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The Wizard and the Pragmatist / Keynes and Churchill

Finest Hour 153, Winter 2011-12

Page 20

The Wizard and the Pragmatist / Keynes and Churchill

The great economist and the politician could be disparaging about one another, but for the most of their lives they expressed mutual regard. Keynes had an intellectual appreciation of Churchill’s gifts, and a warmth of sympathy for a man whose type of mind was very different from his own.

By H. W. Arndt

Heinz Wolfgang Arndt (1915-2002) was for thirty years Professor of Economics at the Australian National University. This article is excerpted from his 1995 “Working Paper in Economic History,” Number 186 (full text available by email), by kind permission of his daughter Bettina Arndt. Our thanks to Alfred James of Churchill Centre Australia, who first brought it to our attention. The author acknowledged Professor Donald Moggridge and Dr. L. D. Thomson for kind assistance in research.


“Keynes must be one of the most remarkable men that ever lived—the quick logic, the birdlike swoop of intuition, the vivid fancy, the wide vision, above all the incomparable sense of the fitness of words….only [Churchill] is of comparable stature….But the greatness of the Prime Minister is something much easier to understand than the genius of Keynes.” —Lionel Robbins, Bretton Woods Monetary Conference, 1944


Keynes and Churchill were arguably the greatest British figures of the 20th century. Born in 1874 and 1883 respectively, they were near contemporaries: Churchill the aristocrat and politician, Keynes the middle intellectual. They had many social contacts, and for over twenty years worked with (and sometimes against) each other. Yet the vast literature on both of them contains no account of their relationship.

In 1908-11, when Churchill was President of the Board of Trade and Home Secretary in the Liberal government, he and Lloyd George initiated radical programs of social reform, introducing labour exchanges, unemployment and infirmity insurance; proposing to limit the power of the House of Lords; and striving for Home Rule for Ireland. Churchill’s concern with relieving poverty would later preoccupy Keynes, but Keynes then was a young don at Cambridge, moving from philosophy to economics. He was “aware of these things, tangentially involved in some of them, but was basically indifferent to them.”1

In 1911 Churchill became First Lord of the Admiralty, and for the next decade was absorbed by military and foreign affairs. Although Keynes spent World War I at the Treasury, their official paths did not cross.2 But when Keynes published The Economic Consequences of the Peace, a passionate denunciation of the Versailles settlement along the lines later voiced by Churchill, he sent a complimentary copy to WSC.

While Keynes and Churchill lived parallel lives, fortuitously unconcerned with each other’s business, they did meet socially. Likely mutual contacts were the Fabian socialists Sidney and Beatrice Webb, when Keynes was on the fringe of Fabian activity at Cambridge. Beatrice had met Churchill in 1903, dismissing him as “bumptious, shallow-minded and reactionary.” She was more favourably impressed by 1908, when WSC “swallowed Sidney’s scheme for labour and unemployment.”3

Another possible point d’appui was Lady Ottoline Morrell, noted hostess to the thinkers of the Bloomsbury Group in London, which included Keynes and Churchill. On 18 May 1911, she gave a party in honour of WSC, who “looked very fine in full-dress uniform,” on his way on to a ball at Buckingham Palace.4 In 1916, as Keynes laboured at the Treasury, his letters to his parents were full of a social life studded with Liberals: the Asquiths, the McKennas, Lady Ottoline and Churchill.5 He once told his mother he had “dined twice at Downing Street.”6

After 1922, Keynes was involved in reparations and war debt diplomacy, which ended dramatically when Stanley Baldwin resumed office as Prime Minister in November 1924 and offered Churchill the Exchequer. Pleased but floored, Churchill later explained, “I should have liked to have answered ‘Will the bloody duck swim?’ but as it was a formal and important occasion I replied ‘This fulfils my ambition.'”7

Churchill’s Chancellorship

Since he’d left the Treasury in 1919, Keynes had been concerned with financial policy: whether Britain should return to the Gold Standard at the prewar parity for sterling. The Bank of England had recommended this, and its view was accepted by the Lloyd George government, which set 31 December 1925 as the deadline.

