For Cecil, the League would act as the linchpin of a Pax Anglo-Americana after the war. Wilson made this British vision his own. ‘Liberalism is the only thing that can save civilization from chaos’, intoned the US president, scholar of Gladstone and Bagehot, en route to the peace treaty talks on the outskirts of Paris: ‘it must be more liberal than ever before, it must even be radical’, to counter the ‘poison’ of Bolshevism that the Russian Revolution of 1917 had released.9 Once at Versailles, ignoring his own advisors, Wilson fell in with the South African premier Jan Smuts, architect of apartheid, who posited the British Empire as a model and partner for the League, with mandates ‘nursing’ peoples ‘either incapable of or untrained in the power of self-government’ to inoculate them against ‘that despair of the State which is the motive power behind Russian Bolshevism’.10 The League may have missed its original vocation when the US Senate rejected the Versailles treaty. But by 1922 Britain had itself restored a measure of order to its empire, in the process adopting recipes Smuts had recommended: combining grants of formal independence to Egypt and Iraq with treaties locking down Britain’s military, economic or political interests in them; homeopathic reforms to stabilize control of India; greater say for the white Dominions, Ireland now included; airplanes replacing gunboats in the liberal repertoire of technological domination on the cheap.11
Back in the centre of the Empire, meanwhile, cheapness in the form of budgetary discipline was itself a weapon of choice for social domination, in the face of popular pressures. If war had weakened the international standing of the City, this was by no means the case at home, where its prestige – refurbished by the legend of ‘financial heroism’ to which the Economist under Hartley Withers had contributed – stood perhaps higher than at any point since the defeat of Napoleon. As in 1815, while the costs of war had left a trail of inflation and social unrest behind them, they also offered a means for bringing these to heel: austerity. That meant sharp deflation and a swift return to gold, comporting net transfers of wealth to well-off, mainly domestic holders of government debt.12 The difference with the early nineteenth century lay in the character of the threat from below: a newly enfranchised and organized working class, on strike in record numbers, with Russian Bolsheviks rather than French Jacobins as inspiration or spectre abroad.13 Politicians, civil servants, bankers and economists recast the gold standard in light of this unprecedented political predicament. Gold became ‘knave proof’ – acting, in a democratic age, as a ‘constitutional barrier’ that would submit the social spending of any future Labour government to its automatic rigours.14
In 1919, under Lloyd George’s call to root out all public ‘waste and extravagance’, the turn to deflation began. After two years of swingeing cuts, the removal of import and exchange controls, and a rise in bank rate to 7 per cent, a £1690 million budget deficit was transformed into a £231 million surplus, given over to debt reduction.15 Austerity did more than balance budgets; it put the financial and mercantile interests of the City in control of economic policy to an even greater extent than before, with the Bank retaking hold of short-term interest rates, while a Treasury veto over government spending was elevated for the first time into virtually a constitutional principle.16 The order of economic priorities was set for the decade: even with unemployment at over 10 per cent, interest rates stayed up and almost 40 per cent of the budget serviced the debt. All talk of a capital levy on the recipients of the interest on that debt vanished.17
But if a liberal empire and a liberal economy emerged more or less intact from the war, the party that had launched the war did not. Irreparably divided by Lloyd George’s war-time nuptials with the Conservatives, and the ‘coupon’ election he called after the Armistice, the Liberals were routed in the polls of 1924, winning a mere forty seats, and less than twenty more in the subsequent election of 1929. Labour had taken their place as the alternative to Conservative rule; the Liberals were henceforward a minor third party, of little consequence in the Commons. Paradoxically, however, the political eclipse of Liberalism masked its continuing intellectual grip on the minds of those who were its beneficiaries. This was less true of the Conservatives, whose new leader, Baldwin, jettisoned free trade for tactical reasons, than it was of Labour, whose ostensible commitment to socialism should have ruled out any straightforward acceptance of it, but whose leaders adopted its economic orthodoxy as a matter of faith: at the Treasury, Philip Snowden was unsurpassed in his zeal for budgetary rectitude. This consensus at the top reflected the peculiar emplacement of Labour as a party: not just closer than any counterpart in Europe to its bourgeois predecessor, but emergent as an electoral force under its tutelage, so that its relation to Liberalism, as one historian argues, ‘was less one of hostility than of apostolic succession’.18 Absent any real party-political alternative, Bagehot’s ‘common sense of the nation’ would become its pathology, with crisis, breakdown and a ‘doctor’s mandate’ in 1931.19
