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We Ignored Keynes in 1919 – Are We Repeating the Mistake in 2019?
By Shlomo Maital
Today’s New York Times has an Op-Ed by Boston College political science professor named Jonathan Kirshner.* He reminds us of a book published 100 years ago, by J.M. Keynes, that contained a precise prediction: the Versailles Peace Agreement, that imposed unbearably heavy war reparations on Germany, will create the new world war and facilitate the rise of the Nazis.
It did.
Keynes was then an obscure economist who advised British Prime Minister Lloyd George and who attended the Versailles conference. He returned home from it, greatly upset and worried, and wrote The Economic Consequences of the Peace, published by Macmillan on Dec. 8, 1919.
Kirshner writes, “Keynes’s book is essentially correct with regard to its most important arguments. But it was, and remains today, largely misunderstood. The enduring contributions of the book are to be found not in Keynes’ first dissenting clause (his “objection to the treaty”), but in the second, about “the economic problems of Europe.” Keynes was sounding an alarm about the fragility of the European order.”
Keynes’ book is relevant today as well. The current world economic and political order is exceedingly fragile. Very bad things can happen, unless we wake up. Russians, Iranians and others constantly meddle in democratic elections, now in the UK, and in the US. Far-right racist politicians gain political power and representation. The US withdraws from the Paris climate accords, and engages in trade/tariff wars. The “left-out economy”, as TIME magazine calls it, finds new political voice, as demonstrations break out all over the world, facilitated by social media.
The current world order was shaped in part by Keynes himself, at Bretton Woods, NH, in July 1944. It worked very well indeed, helping many nations in Asia especially become wealthy. But it also meant, by the same token, that many nations and many people, not skilled and wise enough to compete globally, became poor.
Only one thing was missing from the Bretton Woods architecture – a way to tax the rich to help the poor. It was a fatal mistake. It took 75 years, but the left-out underclass are now rising up and are threatening the current world order, creating chaos in many countries.
It’s time we read again Keynes’ little book and began to think about addressing the left-out economy more seriously. What Keynes warned us of, in 1919, came about 20 years later, in 1939, with disastrous consequences.
- Jonathan Kirshner. “The man who predicted Nazi Germany”. New York Times, Dec. 9/2019
July 1-22, 1944, Bretton Woods, New Hampshire:
The Forgotten Anniversary
By Shlomo Maital
Hotel Mt. Washington, Bretton Woods, NH
Today, July 20, the 50th anniversary of Neil Armstrong’s Apollo landing on the moon – and all the media are obsessively recounting, replaying, and reliving it. We learn about the world-shaking debate, whether Armstrong said “one small step for A man”, as intended, or whether he skipped the “a”. (Complex voice analysis has been done to resolve this world-shaking question).
There is another anniversary, ignored – and far more important: The 75th anniversary of the Bretton Woods, New Hampshire, conference, July 1-22, attended by the Allies, that redesigned the architecture of the world economy. It was done in 21 days, because the wealthy Boston millionaires had booked the Hotel, Hotel Mt. Washington, for their summer vacation. That is symbolic, because ultimately, it is the 0.001% billionaires who are destroying the amazing system built in just 3 weeks in New Hampshire.
Leading the US delegation was a Treasury official, a bureaucrat, Harry Dexter White. Leading the British delegation was the most renowned economist of his time, John Maynard Keynes. Keynes had the intellectual firepower. But White had the powerful US economy behind him. Keynes’ plan was to create a world central bank. White said, no, we already have one – the dollar will be the world’s currency.
White won.
At the beautiful old wooden hotel, the delegates created the I.M.F., World Bank, General Agreement on Tariffs and Trade and the Bank for International Settlements. They laid the foundation for a global trading system with zero tariffs (“Most Favored Nation”) that led to massive creation of jobs, exports and wealth, mostly in Asia but in war-torn Europe as well.
The system created in Bretton Woods 75 years ago has served the world well. It helped China boom, as well as Japan, Taiwan and Korea, and India too. It helped Europe unify. It may have prevented a new World War. And ultimately, it sank the U.S.S.R. by showing that free markets worked best.
The Bretton Woods agreement has affected everyone, mostly for the good. But – it had a fatal flaw. When you create opportunities for some people to grow wealthy, by definition you also create dilemmas in which many people (unable to compete) become poorer. So what was lacking at Bretton Woods was one thing – a truly effective mechanism to redistribute wealth, for people and countries left behind.
Ultimately, that small omission is destroying the Bretton Woods system. It is bringing ‘populist’ leaders who ignite trade wars, foster xenophobia, build walls and claim to prioritize their own countries, other nations be damned.
Let us celebrate Bretton Woods’ Diamond Anniversary. Let’s remember the enormous benefits it brought. Let’s remind ourselves that much of the Bretton Woods system is worth preserving and strengthening, while fixing the flaws.
I was two years old in 1944. Most people alive today were born long after Bretton Woods. Most do not even know what was done at Bretton Woods or how it affected them.
I wish the media could leverage this crucial Diamond Anniversary to remind everyone, to educate people, to reaffirm the ultimate value to humanity of free, open trading, of commitment to creating value for the world, not just for white American males, and to take responsibility (as the US did in 1944) for struggling nations left behind.
I just searched Google News. The Financial Times did print a couple of pieces on Bretton Woods. So did TIME magazine. It’s barely a ripple…not even that.
TIMnovate 