My Conversation with Adam Tooze

Tinges of Covid-19, doses on financial crises, but mostly about economic history.  Here is the audio and transcript.  Here is the summary:

Adam joined Tyler to discuss the historically unusual decision to have a high-cost lockdown during a pandemic, why he believes in a swoosh-shaped recovery, portents of financial crises in China and the West, which emerging economies are currently most at risk, what Keynes got wrong about the Treaty of Versailles, why the Weimar Republic failed, whether Hitler was a Keynesian, the political and economic prospects of various EU members, his trick to writing a lot, how Twitter encourages him to read more, what he taught executives at BP, his advice for visiting Germany, and more.

Here is one excerpt:


Tooze’s discussion of his own career and interests, toward the end, is hard to excerpt but for me the highlight of the conversation.  He also provided the best defense of Twitter I have heard.

Definitely recommended.


I've commented before that Keynes derangement syndrome had its origins in the Economic Consequences of the Peace. Tooze has a reasonable explanation for it. My view is that Keynes, by characterizing the architects of the armistice as dolts, is like his successor, Krugman, who likewise characterized those who criticized his prescription for the great recession as dolts. Nobody likes to be called a dolt, even if it's accurate; and, alas, Keynes and Krugman were accurate. What's disheartening is that dolts are given huge platforms to spread their doltisms.

I think the question is then would it have made sense for Keynes to have played the loyal party man. Wrote a book praising the powers but then tried to shape policy from a position of being in their good graces?

I think the world accepted Keynes and Krugman's POV but just didn't want to give him the grace of admitting it. By 1930 was anyone seriously talking about reparations as if they were a great idea, totally justified, and by-God someone make Germany pay! Or were they unwilling to formally repudiate them but in their hearts would have rather the world followed Keynes's advice?

Keynes is the archtype of rationalized repudiation of Krugman's inherent econonmic consequences, with Tooze being doltishly incorrect about the merits of mixed economies and anti-inflation hawkism.

My two cents is the underlying issue with our economy from 2001-2008 was an energy crisis which resulted in malinvestment. In 2009 fracking was proven economical so that was the obvious engine to pull us out of the Great Recession. Unfortunately the Texas economy and fracking will not be able to pull us out of this recession. So in 2016 Texas grew at an anemic .3% GDP growth which made the overall GDP growth superficially low. So 2016 featured a strong national economy and weak Texas and we had sub 2% GDP growth.

We also know the limits of Keynesianism because putting welfare checks into the hands of able bodied adults without babies keeps them out of the labor force as seen 2011 through Q1 2014.

To a man with a hammer, every problem is a nail...what a Toozy!

Bonus trivia: News flash: "UK epidemiologist Neil Ferguson resigns as a government adviser after admitting he broke coronavirus lockdown to meet his married lover... Ferguson, who advocated for the country's lockdown, contracted and recovered from COVID-19 in March and is speculated to have been "patient zero" in a string of infections at Downing Street that included Prime Minister Boris Johnson." - reminds me of a short story by John Updike? where the protagonist is a sort of Pied Piper lad that ends up impregnating all the girls in town then skips town...

Reminds me of the comment about a small southern community with a stable population that every time a new baby is born a young man leaves town.

What exactly is 'malinvestment'? My contention is this concept makes no sense and it is almost impossible to think of a real example of it.

HINT: If your answer is something like "Joe borrows $50,000 to open a pizza shop, he buys the oven, tables, chairs and boxes and it goes out of business after a month and the oven gets sold as scrap for $5000 and Joe goes bankrupt for the balance"....that's a bad investment but not a malinvestment as described by Austrian minded folk here.

If Joe's one guy and it didn't work out, that was a bad investment; if there are 10,000 Joes and they all trend the same way, regardless of skills, that's malinvestment?

When I hear an economist claim malinvestment I assume it is someone making an investment that the economist does not favor.

