Posted by: Dirk | June 1, 2009

(Book review) The Economic Consequences of the Peace

Written by John Maynard Keynes in 1920, this book is a very unusual tract at least when read today (Gutenberg offers a free version). Keynes writes about macroeconomic questions, like how Germany will repay its debt and what it will produce in the future in order to survive as well as to export. Only by exporting could Germany repay its debt. Keynes employs lenghtly calculation of industry production, and how it will be affected by the Treaty of Versailles. He concludes that:

On the one hand, Europe must depend in the long run on her
own daily labour and not on the largesse of America; but, on the
other hand, she will not pinch herself in order that the fruit of
her daily labour may go elsewhere. In short, I do not believe
that any of these tributes will continue to be paid, at the best,
for more than a very few years. They do not square with human
nature or agree with the spirit of the age.

If there is any force in this mode of thought, expediency and
generosity agree together, and the policy which will best promote immediate friendship between nations will not conflict with the permanent interests of the benefactor.

Keynes predicted that peace would not be reached with the Treaty of Versailles. His calculations led him to conclude that for Germany it would be impossible to pay the reparations sought of her. History proved him right, and after WWII there was a different approach to create long-lasting peace and prosperity for Europe. Not only have Europeans learned from mistakes, but probably the confrontation with Communist Eastern Europe, a common enemy, also had a part in leading politicians like Robert Schuman to put forward a plan to – at least partially – unite Europe.

The text is quite interesting, since in the European Union today we have arrived at a situation where again some nations are highly indebted while other nations are their creditors. If Ireland cannot get any more loans, will they ever be able to repay what they owe? The same goes for almost all Eastern European EU member states. It is not clear how the European Union will deal with the debt situation. Also, if a fiscal stimulus is needed, some countries are not in a position to do so. How will other nations react? These are questions that have gained importance again. I believe that this time, peace and prosperity of Eastern Europe is on the line.


  1. Hi Dirk,

    Your closing comments even more prescient today, eleven months on.

    Great observation.

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