8. “The Swindler”

“The Swindler”

THE YOUNG Keynes displayed no interest whatsoever in economics; his dominant interest was philosophy. In fact, he completed an undergraduate degree at Cambridge without taking a single economics course. Not only did he never take a degree in the subject, but the only economics course Keynes ever took was a single-term graduate course under Alfred Marshall.

He found that spell of economics exciting, however, as it appealed both to his theoretical interests and to his thirst for cutting a giant swath through the real world of action. In the fall of 1905, he wrote to Strachey, “I find economics increasingly satisfactory, and I think I am rather good at it. I want to manage a railroad or organise a Trust or at least swindle the investing public” (Harrod 1951, p. 111).⁷

Keynes, in fact, had recently embarked on his lifelong career as investor and speculator. Yet Harrod was constrained to deny vigorously that Keynes had begun speculating before 1919.

Asserting that Keynes had “no capital” before then, Harrod explained the reason for his insistence in a book review six years after the publication of his biography: “It is important that this should be clearly understood, since there were many ill-wishers … who asserted that he took advantage of inside information when in the Treasury (1915–June 1919) in order to carry out successful speculations” (Harrod 1957). In a letter to Clive Bell, author of the book under review and an old Bloomsburyite and friend of Keynes, Harrod pressed the point further: “The point is important because of the beastly stories, which are very widespread … about his having made money dishonourably by taking advantage of his Treasury position” (ibid.; cf. Skidelsky 1983, pp. 286–88).

Despite Harrod’s insistence to the contrary, however, Keynes had indeed set up his own “special fund” and had begun to make investments by July 1905. By 1914, Keynes was speculating heavily in the stock market and, by 1920, had accumulated £16,000, which would amount to about $200,000 at today’s prices. Half of his investment was made with borrowed money.

It is not clear at this point whether his fund was used for investment or for more speculative purposes, but we do know that his capital had increased by more than threefold. Whether Keynes used inside Treasury information to make such investment decisions is still unproven, although suspicions certainly remain (Skidelsky 1983, pp. 286–88).

Even if we cannot prove the charge of swindling against Keynes, we must consider his behavior in the light of his own bitter condemnation of financial markets as “gambling casinos” in The General Theory. It seems probable, therefore, that Keynes believed his successes at financial speculation to have swindled the public, although there is no reason to think he would have regretted that fact. He did realize, however, that his father would disapprove of his activity.⁸

⁷ As Skidelsky points out, it is typical of Roy Harrod’s whitewashing biography that, in quoting this letter, he leaves out his hero’s remark about “swindling the investing public” (Skidelsky 1983, pp. 165n).

⁸ In a letter to his mother on September 3, 1919. Keynes wrote of his speculation in foreign exchange, “which will shock father but out of which I hope to do very well” (Harrod 1951, pp. 288). For a penetrating critique of Keynes’s views on speculation as gambling, see Hazlitt ([1959] 1973, pp. 179–85).