Economic Consequences: Chapter 2

I want to begin my analysis of Chapter 2 with a couple of prefatory comments. We can read a work such as Economic Consequences of the Peace as a work unto itself. Alternatively, we can permit ourselves the luxury of putting the work into the larger context of the body of the author’s work. Both have their place, but for the most part, I’m taking the latter strategy. One of my interests is in how ideas or themes that emerge in The Economic Consequences surface later in Keynes’ writing as well as how Keynes fits into the broader tradition of Political Economy.

Chapter 2 gives us some interesting insights.

In terms of overall political ideology, my view is that it is well established that Keynes was broadly center-left in the sense that center-left should be understood in the context of British politics at the time he wrote. In contrast to some of his associates, such as Michael Kalecki, Pierro Sraffa, and Joan Robinson, Keynes accepted the basic institutions of capitalism: private property, the profit motive, class differences. This view comes out in Chapter 2 as does Keynes’ acceptance of a world economy centered on Europe, especially Britain.

After first noting that the vast population of Europe “worked hard” and at a “low standard of comfort”, Keynes notes the following:

 “The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages;”

What is entirely absent from Keynes’ analysis is that this luxury rested on Empire. It is not that Keynes was blind to Empire because as he then notes:

 “The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.”

However, Keynes does not address the way in which the projects of militarism and imperialism have at least at points in time been functional for the operation of capitalism as a system.

The remainder of Chapter two is devoted to laying out the aspects of social and economic organization that were to prove destabilizing to the order of European society: Population, Organization, Psychology and the Relation of the Old World to the New. In writing about population Keynes notes that the era from 1870-1914 represented a break from the Malthusian cycle. But following established tradition in British Political Economy Keynes views the growth in population as ultimately destabilizing and creating pressure for War. Of course, in his later writings, Keynes looks to Malthus to build his arguments about the possibility of a persistent glut. The other aspect that comes through strongly in this chapter can be thought of as an interaction between the political and economic as those terms are conventionally used. As an aside, I think it is interesting to note that this analysis is not far from that offered later on by Karl Polanyi, in The Great Transformation.

The political: Keynes notes that European order rested precariously on a balance of power, primarily between France and Germany.

The economic: Keynes notes that the mass prosperity of Europe rests on specialization and division of labor which were brought on by the growth in inter European trade as well as global trade. On this point, Keynes is a liberal (in the Classical sense).

Thus in Keynes’ view the unparalleled prosperity and peace of Europe rested precariously on an unstable equilibrium between the great powers of Europe which in turn depended on the complex interaction of economic and political factors.



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