But that's just a failure to predict the future. It opens up a world of new possibilities. Empty storefronts might mean pop up sushi places and Korean taco outfits can get started on the cheap. Cheap scrap metal from the pizza ovens offer opportunities to new investors. It happened in the 90's when there was a huge boom in telecommunications and fiber optic cable was being laid everywhere. After massive busts, plenty of companies were out of business but super cheap bandwidth let new opportunities arise. There was a time long ago when you had a phone bill and you were charged by the minute!

The malinvestment concept, as I've heard people try to describe it, sounds like cheap interest rates cause people not just to make bad investments but investments that are, like toxic. They not only wipe out the investor but hold back the economy into the future.

An example that may make some sense is the ruined reactor at Chernobyl. Not only is it not making any power that can be used, it can't even ignored and thrown away. Each year it is actually a type of negative to GDP since effort must be expended to keep it monitored and maintained. Sure I could imagine low interest rates causing some type of bad investment in something like that, but it could just as easily happen with 'normal' rates and bad predictions. And most investments are not toxic like that. Bankruptcy is very efficient at taking real assets and reassigning them to people that can make better use of them.

Capital searches for yield. So with fiat currency economies if you stick money under your mattress that money becomes less valuable. So inflation contributes to malinvestment because people with money don’t want their money to be less valuable by sticking it under their mattress.

So the malinvestment of 2001-2008 was Big Oil and OPEC not using their huge profits to increase oil production, and instead those profits wreaked havoc in global capital markets. Now why did the energy industry dismiss fracking during that time? Lazy groupthink and self serving conventional wisdom which are negative attributes of oligopolies.

I notice a refusal to address simple questions here.

I have $1000. I expect inflation to be 10% this year so if I leave it under the mattress, I'll only have $900 in purchasing power a year from now.

Should I invest in the ill-fated pizza shop I described above? Errr no because then I'll have no purchasing power. Inflation may increase the pressure on me to invest in things I think will be successful, but it doesn't make the case for malinvestment.

I'm either rational or I'm not. If I'm not rational I could make bad investments because I have poor judgement regardless of inflation. If I'm rational I would rather lose $100 in purchasing power to inflation than make an investment that will cause me to lose all of my purchasing power.

The malinvestment from 2001-2008 was due to the most qualified investors passing on cheap credit because they understood our economy was dysfunctional due to an energy crisis. So the cheap credit ended up with the least qualified investors who chose to take out a $300k mortgage hoping to make $50k. The cheap credit ended up letting 18 year olds get a BA from a private university that the regional university in town offered for a fraction of the cost.

If there was cheap credit 2001-2008 but also an energy crises, which you defined as an increase in energy demand without an increase in supply, then wouldn't a rational investor take advantage of cheap credit to make investments in increasing the supply of energy OR in firms that decrease energy demand (for example replacing gas guzzling cars with Teslas)?

I see

Oil production worldwide going up 2001-2008. Where's the energy crises?

I also see a huge increase in coal production in the early 2000's

I also see energy intensity (energy cost / GDP) steadily going downward before, during and after that time period.

Where is the energy crises? Since when does an energy crises entail more production and lower prices? That sounds like simple supply increasing to increased demand to me.

2005–$56 to start year
2008–$100 to start year and $145 was the high.

Coal was already falling out of disfavor in the 2000s. Americans didn’t want to be poisoned with coal pollution while China was willing to poison its citizens with coal pollution. So the reason America has seen a resurgence in manufacturing is because of fracking for natural gas because natural gas is the superior fuel for industry and residential electricity.

Again this doesn't seem consistent with worldwide production and prices. All you're showing it seems is that energy prices move around. Why is that a crises?

Trump supporters don’t seem to understand what trend lines are. I will give you the benefit of the doubt and assume you know what a trend line is. So it’s all about trend lines, and if you don’t understand trend lines I can’t help you. The fact you interpreted a trend line plateau as an increase in production tells me I am probably wasting my time replying to you. So oil price in 2002 was $26. Natural gas price can go way up in a harsh winter so in June of 2002 ng was $3.26. In June of 2008 it was $12.69. So I already showed you how global oil production didn’t increase in supply and American natural gas production plateaued in the period 2001-2008. A kindergartner should be able to understand the trend lines on all of these widely available graphs but for some reason Trump supporters just can’t grasp trend lines on graphs.

