Term Paper on "Read Book the Economic Consequences of the Peace by John Maynard Keynes"

Term Paper 3 pages (1135 words) Sources: 1

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Keynes

Book Review of the Economic Consequences of the Peace by John Maynard Keynes, 1919

The text, the Economic Consequences of the Peace, by John Maynard Keynes, was written in the immediate economic aftermath of World War I. The founding philosophies of modern or "Keynesian" economics were still in utero at this time, still solidifying in the Cambridge-educated economist's mind. However, later the proposed polices of this economist became fundamental in laying the philosophical foundation of the 'New Deal' social welfare policy of Franklin Delano Roosevelt in America. Aspects of Keynesian theory are evident in FDR's federally funded job creation, the Social Security program designed to bolster aging consumer confidence and buying power in a failing American economy, and even in the creation of the Tennessee Valley Authority which was the most ambitious federally funded attempt to create technological support for impoverished consumer areas of the nation. Viewed in its totality, Keynesian economics thus proposed a solution contrary to that of classical economics. The Economic Consequences of the Peace, viewed in isolation, proposed a unique and radical solution to the conventional assumption that the loser of war must be economically ravaged in reparation for its ills.

A common criticism of the American President Roosevelt and the British Keynes, and one reason that current classical economists of the University of Chicago School like Alan Greenspan continue with monetary-based policies to ameliorate recessions and depressions, is the idea that World War II improved the American economy, not the New Deal. But it is interesting to reflect that in the Economic Consequences of the Peace Keyes demonstrates that World War I had not been salutary for the world economy, nor was the demand all wartime debts be paid according to classical theories of debt avoidance and maintenance of the gold standard be upheld helpful to the world economy. In fact, Keynes 1919 tract demonstrated that the 'war to end all wars' had been economically and politically disastrous for Europe, and the policies of the First World War's aftermath merely continued this economic depletion. Enforced reparations bankrupted Weimar Germany and embittered that nation politically. Also critical to the problems of Europe were the war debt incurred by all the allied powers. "The existence of the great war debts is a menace to financial stability everywhere," wrote Keynes, as well as political stability.

Thus, the debt must be forgiven, contrary to conventional economic wisdom. He called for statesmanship in the form of forgiveness, for "but in whatever way the net result is calculated on paper, the relief in anxiety which such a liquidation of the position would carry with it would be very great." Forgiveness would generate consumer confidence in Europe, even though, "it is from the United States, therefore, that the proposal asks generosity." But ultimately, a confident Europe should help the United States. "If all the above inter-Ally indebtedness were mutually forgiven, the net result on paper (i.e., assuming all the loans to be good) would be a surrender by the United States of about £2,000 million and by the United Kingdom of about £900 million. France would gain about £700 million and Italy about £800 million."

Although the U.S. would lose money in the short run, however, it would gain by the strength created in the long run for the world. Thus, the idea of spending money through debt forgiveness in this case, to generate a healthier economy in… READ MORE

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