It made Keynes the most famous economist in the world, and it was the basis of his massive influence on twentieth-century economics. Many of Keynes's harshest critics view it as his one good book. However, the case can be made that The Economic Consequences of the Peace is his worst book. On its centenary, it is proper to reassess the work and its influence.

Britain's War-Debt Problem

To truly understand The Economic Consequences of the Peace, it must be realized that the First World War devastated Britain financially. Britain was the world's financial superpower prior to 1914, but the war changed this. During the war, Britain assisted her European allies by making massive war loans. At the end of the war, France, Russia, Italy, Belgium, and Serbia were deeply indebted to Britain.

Given the scope of the Great War, however, Britain did not have the financial capacity to finance the Allied war effort by herself. Consequently, the British became totally dependent on the United States for financing. In effect, the British borrowed from the United States and re-lent the money to her riskier allies. According to Keynes, "Almost the whole of England's indebtedness to the United States was incurred, not on her own account, but to enable her to assist the rest of her Allies."

At the end of the war, the Allies were heavily indebted to Britain, while Britain was heavily indebted to the United Stated. As Keynes wrote, "the war ended with everyone owing everyone else immense sums of money. … The Allies owe a large sum to Great Britain; and Great Britain owes a large sum to the United States." In The Economic Consequences of the Peace, Keynes estimated the net debt position of the Allies using official Treasury figures.