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"I TOLD YOU SO"




John Maynard Keynes clearly warned in his final statements, “If we oppose in detail every means by which Germany can recover their material well-being, we must be prepared to face the consequences.” Keynes, unlike most European politicians involved in the Treaty of Versailles, advocated a much more practicable debt settlement than it was proposed. Keynes stated, “By fixing the Reparations payments well within Germany’s capacity to pay, we make possible the renewal of hope and enterprise.” However, the Members of the League of Nations made sure they discontinued Germany’s industrial life by putting limits on the loss of productivity through interference of political frontiers. Basically, Keynes was of the view that the amount and the manner by which Germany was to pay war reparations to the victorious allies would lead to future problems. Initially, these provisions in the treaty would hinder Germany's post war economy; and, ultimately, it would lead Germany's repudiation of it and a rearming of all Europe. The Allied powers had a common ideology; it was to strip Germany of all working capital, and eliminate any means of which Germany can generate wealth in order to pay the outrageous European debt. This mentality opposed the arguments and appeals of the American financial representatives at Paris.
The Treaty of Versailles, rather than being an agreement to guarantee peace and economic prosperity in Europe, was a devastating reprimand against Germany. The treaty aimed at the systematic destruction of overseas commerce and Germany’s exploitation of coal and iron. All boats carrying the German flag were ceded to the allies. The Hamburg port was only to be used as storage in case of excess supplies of mercantile other countries. If Germany received any money from trading it will be up to the foreigner’s terms of trade how much would it be. Germany could not engage in overseas commerce for a long time; thus destroying the ability to be able to repay war damages.All German private property (public companies, interest owned in Russia and China) was to be expropriated by allied powers without any compensation to the Germans, to be liquidated as they wished to lessen the German war debt. If there was any money left, it was put in a German restoration credit account. The treaty strikes a destructive blow at the so-called international law. German influence was eliminated and her capital confiscated. She also had to pay pensions and allowances as well. (Keynes, 1919)
Such harsh punitive sentence resulted in bitter resentments among the Nazi, the Nationalist German Socialist Workers Party to seek revenge during World War II. Severe unemployment prompted the rise of the Nazi Part in Hitler Germany. Following the Beer Hall Putsch, after a failed coup d'état attempt to overthrow the Weimar Republic, Hitler was imprisoned and wrote the Mein Kampf, which combines Hitler’s autobiography with his political ideology, representing the former and desired glory of the German Republic. Hitler blamed the Treaty of Versailles for the economic disparity in Central Europe. The presidency fell into Adolph Hitler’s hands, becoming an authoritarian and totalitarian leadership. Germany remilitarization of the Rhineland and the invasion of Poland started World War II, amidst the unforeseeable consequences predicted by Keynes. After the Attack on Pearl Harbor, Germany declared war on the United States; therefore, forcing the United States to taken an active role, away from isolationism.
Let’s take a look at Keynes’ life throughout WWII:
DATE
EVENT
Sept 1939
Germany invades Poland and Britain declares war on Germany. World War Two has begun
Nov 1939
Party politics have more or less ceased and Keynes is offered the position of Member of Parliament for Cambridge University. He turns this offer down, in order to remain distant from government and take his own individual stance on issues.
Feb 1940
Keynes publishes a small book titled How to Pay for the War. He promotes his proposals that interest rates should be kept low and that compulsory saving should be used as a mechanism to prevent the inflation that occurred during World War One.
Jul 1940
Keynes is given a room in the Treasury and becomes a government economic adviser. He receives no pay for his duties, but now spends most of his time in London in this capacity.
Sept 1940
A German bomb falling on London smashes windows in Keynes's house and there's an unexploded bomb in the neighborhood. Keynes commutes into London for three weeks from his Tilton vacation home.
May 1941
Keynes makes the first visit that he will make to America between now and 1946. The good personal relationships he has developed in past visits to America - and he will continue to develop - will make it easier for Keynes to negotiate with America on Britain's behalf
May 29th 1941
Anthony Eden, conservative party politician, makes an important speech on Britain's war objectives - the economic thrust of which is based on Keynes's ideas.
Oct 1941
Keynes is elected to the Court of the Bank of England.
1942-1944
Keynes is heavily engaged in making proposals for and engaging in discussions about what will later become the International Monetary fund (IMF), the World Bank, and the Breton Woods system for international currency management.
Jun 1942
Keynes is awarded a peerage, bringing him a seat in the House of Lords. His title is Baron Keynes of Tilton. He chooses to take a seat with the Liberal Party in the Lords.
Sept 1943
Keynes makes his second visit to the United States, refusing to be deterred by his poor health. He meets Harry Dexter White, Chief International Economist at the U.S. Treasury. Whatever Keynes's abilities as a negotiator, Britain's weak economic position means that America holds the trump cards in most negotiations. Nevertheless, close co-operation between the British and Americans on economic matters is established and Keynes manages to shift White's position closer to his own in many important respects.
Jun 1944
Keynes focuses on the Bretton Woods’ system for further talks with American negotiators about the post-war economic settlement.
Jul 1944
Emmanual Goldenweiser writes of Keynes's chairmanship of the Bank Commission: "He shone in two respects - in the fact that he is, of course, one of the brightest lights of mankind ... and also by being the world's worst chairman."
Sept-Nov 1944
The cost of fighting the war has pushed Britain's external debt to enormous levels. Anticipating the defeat of Germany, Keynes travels to the United States for a fourth time, to negotiate Lend-Lease for the war against Japan after Germany's defeat. He spends over two months in Washington, taking every opportunity to describe Britain's dire financial position to the Americans.
Aug 1945
The bomb has been dropped on Hiroshima. Keynes is deeply engaged in negotiations with the Americans again. Fighting the war for six years has bankrupted Britain. Keynes is engaged in the task of eliciting American assistance to keep Britain solvent in the post-war years.

