John Maynard Keynes's Life, 1918-1936

From Brad DeLong: Review of Robert Skidelsky (2000), "John Maynard Keynes: Fighting for Britain":

Time passed. The death toll from WWI mounted toward ten million, Keynes became angrier and angrier at this civilization-breaking catastrophe, and angrier and angrier at the politicians who could see no way forward other than mixing more blood with the mud of Paaschendaele.

At the Versailles peace conference the new democratic German government was treated as a foe rather than a potential ally. The object became to extract as much in plunder and reparations from Germany as possible. Jan Christian Smuts wrote about how he and Keynes sat up night after night and:

rail[ed] against the world and the coming flood. And I tell him that this is the time for Grigua’s prayer (the Lord to come himself and not to send his Son, as this is not a time for children). And then we laugh, and behind the laughter is [Herbert] Hoover’s horrible picture of thirty million people who must die unless there is some great intervention. But then again we think that things are never really as bad as that; and something will turn up, and the worst will never be. And somehow all these phases of feeling are true and right in some sense… (HB, page 373).

So Keynes exploded with a book called The Economic Consequences of the Peace. It condemned Versailles. It prophesied doom if the treaty were carried out:

If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for 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... the civilization and progress of our generation… (HB, page 391).

Before The Economic Consequences of the Peace Keynes was an academic with some government experience and many literary friends. Afterwards he was a celebrity. He became:

the monetary reformer, the adviser of governments, the City magnate, the feared journalist whose pronouncements caused bankers and currencies to tremble... conferences jostled with holidays, intimacy merged into patronage. In 1925 the world-famous economist would marry a world-famous ballerina in a blaze of publicity..." (HB, page 400). He had written "like an angel with the knowledge of an expert," and had proved to be the master not just of the economics but of the words needed to make the economics persuasive.

In Skidelsky’s view, The Economic Consequences of the Peace is the key to understanding Keynes. It "marked a radical shift in Keynes’s thought." Before, he had held to "the nineteenth-century assumption of ‘automatic’ economic progress sustained by liberal institutions." After the experiences that had generated The Economic Consequences of the Peace, Keynes looked forward to a future "in which prosperity would have to be strenuously won in the teeth of the adverse circumstances which the war had created."

How did Keynes use his new-found prominence? After World War I Keynes used what power he had to--don't laugh--try to rescue civilization from chaos.

Yet chaos came.

The 1920s saw Keynes engaged in a doomed struggle against forces that wanted to block the rebuilding of international economic policy on sound foundations, against political insanity, and against the approaching Great Depression. Keynes spent more than a decade arguing against central bankers who "think it more important to raise the dollar exchange a few points than to encourage flagging trade." He tried to prevent Britain's return to the gold standard in 1925 at an overvalued exchange rate, for by overvaluing the exchange rate Britain's Treasury Minister, Winston Churchill, was willing "the deliberate intensification of unemployment."

However, Keynes was unable to persuade British governments that economic policy should be decided upon by rational thought rather than by obedience to old poorly-understood verities. He failed to achieve any material easing of the terms of the Versailles treaty. He failed to prevent deflation and high unemployment in Britain. And he failed to convince people that the Great Depression was a man-made catastrophe that could be cured relatively easily. His pen--though strong--was not strong enough.

Thus the 1930s saw a retreat and then a return, as Keynes concentrated his attention on writing a book which he thought "will largely revolutionize--not, I suppose, at once but in the course of the next ten years--the way the world thinks about economic problems." Keynes believed that his new theory would, when "duly assimilated… mixed with politics and feelings and passions," produce a "great change" (ES 520-521). He was right. The General Theory of Employment, Interest and Money changed the world. And it is at this point in Keynes’s life, with the General Theory published but not yet dominating economic thought, that this third volume of Skidelsky's biography begins…