The Price of Peace

Journalist Zachary D. Carter presents an intellectual biography of the British economist John Maynard Keynes (1883–1946) alongside a history of how Keynesian ideas, policies using government management of demand, money, and investment to stabilize employment, crossed the Atlantic and transformed American politics. Carter frames Keynes as a philosopher of war and peace who pursued political theory, economics, and ethics as a unified project. The book traces Keynesianism's evolution from a radical challenge to laissez-faire orthodoxy, the doctrine that markets work best with minimal government intervention, into the governing philosophy of the modern nation-state, then charts its fragmentation under pressure from conservative intellectuals and the rise of neoliberalism, a pro-market program of deregulation, austerity, and reduced public economic control. Carter argues that American leaders adapted Keynes's economic prescriptions to consolidate U.S. global power while largely discarding his anti-imperialist vision.

As a young Cambridge academic, Keynes joined the Apostles, an elite secret society devoted to philosophy and art, and befriended the writers and painters who formed the Bloomsbury set, a London circle of intellectuals including the novelist Virginia Woolf and the painter Duncan Grant. When war broke out in August 1914, Keynes rushed to London to manage a financial panic, devising a plan to issue paper currency domestically while continuing to pay foreign creditors in gold, which preserved London's status as the world's financial center. The crisis taught him that markets are governed by psychological impulses rather than rational self-interest. His success earned him a Treasury advisory role, where he managed inter-allied war finance while his pacifist Bloomsbury friends condemned his complicity.

At the Paris Peace Conference in 1919, Keynes served as the British Treasury's top delegate. He calculated that Germany could afford a maximum of two billion pounds in reparations, but the Allies demanded far more. Keynes proposed internationally guaranteed German bonds to fund European reconstruction, but President Woodrow Wilson rejected the plan, refusing to write down American war debts. Keynes resigned in June 1919 and wrote The Economic Consequences of the Peace, a devastating polemic warning that the treaty's punitive terms would fuel revolution and another war. The international bestseller established Keynes as a fearless public intellectual but destroyed his prospects for a return to government.

With his government career over and his earlier philosophical project undercut by the philosopher Ludwig Wittgenstein's Tractatus Logico-Philosophicus, Keynes reinvented himself as a journalist, stock speculator, and economic theorist. He married the Russian ballerina Lydia Lopokova and purchased the journal The Nation and Athenaeum as a platform for liberal ideas. In A Tract on Monetary Reform (1923), Keynes attacks the gold standard, a monetary system pegging currency values to gold, as a barrier to prosperity, famously observing that "in the long run, we are all dead" (146). When Winston Churchill, Britain's chancellor of the Exchequer, returned Britain to the gold standard in 1925 at an overvalued exchange rate, the result was wage cuts and labor unrest. In The End of Laissez-Faire (1926), Keynes argues that the state must assume responsibilities the private sector cannot fulfill. In Can Lloyd George Do It? (1929), written with economist Hubert Henderson, Keynes introduces the multiplier, the idea that each unit of government spending generates additional economic activity.

The Wall Street crash of October 1929 launched the Great Depression. Bank failures cascaded across Europe and the United States, and Nazi leader Adolf Hitler rose to power in Germany by exploiting mass unemployment and despair. The election of Franklin Delano Roosevelt as U.S. president in 1932 gave Keynesian ideas their first real political opportunity. Roosevelt closed every bank upon taking office, reopened them with a government guarantee, and took the country off the gold standard. Senate investigator Ferdinand Pecora's hearings exposed Wall Street corruption, generating public demand for the Glass-Steagall Banking Act, which separated commercial banking from securities trading. In an open letter to Roosevelt in The New York Times in December 1933, Keynes laid out the core of what would become The General Theory: The government must increase purchasing power through deficit-financed spending.

