And so it goes

I am reading Liaquat Ahamed's Lords of Finance and really liked these two paragraphs about Keynes on page 166.

The gold standard had only worked in the late nineteenth century because new mining discoveries had fortuitously kept pace with economic growth. There was no guarantee that this accident of history would continue. Moreover, while the original rationale for the gold standard -- the commitment that paper money could be converted into something unequivocally tangible -- might have been necessary to instill confidence at some point in history, this was no longer the case. Attitudes toward paper money had evolved and it was not necessary to allow the supply of precious metals to regulate the creation of credit in a sophisticated modern economy. Central banks were perfectly capable of managing their countries' monetary affairs rationally and responsibly, [Keynes] argued, without any need to shackle themselves to this "barbarous relic."

Though the Tract was a technical monograph, the Cambridge undergraduate in Keynes could not resist lacing the book with the playful sarcasms that had made The Economic Consequences such a success. He flippantly dedicated the book, "humbly and without permission, to the Governors and the Court of the Bank of England," knowing very well that the members of that august body would disagree with almost everything he had to say. He poked fun at the self-importance of those "conservative bankers" who "regard it as more consonant with their cloth, and also as economizing on thought, to shift public discussion of financial topics off the logical on to an alleged moral plane, which means a realm of thought where vested interests can be triumphant over the common good without further debate."

I never studied World War I much, so I was interest to read the Lords of Finance's discussion of World War I reparations, and the Treaty of Versaille, which many argue led to the rise of the Nazi party in Germany.

By the end of the war, the European allied powers - sixteen countries in all - owed the United States about $12 billion, of which a little under $5 billion was due from Britain and $4 billion from France. In its own turn, Britain was owed $11 billion by seventeen countries, $3 billion of it by France and $2.5 billion by Russia, a debt essentially uncollectible after the Bolshevik revolution.

At an early stage of the Paris Peace Conference, both the British and the French tried to link reparations to their war debts, indicating that they might be prepared to moderate their demands for reparations if the United States would forgive some of what they owed America. The United States reacted strongly, insisting that the two issues were separate.

Keynes and many economists found the reparations* excessive. British historian A.J.P. Taylor believed that the reparations weren't as over-the-top as Keynes viewed them, but that they were punitive enough to cause resentment in Germany while still not punitive enough to prevent Germany from rising to power again. According to Wikipedia,

In many ways, the Versailles reparations were a reply to the reparations placed upon France by Germany through the 1871 Treaty of Frankfurt, signed after the Franco-Prussian War. Note however that the amount of the reparations demanded in the treaty of Versailles were comparatively larger (5B Francs vs. 132B Reichsmark). Indemnities of the Treaty of Frankfurt were in turn calculated, on the basis of population, as the precise equivalent of the indemnities demanded by Napoleon after the defeat of Prussia.

(By the way, Daniel Radcliffe will start in a new version of All Quiet on the Western Front.)

DeLong asks for comments on his chapter on World War I titled "Chapter 15: The Knot of War, 1914-1920." 

Meanwhile, the overclass is demanding punitive reparations after the victory in its war on the lower class.

Reuters reports: 

In a statement after annual consultations with U.S. authorities, the IMF raised its U.S. growth forecasts slightly to 3.3 percent for 2010 and 2.9 percent for 2011, but said unemployment would remain above 9 percent for both years.

The lofty jobless rate, coupled with a large backlog of home foreclosures and high levels of negative home equity, posed risks of a "double dip" in the housing market, it said. But the IMF said it did not think a renewed recession was likely.

"The outlook has improved in tandem with recovery, but remaining household and financial balance sheet weaknesses -- along with elevated unemployment -- are likely to continue to restrain private spending," the Fund said.

Yglesias notes that at least the IMF is forcasting that the rest of the world will be growing at a nice pace.
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*From Wikipedia "Under the Hoover Moratorium of June 1931 issued by the American president Herbert Hoover, which was designed to deal with the world-wide financial crisis caused by the bankruptcy of the Creditanstalt in May 1931, Germany ceased paying reparations." Creditanstalt was the largest bank of Austria-Hungary and the Lehman Brothers of the Great Depression.