THE UNIVERSITIES OF OXFORD AND CAMBRIDGE TRAINED young men to serve the needs of an expansive imperial nation. They broadened admissions policy to include youths such as Neville Keynes – the provincial, non-Anglican son of a self-made businessman – whom they converted to their values by imposing Greek as a compulsory entrance requirement, and by providing a non-vocational curriculum based on classics. Both the entrance requirements and the curriculum were aimed at ensuring that neither university would be soiled by mercenary values. Thrusting businessmen would not pay for their sons to fritter away three years without promise of monetary profit. Still less would young men find that their undergraduate training disposed them towards life in business offices. Until the 1880s the academic cream of the undergraduates had become clergymen. Afterwards they entered government departments or the colonial service, enlisted as military officers, practised law or perhaps medicine. ‘It is really most distressing the way the civil service swallows nearly all the best Cambridge men,’ G. M. Trevelyan told Keynes around 1906.1

The Liberal legislation of 1870–1, which reformed entrance to both the civil service and the ancient universities, created a new governing order that was one of the glories of history. Compared with its forerunners, it was socially elastic. Its uppermost echelons were beguiling in their intelligence, and a tradition of adaptive self-renewal was instilled. The high officials in the ministries did not bend to populism; they stood beyond the swerves and crashes of public opinion; and they tempered the moody enthusiasms of voters and incoming ministers. There were neither political placelings in departments nor putsches of staff by politicians. Officials aspired to monastic clarity of thought. They honoured continuity, formality and objectivity. This system, it can be objected, discouraged initiative, venerated hierarchical authority and ossified departmental character; but until the late twentieth century it represented the acme of civilized organization.

Some commentators complain that this system produced administrators who were remote from the needs of industrial society, who disdained entrepreneurship, deprecated profit-chasing and, by valuing private avocations as well as productivity, brought amateurism to public life, and thus spread timidity, low productivity and economic failure. Such reproaches can be overdone. They ignore the extent that from 1915 onwards, in wartime and in peace, government departments recruited bankers, industrialists, merchants and tradesmen as privileged advisers and consultants. It undervalues the extent to which Whitehall – while trying to balance the counter-claims of trade unions and a globally dispersed empire – was receptive to the demands of the business community. Officials, if anything, had an inferiority complex where profit-making was concerned, and were at times too compliant with the imperatives that the business community brought them.

Lord Chalmers, Keynes’s wartime chief at the Treasury, used to say that every man ought to drive two horses abreast, one his work and the other some scholarly enthusiasm which would give relief from his duties. Chalmers chose his hobby early: he took up the study of Pali, and translated sacred texts of Buddhism. As a further pastime he read and re-read Virgil, Homer’s Odyssey, Dante’s Divina Commedia and Cervantes’s Don Quixote. Basil Blackett, who first recruited Keynes to the Treasury, was an expert translator of Byzantine Greek. Otto Niemeyer, a classical scholar from Balliol who won first place in the civil service examinations of 1906, remained a keen classicist throughout his Treasury career. Sir George Barstow, Niemeyer’s colleague, was a wit and versifier, and so polished an amateur of the arts as to be elected to the Society of Dilettanti. Frederick Leith-Ross for a time contributed a weekly article to Vogue as well as poems to the Pall Mall Gazette. One could feel pride in being governed by such men.

It was settled in the Keynes family that Maynard was to join this governing class. In the civil service entrance examinations of 1906, he came second out of 104 candidates, behind Niemeyer. The Foreign Office was unthinkable for Keynes, because it entailed overseas postings far from Saturdays with the Apostles, and from other precious King’s affinities: he plumped for the India Office as the government department with the next highest prestige. It had a peaceable reputation – the Permanent Secretary of the Treasury had recently described the India Office as ‘an office where everything goes right and there is little Parliamentary interference’ – as well as the shortest working-hours of any of the great ministries: 11 a.m. to 5 p.m. on weekdays; 11 a.m. to 1 p.m. on Saturday; with an hour for lunch, two months’ annual holiday, and remission from attendance on bank holidays and Derby Day. Keynes used these long hours of leisure to work at his Treatise on Probability, which was the first systematic English exploration of the logical foundations of probability since his father’s mentor John Venn had published Logic of Chance in 1866.2

On 16 October 1906 Keynes began as a junior clerk in the Military Department of the India Office at a salary of £200 a year. His first task was to arrange the shipment of ten Ayrshire bulls to Bombay. From the outset he dreaded stagnation in lifeless routine, and feared that he might become a bore holding his friends in listless conversation. Mary Berenson, wife and business manager of the art historian Bernard Berenson, with whom he had stayed at Villa I Tatti near Florence during the spring, visited the fledgling civil servant in the service flat, 125b St James’s Court, which he leased for an annual rent of £90. ‘I dined with Keynes last night, his first visitor in his bachelor quarters,’ she reported to her husband on 27 October, ‘a nice little flat, like College rooms, with a nice dinner, well served. He feels rather desperate at being labelled [as a government official] and is ready to do almost anything to escape from the impending monotony of doing the same thing every day at the same time for the next 40 years. I daresay he would get married – it is the psychological moment – if he weren’t too wrapped up in his men Friendships.’3

Virginia Woolf pictured the clerks of Edwardian Whitehall as they transcribed documents, drafted memoranda, docketed new files, wrote minutes on circulating files and sent defunct ones to the registry. ‘Papers accumulated, inscribed with the utterances of Kaisers, the statistics of rice-fields, the growling of hundreds of workpeople, plotting sedition in back streets, or gathering in the Calcutta bazaars, or mustering their forces in the uplands of Albania.’ All went for the scrutiny of ministers, who inscribed comments in the margins or initialled their agreement at the bottom. At first Keynes liked his work, especially after being moved to the Revenue, Statistics and Commerce Department. ‘There I sit in a charming room to myself, looking out over the park, writing a blue book on The Moral and Material Progress of India. A special feature of this year’s edition is to be an illustrated appendix on Sodomy … In the last census returns no less than 235,000 persons gave “catamite” as their trade, profession or occupation; I was surprised to see that quite a number were over 50 years of age.’ He proved adept at mastering and synthesizing the circulating files on which the India Office’s huge paper-bound bureaucracy depended. ‘Foreign Office commercial negotiations with Germany, quarrels with Russia in the Persian Gulf, the regulation of opium in Central India, the Chinese opium proposals – I have great files to read on all of these.’ He attended his first meeting of the Council of India, the official advisers to the Secretary of State: ‘half of those present showed manifest signs of senile decay, and the rest didn’t speak’.4

Keynes declined a resident clerkship, with higher pay, because he did not want to work longer hours, and valued his Saturday escapes to meet the Apostles during Cambridge term-time. ‘I’m thoroughly sick of this place and would like to resign,’ he wrote to Lytton Strachey after eleven months in the India Office. ‘Now the novelty has worn off, I am bored nine tenths of the time and rather unreasonably irritated the other tenth whenever I can’t have my own way. It’s maddening to have thirty people who can reduce you to impotence when you’re quite certain you are right.’ He deplored the tendency of ministries never to admit mistakes or injustices. The shirking of individual initiative or responsibility by officials, and their evasion of any course for which they might be personally blamed, ‘prevents any original or sporting proposal ever being made … the risk to India of free speech in the India Office is nil. But you may be “snubbed”.’⁵

In 1908 Keynes determined to resign from the India Office if he could get a fellowship at King’s. ‘He will be throwing up a certainty and taking risks,’ his father noted. ‘That fits in with his scheme of life but not with mine.’ On his twenty-fourth birthday (5 June 1908), after being offered a lectureship in economics by the University of Cambridge, he resigned from the civil service. His last working day in Whitehall was 20 July. ‘The peerless Maynard dined with me,’ Mary Berenson reported. ‘He is too happy at having shaken himself free of the India Office. He hopes to get a Fellowship at King’s for £100, another £100 for lecturing in Economics, and his family will give him still another £100. But he will never rise to £1000 a year and a KCB.’6

The twenty months that Keynes spent in the India Office instilled in him the mental habit of seeking administrative solutions to economic problems, and of treating policy-making as a matter of management tactics rather than of dogma. As a result, he was not, until his late forties, a theoretical innovator as an economist. Well into middle age he trusted the classical economics taught by his father’s Cambridge friend Alfred Marshall, who was his own sponsor in economics. He operated, until after Marshall’s death in 1924, as a pragmatist who relied on his mastery of detail and adaptive intuitions.

Keynes was elected to a prize fellowship at King’s on 16 March 1909. He returned to historic beauty, to old friends, to imposing dignity, to observances and amenities that he prized beyond measure. Soon he was allotted the rooms above the gatehouse leading from King’s Lane to Webb’s Court, where he stayed until his death. Arthur Benson began to meet him at college dinners in Cambridge: ‘so much nicer & simpler & more humorous & charming than he used to be when younger’. Keynes went again to dine at Magdalene in 1913. ‘A very intelligent creature’, Benson wrote after a long talk ‘about coercion – religious, parental, social. He took rather extravagant views of liberty, but no doubt believes that people are as reasonable as himself.’⁷

In 1913 Keynes was appointed a member of the Royal Commission investigating Indian Finance and Currency. He owed his nomination to his mentor Edwin Montagu, who was then Under-Secretary at the India Office. ‘He was one of those who suffer violent fluctuations of mood, quickly passing from reckless courage and self-assertion to abject panic and dejection – always dramatizing life and his part in it,’ Keynes wrote of Montagu. ‘At one moment he would be Emperor of the East, riding upon an elephant, clothed in rhetoric and glory, but at the next a beggar in the dust of the road, crying for alms but murmuring under his breath cynical and outrageous wit.’ The high-strung affinity between the two men was crucial to Keynes’s precocious influence.8

No one outside Cambridge knew the name of Keynes at this time. The Royal Commission provided his first experience of being a professional economist exercising his influence on public affairs. It added an accretion of new contacts to those he had already made through Eton and Cambridge. His fellow Commissioners influenced and remembered him. He learnt the mannerisms, responsibilities and benefits of being a private man exerting public influence. The Commission’s chairman was Austen Chamberlain, who had recently failed in his bid to become leader of the Conservative party and was to recur at intervals in Keynes’s life for the next quarter-century. The secretary of the Commission was Basil Blackett of the Treasury. Sir Robert Chalmers, the then Permanent Secretary of the Treasury, was another colleague. Keynes impressed these men by his close questioning of witnesses, and by his meticulous approach. He mastered a welter of detail about the institutions and intricacies of India’s financial and monetary system, the sub-continent’s seasonal flows and crop variations, and the multitude of influences on transactions between England and India.