Keynes’s views fluctuated. In the early 1920s he had favoured securing domestic price stability by maintaining a flexible exchange rate, avoiding the deflationary policy needed to raise sterling to parity, with the adverse effects of such a policy on wages and unemployment. In July 1924, testifying to a committee appointed by Philip Snowden, Chancellor in the brief first Labour government, he argued that there was no need for a deflationary policy, since rising prices in the United States would see sterling rise to or above par. The committee seemed to agree with Keynes, rather than with the Treasury and Bank of England which regarded a return to gold as essential to the standing of London as the world’s financial centre. But before it completed its report, the Labour Government fell, and Churchill became Chancellor.8

It is probably true that “Churchill understood modern no better than old-fashioned economics,”9 but he had acute intelligence and great power of application. Within weeks of assuming his new office he was presented by Montagu Norman, Governor of the Bank of England, with a plan to prepare for a return to gold at par by the end of 1925. He worried about the domestic implications and wrote a substantial paper, dubbed “Churchill’s Exercise,” setting out his objections to a quick return to gold. This led Sir John Bradbury, head of the Treasury, to observe that Churchill “appears to have his spiritual home in the Keynes-McKenna sanctuary.”10

It is not certain whether Churchill was expressing his own view or merely provoking his official advisers into stating their case. If the latter, he was certainly successful, eliciting long and trenchant replies. But there is also no doubt that Churchill was genuinely perplexed and torn. On reading another article by Keynes on “The Return Towards Gold,” Churchill complained in another memorandum:

The Treasury have never, it seems to me, faced the profound significance of what Mr. Keynes calls ‘the paradox of unemployment amidst dearth.’ The Governor shows himself perfectly happy in the spectacle of Britain possessing the finest credit in the world simultaneously with a million and a quarter unemployed.11

Attempting to resolve his doubts, Churchill arranged for a dinner on 17 March 1925 to which he invited Bradbury and financial controller Sir Otto Niemeyer for the Treasury and Keynes and McKenna for the opposition. Till midnight and beyond, Keynes and McKenna argued that at prewar parity, sterling would be overvalued by 10%, and adjusting to the higher rate would mean unemployment and industrial unrest. Churchill, “ready to and anxious to be convinced as far as my limited comprehension of these extremely technical matters will permit,”12 asked McKenna: “…you have been Chancellor…what decision would you take?” McKenna said there was no escape, but “it will be hell.”13 (See Ryan Brown’s previous article.)

In July, Keynes’s pamphlet, The Economic Consequences of Mr. Churchill, ferociously opposed a return to gold as a fixed exchange-rate system because of its effects on unemployment and the balance of payments. It was not directed at Churchill personally; WSC, he said, had made the decision “partly because he has no intuitive judgment, partly because of the clamourous voices of conventional finance, and, worst of all, because he was gravely misled by the experts.”14

Churchill, who almost always rose above the Parliamentary fray, did not resent Keynes’s criticisms. In Parliament, he charged Snowden with inconsistency in first urging an early return to gold, and then attacking the government for taking that course, contrasting this “with the position of Mr. Keynes, who is, I suppose, by far the most distinguished and able exponent of opposition to the return to gold. He is the great advocate of a managed currency, the most powerful and persuasive advocate.”15 Keynes’s warnings about the economic and social consequences of the return to gold at par were soon borne out by the 1926 General Strike. (See Ryan Brown, preceding.)

