How can I adopt a creed which preferring the mud to the fish exalts the boorish proletariat above the bourgeois and intelligentsia and who, whatever their faults, are the quality of life and surely carry the seeds of all human advancement? Even if we need a religion, how can we find it in the turbid rubbish of the Red bookshops?
Displaying his Bloomsbury prejudices, he blamed the “mud” and “rubbish” on “Some beastliness in the Russian nature—or in the Russian and Jewish natures when, as now, they are allied together.”13 When the editor of the New Republic asked Keynes to remove the offending sentence for the sake of American readers, he refused.
In late 1925 and early 1926, Keynes was momentarily distracted from monetary issues. Along with the whole country, he was mesmerized by an ugly conflict between coal barons and miners, and the threat of a nationwide strike. The first victim of the stronger pound had been Britain’s decaying coal industry, already saddled with excess capacity, outdated technology, high costs, and inept management. After a standoff between owners and unions over pay cuts, the Conservative government had tried to buy time by subsidizing the miners’ pay. But when the subsidies were due to expire, the standoff remained and a strike loomed. Keynes’s friends in the Liberal Party did not believe, as Conservatives did, that a strike would be the first step toward revolution. Nonetheless, they supported the government, insisting that such an action would be illegal, unconstitutional, and an assault on democracy. Keynes, who sympathized with the miners who were not to blame for Churchill’s decision, weighed in with proposals for a compromise. In return for the unions’ taking a modest pay cut, and the owners’ shutting down their least efficient pits, the government would continue the subsidies. Everyone would win.
It was wishful thinking. The ten-day general strike of May 1926 was a bust. The miners stayed out another six months, until starvation forced them back into the pits on the very terms they had rejected. Meanwhile, however, the Liberal Party had split in two. Keynes wound up siding with his old nemesis Lloyd George, who attacked the government’s hard-line response, and against his old friends in the Party. Among Keynes’s new friends was Beatrice Webb, whom he met for lunch several times. She attributed his siding with the miners to his recent marriage:
Hitherto he had not attracted me—brilliant, supercilious, and not sufficiently patient for sociological discovery even if he had the heart for it, I should have said. But . . . I think his love marriage with that fascinating little Russian dancer has awakened his emotional sympathies with poverty and suffering.14
Keynes’s antipathy to the herd—whether wealthy bankers, trade unions, proletarian culture, or ostentatious patriotism—made him ill suited for politics, Webb thought astutely, although she thought he might be valuable as a cabinet minister.
• • •
In September, Keynes was in Berlin giving an informal status report on the general strike as well a formal lecture on “The End of Laissez-Faire.” At the University of Berlin, large and excited crowds gave him a warm welcome not usually extended to Englishmen. His attack on the Versailles peace treaty, condemnation of the French seizure of the Ruhr, and support for reparations reductions and foreign loans packages made him a hero there. The latest and most important, the Dawes Plan, had slashed Germany’s reparations bill and opened the floodgates to an enormous surge of foreign, mostly American, loans. Awash in money, a magnet for immigrants and foreign visitors, Weimar was in its golden age. Keynes found the atmosphere in Germany’s Babylon almost giddy.
He saw his old friend Carl Melchior, who had also gotten married in the interim, again and met Albert Einstein for the first and only time. His reaction to them was tinged with Bloomsbury-ish disgust with money and paranoia that German culture was being endangered by an alien one. “[Einstein] was a Jew . . . and my dear Melchior is a Jew too,” he reflected.
Yet if I lived there, I felt I might turn anti-Semite. For the poor Prussian is too slow and heavy on his legs for the other kind of Jews, the ones who are not imps but serving devils, with small horns, pitch forks, and oily tails . . . It is not agreeable to see a civilization under the ugly thumbs of its impure Jews who have all the money and the power and the brains. I vote rather for the plump Hausfraus and thick fingered Wandering Birds.15
His peculiar momentary identification, more propitiatory than sympathetic, with the slow, heavy, and thick masses as opposed to the clever devils that he preferred, reflects his fear of the mob, a theme that he expressed in less objectionable language in his formal talk on “The Death of Laissez-Faire.” Governments of democracies risk violence if they are foolish enough to leave the economic circumstances of their citizens to chance.