One of the Commissioners was a leading Calcutta merchant and industrialist called Sir Ernest Cable, who had recently acquired the Lindridge estate, near Bishopsteignton in Devon. Lord Cable, as he was to become, together with Keynes, prepared a scheme for the formation of a state central bank in India which was printed as an appendix to the main report and aroused wider interest. Keynes spent a week staying with Cable at Lindridge, during 1913, finalizing their bank proposal. Their discussions gave a far-reaching prompt to Keynes’s thinking. Cable often complained that in India there was a huge discrepancy between savings and investment, and criticized the high rates of interest caused by people who did not lend their resources. He urged that the Indian public, instead of hoarding large amounts of sterile wealth, must be induced to fructify their stockpiles of gold and silver by investing in public works, railway-building and industrial enterprises. There can be small doubt that Keynes imbibed Lord Cable’s opinion for future use.9

In November 1913 Archduke Franz Ferdinand (heir-presumptive to the Austrian and Hungarian thrones) was peppered with shot by a careless French marquis while shooting as the Duke of Portland’s guest in Nottinghamshire. It would have been better for the world if he had been killed outright, on English soil, in an accident; for seven months later the assassin’s shots that killed him at Sarajevo set Europe stumbling into war. Austria’s belligerent ultimatum to Serbia on 23 July 1914 started a breakdown in London’s financial markets – the foreign exchanges, the discount market and the stock market. Thus began the most severe financial crisis, worse than those of 1866 or 2007–8, ever to hit the City of London. In this emergency Keynes, at the age of thirty-one, made a decisive intervention.¹⁰

The problem was that foreigners could not meet their liabilities in London. After Austria’s declaration of war on Serbia on Tuesday 28 July, the continental bourses shut; on Thursday 30 July a London stockbroking firm, which specialized in business with Germany, failed; and there was no doubt that other firms would be hammered because they could not get the sums due to them from Berlin or Paris for previous purchases. Therefore, on Friday 31 July, the London Stock Exchange closed in order to forestall further insolvencies: it did not reopen until 4 January 1915. Keynes regretted this closure, which he felt would have been avoidable if bankers had been less selfish and myopic in extending credit to stockbrokers. Newsreel photographers who went to capture pictures of gloom or panic outside the Stock Exchange and Bank of England were taunted by City workers brandishing their hats and sticks with defiant optimism, and were chased off. These images have been mistaken since as signs of jubilation in the City at the imminence of European war.

The devil take the hindmost was the spirit of the times. Apprehensive of insolvency, the joint-stock banks began cashing their notes for gold at the Bank of England, and on Friday 31 July began (in Keynes’s words) ‘the suicidal policy of making difficulties all over the country in paying out gold coin even to old customers who wanted £5 or £10 for petty cash, endeavouring to fob them off with Bank notes or silver’. This was folly, because the banks had gold, but insufficient £1 notes. ‘Nothing could have been so well calculated to inspire the public with distrust or even panic, and to arouse in them the ancient instinct of hoarding.’ Yet it was not the public running to the banks that caused the internal drain on gold, Keynes judged, but the joint-stock bankers’ run on the Bank of England, which took three days to cut the Bank’s gold reserve from £17.5 million to £11 million.11

The bankers devoted their weekend to cries of panic and despair. On Saturday 1 August a deputation of them called on Asquith and Lloyd George, the Prime Minister and Chancellor of the Exchequer, urging the suspension of the Bank Charter Act which obliged them to trade paper currency for gold (‘specie payments’). Their heads were in such a muddle that they could not distinguish between suspending specie payments and the more momentous outright suspension of the Bank Charter Act. Lloyd George was disposed to concur with the bankers, but the Treasury and Bank of England demurred. As one interim holding measure, a month’s moratorium on payments of bills of exchange was decreed.

This was the Saturday when war was declared between Russia and Germany. Money was owed in London from all over world. Foreign remittances to London had broken down. Few capitalists could export goods, move holdings of gold or renew loans. In Keynes’s words, ‘just as the Stock Exchange was deranged by the failure of foreign debtors to remit what they were owing, so also the banks and discount houses, which had indirectly lent short money abroad, found their calculations utterly confounded by their inability to get this money back when they wanted it’. He deplored the precipitous way that the joint-stock banks recalled loans that they had made to London’s bill brokers and discount houses for money owed by foreign buyers in London. The debts on these bills of exchange stood at £350 million. Once foreign debtors had defaulted, London’s acceptance and discount markets juddered to a halt.12

At King’s on Sunday 2 August Keynes received a letter from Basil Blackett of the Treasury. ‘I wanted to pick your brains for your country’s benefit and thought you might enjoy the process,’ wrote Blackett. ‘The Joint Stock Banks have made absolute fools of themselves and behaved very badly.’ He hinted that a meeting on Monday might be too late. Rather than entrain for London, on a bank-holiday Sunday when services were disrupted, Keynes persuaded his brother-in-law Vivian Hill to hurtle him to London in the side-car of his motorcycle. Bertrand Russell met him hurrying across the Great Court of Trinity. Asking what the hurry was, Russell was told that Keynes needed Hill’s motorcycle to reach London. ‘Why don’t you go by train?’ Russell asked. ‘Because there isn’t time,’ Keynes replied.¹³

Keynes was thus recruited to an advisory role in the first bailout by the British government of English bankers and London money-men. On Monday 3 August (with five European nations already at war on three frontiers, and the day on which English intervention became a certainty, but with London office-workers holidaying on day-trip excursions) he addressed a memorandum to Lloyd George which by its clarity and resolve changed the Chancellor’s mind. Keynes opposed the suspension of specie payments during the war except as a last resort. Gold convertibility, he believed, was essential to Britain’s ability to finance its allies. If specie payments were suspended at the outset of the crisis, trust in the credit of the City of London, and the word of its financiers, would be shaken for perpetuity. It was this international reliance on the City’s probity that made it surpass Paris or Berlin as a financial capital: this confidence should not be endangered when the foreign drain on gold was unlikely to be large, and the internal drain could be obviated by the issue of notes. Keynes’s advice that gold payments for foreign transactions should be protected, but that those for internal payments should be regulated, was adopted in essence. Gold payments for external debts survived, the joint-stock banks’ gold reserves were centralized in the Bank of England, the Treasury issued emergency currency notes of £1 and ten shillings, and bank rate was reduced to 5 per cent on 8 August.14

In a further memorandum of 5 August, Keynes recommended that in order to restore the credit of the acceptance houses, revive discount business and restart foreign trade, the Bank of England should guarantee new pledges by the acceptance houses while a moratorium was declared on past acceptances – which would leave the banks and discount houses holding some bad debts but not on an intolerable scale. Instead, Lloyd George decided that the Bank of England should go the whole hog by guaranteeing all approved bills accepted before 4 August. Within four months the Bank had discounted bills worth £120 million. In effect, the government paid the City’s bad debts, and rewarded those privileged citizens who happened to be engaged in financial business.¹⁵

‘Financiers in a fright do not make an heroic picture,’ Lloyd George wrote of this crisis. ‘One must make allowances, however, for men who were millionaires with an assured credit which seemed as firm as the globe it girdled, and who suddenly found their fortunes scattered by a bomb hurled at random from a reckless hand.’ Whereas Lloyd George was impressed by the most robust of the joint-stock bankers, Sir Edward Holden of the Midland, Keynes (in an essay written in August 1914 for his Economic Journal) characterized Holden as ‘selfish’, and Holden’s chief abettor among the bank chairmen as ‘cowardly’. The rest of the joint-stock banks he judged to be ‘timid, voiceless and leaderless’. The trouble was that they were ‘largely staffed, apart from the directors, on what in the Civil Service is called a second division basis’. Half of their directors were appointed because of their ancestral claims, and ‘two-fifths, not on grounds of banking capacity, but because they are able, through their business connection, to bring to the bank a certain class of business’. By contrast, he admired the neutrality of servants of the Crown.

The leaders of the City were many of them too much overwhelmed by the dangers, to which they saw their own fortunes and good name exposed, to have much wits left for the public interest and safety. At this point the Minister and the Civil Servant, with no affairs of their own to divert them from the affairs of the country, alone stood possessed of the qualities which were instantly required.

Keynes predicted that the government’s intervention in City financial operations would prove a lasting precedent. As he explained, ‘The world of borrowers and lenders, of bankers and discounters and stockbrokers, is to be galvanised by the wires of government into, at least, a marionette existence.’16

In January 1915 – again at the behest of Edwin Montagu – Keynes was recruited to the Treasury for the duration of hostilities. Six years later, when lecturing to the Society of Civil Servants, he depicted the department as an austere enemy of expenditure and waste, and regretted the destructive impact as Chancellor of Lloyd George, who ‘never had the faintest idea of the meaning of money’. The Treasury had perfected a bureaucratic style which shielded its officials from attacks as they curbed the spending of other departments: ‘precedent, formalism, aloofness, and even sometimes obstruction by the process of delay, and sometimes indefinite replies’, as Keynes said. ‘The aloofness of the Treasury was not a piece of old-fashioned absurdity, but a real part of the ritualism for the preservation of the prestige of the department.’ The mandarins stayed in their offices while the politicians won power and lost it: they outlasted ‘the whims of individual ministers and particular parties’; their longevity ‘was aided by their impalpable and invisible character’. The Treasury’s financial restraints shared some attributes with Church of England prelates, senior tutors in Oxbridge colleges and watch-committees in suppressing licence or immorality. ‘There is a good deal of it rather tiresome and absurd once you begin to look into it, yet nevertheless it is an essential bulwark against overwhelming wickedness,’ Keynes suggested. The Treasury cultivated wintry scepticism as the antidote to enthusiasm. Its group mentality was ‘very clever, very dry and in a certain sense very cynical; intellectually self-confident and not subject to the whims of people who … are not quite sure that they know their case’.17

Principia Ethica was a fine guide to success in the Treasury. Moore’s method hoped ‘to make essentially vague notions clear by using precise language about them and asking exact questions’, as Keynes said. ‘It was a method of discovery by the instrument of impeccable grammar and an unambiguous dictionary. “What exactly do you mean?” was the phrase most frequently on our lips.’ This Cambridge frame of mind – ‘a kind of combat in which strength of character was really much more valuable than subtlety of mind’ – fitted Treasury needs.¹⁸

Keynes began work as a Treasury official on 18 January 1915 (living in rooms in Bloomsbury, but returning to Cambridge from Saturday to Monday when he could). He prepared an urgent briefing document for Lloyd George, ‘Notes on French Finance’, signalling the French central bank’s conservatism (‘compared with the Bank of France, the Bank of England is almost skittish’), indicting the commercial banking system as ‘sordid, corrupt, disastrous and deeply intertwined with the basest features of French political life’, and deploring the swindling of investors. While preparing it he went to dine with Leonard and Virginia Woolf. ‘We gave him oysters,’ she noted. ‘He is like quicksilver on a sloping board – a little inhuman, but very kindly, as inhuman people are.’ (It was often a problem for Keynes that his friends with subjective literary minds mistook the attempted impartiality of people with technical training for a deficiency in deep feelings.) ‘We gossiped at full speed,’ Woolf continued. ‘Then we talked about the war. We aren’t fighting now, he says, but only waiting for the spring. Meantime we lavish money, on a scale which makes the French, who are fearfully out at elbow, gape with admiration. We are bound to win – & in great style too, having at the last moment applied all our brains & all our wealth to the problem.’19

Keynes accompanied Lloyd George, Edwin Montagu and the Governor of the Bank of England, Lord Cunliffe, to a conference in Paris in February. Traditionally Britain had granted outright war subsidies to its allies. But the pride of the chief borrower, France, and considerations involving Dominion borrowers such as Canada, to say nothing of the scale of the European war, made the old practice insupportable. The Paris conference attended by Keynes settled an Anglo-French loan to Russia accompanied by Russian and French gold transfers to the Bank of England. This arrangement inaugurated the complex system of war credits between the Allies which created the post-war debt problem that bedevilled Europe. Over the next two years, Keynes helped to develop and manage a system of financial controls over the spending of Britain’s allies, which entailed a centralized buying system, with orders being channelled through London, and payment coming from credits designated for Allied accounts at the Bank of England. ‘His quick mind and inexhaustible capacity for work rapidly marked out a kingdom for him,’ Niemeyer recalled. Keynes’s powers increased after May 1915, with the formation of the wartime coalition government, in which Lloyd George became Minister of Munitions, and Reginald McKenna replaced him as Chancellor of the Exchequer. ‘McK’, wrote the Whitehall-watcher Sir Vincent Caillard a few months later, ‘has an almost mysterious hold on the P.M.’s judgment and even affection.’ Keynes soon acquired a similar lien on McKenna’s views. He became the leading authority on questions of external, and particularly inter-Allied, debt.20

The government initially assumed that if it raised the money to pay for its wartime expenditure, there would be a corresponding fall in other expenditure. In expectation of a short war, it did not levy heavier taxes, but in November 1914 issued a war loan of £350 million to pay for its munitions. The banks subscribed for most of this loan, counted their Treasury bonds as part of their reserves and continued their lending as before. As a result, both public and private expenditure rose. Keynes helped McKenna to prepare his first budget, in September 1915, whereby income tax was raised to three shillings and sixpence in the pound, and an Excess Profits Duty of 50 per cent (raised to 80 per cent by 1917) was imposed together with the so-called McKenna Duties, which levied 33.3 per cent on luxury imports such as motor-vehicles and watches. These McKenna Duties were of signal importance: introduced by a free-trade Liberal, they were a victory for protectionists; intended as a wartime improvisation, they remained in force until the Labour government’s free-trade budget of 1924; were reimposed in Winston Churchill’s budget a year later; and continued until 1956 when they were abolished in Harold Macmillan’s last budget before becoming Prime Minister. In effect, for forty years, the McKenna Duties served as a protective measure to defend British motor-car and lorry manufacturers from international competition.

