The Keynesian Case for Pardoning Trump
What Keynes and the reparations fight at the end of World War I have to tell us about American politics today.
I’ve been reading The Price of Peace, Zachary Carter’s intellectual biography of John Maynard Keynes, and nearly everything about it is applicable to the current age.
Today I want to talk about one section in particular—the fight over reparations following World War I—and draw a line from it to the criminal prosecutions of Donald Trump.
I can tell you right now: You’re not going to like it.
Also: It’s going to be a journey.
So let’s get to it.
The Price of Peace is, in many ways, an economic history of the twentieth-century wars. The outbreak of the First World War broke the global financial system and after the possibility of a quick conclusion receded, the conflict became an economic siege. This stalemate was broken by private American banks lending freely to the British government, followed, eventually, by America’s entry to the war itself.
World War I ended not with an unconditional surrender—as World War II would—but with an armistice, followed by withdrawal of German forces from the Western front, followed after an interval by a long series of negotiations. (At the time of the withdrawal, Allied troops had not even crossed into Germany.)
When the victorious leaders of Britain, France, and the United States met to figure out what their terms for the peace would be, the principal point of contention was reparations. The short version of which is this:
Germany had slit Europe’s throat. The Kaiser’s foolishness and aggression had destroyed the economic and imperial orders of the civilized world and had culled an entire generation of young men. The damage that resulted from Germany’s choices was incalculable. The French and British tried to count it anyway and came up with the sum of $120 billion, which they believed would compensate them for what had been lost.
Keynes was at the negotiations in Versailles as part of the British delegation and by his reckoning, the most Germany could realistically be expected to pay the Allies was $2 billion. This gulf—between the $120 billion Germany owed as a consequence of its actions and the $2 billion it could realistically pay—created the fissure that would lead to the next war.1
You can understand why the British and French wanted $120 billion. The war was (mostly) Germany’s fault. Germany had lost. And in addition to the loss of life and destruction of property, the Allies had incurred huge debts to private American banks.
How were they supposed to repay these debts to American bankers if Germany didn’t give them the money to rebuild their economies?
Imagine telling the people of France and Britain that the Germans would be let out of nearly their entire debt, but that they would have to pay their American creditors in full.
Not a tenable position.
At the same time, you can understand the position Keynes argued so strenuously: In a time of crisis, debts are immaterial.
What Keynes told anyone who would listen is that regardless of what the Germans owed, they could not pay more than $2 billion. To require them to pay more would break the new German government, provide fertilizer for demagogues, and seed the ground for another European conflagration.
Keynes’s position was that if the Allies didn’t essentially forgive Germany’s debts, then they would find themselves in another existential conflict with the Germans at some point in the near future.
The Americans at Versailles agreed with Keynes’s predictions of a future war and thought the Allies should be lenient regarding German reparations.
But the Americans simultaneously took it as given that the Allies must repay their debts to U.S. banks—the rationale being that if there was no restitution, then lenders would not be willing to extend credit in the next crisis.2
Each of the parties had a perfectly reasonable view of wartime debt. Yet these reasonable-but-conflicting views created the conditions that all but assured another world war.
Had the Allies heeded Keynes—which would have meant England and France forgiving Germany’s reparations and American banks taking a massive writedown on Allied debts—then the Second World War might not have come to pass.3 And without that meat grinder, our entire timeline would be different.
Why was Keynes so smart? He understood an essential truth: Our financial system is merely a construct meant to help achieve a paramount goal: liberalism.4
Similarly, “debt” is also a construct. Notional debt is a useful tool for helping economic systems function—thus creating wealth and prosperity for as many people as possible.
But debt is not the point of economics.
And so, in extreme situations where debt might create dangerous illiberalism, it should be set aside.
Here is the bedrock lesson I want you to grok: Obligations and rules which are necessary in order for systems to function in ordinary times can become dangerous in times of crisis.
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2. The Rule of Law Is a Debt
What is the rule of law? Like debt, it’s a construct; a tool for fostering liberalism.
It’s a very powerful tool! And when a liberal society is confronted with an illiberal threat, the rule of law is one of the most valuable resources society has at its disposal.
Yet like the idea of “debt,” the rule of law itself is not the point. The point is preserving liberalism.
Is it possible that we could hit a moment of crisis in which the “debts” created by the rule of law—meaning the consequences incurred by people who have violated it—create dangers for liberalism itself? Where the wise course would be to forgive these debts in order to avoid another conflagration?
Here is something you probably don’t want to contemplate: What if the prosecutions of Donald Trump are analogous to reparations in the First World War?