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The End of Laissez-Faire: The Economic Consequences of the Peace

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In Keynes' polemic work, he breaks the confines of what was the normal economist and focuses on the remaking of the structure of the international ordnance after World War I. Indeed, many things were either in the process of changing or had changed by this time: the European Powers had never fully recovered their relative status, but remained the de facto world powers for the next two decades; the rise of United States into the international Great Power arena, bringing with them a high degree of idealism - perhaps explainable by their relatively benign international conditions at home; A supposed new found morality in International Relations championed by the Wilsonians and their vision of a world where the security of the United States was inseparable from the security of all other peoples in all nations around the world, much similar to the Habsburg Empire, however valuing universal rights and shared values in the stead of religious tenets.

Woodrow Wilson's attempt to legitimize America's claim to leadership on its altruism, with his League of Nations and fourteen points, is indeed interesting and quite relevant to the present. In analyzing systems in anarchy it is hard to avoid the greater question of the parallels between the state system and the free market. The notion that it is acceptable, indeed that is our right, to bring order and stability to the anarchical state system while we must live within the confines of the anarchy in the market are just one of the many contradictions in our general philosophy.

Continuing on the subject at hand, Keynes main focus is centered on the "war reparations" that the heirs of Wilhelmine Germany were forced to pay the victors of WWI at Versailles. Keynes believed this attitude to be ancient and outdated - that war may indeed stem from the provisions of the peace treaties that end conflicts. Ultimately, he viewed the impoverishment of Germany to be both unnecessary and potentially harmful to future progress and cooperation. Best said in the eloquent words of Keynes himself:

"If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for long that final war... that which will destroy...the civilization and progress of our generation..."


Keynes warning fell upon deaf ears. What seemed such matter of fact to the statesmen at the Congress of Vienna seemed to allude those at Versailles - this despite the new found morality in international relations championed by the Wilsonians. Germany was forced to pay an unprecedented amount of war reparations to the victors. The peace would, as Keynes predicted, not last. The treaty of Versailles would set the stage for the conflict to follow.

The relevance of Keynes' argument comes not only form its insightfulness, but also from the impact it had on melding the "dismal science" of economics with geopolitics and International Relations. Keynes fully realized that Germany must be allowed to enter into the legitimization of the post-war World. The impoverishment and exclusion of such a force as Germany from Versailles would at best accomplish a punitive peace. The stability of the international order would then be quite precarious, as the victors are now set with the task of dealing with a country determined to undermine the settlement. Additionally, any county with a grievance may find an ally from the disaffected party. This is precisely what happened with Italy and, even though ideologically opposed, the Soviet Union's early alliance with Germany. Japans dissatisfaction with the international ordinance and allocation of power due to it not having any legitimizing say is also observable; Germany, Italy, Japan and the Soviet Union were no longer part of the romanticist Wilsonian League of Nations by 1938. From this analysis, it should be clear that the message Keynes was attempting to put forth was just this. Truly prophetic and groundbreaking.

Having never read Keynes before, and having only heard politicians and pundits either lionize or pillory him, I am in awe of the depth and substance of his thinking. This book, written after World War I is, in my opinion, required reading for all who would analyze our current politico-economic situation. I can't wait to get more of his stuff.

By a man way ahead of his time. Almost prescience in what would happen. He really deserves more study then the 're-written" text books show today.

This publishing contains 2 books by Keynes: The End of Laissez-Faire and The Economic Consequences of the Peace.

The End of Laissez-Faire is considerably short. Keynes gives a brief history of philosophies that led to the rise and fall of Laissez-Faire. Keynes quotes Thomas Paine as though he is an admirer and adherent, yet Keynes' economic actions divert immensely from Paine's ideas that "Man has no property in man" and that generations should not be entitled to indebt future generations; ie- New Deal.

His comparison of man to short and long-necked giraffes is absurd. Giraffes reaching the highest leaves on a tree is not comparable to the innovations of man. First, man is not genetically inclined or disinclined for economic success. The economy is not static and any man in a genuine free market can find his niche. Second, leaves are consumed, currency is not. If long-necked giraffes used the leaves as currency, then perhaps this would be more analogous to the marketplace. There are many more incongruencies in his analogy, but space won't provide.

I do commend Keynes for explaining that Adam Smith did not argue for or against Laissez-Faire specifically, as many of my economic professors have incorrectly alluded.

In regards to The Economic Consequences of the Peace, I found it to be a better read. Though it contains a lot of useless material for present-day readers, it paints a clear picture of the post-WWI, pre-WWII international financial world. I found myself surprisingly in agreement on many of Keynes' points. Germany was utterly crushed after the war by the Allies. Keynes' argument was for Germany's capacity to pay reparations as opposed to the financial castration that eventually happened to the country. The natural consequence of Germany's total plundering was the rise of National Socialism and Hitler.

In Chapter 6, he describes the Bolshevists' and Lenin's designs to destroy Capitalism. He states that what had been done by the incompetence of belligerent governments was actually what Lenin would do out of design. He seems to understand the insidiousness of dishonest economic planning, which left me confused as to how Keynes became the man he became- the Fabian Socialist who promoted centralized economic planning. Design or Incompetence?

And for the record, since Socialists like Keynes, always tend to have a soft spot for Eugenicists (specifically Keynes with Malthus), it would be remiss if I didn't point out that Keynes' concerns for starvation of an over-populated continent should not have been due to population itself, but to government. When this book was written, world population was estimated at 1.8 billion (which Keynes felt too high). Today, world population is around 7 billion. History is witness to the fact that man is starved more by his government than by his freedom. If man is left to the freedom of innovation, as many mouths can be fed as desired. It is only in the hands of incompetent governments- particularly the more centralized kind- that man finds himself starving, destitute, and broken.

J.M. Keynes worked harder to destroy capitalism and free markets than any other man (except for perhaps Karl Marx). Born with a silver spoon in his mouth, he never had to create wealth, he simply wanted to re-distribute the wealth that others had created. His anti-capitalism, anti-free-market, socialist model continues to this day. Keynes never considered the act of taking income and property by force (or threat of force) from one group to give to another group (of his choice) immoral. American politicians today are Keynesians.

Michael Beitler, Ph.D.
Author, "Rational Individualism: A Moral Argument for Limited Government & Capitalism"