The Economic Consequences of The Peace

The 20th century began in Sarajevo. The 21st century also began in Sarajevo. On a sunny summer day on June 28, 1914 a Serb nationalist fanatic, Gavrilo Princip, assassinated the Austro-Hungarian Crown Prince Archduke Franz Ferdinand and his wife Sophie Duchess of Hohenberg whilst on a state visit to the city. That singular event triggered World War 1.

They say history repeats itself, first, as tragedy, and then as farce. History repeated itself in Sarajevo, when, following the disintegration of the Soviet Empire, Bosnian Serb soldiers laid siege upon the city from 1992 to 1996—the longest siege in the history of modern warfare.

It led to the death of more than 11,000 people. NATO had to intervene in the Balkans. The doctrine of “humanitarian intervention” and what late UN Secretary-General Kofi Annan termed “the responsibility to protect (R2P) gained currency as part of the new lexicon of international law.

Today, metropolitan Sarajevo with a population of 555, 210 is the capital of the new Republic of Bosnia and Herzegovina. For more than 300 years the Balkans had been the playing field of empires – Russian, Ottoman, Prussian and Austro-Hungarian. For understandable reasons, the highly aggrieved Serbs became an extremely nationalistic and fanatical people.

The year 2019 marks 100 years since the Versailles Settlement that ended World War 1. The leader of the Russian Bolshevik communists, V. I. Lenin, had described it as “an imperialist war”.

The world up till then had been a world of competing empires. Britain had been the dominant gladiator of the nineteenth century. Britannia ruled the waves, the land and the air. Schoolchildren were taught that the sun would never set on the British Empire. However, by the beginning of the twentieth century, the British Empire was in decline.

Germany, having been united by Bismarck, had become a major challenger on the continent. Across the Atlantic, the young American republic was overtaking Britain as an industrial-technological and military power.

For virtually a century, a kind of equilibrium had been preserved in the international system.

The young Harvard political scientist, Henry Alfred Kissinger, had prepared a brilliant dissertation on the balance of power system that had preserved international order from the Congress of Vienna ending the Napoleonic wars in 1815 up to 1914, when World War 1 began. It was later published with the title: A World Restored: Metternich, Castlereagh and the Problems of Peace, 1812-1822(1957).

In that classic study Kissinger credits Austrian diplomat Klemens von Metternich for his single-minded effort in crafting the foundations of international order following the Napoleonic wars.

In 1914, that world ended with the outbreak of a savage war in which the world powers were pitched against one another; the Allied powers Britain, France, Italy, Russia and the United States on the one side, and the Axis powers Germany, Austria-Hungary and the Ottoman Empire, on the other.

It was an unprecedented catastrophe for Europe. More than 16 million people, both military and civilian, perished, not to talk of the war wounded. Several major cities were in ruins. The war weakened Russia so badly that the Romanovs monarchy collapsed, paving way for the Bolshevik Revolution. The Austro-Hungarian and Prussian monarchies collapsed. The Ottoman Empire also collapsed, giving way to a secular Turkish Republic under Mustapha Kemal Ataturk. Britain was weakened as an imperial power, as many of the colonial dependencies became more restive with demands for emancipation. The biggest winner of all was the United States, which emerged stronger and more influential.

The diplomatic conference agreed a post-war settlement took place in Versailles, the palatial edifice built by Louis XIV outside Paris. It involved 36 delegations working over six months from January to June 1919.

In June 1919, the Allied powers signed a treaty with their defeated foes in a highly controversial general armistice settlement. The infamous War Guilt Clause lumbered all the blame upon a defeated Germany. The latter was to be permanently disarmed and to pay hefty financial reparations in the sum of 132 billion German marks (about US$450 billion in today’s money) to the victorious Allies.  Its territorial boundaries were redrawn, with areas such as Alsace-Lorraine and Saar coalmines given to France and Eupen-Malmedy handed over to Belgium.

Germany was also to lose all her colonies, most of them in Northern Togo, South West Africa and Tanganyika. Japan was also granted all German possessions in the Pacific. The industrial heartland of the Rhineland was to be occupied by the Allied powers for 15 years, with guarantees that Germany will not attempt to remilitarise.

The League of Nations was also created to provide a framework for collective security for the post-war international order. Woodrow Wilson’s Fourteen Points enshrined the principles of self-determination for colonised peoples; pledging the United States to work with the international community to ensure freedom for all.

Several successor states also emerged: Austria, Hungary, Czechoslovakia, Finland, Poland, Estonia, Latvia, Lithuania, Ireland and Yugoslavia.

Before the ending of the negotiations, a young don freshly down from Cambridge, had resigned from the British delegation in disgust. John Maynard Keynes, barely 31, went ahead to write a celebrated book which catapulted him to world intellectual fame.

His work, The Economic Consequences of the Peace (1920) prophesied that the humiliation of Germany would merely sow the seeds of another devastating conflict in future.  Keynes strenuously argued for a more “generous peace”, not out of a sense of cowardly appeasement but to encourage amity and a stable recovery throughout Europe.  He saw Versailles as a “Carthaginian Peace” that was designed to crush the defeated Central Powers, particularly Germany.

John Maynard Keynes was born in Cambridge in the year 1883 to well-educated parents. His father had been Fellow and Bursar of Kings College. When he was a boy his grandmother wrote to him reminding him that since he was born in Cambridge, everybody would expect him to be very clever. And so he was. After Eton College he was admitted into Cambridge to study Mathematics.

He later switched to economics where he studied under Alfred Marshall and Arthur Pigou. He began a career as a Fellow of Kings College before moving to the Treasury in the years preceding the war.

During the war years he worked on monetary and currency issues. And his brilliance soon showed itself. He was able to achieve remarkable results in negotiating funding agreements with some continental powers while putting in place an effective framework for attracting rare currencies for the war effort.

We are told that he was congratulated by the Secretary to the Treasury for his singular efforts in brokering funding for the British government in those years.

Keynes showed uncommon originality by seeing through the folly of the Versailles settlement as the harbinger of another war. While leaders such as Marechal Foch and French President Georges Clemenceau wanted more punitive measures against Germany, Keynes advocated the contrary. Whilst it is true that the harshest aspects of the reparations were subsequently softened with the Dawes Plan (1924) and the Young Plan (1929), damage had already been done to the collective psyche of a defeated and traumatised people.

The ensuing German hyper-inflation, economic depression and trade wars ushered in the era of extremist ideologies such as fascism, Hitler and the Nazis. Wold War II was fought between 1939 and 1945. It was more ferocious and more devastating than the first.

Even before the war had ended, the Allied Powers met at Bretton Woods to fashion out the pillars of the post-war international economic order. John Maynard Keynes was a key actor in these events. The Bretton Woods international institutions that emerged in the second half of the twentieth century had his imprint all over them.  Although he did not have his way on several crucial points, the idea of a rules-based international order was very much his.

His even more famous book, The General Theory of Employment, Interest and Money (1936) established the Keynesian school of economics based on demand management as a tool for stabilising economies in times of crisis. It established his reputation as one of the greatest economists of all time.

Keynes belongs to a long-lost breed of economists who see the discipline as a vehicle for organising the Good Life devoid of dogma and extremism. He saw economics as a branch of the moral sciences that expands the possibility frontiers of welfare while protecting human liberties against the perennial threats of tyranny.

He was a patron of the arts with his wife, the beautiful Russian ballerina, Lydia Lopokova. Keynes made a fortune as an investor and was financially independent. He is my model of what a good economist should be.

For a Nigeria that is at war with itself, we need the spirit of Keynes to craft new economic ideas and policies to build a more prosperous future for our people.