Sunday, November 20, 2011
Posted by dkuehn at 9:38 AM
I think Arnold Kling would find a lot to like in this book.
One of the threads you see in Keynes from the very beginning to the very end of his life is the idea that investment opportunities were plentiful in the late 19th century (for a variety of reasons) after being less plentiful in the early 19th, and that as we entered the 20th century a lot of the low hanging fruit was gone. Some people interpret this to be "stagnationist". I don't see how Keynes can be read that way, because I don't see anywhere where he says investment opportunities are gone for good (Economic Possibilities for our Grandchildren is often put forward in this regard - I think the argument there is slightly different, but that's a different issue). This is the foundation of a lot of Keynes's concerns about aggregate demand.
But what really comes out in Economic Consequences of the Peace is that a lot of the low hanging fruit is contingent on what Arnold calls "patterns of sustainable specialization and trade", and one of the biggest concerns that Keynes has about the Treaty is not just the injustice of it - but the total disturbance of these patterns, destroying any opportunity of restoring late 19th century growth levels.
Two other quick points:
- When you read Ricardo you are (or at least I was) amazed (1.) by how Malthusian he actually is, and (2.) by how much he actually did talk about population control as a reliable solution, and rejected increasing capital investment as viable. It's also surprising, reading Economic Consequences of the Peace, (1.) how Ricardian Keynes is on these points, and (2.) how Keynes - the alleged dedicated eugenicist - actually puts much less emphasis on population control as a solution and of course presses the investment option (he puts it in a way that anyone familiar with Malthus should recognize: "one geometrical ratio might cancel another"). Of course this weight towards increased investment - which Ricardo doubted - would only get more important for Keynes over the decades.
- Also - if you want a laugh- read Thorstein Veblen's review of Economic Consequences of the Peace. His argument - and I do not think I am being unfair here, but you can read it and judge - is (1.) Keynes is naive in his approach to the conferees because they actually didn't want to punish Germany at all, because (2.) the conferees wanted to build up a reactionary regime in Germany to oppose their real concern: Russian bolshevism. Keynes is presented throughout as a dunce for not realizing that the whole point of the treaty was not, in fact, to punish Germany but to help Germany and weaken the Soviets.