Thoughts on The Economic Consequences of the Peace, by John Maynard Keynes

A while back I read the above mentioned book (get it online for free!) and wrote down some of my thoughts as I went along (though not in a structured or coherent manner). Here they are for anyone who is interested, and even for those who are not.

I had heard of John Maynard Keynes before; by which I mean I had read his name in passing many times, from many sources. But I didn’t know that much about the man, what the eponymous form of Keynesian Economics described; what’s more I didn’t even know how to say his name! (I still don’t)

Shockingly graphs like this have not helped

But the man seemed remarkably prescient in deducing how events would come to pass in the world, particularly when he adopted a tone of pessimism.

When discussing the role of the embryonic League of Nations, he is sceptical of its ultimate effectiveness, and in his analysis hits upon many points which could arguably be applied to the faults inherent in todays United Nations.

“But the League will operate, say its supporters, by its influence on the public opinion of the world, and the view of the majority will carry decisive weight in practice, even though constitutionally it is of no effect. Let us pray that this be so. Yet the League in the hands of the trained European diplomatist may become an unequalled instrument for obstruction and delay. The revision of Treaties is entrusted primarily, not to the Council, which meets frequently, but to the Assembly, which will meet more rarely and must become, as any one with an experience of large Inter-Ally Conferences must know, an unwieldy polyglot debating society in which the greatest resolution and the best management may fail altogether to bring issues to a head against an opposition in favor of the status quo.”

Being written prior to World War II, it is also interesting to note the language used when referring to the war itself.

I was previously interested to learn that World War I was called the First World War long before there was a second to compare it to. I had always as a child accepted the two as a combined set forming a part of our history. A view further reinforced during later years when you learn a bit more about the conflicts, in particular how linked they were. Then noticing more memorials around town (old British Empire colonies have more World War I memorials than they do World War II), the title of the Great War embedded in my mind that this was the name given before it was revealed that history had more in store.

However the true genesis of the term First World War isn’t one of comparing events, but rather of defining events. It was the ‘first’ world war. Not the first in a series, but the first ever to come to pass. Many hoped it would be the only (hence the sadly defunct moniker; The War to End All Wars), but at the time it was considered momentous that the whole worlds focus could be turned toward conflict (even though it really wasn’t the whole world anyway).

Though i guess it was pretty close (axis in orange, allies in green)

But anyway, back to the more direct point.

I was interested to note that Keynes at times refers to the First World War as a European world war (or European civil war). Whether or not he believes this to be the case isn’t certain, however he makes it clear that this is what the French government (in particular their Prime Minister Clemenceau) believed the conflict to be. Clemenceau saw the war as a continuation of European civil wars, a pattern which had transpired in the past (there is a lot of reference to the war of 1870, in which Germany defeated France), and was destined to continue in the future. As such the French leader was determined to break Germany’s backbone, in order to ensure that its victory, which he considered as but one in a long line of battles, would be more lasting.

Strange to think that such actions wishing to prevent Germany’s future victories over France more likely fuelled on their ultimate defeat in World War II.

Reading this analysis, one can’t help but feel that Germany’s ultimate breaking of the treaty, and subsequent resurgence, was all but a certainty given the strains it was put under. This isn’t to say that Hitler’s rise was foreseeable, or justified. But when one considers that the nation of Germany was left with the choice of either surrendering any foreseeable surplus or profit for a generation, or else breaking the treaty; what population wouldn’t choose the later? The fact that such animosity had been created between Germany and her captors only helped to foster an environment where the more unsavoury members of society could more easily hoist their views and remain within the scope of public thought.

With the full weight of historical events such as the great depression, and World War II, falling just shy of this account, one can’t help but view everything that Keynes talks about through this odd prism of foresight.

Keynes predicts the malaise about to grip the world’s economy. He sees the inherent problems within the League of Nations, and understands that if the treaty of Versailles isn’t altered, that the consequences would not only be dire for Germany, but for Europe, and perhaps the world as a whole.

Indeed, his arguments were so persuasive that they affected public opinion both in England and the United States.

The English public began to think of the Treaty’s terms as a sort of Carthaginian Peace, and felt that Germany had been hard done by. Such sentiments would later go on to help establish the ill-informed policy of appeasement adopted by Chamberlain in the lead up to World War II.

Again it is odd to think that measures made with seemingly good intentions can lead to such horrible consequences. First a French desire to avoid future defeat at the hands of Germany brings about a future French defeat, and then a British desire to atone to Germany for their harsh treatment allows Germany to commit crimes more horrible than it was originally being chastised for.