America announces that Lend-Lease to the United Kingdom has been stopped. Mainstream American opinion is that, with the war over, if the British are not starving, they should not need further assistance.

Keynes will need to fight hard to secure further American assistance for Britain.
Sept-Dec 1945
Keynes travels to the United States again, hoping to secure a loan to help Britain rebuild its economy. If he does not succeed, food rations in Britain will have to be cut severely.

Keynes speaks at the Federal Reserve for three days, presenting facts without embellishment. All present agree.

The British obtain a loan from America, which will be interest free for six years and then charged at two percent. Also, Britain's huge potential Lend-Lease obligations to America will be remitted in their entirety. It is likely that Keynes's efforts for Britain have been rewarded with more generous terms than might have been obtained otherwise.
Feb 24th 1946
Keynes sets for his final visit to the United States. He anticipates a pleasant time at the inaugural meetings of the World Bank and the International Monetary Fund. In fact, the meeting proves to be difficult. In Keynes's view, the Americans are taking advantage of their strong economic position to force ill-conceived decisions on the IMF and Bank. Nations in debt to the Americans are voting with America, not because they want to but because, as a result of their dependence on American aid, they feel they have no other option.

Until now, Keynes has always spoken strongly in favor of Americans - he has always found them to be pragmatic, ready to look at issues from all angles and ready to compromise. Now it seems they merely wish to dictate.
Apr 21st 1946
John Maynard Keynes dies at home
Apr 22nd 1946
The Times obituary writes of Keynes:

"To find an economist of comparable influence, one would have to go back to Adam Smith."


After realizing that Keynes predictions were becoming reality, he was offered a position as a member of parliament for Cambridge University shortly after Germany’s first attack on Poland. Keynes, being the over-confident economist he was, refused this offer so he could remained distant from the politics and continued to write from his own perspective. A couple of months after, Keynes wrote a book entitled, How to pay for the war, which suggested to keep interest rates low and promoted compulsory saving in order to prevent inflation; the book was a great hit and sold many copies. The British government realizing Keynes’ intellectual economic capability gave him an economic adviser position. During the war years, Keynes played a decisive role in the negotiations that were to shape the post-war international economic order. In 1944, he was Britain’s go to guy on the Bretton Woods conference in the United States (BBC). At the conference he played an important part in the planning of the World Bank and the International Monetary Fund. Keynes also secured the Lend-lease agreement that guaranteed financial support from the United States to England after the war.
As we see, Keynes not only predicted the resentment of the Germans towards all Allied-powers, but he also helped secured England’s financial prosperity once WWII was coming to an end. Upon Keynes’ death, the obituary page of The Times stated, “To find an economist of comparable influence, one would have to go back to Adam Smith.”


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WORKS CITED

1. Keynes, J. M. (1919). The Economic Consequences of the Peace. (1 ed.). London, England: Wilder Publications, Inc.
2. BBC. (n.d.). John maynard keynes (1883 - 1946). Retrieved from http://www.bbc.co.uk/history/historic_figures/keynes_john_maynard.shtml
3. The war years, America, lend-lease, the IMF, and a peerage 1939 to 1945. (n.d.). Retrieved from http://www.maynardkeynes.org/john-maynard-keynes-the-war-years.html