Keynes toiled during September 1915 in negotiations that resulted in British financial credits to Russia, British control of Russian purchases and Russian loans of gold to Britain. ‘I doubt if I’ve ever worked harder than during the last two weeks; but I’m wonderfully well all the same,’ he told his parents on 18 September. ‘The work has been as interesting as it could be. I’ve written three major memoranda, one of which has been circulated to the Cabinet, and about a dozen minor ones.’ When the pressure of work relented, Keynes went for a Sussex weekend with Bloomsbury friends and showed no sign of strain: ‘Maynard is equable and optimistic and very agreeable,’ reported Clive Bell. Keynes’s experiences at this time convinced him of the benefits of latitude and discretion. ‘There is a case for controls which those in charge know to be imperfect and incomplete and deliberately leave so; especially in England. It is far more trouble than it is worth to be too logical about controls.’ Only a day after establishing the principle that Russian credits should be confined to munitions, he had to initial a Bond Street bill for a Grand Duchess’s underwear, and approved a shipment of beeswax to provide candles for Russian Orthodox churches. On another occasion, Spanish currency was urgently needed for Allied international transactions. With difficulty a smallish sum was raked up, as Keynes reported. Chalmers expressed relief that for a short time, at any rate, the Treasury had its reserve of pesetas. ‘Oh no!’ replied Keynes to his aghast chief, who like most civil servants had scant understanding of markets. ‘I’ve sold them all again: I’m going to break the market.’ By dumping the Treasury’s holding, he jolted the value of Spanish pesetas downwards in international currency exchanges and was then able to buy back the necessary reserve of pesetas at lower prices than those for which he had sold them.21

From early in 1915 until the United States entered the war in 1917, there was a continuous exchange crisis of a gravity that became more acute as gold reserves were depleted. By the summer of 1916 Britain was paying for all of Italy’s war expenditure, most of Russia’s, two-thirds of France’s, half of Belgium’s and Serbia’s. It did this by heavy borrowing from the United States (amounting to about 40 per cent of total war expenditure by September 1916). This sum was paid from dwindling gold reserves, the sale of American and Canadian securities under British ownership, the sale of Treasury bills, bond issues and collateral loans. Keynes estimated that British borrowing would soon have to rise to over $200 million a month in the USA. In a memorandum of 10 October 1916, he advised: ‘the policy of this country towards the USA should be so directed as not only to avoid any form of reprisal or active irritation, but also to conciliate and please’. Robert Skidelsky has identified these words as fixing the moment when New York replaced London as the world’s chief financial power.²²

McKenna submitted on 24 October a Cabinet memorandum which Keynes had prepared for him on Britain’s financial relations with the USA. In it McKenna warned of insolvency and concluded as a ‘certainty that by next June or earlier the President of the American Republic will be in a position … to dictate his own terms to us’. This infuriated Lloyd George, who rejected these views. On 27 November the US Federal Reserve Board instructed American banks to reduce their credit to foreign borrowers and warned private investors against advancing loans secured by Allied Treasury bills. The chief motive for this was to pressurize the Allies towards a negotiated peace, as Keynes had long wished the Americans to do. In early December gold flowed out of Britain with startling speed.23

Chalmers and Sir John Bradbury, who were Joint Permanent Secretaries at the Treasury from 1916, were committed to the belief (as Keynes later wrote) ‘that in a run one must pay out one’s gold reserves to the last bean’. As a result, although they had prefigured this crisis to the War Cabinet, they kept the extent of the gold outflow from ministers. This was because they feared that politicians, in a funk, would jettison sterling’s gold convertibility. ‘I thought then, and I still think, that they were right,’ Keynes judged in 1939 of Chalmers and Bradbury. ‘To have abandoned the [gold] peg would have destroyed our credit and brought chaos to business; and would have done no real good.’ He recalled one occasion when the Treasury mandarins bamboozled the politicians. ‘Well, Chalmers, what is the news?’ Lloyd George, who became Prime Minister on 7 December 1916 after forcing Asquith’s resignation, asked at the first meeting of his War Cabinet. Chalmers replied ‘Splendid!’ in his high, quavering voice. ‘Two days ago we had to pay out $20 million,’ he added, ‘the next day it was $10 million; and yesterday only $5 million.’ Chalmers did not add that a continuance at this rate for a week would finish Britain, and that the Treasury thought an average of $2 million too heavy. After outfoxing his political masters, Chalmers returned triumphant to his room at the Treasury, where Keynes was waiting apprehensively.²⁴

In the government reconstruction of December 1916 the Canadian-born Andrew Bonar Law replaced McKenna as Chancellor of the Exchequer. Keynes found his dealings with Law easy: ‘there was no one who could be briefed quicker than he and put au courant with the facts of the case in those hurried moments which a civil servant gets before his chief before a conference’. He found the Chancellor a grateful man: mistrustful of intellectual schemes, but with ‘an inordinate respect for Success’, and therefore ‘capable of respecting even an intellectualist who turns out right’. As a Glasgow iron merchant, who had been reared in a wooden Presbyterian manse in New Brunswick, Law had (as Keynes wrote in 1923) ‘no imaginative reverence for the traditions and symbols of the past, no special care for vested interests, no attachment whatever to the Upper Classes, the City, the Army, or the Church’. He regarded himself as ‘a plain business man, who could have made a lot of money if he had chosen to, with a good judgment of markets rather than of long-term trends, right on the short swing, handling wars and empires and revolutions with the coolness and limited purpose of a first-class captain of industry’. It was to both men’s credit that Keynes had a reciprocated liking for Law, an ‘extreme partisan, a vehement mouthpiece for the Conservative party, who distrusted any emotional enthusiasm which grasped at an intangible object’.25

In an important memorandum of 17 January 1917, Keynes warned that if Britain suspended gold convertibility, the Germans would be alerted to Britain’s dire position: ‘“If England has gone off the gold standard, she can’t last six months more,” is what everybody would say, whether it is true or not.’ Keynes was striving to ensure Britain’s financial survival while not relinquishing his hope that President Wilson in Washington would force a negotiated peace by severing financial supplies and thus threatening Britain with ruin. On 22 January Wilson issued his manifesto for ‘peace without victory’ in the form of a message to the US Senate. He demanded freedom of the seas, limitation on military and naval armaments, self-determination of peoples, and a supranational world executive with overriding powers. ‘In other words, an immediate utopia, machine-made and thoroughly American,’ commented the German liberal Count Harry Kessler.²⁶

In February 1917, at the age of thirty-three, Keynes was appointed to head a new Treasury department managing Britain’s external finances and reporting directly to Chalmers and Law. His responsibilities covered banking, currency, foreign exchanges, inter-Allied finance. (As an Acting Principal Clerk at the Treasury, Keynes’s toil never relented: contrary to Chalmers’s peacetime hopes that his officials would make time for their hobbies, Keynes on the weekend of 18–19 August 1917 took home on Saturday some eighty-nine Treasury papers, which he had despatched by Sunday evening.) Keynes expected Britain’s resources to be exhausted by the end of March. But the Germans – not realizing that the US Federal Reserve Board had already delivered a death-blow to the Allied effort – on 1 February launched unrestricted submarine attacks to stop American material supplies from reaching the British Isles, France and Italy. The German navy believed that they could defeat England in four months – and might have succeeded if the Admiralty had not introduced the convoy system whereby merchant ships put to sea in a tight group under escort from protective Royal Navy warships. German submarine attacks destroyed Wilson’s notions of a negotiated peace, without victory. Publication of the Zimmermann telegram, in which the German Foreign Minister promised control of Texas, Arizona and New Mexico to Mexico as recompense for siding with Berlin in a war against the USA, outraged American opinion. On 6 April the US declared war on Germany.

After the American entry into the war, the US Treasury began limiting the release of dollars to Britain. In June US funds were withdrawn from London for investment in a $2 billion Liberty Loan. In a message drafted by Keynes, and sent on 20 July by Bonar Law, the US government was warned that the European Allies’ finances would collapse within days unless the Americans undertook to pay all of the Allies’ expenses in America, including exchange costs. Initiatives by Keynes were crucial in obtaining the release of funds by the US Treasury at the last moment. This emergency was for Keynes the worst period of strain since the beginning of the war. It confirmed that, by the summer of 1917, British financial dominance in the world had been ceded to the United States. After the resolution of the exchange crisis, Lord Cunliffe of the Bank of England demanded the dismissal of Chalmers and Keynes as punishment for their high-handed conduct. It was however Cunliffe whose retirement Bonar Law obtained.

Officials deal in public action: they operate in the public interest, they regulate civic affairs, they seek public stability; but Keynes was a man who cherished private intimacies, and cultivated the private domain. The tension between his official duties and personal loyalties was disturbing throughout the war.

