Grand Pursuit

by Sylvia Nasar

  “The economic mechanism of Europe is jammed,” wrote David Lloyd George, Britain’s wartime prime minister, to Woodrow Wilson.3 Everything depended on economic revival, but the heads of victorious states gathering in Paris seemed incapable of paying attention. This, in any case, was the gloomy view from the third floor of the magnificent Hotel Majestic near the Place d’Etoile, where the British delegation was housed and where Maynard Keynes, the rising Treasury star, was dashing off a letter to Vanessa Bell, assuring her that she would “really be amused by the amazing complications of psychology and personality and intrigue which make such magnificent sport of the impending catastrophe of Europe.”4

  • • •

  Keynes had arrived at the Hotel Majestic on the tenth of January, the wettest, most depressing month of the year. President Woodrow Wilson had been in Paris for a month, prime minister Lloyd George was not due for another day. The city, which had managed to avoid falling to the kaiser’s troops despite heavy bombardment, was now an occupied zone. American Express branches had sprouted like chanterelles. Giant British printing presses were groaning in the Champs de Mars. Black sedans carrying diplomats and drab military vehicles clogged the streets while young men and women wearing the uniforms of some twenty-seven countries jammed the sidewalks. The whole world was in Paris, it seemed.

  A mini-Whitehall and a mini–White House constituted themselves on the Seine. Winston Churchill, Britain’s minister of munitions, accompanied as always by his faithful secretary, Eddie Marsh, shuttled back and forth between the two. On the far end of the Champs-Elysees were President Woodrow Wilson and a team of advisors that included Bernard Baruch, the financier; John Foster Dulles, counsel to the American team; and Felix Frankfurter, former assistant to the secretary of war. The delegations brought their own fleets of cars and airplanes, set up their own telephone and telegraph networks, and operated their own trains.

  Keynes was not a member of Lloyd George’s inner circle. Accordingly, while the prime minister and his mistress, Frances Stevenson, were installed in a luxury flat, Keynes was bunking in the Hotel Majestic with the rest of the British delegation. The hotel, which had been undergoing preparations since shortly after the armistice, had its own physician, a chaperone for the female staff, and a security detail of Scotland Yard detectives who were supposed to forestall leaks. As a result, it was easy to get out of, but “extremely difficult to get in,” recalled Harold Nicolson, a British diplomat in the delegation who was married to the writer Vita Sackville-West and was an old friend of Keynes’s. The hotel was “staffed from attic to cellar with bright British domestics from our own provincial hotels. The food, in consequence, was of the Anglo-Swiss variety,” Nicolson added.5 Oddly, no one thought of replacing the French staff in the Hotel Astoria next door, where the British delegation had its offices and kept its confidential maps and papers.

  The most extraordinary people floated in and out of the Majestic. Ho Chi Minh, the future leader of the Viet Cong, washed dishes in the kitchen. T. E. Lawrence, aka Lawrence of Arabia, was often in the lobby, as were Jean Cocteau, the playwright; and Marcel Proust, “white, unshaven, grubby, slip-faced, wearing a fur coat and white kid gloves.” Nicolson described their encounters:

  He asks me questions. Will I please tell him how the Committees work? I say, “Well, we generally meet at 10:00, there are secretaries behind . . .” “No, no, you’re going too much too fast. Start over. You took the official car. You got out at the Quai d’Orsay. You climbed the stairs. You entered the room. And, then? What happened? Be precise, my dear, precise!” So I tell him everything. The sham cordiality of it all; the handshakes; the maps; the rustle of papers; the tea in the next room; the macaroons. He listens enthralled, interrupting from time to time—“Be more precise, my dear man, don’t go too fast.”6

  Journalists outnumbered diplomats. Frederick Maurice, a former major general, was in Paris on assignment for the London Daily News. He had nearly brought down the government by accusing the prime minister of lying to Parliament about British troop strength late in the war. His favorite child, Nancy, was in Paris too, the brand-new secretary of the married, middle-aged, conservative Major General Edward Louis Spears, who would one day become her husband—one of countless young female assistants whose khaki uniforms inspired several mildly salacious chansons. Her younger sister, Joan, a precocious fifteen-year-old student at St. Paul’s Girls School in London, who showed no sign of becoming one of the century’s most famous economic thinkers, would have given anything to be in Paris too. She had to content herself with Nancy’s patchy, pompous bulletins to their mother.

