READING: Brief Selections from John Maynard Keynes (1919): "The Economic Consequences of the Peace"

Keynes as upper-class twit—but not stupid; never stupid...

Keynes as upper-class twit—but not stupid; never stupid...

---

John Maynard Keynes arguing immediately after the end of World War I that the pseudo-classical semi-liberal order that had characterized Western Europe before WWI was admirable as a system that had created, for the first time in human history, an “economic Eldorado… Utopia'“; and was worth restoring as nothing better was on offer—and as a failure to restore it would inevitably bring on “that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war [WWI] will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation…”

There is a huge amount here, in a very short space.

Points worth noting: Keynes’s:

• belief, rather strangely, that under the pseudo-classical semi-liberal order “escape [from dire poverty] was possible for any man of capacity or character at all exceeding the average…”

• belief in cosmopolitanism.

• observation the pre-WWI smugness of upper-class inhabitants of London like himself that the prosperous cosmopolitan “this state of affairs [w]as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable…”

• great regret that he and his ilk had regarded the imperialistic-militaristic alternative order as of no account: “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…”

• observation of the fragility of the interdependence that fueled prosperity.

• belief that under the pseudo-classical semi-liberal order “Europe was so organized socially and economically as to secure the maximum accumulation of capital…”

• belief, somewhat strangely, that the upper class of the pseudo-classical semi-liberal order “were not brought up to large expenditures, and preferred the power which investment gave them to the pleasures of immediate consumption…. Like bees they saved and accumulated, not less to the advantage of the whole community because they themselves held narrower ends in prospect…”

• recognition of all the channels through which “the laboring 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…”

• belief in the cunning of history, in that the pseudo-classical semi-liberal order was the best road to eventual future utopia: “In the unconscious recesses of its being Society knew what it was about. The cake was really very small…. [O]nly the cake were… allowed to grow in the geometrical proportion… of compound interest… [might] a day might come when there would at last be enough… [and] overwork, overcrowding, and underfeeding… have come to an end, and men, secure of the comforts and necessities of the body, could proceed to the nobler exercises of their faculties…”

• fear of the pitfall that “the cake [might] be after all consumed, prematurely, in war, the consumer of all such hopes…”

• belief that the important progressive elements of the pseudo-classical semi-liberal order were unnatural, hence fragile: “It was not natural for a population, of whom so few enjoyed the comforts of life, to accumulate so hugely…”

• consequent fear that progress rests on a knife edge: “he bluff is discovered; the laboring classes may be no longer willing to forego… the capitalist classes… may seek to enjoy… and thus precipitate the hour of their confiscation…”

• Cassandra-prophecy: “If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution…”

• assumes a very interesting overall vibe here—a defender of a system that he recognizes is ludicrous, unfair, built on and, but that he nevertheless smugly thinks is the best attainable, and that gives him a very comfortable life for himself, as well as for, he thinks, “any man of capacity or character at all exceeding the average” willing to bestir himself and make the effort.

---

Chapter II: Europe before the War: Before 1870 different parts of the small continent of Europe had specialized in their own products; but, taken as a whole, it was substantially self-subsistent. And its population was adjusted to this state of affairs. After 1870 there was developed on a large scale an unprecedented situation, and the economic condition of Europe became during the next fifty years unstable and peculiar…. As numbers increased, food was actually easier to secure. Larger proportional returns from an increasing scale of production became true of agriculture as well as industry. With the growth of the European population there were more emigrants on the one hand to till the soil of the new countries, and, on the other, more workmen were available in Europe to prepare the industrial products and capital goods which were to maintain the emigrant populations in their new homes, and to build the railways and ships which were to make accessible to Europe food and raw products from distant sources….

In this economic Eldorado, in this economic Utopia, as the earlier economists would have deemed it, most of us were brought up…. The eighteenth century… to lay the illusions which grew popular at that age's latter end, Malthus disclosed a Devil…. For… [the last] half century he was chained up and out of sight. Now perhaps we have loosed him again.

What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914! The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages.

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; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend.

He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference.

But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. 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….

