Personal Wealth, Reparations,
Probability and the Gold Standard
John Maynard Keynes - 1919 to 1926

Date Event
June 1919 Keynes seeks to have a wider influence on public opinion than a return to his pre-war life lecturing in Cambridge will allow him. He informs the University he will lecture once weekly on 'The Economic Aspects of the Peace Treaty'. He also requests an involvement in King's College's finances.
June 1919 Acting on the advice of friends, Keynes turns down £2,000 per annum (10 to 20 times his academic remuneration) for one day's work per week acting as Chairman of a foreign bank. His friends believe such an appointment might jeopardize other City appointments. Keynes also has concerns about whether he would truly be in control or merely a figurehead.
25 June 1919 "On Monday I actually began writing a book about the economic condition of Europe, but may not persevere with it."
14 August 1919 Keynes opens a trading account to begin speculating in the currency markets on his own behalf. He trades on high margin, initially making large profits.
August, September 1919 Keynes writes The Economic Consequences of Peace, castigating the allies for the punitive reparations they had imposed on Germany at the end of the war.

In one passage of the book he writes chillingly of what might be unleashed in Europe:

"If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not be limp. Nothing can then delay for very long that final Civil War between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victorious the civilization and progress of our generation."

(The rise of Adolf Hitler in an economically desperate Germany is held by many observers to justify Keynes's condemnation of the punitive actions taken by the allies against Germany following World War One.)
September 1919 Keynes accepts an invitation to join the Board of Directors of the National Mutual Life Insurance Company. (He will become chairman in 1921.)
December 1919 Keynes's The Economic Consequences of Peace is published in Britain and in January it will be published in America. The left welcomes the book. The centre and right are hostile - they believe it is right that German criminality should be punished. With time, this view will change to one of: 'I suppose this fellow is right; I suppose we have made a fearful hash of things.'

The book brings fame to Keynes but also turns him into a figure the establishment will be wary of for a considerable period of time.
May 1920 Keynes loses disastrously in his currency speculating. His brokers - treating Keynes more favourably than the norm - request £7,000 to keep the account open. Keynes is given £5,000 by a financier and obtains £1,500 in advance for future sales of The Economic Consequences of Peace.
July 1920 Keynes is back in the currency markets, speculating again - this time successfully. He wants to be independently wealthy - his authorship of The Economic Consequences of Peace - seen as an anti-establishment work - has ruined his chances of obtaining a position on the board of any of the great British banks.
November 1920 Keynes is appointed Second Bursar at King's College with a stipend of £100 per year. As a Supernumerary Fellow, his academic activities are now unpaid.
1921 It is a busy year - and in fact it will be a busy decade - as Keynes juggles a multiplicity of jobs and responsibilities.

Friday to Tuesday each week Keynes is at King's College, tutoring pupils, lecturing and presiding over his Monday evening club.

His bursarial duties grow and he takes increasing responsibility for the College's investment policy.

He writes to the Cambridge Review, supporting the cause of women, and continues as Editor of the Economic Journal.

With a view to increasing his personal wealth, Keynes forms or joins a number of investment syndicates while continuing to speculate on his own behalf.

In London, he becomes a financial consultant and follows the markets daily.

He decides he will write a new book on the German reparations problem and has frequent correspondence with people connected with this issue.

Keynes is also writing frequently for newspapers, particularly the Manchester Guardian. He sells his articles overseas and earns a significant income from journalism.

He is a member of the Liberal Committee on Industrial Policy.

Meanwhile, he continues to be a main player with his Bloomsbury friends in London where the concerns revolve around the finer things in life - the arts, good conversation, gossip about friends, literature and parties.
Easter 1921 On vacation in Algeria and Tunisia, Keynes returns to his earlier dissertation on probability, preparing it for publication with the title Treatise on Probability.

In North Africa, he and a friend have their shoes polished by a street-boy. Keynes believes he knows how much the boy should be paid and refuses to pay more. Natives throw stones at Keynes as he makes his way from the scene. Keynes comments, "I will not be a party to debasing the currency."

Later in 1921 Treatise on Probability is published. It is Keynes's first and last major work in Mathematics, exploring the foundations of knowledge.

