#27: Book Review- Economic Consequences of the Peace By John Maynard keynes

Posted: August 23, 2025

An extremely helpful framing of 20th-century history is to view the period between the start of WWI and the end of WWII as a single, 30-year imperialist and capitalist crisis, from 1914-1945, with the Great Depression sandwiched between the wars. What makes this view so effective is how it brings together the intertwined crises within imperialism, capitalism, and liberalism that led to socialism, decolonization, and fascism. Each component of this crisis resulted from a failure to resolve the compounding contradictions within the imperialist capitalist world system.  

A ‘common sense’ view of most wars, particularly those most seemingly ‘senseless,’ is that the world 'went mad’ for a bit, or a ‘bloodthirsty tyrant was unleashed’ and then ‘everyone regained sanity.’ As materialists, we know this ‘analysis’ is useless. It makes it impossible to understand why wars actually happen (and thus how war can be prevented or eradicated in the future). In this particular case, the ‘world gone mad’ theory only serves to obscure the fact that both world wars were natural and predictable outgrowths of capitalism’s historical development. There is another type of liberal analysis we’re going to review today, which accurately diagnoses the roots of a problem, but fails to provide material solutions, because it clings to those same roots. 

Few accounts better combine this crystal clear analysis with the impotent solutions of a liberalism facing its greatest disgrace than Economic Consequences of the Peace, by John Maynard Keynes. At the core of Economic Consequences is the Treaty of Versailles, signed in June 1919, at the conclusion of the Paris Peace Conference, for which Keynes was present. The Allies had secured Germany’s final surrender in November 1918. Delegates from around the world converged on Paris. At stake were German war guilt and reparations, the division of the former Ottoman and Austro-Hungarian empires between the victors, and U.S. President Woodrow Wilson’s League of Nations (the forerunner to the UN), among MANY other issues. After four years of Europe’s bloodthirsty imperial war machines turned inward for once, rather than on the people of the colonized world, Paris 1919 was supposed to secure lasting peace. 

The ‘German question’ occupied a core place in both the Paris Peace Conference itself, and Economic Consequences. There were two main angles to this question: what was Germany’s guilt, and what should be their penance? The determination of German guilt for the entire war was a relatively forgone conclusion among the victors (especially Britain and France). The British rationale for joining the war in the first place was to protect ‘neutral’ Belgium (who we must never forget ran one of Europe’s most genocidal colonial regimes in the Congo) from Germany’s invasion, as a part of the larger German Schlieffen Plan for invading France. The Americans were happy to go along with this, as America’s two main goals in Paris were the implementation of Wilson’s 14 Points (the League of Nations charter), and finding an ultimate resolution that would lead to the repayment of $7B in Inter-Allied loans (~$195B today). 

The second angle, of German reparations, quickly devolved into a months-long discussion of “The Number:” to how much would/could German reparations actually amount? France wanted the most punitive punishment for Germany, for two reasons. First was the fact that French territory was the location of many of the Western Front’s worst battles, and thus economic and social devastation was worst in France. Second was their shared border with Germany, and legitimate concerns from both recent history and the coming future (the 1870-71 Franco-Prussian War and the outbreak of WWI) that they could no longer keep pace with Germany as an industrial-military power. Incidentally, this concern would be proven correct when, in the third act of the 30-Year Imperialist Crisis, the Nazis easily overwhelmed the French military. 

Keynes writes that the Allies should have proposed a single lump sum upfront, and gone from there dividing the reparations in private. Instead, the discussion became extremely public, leading to a speculative, public cost-accounting process that led The Number to eventually explode, as France and Italy even began summing the cost of lifelong healthcare and pensions for killed/wounded soldiers and their families. The Final Number (technically for all the defeated Axis powers, but with Austria, Hungary, Turkey, and eventually Bulgaria unable to pay at all) amounted to ~$33B USD. The German economy was in no state to pay this amount.  

History would prove that the Allies chose the worst possible course. To paraphrase historian Samuel Mitcham, they inflicted ‘humiliation without annihilation’ on Germany. By taking their coal, colonies, machinery, fleet, basically anything of value in/owned by the former German Empire, along with the ever-contested territory of Alsace-Lorraine, the post-imperial German economy was decimated. Keynes’ main argument in Economic Consequences is that the Allies’ destruction and strip-mining of Germany’s economy would destroy their ability to achieve the necessary economic capacity to pay the reparations with which they were burdened. The Allies needed Germany to be economically productive enough to repay their war debts, but not so productive that German exports could price out Allied manufactured goods. The Germans were also expected to do this without the necessary fuel, raw materials, colonial plunder, transportation, and machinery. The outcome of this was the late Weimar republic’s hyperinflation, as the German government printed so many marks to meet their impossible foreign currency debts that it completely eroded local purchasing power. (For those interested, I will point you to Michael Hudson’s analysis of how debts like this only lead to hyperinflation when denominated in foreign currency). 

From a historical perspective, both the October Revolution in Russia and the rise of the Nazis in Germany loom large in Keynes’ book. A good portion of the second half amounts to Keynes pleading for capitalists to act against their capitalist interests. Wouldn’t the USA forgive their Inter-Allied loans for the good of Europe, their motherland, the home of civilization, art, and knowledge? Of course not. Keynes would have been better off asking J.P. Morgan to read Lenin. This gets to the idealism of Keynes’ liberalism, where, confronted with enormous material problems, he puts forth moralistic/normative statements that were never going to be acceptable to the world's capitalist rulers. 

His ‘Remedies’ chapter discusses at length the impossible interconnectedness of the problems facing Europe, which Lenin had so elegantly predicted in Imperialism: The Highest Stage of Capitalism. Meanwhile, Keynes (a committed imperialist and eugenicist) references Lenin and the Bolsheviks as ‘bloody philosophers,’ while advocating the rebuilding of an imperialist continent that enslaved the world, committed genocide in the Americas, and then self-immolated. The Bolsheviks would defeat the post-war Imperialist Invasion and consolidate power, forming the USSR and beginning its incredible economic rise. The Western capitalist world would be plunged into the next stage of the 30-Year Crisis, the Great Depression, with fascism materializing to tear through the flailing capitalist states, all on the road to World War II.