The Economic Consequences of the Peace (1919)
The book that made Keynes famous was best known for its unflattering characterizations of the main participants in the peace negotiations at Versailles and its description of their narrow aims, motivated by (mis-)perceived national advantage.
In Keynes’s view those aims were self-defeating; the proposed reparations were designed to cripple Germany, but he argued that they would also undermine the prosperity of the victors. His analysis, based on data whose collection he had directed while in the Treasury, of the relationship between Germany’s rapid industrialization and the structure of European trade before the war showed that the pre-war structure of activity and trade between the combatants was fragile but benefited all participants. The Versailles treaty put this interdependent system in jeopardy.Keynes’s analysis in Economic Consequences of the Peace (hereafter ECP, Keynes 1919 [1971]), was truly macroeconomic and forward-looking; it was concerned with the future health of the European economy as a whole. He argued that from that point of view the political aim should have been to establish an international framework for a stable European economy rather than pursuing national interests dominated by a desire for revenge.