100 years ago, on December 8, 1919, it came out The Economic Consequences of Peace by John Maynard Keynes, the most influential intellectual of the XNUMXth century. The book, by the then obscure official of Her Majesty's treasury, undoubtedly occupies the first places of an unlikely classic of the most important books of the last century. With this writing, Keynes also did something that has hardly been repeated in subsequent history: a professional economist totally got a prediction right.
The farsightedness of Keynes' gaze is astonishing. But, the thirty-something economist was no diviner, even if the occult intrigued him. He had chaste intellectual foundations, a rare capacity for interpretation and solid experience to look through the telescope of history and see the clear features of the future. Which weren't nice at all!
Keynes was directly involved in the management of the war economy, he also had vast interests in the humanistic field, he frequented the great aesthetic and social literary think-tank, which was the Bloomsbury group. He had a reserved but resolute character. He wasn't afraid of losing his job. He didn't even lack that much self-esteem and ambition needed for what is now called "visibility".
The globality of the European chessboard
Precisely the globality of the First World War required thinking in terms different from the past, outside the national and nationalistic schemes typical of the nineteenth century and the era of imperialism. Perhaps he was truly the only one to do so on well-founded, ie economic, grounds. Wilsonian globalism was without foundations, even if nourished by correct principles, still far from being implemented on an international scale.
The notoriety and prestige that Keynes gained with The economic consequences, albeit devoid of practical effects at the moment, would return, with the force of a tornado, after 1929 and in the definition of the international order after the second conflict, which he had certainly seen in his sphere. Neither The consequences Europe is not seen as a set of sovereign nations, but as a single and inseparable economic block as if a single tent from Lisbon to Moscow covered it all and determined its temperature.
In the following contribution, Jonathan Kirshner, an eclectic and insightful scholar, succinctly reconstructs the genesis of the book and the drama, even personal, of the young economist in seeing the catastrophe of the Versailles peace treaty unfold.
Enjoy the reading!
It happened in 1919
On December 8, 1919, the publisher Macmillan Press published a book by a relatively unknown British treasury official who had resigned from government in protest against the Treaty of Versailles. The treaty had put a disastrous seal on the momentous trauma of World War I.
In the book, written like the energy of a pamphleteer, the official tried to explain "the reasons for his opposition to the treaty, or rather, to the entire policy of the victors towards Europe's economic problems".
Macmillan initially issued 5.000 copies. They seemed more than enough for the work of a dissident technocrat. The book contained some rather difficult passages on arcane aspects such as coal production in Germany and export markets.
Keynes' fortune
The book The economic consequences of peace however, it became a publishing phenomenon. It was reprinted six times, translated into a dozen languages, and eventually sold more than 100.000 copies, bringing its author worldwide fame. The author was XNUMX-year-old John Maynard Keynes.
A brilliant and indefatigable scholar, public intellectual, journalist, government consultant and champion of the arts, Keynes would be at the center of public debate throughout his life.
Keynesian theories rewrote economic policy in the 30s, and continue to seed economic policy today. Keynes, also representing the British Treasury, was the primary intellectual architect of the post-World War II international order. But he began his career in open controversy with the international order established at the end of the First World War.
Keynes writer
The economic consequences of peace it is masterfully written. Keynes was part of the artistic and literary milieu of the Bloomsbury group. His sharp and candid descriptions of the "peacemakers" (Georges Clemenceau, David Lloyd George and Woodrow Wilson) were influenced by the literary influence of the prominent "Victorian" intellectuals who had been profiled by a brilliant writer of the Bloomsbury group, Lytton Strachey.
The theses of the book immediately aroused heated discussions particularly around the assessment of Germany's ability to pay the reparations requested by the victorious powers.
Keynes' book was essentially right on its main arguments. But it was, and remains to this day, largely misunderstood. The book's most enduring contribution is not so much in its criticism of the treaty's provisions. It is in the part relating to the economic problems of Europe at the time. Keynes sounded an unheeded alarm about the fragility of the European order that emerged from Versailles.