Keynes had little sympathy with the forceful tone Churchill adopted as editor of the government strike journal, The British Gazette, and indeed with Churchill’s increasingly conservative positions in the last three years of his Chancellorship. In 1928 he wrote a rude letter: “Dear Chancellor of the Exchequer, What an imbecile Currency Bill you have introduced!” Churchill replied with his customary courtesy, revealing his continued respect for the wizard economist: “My dear Keynes…. I will read your article enclosed and reflect carefully, as I always do, on all you say.”16

In 1929 Keynes criticised Churchill’s opposition to a Lloyd George plan (to which Keynes had contributed) for combating unemployment through public works. In his last Budget Speech of April 1929, Churchill had put the orthodox “Treasury view” that deficit-financed public investment would create little employment because it would crowd out private investment through higher interest rates. Keynes’s refutation was the main theme of his Treatise on Money, which he wrote during those years.

Depression era

On the day in September 1931 when the pound went off gold—an event Keynes greeted with delight, “chuckling like a boy”17—Keynes lunched with Churchill, now out of office. That evening at Tilton, the Webbs’ country house, Keynes told Beatrice Webb that Churchill had claimed he had never been in favour of the return to the Gold Standard.18 He called it his “biggest blunder” and blamed it on Montagu Norman.19

From May 1929, when the Baldwin Government fell, until September 1939, when he again became First Lord of the Admiralty, Churchill was without office and relatively devoid of interest in economic affairs. But when Keynes in 1930 proposed a 10% tariff on imports as an alternative to a devaluation of the pound, Churchill, in a dramatic departure from his attachment to Free Trade, expressed sympathy —converted, according to Grigg, “by the blandishments of Keynes.”20 When Churchill visited the United States the following year, Brendan Bracken briefed him on events at home, sending him the views of Keynes on the world monetary situation.21

While Churchill evidently took no interest in the Keynesian revolution of the 1930s, Keynes backed Churchill in the battle against Appeasement. In March 1938 he wrote to WSC: “I have shared the general admiration of your magnificent speeches in the House of Commons.”22 A few months later he referred in a letter to Kingsley Martin to “anti-Chamberlain candidates supported by all of us, e.g., Winston.”23 And if professional contacts were now few, their social contact was frequent.

Keynes at the Other Club

Churchill and F.E. Smith (later Lord Birkenhead) founded The Other Club in 1911 when, it is said, both had applied for membership in The Club, an exclusive dining society that went back to Samuel Johnson’s day, and had been summarily blackballed.24 The Other Club was to consist of not more than fifty members, not more than twenty-four being be members of the House of Commons.

The rules, whimsically drafted by F.E. Smith, specified that the club was to meet on alternate Thursdays “at 8.15 punctually” when Parliament was in session.” The names of the Executive Committee would be “wrapped in impenetrable mystery,” and “Nothing in the Rules or Intercourse of the Club shall interfere with the rancour or asperity of party politics.” Dinners, generally held in the Pinafore Room of the Hotel Savoy, could go on late into the night.

Churchill’s chauffeur had happy memories of these occasions: The boss, he said, “never missed this if it was possible to attend, and he always enjoyed himself there, always coming out at around 2am, give or take an hour, in a very happy frame of mind.”25 Churchill’s last public appearance, aged ninety in December 1964, was at a dinner of The Other Club.26

Membership was by invitation only. If a particularly eminent individual was to be recruited, Lloyd George sometimes joined Churchill in issuing the offer.27

The list of members over the years reads like a Who’s Who of Britain’s political and intellectual elite, from Smuts and Reading to high brass such as Kitchener and Roberts, to press lords like Beaverbrook and Camrose, writers such as H.G. Wells, Arnold Bennett and P.G. Wodehouse, artists such as Lutyens and Munnings, scientists such as Lindemann (Lord Cherwell) and Cockroft, and judges.28 But the chief qualification for membership appears to have been that “Winston thought well of them.”29 (See “Touch of the Other,” FH 101:45 or http://bit.ly/smvpkG.)