Keynes wanted the war to be waged efficiently and to end swiftly. Its calamities convinced him that his early trust in the rationality of other people’s feelings and conduct was specious. He said of the Apostles before August 1914, ‘we completely misunderstood human nature, including our own’. He had no presentiment until the war that ‘the springs of action lie deep in ignorance and madness’. He was not a pacifist who objected to fighting in principle, but a liberal who objected to compulsion in the form of conscription. ‘He would not fight because Lloyd George, Horatio Bottomley and Lord Northcliffe told him to,’ as Clive Bell recorded. ‘He held that it was for the individual to decide whether the question at issue was worth killing and dying for; and surely he was … a better judge than the newspapermen who at that time ruled the country.’27

In all this Keynes was a son of Harvey Road. Constance Garnett’s translations of Tolstoy’s major works had been read aloud by Florence Keynes to her family, who had heard (even if they did not fully accept) the Russian seer’s message that violence is wicked, that all forms of state compulsion are criminal and that the aim of humankind should be to seek happiness by doing right. These ideals were out of kilter with wartime England. On 4 October 1915 Neville Keynes cancelled the household’s order for The Times, which he had read since he was a boy in Salisbury, because he was disgusted by its bellicosity under Northcliffe’s ownership. That day’s issue included a jubilant account of the futile massacre of the Australian Light Horse Brigade when it had charged against a long line of Turkish machine-guns in the Dardanelles campaign; an endorsement of the Bishop of London’s prudish campaign against night-clubs; and an editorial on the Battle of Loos which spoke of ‘the utmost cheerfulness’ prevailing among soldiers on the Western Front after 59,000 British soldiers had been killed. Perhaps most objectionable to Neville Keynes, who had not wanted Maynard to join the volunteer army corps at Eton, was the humbugging report of a London recruiting rally (which had singularly failed to excite many volunteers). There had been a booming oration on Shepherd’s Bush Green by an MP with the apt name of Sir William Bull, but the leading jingo MP, Horatio Bottomley, failed to speak having sprained his ankle alighting from a taxicab. ‘Everything was splendid,’ The Times reported. ‘There was plenty of popular music … The soldiers were in the pink of health and high spirits. Their bearing gave evidence of the contentment that comes when the call of duty has been responded to, and the virility and good humour imparted by military training.’28

In the opening phase of the war there had been a burst of genuinely voluntary enlistment by men seeking either to serve their country or to escape from their ruts into overseas adventures. This was followed by a period of voluntary enlistment under pressure of either public opinion or economic necessity. The army had more men than it could equip in 1915, but during that summer, as volunteers failed to meet the army’s manpower targets, a bombastic newspaper agitation was launched against an estimated 650,000 slackers, who supposedly were shirking their country’s call. The Earl of Derby, Director-General of Recruiting, announced in October 1915 a scheme whereby men of military age ‘attested’ (or registered) their willingness to serve when called up. However, a man’s decision to enlist in the army or navy still depended upon his sense of duty, his susceptibility to public opinion, and the attitude of his employer. The Derby scheme may have been intended to fail to meet its targets. Certainly, it incited agitators for compulsory military service rather than assuaging them.

In December 1915 the Cabinet was divided by a proposal to increase the army to seventy divisions by introducing conscription. Lloyd George, the newly appointed Minister of Munitions, was converted to conscription by his need to stop the unregulated, disruptive enlistment in the armed forces of skilled factory-workers, who were requisite for improving shell output. McKenna, who believed that seventy divisions were more than the country could afford, threatened to resign. Despite the resistance of McKenna, Walter Runciman and other Liberal ministers, the Military Service Act of January 1916 introduced conscription of all single men between the ages of eighteen and forty-one. Its achievements were mixed, for instead of catching the mooted 650,000 slackers, it produced 748,587 claims for exemption from miners, munitions workers, shipbuilders, farmworkers and others in protected jobs. Most of these claims were accepted as valid. A smaller category of men claiming conscientious objection to fighting were allowed to state their case before a local tribunal.

In total, during the war of 1914–18, there were 2.4 million volunteers in the United Kingdom and 2.5 million conscripts (although the nation contributed only 6 per cent of the total number of men mobilized on both sides). The issues of the war meant little to the majority of conscripts, who enlisted because they were scared to disobey the Military Service Act. That Act, combined with similar legislation in 1939–45 and the system of National Service whereby more than two million conscripts served in the armed forces between 1947 and 1963, meant that there had never been so many regimented citizens – ex-soldiers and ex-sailors – in English history as in the mid-twentieth century. The result was a divided manhood, with some of the population drilled, submissive to authority and intent on proving their virility by disciplined aggression, with others seething against deference, enforced uniformity and violence. Keynes and his friends anathematized this regimented, militarized culture in the making. They were not alone. Lord Sandhurst, son of an army commander-in-chief, himself formerly a Guards officer, Governor of Bombay and Under-Secretary of State for War, saw ‘the agitation for conscription headed by The Times and Daily Mail’ as an intrigue to topple Asquith as Prime Minister. If conscription comes, Sandhurst wrote in 1915, ‘it will be the first time I shall feel low about the war … the thing most to be dreaded, war or no war, is a military party’.29

‘Here all is worry and confusion, everyone deeply depressed,’ Keynes wrote from Whitehall to the literary hostess Lady Ottoline Morrell on 4 January 1916 – before quoting lines from Wordsworth’s poem ‘Andrew Jones’ about a thieving bully: ‘“I wish the pressgang or the drum / With its tantara sound would come” and deal with all these bloody men who enrage and humiliate us.’ He thought there was a chance that working-class protests might defeat the Military Service Act: ‘I do not see the intellectuals can do anything – but ply a feeble pen occasionally and feel miserable.’ He yearned ‘for a general strike and a real uprising’ against the political cowards who were submitting to newspaper bullying. In the meantime good people must ‘(a) intrigue to prevent a general election, which would bring the Jingos back absolute (b) keep all our spirits up (c) enflame the minds of everyone we meet’.³⁰

‘The Government have decided on compulsory service for single men,’ Neville Keynes noted on 6 January. ‘Maynard talks of resigning his post at the Treasury, and we are very much worried about him.’ Maynard explained his position to his parents a week later: ‘Things drift on, & I shall stay now, I expect, until they begin to torture one of my friends.’ His friends demanded his resignation, and expected him to claim conscientious objection. However, he anticipated that Wilson would summon a peace conference and enforce a settlement, and felt loath to renounce the stimulation of his office life. ‘He was sceptical about the value of almost all work, save for the pleasure it gives the worker,’ reported Virginia Woolf. ‘He works only because he likes it.’ Moreover, his official position enabled him to help friends who had been summoned before conscientious-objection tribunals.31

In February 1916 Keynes received a certificate of exemption from military service on account of his Treasury duties. Nevertheless, five days later, he applied for exemption on grounds of conscientious objection, which suggests that he contemplated resignation in protest against militarist compulsion. When summoned to a tribunal scheduled for March he responded that he was too busy to attend. After his exemption had been renewed by the Treasury in August, he did not renew his application for exemption on grounds of conscientious objection – probably because his thoughts of resigning from the Treasury had been dispelled. Meanwhile, he had convinced his ex-boyfriends the painter Duncan Grant and the younger, more outdoorsy David ‘Bunny’ Garnett (later a novelist and literary editor) that their best hopes of exemption from military service lay in agricultural work. Grant rented a Suffolk landholding, where he and Garnett set up as fruit-farmers specializing in apples and blackberries. Keynes represented them both before the appeal tribunal at Ipswich. Appearing there with a locked bag bearing the royal cipher, he demanded that the cases be heard post-haste, as he had urgent matters of national importance pending at the Treasury.

‘The Treasury depresses me just now,’ Keynes told Grant in January 1917. ‘I am badly overworked, need a holiday, and am filled with perpetual contempt and detestation of the new Govt. I should like to get away from it all.’ Although McKenna assured him that peace must come soon, Keynes feared ‘that L.G. will spin things out to let him taste a good draught of blood this spring. Did you read his last speech? “The war is a road paved with gold and cemented with blood.” God curse him … I pray for the most absolute financial crash (and yet strive to prevent it – so that all I do is a contradiction with all I feel); but we always seem able to struggle on three months more.’32

Vanessa Bell’s cherishing of Duncan Grant as both an artist and impish life force had developed into a sexual affair in 1915. This romance soon became one of the happiest partnerships between two painters in the history of art. Both lovers remained on the best terms with Vanessa Bell’s husband Clive, who had long-term affairs of his own. At weekends Keynes often went to stay in the Sussex farmhouse occupied by Bell and Grant, Charleston, where the chickens were once painted red, white and blue in mockery of the surrounding patriotic fervour. He was there for a Friday-evening party, with Garnett and the painter Dora Carrington among the other visitors, in February 1917. ‘Soups, Beef sausages and Leeks, Plum Pudding, Lemon Jellies, and Punches afterwards!!!’ Carrington reported. Next day she and Keynes went slithering across the ice of a frozen pond, and walked on the Sussex downs above Charleston: ‘I slid all the way down the Firle Beacon on Maynard’s despatch case.’ This was the black bag which made some villagers suspect him of being a spy engaged in nefarious deeds. Keynes was Charleston’s most frequent London visitor. He would regale the household with his war news on the night of his arrival: his inside information was resolutely cheerful – ‘he who knew what was happening always seemed to know the best’. He breakfasted in bed, where he spent the morning at work on a heap of official documents. The papers he tore up after dealing with them: he always took pride at weekends at filling his wastepaper basket to its brim before lunch. Keynes preserved his official air by wearing town clothes at Charleston, and looked incongruous among the shabby artists. Henry James, after meeting Vanessa Bell a few years earlier, said she looked as if she had been rolled in a duck-pond. Following lunch, Keynes would go into the garden, kneel on a scrap of carpet that he carried, and spend an hour or two weeding the gravel path with his pocket-knife.33

Keynes went to Washington in September 1917 to help extract from the US Treasury an agreement to make monthly loans to schedule rather than in a sporadic dribble. This was the first of many momentous American visits. The Apostles, including him, tended to see the United States as a philistine and mechanized hellhole, where size, speed and money were fetishized. ‘The two things rubbed into me in this country are (1) that the future of the world lies with America, (2) that radically and essentially America is a barbarous country,’ Lowes Dickinson had written during an American tour. ‘It is a country without leisure … a country whose ideal is mere activity, without any reference to the quality of it; a country which holds competition and strife to be the only life worth living.’³⁴

A sense of Europe’s cultural primacy contributed to Keynes seeming ‘rude, dogmatic and disobliging’ on this visit, as Basil Blackett wrote from Washington. Keynes found the Washington administration to be serpentine, and was brusque with US Treasury officials whom he found verbose, dilatory and evasive. Washington seemed ‘very oriental’, he told Mary Berenson: ‘Wilson like an invisible Sultan spending most of his time in the harem, and all the others talking endlessly and slowly and never getting to business.’ He was displeased to find the US ‘full of the utmost ferocity of war fever’, he told Edwin Cannan of the London School of Economics. America seemed ‘a country where minorities get precious little quarter; and to my astonishment I find myself looking back to England as a land of liberty!’35

By this time Keynes had reached the rank of Acting Principal Clerk: only Bradbury and Chalmers, the two Joint Permanent Secretaries, stood above him in the Treasury hierarchy. Yet he was discontent. ‘My Christmas thoughts are that a further prolongation of the war, with the turn things have now taken, probably means the disappearance of the social order we have known hitherto,’ he told his mother on Christmas Eve. ‘I am on the whole not sorry. The abolition of the rich will be rather a comfort and serve them right anyhow. What frightens me more is the prospect of general impoverishment. In another year’s time we shall have forfeited the claim we had staked out in the New World and in exchange this country will be mortgaged to America.’ It seemed certain that the USA would supersede the British Empire in the world order. ‘Well, the only course open to me is to be buoyantly bolshevik; and as I lie in bed in the morning I reflect with a good deal of satisfaction that, because our rulers are as incompetent as they are mad and wicked, one particular era of a particular kind of civilisation is very nearly over.’ A few months later into 1918 he remained unwontedly gloomy about prospects. The Americans, he thought, were set on reducing Britain ‘to a position of complete financial helplessness and dependence in which the call loan is a noose around our necks.’³⁶

Alarms about German military advances in the spring of 1918 yielded to burgeoning Allied confidence in the approaching defeat of Germany. In a memorandum dated 31 October 1918 Keynes argued that in seeking war reparations from Germany, the Allies must assess Germany’s capacity to pay, and must not destroy Germany’s productive power. Germany needed to earn foreign currency by exports if it was to pay reparations, and could not export if its factories were unproductive. Keynes’s paper was the basis for the Treasury memorandum of 26 November 1918 which offered the preliminary figure of £4,000 million as the Allies’ claim for reparations, calculated that Germany could not afford to pay more than £3,000 million and, on the basis of Germany’s expected post-war export surplus, judged that £2,000 million would represent a satisfactory achievement in the circumstances. It reiterated that if Germany was to make satisfactory reparations, it must not be impoverished. Yet there was a regiment of ‘trade warriors’ – Dudley Docker’s Federation of British Industries (founded in 1916), the protectionists and the jingos – who wanted to disable the German manufacturing economy and leave the way unchallenged for English exporters. They resembled the hard-liners who supported the Morgenthau plan to dismantle German industry in 1944–5.

