Keynes's Investment Activities While in the Treasury during World War I
Kent, Richard J., History of Economics Review
Abstract. In his book Old Friends Clive Bell commented that John Maynard Keynes 'took to speculating' in the summer of 1914, or a little earlier. Roy Harrod vigorously disagreed, arguing that Keynes did not start speculating until September 1919. Occasionally rumours had circulated that Keynes, in his investing, had taken advantage of inside information while in the Treasury during World War I. Harrod was concerned that Bell's comment would lend credence to these rumours. He strenuously defended Keynes against this accusation. In this paper Keynes's investment activities while in the Treasury during World War I are analysed to see if it is possible to determine whether he speculated before he left the Treasury in 1919 and/or whether he took advantage of his position in the Treasury. Keynes kept very extensive financial records. Using these data it is possible to analyse Keynes's investments, beginning with the first investments he made upon graduation from King's College, Cambridge University, through the investments he made while serving in the Treasury during World War I.
In Old Friends, a book of reminiscences about some of his friends, Clive Bell commented that Keynes 'took to speculating' in the summer of 1914, or a little earlier (Bell 1973 : 44). Roy Harrod, in a review of Old Friends, vigorously disagreed:
Mr. Bell writes: 'I fancy it was about this time or a little earlier that he [Keynes] took to speculating.' This was in the summer of 1914. It ante-dates his speculation by more than five years. He took to speculation in September 1919. This is not to say that he may not have had an occasional flutter, like anyone else, or perhaps a good many more than most people. He loved any opportunity to have a gamble. He was drawn to the gaming tables. But in relation to Keynes the words 'took to speculation' have a more definite significance. His speculation was a very important ingredient in his life considered as a whole; through speculation he made himself a rich man, and this fact affected many other things. It was this important speculation, this systematic speculation, that started in the autumn of 1919 ... In 1919 he still had no capital, save for a few pounds in the bank ... It is important that this should be clearly understood, since there were many ill wishers in his middle period who asserted that he took advantage of inside information when in the Treasury (1915-June 1919) in order to carry out successful speculations. This allegation is entirely without foundation, and it is accordingly desirable that Mr. Bell's wrong dating should be corrected. (1957: 695-6)
Skidelsky (1994: xxvii) has argued that Harrod (1951), in writing Keynes's first biography, 'wanted to protect him'. Was Harrod, in his review of Bell's book, protecting Keynes? At the end of 1918 Keynes's net assets were 7,464 [pounds sterling], with the gross value of his security holdings 9,428 [pounds sterling] (Moggridge 1983: 4). Since his income at the Treasury, which had increased to 980 [pounds sterling] for the period April 1, 1918, to March 31, 1919 (Keynes Papers: PP/46/2/61), is considered 'relatively high' for that time (Moggridge 1995: 348), Harrod's statement that '[I]n 1919 he still had no capital, save for a few pounds in the bank', certainly is incorrect.
The question is, are Harrod's statements that Keynes did not speculate before September 1919 and that he did not take advantage of inside information while in the Treasury equally incorrect? (1) Speculation is defined as 'economic activity aimed at profiting from expected changes in the prices of goods, assets, or currencies' where '[I]n a world of uncertainty, most transactions are capable of being interpreted as speculative, but the term speculation is reserved for transactions where expected capital gains provide a major motive' (Black, Hashimzade and Myles 2009). Keynes's investment activities before he left the Treasury in 1919 are analysed in this paper to see whether he did speculate before he left the Treasury in 1919 and/or whether he took advantage of inside information while in the Treasury during World War I. …