So I already showed you how global oil production didn’t increase in supply and American natural gas production plateaued in the period 2001-2008.

In 2000 the graph I provided says worldwide oil production was around 60 million barrels per day. Today it is 80.6 million per wikipedia. How has oil production not increased? Why is this different from any other market where production and demand move around?

US trade deficit shifted production externally, mainly to China. Hence China had greater demand for oil.
Why was demand inelastic to price?

Truckers and shipping. They operate on short term debt. They suffer when diesel prices are high and short term rates are high, they do sudden stop. Truckers and shipping carry risk in imports.. Short term debt rates were up, almost 4$ and the curve was flat. Too risky for truckers to carry all that inventory.

The story is about value chain, economies of scale. Shifting production to Asia means about two more steps in the production chain, which is adaptive. The oil input to the chain to travels along, and appears to the trucker some two months later. That was too long. The trucker is second from the bottom on this chain, and very oil price dependent. He does not buy oil by the ship load, it is 50 gallons at a time at the current price.

Truckers, any place on the value chain, attempt to be independent of input and output, in the sens they want inventory to be sufficient so they need only worry about typical arrival rate.

In a constraint across oil, the trucker then gets dependent on production in Asia because he is buying oil for current operations and buying oil futures for current production back in Asia. The trucker has a dependency, a loop in the supply chain. This is what Hayek meant when he talked mal investment. Money is supposed to signal those dependencies with interest charges.

And, of course, a loan is still a loan. You have to pay it back or you destroy your credit and lose your assets. If a pizza shop is a bad investment, interest rates going from 5% to 0% doesn't mean anything to me. I still have to earn the money to pay it back. Even a negative interest rate wouldn't cause me to be interested. Even with negative interest I still have to make payments each month.

Yet the concept of malinvestment seems to hing on investors going bonkers for low interest rates but otherwise being sensible, rational fellows who don't get swept up in fads or groupthink (tulips, dot-coms, bonds backed by subprime mortgages, new music festivals, etc. all don't happen).

In 2001 when China entered the WTO everyone knew a commodity super cycle was coming. So every major commodity increased in supply and price on a global scale except oil!?! In America not only could we not increase oil production but we couldn’t find new natural gas production. So malinvestment is being in an energy crisis and NOT investing in increased energy production. So from 2001-2008 Fortune 500 CEOs passed on cheap credit because they understood we were in an energy crisis with no good way out. But capital searches for yield and it ended up in the hands of house flippers and student loans.

Btw, do you think it is some random coincidence that fracking was the engine that got us out of the Great Recession?? It wasn’t coincidence it was good investment up until this outbreak.

What exactly does this mean 'energy crises'? Does it mean lots of new people wanted energy hence the demand for oil, gas, and power in general was rising? Malinvestment is being in an 'energy crises' and not investing in energy? If demand for oil was rising but, for whatever reason, investment in energy doesn't happen wouldn't prices just increase faster resulting in either investment coming eventually or demand decreasing?

We invaded Iraq because everyone knew we were in an energy crisis.

Did we? Whose the 'everybody' you're talking about here?

America was discussing building LNG import terminals from 2001-2008!!! Bush Energy Department officials have stated at the time they understood we were in an energy crisis. Remember oil price was an issue in the 2000 election and then the recession and 9/11 delayed that crisis, but everyone with power clearly knew what was coming with China’s economy booming and oil demand increasing. Also much of the offshoring from 2001-2008 was because China signaled it was willing to poison its citizens with coal pollution and dam rivers displacing millions in order to have cheap electricity for manufacturing.

"America was discussing building LNG import terminals from 2001-2008!!!"

I remember a lot of cell phone stores opening. Were we also in a cell phone crises?

Do you not understand what an LNG import terminal is?

