Quote of the Day (John Maynard Keynes, on the Fallout From WWI and The Failed Treaty of Versailles)

“If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation.”— English economist John Maynard Keynes (1883-1946), The Economic Consequences of the Peace (1919)

John Maynard Keynes, who died of a heart attack 75 years ago today, may be best known for the school of economics named after him, which holds that, because free markets lack the self-balancing mechanisms to produce full employment, state intervention is necessary to stimulate demand and stabilize the economy.

That notion, in its different forms, guided mainstream U.S. economic thinking from the New Deal to the rise of Reaganism, and has been enjoying something of a revival not only in the Biden administration’s economic program but even the tax cut passed under Donald Trump (as noted by David J. Berger in a May 2019 article for The Hill).

Keynes’ American disciple John Kenneth Galbraith, in a 1984 essay for The New York Review of Books, called him “by far the most influential economist of this century and, with [Adam] Smith, [Karl] Marx, and possibly [David] Ricardo, one of the three or four greatest economists who ever lived.”

But long before he formulated this influential theory, Keynes had become famous for immediately grasping how the vengeful and power-obsessed victors of WWI were sowing the seeds for an even more devastating conflict. He had attended the peace conference at Versailles for ending World War I as the senior Treasury member of the British delegation. 

But the more he watched, the more appalled he became at the blindness of the “Big Four” allied victors in imposing punitive war reparations on Germany.

Having failed to scale back this insistence on what he termed a “Carthaginean peace,” Keynes departed the proceedings in disgust, then worked furiously in a farmhouse for two months on what became the bestselling The Economic Consequences of the Peace.

Time has not dimmed the power of his fury at the madness of the allies’ four leaders—Britain’s David Lloyd George, America’s Woodrow Wilson, France’s Georges Clemenceau, and Italy’s Vittorio Emanuele Orlando—for not recognizing “the fundamental problems of a Europe starving and disintegrating before their eyes.”

Virginia Woolf’s husband Leonard wittily but aptly dubbed the economist “Keynessandra.” The problems of the following two decades after his manifesto—hyperinflation (“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency”), periodic economic failures, nationalist resentment, political extremism, and another war—proved the wisdom of his vision.

It is also worth remembering Keynes’ unheeded call for an America that would resist the urge to retreat into postwar isolationism:

“But if America recalls for a moment what Europe has meant to her and still means to her, what Europe, the mother of art and of knowledge, in spite of everything, still is and still will be, will she not reject these counsels of indifference and isolation, and interest herself in what may prove decisive issues for the progress and civilization of all mankind?”

Keynes is the bane of libertarian economists for his belief in activist government. (You can find a succinct, and sometimes on-target, summary of such skepticism in Madsen Pirie's June 5, 2019 blog post on the Web site of the Adam Smith Institute.) 

But the economist was hardly opposed to investing in markets. At the time of his death, his assets totaled $30 million in today’s money, with much of that derived not from his decent-selling books but through value investing.

As noted in Philip Delves Broughton’s recent Wall Street Journal review of Justyn Walsh’s Investing With Keynes, Keynes was “a kind of proto-Warren Buffett, a diligent savant who could crunch the numbers, discern the qualitative aspects of a toothsome investment and remain unflustered by the churn of the markets.” Not a bad prescription for surviving a bubble prosperity.

Quote of the Day (Pope Benedict XV, on Peace and the “Germs of Former Enmities”)

“…[I}f in most places peace is in some sort established and treaties signed, the germs of former enmities remain; and you well know, Venerable Brethren, that there can be no stable peace or lasting treaties, though made after long and difficult negotiations and duly signed, unless there be a return of mutual charity to appease hate and banish enmity.”—Pope Benedict XV, Pacem, Dei Munus Pulcherrimum (On Peace and Christian Reconciliation) (1920)

No, I didn’t miss something from the Roman numeral or use an incorrect photo. The pontiff in question is not the current controversy-plagued Benedict but the last one to take this name before him as successor to St. Peter.

Historian-novelist Thomas Fleming had a thought-provoking blog post in which he wondered why the news media didn’t consider at greater length why Cardinal Ratzinger took the name of an early 20th-century pope upon his election. “As a German, I think we can be fairly sure he is trying to remind the world of the tragic story of his predecessor, and how close he came to bringing World War I to an early conclusion.,” the noted historian-novelist noted.

There are many aspects of Benedict XVI’s reign that can—and should—raise some eyebrows, but his initial act—a claim of nomenclature—suggested that he had a strong sense of the possibilities of his position.

Benedict XVI has, on more than one occasion, not always with the greatest of ease, tried to position the Roman Catholic Church in this age of terror as a central point of reason-informed faith between the secular West and the Islamic world. In the age of total war that began with World War I, Benedict XV (1854-1922) similarly asserted himself as an impartial religious emissary of peace between the Allies and the Central Powers.

In one sense, the former Giacomo della Chiesa repeated, in the papal encyclical Pacem, Dei Munus Pulcherrimum—promulgated on this date 90 years ago--the same warnings about the threat to peace that he made since his election to the papacy in September 1914.

But, as can be seen in the quote above, Benedict was as prescient about the war’s aftermath as he had been about the scale of the carnage in the recently concluded conflict. Adolf Hitler had not yet emerged as a political force in Weimar Germany, but already the pontiff sensed the potential for a political and spiritual bacillus (“the germs of former enmities”) spread by the vengeful Treaty of Versailles.

The outbreak of war had broken the heart of his immediate predecessor, Pius X. Benedict took up the burden of putative peacemaker with a stouter heart. He was used to being underestimated, ignored and even ridiculed. One look at the image accompanying this post clues you in as to why.

He’s almost receding into the background of the photo, isn’t he? Indeed, his small, bird-like appearance gave rise to his nickname in archdiocese of Bologna, il piccoletto—i.e., “The little one”--and he would need patience as the two sides in the war ignored his appeals to end what he called the “degrading slaughter.”

Benedict’s call for a Christmas truce in 1914 was met with resounding silence. The following year, the Italian government not only ignored his plea for a negotiated peace, but was so angered by his strict neutrality that, in the Treaty of London that sealed its entry into the war on the side of the Allies, all parties to the pact secretly agreed to turn a deaf ear to his peace moves toward the Central Powers.

Woodrow Wilson’s Fourteen Points has been hailed by admirers as a lost basis for a lasting peace. But in August 1917, before Wilson had formalized his famous diplomatic talking points, Benedict had already anticipated him with a “peace note” that called for freedom of the seas and taking into account the aspirations of nationalities.

The papacy of Benedict also began a period when the Vatican sought to end its isolation since the 19th-century unification movements in Italy and Germany. An accomplished diplomat, he believed in dealing with the world as it was. Critics make a serious mistake in concluding that the concordats between the Vatican and Mussolini’s Italy and Hitler’s Germany hint at sympathy between the popes and Europe’s rising Fascist powers. That error can be best understood when it’s remembered that the Vatican had, in the 1930s, also attempted a treaty with the Soviet Union.

Despite the Vatican’s request to participate in the Versailles peace talks, the Allies refused to extend an invitation to Benedict to attend. Perhaps it was just as well: it’s doubtful whether the pontiff who had decried “the suicide of Europe” could have stomached it as the powers that be settled on another death pact.