  • • •

  Maynard Keynes was considered “one of the most influential men behind the scenes” in Paris. Even his critics acknowledged that he was “clear headed, self-confident, with an unerring memory.”7 He complained, with justification, of overwork, but his dinner companions wryly noted his “unsurpassable digestion” and capacity for champagne. At thirty-six, Keynes was still as thin and lanky as an undergraduate. His upturned nose and fleshy lips had earned him the nickname Snout in his school days and he had the hungry look of someone who was, as Lady Ottoline Morrell, one of Bertrand Russell’s lovers, remarked disparagingly, “greedy for work, fame, influence, domination, admiration.”8 Keynes’s arrogance could be breathtaking, his manners appalling, his dress sloppy. Yet his luminous eyes, animated features, and aura of confidence made him attractive. Men and women alike found his silky, melodious voice irresistible.

  Born in 1883, the same year as Joseph Schumpeter, Keynes was the favorite son of a highly successful, close-knit Cambridge academic family, at home with, and in some cases related by marriage to, other intellectual dynasties, including the Darwins, Ramseys, Maurices, Stephens, and Stracheys. Neville Keynes, his father, was a lecturer in moral philosophy and a close friend of Alfred Marshall. His mother, Florence, who became mayor of Cambridge in 1932, was active in local politics and philanthropy. They were bright, attentive, affectionate parents to Keynes and his two younger siblings.

  Recognized as a genius in adolescence, Keynes was groomed to be a Cambridge fellow virtually from the cradle. Neville Keynes encouraged his gifted son to pursue mathematics. After graduating with honors from Eton in 1902 and obtaining a top score on the Cambridge entrance examination, Keynes entered one of the oldest Cambridge colleges, King’s, on a scholarship. The publication of the philosopher G. E. Moore’s Principia Ethica at the end of Keynes’s freshman year was the great event of his undergraduate career, all the more so because Moore was a member of the Apostles, which served as a link between generations of Cambridge intellectuals. Principia Ethica was concerned with defining a good life. The Victorian preoccupation with striving, moneymaking, and obeying rules was the target. Rejecting the utilitarian values and do-good moralism of Alfred Marshall’s generation, as well as its sexual mores, Moore espoused a kind of radical individualism and aestheticism tempered by the Golden Rule. “Nothing mattered except states of mind, our own and other people’s, of course, but chiefly our own,” Keynes recalled in 1938. “These states of mind were not associated with action or achievement or with consequences. They consisted in timeless, passionate states of contemplation and communion.”9

  Such reflections give no hint of Keynes’s devotion to boating, riding, tennis, and especially golf, his passion for public debate, and his commitment to the Liberal Party or the prestigious social or intellectual student societies that he was invited to join or lead. His college career showed Keynes to be a natural leader as well as a brilliant intellect. Though rarely in bed before three in the morning, he graduated with first-class honors on the eve of his twenty-first birthday. Assuming that he would follow in Neville’s footsteps, he spent a year studying for the mathematics Tripos. By 1905, the queen of sciences was significantly harder to subdue than when Marshall had scored his second place. Keynes’s twelfth-place finish was hardly embarrassing, but it was not good enough to win a fellowship at King’s. To give an idea of the
competition, the great number theorist G. H. Hardy, best known as the author of The Mathematician’s Apology, was still waiting for a university lectureship after finishing in fourth place on the Tripos in 1900.

  Keynes escaped to hike in the Alps with a copy of Marshall’s Principles of Economics. He was back in Cambridge in the fall, sufficiently intrigued to attend Marshall’s lectures while preparing to take the civil service examination. “Marshall is continually pestering me to turn professional Economist and writes flattering remarks on my papers,” Keynes wrote to his close friend Lytton Strachey. “Do you think there is anything in it? I doubt it.”10

  Nonetheless, the subject grew on Keynes, and he began to think that he might like to “manage a railway or organize a Trust, or at least swindle the investing public.”11 With an academic appointment off the table, Keynes set his sights on the Treasury. But a second-place finish in the civil service examination resulted in a temporary exile to the India Office, where he was assigned to work involving the Indian rupee. Unlike Cecily in Oscar Wilde’s The Importance of Being Earnest, Keynes found the rupee more fascinating than not. He took the view that the currency—any currency, actually—was a clue to the state of a nation’s economy and, since countries were connected to one another through trade and investment, the world’s economy.

