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 the collected writings of
J O H N M AY NA R D K E Y N E S
Managing Editors:
Professor Austin Robinson and Professor Donald Moggridge

John Maynard Keynes (1883–1946) was without doubt one of the most influ-
ential thinkers of the twentieth century. His work revolutionised the theory
and practice of modern economics. It has had a profound impact on the
way economics is taught and written, and on economic policy, around the
world. The Collected Writings of John Maynard Keynes, published in full in
electronic and paperback format for the first time, makes available in thirty
volumes all of Keynes’s published books and articles. This includes writings
from his time in the India Office and Treasury, correspondence in which he
developed his ideas in discussion with fellow economists and correspondence
relating to public affairs. Arguments about Keynes’s work have continued
long beyond his lifetime, but his ideas remain central to any understanding of
modern economics, and a point of departure from which each new generation
of economists draws inspiration.

This volume, a companion to Volume XVII and to many of the Essays in

Persuasion (Volume IX), carries Keynes’s involvement in the post-1919 repa-
rations tangle down to the Lausanne Conference and Britain’s subsequent
effective default on her own war debts in June 1933 – almost fourteen years
to the day after Keynes’s own resignation from the Treasury over the original
Peace Settlement – effectively removed the issue from practical politics. The
events it covers were dramatic – the German hyperinflation, the occupation
of the Ruhr, the Dawes and Young Plans, the Hoover Moratorium. Through-
out, Keynes attempted to shape opinion and the course of events through
published articles, unsigned notes in the Nation and Athenaeum, speeches, let-
ters, official committees and memoranda. These add an important dimension
to our understanding of the history of the period.

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 THE COLLECTED WRITINGS OF
JOHN MAYNARD KEYNES

VO LU M E X V I I I

ACTIVITIES 1922–1932
T H E E N D O F R E PA R AT I O N S

edited by
ELIZABETH JOHNSON

CAMBRIDGE UNIVERSITY PRESS

for the
ROYAL ECONOMIC SOCIETY

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 © The Royal Economic Society 1978, 2013

All rights reserved. No part of this publication

may be reproduced or transmitted, in any
form or by any means, without permission

Published for the Royal Economic Society

throughout the world by
cambridge university press
Cambridge, New York, Melbourne, Madrid, Cape Town,
Singapore, São Paulo, Delhi, Mexico City
Cambridge University Press
The Edinburgh Building, Cambridge cb2 8ru, UK

Published in the United States of America by

Cambridge University Press, New York

www.cambridge.org
Information on this title: www.cambridge.org/9781107691391

This publication is in copyright. Subject to statutory exception

and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without the written
permission of Cambridge University Press.

This edition published 2013

Printed and bound in the United Kingdom
by the MPG Books Group

A catalogue record for this publication is available from the British Library

isbn 978-1-107-69139-1 Paperback

30-volume set isbn 978-1-107-67772-2

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 CONTENTS

General introduction page vii

Note to the reader xiii

1 THE DECLINE OF THE MARK, 1921-1922 I

2 NEW GOVERNMENTS, NEW ATTEMPTS AT

SETTLEMENT, 1922-1923 85

3 CORRESPONDENCE WITH A MUTUAL FRIEND,

JANUARY-JUNE 1923 121

4 THE RUHR IMPASSE, JUNE-OCTOBER 1923 172

5 A BREATHING SPACE—THE DAWES PLAN,

I923-I928 234
6 SEARCH FOR A FINAL SETTLEMENT—THE YOUNG

PLAN, 1928-193O 304

7 HOW IT ENDED 351

List of Documents Reproduced 391

Index 397

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 GENERAL INTRODUCTION

This new standard edition of The Collected Writings of John

Maynard Keynes forms the memorial to him of the Royal
Economic Society. He devoted a very large share of his busy
life to the Society. In 1911, at the age of twenty-eight, he
became editor of the Economic Journal in succession to Edge-
worth; two years later he was made secretary as well. He held
these offices without intermittence until almost the end of his
life. Edgeworth, it is true, returned to help him with the
editorship from 1919 to 1925; MacGregor took Edgeworth's
place until 1934, when Austin Robinson succeeded him and
continued to assist Keynes down to 1945. But through all these
years Keynes himself carried the major responsibility and
made the principal decisions about the articles that were to
appear in the Economic Journal, without any break save for
one or two issues when he was seriously ill in 1937. It was only
a few months before his death at Easter 1946 that he was
elected president and handed over his editorship to Roy
Harrod and the secretaryship to Austin Robinson.
In his dual capacity of editor and secretary Keynes played
a major part in framing the policies of the Royal Economic
Society. It was very largely due to him that some of the major
publishing activities of the Society—Sraffa's edition of
Ricardo, Stark's edition of the economic writings of Bentham,
and Guillebaud's edition of Marshall, as well as a number of
earlier publications in the 1930s—were initiated.
When Keynes died in 1946 it was natural that the Royal
Economic Society should wish to commemorate him. It was
perhaps equally natural that the Society chose to com-
Vll