I do and I know a LNG terminal is huge and a cell phone store is tiny.

You're not addressing questions or explaining your ideas. You say 'energy crises' you seem to be describing an increase in demand for energy being meet by increased supply. Why is this different than cell phone stores?

No, an energy crisis is an increase in demand with no increase in supply and no good solution to either reduce demand or increase supply.

Wouldn't new LNG Terminals be a case of increasing supply?

Correct, they cost billions to build and require years of diplomacy and the natural gas is much more expensive! So LNG import terminals were a suboptimal solution for America but it was something that people in the energy industry were discussing.

Not sure why you say they are suboptimal. For home heating natural gas is a lot cleaner, cheaper and easier to handle than oil. But I'm not getting your story here. Where was the crises? Demand for natural gas increased, investors talked about adding more capacity to natural gas. Problem?

When Austrians talk about malinvestment, I believe they're not simply talking about bad business decisions, but more specifically bad investments which were enabled or encouraged by artificially low interest rates. In the Austrian view, increased availability of capital (and the lower interest rates that follow) are a signal that the public's basic needs are being met and that higher-order goods are now needed. (Higher order goods being those which require bigger capital investments). As I understand it, Austrians think that interest rates ought to reflect the true availability of investment capital instead of being manipulated artificially. See: time preferences and Austrian Business Cycle Theory.

The break between 'low' and 'higher order' goods seems pretty artificial. I could easily see a farmer investing in high end equipment for his farm. Is that lower level investment because he's producing a 'basic needs good' or higher one? Does that change if the farmer is growing medical pot?

What exactly is the 'mal' in the malinvestment? Have the investors been lead astray about 'basic needs' being meet and the low interest rates are causing them to build iphone factors when, say, they should be investing in a N95 mask factory?

Well suppose one investor does borrow to invest in N95 mask making. When a crises hits he will not only pay back his loan with interest but earn superior profits as prices for masks goes up while the iphone factories languish. Seems to me to be pretty simple, standard stuff.

The Great Depression is what really led to the authoritarian movements that created World War II. World War I reparations were payable and US isolationism was manageable during the Roaring Twenties, but the Great Depression made these reparations un-payable and US protectionism disastrous. The Great Depression and US protectionist actions really destabilized many countries and not just Germany and Japan. The US government buying up all the world's silver, for example, collapsed the monetary system in China and contributed to destabilizing the Nationalist government and the eventual success of the Communist Party.

As for the productivity gap between the US and Europe, I think that is explained by the statement later on in the interview: "So the fantasy is really that you could have a Midwest, you could have a Canada, you could have an Australia bolted onto Germany, and that that would augment and it would provide Germany with the kind of balance that the continental US has, which makes continental United States a largely self-sufficient economic entity." The US was richer and more productive precisely because it had this massive hinterland that had been denuded of its previous inhabitants, which the British Empire also had to a lesser extent, but Germany and Japan did not. This dream of "being like America" during the Great Depression is what propelled Germany and Japan to abandon their democracy/semi-democracy and instead pursue a path of imperial expansion into Eastern Europe/China.

I take a slightly different view. The Great Depression wasn't fun obviously but there's been depressions before that didn't result in dictators or world wars. Reparations were not a great idea but ultimately Germany never really paid much of them and by the time Hitler came to power Germany was beyond its hyperinflation and even depression.

I suspect media is what caused the rise of authoritarians. You had the beginning of moving mass media away from print (which requires people to sit and read...which they do at varying paces) and towards radio and moving images. This effectively allowed leaders to have rallies on a national scale. Not really a thing before that. The grand speech you remember Sauraman making in the 2nd Lord of the Rings movie would not have happened in the ancient world ever. Tyrants needed a system of people under them to maintain a large nation or empire. Radio/movies allowed people to feel they had an actual direct connection to the leader. Not the 'town hall' / 'one on one interview' style connection that came with TV but the "you're in the crowd cheering for the leader" connection. Authoritarians briefly had a monopoly on this new type of communication and used it.