  Everybody was willing to accept British pounds in return for goods or services, but not everyone was willing to take rupees. The value of money—whether the giant millstones favored by ancient Micronesians, gold coins, or entries on a bank balance sheet—depended strictly on people’s willingness to accept it. So a nation’s currency must reflect the world’s confidence in its economic prospects, solvency, and willingness to make good on its promises. In that sense, a currency was like a pulse, a vital sign that could signal anything from disease or injury to a momentary rush of excitement or fear. The challenge for a doctor was to find the cause of a racing pulse before the patient went into shock or made him look foolish by hopping off the gurney in apparently perfect health. If the patient was thousands of miles away and more details about his condition were impossible to obtain, the challenge was that much greater. With his nimble mind, knack for spotting connections, and gift for synthesis, Keynes not only relished such conundrums but proved to be a natural diagnostician.

  Keynes dispatched his official duties vis-à-vis the rupee with such ease that he had ample time in the office to write a treatise on probability, which he hoped would win him the elusive college fellowship. It also left him with free evenings and weekends in which to cultivate his social life. He lived in London, where he rented a flat at 46 Gordon Square in a fashionably louche part of town. His upstairs neighbors were the beautiful, intimidating, wildly talented Stephen sisters, the future Vanessa Bell and Virginia Woolf. Keynes got on especially well with Vanessa, a painter who loved to gossip and talk dirty. Keynes’s sex diary, as meticulously detailed as the notebooks in which he recorded his expenses and golf scores, indicates that his love life blossomed too. In contrast to the period from 1903 to 1905, when the number of his sex partners was “nil,” by 1911 there were eight, and in 1913 they peaked at nine. Among them were lovers and lifelong friends Duncan Grant, Lytton Strachey, and J. T. Sheppard, the openly gay provost of King’s.12 Still, he rarely missed Sunday lunch in Cambridge with the large Keynes clan.

  For most of his twenties, Keynes was Britain’s resident expert on obscure currencies. Thinking about currencies got him into the habit of thinking about economies holistically instead of focusing on “trade” or “labor” or “industry” in isolation, and taught him how to draw salient conclusions from a handful of indicators. It also gave him a feeling for which government actions exerted systemic effects, like those of the moon on tides, instead of effects only on a particular industry or group. By 1908, however, he had quit the India Office. Arthur Pigou, the successor to Alfred Marshall’s chair at Cambridge, and Keynes’s father offered to support him for up to a year while he finished his treatise. When in 1909 the completed work failed to win him the coveted King’s fellowship—a license, essentially, to take on paying students and dine at high table—Marshall personally financed an economics lectureship at Cambridge for Keynes. At that point, the fellows of King’s College elected him as one of their own.

  • • •

  In his first communication to his parents after arriving at King’s College as a freshman, the eighteen-year-old Keynes had announced, “I’ve taken a good look around the place and come to the conclusion that it’s pretty inefficient.”13 As his biographer Robert Skidelsky points out, the institutions would vary over his life, but never Keynes’s view of them or, indeed, of the world as he found it. They were badly run and in need of more competent management. Though given to fits of “ungovernable anger,”14 especially when confronted by stupidity, Keynes was on the whole more exasperated than outraged, more impatient than self-righteous. He parted company with his Bloomsbury friends in that he had none of the artist’s disdain for worldly success or people in power. Like Winston Churchill, who confessed to his wife that even when “everything tends towards catastrophe and collapse. I am interested, geared up and happy,”15 Keynes was more invigorated than depressed by the world’s problems and could not repress his impulse to make the bad slightly less so or the good a little better.