In Cambridge, Joan Robinson, Richard Kahn, Piero Sraffa, and James Meade formed the Cambridge Circus, a group of collaborators who helped Keynes develop The General Theory of Employment, Interest and Money (1936). The book argues that the economy can settle into an equilibrium of high unemployment because people hoard money rather than spend it, and financial markets amplify this tendency by reflecting speculative moods rather than true values. Keynes calls for a "somewhat comprehensive socialisation of investment" (294) and connects domestic prosperity to international peace, arguing that nations achieving full employment will have no economic reason to wage war.

Roosevelt's New Deal achieved extraordinary growth, but when he cut spending in 1937 to balance the budget, the economy plunged into recession. World War II vindicated Keynesian economics on a massive scale: Federal deficit spending eliminated unemployment and generated unprecedented growth. Keynes accepted an unpaid Treasury position and negotiated Lend-Lease terms, the U.S. wartime program supplying Britain and other allies. At the Bretton Woods conference in 1944, he proposed an International Clearing Union with a new currency called Bancor to regulate global trade, but chief American negotiator Harry Dexter White engineered a dollar-based system instead. En route, Keynes read Austrian economist Friedrich Hayek's The Road to Serfdom, praising its moral argument but criticizing its failure to distinguish acceptable regulation from totalitarianism. Keynes championed the Beveridge Plan, helping create Britain's welfare state, and established the Arts Council of Great Britain. He died on Easter Sunday, 1946.

After the war, a conservative backlash targeted Keynesian economists. Conservative writer William F. Buckley, Jr.'s God and Man at Yale portrayed Keynesian economics as part of a Communist conspiracy, while Harold Luhnow of the William Volker Fund financed a neoliberal academic infrastructure, funding Hayek's salary at the University of Chicago and economist Milton Friedman's work. MIT economist Paul Samuelson's textbook survived by creating a neoclassical synthesis harmonizing Keynesian policy with classical theory, but Robinson viewed this American reinterpretation as a betrayal of Keynes's insights about uncertainty and human psychology.

John Kenneth Galbraith became the most prominent American Keynesian intellectual. His The Affluent Society (1958) argues that the United States has entered an era of "private opulence and public squalor" (440), with advertising creating artificial wants while public infrastructure decays. Galbraith advised President John F. Kennedy but opposed Kennedy's massive tax cut for the wealthy as reactionary. After Kennedy's assassination, President Lyndon Johnson signed the tax cut and launched the Great Society, reducing the poverty rate substantially, but Vietnam War spending fueled inflation. Milton Friedman argued that a natural rate of unemployment existed below which governments could not push without triggering accelerating inflation. President Richard Nixon abandoned the Bretton Woods gold standard in 1971, and the 1973 oil shock produced simultaneous unemployment and inflation, discrediting the Keynesian consensus. President Jimmy Carter appointed Paul Volcker as Federal Reserve chairman; Volcker raised interest rates to nearly 18 percent to crush inflation. President Ronald Reagan stimulated demand through tax cuts for the wealthy and military spending, a strategy the author terms Reactionary Keynesianism.

President Bill Clinton completed the renunciation of Keynesian thinking within the Democratic Party. His economic team, led by former Goldman Sachs chairman Robert Rubin, prioritized deficit reduction, signed the North American Free Trade Agreement (NAFTA), repealed Glass-Steagall, and fought regulation of credit default swaps, derivatives that insure against bond or loan defaults. These moves transferred power from democratic government to financial markets. The collapse of Lehman Brothers in September 2008 triggered the worst crisis since the Depression. President-elect Barack Obama promised antiforeclosure measures but abandoned them after taking office; over 9 million families lost their homes, and the recovery exacerbated inequality.

Carter concludes that neoliberal austerity policies have energized far-right movements across Europe and the United States, echoing conditions Keynes warned about after World War I. Keynesianism's political fragility remains a puzzle, but Carter argues that activists pursuing a Green New Deal, a climate-focused program of large-scale public investment, channel the radical optimism that sustained Keynes through three world crises.