Universal Man: The Seven Lives of John Maynard Keynes. Richard Davenport-Hines

of government into, at least, a marionette existence.’16

      In January 1915 – again at the behest of Edwin Montagu – Keynes was recruited to the Treasury for the duration of hostilities. Six years later, when lecturing to the Society of Civil Servants, he depicted the department as an austere enemy of expenditure and waste, and regretted the destructive impact as Chancellor of Lloyd George, who ‘never had the faintest idea of the meaning of money’. The Treasury had perfected a bureaucratic style which shielded its officials from attacks as they curbed the spending of other departments: ‘precedent, formalism, aloofness, and even sometimes obstruction by the process of delay, and sometimes indefinite replies’, as Keynes said. ‘The aloofness of the Treasury was not a piece of old-fashioned absurdity, but a real part of the ritualism for the preservation of the prestige of the department.’ The mandarins stayed in their offices while the politicians won power and lost it: they outlasted ‘the whims of individual ministers and particular parties’; their longevity ‘was aided by their impalpable and invisible character’. The Treasury’s financial restraints shared some attributes with Church of England prelates, senior tutors in Oxbridge colleges and watch-committees in suppressing licence or immorality. ‘There is a good deal of it rather tiresome and absurd once you begin to look into it, yet nevertheless it is an essential bulwark against overwhelming wickedness,’ Keynes suggested. The Treasury cultivated wintry scepticism as the antidote to enthusiasm. Its group mentality was ‘very clever, very dry and in a certain sense very cynical; intellectually self-confident and not subject to the whims of people who … are not quite sure that they know their case’.17

      Principia Ethica was a fine guide to success in the Treasury. Moore’s method hoped ‘to make essentially vague notions clear by using precise language about them and asking exact questions’, as Keynes said. ‘It was a method of discovery by the instrument of impeccable grammar and an unambiguous dictionary. “What exactly do you mean?” was the phrase most frequently on our lips.’ This Cambridge frame of mind – ‘a kind of combat in which strength of character was really much more valuable than subtlety of mind’ – fitted Treasury needs.18

      Keynes began work as a Treasury official on 18 January 1915 (living in rooms in Bloomsbury, but returning to Cambridge from Saturday to Monday when he could). He prepared an urgent briefing document for Lloyd George, ‘Notes on French Finance’, signalling the French central bank’s conservatism (‘compared with the Bank of France, the Bank of England is almost skittish’), indicting the commercial banking system as ‘sordid, corrupt, disastrous and deeply intertwined with the basest features of French political life’, and deploring the swindling of investors. While preparing it he went to dine with Leonard and Virginia Woolf. ‘We gave him oysters,’ she noted. ‘He is like quicksilver on a sloping board – a little inhuman, but very kindly, as inhuman people are.’ (It was often a problem for Keynes that his friends with subjective literary minds mistook the attempted impartiality of people with technical training for a deficiency in deep feelings.) ‘We gossiped at full speed,’ Woolf continued. ‘Then we talked about the war. We aren’t fighting now, he says, but only waiting for the spring. Meantime we lavish money, on a scale which makes the French, who are fearfully out at elbow, gape with admiration. We are bound to win – & in great style too, having at the last moment applied all our brains & all our wealth to the problem.’19

      Keynes accompanied Lloyd George, Edwin Montagu and the Governor of the Bank of England, Lord Cunliffe, to a conference in Paris in February. Traditionally Britain had granted outright war subsidies to its allies. But the pride of the chief borrower, France, and considerations involving Dominion borrowers such as Canada, to say nothing of the scale of the European war, made the old practice insupportable. The Paris conference attended by Keynes settled an Anglo-French loan to Russia accompanied by Russian and French gold transfers to the Bank of England. This arrangement inaugurated the complex system of war credits between the Allies which created the post-war debt problem that bedevilled Europe. Over the next two years, Keynes helped to develop and manage a system of financial controls over the spending of Britain’s allies, which entailed a centralized buying system, with orders being channelled through London, and payment coming from credits designated for Allied accounts at the Bank of England. ‘His quick mind and inexhaustible capacity for work rapidly marked out a kingdom for him,’ Niemeyer recalled. Keynes’s powers increased after May 1915, with the formation of the wartime coalition government, in which Lloyd George became Minister of Munitions, and Reginald McKenna replaced him as Chancellor of the Exchequer. ‘McK’, wrote the Whitehall-watcher Sir Vincent Caillard a few months later, ‘has an almost mysterious hold on the P.M.’s judgment and even affection.’ Keynes soon acquired a similar lien on McKenna’s views. He became the leading authority on questions of external, and particularly inter-Allied, debt.20

      The government initially assumed that if it raised the money to pay for its wartime expenditure, there would be a corresponding fall in other expenditure. In expectation of a short war, it did not levy heavier taxes, but in November 1914 issued a war loan of £350 million to pay for its munitions. The banks subscribed for most of this loan, counted their Treasury bonds as part of their reserves and continued their lending as before. As a result, both public and private expenditure rose. Keynes helped McKenna to prepare his first budget, in September 1915, whereby income tax was raised to three shillings and sixpence in the pound, and an Excess Profits Duty of 50 per cent (raised to 80 per cent by 1917) was imposed together with the so-called McKenna Duties, which levied 33.3 per cent on luxury imports such as motor-vehicles and watches. These McKenna Duties were of signal importance: introduced by a free-trade Liberal, they were a victory for protectionists; intended as a wartime improvisation, they remained in force until the Labour government’s free-trade budget of 1924; were reimposed in Winston Churchill’s budget a year later; and continued until 1956 when they were abolished in Harold Macmillan’s last budget before becoming Prime Minister. In effect, for forty years, the McKenna Duties served as a protective measure to defend British motor-car and lorry manufacturers from international competition.

      Keynes toiled during September 1915 in negotiations that resulted in British financial credits to Russia, British control of Russian purchases and Russian loans of gold to Britain. ‘I doubt if I’ve ever worked harder than during the last two weeks; but I’m wonderfully well all the same,’ he told his parents on 18 September. ‘The work has been as interesting as it could be. I’ve written three major memoranda, one of which has been circulated to the Cabinet, and about a dozen minor ones.’ When the pressure of work relented, Keynes went for a Sussex weekend with Bloomsbury friends and showed no sign of strain: ‘Maynard is equable and optimistic and very agreeable,’ reported Clive Bell. Keynes’s experiences at this time convinced him of the benefits of latitude and discretion. ‘There is a case for controls which those in charge know to be imperfect and incomplete and deliberately leave so; especially in England. It is far more trouble than it is worth to be too logical about controls.’ Only a day after establishing the principle that Russian credits should be confined to munitions, he had to initial a Bond Street bill for a Grand Duchess’s underwear, and approved a shipment of beeswax to provide candles for Russian Orthodox churches. On another occasion, Spanish currency was urgently needed for Allied international transactions. With difficulty a smallish sum was raked up, as Keynes reported. Chalmers expressed relief that for a short time, at any rate, the Treasury had its reserve of pesetas. ‘Oh no!’ replied Keynes to his aghast chief, who like most civil servants had scant understanding of markets. ‘I’ve sold them all again: I’m going to break the market.’ By dumping the Treasury’s holding, he jolted the value of Spanish pesetas downwards in international currency exchanges and was then able to buy back the necessary reserve of pesetas at lower prices than those for which he had sold them.21

      From early in 1915 until the United States entered the war in 1917, there was a continuous exchange crisis of a gravity that became more acute as gold reserves were depleted. By the summer of 1916 Britain was paying for all of Italy’s war expenditure, most of Russia’s,