  His response to the war was a characteristic blend of patriotism, opportunism, and pragmatism. When England declared war on Germany in August 1914, he had not known what to think. An incorrigible optimist, he shared the general view that the fighting would be over in a few months, if not weeks. The first time that the Chancellor of the Exchequer, David Lloyd George, had asked for his advice was before the fighting broke out. He spent a day trying to convince Lloyd George not to cave in to pressure from City bankers to suspend gold convertibility of the pound until absolutely necessary. Keynes’s optimism evidently exceeded that of City bankers.

  He was formally drafted by the Treasury in January 1915 and assigned to war finance. The military draft, introduced in 1916 for males ages eighteen to forty-one, raised the personal stakes considerably, for Keynes had become part of the British war machine. At least a half dozen of his closest friends and former lovers were pacifists who had resolved not to fight. They constantly pressed him to end his complicity in a war that he professed to despise. On one occasion he found a note from Strachey on his dinner plate: “Dear Keynes, Why are you still at Treasury? Yours, Lytton.”16 As long as he was on the Treasury staff, Keynes was not actually at risk of being drafted, since the military exempted men who were “engaged in work of national importance.” Under intense pressure from his friends to take a stand against the war, Keynes constantly threatened to quit, and in February 1916 he alarmed his parents by going so far as to apply formally for conscientious objector status. In his application, he made it clear that he objected to the coercion of the draft rather than to the war, that is, on libertarian rather than pacifist grounds. After he informed the draft board that he would be too busy at the Treasury to attend his hearing, his application was rejected and he pursued the matter no further. His friends eventually forgave him, especially after he began using his Whitehall connections to protect them when he could. Still, most of Keynes’s biographers prior to Skidelsky had considered the episode so potentially damaging to his reputation that they had covered it up, just as they had avoided mentioning his homosexuality.

  Keynes’s job was to help the Treasury borrow dollars from the Americans on the cheapest possible terms while lending pounds to the French and Britain’s other Continental allies on the most lucrative ones, all while protecting the foreign exchange value of the pound sterling. Rounding up scarce currencies such as Spanish pesetas in emergencies was another of his duties, one that gave him hands-on experience as a foreign exchange trader and left him addicted to that risky but thrilling game of betting on one currency’s rise, another’s fall. Ultimately, writes Skidelsky, all matters of war finance—and many related to postwar finance—pass
ed through Keynes’s hands.

  Toward the end of the war, as popular hopes that its staggering cost could be recouped from Germany soared, Keynes was increasingly drawn into the vexing debate over reparations. Lloyd George, who had become prime minister of a wartime coalition government at the end of 1916, asked the Treasury to estimate how much the Germans could pay. He had taken it for granted that “the Treasury experts naturally had their mind primarily set on securing some source of revenue which would reduce the crushing burden of taxation by the payment of interest on our gigantic war debt for the next two generations.”17 But other considerations weighed on Keynes, who was ultimately assigned to draft the Treasury position paper. When he delivered his report on reparations to the incoming Treasury chief, Austen Chamberlain, Joseph’s son, on the heels of the December 14, 1918, general election, it was a bombshell.

  An Allied reparations commission headed by a former governor of New York, Charles Evans Hughes, had already recommended that Germany should be made to pay $40 billion, or roughly one-third of the Allies’ war expenditures. Keynes concluded that the most that could be extracted from Germany was £3 billion or $15 billion, less than the amount Britain and France owed the United States. Pointing out that the Allied commission’s figure was twice the estimated prewar value of Germany’s gold reserves, securities, ships, raw material inventories, factories, and machinery, Keynes warned that placing too high a figure on reparations would ultimately undermine British economic interests by increasing the risk that Germany would ultimately repudiate her debt.

  The report caused a furor. Most Britons felt that since the Germans had started the war, they should bear its cost. After all, as Lloyd George pointed out, the burden had to be carried by someone. Prewar tax revenues would not have sufficed to pay interest on the war debt. The French national debt had multiplied tenfold; the British, fourfold since 1914. If the Germans didn’t pay, then innocent Britons and Frenchmen would have to shoulder higher taxes in order to pay it down. One reason that the British electorate was so passionate on the subject was that nearly 40 percent of the British population owned government securities. British business was also in the pro-reparations camp. They wanted German firms, not British industry, to be taxed in order to repay the debt.