Saturday, July 13, 2019

Keynes’ Life: 1929

I give an account below of Keynes life in 1929, the year in which the Great Depression began.

January–May 1929
Keynes taught at Cambridge in the first half of the year. The teaching periods at Cambridge were divided into three terms:
October–December – Michaelmas
January–March – Lent or January term
April–June – Easter term.
On 18 January 1929, Ludwig Wittgenstein returned to Cambridge, and Keynes met him when he arrived, and allowed Wittgenstein to share his rooms at Cambridge until February 1929 (Skidelsky 1992: 291).

From 9 February to 7 June 1929, an international committee met to propose changes to the German reparations system, which was chaired by Owen D. Young, and called the Young Committee (Moggridge 1992: 476). Keynes corresponded with the leading members on German reparations and published a famous article called “The German Transfer Problem” in the Economic Journal of March 1929 (Moggridge 1992: 476–478).

Keynes also visited the Treasury on 7 March 1929 and recommended raising the bank rate to attract more capital from abroad (Skidelsky 1992: 302).

From March 1928 until the UK general election of May 1929, Keynes strongly supported David Lloyd George’s Liberal program of deficit spending and public works to cure the problem of high unemployment in Britain (Skidelsky 1992: 297). It was at this stage that the British Treasury formulated its so-called “Treasury View” opposing debt-financed public works. Curiously, the ruling British government included some ministers like the Home Secretary (Joynson-Hicks) who favoured large public works programs in February 1929, and so the Treasury fought both these proposals and those of Keynes and Lloyd George (Skidelsky 1992: 299). Keynes attacked the “Treasury View” in an unsigned article in the Nation of 23 February 1929 called “The Objections to Capital Expenditure” (Skidelsky 1992: 299). Keynes identified two “leakages” of savings which caused disequilibrium between savings and investment, as follows:
(1) leakage of savings into financial asset markets (that is, the stock, share and bond markets) where this money is not spent on real capital investment, and

(2) leakage of savings overseas into foreign investments (Skidelsky 1992: 299).
Keynes maintained that therefore there were savings available in Britain for deficit-financed public works programs (Skidelsky 1992: 301). Winston Churchill, as Chancellor of the Exchequer, also defended the Treasury view in his budget speech of 15 April 1929 (Moggridge 1992: 462).

On 10 May 1929, Hubert Henderson and Keynes published Can Lloyd George do it?, a pamphlet in support of Lloyd George before the UK general election of 1929. In this pamphlet, Keynes and Henderson pointed to the “cumulative force of trade activity” as a further argument in favour of deficit spending, and this eventually inspired the concept of the “multiplier” formulated by Richard Kahn in the summer of 1930 (Moggridge 1992: 464).

In the UK general election of 30 May 1929, Keynes expected the Liberal party to do well in the election and win at least 100 seats (Skidelsky 1992: 306), but the results, summarised below, disappointed him:
Party | Leader | Seats Won
Conservative | Stanley Baldwin | 260
Labour | Ramsay MacDonald | 287
Liberal | David Lloyd George | 59.
The UK Labour Party under Ramsay MacDonald won 287 seats, and formed a government, with Ramsay MacDonald as British Prime Minister from 5 June 1929–7 June 1935, but proved disastrously inept and stupid, as it supported austerity when the Great Depression hit Britain.

Keynes was so disappointed that he never attended a Liberal Summer School event ever again (Moggridge 1992: 464).

June to December 1929
Since summer 1924, Keynes had been occupied in writing A Treatise on Money, and his work continued into the summer of 1928 and 1929. With his Easter teaching term over at the end of June 1929, Keynes returned in summer to working on the Treatise on Money. Keynes spent much of the summer at his house in Tilton, South Downs near Lewes, and engaged in writing his Treatise (Skidelsky 1992: 338).

Keynes had taken possession of Tilton house on 3 March 1926, rented on a 21 year lease (Skidelsky 1992: 214). It was in Tilton house that Keynes and his wife Lydia would spend their Christmas and Easter holidays and two and a half months during the summer (Skidelsky 1992: 217).

From 19 to 29 July 1929, Keynes travelled to Geneva, where he gave four lectures at the School of International Studies (Moggridge 1992: 479), having been invited by the Financial Section of the League of Nations (Skidelsky 1992: 338). He and his wife Lydia then had a holiday in Burgundy in August (Skidelsky 1992: 338).

