John Maynard Keynes: The Economic Consequences of the Peace (1920)

John Maynard Keynes, one of the most important British economists of the 20th century, wrote The Economic Consequences of the Peace (1920) in response to the Treaty of Versailles. Keynes in his piece focuses on Germany and uses them as a representation as to what will happen, economically, if citizens of these countries follow this treaty.

Keynes argues that Germany, with a booming population and a rapidly increasing industry, can’t survive with the treaty’s proposed sanctions. He believes that the intellectual elite of the victorious countries fails to realize the stability of Europe, as a whole, and doesn’t promote economic solidarity in any way. The main danger here, Keynes believes, is that a rapid depression of the standard of life can leave to the starvation of many. He says, “Those who sign this treaty will sign the death sentence of many millions of German men, women and Children” (Keynes).

Although Keynes makes valid economic criticisms, his argument is more economic based and less political based. The political situation of 1919 has a lot of importance in what is happening throughout Europe and Keynes fails to address that and also fails to provide alternative solutions to the readers’ problems.

Early Socialist Thinkers: Owen, Saint-Simon, and Marx

1.) “The Legacy of Robert Owen to the Population of the World”

Author: Robert Owen. Welsh cotton manufacturer. Utopian socialist and a founder of the cooperative movement. Founder of (failed) New Harmony colony in the U.S. Had a vision of an ideal society.

Context: Great Britain, 1844. Industrial Revolution. Many of the Factory Acts were in place, including many that regulated child labor.

Language: Persuasive, confident, hopeful

Audience: The Grand National Consolidated Trades Union of Great Britain and Ireland

Intent: To persuade listeners to begin a bloodless revolution driven by morality and wisdom.

Message: A complete reworking of society was necessary. “Men of industry” should unite to begin the bloodless revolution that will lead to a new and improved state of human existence.

Why?: Many factory owners during the Industrial Revolution abused their workers with long hours, unsafe conditions, and low wages. Owen ran his factories more benevolently and saw a utopic vision in which all of society was based on moral correctness and wisdom.

2.) “The Incoherence and Disorder of Society”

Author: Claude Henri de Rouvroy, comte de Saint-Simon. French political and economic theorist. Businessman. Believed in a meritocracy. Fought in the American Revolution. Supporter of French Revolution and imprisoned during the Reign of Terror.

Context: Saint-Simon lived in France under Napoleon and during the Bourbon Restoration (constitutional monarchy). Frequent occurrences of civil unrest.

Language: Passionate, sarcastic at times, easy to read

Audience: The industrial class–everyone engaged in productive work.

Intent: Disprove the principle behind laissez-faire economics. Advocate for a meritocracy.

Message: Industry needed to address the needs of the industrial class. Economics cannot be focused merely on statistics; society needs to take care of people and their needs.

Why?: Saint-Simon fought in the American Revolution, and his time in America likely exposed him to a society with fewer class distinctions than the one in which he lived. He also supported the French Revolution’s principles of equality, liberty, and fraternity, and his own work argues in favor of these principles as well. The Bourbon Restoration provided a more conservative government to France, and Saint-Simon may have reacted against his government’s conservative attitudes.

3.) “Estranged Labor” from Economic and Philosophical Manuscripts of 1844

Author: Karl Marx. German philosopher, economist, and socialist. Moved to Paris in 1843. Prolific Writer. Father of Marxism.

Context: Marx lived in France during the July Monarchy, which was a time of liberal constitutional monarchy. Paris was the de facto headquarters for revolutionaries from all over Europe.

Language: Challenging to follow, very convoluted arguments, passionate tone

Audience: The intended audience (workers; the common man) likely differs from the audience who would be capable of actually comprehending Marx’s argument (academics and philosophers).

Intent: Turn society against capitalism.

Message: Capitalism hurts the laboring class because the more wealth a worker produces, the poorer he becomes. He is alienated from his product and estranged from himself. Society is divided into these propertyless workers and the owners of that property.

