To the Editor of The New Statesman, 25 September 1923

Sir,

Since you refer to a criticism by Sir W. Beveridge, in his address to the British Association on ‘Population and Unemployment’, of a statement made by me some time ago relating to the course of the relative values of agricultural produce and manufactured articles between 1900 and 1910, may I say that Sir William's figures do not confute my statement, because they give little or no weight to the prices of manufactured articles? My rejoinder furnishing the evidence on which I was relying will be published in The Economic Journal for December next, together with the full text of Sir William's address.

Yours, etc.,

J. M. Keynes

Keynes turned to another aspect of Beveridge's address in the columns of The Nation.

From The Nation and Athenaeum, 6 October 1923

POPULATION AND UNEMPLOYMENT

Sir William Beveridge's interesting address, under this title, before the British Association has revived discussion on a matter which, whatever way it touches our hopes or our prejudices, must surely trouble the thoughts of anyone who concerns himself with political or social purpose.

This new standard edition of The Collected Writings of John Maynard Keynes forms the memorial to him of the Royal Economic Society. He devoted a very large share of his busy life to the Society. In 1911, at the age of twenty-eight, he became editor of the Economic Journal in succession to Edgeworth; two years later he was made secretary as well. He held these offices without intermittence until almost the end of his life. Edgeworth, it is true, returned to help him with the editorship from 1919 to 1925; MacGregor took Edgeworth's place until 1934, when Austin Robinson succeeded him and continued to assist Keynes down to 1945. But through all these years Keynes himself carried the major responsibility and made the principal decisions about the articles that were to appear in the Economic Journal, without any break save for one or two issues when he was seriously ill in 1937. It was only a few months before his death at Easter 1946 that he was elected president and handed over his editorship to Roy Harrod and the secretaryship to Austin Robinson.

In his dual capacity of editor and secretary Keynes played a major part in framing the policies of the Royal Economic Society. It was very largely due to him that some of the major publishing activities of the Society—Sraffa's edition of Ricardo, Stark's edition of the economic writings of Bentham, and Guillebaud's edition of Marshall, as well as a number of earlier publications in the 1930s—were initiated.

NOTES ON EXTERNAL FINANCE IN THE POST-JAPANESE-ARMISTICE TRANSITIONAL PERIOD

The Magnitude of the U.K. Deficit

Some months ago the Economic Section estimated the aggregate external deficit of the U.K. in the first two post-war years at £575 million. This needs revision in the light of later facts, but such a revision (if the basic assumptions remain unchanged) may not involve more than (say)±£100 million.

It is based in some respects on optimistic, in other respects on pessimistic, assumptions. In particular:-

(i) It assumes, especially in the second year, a significant relaxation of war-time restrictions on consumption. An alternative estimate on the basis of minimum civilian consumption reduces the two-year deficit to £75 million. The programme which the Ministry of Food is contemplating would tend to produce, I think, the higher, rather than the lower, figure of deficit.

On several occasions between 1920 and 1926, Keynes worked at a history of ancient currencies. In his correspondence with Lydia in 1924 and 1925–6, he reported that bursts of work on the subject kept him from working on his Treatise on Money.

Although subsequent research has meant that many of the details of Keynes's story require revision, the fragments which emerged from his research are of sufficient interest in themselves to merit publication, for they show Keynes turning his mind in an unexpected direction.

From Keynes's efforts over the period, the first surviving fragment dates from 1920.

NOTE ON THE MONETARY REFORM OF SOLON

According to Professor Gardner's interpretation of the authorities, Androtion makes out Solon's reform to consist in a change from the Aeginetan drachma (proportion 73 to 100), whereas according to Aristotle, Solon's change was from the Aeginetan drachma to the Euboic drachma (proportion 70 to 100). Professor Gardner thinks that the account of Aristotle is the correct one. He believes, therefore, that Solon changed the standard from the Aeginetan to the Euboic and that the change from the Euboic to the Attic was effected by Peisistratus fifty years later. I have not seen any direct evidence of the supposed further change of standard under Peisistratus.

I suggest that Professor Gardner has misunderstood Aristotle's statement and that there is in substance no contradiction between the statement of Androtion and that of Aristotle.

Most of the newspaper accounts which I have read do less than justice to the remarkable personality of Edwin Montagu. 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 dramatising life and his part in it, and seeing himself and his own instincts either in the most favourable or in the most unfavourable light, but seldom with a calm and steady view. Thus it was easy for the spiteful to convict him out of his own mouth, and to belittle his name by remembering him only when his face was turned towards the earth. 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 which pricked into dustier dust the rhetoric and the glory.

That he was an Oriental, equipped, nevertheless, with the intellectual technique and atmosphere of the West, drew him naturally to the political problems of India, and allowed an instinctive, mutual sympathy between him and its peoples. But he was interested in all political problems and not least in the personal side of politics, and was most intensely a politician. Almost everything else bored him. Some memoir-writers have suggested that he was really a scientist, because with nature he could sometimes find escape from the footlights.

The tithe had long been a part of the English agricultural scene. This tax, levied in kind, of one tenth of the yearly produce of the land had originally been for the support of the clergy and the Church. However, in many cases, rights to receive tithes had passed from ecclesiastical to lay hands as a result of the dissolution of the monasteries by Henry VIII. In 1836 tithes were commuted and a rentcharge fixed instead. This rentcharge was based on an index of the prices of wheat, barley and oats averaged over the previous seven years. With the sharp rise in grain prices during the War, the rentcharge rose from £77 in 1915 to £109 3s. 11d. in 1918 per £100 par value in 1836. Such a rise, which most people expected to continue as grain prices would remain high after the war, led to an outcry which resulted in The Tithe Act, 1918, which pegged the rentcharge at its 1918 level for a further seven years. This pegging protected the farmer against the rising prices of the post-war boom, but it meant that the subsequent collapse in prices had no effect as well. True, tithe-payers could under earlier legislation redeem their liability by paying a capital sum of 25 times the par value, and many did so after 1917. Nevertheless, in the early 1920s more than £3 million per annum was being paid to tithe-holders.