Today it's not as simple. Even in a totally controlled society like North Korea TV still forces a different type of relationship, I suspect, between citizen and leader.

Reading a lot of primary sources has convinced me that Germany didn’t really feel defeated after WWI. (And it fought on foreign soil.) So combine that with reparations and, frankly, the humiliation of losing to their old enemies...

That's why it was necessary to demand Unconditional Surrender in WWII, and wise to have the RAF and USAAF flatten much of the German cities. The buggers had to learn that they really had been defeated - no more "stab in the back" nonsense.

You could argue that the Entente powers were wrong to accept an armistice in WW1, but they too had been impoverished by the war. They had conscript armies that wanted it all to end so that they could go home.

There were a lot of good reasons to flatten the German cities. A big one, though it only became clear over time, is that the Luftwaffe would destroy itself trying to prevent that flattening.

No the demand for unconditional surrender were from silly people who didn't understand the damage to the economy was more dangerous than the war. We should have stopped at Normandy beach and then sold tickets for using the beach. Over time we would have acquired herd immunity to Nazis.

I can’t tell if you are trolling...

Who would have bought those tickets? I’m asking seriously. Who could have afforded it?

The Great Depression is what really led to the authoritarian movements that created World War II.

It didn't. It was the third hammer blow which discredited the German political establishment. Elsewhere, the timing and circumstances don't work.

1. Parliamentary institutions went down in Italy, Spain, Portugal, Lithuania, and Yugoslavia during the period running from 1922 to 1929. Each country had it's own distinct political problems. None were suffering economic contractions worse than an ordinary business recession, if that. (The incremental wreck of parliamentary institutions in Poland also began during this run of years, though it wasn't complete until later).

2. Spain's political catastrophe during that era was a consequence of the country intramural cultural crevasse (although the economic problems didn't help).

3. The failure of parliamentary institutions in Greece, Bulgaria, and Roumania during the period running from 1935-38 also cannot be reliably attributed to economic problems, either. The economic contraction was comparatively mild in the Balkans and reached its nadir prior to the political crises in these places (in the case of Roumania, these events were separated by five years). Parliamentary institutions went under when these places were in a recovery cycle.

4. Hungary's truncated parliamentary order actually grew more democratic (though less liberal) during the Depression.

5. Finland came quite close to authoritarian rule during the period running from 1930 to 1933. Finland's distressed agrarian sector provided muscle for the Lapua movement, but, overall, the country's economic contraction during the period running from 1929 to 1932 wasn't any more violent than that in Britain (the least injured of the major economies). NB, the political antagonisms of that run of years were derived from those of the country's civil war in 1917-18.

6. You might have an argument in re Latvia and Estonia, but these places were hardly drivers of political conflict in Europe.

I'm surprised to see you:

a) decide that farmers in "flyover country" are the true source of America's wealth advantage (rather than the immigrants in cities, the capitalist economy, America's approach to entrepreneurialism, innovation and technology, etc.)

b) agree with Adolf Hitler's obsession with lebensraun as a means to a wealthy agrarian society that avoids industrialisation and urbanisation, and his rejection of international and specialisation in food as leaving countries vulnerable to the machinations of international conspiracy.

Both seem absolutely incorrect to me.

(Or possibly you just didn't really understand what you were endorsing).

Economy needs some nazi economics right now, with a large supply shock, stimulating demand will tend to be absorbed by a trade deficit and do nothing for domestic businesses.

This interview was exceptionally good.

What an excellent episode. Thank you Dr. Cowen!

Many historians are excellent writers. Economists who write for a general audience can be (Galbraith comes to mind), but academic economists are so enamored with jargon and four bit words that their writing is painful to read (because it's so bad). Every time I read jargon in links here I cringe. When Cowen repeats the jargon (his books aren't full of jargon), I cringe. Are economists so insecure they believe they have to use four bit words? When I came into my profession (law) Latin words and phrases filled the court opinions, law review articles, and briefs. They added nothing. Law schools in my time were committed to extinguishing the use of Latin words and phrases, and promoting the use of simple declarative sentences (think of Hemingway). Is there anything comparable in economics?