Walter Layton and Interwar Liberalism
Far from limiting the reach of the Economist, the parliamentary weakness of the post-war Liberals actually helped to extend it: all three parties could call on the new editor, whose applied knowledge of statistics was legendary and useful to any of them. Walter Layton’s cursus began when he was just nineteen at University College, London, where he gathered data on working-class wages for the Board of Trade. His obvious ability led to similar work at Trinity College, Cambridge, where he studied with the legendary neoclassical political economist Alfred Marshall and sat the new Economics Tripos in 1906. Trinity was a leap, for unlike past editors of nonconformist stock, Layton’s parents were professional musicians. A Congregationalist choirboy from Chelsea who sang at Gladstone’s funeral, Layton won prizes and played the organ to pay for school fees. At university, he dipped a careful toe in the currents that were carrying his friends away, visiting the local Fabian socialists while protesting his ‘fidelity to sound economic truth’, or attending ‘highbrow’ conversazioni with Apostles such as Bertrand Russell, Lytton Strachey and John Maynard Keynes, even as he found their moral, aesthetic and carnal interests ‘not really my cup of tea’. Layton lost his part in a production of Faust to poet Rupert Brooke because he was studying railway wages for the Board of Trade.20 (A pattern that continued after university, when Lady Violet Bonham Carter, observing him sipping lemonade at parties, dubbed him ‘the handsomest little grey mind in Europe’.) Layton found his level instead among New Liberals in discussion groups run by the political scientist Lowes Dickinson and Alfred Marshall, where he met Hirst, who asked Layton for a piece on the Liberals’ 1907 Licensing Bill for the Economist. A year later, Layton was assistant editor, just as he and Keynes began to lecture for Part II of the Tripos under Marshall’s successor in the chair of political economy, Arthur Pigou. In this dual role, Layton met his wife, Dorothy Osmaston, who was reading history and economics at Newnham College, and published his first and only purely scholarly work, An Introduction to the Study of Prices, in 1912.21
Both jobs came to an abrupt end in August 1914. As Layton strolled along Kings Parade, stunned by the declaration of war, he was nearly run down by a motorcycle combination with Keynes in the sidecar. ‘They stopped to tell me that Maynard had been summoned for consultation by the Treasury … my own call quickly followed.’22 Seebohm Rowntree and William Beveridge, at the local government and Board of Trade respectively, put Layton’s expertise in wage statistics to use in taking labour censuses. But it was at the Ministry of Munitions that he shone, rising to be right-hand man to Lloyd George, then Churchill – and emerging as one of a new breed of civil servant experts, along with Josiah Stamp, Arthur Salter, Jean Monnet, Eric Drummond and others, whose hopes for a post-war League of Nations were based on their experience in directing a supranational war effort.23 On the Milner Mission to St Petersburg in February 1917, Layton found Russian supply statistics as threadbare as the Tsar’s banquet at Tsarskoye Selo, observing an official stuff sweet meats down his pants a week befo
re the revolution. Two months later, Layton made the rounds in Washington and New York with the Balfour Mission to plan arms production and bank credits with newly-at-war America. The New Republic compared him – a ‘fine-faced, sensitive, quiet-voiced professor’ – to the sort of men H. G. Wells ‘used to delight in imagining’, ‘cool in a cosmic upheaval’, ‘organizing America for destruction as an engineer might deliberate lining a leaky tunnel with copper … it was he and a few men like him who had made it feasible for amateur armies to loop round an empire a burning rain of steel’.24
‘Profound Professor Layton’, as Churchill called him, inspired confidence – not in voters, who failed to elect him three times as an MP, but in the politicians that they did elect.25 In 1920, Lloyd George made Layton acting head of the Economic and Financial section of the League of Nations, and for thirteen years, Conservative, Labour and National governments alike sent him abroad to conferences in Europe – on German reparations and inter-Allied debt, currency stabilization and tariff unions; as financial assessor to the Simon Commission to India (1928); as Ramsay MacDonald’s economic aide for talks with Roosevelt in Washington (1933).26 By then, he was not only editor of the Economist, but also chairman of the News Chronicle, the largest Liberal daily newspaper in Britain, with a circulation near 1,400,000. His sway over liberal opinion was greater, in terms of reach, than that of anyone, including his friends Keynes and Hubert Henderson at the Nation, or Ernest Simon, director of the New Statesman.
