Keynes's Arc of Discovery: From The Economic Consequences to Bretton Woods

Abstract:

The Economic Consequences of the Peace is known for its devastating criticism of the reparations burden which the Versailles peace settlement imposed on Germany after World War I. But it does much more than this. The extraordinary second chapter of this book first sets out to explain how, and why, the global system had worked so well in the late Victorian age. It is only after this preliminary chapter that Keynes turns to the main purpose of his book–which is to describe the potential damage which the imposition of reparations on Germany was likely to cause. But Keynes does this–in the rest of his book–by referring back to Chapter 2 and showing the way in which reparations were in danger of destabilizing the system which he had described there. This chapter is also important for a deeper reason. It clearly establishes how, in order to safeguard the global economic order, one would need to solve the transfer problem, a problem to which Keynes turned his attention in 1929. More than this one can see that the world would need to solve the global unemployment problem, something on which Keynes focused in his General Theory of 1936. But, most fundamentally, one can see that one would need to create a new international monetary system–and the Bretton Woods agreement, which Keynes spearheaded, attempted to do just that. It is thus my view that, by studying this chapter, one can begin to visualize the arc of Keynes’s creativity, which stretched from the time this chapter was written to his death in 1946.