high ground of applying only moral and universal principles while counteracting and undermining these with naked power plays. Either an appeal to naked power or a pure application of principles would have worked. It was the mix that was toxic, applying principles only as long as it was convenient.

Keynes also shows that essential parts of the treaty were not grounded in fact. The restrictions and reparations placed on Germany were counterproductive and self-defeating. Depriving Germany of the necessary coal, ships and rolling stock of its railways crippled the economic recovery. The failure of the Allies (and especially the US) to net the internal war debt obligations meant that the weakest nations were plagued with high interest payments. Keynes also advocated for a sort of Marshall plan which surely would have helped Europe recover. Written in shocked frustration about a clearly unworkable treaty, this lean booklet is a fast and concise read that offers lessons what happens when burdens are placed upon third parties without those parties' involvement in the negotiations. Today's efforts to make the PIIGS pay for the bankers' mistakes run into the same calamities that Keynes foresaw in 1919. show less

The heart of this book is engaging as it argues that provisions of the Versailles Peace Treaty are so blindly harsh and unrealistic as to do great harm not only to Germany and its former allies but to all of Europe and the world. Also of interest are the trenchant sometimes unsparing portraits of the then world leaders: Woodrow Wilson, Loyd George, and Clemenceau. Keynes gives a much clearer insight into Versailles and its participants then the somewhat more famous book on the same subject show more by Harold Nicholson. Keynes is a bureaucrat and economist so his many numbers though needed and convincing do slow and punish the reading towards the end. If not remedied the future is portrayed as bleak leading to disaster and this has turned out to be exactly true.

QUOTES: (page 15) “Thus the extraordinary occurrences of the past two years in Russia, that vast upheaval of Society, which has overturned what seemed most stable—-religion, the basis of property, the ownership of land, as well as forms of government and hierarchy of classes---may owe more to deep influences of expanding numbers than to Lenin or to Nicholas; and the disruptive powers of excessive national fecundity may have played a greater part in bursting the bonds of convention than either the power of ideas or the errors of aristocracy.”

(pages 34-35) “According to this vision of the future, European history is to be a perpetual prizefight, of which France has won this round, but of which this round is certainly not the last. From the belief that essentially the old order does not change, being based on human nature which is always the same, and from consequent skepticism of all that class of doctrine which the League of Nations stands fr, the policy of France and of Clemenceau followed logically. For a Peace of magnanimity or of fair and equal treatment, based on such 'ideology' as the Fourteen Points of the President, could only have the effect of shortening the interval of Germany's recovery and hastening the day when she will once again hurl at France her greater numbers and her superior resources and technical skill. Hence the necessity of 'guarantees'; and each guarantee that was taken, by increasing irritation and thus the probability of a subsequent Revanche by Germany...For Clemenceau made no pretense of considering himself bound by the Fourteen Points and left chiefly to others such concoctions as were necessary form time to time to save the scruples of the face of the President.”

(pages 42-43) “But in fact the President had thought out nothing; when it came to practice his ideas were nebulous and incomplete. He had no plan, no scheme, no constructive ideas whatever for clothing with the flesh of life the commandments which he had thundered for the White House.”

(page 146) “Apart from others aspects of the transaction, I believe that the campaign for securing out of Germany the general costs of the war was one of the most serious acts of political unwisdom for which our statesmen have ever been responsible. To what a different future Europe might have looked forward if either Mr. Lloyd George or Mr. Wilson had apprehended that the most serious of the problems which claimed their attention were not political or territorial but financial and economic, and that the perils of the future lay not in frontiers or sovereignties but in food, coal, and transport....But in any event the atmosphere for wise and reasonable consideration of them was hopelessly befogged by the commitments of the British delegation on the question of Indemnities.” show less

It's not easy for Keynes to write briefly, but in this case he is very clear that extending loans to the defeated is a good idea that will boost the world economy. Thus, the Marshall Plan has it's origins in this book. More importantly though, Keynes addresses the real war-time concern of the Britain to pay for the war expenses themself. In 1940, just prior to Japanese attack on Pearl Harbor, British economy was struggling financially to keep up with the German war machine. So, this book show more also reminded FDR of the advantages of war as a means to uplift the economy from the Great Depression. Classic text that must be in any Science and Economics Library. show less

Generally, it seems that Keynes is a left-leaning economist—contrasted with Hayek. But in reading this book, Keynes doesn't make any appeal to ethics. This book is an investigation into the relationship between savings, investment, and capital. Although you could say that, if you follow through with some of Keynes' suggestions, you get pro-social outcomes, this doesn't make him pro-social. Apparently he was actually a very active investor, and quite a wealthy man.

Keynes was a proponent of show more increasing consumption—a prescription that no longer makes sense in our peak-everything world. This also applies to the wealthy, as, if wealthy people don't spend their money, wealth inequality just gets worse and worse.

This book is slow going. In the introduction, he states that his primary audience is economists, so maybe this was to be expected. show less