Yet it was the Economist, with still just 5,000 subscribers, that gave Layton the greatest leverage, as both an outlet for and pressure point on policy elites and insiders, increasingly to be found not only in Whitehall or the City, but among those dependent in some way on what happened there: from the League secretariat in Geneva to the halls of power in Berlin, Rome or Vienna. It was his professor Alfred Marshall who saw the potential for the Economist to serve these men of affairs in a broad sense, prodding Layton early on to move it towards them. ‘There is a growing interest among businessmen in the treatment of business questions from a point of view intermediate between that of the newspaper and the academic lecture-room’, Marshall advised in 1910, ‘and you might do good service to the Economist by writing on that intermediate line’. Bagehot, he added, had done both: ‘and I am inclined – being a mere old fogey – to suggest as a motto, LIVE UP TO BAGEHOT’.27
Layton barely had a choice, returning to the magazine at the start of a decade ‘packed with political issues’. He later claimed that in his first leader on the Washington Naval Conference in November 1921 ‘the tone of international politics was set for the seventeen years of my editorship’.28 The Economist strongly supported the agreement to emerge from Washington, which discarded the old balance-of-power alliance with Japan for joint acceptance that the US would dominate the Pacific, but in an agreed ratio of capital ships between the three states: this was a concrete example of ‘collective security’, to be pursued henceforward through the League, and a brilliant American contrast to the ‘elusive manoeuvring and ungenerous compromise’ of the Europeans at Versailles.29 Lloyd George’s fall nine months later turned on the same issue: a looming ‘military collision’ between British and Turkish troops at Chanak was a direct result of the prime minister’s ‘immoral practice’ of playing Greece as a ‘pawn in the game of British foreign policy’, outside the League or even the Entente.30 Layton briefly broke with Lloyd George, his political mentor, shedding few tears for the passing of his coalition in the Economist. At least a Conservative government would ‘restore consistency of outlook to national affairs’, while hastening a realignment around the only genuine alternative to it – an alliance between the Liberals and Labour, centred on free trade, international ‘reconciliation’ through the League, and better industrial relations.31
Finance and Hegemony: Restoring Confidence, Debating Keynes, 1921–31
In the event, Layton’s Economist focused mainly on reviving international markets and stabilizing currencies on the basis of a return to free trade and gold, and of placing the City back in charge of both. If many historians now see the painful adjustments this imposed on Britain as sacrificing industry to cosmopolitan finance, the Economist reminds us that for their proponents at least, the sacrifices were to be borne as much by the City, in terms that denied the possibility of a split between it and the rest of the economy.32 As Britain failed to regain its export footing in the 1920s, this orthodox view came under scrutiny, but, significantly, from one of its former adherents. It was Keynes who began to challenge his fellow Liberals at the Economist over positions they had shared prior to 1914, in a series of bruising debates about the very nature of economics, amidst a slump it seemed powerless to explain or to cure. If the obstacles Keynes faced from the reigning intellectual consensus are now well-known, the part the Economist played is much less so. Reconstructing the back-and-forth between them reveals two important points about the long road to the ‘Keynesian revolution’, and the mainstream liberal response to it. First, their debates turned to a greater extent than is realized on issues of finance and empire; second, both agreed on the need to revive the City for Britain to remain a Great Power, but differed over whether Keynes’s novel proposals would hurt or help in that effort. Wary of anything that threatened ‘sound finance’, the Economist would emerge as a highly qualified convert to Keynesianism by the late 1930s, with a correspondingly limited vision of the supposed post-1945 consensus.33
Keynes and Layton drew their liberalism from the same deep reservoir of culture, ideas and social milieu, even as their personalities formed a nearly complete contrast. There was nothing grey about Keynes. A brilliant student from a prominent upper-middle class household in Cambridge – his father was a lecturer in moral sciences and university registrar, his mother a graduate of Newnham and the city’s first female mayor – Keynes was just as curious about art as economics, and preferred to pass his private life in unconventional pursuit of the former as part of the Bloomsbury circle. Still, he and Layton shared a great deal: intellectually, not just their Cambridge apprenticeships under Marshall, but links stretching back almost as far to the Economist. Keynes was indeed a devoted, in a sense ideal, reader of the paper, and his famous description of the ‘happy age’ before 1914 is almost a parody of himself in the act of perusing it: this inhabitant of London, who, ‘sipping his morning tea’ in bed, could ‘adventure his wealth in the natural resources and new enterprises of any quarter of the world’.34 To retrace Keynes’s dialogue with the Economist is to watch someone change their own mind – showing us both how much Keynes moved after 1914, and how much he had, and would go on having, in common with the Economist.