• • •
Keynes continued to lecture at Cambridge throughout the 1920s. One undergraduate recalled him as “more like a stockbroker than a don, a city man who spent long weekends in the country.”16 Nonetheless, his glamour and fame attracted large crowds at his lectures. On Monday nights an invitation-only political economy club met in his rooms at Kings and attracted clever undergraduates and ambitious dons.
• • •
“Let us be up and doing, using our idle resources to increase our wealth,” Keynes told an assembly of Liberal Party politicians on March 27, 1928. “When every man and every factory is busy, then will be the time to say that we can afford nothing further.”17 At the time of the general strike, Keynes had assumed that new theories about controlling the business cycle, packaged as a solution to Britain’s unemployment problem, might provide an alternative to the high tariffs advocated by the Right and the exorbitant taxes advocated by the Left. Lloyd George, his new ally, had been actively plotting a political comeback and hunting for a new philosophy. Keynes briefly considered running as the Liberal candidate for Cambridge University, but rejected the idea after a few days of agonizing. Instead he became the architect of policies on which Lloyd George campaigned in the spring of 1929. In other words, the germs of Keynes’s General Theory grew in the Petri dish of a political campaign.
Keynes regarded instability, not inequality, as the great threat to capitalism. The arbitrary windfalls and losses—unrelated to hard work, thrift, or good ideas—not the gap between rich and poor, were what he meant by inequity. “The most violent interferences with stability and with justice, to which the nineteenth century submitted . . . , were precisely those which were brought about by changes in the price level,” he wrote, echoing Irving Fisher. So the “first and most important step . . . is to establish a new monetary system.”18 Unlike Webb, Keynes rejected the politics of class war. He was too much of an elitist. Labor “put on an appearance of being against anyone who is more successful, more skilful, and more industrious, more thrifty than the average,” he groused. “It is a class party, and the class is not my class . . . I can be influenced by what seems to me to be justice and good sense; but the class war will find me on the side of the educated bourgeoisie.”19
Lloyd George, whom Keynes had reviled in 1919 as “the devil incarnate,” had been forced out of office in 1922 for bartering favors for campaign contributions, womanizing, and a host of other ethical lapses. Yet the “Welsh wizard” retained his hold on the Liberal Party and on Keynes. Essentially unemployed for most of the 1920s, he turned his estate, Churt, into an economic think tank, pouring his energies, time, and a Party fund that he controlled into producing a Liberal program. Now he was planning a comeback on the basis of a plan to fight unemployment. Keynes was the campaign’s chief economist.
After 1919, unemployment in Britain never dropped below 1 million, inching up year after year until it reached 10 percent in 1929. At that point Britain had yet to fully recover from World War I. The volume of British exports shrank even as world trade was expanding. In 1913, Britain had been the world’s top exporter; by 1929, she had slipped to second place behind the United States.20 The workshop of the world consisted largely of the old smokestack industries—coal, iron, and steel, textiles, shipbuilding—at a time when the consumers of
the world wanted more oil, chemicals, cars, movies, and other products of new industries. Moreover, the national averages hid a sharp cleavage between the prosperous south of England and the chronically depressed industrial north, reviving the old notion, reminiscent of the Hungry Forties in the previous century, of England as two nations estranged from each other; one rich, and the other poor.
• • •
On September 25, 1927, Keynes was one of fourteen professors summoned to Churt by Lloyd George for an intimate gathering of “a few trying to lay the foundations of a new radicalism.”21 Keynes coauthored Lloyd George’s inquiry “Britain’s Industrial Future,” backed with £10,000 of the latter’s money. The report finally appeared in early February 1928 and quickly took on the moniker of “The Yellow Book,” after its yellow cover. Though Keynes wrote to H. G. Wells that he hoped never again “to be embroiled in cooperative authorship on this scale,” he conceded that the white paper was a “pretty serious effort to make a list of things in the politico-industrial sphere which are practicable and sensible.”22
The report gave Keynes his first opportunity to learn something about industrial as opposed to financial companies. He told Liberal candidates that the trend toward bigness in business was driven not just by technology and finance but also by the threat of unsold inventories. Big business had evolved naturally and had to be accepted as such. It was not quite the warm endorsement of giant corporations offered by Schumpeter, but it was distinctly un-Socialist.