Robert Heilbroner was a terrific writer. The best I've encountered in the economics realm. I always regretted that he was a Marxist. But then, in the 1990s, he did something magnificent: He threw in the towel, writing, "Less than 75 years after it officially began, the contest between capitalism and socialism is over: capitalism has won... Capitalism organizes the material affairs of humankind more satisfactorily than socialism." What a guy. What a clear, accessible prose style.

Deirdre McColskey was once a marxian. There used to be a fairly steady stream of them being mugged by reality; now the flow seems in the other direction, as the numbers of classical liberals withers.

the hidden agenda of the economic consequences of the peace is an appeal, to the Brits but above all to the Americans, for large-scale debt concessions

Hidden? It is impossible to believe the book and come to any other conclusion. And Keynes sounds very believable.

In number theory, the Chinese remainder theorem states that if one knows the remainders of the Euclidean division of an integer n by several integers, then one can determine uniquely the remainder of the division of n by the product of these integers, under the condition that the divisors are pairwise coprime.
We are not pairwise coprime. In a three coloring at stability all the colors must be relative prime so no path across the beach ball leads to a re-coloring.

This virus is not coprime because it is a two step invasion process. Step one and step two share a common coloring rate. The remainder game goes on indefinitely until the T cells just kill everything.

Another awesome interview. Please take him up on his suggestion to do a CWT with Brad Setser!

The most important experience when visiting Germany is going into a Kneipe, a pub. See how the locals live, how they eat, how they drink, and even if one doesn't understand the words, how they talk. These differ regionally quite noticeably, so that as one moves around, one will want to imbibe in one every day. :-)

Another way to experience Germans and entertaining war experiences- more interesting than most bierstube conversations - is The Germans by Gordon A. Craig (may have been recommended on this site any years ago.)

Sorry, wrong book, (same title) Should be
Germans: The Biography of an Obsession, by George Bailey
This one is more entertaining but as educational.

No it's not... quite awful food, and German beer isn't that great either...

Great conversation with one of my favorite econ historians. The only quibble for me was the discussion >5% inflation. If this happens watch out for the mobs with pitchforks taking the streets.

The reparations were a constant daily reminder of the war guilt clause. Germany didn't think it was guilty of WWI. Entente needed war guilt clause to justify its propaganda that kept their people fighting for four years.

P.S. Occupation of the Ruhr was a disaster. Economically, politically, etc. Made people a lot less likely to stand up to Hitler (enforcing versailles didn't work!)

But that doesn’t mean Keynes was wrong, right? I
Keynes was a hopeless flat earther, and at the time few mathematicians would have noticed. The hedge funds out race that nut because hedges can guess N, the total number of agents and estimate the collapse event. Most of economic theory derived from Keynes simply results in unstable cycles. And these cycles are quite predictable as any review of the charts over the last forty years reveals.

We can never assume that people migrate in instantaneous time.

It believes in a multiplier, and the multiplier’s the be-all and end-all really of Keynesian economics because what it suggests is that small, intermittent, discretionary interventions by the state — relatively small — will generate outside reactions from the economy, which will enable the state to serve a very positive role in stabilizing the economy but doesn’t require the state to permanently intrude and take over the economy.
Nope, sorry. The real Keynesian multiplier is backward, it is the amount of deficient liquidity for the governments obligation from the past . Always about repairing past losses, not generating future gains.

Government is relatively independent of the private sector at any equilibrium that stabilizes to N, the number of agents. This came up in the blog on those three coloring problems.

Keynes assume N can go to infinity, it really goes to a fuzzy finite value. The Keynesians who thinks government is out of balance with the economy will always see shortages of government deliveries first, and fix those, as a cost (multiplier less than one).

They are hopeless, generally suffering a Wile E Coyote moment as their promises from the past are not fulfilled. We get Wash, rinse and repeat, otherwise known as kick the can..

