After the Progressive Era of the late 19th century, the unregulated financial markets boomed, encouraging people to go into debt to buy stocks, and when an economic boom went bust, the Great Depression ensued. FDR’s New Deal was a response to the failure of markets to protect people that led to the government taking on the responsibility of preventing, or at least moderating, economic dislocations, regulating the financial and banking systems, providing jobs as an employee of last resort, and establishing a social security system to protect the elderly and disabled Americans. The missing link in these efforts was racial justice, which was largely overlooked for political reasons. While FDR’s critics accused him of betraying capitalism, he in fact saved the market system from destroying itself.

This chapter discusses Keynes’s Economic Consequences of the Peace as a matrix for understanding the changing institutional landscape of international trade. In 1919, Keynes highlighted the perils of German participation and US non-participation in international politics, twin problems that continued to frame trade debates in the League of Nations for the remainder of the 1920s. Generally, German leaders supported the construction of an open and regulated world economy. Many internationalists were eager to lock Germany into a system of multilateral norms but also feared that integrating Germany into global markets would reinforce its dominance in key strategic sectors. In contrast, the United States remained aloof from League trade negotiations in the 1920s. Europeans were divided over whether to respond with universal trade rules that the United States might eventually be persuaded to follow or with a regionalist approach that would enable Europeans to negotiate directly with their Atlantic neighbour on a more equal footing. As Keynes saw clearly, both sets of concerns were exacerbated by the financial imbalances stemming from war debts and reparations.

Even a century after a French translation of Consequences was published in 1920 by France’s foremost editor, the Nouvelle Revue française, there remains a myth that Keynes’s international bestseller was not only barely read in France but met with a homogeneously hostile reception. Recent historical discourse tends to overlook, however, how French reactions to Consequences mirrored France’s own internal political dissensions on the merits of the Treaty. Keynes, it turns out, was well in tune with predating and intellectually relevant French condemnations of the Versailles Peace.

This chapter argues that Chapter Two of the Economic Consequences contains a much more important piece of economic analysis than is generally recognized, namely the Ramsey model of economic growth. It is well known that Keynes helped Ramsey to explain that model in the Economic Journal in 1928. But I show here that Keynes had himself given an exposition of the model, nearly a decade earlier, in this chapter. What is more, Keynes then generalizes this model in order to help him think about Europe’s growth process within the global economy, and why it was so fragile. I claim that the analysis in this chapter provides the underpinning for Keynes’s famous criticism of the reparations imposed on Germany. The chapter also makes clear that Keynes is starting to realize what he will need to do to get to the General Theory in 1936. And there are the beginnings of the ideas which would lead to the Bretton Woods conference in 1944 and to the rebuilding of the international monetary system after World War II. Understanding these connections helps us to visualize the arc of Keynes’s discovery, one which stretched all the way from 1919 until his death in 1946.

Just over a century old, John Maynard Keynes’s The Economic Consequences of the Peace (1919) remains a seminal document of the twentieth century. At the time, the book was a prescient analysis of political events to come. In the decades that followed, this still controversial text became an essential ingredient in the unfolding of history. In this essay, we review the arc of experience since 1919 from the perspective of Keynes’s influence and his changing understanding of economics, politics, and geopolitics. We identify how he, his ideas, and this text became key reference points during times of turbulence as actors sought to manage a range of shocks. Near the end of his life, Keynes would play a central role in planning the world economy’s reconstruction after World War II. We argue that the “global order” that evolved since then, marked by increasingly polarized societies, leaves the community of nations ill prepared to provide key global public goods or to counter critical collective threats.

This chapter reviews the ideas and reception of Keynes’s The Economic Consequences of the Peace. It focuses on a single, as yet untold, aspect: how Economic Consequences fits into the context of debates about the construction of the memory of the Great War. It asks: ‘What role did Keynes and The Economic Consequences of the Peace play in the formation of the “futility myth” which dominates British popular perception of the First World War to this day?’

Chapter 4 reconstruct how the zeitgeist, the political and economic practices, and the geopolitical and societal circumstances of the war times guided Western Europe to a path of deeper international and regional cooperation focused on free trade and valuta convertibility. During exile and occupation, European governments fleshed out plans and schemes for post-war cooperation, primordially in the domains of socio-economic and the financial-economic planning, in greater (practical) detail. Initially, however, the step from grand designs and lofty models for a post-war Western order that could ‘win the peace’ to the practices of policies of cooperation was taken via the institutional engineering in the Atlantic world, most prominently through the ‘system’ envisioned in Bretton Woods. However, the original ideas behind Bretton Woods soon proved a bridge too far in practice, which complicated global ambitions as well as the proper build-up of Atlantic-wide institutions—and pushed Western Europe to think and act ‘beyond Americanisation’.

Chapter 11 looks at the much smaller World War II reparations to the Allies. The Allies had learnt from previous reparations disasters and focused on the de-industrialisation of Germany and Japan. Only small reparations were actually paid, and the transfers were offset by US loans from the Marshall Plan. I show how even though reparations were agreed, they were not necessarily paid, using a case study of German reparations to Denmark.

