The Economic Consequence of the Peace

The Economic Consequence of the Peace

This book, in my opinion, is Keynes’ greatest book. This is how the book starts.

Very few of us realize with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organization by which Western Europe has lived for the last half century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent, and to be depended on, and we lay our plans accordingly. On this sandy and false foundation we scheme for social improvement and dress our political platforms, pursue our animosities and particular ambitions, and feel ourselves with enough margin in hand to foster, not assuage, civil conflict in the European family. (P. 3)

Clearly, Keynes understood the world as a non-equilibrium system.

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. Thus the extraordinary occurrences of the past two years in Russia, that vast upheaval of Society, which has overturned what seemed most stable—religion, the basis of property, the ownership of land, as well as forms of government and the hierarchy of classes—may owe more to the deep influences of expanding numbers than to Lenin or to Nicholas; and the disruptive powers of excessive national fecundity may have played a greater part in bursting the bonds of convention than either the power of ideas or the errors of autocracy. (p 8)

The above paragraph shows that Keynes thinks that biology is the fundamental force in human society. Keynes also discussed in great detail how French wanted to take over German coal, to empower France and to deprive Germany of power. Keynes keenly understood the importance of resources.

Keynes understood the world as a non-equilibrium system. Keynes understood the importance of biological and physical forces in human societies. Many years later, when he wrote his General Theory, Keynes reverted to the standard theory of equilibrium theory. His equilibrium theory might be “dynamic”. The prices might be “sticky”. The economic profession, as well as himself, might call the General Theory “revolutionary”. But at the core, Keynes gave up his insight for non-equilibrium system for the convenience of standard equilibrium framework, which he modified to suit his needs. This makes his exposition easier.  A fully developed non-equilibrium theory requires very different physical and mathematical foundations.

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Here is another quote from the book.

He felt about France what Pericles felt of Athens—unique value in her, nothing else mattering; but his theory of politics was Bismarck's. He had one illusion—France; and one disillusion—mankind, including Frenchmen, and his colleagues not least. His principles for the peace can be expressed simply. In the first place, he was a foremost believer in the view of German psychology that the German understands and can understand nothing but intimidation, that he is without generosity or remorse in negotiation, that there is no advantage he will not take of you, and no extent to which he will not demean himself for profit, that he is without honor, pride, or mercy. Therefore you must never negotiate with a German or conciliate him; you must dictate to him. On no other terms will he respect you, or will you prevent him from cheating you. But it is doubtful how far he thought these characteristics peculiar to Germany, or whether his candid view of some other nations was fundamentally different. His philosophy had, therefore, no place for "sentimentality" in international relations. Nations are real things, of whom you love one and feel for the rest indifference—or hatred. The glory of the nation you love is a desirable end,—but generally to be obtained at your neighbor's expense. The politics of power are inevitable, and there is nothing very new to learn about this war or the end it was fought for; England had destroyed, as in each preceding century, a trade rival; a mighty chapter had been closed in the secular struggle between the glories of Germany and of France. Prudence required some measure of lip service to the "ideals" of foolish Americans and hypocritical Englishmen; (P 14)