Keynes was invited to join in 1927, demonstrating that Churchill bore him no grudge over his views in Economic Consequences. Keynes attended the dinners whenever time allowed. “It was a place of good talk and pleasant intimacy, more worldly in tone than the Bloomsbury gatherings in which he usually found recreation.”30

When Churchill, in New York in 1931, was run down and severely hurt by a car, several of his Other Club friends including Keynes, contributed to the £2000 gift of a new Daimler. In 1940, members including Keynes presented WSC with a silver and gilt snuffbox that had belonged to Nelson.31

Dinners at The Other Club gave Keynes opportunities to talk informally to Churchill on policy matters. In October 1939, he tried unsuccessfully to persuade Churchill to remove wheat from the list of contraband goods, partly to influence German and world opinion and partly to dissipate Germany’s foreign exchange reserves.32 In July 1942, Keynes became concerned about Britain’s accumulating sterling liabilities. When a government department rejected any suggestion of blocking these balances, Keynes spoke to WSC at an Other Club meeting. The result was an “Action This Day” minute beginning, “Lord Keynes mentioned to me the other night,” asking for a Cabinet discussion.33

World War II

As wartime prime minister, Churchill was “sublimely unaware in all but very occasional detail of what happened on the economic front”34 Bracken claimed he was “bored by unheroic money matters.”35 Keynes sometimes agreed. In July 1941, he wrote to the Chancellor of the Exchequer, Kingsley Wood: “The President [Roosevelt] ought to be left free to concentrate on issues of strategy, diplomacy and politics without having to consider the pressing and difficult details of economic policy, which he does not really care for any more than our own Prime Minister.”36

At other times Keynes found Churchill attentive to economic issues, and at least once gave him top marks. In April 1945, reporting in a personal letter on a dinner Churchill gave to finance people to hear the views of Roosevelt’s emissary (and Churchill’s friend) Bernard Baruch, Keynes said: “Winston was quite magnificent throughout, in his best form, taking a profound interest in our Treasury problems for once, thoroughly understanding the points at issue.”37

Keynes was drawn into war work soon after Churchill became Prime Minister. In June 1940, he drafted for Churchill a statement of encouragement to the French.38 From August 1940 he had an office in the Treasury—and Churchill made use of him. When Sir John Anderson was appointed Lord President of the Council, with responsibility for control of wartime economic resources, Churchill told him: “You should summon economists like Keynes to give their views to you personally.”39

In July 1941, preceding the Atlantic Charter meeting with Roosevelt, Keynes saw a draft of Charter Article VII which, by proclaiming non-discrimination in trade as a war aim, appeared to preclude the maintenance of Imperial Preference. Keynes may have influenced insertion of the saving clause, “with due respect for their existing obligations,”40 which in 1947 became the “grandfather” clause in the General Agreement on Tariffs and Trade (GATT).

Keynes visited the U.S. four times during and after World War II: in 1941 to help mobilise U.S. financial resources, including Lend-Lease; in 1943 for preliminary negotiations about the plans for the IMF and World Bank; in 1944 for the Bretton Woods Monetary Conference; and in 1946 for discussions on the terms of the U.S. loan to Britain—each time also discussing much else. Churchill was undoubtedly aware of these issues, though not closely involved. A draft of Keynes’s plan for a clearing union was put to Cabinet in April 1942.41

When the Allies discussed a possible international currency unit, Keynes proposed the name “bancor,” but suggested that FDR and Churchill “could between them do better than most of us at this game, as at most other games, if they had the time to turn their minds to writing a new dictionary as well as a new geography.”42 On one occasion, Churchill and Keynes returned from America together.43 Early in 1945, Churchill asked Keynes to attend a meeting on currency issues with the Governor of the Bank of England and senior ministers.44

The Prime Minister undoubtedly had a say in the appointment of Keynes as a director of the Bank of England in September 1941, and his elevation to the peerage in June 1942. Professor Donald Moggridge told me that Keynes’s appointments book for 17 June 1942 mentions “10 Downing Street” (perhaps to celebrate the latter event). Likewise, Keynes stayed with Churchill during the war, possibly at Chequers.