As a ploy to win votes in the general election called for 14 December 1918, Lloyd George appointed a committee to investigate the level of war reparations to be extracted from Germany. The committee was chaired by the Australian Prime Minister, Billy Hughes, who preened himself in the part of an audacious colonial teaching sense to starchy Europeans. It reported on 10 December that the war had cost the Allies £24,000 million (six times Keynes’s provisional estimate), which Germany had the power to repay in annual instalments of £1,200 million. Hughes and Cunliffe, together with a judge, Lord Sumner, were selected to represent Britain on the Reparations Commission at the Paris Peace Conference: Keynes and the Treasury were excluded; and Cunliffe with Sumner confronted the Germans with exigent and swollen demands. Sumner was the most eloquent law lord of his day, famed for his cynical epigrams and acidulous sallies: Asquith had considered appointing him Lord Chancellor in a Liberal Cabinet as recently as 1915, for he had once been a radical, but by 1919 he was a last-ditch reactionary who kept to his brief and belaboured the German defendants. Keynes likened him to a vulture, and Cunliffe to a pig.37

At the general election of 1918 the most eminent Liberal leaders, namely Asquith, McKenna, Runciman, Sir John Simon and Sir Herbert Samuel, were defeated by a gaggle of unmemorable mediocrities. Lloyd George remained Prime Minister at the head of a coalition of Conservatives and his pick of Liberal candidates who held loyal to him. The rump of Asquith’s supporters were derided as ‘the old gang’ in the gutter press, were reviled in the London clubs, cursed in the pubs, insulted in caricatures. Yet the electoral paroxysm that yelled for the Kaiser to be hanged, the obliteration of German prosperity and the humiliation of the Liberal leaders who had resisted conscription was already spent by April 1919, when the pro-Asquith Liberal candidate, Joseph Kenworthy, beat the coalition Conservative nominee, Lord Eustace Percy, in the Central Hull by-election.

Keynes was sitting in Chalmers’s room in the Treasury drinking tea on the first day of the new Parliament while members were taking their seats. When Stanley Baldwin, the Financial Secretary to the Treasury, who had the next room to Chalmers, looked in from the doorway, Keynes asked of the new MPs, ‘What do they look like?’ Baldwin replied, with the phrase that Keynes made immortal by quoting it in his best-known book, The Economic Consequences of the Peace, ‘A lot of hard-faced men who look as if they have done well out of the war.’ Keynes annoyed R. B. McCallum, the Oxford election analyst and biographer of Asquith, by publicizing Baldwin’s quip. McCallum, in his pioneering study Public Opinion and the Last Peace (1944), writing as a Scotsman, condemned Economic Consequences as ‘characteristically English in that lack of emotional balance which made it so very fair to our enemies and so harsh to our allies’. This quotation of Baldwin by Keynes insinuated that ‘a new class of men had entered parliament, predatory capitalists, who made the peace with an eye to their own gain’, McCallum thought, and it resounded through the century biasing ‘generations of self-righteous young people’. In fact, as he showed, the MPs crying for vengeful punishing of Germany were Brigadier Henry Page-Croft, Colonel Walter Guinness, Colonel Claude Lowther, Colonel John Gretton, Colonel Burn (soon to transmogrify himself into Sir Charles Forbes-Leith of Fyvie), Major the Earl Winterton and the less martial Ronald McNeill.* It was not war profiteers who most wanted Germany to be powerless, dismembered and discounted from the European balance of power, but die-hard militarists.³⁸

The armistice agreed with Germany on 11 November 1918 had been concluded by the Allies’ naval and military representatives without consulting any civilian authorities. This made Marshal Foch the sole arbiter, untrammelled by military representatives of other Allies, of all negotiations with Germany involving the Blockade, the occupation of enemy territory and numerous financial questions. All negotiations involving ships and seas were, in Keynes’s words, ‘equally the uncriticised prerogative of the British Admiralty, represented by Admiral Browning, a most surly and ignorant sea-dog with a real and large hook instead of a hand, in the highest nautical tradition, with no idea in his head but the extirpation and further humiliation of a despised and defeated enemy’. The November armistice, which had been of only a month’s duration, was renewed for a further month in December 1918 – with supplementary economic provisions imposed by French and Belgian financial representatives without American or English cognizance.³⁹

Keynes was the principal Treasury representative at the Paris Peace Conference from January until June 1919. He installed himself with other British officials at the Hôtel Majestic on 10 January. ‘No-one yet knew what the Conference was doing,’ he recalled.

But the peculiar atmosphere and routine of the Majestic were already compounded and established, the typists drank their tea in the lounge, the dining-room diners had distinguished themselves from the restaurant diners, the security officers from Scotland Yard burnt such of the waste paper as the French charwomen had no use of, much factitious work circulated in red boxes, and the feverish, persistent and boring gossip of that hellish place had already developed in full measure the peculiar flavour of smallness, cynicism, self-importance and bored excitement that it was never to lose.40

One of the Englishmen whom Keynes met at the Majestic was an elderly Apostle called Lord Moulton. Moulton was both a judge and Director-General of Explosives Supplies at the Ministry of Munitions. In addition to high explosives his department had charge of manufacturing poison gas, and controlled the country’s gas-works, coke ovens and oil supplies. After the Armistice he became the first chairman of the British Dyestuffs Corporation, a newly formed combine of trade warriors, with government nominees among the directors, created to seize international trade from the dominant German chemical conglomerates, which before the war had been exporting 80 per cent of their output of synthetic dyestuffs. ‘Moulton was visiting the Hôtel Majestic to promote a scheme by which German dyes might be secured and held off the market, to the advantage of the British Dye interests, but at the expense of the British Treasury,’ as Keynes told the Apostles two years later, following the law lord’s death. Knowing that Moulton wished to meet him, as the Treasury representative, ‘for the undignified purpose of using his eminence of position to influence me’, Keynes for some days avoided him; but Moulton’s persistence forced an interview. ‘The old man, then in his 75th year, a Lord of Appeal, with his great career behind him and substantial wealth at his command, a little palsied and his slightly heavy features a little quivering, but with his intellect undimmed, was not ashamed to employ that intellect in an attempt to impose a sophistry on the junior Treasury official in front of him.’ (Keynes was Moulton’s junior in age, by thirty-nine years, but not his subordinate in official powers.) The interview – so eloquent of the grasping mood of the time, and yet conducted with finesse – made Keynes both ironical and inquisitive. He tried to discern, and even to sympathize with, the springs of motive that brought Moulton to the Majestic. ‘It was not a dull act,’ he decided, ‘but sprang out of a vitality which still, in the evening of his life, was overflowing. The old man was sensitive, capable of understanding and enjoyment, apprehensive of the shifting movements of the visible world. I fancy, therefore, that, rightly judged, his act was one of artistry, not of avarice; and the impulse came, not at all from greed, but from the necessity still to exercise a perfected talent.’41

Keynes’s first active intervention in the peace negotiations occurred in January 1919 when he and Norman Davis, a Tennessee-born financier who had made a fortune in dealings with Cuba, and was serving as Assistant Secretary of the US Treasury, boarded the train carrying Marshal Foch and his entourage to Trèves (Trier), where they were to meet Matthias Erzberger, the German Minister of Finance, with his delegation to negotiate the second monthly renewal of the Armistice agreement. Keynes, Davis, Sir John Beale, Permanent Secretary of the Ministry of Food, and an American functionary played bridge day and night throughout the journey, and continued when they were not conferring with the Germans in Trèves. The kings, queens and knaves falling on the bridge-table were like a dumb-show of what had been happening across Europe. ‘It seemed to all of us an extraordinary adventure in January 1919 to step on German soil,’ Keynes said. ‘We wondered what the streets would look like, whether the children’s ribs would be sticking through their clothes and what there would be in the shops.’42

Erzberger’s negotiating team, which reached Trèves by a later train, was ushered into the saloon of the Allied officials’ railway-carriage. ‘We crushed together at one end of the carriage with a small bridge-table between us and the enemy,’ Keynes wrote. ‘They pressed into the carriage, bowing stiffly. We bowed stiffly also, for some of us had never bowed before. We nervously made a movement to shake hands and then didn’t.’ He studied the Germans across the bridge-table: ‘a sad lot they were,’ he thought, ‘with drawn, dejected faces and tired staring eyes, like men who had been hammered on the Stock Exchange’. From among the hammered men, in Keynes’s words, ‘stepped forward into the middle place a very small man, very exquisitely clean, very well and neatly dressed, with a high stiff collar, which seemed cleaner and whiter than an ordinary collar, his round face covered with grizzled hair shaved so close as to be like in substance the pile of a close-made carpet, the line when the hair ended bounding his face and forehead in a very sharply defined and rather noble curve, his eyes gleaming straight at us, with an extraordinary sorrow in them, yet like an honest animal at bay’. This was Carl Melchior, a lawyer who was the first non-family partner in the Hamburg banking house of Warburg and the representative of the Ministry of Finance on Germany’s delegation. Melchior was soon to emerge as German spokesman during negotiations and as a man of enduring significance in Keynes’s life.⁴³

No stipulation about Germany’s mercantile marine had been included in the Armistice of November 1918. German submarine warfare had so depleted the mercantile shipping of Europe that the Allies determined to make the immediate surrender of all German merchant ships, and their transfer to other flags, a condition of the January renewal of the Armistice. The great shipowners of Hamburg hastened to Trèves on learning of the proposed confiscation of their assets. They were too numerous to fit inside the railway-carriage so the meeting was held in a public house near the railway station. As Keynes put it, ‘We, the Allies, congregated in the parlour. They, the defeated, had no room given them, but collected uneasily in the bar, which continued, however, its usual business with the working men of Trèves drifting in and out.’ The meeting was chaired by ‘a vain and almost imbecile American who had made a fortune by purchasing for nothing from the inventor of it a small contrivance essential to the modern laundry machine’. He summoned the Germans into the parlour, where their leader made his opening address. The little French boy interpreter began, ‘Thees mann sez’, at which the German snapped in English, ‘Thees mann! Say, if you pleese, thees gentlemann!’ Keynes marvelled: ‘Thus did these sea lords, about to die, salute their fate, and in the back parlour of the public house the German Mercantile Marine passed from her.’44

After this Trèves meeting, German negotiators demanded the liberty to use gold, which the victors had earmarked for reparation payments, to buy food before relinquishing their mercantile fleet. In March, at Spa, as negotiators with incompatible instructions skirmished over victualling Germany and receiving the surrendered ships, the prospect of German starvation loomed. Keynes retained every ounce of the Apostle creed that, although corruption and cruelty abounded in the world, truth, beauty and justice were attainable by imaginative sympathy. As a loyal Apostle, who sanctified the redemptive power of personal relations, he achieved moments of perceptive intimacy and collusive trust during the negotiations with unlikely men. One such moment happened at Spa with Carl Melchior, the Hamburg banker.