Organization: The delicate organization… depended partly on factors internal to the system. The interference of frontiers and of tariffs was reduced to a minimum…. The various currencies, which were all maintained on a stable basis in relation to gold and to one another, facilitated the easy flow of capital and of trade to an extent the full value of which we only realize now, when we are deprived of its advantages. Over this great area there was an almost absolute security of property and of person….

Order, security, and uniformity… prepared the way for the organization of that vast mechanism of transport, coal distribution, and foreign trade which made possible an industrial order of life in the dense urban centers of new population…. Round Germany as a central support the rest of the European economic system grouped itself, and on the prosperity and enterprise of Germany the prosperity of the rest of the Continent mainly depended. The increasing pace of Germany gave her neighbors an outlet for their products, in exchange for which the enterprise of the German merchant supplied them with their chief requirements at a low price. The statistics of the economic interdependence of Germany and her neighbors are overwhelming….

The Psychology of Society: 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.

The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war, could never have come about in a Society where wealth was divided equitably. The railways of the world, which that age built as a monument to posterity, were, not less than the Pyramids of Egypt, the work of labor which was not free to consume in immediate enjoyment the full equivalent of its efforts.

Thus this remarkable system depended for its growth on a double bluff or deception. On the one hand the laboring 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.

In writing thus I do not necessarily disparage the practices of that generation. In the unconscious recesses of its being Society knew what it was about. The cake was really very small in proportion to the appetites of consumption, and no one, if it were shared all round, would be much the better off by the cutting of it. Society was working not for the small pleasures of to-day but for the future security and improvement of the race,—in fact for "progress."

If only the cake were not cut but was allowed to grow in the geometrical proportion predicted by Malthus of population, but not less true of compound interest, perhaps a day might come when there would at last be enough to go round, and when posterity could enter into the enjoyment of our labors. In that day overwork, overcrowding, and underfeeding would have come to an end, and men, secure of the comforts and necessities of the body, could proceed to the nobler exercises of their faculties. One geometrical ratio might cancel another, and the nineteenth century was able to forget the fertility of the species in a contemplation of the dizzy virtues of compound interest.

There were two pitfalls in this prospect: lest, population still outstripping accumulation, our self-denials promote not happiness but numbers; and lest the cake be after all consumed, prematurely, in war, the consumer of all such hopes….

Accumulation based on inequality was a vital part of the pre-war order of Society and of progress…. This principle depended on unstable psychological conditions…. It was not natural for a population, of whom so few enjoyed the comforts of life, to accumulate so hugely. The war has disclosed the possibility of consumption to all and the vanity of abstinence to many. Thus the bluff is discovered; the laboring classes may be no longer willing to forego so largely, and the capitalist classes, no longer confident of the future, may seek to enjoy more fully their liberties of consumption so long as they last, and thus precipitate the hour of their confiscation….

[…]

[If we were to] fixing… Reparation payments well within Germany's capacity to pay, we make possible the renewal of hope and enterprise within her territory, we avoid the perpetual friction and opportunity of improper pressure arising out of Treaty clauses which are impossible of fulfilment, and we render unnecessary the intolerable powers of the Reparation Commission….

[If we built a] Free Trade Union some part of the loss of organization and economic efficiency may be retrieved, which must otherwise result from the innumerable new political frontiers now created between greedy, jealous, immature, and economically incomplete nationalist States.… A Free Trade Union… might do as much for the peace and prosperity of the world as the League of Nations itself….

Our attitude… must be determined by our whole moral and emotional reaction to the future of international relations and the Peace of the World. [Right now] we take the view that for at least a generation to come Germany cannot be trusted with even a modicum of prosperity… must be kept impoverished and her children starved and crippled… must be ringed round by enemies… [must not be] assist[ed] to regain a part of her former material prosperity and find a means of livelihood for the industrial population of her towns….

If this view of nations and of their relation to one another is adopted by the democracies of Western Europe, and is financed by the United States, heaven help us all.

If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp.

Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war [WWI] will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation… <https://www.gutenberg.org/cache/epub/15776/pg15776-images.html#CHAPTER_II>