Why?: Other economic thinkers of the time, such as Ludwig Feuerbach influenced Marx, and he lived in Paris at a time when revolutionary minds filled the city. The July Monarchy followed the more conservative Bourbon Restoration, bringing a more liberal view into focus. Marx met many people who shared his views, and his views fermented and strengthened in this atmosphere.



Smith’s Wealth of Nations and Malthus’ Essay on Population

The Wealth of Nations, 1776

Author: Adam Smith was a Scottish moral philosopher, and is known as “the father of modern economics.” He enjoyed a thorough education at the University of Glasgow, and after graduating traveled around Europe as a tutor.

Context: Smith wrote The Wealth of Nations during the Industrial Revolution. It was published shortly after Thomas Paine’s Common Sense. At the time, Great Britain’s economy was booming, and it’s imperialist influence was spreading through Africa, the Americas, and Asia.

Language: Smith uses simple and concise language. His ideas are well developed and clearly explained.

Audience: The Wealth of Nations targeted an educated demographic. Smith wanted to influence people who could affect the economy, like business men, philosophers, and political officials.

Intent: The objective was to explain economic ideas, like productivity, division of labor, free markets, and the invisible hand. The first chapter discusses the division of labor

Message: The Wealth of Nations is a collection of ideas that Smith hypothesized would build a nation’s prosperity. The first chapter focusses on the three benefits of the division of labor. Firstly, with divided labor, each contributor is very good at producing his or her product, and can therefore produce a lot of it. Secondly, dividing labor prevents contributors from having to switch tasks, which wastes time. Thirdly, when contributors focus on one simple task, they are more likely to find an easier, more efficient way to perform that task.

Essay on Population, 1798

Author: Thomas Robert Malthus was an English cleric and scholar. He believed that society can never be perfect, and disagreed with many 18th century enlightenment thinkers. He pioneered Malthusianism, which explains the “preventative checks” on populations, such as disease, food supply, and available space.

Context: Disease and famine were common in England, even with the agricultural and medical advancements form the Industrial Revolution. England’s population was increasing, and people were starting to live longer

Language: Malthus uses colorful and descriptive language.

Audience: Malthus’ Essay on Population targeted an intellectual demographic. It’s audience was even more specific than Smith’s Wealth of Nations. Malthus wanted to influence scholars and thinkers like himself

Intent: The goal was to show that society cannot be perfect. There will always be food shortages, disease, and other problems.

Message: There is a cap on every human population. Disease, limited food, and limited space prevent society from increasing forever. Once the population gets too big, people will die off because of a lack of food or space. As the population drops, more food or space will become available. The population will rise again, only to fall as food or space become scarce.

Essay on Population and The Wealth go Nations

Essay on Population, 1798

Author: Thomas Mathus. Malthus was an English cleric and scholar, and was very influential in the fields of demography and political economics. He did not believe society was perfectible, and wrote in opposition to many Enlightened thinkers of his era.

Context-Famine was a fact of everyday life in England, even as agriculture was making major advances in efficiency and increased productions. However, the population continued to rise, and production of food was unable to meet demands.

Language: Slightly more difficult and has a flowery, descriptive tone

Audience: This essay is clearly intended for an intellectual crowd. Malthus is arguing against other philosophers of his era, such as Godwin, and assumes his audience is familiar with their writings.

Intent: Malthus writes to explain that human society cannot be perfected because our desire to reproduce cannot be overcome, so food production will never reach the demands of the population

Message: Humanity cannot be perfected. Unlike animals, humans possess reason, although reason alone cannot allow humans to overcome the instinct to reproduce. Each time food production increases, the population will increase to the point where there is a shortage of food. Humankind will be trapped in a cycle, which prevents the perfection of humankind.

The Wealth of Nations, 1776

Author: Adam Smith, who is also known as “the father of economics.” Smith’s Wealth of Nations is known as the first modern work of economics.

Context: Wealth of Nations was published three months after Thomas Paine’s pamphlet, Common Sense. Smith was writing during the time in which England was experiencing the industrial revolution, and the structure of the economy had changed drastically in a relatively short time period.