A year ago it was the failure of agriculture, mining, manufactures, and transport to make normal profits, and the unemployment and waste of productive resources ensuing on this, which was the leading feature of the economic situation. Today, in many parts of the world, it is the serious embarrassment of the banks which is the cause of our gravest concern. The shattering German crisis of July 1931, which took the world more by surprise than it should, was in its essence a banking crisis, though precipitated, no doubt, by political events and political fears. That the topheavy position which ultimately crumbled to the ground should have been built up at all was, in my judgement, a sin against the principles of sound banking. One watched its erection with amazement and terror. But the fact which was primarily responsible for bringing it down was a factor for which the individual bankers were not responsible and which very few people foresaw—namely, the enormous change in the value of gold money and consequently in the burden of indebtedness which debtors, in all countries adhering to the gold standard, had contracted to pay in terms of gold.

The conference at Spa was followed by a different kind of conference at Brussels —of financial experts, not politicians. Called by the Council of the League of Nations, it was attended by delegates from 35 countries, including four nonmember, ex-enemy countries, with the purpose of exploring means of restoring international credit and furthering trade. Originally scheduled for the end of May, it was postponed until July and finally took place at the end of September. This gathering stemmed from the memorial to the League of Nations in January concerning the international loan; Alexandre Celier of the French Ministry of Finance, who was one of its vice-presidents, wrote to Keynes in the preparatory stages (30 June 1920) that it was ‘due a votre initiative’. (It owed ‘a very great deal in the way of clear thinking’ to the British delegates, The Timers correspondent remarked.) Celier's letter thanked Keynes for sending him copies of both the English and French editions of Economic Consequenees. He also asked Keynes what the prospects were of Brussels achieving an understanding of the necessity for international solidarity in financial policy.

To ALEXANDRE CELIER, 8 July 1920

My dear Monsieur Celier,

It has been a great pleasure to me to receive your friendly letter of the 30th June. In spite of the criticism with which many of my ideas have been received in the French Press, I am sincerely aiming at the advantage of your country as well as of mine, and most firmly believe better prospects are opened up by an attempt to deal with the facts objectively than by a tendency, however natural, to persevere in illusion.

‘I was in the Treasury throughout the war and all the money we either lent or borrowed passed through my hands’—so Keynes, speaking in 1923, airily described his wartime duties. He hardly exaggerated, as he was directly concerned with the strategy of financing Britain's war expenditure and that of her allies, and finally took charge of a division of his own responsible for all of Britain's inter-allied financial arrangements.

He kept a mass of minutes, memoranda, first and second drafts, reports and printed papers documenting this period of his life. By itself, however, the material is incomplete and inconclusive. The records of the Treasury and the Cabinet Office, now made available at the Public Record Office, help in large measure to fill in the gaps and reveal a remarkably influential role for a man between the ages of 31 and 36.

When Keynes entered the Treasury it was a comparatively small group, and the war still seemed a small war. At first he had many jobs, but as the war went on Britain's financial involvement mushroomed, and this national burden became his particular care. The following section does not provide an exhaustive account of his work. The papers reproduced have been chosen to show the different kinds of things that he was doing and his manner of doing them. They are interesting for the light that they throw on his development as an economist or on the similarities and differences in his thinking at this stage and in later years.

Reginald McKenna was singularly fortunate in finding a new career, in which he became not less distinguished than in politics, when the personal and party rift which ended with the resignation of Mr Asquith brought his life as a Cabinet Minister to a standstill, which he found himself exceedingly ready to leave undisturbed unless it could be ended entirely on his own terms.

Yet it was by 1925 a fatal loss to the country that the most adventurous and at the same time the most constructive and persistent intellect of that brilliant band who had surrounded Mr Asquith should have been too far removed from the seat of power to influence decisively the course of events. From the years preceding the return to gold to its final abandonment in disaster, and the still later disrepute of contractionism, McKenna, in a way that no other banker had ever attempted, made the chairmanship of his great institution a pulpit from which to instruct and educate public opinion. In this way he played a signal part in creating that new public opinion, which has made what then seemed the invincible orthodoxy of the ‘twenties disappear like the old London fogs. During those years he was the one powerful champion of the new ideas speaking from an unchallengeable position in the City itself. But as a mere instructor, cut off from the actual formation of policy, he was not able to prevail until after evil had been done.

DECISIONS OF POLICY AFFECTING THE FINANCIAL POSITION IN STAGES II AND III

A day or two before leaving for U.S.A. I mentioned to Sir R. Hopkins that I was uncomfortable about the possible cumulative effect of certain current decisions of higher policy (or, in the case of exports, lack of decisions) on our prospective financial position, especially in Stage III. He asked me to prepare a few notes and to ask Sir D. Waley to consider a more detailed examination of the case.

It will be convenient to begin with the latest estimate prepared in the Treasury (dated 1.9.44) of our overseas expenditures and receipts in the first year of Stage II, which I shall assume in what follows to be co-terminous with 1945. I shall argue subsequently that this estimate is in some respects too optimistic and in other respects too pessimistic. (In particular, a significant improvement will result if the Prime Minister's latest man-power directive is actually carried into effect.) But it will serve as a text to bring out the main points which I have in mind.

(1) The Chancellor should know that this latest estimate of our net overseas disinvestment in the first year of Stage II (say 1945) is higher than for any year of the war up to date, even on the assumption that lend lease and Canadian mutual aid continue on the same lines as heretofore.