Exhausted after strenuous negotiations in the U.S., Keynes attended his final dinner of The Other Club three weeks before his death on 20 April 1946.45 A few weeks after Keynes died Churchill, almost equally exhausted, wrote to Lord Cherwell: “I am at what poor Keynes called in the last weeks of his life ‘saturation point.'”46

Two Great Men

Public figures as prominent, clever, opinionated and combative as Churchill and Keynes inevitably attracted criticism. Margot Asquith said “Winston has a noisy mind,”47 and a recent Churchill biography is a compendium of every abuse levelled at him.48 Keynes was fiercely attacked by economists who disagreed with him. Montagu Norman referred to him as a “clever dilettante,”49 Lloyd George as “an entertaining economist whose bright but shallow dissertations on finance and political economy, when not taken seriously, always provide a source of innocent merriment to his readers.”50 But even at the time, and certainly later, these aspersions were outweighed by praise and admiration.

One of Churchill’s senior officials at the Treasury reminisced about his vitality, imagination and critical appreciation of any proposal put to him, and his grasp of administration, “together with his generous temperament and genial expansiveness [which] won him the affection of all of us.”51 Harold Macmillan described the Churchill of 1924-29 as “unique, wayward, exciting, a man with a peculiar glamour of his own, that brought a sense of colour into our rather drab political life.”52

Panegyrics on Keynes were no less wholehearted. Bertrand Russell called him “the sharpest and clearest intellect that I have ever known.”53 At Bretton Woods, “one name stands quite alone. Maynard’s performance was truly wonderful…His industry was prodigious, his resilience and continuous optimism constant wonders to those inclined to pessimism, while I doubt whether he has ever spoken with more lucidity and charm.”54 One of Keynes’s former Cambridge students wrote, “He was so much ahead of the field in wisdom, intellect and power, wit, in art, in generosity, in his range, and in the ease, gaiety and simplicity that went with all this, that I have never had any reverence left for any other famous men, economists or not, that I have since encountered.”55

In the heat of debate, Churchill and Keynes could be disparaging about each other. During the 1929 election campaign Churchill referred to “Professor Keynes” as “the proprietor or controller of an extreme radical weekly newspaper,”56 while Keynes declared a statement by Churchill to be “feather-brained.”57 But through most of their public lives, they expressed mutual regard. Keynes “had not only an intellectual appreciation” of Churchill’s gifts, but a “warmth of sympathy for one whose type of mind was very different from his own.”58

Keynes was not merely being polite when, in reviewing Churchill’s The World Crisis, he declared Churchill “the most acute and concentrated intelligence which saw the war at close quarters from beginning to end,” and that he “writes better than any politician since Disraeli.”59 Nor was Churchill merely being polite when he referred to Keynes in 1925 as “by far the most distinguished and able exponent of the opposition to the return to gold,” who argued his case in “a series of searching and brilliant articles, formidable and instructive.”60

Their backgrounds, personalities and interests were very different. Apart from their two major periods of substantial interaction—Churchill’s Chancellorship and World War II—the literature allows us only glimpses of personal contact between them. But their contacts were almost always friendly.61 To know this, and to learn something about the relations between such giants, cannot fail to give one pleasure.


End Notes

1. Robert Skidelsky, John Maynard Keynes, vol. 1, Hopes Betrayed 1883-1920 (London: Macmillan, 1983), 232.

2. Donald E. Moggridge and Austin Robinson, eds., Collected Writings of John Maynard Keynes (hereinafter cited as CW), 30 vols. (London: Macmillan, 1971-89), X 64.