After his return to Britain during summer, Keynes had an active social life, and he appears to have taken part in a BBC broadcast, a dinner with Lloyd George at his house in Churt, and a meeting with Oswald Mosley (the new Chancellor of the Duchy of Lancaster). This was long before Oswald Mosley became a fascist, and at this time Mosley was a rising figure in the British Labour Party (which he had joined in March 1924), and a Member of Parliament for Smethwick (21 December 1926–27 October 1931). In 1929, Mosley was appointed by Ramsey MacDonald to the position of Chancellor of the Duchy of Lancaster (a post without Portfolio and outside the Cabinet), but was tasked with solving the unemployment problem in Britain, which had been high since the early 1920s. On 4 September 1929, Keynes met Mosley in London and discussed the problem of unemployment (Skidelsky 1992: 339).

In August, Keynes decided that many chapters of A Treatise on Money needed to be re-written and he also decided to divide the work into two volumes (Moggridge 1992: 479). In mid-November, Keynes allowed Arthur Pigou and Dennis Robertson to read and comment on his new draft of the Treatise (Moggridge 1992: 480). However, it was not until the next year that Keynes’ A Treatise on Money was published, on 24 October 1930.

Before August 1929, Richard Kahn, who was Keynes’ student, also began to assist Keynes in the development of his thinking on economics (Moggridge 1992: 480). Moreover, it was in October 1929 that Joan Robinson and Austin Robinson returned to Cambridge, and from 1929 to 1930 Joan Robinson attended Piero Sraffa’s lectures (Sraffa had arrived in London in July 1927 after fleeing Italy).

Keynes did not predict, or foresee, the Great Depression of 1929–1933 (Moggridge 1992: 478; Skidelsky 1992: 338).

It was in October that two severe corrections hit the New York stock exchange, as follows:
24 October 1929 – “Black Thursday” on the New York stock exchange, the beginning of the US Stock Market Crash of 1929

29 October 1929 – “Black Tuesday” on the New York stock exchange.
When the first Wall Street Crash occurred on 24 October 1929, Keynes was surprised. Indeed, in an article in the New York Evening Post, Keynes appeared to think that monetary policy would eventually correct the problem (Moggridge 1992: 480).

Keynes’ investments also suffered heavily from falling stock and commodity prices, so that by late 1929 his new worth dropped from £44,000 to £7,814 (Skidelsky 1992: 342).

On the 5 November 1929, the UK Treasury created a “Committee on Finance and Industry,” chaired by Lord Macmillan (and therefore called the “Macmillan Committee”), to which Keynes was appointed, and its first meeting was on 21 November 1929 (Moggridge 1992: 481). This committee was an inquiry into banking and finance, amongst other things. Keynes even met Ramsey MacDonald, the British Prime Minister, on the 25 November, the 9 December and 16 December, to discuss economic issues (Moggridge 1992: 481).

Later on 24 January 1930, the British government established an “Economic Advisory Council (EAC),” chaired by the Prime Minister, which included the Chancellor of the Exchequer, the President of the Board of Trade, the Minister of Agriculture, Hubert Henderson (as senior economist), and Keynes, amongst others (Moggridge 1992: 481–482).

Keynes was now a government adviser, and he had to attend sixty-five meetings related to these committees between November 1929 and September 1930 (Moggridge 1992: 482). Keynes was especially active in the Macmillan Committee (which included Ernest Bevin), both in the examination of witnesses and in the production of the final report (Skidelsky 1992: 345).

From 1929 to 1931, Keynes lost interest in the now small Liberal Party and its politics (Skidelsky 1992: 344).

Keynes gave the Ludwig Mond Lecture at Manchester University on 7 November 1929, and noted the relative rigidity of money wages, and particularly how money wages were determined by “social and historical forces,” and not by marginal labour productivity (Skidelsky 1992: 347).

In December 1929, Richard Kahn, Keynes’ student, submitted his dissertation called “The Economics of the Short Period,” and Kahn became a Fellow at King’s College in March 1930 (Moggridge 1992: 480).

Moggridge, D. E. 1992. Maynard Keynes: An Economist’s Biography. Routledge, London and New York.

Skidelsky, Robert. 1992. John Maynard Keynes: Volume Two. The Economist as Saviour 1920–1937. Macmillan, London.


  1. Hi LK what is your view on land value tax and Georgism? Please read this.

  2. What is your view on the BoE 2014 money creation (printing money does not cause hyperinflation as you claim): "The reality of how money is created today differs from the
    description found in some economics textbooks:
    • Rather than banks receiving deposits when households
    save and then lending them out, bank lending creates
    • In normal times, the central bank does not fix the amount
    of money in circulation, nor is central bank money
    ‘multiplied up’ into more loans and deposits."