If the multiplier is 3 then 1 dollar increase in government expenditures generates 2 dollars in private activity. Tooze's understanding of macroeconomics is similar to my 8th grade geography teacher.

I think so. Change in the total divided by change in government. Sometimes I catch my self using change in private divided by change on government. I foul that once in a while.

3 times 1 =3 ...?🤔🧐

I'll never be convinced that Twitter has been a net positive on society. It's the tool of cancel culture. As long it lives, we will never be free from the partisan puritan witch hunts that pollute current social discourse.

Yeah everything good about Twitter also applies to Wordpress, and everything that sets twitter apart is detrimental. Whenever someone tries to argue that the imposed brevity is a good thing, I strongly suspect that they’re really saying that they find snarky one liners from people they agree with more emotionally satisfying than long, involved, more substantial but more boring articles or blog posts.

Twitter is dominated by a combination of shut-ins, d-list media people trying to get noticed, and just generally people without much going on (this is a truism: the people who can spend the most time on Twitter are the people who spend the least time working, family, exercise etc.—anything you can’t do with a phone in your hand).

So it seems natural that the people who spend their days home alone tweeting are more than content to continue the lockdown. They have had the very least disruption.

Also, with no face to face interaction it’s a lot easier to get away with making hysterical claims or dismissing out of hand any policy critique as evidence that the critic has no soul and contempt for science. Most of this stuff would never be said in person.

This post is 78% serious.

"He also provided the best defense of Twitter I have heard"

Did it take more than 140 characters? QED

Frankly, if we could have inflation of 4 percent or 5 percent, in many ways, that would solve a lot of our problems because it would act as a tax on nominal assets. And it’s one of the ways, historically, in which we have dealt with the sort of debt burden that we’re running up right now.
To get that inflation we need a default scenario.

The second myth is that the Treaty of Versailles and, in particular that the reparations levied on Germany caused World War Two by raising Hitler and the National Socialists to power. The exact mythogenesis of this belief may well lie in the apparent plausible causal nexus of French revanchism, Treaty of Versailles clauses 231 (war guilt), 232 (the scale of reparations), the suddenness of the German military collapse of 1918 ( when domestic opinion had been fed stories of imminent victory), the complete exclusion of the Germans in the negotiations and the failure of the US Senate to ratify the treaty. It was given potent legitimacy by two wings of political thought. Firstly and contemporaneously, by the publication by John Maynard Keynes of “The Economic Consequences of the Peace” in 1919, wherein the author castigated what he saw as a “Carthaginian peace” which would denude Europe of any realistic chances of rebuilding, and secondly multiple quotes in Hitler's Mein Kampf, where he notes “ What a use could be made of the Treaty of Versailles. ... How each one of the points of that treaty could be branded in the minds and hearts of the German people until sixty million men and women find their souls aflame with a feeling of rage and shame” and, a subsequent speech he gave in the Reichstag in 1933. Clearly he was using the seed of an idea from the legitimate concerns of Keynes, which hinted at political and economic overreach by the Allies and made a mythology of German victimhood, of which the proximate cause was the Treaty of Versailles. Girard has noted the power of mimetic contagion, scapegoating and myth as a tool for making sense of founding events and the perceived arbitrariness of victim choice, and the Versailles myth, kick started by an intellectual heavyweight was taken up by populist opportunists and a later political chancer of “inordinate and unscrupulous ambition” purely for ulterior motives. Fuelled, as ever by the fourth estate seeking to apportion blame but less keen to check facts

