Is the West Laissez-Faire About Sanctions?

Nicholas Mulder, The Economic Weapon: The Rise of Sanctions as a Tool of Modern War (Yale University Press, 2022)

Isabella Weber, How China Escaped Shock Therapy: The Market Reform Debate (Routledge, 2021)

In his 1919 work Economic Consequences of the Peace, John Maynard Keynes warns that “the menace of inflationism … is not merely a product of war, of which peace begins the cure. It is a continuing phenomenon of which the end is not yet in sight.” Keynes was commenting on the negotiations that would lead to the Versailles Treaty. Against a backdrop of hunger and despair, the victors of World War I condemned Germany to further sanctions. The treaty’s proponents believed that to prevent a future war, the German economy, a “vast fabric built upon iron, coal, and transport,” needed to be “destroyed.” But Keynes understood that with Germany in a state of perpetual crisis, the European economy would never recover. Tearing up Germany’s fabric would keep Europe on the path to another great war.

Western governments have responded to President Vladimir Putin’s brutal invasion of Ukraine with an unprecedented sanctions program. President Joe Biden has vowed to sap Russia’s “economic strength and weaken its military for years to come.” Erik Sand and Suzanne Freeman echo Keynes’ warning in this publication, arguing that “there is likely no way to effectively pressure Russia without some increase in the risk of escalation.” Putin may respond to increased economic pressure militarily, but so far he is weighing economic countermeasures. Reports that Russia will ban the export of key commodities for the remainder of the year have rocked global markets given the likely inflationary shock.

Keynes’ polemic, vindicated by World War II and frighteningly relevant today, is driven by two insights. First, wars do not only reshape political orders, but also the organization of economic orders. Second, the consequences of such economic disorganization tend to persist even after wars end, whether because of deliberate acts, such as the economic punishment imposed on Germany or now being meted out to Russia, or because of the entropic tendency of economic systems.

These insights are also present in two recent economic histories. Nicholas Mulder’s The Economic Weapon, published in January 2022, tells the story of the development of sanctions as a tool of modern warfare. Mulder chronicles the political, legal, and institutional innovations that enabled states to begin using blockades, embargoes, and export controls during peacetime to change the behavior of targeted states. Isabella Weber’s How China Escaped Shock Therapy, published in 2021, is a deeply researched account of the intellectual debates that informed China’s economic development, and particularly the decision not to pursue “big bang” economic liberalization, a move that distinguishes China from other socialist countries that undertook economic reforms in the second half of the 20th century.

For both scholars, Keynes is an important touchpoint. Their books help us to understand the “menace of inflationism” from two perspectives. Mulder draws on the speeches, letters, and reports of prominent sanctionists to make clear that the economic deprivation of civilian populations was an intended aim of peacetime sanctions. President Woodrow Wilson, a key proponent, boasted about the power of sanctions to affect ordinary people, describing the measures as “something more tremendous than war” because of their ability to bring “a nation to its senses just as suffocation removes from the individual all inclinations to fight.” In a recent Guardian op-ed, written in the lead-up to Russia’s invasion of Ukraine, Mulder cautions Western leaders about their overdependence on sanctions, citing a letter that Keynes sent to the League of Nations in 1924 in which he warned that sanctions “would always run the risk of not being efficacious and of not being easily distinguished from acts of war.”