Language: The writing style is very clear and explanatory

Audience: The audience has more of an intellectual base, and is targeted towards those who wish to understand the workings of the relatively new economy.

Intent: To explain the division of labor

Message: The division of labor makes production more efficient and cheaper, and even simple items go through numerous stages of production. Due to this division, even poor and frugal individuals who live in a “civilized society” use items that require almost unimaginable amounts of labor.


Post World War II European Economic Relations

The European Free Market Trade Area published in 1957 served as a post war petition to bring economic unity to various European states previously in political opposition. Trade barriers prevent potentially valuable communications for solidifying positive social relations; historically, one country preventing the means of trade of another either served as a product of, or enabled political tension. Economic homogenization assisting as a method of political unification remained a common strategic political policy throughout the remainder of the century. The Maastricht treaty, the treaty on the European Union (1992), sought to aid in unifying Europe “through the strengthening of economic and social cohesion and through the establishment of economic and monetary union.” It also encouraged human rights reinforcements in the international sphere. European nations were not alone in promoting economic cohesion in the early 1990s, however. The Clinton Administration implemented the North American Free Trade Agreement (NAFTA) in 1994, which eliminated trade barriers between Canada, The United States, and Mexico, further stimulating trade between powerful North American nations, increasing solidarity. Nations seem to understand that economic inclusion is a powerful means to stimulate economies and maintain stability.

ACLAIM – Hobson

Author: John Hobson, English economist and English diplomat in southern Africa.

Context: During the middle of an economic depression in England which he attributed to the unsustainability in imperialist expansion.

Language: Language is very direct and highly critical. He was very well educated and the language in the document is not for an uneducated audience.

Audience: For the middle and upper classes mainly, ones who would understand simple to complex economics. Also for all modern economists at the time, especially in England.

Intent: To change economic policies in england from an unsustainable imperialist system to a system which abandons destructive expansionism for a more reliable, inwardly shifted national focus.

Message: Imperialism must be destroyed through the means of understanding its economic downfalls. Imperialism destroys public relations through infiltration and aggression, and due to its unsustainable nature in which the original national boundaries are left to wither, ends up creating more problems. To help come out of this depression, we need to stop imperialism which will allow England to build itself back up and stimulate foreign trade markets.


The Theory of the Leisure Class and Conspicuous Consumption

Author: Thorstein Veblen was an American economist and sociologist, along with being the leader of the institutional economics movement. He was born to Norwegian parents, and studied at well-known American colleges.

Context: The Theory of the Leisure Class was written in 1899, following the Industrial Revolution and during a time of more widespread prosperity as a result of industrialization.

Language:Using a didactic, matter-of-fact tone, Veblen uses the repetition of words such as “consumption”, “leisure”, “vicarious”, “superior”, “servants”, and “classes” to instill the key message of the work into readers’ minds. His tone is almost satirical in the way that he pokes fun at the way people use material goods as a sign of status.

Audience: Veblen writes for an audience interested in economics, sociology, or both.

Intention: Veblen’s intention is to make people aware of the consumerist culture that has taken over society as a result of the division of labor and the division of classes.

Message: Veblen’s message is to convey to society that consumption has become a way of conforming in modern society. He criticizes the way that the consumption of material goods has become a means of proving wealth and status, and points out the association between honor and material acquisitions. He also claims that clothing has become a way of expressing status, rather than a way of protection.

The Theory of the Leisure Class

Author: Thorstein Veblen was an American sociologist and economist born in Wisconsin in the year 1857. He was raised in a prosperous Norwegian household by his two parents, and he thrived as from an early age they instilled solid life values and beliefs in him. He studied at multiple prestigious colleges around the country. He wrote his most famous work The Theory of the Leisure Class, when he was in his forties.

Context: This piece was published in 1899, during a period known as the Gilded Age. This was a time of great economic expansion in the United States, leading Veblen to write about how the profits were being spent.