The supposed facts about the reparations, still widely disseminated in popular culture, television, newspapers of record and speeches by businessmen such as George Soros, are that French intransigence and the scale of the reparations precipitated Nazism and Hitler. The rather more mundane facts are that reparations finally demanded were, in 1913 prices, £6.6 billion, payable over 36 years, as against Allied full military costs of £12 billion and civilian losses and damage to buildings estimated at $17 billion. In the event, Germany paid less than £1 billion over thirteen years, less than one third in cash. The reparations bonds, A, B and C tranches, of which only series A and B were ever thought likely to be repaid amounted to 1.75 years of German Gross Domestic Product (GDP) as opposed to the extant debt of France at 2.5 and the U.K at 1.6 times of GDP respectively. As Ferguson and others have argued, the failure of the reparations is that the Allies did not force them to be repaid, and that a subsequent series of disastrous fiscal decisions pushed Germany into hyperinflation. Throughout the three phases of the Weimar republic up until the worldwide great depression in 1929 German politics had been on a democratic road, but after the financial crash, the dark forces of nationalism, latent well before the Great War, began to popularise the Versailles myth, whose genesis had been in strife, want and trauma and gave it the impetus to apportion grievance and blame. The myth established itself mimetically, by repetition, slack scholarship, an unquestioning fourth estate and again a “belief-legend”. For much of the 1960s and beyond, where formative social scapegoating myths grew around an incompetent bungling senior officer class as responsible for the needless slaughter of the war, the Versailles treaty myth fitted seamlessly into an accepted Great War determinist narrative which stressed revenge and futility over more nuanced analysis of inevitability or right, as discussed by Ferguson, Christopher Clark and Hastings.

Harrison, M p 18
Soros G (2014) The world economy’s shifting challenges. ProjectSyndicate, 2 January. Available via
Tombs, R. (2015). The English and their history. UK. p 650
Harrison, M Ibid. p 18-26
Ferguson, N. (1998). The Pity of war. London: Allen Lane, The Penguin Press. p 419

You seem to have two arguments about the "reasonableness" of the reparations. One, the three bond tranches are only 1.75 times Germany's GDP. But that's not easy to pay. If it were actually enforced, it would have hurt for a long time.

Second seems to be the idea that since the war was Germany's fault and since it had cost the victors a lot, Germans should reimburse them. That puts A LOT on "it was all Germany's fault." One could with as much logic argue that Russia should pay because there would have been no war if it had allowed Austria-Hungary to punish Serbia for the assassination of its crown prince.

That was a really good discussion but Cowen was wrong when he said that there was a V shaped recovery after the 1918 Spanish flu. Agnus Maddison claims that in 1990 dollars:

1918 | 5659 | 7.83%
1919 | 5680 | 0.37%
1920 | 5552 | -2.25%
1921 | 5323 | -4.12%
1922 | 5540 | 4.07%
1923 | 6164 | 11.26%
1924 | 6233 | 1.11%
1925 | 6282 | 0.78%

So no growth for years.

Yes, if you have (1) war reconversion and (2) severely contractionary monetary policy and (3) a pandemic which kills 0.7% of your population, you will have an economic contraction.

Just pointing out that wasn't a "V recovery" from mid 1919 when the Spainsh flu had abated.

Really enjoyable conversation.

The ill effects of Versailles are vastly overstated.

On the other hand the ill effects of the treaty of St. Germain-en-Laye (which dismantled the Habsburg Empire) and Trianon (which dismantled Hungary) are vastly understated. Dismantling Austria-Hungary into a number of small states, all supposedly drawn along "ethnic" lines, but all of them containing significant ethnic minorities not happy to have new overlords was always going to be a recipe for disaster. The vacuum of power meant that both Germany and Russia would be unable to resist the temptation to try to dominate, especially since their were large numbers of ethnic Germans in every Central European state and large numbers of Slavs as well. The dismantling of the Ottoman Empire caused a similar disaster. The difference is that St Germain quickly blew up into a major conflagration that burned itself out and ended up creating ethnic mono states in a short but horrific orgy of violence. The treaties of Sevre and Lausanne created a cauldron of violence that has just been bubbling away for the past century but never reaches a tipping point.

Interesting interview, but honestly I'm a bit disappointed that only a few questions were asked from the thread where you could provide questions for the interviewee ...( ).
I mean what's the point in having a thread like that if you don't ask (almost) any questions by the users here?

Comments for this post are closed