‘As the time to adjourn drew near, I was in despair,’ said Keynes. ‘I looked across the table at Melchior. He seemed to feel as I did. Staring, heavy-lidded, helpless, looking, as I had seen him before, like an honourable animal in pain. Couldn’t we break down the empty formalities of this Conference, the three-barred gate of triple interpretations, and talk about the truth and the reality like any sensible persons?’ Keynes obtained consent from the Admiralty’s chief negotiator to make a personal approach to Melchior. Despite the insolent obstruction of some mutinous German petty functionaries, the banker and the don found a small room in which they could be alone. ‘I was quivering with excitement, terrified out of my wits at what I was doing, for the barriers of permitted intercourse had not then begun to crumble,’ said Keynes. He urged on Melchior that if the German negotiators could reconcile themselves to transferring their merchant ships, the English would get food supplies moving to Germany without French obstruction. ‘I begged him to believe that I, at least, at that moment was sincere and truthful. He was as much moved as I was, and I think he believed me. We both stood all through the interview. In a sort of way, I was in love with him.’ At the end of this meeting, they pressed hands, and Keynes hastened away. Melchior failed to persuade his German colleagues to adjust their negotiating posture; but this moment when two men accepted their shared humanity and met in generous hope indicates the essence of the word ‘Keynesian’.45

The literary counterpart of Melchior’s meeting with Keynes is in War and Peace, when a ferocious French general, Davout, is about to condemn Pierre Bezukhov to death. For a few seconds Tolstoy makes them look at one another. Their exchanged stares take them beyond the annihilating impersonality of warfare: they become for an instant two men bonded in recognition of their common brotherhood. Feeling a flash of psychic unity, Davout withholds the death sentence. Keynes probably knew this passage from his mother’s readings aloud of Tolstoy at Harvey Road: he took a translation of Anna Karenina with him to the French Riviera in 1912, and may well have read War and Peace. His account of the empathy between Melchior and him is certainly steeped in Tolstoyan sentiments.

Another affinity was struck by Keynes. On 12 March he went to Brussels with Admiral Sir Rosslyn Wemyss, the First Sea Lord and Chief of Naval Staff, soon to become Admiral of the Fleet Lord Wester Wemyss, but universally known as Rosie. ‘The descendant of one of William IV’s illegitimate children, with a comical, quizzical face and a single eye-glass, middle-aged, pleasure-loving, experienced and lazy, Rosie had still got a good many of the instincts of the flirtatious midshipman, and we had a very agreeable dinner in the restaurant car,’ Keynes said. The Admiral had never sat beside a don at dinner, and was agreeably surprised that a professor, as he thought Keynes to be, should, before he had finished his soup, have used the word ‘bloody’. Their larks continued together.

There was one moment at the end of the Conference when the presiding German began to raise some financial point, of the answer to which Rosie hadn’t the faintest conception. I was sitting three places down the table. So without any attempt at concealment from them sitting opposite, he hoisted a signal of distress and, turning my way with a comical, sea-sick-porpoise look, as good as said, ‘For God’s sake be quick and tell me what to say in answer to this silly ass’s question.’ I wrote the reply on the paper table-cloth and tearing it off passed it down to him; he, all the time I was writing, keeping up a look of mock despair.

The Germans were astonished by Wemyss abandoning any pretence of understanding what the conference was discussing. Keynes was attracted by the Admiral’s ‘self-possession and unassailable, as it were, social superiority, like a humorous and good-natured duchess presiding over the financial business of a local charity – which somehow made them, so serious and pompous, seem to be a little absurd’.46

‘I’m absolutely absorbed in this extraordinary but miserable game,’ Keynes wrote on 16 March to Vanessa Bell after his visit to Brussels with Wemyss. He was judging all that happened by the criterion of his friends in Bloomsbury and Charleston: measuring everything that befell him against their values, humour and curiosity. ‘I wish I could tell you every evening the twists and turns of the day, for you’d be really amused by the amazing complications of psychology and intrigue which make such magnificent sport of the impending catastrophe of Europe.’ The thought of his non-official existence sustained him under pressure. ‘I am living for weeks together in a state of nervous excitement one would have thought only possible for hours,’ he told Vanessa Bell. ‘I hope you’ll take me in at Charleston when I finally relapse into insanity.’⁴⁷

The British Mission in Paris was not enthused by Lloyd George, as a government minister there, the Earl of Crawford, noted on 9 April: ‘They slave away, produce admirable dates, statistics, résumés, argumentations – but they well know that he won’t read them.’ Crawford wished that Keynes, ‘the Cambridge economist’, had ‘restrained the extravagance of ministerial promises’. Crawford judged him ‘one of the most influential of men behind the scenes’, but unsound in his advice, despite being ‘clear-headed, self-confident, with an unerring memory’. The trouble seemed to Crawford that this admittedly ‘wonderful fellow … has passed his life in a cloister’. Men like Crawford mistrusted Keynes because his views were unconfused. Throughout his life Keynes produced unimpeachable facts and figures, clear analyses, direct solutions and trenchant practical advice all based on the nitty-gritty of his subject, which were discounted by officials, politicians and bankers who dismissed him as academic, theoretical, quixotic, impractical. To them his clarity seemed too good to be true. It was even counter-productive to their aims, for politicians rely on diffusing apprehension, and use opacity and muddle to advance their interests. Keynes, however, held optimism to be one of the highest expressions of intelligence, and meant his proposals and doctrines to dispel fear.48

The change of mood in England, which was first indicated by the victory of the Asquith Liberal candidate in the Central Hull by-election, was confirmed in May 1919. Dorothy Buxton and her sister Eglantyne Jebb (the latter an associate of Keynes’s mother in Cambridge social work, and pre-war girlfriend of Keynes’s sister Margaret) founded the Save the Children Fund for the relief of starving and destitute Austrian and German children. They held a meeting at the Royal Albert Hall, and showed lantern-pictures ‘so terrible that they ought to be seen by every mother and father in England’, reported the Manchester Guardian. ‘No famine pictures from India have been worse than these, of rickety bodies, horribly distended, shrunken limbs bent and twisted, wizened, old, questioning baby faces.’ The Fund swiftly raised tens of thousands of pounds from magnanimous people whose outlook was not hobbled by the imbecilities of the Daily Mail.⁴⁹

In contrast to the wizened, rickety Viennese children, Paris that May seemed resplendent with the richest English milords. The territorial magnate Lord Derby had recently been installed in the Embassy as Ambassador. When Marcel Proust caught a head-cold, he combined hypochondria with name-dropping by boasting for months that he had caught it from the great Derby. The head of Baring’s bank, Lord Revelstoke, occupied an apartment in rue du Faubourg Saint-Honoré. Lord Londonderry escorted peeresses to dressmakers. Lord Wimborne took a party of titled beauties to a ball at the Hôtel Majestic which shocked English officials by lasting until three in the morning. The Foreign Secretary, Arthur Balfour, viewed every historic decision at the conference with ‘the detachment of a choir-boy at a funeral’, according to one of his officials, Robert Vansittart, and regaled smart women with each day’s diplomatic va et vient, poste et riposte.

‘Paris was a nightmare, and every one there was morbid,’ thought Keynes.

A sense of impending catastrophe overhung the frivolous scene; the futility and smallness of man before the great events confronting him; the mingled significance and unreality of the decisions; levity, blindness, insolence, confused cries from without, – all the elements of ancient tragedy were there. Seated indeed amid the theatrical trappings of the French Saloons of State, one could wonder if the extraordinary visages of Wilson and Clemenceau, with their fixed hue and unchanging characterisation, were really faces at all and not the tragic-comic masks of some strange drama or puppet-show.50

Neither politicians nor civil servants at the conference had experience in managing economic affairs beyond their own borders. The pre-war international trade system had been developed by private capitalists. State intervention had been limited to adjusting trade barriers, protesting at breached contracts, giving diplomatic support to concession-hunters. There was no governmental expertise in international interventions when businesses or economies were failing. It is therefore not surprising that the victorious nations thought only in terms of seizing booty or of placating voters. ‘The fundamental economic problem of a Europe starving and disintegrating before their eyes, was the one question in which it was impossible to arouse the interest of the Four,’ Keynes lamented of the French Prime Minister Georges Clemenceau, his Italian counterpart Vittorio Orlando, Lloyd George and President Wilson, who comprised the conference’s supreme Council of Four. ‘Reparation was their main excursion into the economic field, and they settled it as a problem of theology, of politics, of electoral chicane, from every point of view except that of the economic future of the States whose destiny they were handling.’51

The Tory imperialist Leo Amery, who approached Keynes’s Treasury department in 1917 about currency restrictions that he thought were hampering Canadian munitions production, recalled leaving a meeting with Keynes ‘impressed with the brilliancy of his conversation, but still more with his unhelpful Little Englander outlook’. But Keynes was not a Little Englander: his outlook was European. He anticipated earlier than most that his country must begin to participate in continental Europe on a scale unprecedented in peacetime. No serious politician tried to dodge back into the Little Englander mentality after 1919. Germany was recognized as the fulcrum of Europe. Its prosperity, its frontiers, its temper and its leadership were the ruling factors in the continent, including the British Isles, then as now. A British army of occupation remained there until 1930.⁵²

Duncan Grant was the Bloomsbury friend who was most sympathetic and magnanimous about Keynes’s official life. To him Keynes wrote on 14 May 1919: ‘I’ve been utterly worn out, partly by incessant work and partly by depression at the evil around me. I’ve been as miserable for the last two or three weeks as a fellow could be. The Peace is outrageous and impossible and can bring nothing but misfortune. To judge from the papers, no one in England yet has any conception of the iniquities in it.’ If he was a German, he continued, ‘I’d die rather than sign such a Peace.’ He doubted if the German delegates would accept the treaty, ‘but if they do sign, that will really be the worst thing that could happen, as they can’t possibly keep some of the terms, and general disorder and unrest will result everywhere. Meanwhile there is no food or employment anywhere, and the French and Italians are pouring munitions into Central Europe to arm everyone against everyone else. I sit in my room hour after hour receiving deputations from the new nations, who all ask not for food or raw materials, but primarily for instruments of murder against their neighbours.’ This renewed arms-race made him despair. ‘Anarchy and Revolution is the best thing that can happen, and the sooner the better,’ he told Grant. ‘I could cry all day for rage and vexation. The world can’t be quite as bad as it looks from the Majestic.’53

‘I am so sick at what goes on that I am near breaking point,’ Keynes warned Bradbury on 27 May, ‘and you must be prepared for my resignation by telegram at any moment.’ Bradbury, tall, stooping, pale and ascetic, always, at this time, carried in his pocket a letter of resignation, for he was fighting against either a level of reparations that would destroy Germany’s capacity to pay or terms that would seem too lenient. A few days later, Keynes took to his bed, exhausted by prolonged overwork, misery and rage. Once he dragged himself from bed to protest before the Reparations Commission against ‘murdering Vienna’, his favourite pre-war European capital, and achieved some alleviation. On 7 June he left Paris after resigning from the Treasury.⁵⁴

The letters and diaries of other British Empire delegates in Paris expressed similar exasperation and misgivings to Keynes. Jan Christian Smuts, the South African leader who remembered negotiating the Anglo-Boer treaty of Vereeniging in 1902 and wanted a magnanimous peace to be made in Paris, urged Keynes to write an exposure of the political and economic dangers of the financial clauses of the treaty. More than that, Keynes determined to write a book that expounded the official mind, that upheld the neutral, non-partisan and expert cadre that had run government ministries during the previous half-century, that discredited the jockeying of parliamentary politics and berated the Daily Mail mentality that made its profits by bullying the weak and truckling to the strong. Implicitly he proposed technical experts, with economists foremost, as a new brand of world leader, beyond the clutches of traditional party politics, vote-buying and tribal loyalties. These were the new objective leaders who could best manage change now that old notions of statecraft were obsolete. Keynes pictured the patrician civilization that he valued as under threat from a mob that was massing and surging forward to breach the park gates. But economists offered a new statecraft that might prevent peoples, nations and continents from sliding into mutiny, decline, violence and waste.