Keynes had been a presence at the paper since 1909 after his post at the India Office made him an authority on currency and investment questions for the subcontinent. A champion letter writer, he also dashed off periodic articles to his ‘anonymous pulpit’ – the guinea he earned from his first effort pleasing him enough to preen about in a letter to his friend, the Bloomsbury painter Duncan Grant.35 Both Keynes and Layton recoiled from Hirst’s line on the First World War. Layton walked out, objecting not just to Hirst’s defeatism, but to ‘his prognosis of its economic consequences’; three weeks later, Keynes wrote to his father, vexed that the Economist editor was such ‘a violent pacifist, passionately incensed at our being in the war, and far more interested in these political questions than in finance’ (though Keynes grew more sympathetic as the war dragged on).36 In this sense, both had more in common with Hirst’s replacement, Hartley Withers, concurring that the City could and should do all in its considerable power (except submit to a capital levy) to win the war. Keynes was indeed first to the mark here, accusing London’s joint stock banks of failing in ‘courage and public spiritedness’ for hoarding gold and exacerbating the financial crisis in August 1914.37 If war sent Hirst to the margins, where even his own past support for unemployment insurance began to look to him like socialism – by the end, welfare was tha
t ‘Beveridge Hoax’ – it endowed Layton and Keynes, in contrast, with extraordinary new powers of economic planning. It confirmed their shared New Liberal outlook, which dissociated laissez-faire at home and free trade abroad, discounting the former in favour of the latter.38
Thus, the Economist walked arm-in-arm with Keynes into the era of post-war reconstruction. It gave ample coverage to his bestselling attack on the Treaty of Versailles, The Economic Consequences of the Peace in 1919. And though it criticized him for going overboard with personal attacks on the statesmen at Versailles, the Economist’s own view was not so different. Politicians, accountable to vengeful electorates, were probably not the best peacemakers: the ‘alternative to dissolution and economic collapse in much of Europe’ was for economic experts and central bankers to take the lead in negotiating debt forgiveness and a loan to revive trade and to stabilize currencies.39 Under Layton, the paper praised Keynes’s follow-up in 1922, The Revision of the Treaty – a reminder that for both, the problem with the Versailles Treaty was never just its harsh punishment of Germany, but that it left in place loans the Allies had made to one another. US pressure for full and prompt repayment from Britain and France, and of both to third countries to which they had lent, led to the unreasonably large reparations demands upon Berlin.40 A solution to this three-cornered debt and reparations tangle was the first step to getting the British and world economies back on their feet.
Yet when Arthur Balfour, the stand-in foreign secretary, issued a note in August 1922 making this plain and insisting that Britain was ready to ask of its Allies and Germany only what it was obliged to pay to the US, the Economist attacked him. It was ‘deplorable’ to insist that ‘Britain’s debt policy was contingent upon that of America’, and the transatlantic cables were already abuzz with the ‘unfortunate effect upon American opinion such insistence was bound to produce’.41 At the first Liberal Summer School put on by Layton and Ramsay Muir at Oxford, Keynes agreed Britain should demonstrate the leadership that creditor status gave it in Europe, forgiving its allies’ debts regardless of what the US did.42 Both praised the new Chancellor, Stanley Baldwin, another Conservative, who called for a ‘discussion as businessmen’ with the Americans, Keynes differing only when the repayment terms he obtained proved so miserly. Privately Keynes urged Prime Minister Bonar Law to hold out for better than 80 cents to the dollar. ‘It is the debtor who has the last word in these cases.’43 The Economist, in contrast, worried the settlement was too generous, almost a ‘confession of weakness’: ‘an appreciable reduction in what the United States Government is entitled to ask us to pay’, it ‘should be accepted not only with good grace but with gratitude’. The City, it reported, greeted news that Cabinet had signed on to the deal not with ‘gloomy forebodings of disaster’ – as might have been expected of a plan that exacted over £32 million a year for sixty-four years while earning the Americans a handsome profit – ‘but by marking up the prices of British Funds’.44
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