Keynes' point
Keynes reasoned that while many Europeans saw the dawning of a new era in the continent's economy, its foundations rested on outdated, unstable and misunderstood foundations.
"Some elements of instability, already present when the war broke out - he wrote - had been erased by years of total war - but then not replaced by something more solid and lasting".
Restoring the general economic order, without inflicting short-sighted punishment on the defeated, was the right thing to do. The short-sightedness of the victors, on the other hand, had led not only to the failure of "peace" and not only to the Treaty of Versailles. It had also and above all led to the propagation of instability throughout the entire European political and economic scene.
Economists and historians then and ever since have focused on the question of whether Keynes had underestimated Germany's ability to pay war reparations. So they missed the most important point. Keynes could surely have been wrong about the reparations. But his arguments about the crisis Europe was facing and the failure of the treaty were sacrosanct.
The loss of the European economic and political framework
Keynes was convinced that the war had "shaken the system to such an extent as to endanger the life of Europe." The treaty wrote Keynes
“It did not envisage any measures for the economic recovery of the continent. Nothing to create constructive relations with the defeated central empires, nothing to stabilize the new European states, nothing to restore the chaotic finances of France and Italy". To force Germany into a state of servitude was to sow the seed "of the decay of all civilized life in Europe".
Keynes was well placed to grasp the gravity of the dangerous macroeconomic mess that the war had caused. In the Treasury, during the war, he was responsible for administering British finances to support the war effort. At the Paris Peace Conference he was the official representative of the Treasury. Furthermore, Austen Chamberlain, Chancellor of the Exchequer to remain in Great Britain, had called him to represent the Supreme Economic Council.
The experience in Paris
Arriving in Paris on January 10, 1919, he was quickly sucked into the maelstrom of negotiations. Dispatched to meet the German "enemies", the young Keynes negotiated the terms of an extraordinary food supply to Germany, then on the verge of famine.
Keynes will later describe these events in one of his best essays. Melchior, a defeated enemy. less Melchior during two private meetings, at the Memoir Club in Cambridge and with the Bloomsbury group. Virginia Woolf was so impressed by the second meeting that she wrote an affectionate note singing Keynes's literary praises. Melchior was one of the two works (My first beliefs was the other) which Keynes asked to be published posthumously.
The description of the scene in which he was the protagonist in Paris has a cinematic rhythm. He writes:
“They were soon called back to the sitting room of the carriage, the German economic delegation was arriving. The railway carriage was small, and there were many of us. How were we supposed to behave? Were we supposed to shake hands? We huddled at one end of the cramped space with a small table separating us from the enemy. They were pressed against the opposite wall. They bowed stiffly before us. We did the same, although some of us had never bowed to the enemy before. We made a nervous movement with our arm as if to shake hands, but there was no shake. I asked them, in a tone meant to be friendly, if they spoke English.”
In inspired action, Keynes managed to bring this little preliminary negotiation to fruition. The wider peace process, however, was a catastrophe. Keynes watched from a front row seat.
LGerman reaction
As historian Eric Weitz has written, the German delegation reacted "with astonished disbelief" to the terms presented to them. When these became public at home, the reaction was one of shock and anger. The two sides had bled each other out during the war, fighting as equals until the distant United States joined. An entry that had decisively overturned the balance of forces in the field.
Germany, with no foreign troops on its territory, imagined it was negotiating, albeit as a loser, a negotiated peace, not submitting to an agreement that amounted to unconditional surrender. Which meant: stripping of the colonies, loss of territory, annihilation of the navy, dismemberment of the army, imposition of reparations.
Keynes, as he would have written in The economic consequences and repeatedly after the book's publication, he worried not so much about "the fairness of the treaty" but about its "wisdom and its consequences." Behind the scenes, he had fought for a more forward-thinking approach.