Keynes wrote most of the book during two summer months staying at Bloomsbury’s outpost beneath the Sussex Downs. ‘I am absolutely glued to Charleston, writing a book against time and never daring to take a morning off,’ he told Ottoline Morrell on 8 August. ‘It is about the economic follies and wickedness of the Peace Treaty, and … if it is to be of any use, I have to write a preposterous and devastating number of words per diem.’ Months later, after the final proofs had been checked, Keynes told Smuts that he had modified little of his frankness: ‘attempts to humour or placate Americans or anyone else seem quite futile, and I personally despair of results from anything but violent and ruthless truth-telling’.55

The book was published by Macmillan, in London, on 12 December 1919. Commercially it sank The Peace Conference, by the veteran foreign correspondent E. J. Dillon, published by Hutchinson a few weeks earlier: 18,500 copies of The Economic Consequences of the Peace had been sold in England by April 1920, and almost 70,000 in the United States. There were translations into German, French, Italian, Spanish, Russian, Romanian, Danish, Dutch, Swedish, Chinese and Japanese. His book invites comparison with The Last Days of Hitler by Hugh Trevor-Roper as a bestseller that emerged in the aftermath of a world war, and had tremendous impact after publication as well as an enduring influence. It was the middle of a trio of books by Bloomsbury Apostles – Lytton Strachey’s Eminent Victorians of 1918 and Leonard Woolf’s Empire and Commerce in Africa of 1920 were the others – written in the ruins of Edwardian civilization. Strachey’s iconoclasm in Eminent Victorians, and the critical acclaim and commercial success of the book, doubtless incited Keynes to irreverence about political leaders. Clive Bell’s pamphlet of 1915, Peace at Once, also had a discernible influence on Keynes’s ideas and expressions.

Robert Vansittart never forgave Keynes for resorting to calumny in order to score his points in The Economic Consequences of the Peace: ‘no redeeming features were allowed to sophists, hypocrites, rogues, ninnies, who had fiddled and faddled with a treaty dishonourable, evil, odious, ridiculous, fraught with the decadence of European civilisation’. Vansittart had in mind the famous pen-portraits of Clemenceau, Wilson and Lloyd George, drenched in the teasing irony, startling candour and pictorial observation favoured by Keynes’s friends, which were to be quoted round the world.56

Clemenceau was the most eminent of the peacemakers, with the best measure of other delegates, the most distinctive logic in his aims and the most decisive sense of himself. ‘He alone both had an idea and had considered it in all its consequences,’ wrote Keynes. ‘His age, his character, his wit, and his appearance joined to give him objectivity and a defined outline in an environment of confusion.’ He looked unmovable in his strength in conference sessions: ‘he wore a square-tailed coat of very good, thick black broadcloth, and on his hands, which were never uncovered, grey suède gloves; his boots were of thick black leather, very good, but of a country style, and sometimes fastened in front, curiously, by a buckle instead of laces’. He needed no apparatus to impose his authority. ‘He carried no papers and no portfolio, and was unattended by any personal secretary, though several French ministers and officials would be present round him … He spoke seldom, leaving the initial statement of the French case to his ministers or officials; he closed his eyes often and sat back in his chair with an impassive face of parchment, his grey gloved hands clasped in front of him. A short sentence, decisive or cynical, was generally sufficient.’57

President Woodrow Wilson’s opponents in the United States exploited Keynes’s depiction of his ineptness in diplomatic negotiations. ‘When it came to practice his ideas were nebulous and incomplete,’ Keynes judged. ‘He had no plan, no scheme, no constructive ideas whatever for clothing with the flesh of life the commandments which he had thundered from the White House. He could have preached a sermon on any of them or addressed a stately prayer to the Almighty for their fulfilment; but he could not frame their concrete application to the state of Europe.’ Wilson’s air of sanctimonious and rigid Godliness irritated not only free thinkers like Keynes, but other Englishmen at the conference who professed a more discreet Christianity. The political culture of the United States seemed other-worldly if not theocratic to many European leaders in 1919: these divergences in national temperament did not diminish as the US moved, with evident chariness, into the position of a world power; and they became uncomfortably conspicuous when Keynes led negotiations in Washington during the 1940s. But in 1919 Keynes identified personal failings in the President rather than intrinsic faults in the nation that he led. He was not singular among officials in Paris in finding Wilson’s diplomacy to be lumbering, stubborn and unadaptable. ‘The President’s slowness amongst the Europeans was noteworthy. He could not, all in a minute, take in what the rest were saying, size up the situation with a glance, frame a reply, and meet the case by a slight change of ground.’ Wilson seemed too mistrustful, too self-sufficient, too self-confident and jealous of his prerogatives as the only head of state among the negotiators. Consequently, he did not consult his entourage enough. In Keynes’s words, ‘the abnormal reserve of his nature did not allow him near any one who aspired to moral equality or the continuous exercise of influence. His fellow-plenipotentiaries were dummies.’58

Under advice, Keynes suppressed his most mordant references to Lloyd George, which he reserved to publish in his later Essays in Biography. But in 1919 he said enough. ‘Lloyd George, after delivering a speech in English, would, during the period of its interpretation into French, cross the hearthrug to the President to reinforce his case by some ad hominem argument in private conversation, or to sound the round for a compromise – and this would sometimes be the signal for a general upheaval,’ Keynes recounted in his vivid way.

The President’s advisers would press round him, a moment later the British experts would dribble across to learn the result or to see that all was well, and next the French would be there, a little suspicious lest the others were arranging something behind them, until all the room were on their feet and conversation was general in both languages. My last and most vivid impression is of such a scene – the President and the Prime Minister at the centre of a surging mob and a babel of sound, a welter of eager, impromptu compromises and counter-compromises, all sound and fury signifying nothing, on what was an unreal question anyhow, the great issues of the morning’s meeting forgotten and neglected; and Clemenceau, silent and aloof on the outskirts – for nothing which touched the security of France was forward – throned, in his grey gloves, on the brocade chair, dry in soul and empty of hope, very old and tired, but surveying the scene with a cynical and almost impish air; and when at last silence was restored and the company had returned to their places, it was to discover that he had disappeared.59

Keynes had been transformed by his experiences in Paris from being an Englishman into a European in his cares and outlook. ‘Europe is solid with herself,’ he wrote in Economic Consequences. ‘France, Germany, Italy, Austria, and Holland, Russia and Roumania and Poland, throb together, and their structure and civilisation are essentially one. They flourished together, they have rocked together in a war which we, in spite of our enormous contributions and sacrifices (like though in a less degree America), economically stood outside.’ It was therefore a horrific realization for this newly converted European that Clemenceau ‘took the view that European civil war is to be regarded as a normal, or at least a recurrent, state of affairs for the future, and that the sort of conflicts between organised great powers which have occupied the past hundred years will also engage the next. According to this vision of the future, European history is to be a perpetual prize-fight, of which France has won this round, but of which this round is certainly not the last.’⁶⁰

The Economic Consequences of the Peace was written with pugnacious verve and brilliant insight to scourge the ignorance, caprices, hypocrisy and bad organization of the Paris delegates. It was recognized by reviewers as simultaneously a mordant political pamphlet and a masterly technical discussion of the economic provisions of the Versailles treaty. For many intelligent readers it was the first book of economics that they had found intelligible. Keynes argued that Europe could not prosper unless Germany was restored to economic vigour: he blamed the peacemakers for wrecking European prosperity by their punitive attitude to Germany. ‘The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable – abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilized life of Europe,’ Keynes insisted. ‘Some preach it in the name of justice. In the great events of man’s history, in the unwinding of the complex fates of nations, justice is not so simple. And if it were, nations are not authorized, by religion or by natural morals, to visit on the children of their enemies, the misdoings of parents or of rulers.’61

He was aghast to see much of Europe, with its uplifting and enriching civilization, destitute and insurgent. The treaty did not promote the economic rehabilitation of Europe, but created new frontiers that were charged with economic as well as political significance. These entailed trade barriers, confiscations of private property, prohibitions and passport controls. The new states carved from the dismembered Habsburg and Romanov empires vied with each other for raw materials, foodstuffs, markets and capital. The treaty neither encouraged them to behave as good neighbours nor stabilized them. National rivalry, not continental cooperation, was let loose. The Versailles settlement cast Poland in the role that suited France, Keynes wrote: ‘to be strong, Catholic, militarist, and faithful, the consort, or at least the favourite, of victorious France, prosperous and magnificent between the ashes of Russia and the ruin of Germany’. Russia was rejected, not reclaimed, by the treaty. Like Germany, it was excluded from the League of Nations, which was created partly in order to contain both countries through the territorial guarantees and disarmament clauses embedded in the treaty of Versailles. However, as Keynes warned, unless its neighbours Russia and Germany were prosperous and stable, ‘Poland is an economic impossibility with no industry but Jew-baiting.’62

Keynes did not enthuse, as a good liberal might have done, that the peace treaty founded the League of Nations, or that its revision of frontiers brought liberty to Baltic and central European states that had previously been controlled by the Romanov and Habsburg empires. He saw the belligerence of the new states. The French armaments company Schneider, like its English rival Vickers, was offering to build arsenals and hunting for monopoly concessions in the new states of Poland and Estonia, in the enlarged kingdom of Romania and in the new kingdom of the Serbs, Croats and Slovenes. ‘Crazy dreams and childish intrigue in Russia and Poland and thereabouts are the favourite indulgence at present of those Englishmen and Frenchmen who seek excitement in its least innocent form, and believe, or at least behave as if, foreign policy was of the same genre as a cheap melodrama,’ Keynes wrote from firsthand experience. Economic Consequences assumed or asserted that prosperous, stable nations were less disposed to war than unstable, impoverished countries; but reviewers noted that Germany had been making the biggest profits from industrial success in 1914, yet still went eagerly to war – believing that conquests would enrich its economy.⁶³

‘You must get Keynes’ book,’ Austen Chamberlain urged his sister Ida on 21 December 1919. ‘He ought not to have written it, for he held an official position and from an ex-official it is very indiscreet. But it is … brilliantly written & his … portraits of Clemenceau and Wilson are masterpieces. I read the description of Wilson with malicious pleasure. What irreparable harm that man has done by his ignorance, self-sufficiency, party spirit & obstinacy! And alas! we and all Europe pay the price whilst his countrymen disown him and all his works.’ Chamberlain wished that he could differ from Keynes’s estimate of Germany’s inability to pay reparations or from his sense of the hopelessness of Austria under the treaty. ‘There is only too much truth in Keynes’ gloomy picture tho’ his attack on politicians for fixing an impossible indemnity is unfair since … the English ones followed the advice of an ex-Governor of the Bank, Lord Cunliffe, & one of the ablest of our Judges, Lord Sumner.’ Similarly, Chamberlain’s half-brother Neville recommended Economic Consequences to their sister Hilda. ‘It is a brilliant piece of writing and the descriptions of the Big Three at the conference are masterly. All the same I guess this Keynes to be a crank.’ The Cambridge man’s recommendation of a capital levy to extinguish the debts of the belligerent European nations, as a device to restore sound finance, ‘shows mental aberration of a dangerous kind’.64