“We Can Conquer Unemployment” was the Liberal slogan in the campaign of 1929. On March 1, Lloyd George made a dramatic pledge to reduce unemployment to “normal” proportions within a year.23 The heart of his program was a huge deficit-financed public works program intended to jump-start the economy. Higher growth was supposed to generate the tax revenue to pay for roads, sewers, telephone lines, electric transmission, and new housing while unemployment insurance would be used to pay workers. Keynes weighed in with a pamphlet titled “Can the Liberal Pledge Be Carried Out?” less than three weeks later. After the Treasury fired back that public works jobs would merely replace private ones, he followed it up with a second, “Can Lloyd George Do It?”
The fact that many workpeople who are now unemployed would be receiving wages instead of unemployment pay would mean an increase in effective purchasing power which would give a general stimulus to trade. Moreover, the greater trade activity would make for further trade activity; for the forces of prosperity, like those of a trade depression, work with a cumulative effect.24
This, Skidelsky points out, was the germ of the idea of a multiplier. Developed two years later by one of Keynes’s beautiful young men, Richard Kahn, the idea is that increasing government spending by $1 will generate more than $1 of private spending, since the initial increase in consumption by recipients leads to more hiring and income and another, if smaller, increase in spending, and so on.
Confident as ever before the May 30 general election, Keynes made a bet that the Liberals would win one hundred seats. In fact, they won just fifty-nine, effectively ending Lloyd George’s political career, and Keynes had to pay out £160, only partly offset by a £10 bet he collected from Winston Churchill. The campaign also forced him to rewrite large swaths of his Treatise on Money. The summer of 1929 was idyllic, taken up with his manuscript, the filming of a five-minute ballet scene for one of the first British “talkies,” Dark Red Roses, tennis, and a meeting with the government’s point man for public works, Oswald Mosley, a rising star in the Labour Party who would become a Fascist in the 1930s. The only source of irritation was the sorry outcome of Keynes’s commodity speculation. He had been long on rubber, corn, cotton, and tin in 1928 when the markets suddenly turned on him and he was forced to liquidate part of his stock portfolio to cover his losses.
• • •
Irving Fisher bought his first gasoline-powered car in 1916. The last and most luxurious of the Fishers’ electric models, a superdeluxe enclosed Detroit, had had to be driven to a garage every night for recharging and couldn’t go faster than twenty-five miles per hour. Now Fisher, who logged thousands of railroad miles every year, hit the road in a brand-new gas guzzler, a Dodge. The highways between New York and Boston were still mostly unpaved, rutted, and dotted with potholes that could swallow a wheel or worse, but for Fisher the new car “opened up almost unlimited vistas.”25 Throughout the 1920s, Fisher got a new car every two years or so, trading up and up as his and the country’s fortunes prospered. By the end of the decade, in addition to a Lincoln, he owned a La Salle convertible and a brand-new Stearns-Knight, America’s answer to the English Rolls-Royce. And, like Jay Gatsby, he employed an Irish chauffeur.