Keynes' project
For a fleeting moment, in April 1919, Keynes hoped that his "grand project" would be accepted. Modest reparations (with Britain's share ceded to other victims of German aggression). Cancellation of all inter-allied war debts (America would bear the brunt). Establishment of a European Free Trade Area (to avoid likely chaos in international trade from the confusing patchwork of new emerging nations in Eastern Europe). A new international loan to support the continent immersed in the economic crisis.
A project that bordered on political naivety. The Americans would not have parted with their money so easily, nor the French with their revanchism. In the 1918 election, British politicians had openly (if fatuously) promised to hold Germany responsible for all the costs of the war. They had told voters they wanted to squeeze the Germans like a lemon "until the seeds crunch".
The stakes
But for Keynes, the stakes were so high that they required an out-of-the-ordinary commitment. Historians have focused on his proposal to ease reparations, but he was more focused on the issue of inter-Allied debts.
Those obligations, he wrote in an internal Treasury report, were "a threat to the financial stability of all countries." They were so because they imposed an "overwhelming burden", and would be "a constant source of international instability".
An international financial order based on a tangle of debts and reparations could not "last a day".
Keynes' final reaction
On May 14, 1919, Keynes sent an anguished note to his mother, telling her that he wanted to resign. He managed to hold out, "so distressed by what's happening," for another three weeks. On 5 June he presented his formal letter of resignation to Prime Minister Lloyd George. Shutting himself at home to ease his pain, he began drafting the The economic consequences which he wrote in a few months.
To the Americans
Keynes waged an intellectual campaign to promote the ideas in his book, which, despite its rapid success, had little influence on the foreign policies of the powers concerned. He was the first to address the American public. In an article in "Everybody's Monthly" he recalled the argument that already appeared on the first page of the book: "Germany has a special and specific responsibility for war" and "because of its universal and devastating".
But the treaty "leaves Europe more unstable than it found it". Self-interest, not vengeance, must drive policy. "It will be a disaster for the world if America isolates itself," she wrote explicitly.
To the French
In the preface to the French edition of the book, he rhetorically asked: "Is France safe because its sentries are on the Rhine?". And he asserted:
“Bloodshed, misery and fanaticism will prevail, spreading from the Rhine east across two continents.”
Few listened to him. Americans' brief flirtation with Wilsonian internationalism resulted in a resurgence of nationalism and nativism. By prioritizing domestic over global concerns, the stubborn and short-sighted United States added to Europe's economic woes an inflexible stance on the issue of war debts.
The Poisoned Seed of Versailles
France tried to enforce the treaty as it was written. It arrived to occupy the Ruhr area in January 1923, in response to Germany's failure to meet its reparation obligations. The occupation, which lasted two and a half years, was accompanied by passive resistance and hyperinflation. Everything seemed to demonstrate the validity of Keynes's theses.
The balance of the 20s was lame, with some small advances in cooperation doing little to overcome the big problems Keynes had identified early on. Financial fragility and political anxieties bubbled just below the surface. A shoulder blow would have brought everything down.
The global financial crisis of 1931 did just that, that it collapsed everything. It was exacerbated by France's pursuit of political advantage as the banks of Austria and Germany teetered dangerously.
As Keynes observed at the time:
"The shocking German crisis of 1931, which took the world more by surprise than it should have, was in essence a banking crisis, though aggravated, no doubt, by political events."
Men don't die in silence
The policies of the victors of the war meant that the crisis was not contained. It got out of control. Thus the world economy plunged into the depths of the Great Depression. He directly contributed to the rise of fascism in Germany and Japan.
Men don't always die in silence,” Keynes wrote in The economic consequences of peace — and in their anguish they can overthrow what is left of the social order and engulf the whole of civilization.
A generation later, American diplomat George F. Kennan would say that the foreign policy mistakes of the XNUMXs could be thought of as the "lost opportunities" of the XNUMXs. Keynes would certainly have agreed.
Jonathan Kirshner is professor of political science and international studies at Boston College. He is the author of the book American Power After the Financial CrisisCornell University Press, 2014.
Kirshner's article was published in the "New York Times" on September 7, 2019, with the title The Man Who Predicted Nazi Germany.