Keynesian involuntary unemployment describes a market failure: market forces may be incapable of bringing the economy to full employment. Wage and price stickiness are not the problem. Keynes took prices to be flexible and viewed sticky nominal wages as desirable: flexibility would tend to make the economy violently unstable. The IS-LM model provides a decent representation of the analytical skeleton behind Keynes’s fix-wage equilibrium but leaves out dynamic forces that are central to Keynes’s instability argument. By including one of these forces – the effects of expected inflation on real interest rates – in a formal model, Tobin showed that wage flexibility does not ensure the stability of full employment. The model’s assumption of an exogenous money supply misrepresents the real-world behavior of central banks as well as contemporary theory. Introducing a Taylor rule, stability can be obtained if the zero lower bound does not constrain interest rates – a result anticipated by Keynes: “only a foolish person would prefer a flexible wage policy to a flexible monetary policy”, he argued, while warning about the ineffectiveness of the policy in a liquidity trap.

The chapter looks at Churchill’s economic ideas as a Liberal and then Conservative and their impact on his actions. Churchill was a free trader and accepted the self-correcting specie-flow mechanism of the Gold Standard. His political economy before 1914 rested on interventions to remove monopoly power and market imperfections that would allow ‘competitive selection’ by free enterprise and encourage individual responsibility. After the war, strains appeared in this coherent set of assumptions. Churchill’s tenure as chancellor was marked by creative accounting for pragmatic political reasons. He remained a devotee of sound finance and balanced budgets, and despite some reservations on the issue of the return of the Gold Standard, he could not go against the advice of Treasury officials and the Bank of England, or his own ‘deeply internalized convictions’ that coincided with their assumptions. After 1929 he took little systematic interest in economics. Churchill’s coherent political economy of free trade and the Gold Standard collapsed and he had nothing in its place.

It was the departure from the pre-Armistice ‘contract’ with Germany that became the crucial issue – famously blamed on Lloyd George and Wilson alike in Keynes’s tract The Economic Consequences of the Peace (1919). In particular there was a crucial ‘breach of contract’ when the two leaders included war pensions as so-called ‘reparations’; and these were now demanded under a specifically drafted War Guilt Clause of the Treaty. Dulles subsequently admitted his own role in what he came to regard as the Treaty’s greatest failing. What Chapter 2 demonstrates, through a close reading of the published documentation, is that Dulles’s collaborator at each crucial stage was none other than Keynes himself.

At the Paris peace conference in 1919, Keynes served as a member of the British delegation. He often represented the Treasury although himself only a temporary civil servant aged thirty-six. But there were equally youthful members of the US delegation with whom he worked closely, initially in support of the position adopted by President Woodrow Wilson in seeking a negotiated peace with Germany. Hence Keynes’s close contact with both Norman Davis and also John Foster Dulles, then a young lawyer. Their task was to define the ‘reparations’ due from Germany under the Armistice agreement – often called the ‘Lansing Note’ after the American Secretary of State, Robert Lansing, who was Dulles’s uncle.

Publication of the Economic Consequences made Keynes an internationally famous figure. Its analysis was embraced by the liberal left in Britain, scorned by the nationalist right in France, more ambiguously received in the United States. But his fame was now undeniable – and immediately recognised by the Russian ballerina Lydia Lopokova with whom Keynes now began an affair that was to lead to their marriage. In particular this chapter uses Lydia’s letters as a lens through which we can see the impact of Keynes’s crucial venture into journalism. For he was now commissioned by the Manchester Guardian, Britain’s most eminent liberal newspaper, in a double role. Thus he covered the international Genoa conference for the paper in 1922, giving him insight on Lloyd George’s new role as a ‘revisionist’ intent on conciliating Europe. And Keynes also edited a series of special supplements for the paper that sought to propagate a more wide-ranging analysis of the problems facing reconstruction in Europe. The fact that these were now written in a more accessible form, with Lydia’s encouragement, was thus a crucial step for Keynes in propagating his ideas for a wider readership.

This chapter and the next explore a tension between two different worlds in which Keynes moved – himself apparently equally at ease in either. One of these was Cambridge, where his idiosyncratic relationship with the Economics Faculty was by no means what we would expect of an academic economist today. Instead we find him relying upon networks of friendship, with some important links going back to his early days as a member of ‘the Apostles’ in Cambridge. The writing of his major economic works, The Treatise on Money (1930) and the General Theory (1936) was thus crucially influenced in a way that we would today regard as quite unprofessional.

In little more than a couple of years (1919–22) Keynes published three books that contrasted not only in style but in substance when they addressed a common theme: the nature of truth. Thus in the Economic Consequences he proposed a ‘ruthless truth-telling’ about what had happened in Paris. When his intimidating academic tome A Treatise on Probability was finally published in 1921, it offered a defence of objective perception. A few months later, A Revision of the Treaty suggested that truth in politics was little more than a prejudice that might be at odds with practical good. The first part of this chapter explores how Keynes sought to reconcile such views, especially under the criticism of the brilliant young Cambridge mathematician Frank Ramsey, whose insights continue to excite attention today. How far Keynes ‘yielded’ to Ramsey’s view is thus a central issue.