Keynes argues against the validity of probabilities based on the frequency of past occurrences where probabilities may be subject to interpretation by people. He argues that probability is a logical relation and so it is objective. A statement involving probability relations has a truth-value independent of people's opinions. He says:

"Perception of probability, weight, and risk are all highly dependent on judgement," and "the basis of our degrees of belief is part of our human outfit."
May 1921 Keynes loves the Ballet and he begins to fall under the romantic spell of the well-known Russian ballerina, Lydia Lopokova. Lydia is separated from her husband, who lives in America. Keynes persuades Lydia to move to a flat closer to his Bloomsbury friends and begins to advise her financially.
January 1922 A Revision of the Treaty, Keynes's second work on German reparations is published. The book documents the course of events since his previous work and argues again for a reduction in payments demanded from Germany.
1922 Keynes publishes his views - and those of many other distinguished authors - on Europe's economies in twelve Manchester Guardian supplements. These run to 810 large three-column pages. Keynes argues for currency devaluation in all but a few European countries and a new Gold Standard.
1923 Keynes begins contributing monthly articles - mainly on reparations - to the Nation, the Liberal weekly. He also writes regular 'Notes on Finance and Investment' for the Nation.
7 July 1923 The Bank of England, amid falling prices and rising unemployment, increases the base rate from three to four percent in preparation for Sterling's return to its pre-war gold parity.
14 July 1923 Referring to the increased interest rate, a horrified Keynes writes in the Nation:

"The Bank of England acting under the influence of a narrow and obsolete doctrine has made a great mistake."
November 1923 Keynes publishes A Tract on Monetary Reform, calling for an end to the Gold Standard, which he refers to as "a barbarous relic". He states that devaluation is preferable to deflation. On the question of whether it is preferable to manage a currency to achieve a stable external value or stable internal prices, Keynes concludes that stable internal prices are preferrable.
12 April 1924 British unemployment has reached one million. Lloyd George writes to the Nation demanding the Government should intervene to fund a large program of public works to create jobs.
1924 Keynes becomes First Bursar at King's College, taking control of the College's finances.
24 May 1924 Keynes's Does Unemployment Need a Drastic Remedy? is published in the Nation. He proposes Government capital spending of £100 million per annum to stimulate the economy, specifically spending on housing, roads and electrical power distribution. He further proposes National Savings should be spent on works in Britain rather than invested overseas.
Second Half 1924 Sterling is appreciating on the currency markets. Speculators are buying Sterling anticipating it will rise to its pre-war value when it rejoins the Gold Standard.
November 1924 Keynes gives the Sydney Ball Foundation Lecture at Cambridge. The title he chooses for his lecture is The End of Laissez-Faire and he says:

"I believe that in many cases the ideal size for the unit of control and organisation lies somewhere between the individual and the modern State. I suggest, therefore, that progress lies in the growth and the recognition of semi-autonomous bodies within the State-bodies whose criterion of action within their own field is solely the public good as they understand it, and from whose deliberations motives of private advantage are excluded..."

"One of the most interesting and unnoticed developments of recent decades has been the tendency of big enterprise to socialise itself. A point arrives in the growth of a big institution... at which the owners of the capital, i.e. its shareholders, are almost entirely dissociated from the management, with the result that the direct personal interest of the latter in the making of great profit becomes quite secondary. When this stage is reached, the general stability and reputation of the institution are the more considered by the management than the maximum of profit for the shareholders."

"We must aim at separating those services which are technically social from those which are technically individual... The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all."

"For my part I think that capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organisation which shall be as efficient as possible without offending our notions of a satisfactory way of life."
December 1924 By virtue of astute speculation in the financial markets, Keynes's assets have grown from nil (virtual bankruptcy) in May 1920 to £57,797. He has achieved his objective of becoming a wealthy man.
April 1925 Keynes, almost on his own, continues to argue against the Gold Standard. He writes in the Nation of his concerns about the over-valuation of Sterling.
29 April 1925 Winston Churchill, acting on the advice of his economic advisers, returns Sterling to the Gold Standard. Keynes continues to protest that Sterling is overvalued. (Churchill would later admit that rejoining the Gold Standard at the prewar level was one of the greatest mistakes he ever made.)
4 August 1925 Lydia Lopokova becomes Keynes's wife and the married couple travel to Russia to meet Lydia's family.
1925 - 1926 British coal exports become uncompetitive because of Sterling's high value. Mine owners decide coal miner's wages should be cut.

Stanley Baldwin's Conservative government intervenes and provides a nine-month subsidy to maintain the miners' wages.
February 1926 Keynes calls for a working agreement between the Liberal and Labour Parties in order to rid the country of the Conservative Government.
May 1926 A general strike in support of the miners causes widespread disruption. The aftermath of the strike is highly damaging and Britain's industrial development between 1925 and 1929 lags most of its competitors.

Next: Keynes 1927 to 1939 - Treatise on Money and the General Theory of Employment, Interest and Money


R.F. Harrod, The Life of John Maynard Keynes, 1951

J. Maynard Keynes, The End of Laissez-Faire, 1926

Against The Gods, Peter L. Bernstein, 1996.

John Maynard Keynes, J. J. O'Connor and E. F. Robertson, October 2003