Architect of a stable world

March 16, 2001

Forrest Capie looks at the last years of Keynes's remarkable life.

This is the third and final volume of what has generally come to be regarded as a masterpiece in biography. It is 30 years since Robert Skidelsky was commissioned by his publishers to write this work. What was originally contemplated as a single volume of about 150,000 words, has appeared in three volumes, adding up to something closer to 1 million words. Hopes Betrayed (which appeared in 1983, on the centenary of Keynes's birth) told the story of Keynes up to 1920, at which point he was already famous, principally for his attack on the Versailles Treaty. The Economist as Saviour (1992) described the interwar years and in particular Keynes's role as developer of theory and as practitioner. Fighting for Britain covers the remaining nine years of Keynes's life, from 1937 to his death in 1946. It deals essentially with war finance and preparation for a new international financial architecture after the war.

Biography is a special kind of art. It requires most of the skills of the historian, which is Skidelsky's profession, and a number of others. All biographers need to immerse themselves in the life of their chosen subject. With intellectual biography, they need to explain why the subject thought as he did. Since Keynes is generally acclaimed as the greatest British economist of the 20th century, with a truly powerful intellect according to those reckoned capable of such judgement, who also had enormous energy for a range of things other than economics - it is obvious that his biographer faces a challenge, no matter how well equipped by intellect and training. And Skidelsky was not trained as an economist. He had to teach himself economics, about which he has said: "It meant learning a style of thinking which is alien to the historian. Economics is a branch of logic; history is analytical description, based on evidence. There are no models in history, because every event is unique."

Skidelsky has certainly completely immersed himself in the subject matter. He even lives in the house in Sussex that Keynes lived in. He stayed in the same suite at the hotel in Bretton Woods, New Hampshire, that Keynes stayed in during the meetings where the final touches were put to the design of the International Monetary Fund. Along the way, he has moved from an enthusiasm for planning and intervention at the time of his commissioning, through an affection for the middle ground of the Social Democratic Party, to a fairly wholehearted acceptance of the market economy: he was the Conservative economics spokesman in the House of Lords in 1998-99. Yet Skidelsky would still describe himself as a Keynesian.

The first two volumes brought Keynes alive. To some extent in the third volumes there is the implicit assumption that we know the man and there is more emphasis on what he did. He did a lot. Keynes was at the centre of all that happened to British finance over the whole war period. Yet he was seriously ill with heart disease from 1937 onwards. In spite of the attentions of the Hungarian doctor, Janos Plesch, whom Keynes called "the ogre", with some remarkable results, he was in physical decline from 1937 onwards. Indeed, Skidelsky uses Keynes's health as a metaphor for the decline of capitalism and the exhaustion of the British economy. Britain was on a downward path and finished as a great power by 1946. Although Keynes's health fluctuated with the changing fortunes of Britain in war and with the stock market, where much of his wealth was, the trend was unmistakably down.

The book is concerned in the main with two huge issues. The first is war finance, the second is the design of a postwar monetary system. Both depended heavily on the United States. They were seen as being deeply affected by the nature of the "special relationship" that was supposed to exist between the United States and the United Kingdom. A great deal is often made of this relationship but much of it, especially in wartime, was clearly propaganda. In 1939, it was at best a complex, perhaps tenuous, and certainly tension-riven relationship. How to pay for the war, and how to obtain and organise the required resources, are the chief emphases in the first half of the period covered by the book. Keynes's pamphlet, "How to pay for the war", published in 1940, drew on the theoretical framework he had developed in his General Theory of Employment, Interest and Money (1936) to show how the war could be fought without inflation (though it underrated the success of price controls supported by rationing). Its proposals were put into practice in the 1941 budget. Skidelsky calls the pamphlet "the quintessence of Keynes's achievement. It engaged all the qualities of his complex nature. The union of theory and practice, the linking of economic doctrine to political philosophy here achieved its most compelling artistic expression." In presenting this case, he also shows how passionate Keynes was about controlling inflation. Keynes believed totalitarianism would be the outcome of failure, and in this, he was in remarkable agreement with Hayek.

Additionally, there was a need for hard currency to buy necessary supplies for directly and indirectly fighting the war. This invariably meant dollars. So Keynes travelled frequently to the US to negotiate the acquisition of such funds. The problems that underlay these negotiations continued at the end of the war when Britain again turned to the US for assistance. Keynes's strengths apparently did not extend to politics and he was not a good negotiator. He had an irritating tendency to tell the Americans how to run their country. And some also felt that he was too clever for the job: there were occasions when he almost seemed to prefer winning the argument to being persuasive or being right. He certainly got up important American noses. There was the further problem of a general failure on the part of the British to understand the workings of the American political system. Skidelsky gives enormous detail on endless drafts and discussions throughout this process and yet manages to paint a vivid picture of the times and the relentlessness of Keynes's efforts.

In the second half of the period, attention shifted to what would happen to the postwar financial system. Two plans had been in the making for some time. One came from the senior official in the US Treasury, Harry Dexter White. The other was that of Keynes. The main questions that arise are: how different were these two schemes, and do the differences matter greatly? Skidelsky says they differed a lot and he places importance on this. Keynes was a passionate patriot and his design had Britain's future as a leading country at its centre. White, who was anti-British, had quite different intentions. Reputed to be a Soviet agent and known to have passed on confidential information, his view of the postwar world was one of the Soviets and the Americans dividing the world between them.

Keynes overestimated the support for Britain in the US. The country was under the control of the Democrats, a party dominated by immigrants who hated empires, and that included the British Empire. US public opinion was against participating in the war. If the US lent support to Britain in the early years of the war, an expected byproduct was destruction of the British Empire, argues Skidelsky. This line of argument is found widely in British historiography. But it may need moderating. At any rate, in the end, Keynes was not hugely successful in fending off American supremacy. As Skidelsky writes: "For the first time in its history, Britain found itself a suppliant for means-tested benefits, with Morgenthau (the US secretary of the Treasury) running the benefit office."

Throughout all these talks, travel and bouts of ill-health with some recovery, emerges an affectionate picture of Keynes's wife, the Russian ballerina Lydia Lopokova, whom he married in 1925. Hers was an idiosyncratic contribution to all aspects of Keynes's life including the often-exhausting negotiations with the Americans.

Although this third volume appears at first to be primarily about politics and negotiations, economics is very material to what is being discussed. The British saw the White plan as old-fashioned, gold-based and likely to be deflationary, while the Americans were inclined to see the Keynes plan as dangerously inflationary. Economics matters greatly to the interpretation of the plans for the postwar world, although some would argue that the differences in economic outcome did not add up to as much as was claimed. There is an important similarity, for both plans rested on an analysis of what had gone wrong between the wars, and both Keynes and White saw the trouble essentially as lying in volatile capital flows. Others, however, identified misaligned exchange rates and faulty exchange-rate regimes. For example, Gottfried von Haberler - but Keynes got Richard Kahn to savage the Haberler view in the Economic Journal , which he edited. For Keynes, since the problem lay in capital flows, the solution, at least in part, was control of capital flows, and so that control lay at the heart of his design for a new system. The contemporary difference in view may help to explain the different viewpoints that exist today on the international monetary system.

Fighting for Britain is an intellectual biography, but it is much more than that: a monumental achievement. No student of the period should be without it. No one wishing to understand the recent discussions of the "new international financial architecture" can afford to ignore it. Indeed, no one who wants to understand the course of British history in the 20th century can be without it.

Forrest Capie is professor of economic history, Business School, City University.

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