Chip Poirot, Professor of Economics, Shawnee State University.
Outline of remarks intended for presentation at Shawnee State University’s “Faculty Festival of Achievement”, February 19, 2018.
Students or others who are unfamiliar with some of the events, people and ideas may wish to explore these in more detail. I have bolded terms that may be unfamiliar to some. Some of my earlier blog entries at Citizenrat.wordpress.com contain links to some sources that provide a useful introduction to some of these topics. A bibliography of works I have found useful in assembling these remarks is provided at the end.
Preface: Some interesting anecdotes
Professor Joan Robinson, one of Keynes’ close associates at Cambridge reportedly said that she and Keynes’ other associates struggled to get Keynes to understand The General Theory.
Frederick Hayek, a well know free market economist remained friends with John Maynard Keynes. Hayek is reported to have said that while he believed Keynes was in fact a Liberal (in the Classical sense) he did not think that Keynes truly understood the illiberal implications of The General Theory.
But this presentation is about The Economic Consequences of the Peace which was published 16 years before The General Theory.
Introductory: Who was Keynes, and why are we interested in The Economic Consequences of the Peace?
1. Author of The General Theory of Employment, Money and Interest. The EC gives us some very limited insight into how Keynes’ thinking as an economist developed.
2. Keynes worked in the Treasury Department of Britain during WWI and was an economic advisor to the British delegation during the negotiations of the Treaty of Versailles. The work can provide some insights into the end of WWI and the problems of the interwar period.
3. Keynes was Britain’s chief representative to Bretton Woods in 1944. Given 2., we can better understand how and why the Bretton Woods institutions developed as they did.
4. Keynes was an important person in the 20th century and his influence is still debated today. Did he succeed in doing for economics what Einstein’s General Theory of Relativity did for physics? I will leave that debate aside for today.
1. The EC only gives us some very limited insight into the GT.
a. It does helps us understand Keynes’ overall social philosophy or what the economist Joseph Schumpter termed “pre analytic vision”. Keynes viewed himself as a “man of the left”. Many of his close friends and associates, Bertrand Russell, Michael Kalecki, Pierro Sraffa, Virginia Wolfe were avante garde and overtly socialist and sympathetic to Marx. Keynes’ heart was with the avante garde. But he was suspicious of schemes to radically remake society. When he writes about the Bolsheviks, he echoes Burke on the French Revolution. He is equally critical of fascism. He was a Classical Liberal in the tradition of John Stuart Mill who understood the defects of laissez faire as did John Stuart Mill. His own politics could be said to be on the left of the British Liberal Party. He was open to dialogue with moderates in the Labour Party, but he was very critical of the Labour Union wing and of the Communist wing in Labor. In terms of contemporary British politics he would be to the left of Tony Blair but to the right of radicals such as Tony Benn. It is difficult to believe he would have any use for contemporary idiots such as Theresa May or Donald Trump.
b.The EC is a very different work than the GT and is also very different from The Treatise on Probability and his Treatise on Money. Whereas these latter works are narrower in focus, the EC is quite broad in scope. In short, the EC is a work in political economy while the TP is a work in mathematics and TM and the GT are works in economics.
c. In so far as Keynes addresses economics directly in the EC, his analysis is conventionally Marshallian. Keynes was not yet a Keynesian. Nevertheless, some distinctly Keynesian ideas about psychology, institutions, expectations and liquidity are clearly present as is Keynes’ concern with practicality and with grounding theory in the facts of the matter. I disagree strongly with Skidelsky’s argument that the EC is about the triumph of economics and technical rationality over politics. The EC is about the interaction of economics, society, and politics and how a sound analysis of the facts of the matter can lead to better outcomes.
2. The EC is a useful source on the problems of the Treaty of Versailles and the interwar period. It is not perfect.
a. It has some use as a primary source. Clearly, it is not exhaustive. Historians would not base a history of the Treaty of Versailles just on Keynes’ account. It is reasonably accurate, though it does reflect Keynes’ own biases and views.
b. The analysis is intriguing and incisive. Keynes’ contrast between Clemenceau’s “realpolitik” and Wilson’s 14 points is quite relevant. Wilson is sometimes portrayed as unrealistic and as having instituted policies that were destabilizing. Keynes argues that Wilson’s ideas are actually more practical than Clemenceau’s realpolitik and that it was Clemenceau’s realpolitik that ultimately led to WWII.
c. Keynes’ analysis of the imbalances created by the settlement and the impact the treaty would have on Germany seems prophetic in hindsight, though it should be noted that others have disagreed. But a near permanent Allied occupation of Germany following WWI coupled with carting off of German factories would have been neither practical nor moral.
d. Like any single work it is not complete and it has its shortcomings. It is primarily focused on the problems of relationships between European nation states and the U.S. This is understandable given the circumstances. But a more complete analysis would need to more systematically address the problems of Imperialism and decolonization. Keynes’s analysis of Imperialism and Class is lacking.
3. When we read the EC in light of Bretton Woods and Keynes’ role at Bretton Woods, it sheds some light on Bretton Woods and more broadly on the whole institutional design adopted after WWII.
a. The Great Depression, the rise of fascism and Nazism, and the catastrophe of WWII are a direct result of the failure to create a workable set of institutions for mutual security and prosperity following WWI.
b. Bretton Woods, the Marshall Plan, the creation of the UN, and later the European Coal and Steel Community, which became the EU, are a unique failure to commit the mistakes of the past. Keynes’ influence on this matter is critical. The ideals of the EU are far preferable to the centuries long civil wars of European nations but that is not the same as accepting what the EU has become.
c. Bretton Woods and other institutions were not and are not perfect. They are created by human beings. There is much to be critical of. Bretton Woods was designed with the goal of creating a stable international environment for Capitalism. But it should also be remembered that the institutions were designed to function very differently and to allow for social democratic solutions to problems. This is very much in keeping with Keynes’ social philosophy. The neo-liberal policies enacted by these institutions from the 1970’s on seem almost by design intended to ignore the lessons of the EC.
A final thought: Quite frankly, Keynes in the EC appears in hindsight to be prophetic. But we have forgotten those lessons as the Bretton Woods Institutions have adopted punitive policies towards developing countries in the debt crisis of the 80’s and more recently towards Greece. The policies are the exact opposite of what Keynes intended the Bretton Woods institutions to do.The EC reflects the best of moderate social democracy informed by Mill’s individualism. It also reflects its limits.
Lekachman, Robert. “Introduction” pp. ix-xxxvii in Keynes. John Maynard. 1971. The Economic Consequences of the Peace. Penguin Books, USA.
Keynes. John Maynard. 1971. The Economic Consequences of the Peace. Penguin Books, USA. Originally published by Harcourt, Brace and Jovanovich, 1920. Also available online at http://oll.libertyfund.org/titles/keynes-the-economic-consequences-of-the-peace
Minsky, Hyman. 2008. John Maynard Keynes. McGraw Hill USA. First published 1975. Columbia University Press.
Skidelsky, Robert. 2005. John Maynard Keynes: 1883-1946. Economist, Philosopher, Statesman. Penguin Books, USA. Abridged version of Robert Skidelsky’s three volume biography of Keynes.