Language: Veblen uses very critical language in this piece, as he is going directly after a singular group of people. His tone can be categorized as somewhat flippant towards the leisure class, although the piece is an excellent example of how prose can be put together. He knows exactly what he is trying to say and uses a specific tone and set of words to get his point across.

Audience: Veblen is writing to a the educated world as a whole. He is giving his thoughts to anyone who would like to read them, especially the people to whom he is writing about (leisure class). He wants his ideas to be seen, debated, and taken into account by the populace as a whole.

Intent: Veblen wanted to break down the society into the people who spend superfluously and those who are rational and understand how to be fiscally responsible. He wanted to show how those extravagant people were actually hurting their country and themselves more than they were helping (waste=bad).

Message: Veblen put the leisure class out on a line in this piece. He showed how their flamboyance was a detriment to themselves and the society around them as it started new negative trends that the rest of the populace would then adopt. His main point was that it was poor form to waste materials (even if you had the financial means to do so) because it doesn’t help anyone in the long run – it just makes you look like a fool.

The Economic Option

All three of the historians that we examined had different viewpoints regarding economics than did Adam Smith. While Smith believed laissez-faire capitalism was the best economic method a country could employ, his opponents (Marx, Saint-Simon and Owens) all believed that it belittled the poor to such an extent that it was not a viable option. Although the capitalist method increases production to unforeseen levels, it creates an undeniable divide between social classes. The owners of the companies become much richer than the working class people, while all they have to do is sit down and watch the money being made in front of their eyes. Although this was clear exploitation of the working class, Smith believed that this was the best method because it helped the country grow economically, even though the people suffered. Marx was against this. He thought that if the gap between the rich and the poor got to an uncontrollable level the whole economy would come crashing down. The workers would get angry enough to rebel against the owners and the whole governmental system would plunge into anarchy, finally resulting in the “purest form of socialism”, communism. Saint-Simon also thought that the capitalist society would not work in the long run – when competitors in the same job went up against each other they would try to beat out the other person instead of being the best worker that they could be. He supported more of an “equality” economy where the owners would work to support their employees so they their workers would enjoy putting in the hours at the factory.

Which method do you think is best? There are pros and cons to each type of economy, but I feel you have to side with the one that provides the most growth for the country as a whole over individuals. Marx’s plan would lead to inevitable conflict, while Saint-Simon’s wouldn’t provide as much production that is desired. I would choose Adam Smith’s capitalism because it vaults the specific country into a whole new class on the world scale, while raising the bar for all of the people in said country.

Comparison of Keynes and Versailles Treaty/Wilson’s Fourteen Points

As the founder of his eponymous economic school of thought, John Maynard Keynes contributed many influential theses on the economics of his day.  Nowhere is this more notable than in 1920’s The Economic Consequences of Peace, his controversial criticism of the Treaty of Versailles.  Keynes asserted that the Treaty would do little other than prolong and perhaps exacerbate the period of postwar unrest in Europe, noting that “the Treaty includes no provisions for the economic rehabilitation of Europe” (Keynes).  Instead, the major powers responsible for the Treaty (i.e. France, the United Kingdom, the United States) used it to advocate their own national interests.  With the exception of the U.S., who primarily viewed the Treaty as means of implementing President Wilson’s somewhat unrealistically idealistic Fourteen Points, Keynes argued that the aforementioned nations utilized the Versailles Treaty to reprimand Germany for the damage it caused during WWI , particularly by crippling its economy.  Keynes’ ultimate qualm about these tactics was that because Germany, a formerly thriving industrial nation, had become so firmly established as a staple of European industry and commerce, its virtual elimination from this economic community would cripple not only Germany, but all of Europe.  Although this excerpt did not offer any explicit alternatives to the Versailles Treaty, Keynes was noted several years later (1933) as an advocate of “economic nationalism…the autonomy which individual states had gained over policy as a result of the collapse of a unified international economy” (Mazower, 137).  It is then perhaps reasonable to infer that in the wake of this interwar economic crisis, Keynes felt that a Europe composed of economically independent states would be more stable than the tightly interdependent economic climate that dominated the decades prior.