By 1929, one in five American families had a car. As Fisher had predicted in 1914, the war left the United States with the biggest and strongest economy in the world. Unlike for Britain and France,
the First World War had not been a cause of unalloyed economic loss; it had on occasions brought economic and social advantages. What is more it had demonstrated to all the combatant powers that it lay in the hands of government to formulate strategic and economic policies which could to some extent determine whether or not a war would be economically a cause of gain or loss; they were not the hopeless prisoners of circumstance.26
Thanks to wartime production and exports to the United Kingdom and Europe, the United States overtook Britain in annual output by 1918.27 Instead of collapsing, as in Germany or Austria, or being choked off by monetary authorities, as in Britain, America’s recovery from the postwar recession started in 1921 and kept going. There were two recessions in the middle of the decade, each a little over a year long, but they were so mild that most Americans—farmers excepted—were unaware of them. For the entire period from 1921 to 1929, the economy expanded at an average rate of 4 percent a year while unemployment averaged less than 5 percent. In 1929, the economy was 40 percent bigger and per capita income 20 percent higher than in 1921, a remarkable performance for any country in any decade and rarely equaled since.28
But the averages hardly convey the convulsive changes that new forms of energy brought in their train. They inaugurated a new way of living. The modern era of the car, the suburban house, California, oil, the telephone, daily newspapers, stock quotes, refrigerators and fans and electric lighting, radio and movies, working women and smaller families, declining union membership, and shopping centers took over. The hitherto unknown concept of retirement took hold among men who had reached sixty. “Scientific management” and “Taylorism” became new corporate buzzwords after Louis Brandeis argued successfully that railroads did not have to increase rates in order to pay higher wages, as long as they organized work according to principles pioneered by Frederick Winslow Taylor. RCA and AT&T were the Microsoft and Google of the day. Meanwhile, the old economy of farms, coal mines, woolen mills, and shoe factories—those great sources of American wealth in the nineteenth century—slipped into senescence.
The steamship, railroad, and telegraph had exploded limits on mobility and communication for Alfred Marshall’s generation. The automobile and telephone did the same for Fisher’s, but in a way that individualized travel and long-distance interaction. Fisher thrilled at his escape from timetables, just as Beatrice Webb gloried in going miles without a chauffeur when she got her first bicycle. Mass production made possible mass ownership of the car, radio, telephone, fan, refrigerator, and prefabricated house, and these, in turn, made life in the suburbs attractive and affordable. Consumers were getting their hands on instruments of mastery that let them turn the dials, flip the switches, and get in the driver’s seat.
While Webb absolutely refused to drive a car, and Geoffrey Keynes once called his brother an “anti-motoring motorphobe, giber of all forms of motoring,”29 Fisher personified America’s love affair with cars and also with gadgetry of all kinds. He ordered two wireless sets in March 1922 after giving his first radio speech. It was, he wrote to his son, “perhaps the largest audience I ever addressed
.” He told “an audience I couldn’t see or hear or quite believe existed” that the newly inaugurated transatlantic broadcasts made “the whole world a neighborhood.”30 Not long after a twenty-five-year-old US Airmail pilot named Lindbergh flew a single-engine monoplane nonstop from Long Island to Paris in 1927, Fisher, who was in Paris, took advantage of the new transatlantic telephone service by arranging to have a nine-minute conference call with his wife in Rhode Island, his mother in New Jersey, and his son-in-law in Ohio. Irving Jr. recalled that Fisher “kept his eye on the second hand of his watch.”31 By then, Fisher was handling most of his business correspondence by telephone, doing most of his writing by Dictaphone, and, when he was in a hurry, which was almost always, dictating directly to a typist seated in front of an Olivetti. His home office had long since swallowed up the entire third floor of his New Haven mansion, with filing cabinets and typing tables spilling into hallways and stairwells. His staff included eight to ten “assorted females” who used telephones with glass mouthpieces and typed to the hum of an ozone machine installed to invigorate the office’s atmosphere.
Fisher was spending most of his time crusading for the League of Nations, immigration restrictions, environmental conservation, and public health reforms, including universal insurance. He lived by the same precepts. Virtually the whole top floor of Fisher’s house was devoted to a home gym, Fisher’s “garage for keeping his personal engine in top form.” Along with health food and vitamins, he was a sucker for exercise equipment. The gym was crammed with Indian clubs, dumbbells, weight-lifting devices, a rowing machine, an electric cabinet, a sun lamp; a vibrating chaise that his children claimed looked like an electric chair and “an outlandish mechanism for administering all-over rhythmic massage.”32 By 1929, Fisher had a full-time personal physician and a trainer on his payroll.