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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

Blog entries written by Prof. Shlomo Maital

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