Closing off his chapter on Europe after the Treaty, Keynes foresees the economic turmoil that would give birth too Nazism:

“Economic privation proceeds by easy stages, and so long as men suffer it patiently the outside world cares little. Physical efficiency and resistance to disease slowly diminish, but life proceeds somehow, until the limit of human endurance is reached at last and counsels of despair and madness stir the sufferers from the lethargy which precedes the crisis. Then man shakes himself, and the bonds of custom are loosed. The power of ideas is sovereign, and he listens to whatever instruction of hope, illusion, or revenge is carried to him on the air”

“But who can say how much is endurable, or in what direction men will seek at last to escape from their misfortunes?”

You can almost hear the jackboots.

Similarly as reading a text written in the period between last centuries two major conflicts inevitably leads one to view the writing in a light it was not exactly mean to be read in, I can’t help but apply some of the writings to one of this centuries budding defining events; the rise of China.

True there is not much said in Keynes work about China, nor is China’s current economic growth something that is only confined to the 21^st century, but nevertheless I found this passage bringing images of China to mind when I read it:

“The great events of history are often due to secular changes in the growth of population and other fundamental economic causes, which, escaping by their gradual character the notice of contemporary observers, are attributed to the follies of statesmen or the fanaticism of atheists.”

Chinas rise has always seemed to me to be a simple matter of demographics. When you have 20% of the world’s population within your borders, you can’t be held down forever. And though its ‘rise’ seems to have caught a few people off guard, it definitely seems to have accomplished this through a gradual nature.

Then there were passages which evoked similar descriptions of the world as it appears to some today:

“Europe was so organized socially and economically as to secure the maximum accumulation of capital. While there was some continuous improvement in the daily conditions of life of the mass of the population, Society was so framed as to throw a great part of the increased income into the control of the class least likely to consume it. The new rich of the nineteenth century were not brought up to large expenditures, and preferred the power which investment gave them to the pleasures of immediate consumption. In fact, it was precisely the inequality of the distribution of wealth which made possible those vast accumulations of fixed wealth and of capital improvements which distinguished that age from all others. Herein lay, in fact, the main justification of the Capitalist System. If the rich had spent their new wealth on their own enjoyments, the world would long ago have found such a régime intolerable. But like bees they saved and accumulated, not less to the advantage of the whole community because they themselves held narrower ends in prospect.”

Is this accumulation of wealth by small percentages what lead to the great depression, and what is now worrying people in places like America?

I also found it interesting how Keynes talks of the American President’s inability to hold his own during chamber debates. I have often heard people in the United States bemoan their politician’s lack of ability in this regard, especially when compared to politicians accustomed to the Westminster System, or equivalent, where their ability is forged in the crucible of question time. This perhaps is why Americans were so impressed with Gillard’s recent flaying of Abbots sexism.

I couldn't resist

I also enjoyed a few quotes I figured were worth repeating here.

“Thus this remarkable system depended for its growth on a double bluff or deception. On the one hand the labouring classes accepted from ignorance or powerlessness, or were compelled, persuaded, or cajoled by custom, convention, authority, and the well-established order of Society into accepting, a situation in which they could call their own very little of the cake that they and Nature and the capitalists were co-operating to produce. And on the other hand the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice. The duty of "saving" became nine-tenths of virtue and the growth of the cake the object of true religion. There grew round the non-consumption of the cake all those instincts of puritanism which in other ages has withdrawn itself from the world and has neglected the arts of production as well as those of enjoyment. And so the cake increased; but to what end was not clearly contemplated. Individuals would be exhorted not so much to abstain as to defer, and to cultivate the pleasures of security and anticipation. Saving was for old age or for your children; but this was only in theory,—the virtue of the cake was that it was never to be consumed, neither by you nor by your children after you.”

The cake is real.

“As lately as 1890 Europe had a population three times that of North and South America added together”

Wow.

When talking of rhetoric and the art of argument, Keynes offers this interesting bit of insight:

“A moment often arrives when substantial victory is yours if by some slight appearance of a concession you can save the face of the opposition or conciliate them by a restatement of your proposal helpful to them and not injurious to anything essential to yourself.”

I just found it interesting.

 “In fact, here, as elsewhere, political considerations cut disastrously across economic. In a régime of Free Trade and free economic intercourse it would be of little consequence that iron lay on one side of a political frontier, and labor, coal, and blast furnaces on the other. But as it is, men have devised ways to impoverish themselves and one another; and prefer collective animosities to individual happiness”

Also, billions are referred to by Keynes as ‘milliards’. Nice

Well that’s pretty much all I have to say. Has anyone else read this, and if so, what were your thoughts?

Cheers

MM