3. Norman and Jean MacKenzie, The First Fabians (London: Weidenfeld & Nicolson, 1977), 355.

4. Miranda Seymour, Ottoline Morrell: Life on a Grand Scale (London: Hodder & Stoughton, 1992), 131.

5. CW, XVI 177.

6. Skidelsky, Hopes Betrayed, 326.

7. Martin Gilbert, Winston S. Churchill: Prophet of Truth 1922-1939 (London: Heinemann, 1976), 59.

8. Donald E. Moggridge, Maynard Keynes (London: Routledge, 1992) ch. 17, passim.

9. Robert Skidelsky, John Maynard Keynes, vol. 2, The Economist as Saviour 1920-1937 (London: Macmillan, 1992), 197.

10. Skidelsky, The Economist as Saviour, 426.

11. Moggridge, Maynard Keynes, 428.

12. Norman Rose, Churchill: An Unruly Life (London: Simon & Schuster, 1994), 174.

13. Percy James Grigg, Prejudice and Judgment (London: Jonathan Cape, 1948), 182n.

14. CW, IX 212.

15. Robert Rhodes James, ed., Winston S. Churchill: His Complete Speeches 1897-1963, 8 vols. (New York: Bowker, 1974), IV 3595.

16. CW XIX 749n.

17. C. H. Rolphe, cited in Skidelsky, The Economist as Saviour, 397.

18. Norman and Jean Mackenzie, The Diary of Beatrice Webb, vol. 4 1924-43 (London: Virago, 1985), 260.

19. Andrew Boyle, Montagu Norman (London: Cassell, 1967), 190.

20. Grigg, 233.

21. Charles Lysaght, Brendan Bracken (London: Allen Lane, 1979), 132.

22. Gilbert, Prophet of Truth, 955.

23. CW, XXVIII 123.

24. John Campbell, F.E. Smith: First Earl of Birkenhead (London: Jonathan Cape, 1983), 268.

25. Gilbert, Prophet of Truth, 63, 506.

26. Rose, Unruly Life, 141.

27. Cameron Hazlehurst, “Who Founded The Other Club? Unpublished manuscript, Canberra, 1995.

28. Colin R. Coote, The Other Club (London: Sidgwick & Jackson, 1971), passim.

29. Gilbert, Prophet of Truth, 63.

30. Roy F. Harrod, The Life of John Maynard Keynes (London: Macmillan, 1951), 396.

31. Martin Gilbert, Winston S. Churchill, vol. 6, Finest Hour 1939-1941 (London: Heinemann; Boston: Houghton Mifflin, 1983), 853.

32. Moggridge, Maynard Keynes, 628.

33. Ibid., 638.

34. Austin Robinson, “A Personal View,” in Milo Keynes, ed., Essays on J.M. Keynes (Cambridge: Cambridge University Press, 1975), 19.

35. Lysaght, 250.

36. CW, XXIII 155.

37. CW, XXIV 302.

38. CW, XXII 180.

39. John W. Wheeler-Bennett, John Anderson (London: Macmillan, 1962), 260.

40. John Barnes and David Nicholson, eds., The Leo Amery Diaries, vol. 3 1929-1945 (London: Hutchinson, 1988), 707n.

41. Moggridge, Maynard Keynes, 678.

42. CW XXV 272.

43. Martin Gilbert, Winston S. Churchill, vol. 8 “Never Despair” 1945-1965 (London: Heinemann; Boston: Houghton Mifflin, 1988), 526.

44. Harrod, 471.

45. Rose, 341.

46. Gilbert, “Never Despair,” 234.

47. Frederick Leith-Ross, Money Talk: Fifty Years of International Finance (London: Hutchinson, 1968, 30.

48. Rose, passim.

49. Boyle, 160.

50. David Lloyd George, War Memoirs, vol. 2 1915-1916 (Boston: Little Brown, 1933), 136.

51. Leith-Ross, 118.

52. Harold Macmillan, Winds of Change 1914-1939 (London Macmillan, 1966), 176.

53. Skidelsky, Hopes Betrayed, 124.

54. Frederick G. Lee, “The International Negotiator” in Milo Keynes, ed., Essays on J.M. Keynes, 220.

55. David M. Bensusan-Butt, On Economic Knowledge (Canberra: Australian National University, 1980), 26.

56. Churchill, Complete Speeches, VI 6442.

57. CW, IX 240.

58. Harrod, 360.

59. CW, X 53.

60. Churchill, Complete Speeches, IV 3595.

61. Skidelsky, The Economist as Saviour, 690.

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