‘I find it distasteful that a man (apparently of military age) should enjoy a safe and cushy job, and then write a book criticising his official superiors and his government’s policy,’ wrote Lord Crawford on 22 December. The book was published while Wilson’s Democrat administration was struggling without avail to secure the requisite two-thirds majority in the Republican-controlled Senate for the ratification of the Versailles treaty and of the League of Nations. Lord Reading, the former Ambassador Extraordinary in Washington who owed much to Lloyd George, deplored Economic Consequences to Crawford, who lamented that ‘these clever men, and Keynes is among the cleverest I know, are often so tactless – say such unwise things’. Crawford’s brother Sir Ronald Lindsay, who had charge of the Washington Embassy during Reading’s frequent absences, reported in a despatch from there that the book’s impact could not be exaggerated. ‘Americans do not care for the political side of the Treaty. The disposition of frontiers and provinces in the complicated geography of Europe does not interest them … But here is a book in eminently readable style and talking the international language of economics.’ Lord Hardinge of Penshurst, the Permanent Under-Secretary at the Foreign Office, whose role at the Paris conference had been relegated by Lloyd George, deprecated ‘the pernicious effects of Keynes’s book on American public opinion’.65

Keynes’s indictment of the fatally vindictive mood aroused by rabble-rousers at the time of the general election of 1918, which fashioned the reparations estimates of Cunliffe, Hughes and Sumner, was resented by such newspapers as the Daily Mail. The City banker Sir Charles Addis noted on 23 December 1919 that although Keynes’s book was widely discussed, ‘the Northcliffe Press boycott it’. The boycott was lifted on 5 January when The Times carried a long, hostile and well-informed article, written by its recently appointed editor Wickham Steed, a cosmopolitan linguist who had been a scouring critic of the pre-war Habsburg monarchy and was Northcliffe’s dependable mouthpiece. Steed found Economic Consequences ‘vitiated by a persistent pro-German bias’. How, he demanded, did Keynes ‘come to hold the position of technical adviser to one of the most technical Departments of State? How, unless his bias had been throughout akin to that of the conscientious objector, could he place the Allies on the same moral level as Germany in regard to the war?’ However, Steed, no more than other reviewers, did not pounce on a deficiency in Economic Consequences: Keynes elided the fact that the terms of the Versailles treaty were lenient compared with those imposed by Germany in the treaty of Brest-Litovsk in 1918, whereby Russia had been denuded of a third of its population, deprived of half its industrial capacity and nine-tenths of its coal-mines, and subjected to a massive indemnity. Similarly, the exactions which Germany had hoped to levy on the Allies in the event of winning the war were harsher than those of the Versailles treaty. But Keynes was too magnanimous to discuss Germany’s actions and intentions in victory, and thus engendered a sentimental internationalism resting on a false realpolitik.⁶⁶

As Keynes sat at Charleston writing in the summer of 1919, he surely had the subordinate aim of arming the dissident Asquith Liberals with weapons against the despised usurper, Lloyd George. Indeed, his ironical treatment of Clemenceau, Lloyd George and Wilson had perhaps been incited, in part, by a hint from Margot Asquith that the personalities and ambience of the peacemakers should be drawn for posterity. Certainly, the Asquith faction rejoiced in the skewering of their Welsh bugbear. Keynes was the literary lion at a post-Christmas house-party held by Henry and Margot Asquith at Sutton Courtenay. Asquith’s elder daughter, Violet Bonham Carter, recorded guests clustering around him. ‘He read it aloud to us,’ she reported: ‘brilliant – an unanswerable indictment.’ Margot Asquith sent a telegram urging her friend Ettie Desborough to read Economic Consequences, while Violet praised its author as ‘a most interesting & delightful creature with a mind like a blade’.67

The book impressed modernizing industrialists. Lord Perry, head of the Ford Motor Company operations in England, said he became ‘a very humble pupil at the footstool of Lord Keynes’ after reading Economic Consequences in the early 1920s. The younger Lord Melchett, vice-chairman of Imperial Chemical Industries, made similar tributes. Humbler office workers were also convinced. T. S. Eliot at this time headed the Intelligence Department of Lloyds Bank, where he compiled a daily sheet of commercial and financial extracts from foreign newspapers, and monitored the doings of businesses and officials in Germany, France, Italy, Spain, central Europe, the Balkans and the USA. Confined in a poky underground office, where his nerves were taxed by the hammering above his head of the heels of passers-by on the glass squares of pavement which roofed his room, his outlook embraced the continent, as Keynes’s did. Compiling business synopses made him see Europe as a whole, and showed him the limits of national frontiers and of discredited notions of sovereignty. Economic Consequences he read and recommended soon after publication. Keynes’s description of the ‘blasted grandeur’ of the Western Front, where ‘for mile after mile nothing was left … and no field fit for the plough’, with devastated districts all ‘a heap of rubble, a morass of shell-holes, and a tangle of wire’, influenced Eliot’s great poem of aridity, The Waste Land.68

It is often overlooked that the United States favoured the reduction of German reparation obligations while insisting that its former Allies repay all American loans. This would have saddled English taxpayers with most of the huge cost of the war. It is equally overlooked that Keynes advocated measures to promote French recovery as well as Austrian and German. In Economic Consequences he recommended that French war debts to the United Kingdom and the United States should be waived; that reparation claims by the London government should be deferred until those of the devastated areas of Belgium and France had been met; and that surplus coal production from England, Wales and Scotland should be allotted to the League of Nations for distribution to France and other European nations in need. These ideas were not conceived by someone who was antagonistic to the French. They were the work of a man who was not hobbled by narrow notions of national sovereignty, but saw Europe as a whole.

Keynes’s book set the fashion for deploring the treaty of Versailles, as the Conservative politician Robert Boothby complained thirty years later.

What Lytton Strachey had already done for biography, he did for economics. They were dull no longer. On the contrary, they were deliciously exciting; and all mixed up with the most delectable debunking of world-famous political personalities. It was tremendous fun to find, in the middle of a table of reparations payments or coal deliveries, Mr Lloyd George described as a siren, and President Wilson as an old Presbyterian who could not be de-bamboozled. All the great men were pulled off their pedestals. Alas, nothing was put in their place. The passion in this book, its controversial sweep and imaginative power, the brilliance of the writing, combined to make it a bestseller which exercised a profound influence.

Boothby disliked the political results of Economic Consequences. ‘It established, irrevocably, the legend of the Diktat, which, more than anything else, reduced the western democracies to paralysed political impotence, and enabled Hitler – only twenty years later – to trample the continent of Europe underfoot.’69

Robert Vansittart similarly complained that Keynes had treated Clemenceau’s negotiating stance as akin to the German invasion of Belgium. Keynes’s assertion that ‘the perils of the future lie not in frontiers and sovereignties but in food, coal and transport’ proved his distorted focus to a Foreign Office man. The real threat to European peace lurked in latent German militarism, Vansittart judged, ‘not in the fact that France and Italy were broke, while Russia, Hungary, Austria and Poland were in worse case, nor in some undoubted rickets among German children who twenty years later were again sweeping lustily over Europe’. Germany was not economically crippled for long, Vansittart insisted. Ten years after the signature of the treaty of Versailles, German coal, iron and steel output beat all records, savings rose hugely, and national income was 60 per cent higher than before the war. There was a crisis of over-production in 1929; German exports exceeded British for the first time in 1930. It aggrieved Vansittart that ‘Keynesian fallacies’ fostered ‘the myth that National Socialism was due to this much maligned treaty’. He noted that in 1924 French troops evacuated the Ruhr, as a rider of the Dawes Plan which provided Germany with a loan of $800 million to pay its greatly reduced obligations, and that nine months later Field Marshal von Hindenburg was elected President in an upsurge of nationalism. Similarly, in 1930, the Young Plan and loan eased German debts, and the last Allied troops left the Rhineland five years ahead of treaty-time: three months later the National Socialist Party won 107 seats in the Reichstag.70

Boothby, Vansittart, McCallum and like-minded critics seem to mean that Keynes created a guilt-complex among the victorious Allies which led to policies that fostered Nazism and incited Hitler’s aggression. But Keynes’s book had not yet been published when the US Congress first refused to ratify the treaty of Versailles and vetoed American participation in the League of Nations: it was America’s entrenched isolationism, and Wilson’s determination not to yield on amendments, that sundered hopes of the US participating fully in world affairs. Economic historians now tend to believe (on the basis of computations that the next generation will probably revise) that Germany could have afforded to pay the stipulated reparations, which were not as irrational as Keynes claimed. But less than half of the £6.6 billion demanded by the Allies under the Versailles treaty was reckoned by their experts to be recoverable. Consequently, throughout the 1920s, the Foreign Office’s tactics – remotely influenced but by no means devised by Keynes – sought to pacify Europeans tensions by allowing reparations and then war debts to be winnowed, during thirteen years of wrangling, to about £1 billion. ‘From the earliest years following the war,’ explained a Foreign Office memorandum, ‘it was our policy to eliminate those parts of the Peace Settlement which, as practical people, we knew to be untenable and indefensible.’ The upshot of this policy was revisions, almost year by year, to the schedule of German repayments during the 1920s: ensuring, in the words of Lord Robert Cecil, the ex-Minister of Blockade who attended the early phase of the Paris conference, ‘the maximum of financial disturbance with the minimum of result’. It was not Keynes’s polemic that taught German voters that the Allies were yielding diplomatists. These reductions were not necessitated by Keynesian sophistry, but by the unenforceable provisions of which he had warned. The fact that there was no political will to collect punitive damages from Germany for the next thirty years was not of Keynes’s making. If the adjustments of the financial clauses encouraged some Germans to expect comparable adjustments in the territorial clauses, as demanded by Hitler in the 1930s, this was the product of a faulty treaty, not of the book that pinpointed the faults. Revulsion at the futile slaughter of 1914–18 led all British political parties to endorse disarmament in the 1920s: any other course was unthinkable; but it was the unpreparedness in land, sea and air weaponry that made appeasement unavoidable after Hitler began a policy of European aggression.71

Nevertheless, the sense that Keynes had seized an unfair chance was prevalent. H. G. Wells described him to Siegfried Sassoon as ‘a man who believes himself to have been brilliant, but was really only opportune’. His nomination for a fellowship of the Economic Section of the British Academy was rejected in 1920 by a cabal of literary critics and archaeologists led by the historian of English and French literature George Saintsbury. ‘My earnest hope [is] that this ill-omened candidate will be either withdrawn or decisively rejected,’ declared Saintsbury, who felt that Keynes’s election would be construed as an affront to France, an encouragement to Germany and ‘a definite expression of political partisanship’ against the Lloyd George coalition. Keynes was indignant that the honour of election was thus ‘tainted’ by the demands of ‘political, social and conventional orthodoxy’, and warned that the British Academy risked becoming ‘an undesirable, as well as an insincere, institution’. For some years he refused to allow his name to be renominated, but relented in 1929. He also seems to have been blackballed from the Royal Society for criticizing a government that he had recently served. The Cambridge physicist Sir J. J. Thomson, who was President of the Royal Society during 1916–20, was once asked if the good of Economic Consequences did not outweigh its irregularity. ‘Not at all,’ Thomson replied. ‘What he said in that book was only what every sensible person knew already. He merely got easy publicity by mentioning things that he could have known only by being in the public service, such as Clemenceau’s wearing mittens.’72

It was part of the genius of Keynes that, in writing of statecraft, he made the world remember mittens.

* Burn’s unsuccessful Liberal opponent in the 1918 general election at Torquay was Keynes’s former lover and lifelong friend, Sidney Russell-Cooke.