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 GENERAL INTRODUCTION
memorate him by producing an edition of his collected works.
Keynes himself had always taken a joy in fine printing, and
the Society, with the help of Messrs Macmillan as publishers
and the Cambridge University Press as printers, has been
anxious to give Keynes's writings a permanent form that is
wholly worthy of him.
The present edition will publish as much as is possible of
his work in the field of economics. It will not include any
private and personal correspondence or publish letters in the
possession of his family. The edition is concerned, that is to
say, with Keynes as an economist.
Keynes's writings fall into five broad categories. First there
are the books which he wrote and published as books. Second
there are collections of articles and pamphlets which he
himself made during his lifetime (Essays in Persuasion and
Essays in Biography). Third, there is a very considerable
volume of published but uncollected writings—articles writ-
ten for newspapers, letters to newspapers, articles in journals
that have not been included in his two volumes of collections,
and various pamphlets. Fourth, there are a few hitherto
unpublished writings. Fifth, there is correspondence with
economists and concerned with economics or public affairs.
This series will attempt to publish a complete record of
Keynes's serious writing as an economist. It is the intention
to publish almost completely the whole of the first four
categories listed above. The only exceptions are a few syndi-
cated articles where Keynes wrote almost the same material
for publication in different newspapers or in different coun-
tries, with minor and unimportant variations. In these cases,
this series will publish one only of the variations, choosing the
most interesting.
The publication of Keynes's economic correspondence
must inevitably be selective. In the day of the typewriter and
the filing cabinet and particularly in the case of so active and
busy a man, to publish every scrap of paper that he may have
vm

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 GENERAL INTRODUCTION
dictated about some unimportant or ephemeral matter is
impossible. We are aiming to collect and publish as much as
possible, however, of the correspondence in which Keynes
developed his own ideas in argument with his fellow eco-
nomists, as well as the more significant correspondence at
times when Keynes was in the middle of public affairs.
Apart from his published books, the main sources available
to those preparing this series have been two. First, Keynes in
his will made Richard Kahn his executor and responsible for
his economic papers. They have been placed in the Marshall
Library of the University of Cambridge and have been avail-
able for this edition. Until 1914 Keynes did not have a
secretary and his earliest papers are in the main limited to
drafts of important letters that he made in his own handwrit-
ing and retained. At that stage most of the correspondence
that we possess is represented by what he received rather than
by what he wrote. During the war years of 1914-18 Keynes
was serving in the Treasury. With the opening in 1968 of the
records under the thirty-year rule, many of the papers that
he wrote then and later have become available. From 1919
onwards, throughout the rest of his life, Keynes had the help
of a secretary—for many years Mrs Stevens. Thus for the last
twenty-five years of his working life we have in most cases the
carbon copies of his own letters as well as the originals of the
letters that he received.
There were, of course, occasions during this period on
which Keynes wrote himself in his own handwriting. In some
of these cases, with the help of his correspondents, we have
been able to collect the whole of both sides of some important
interchange and we have been anxious, in justice to both
correspondents, to see that both sides of the correspondence
are published in full.
The second main source of information has been a group
of scrapbooks kept over a very long period of years by
Keynes's mother, Florence Keynes, wife of Neville Keynes.
ix

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 GENERAL INTRODUCTION
From 1919 onwards these scrapbooks contain almost the
whole of Maynard Keynes's more ephemeral writing, his
letters to newspapers and a great deal of material which
enables one to see not only what he wrote, but the reaction
of others to his writing. Without these very carefully kept
scrapbooks the task of any editor or biographer of Keynes
would have been immensely more difficult.
The plan of the edition, as at present intended, is this. It
will total twenty-nine volumes. Of these the first seven are
Keynes's published books from Indian Currency and Finance,
in 1913, to the General Theory in 1936, with the addition of his
Treatise on Probability. There next follow, as vols. ix and x,
Essays in Persuasion and Essays in Biography, representing
Keynes's own collections of articles. Essays in Persuasion differs
from the original printing in two respects: it contains the full
texts of the articles or pamphlets included in it and not (as
in the original printing) abbreviated versions of these articles,
and it also contains one or two later articles which are of
exactly the same character as those included by Keynes in his
original collection. In Essays in Biography there have been
added a number of biographical studies that Keynes wrote
later than 1933.
There will follow two volumes, XI-XII, of economic articles
and correspondence and a further two volumes, already
published, xm-xiv, covering the development of his thinking
as he moved towards the General Theory. There are included
in these volumes such part of Keynes's economic correspon-
dence as is closely associated with the articles that are printed
in them.
The next thirteen volumes, as we estimate at present, deal
with Keynes's Activities during the years from the beginning
of his public life in 1905 until his death. In each of the
periods into which we divided this material, the volume
concerned publishes his more ephemeral writings, all of it
hitherto uncollected, his correspondence relating to these

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 GENERAL INTRODUCTION
activities, and such other material and correspondence as is
necessary to the understanding of Keynes's activities. These
volumes are edited by Elizabeth Johnson and Donald Mog-
gridge, and it is their task to trace and interpret Keynes's
activities sufficiently to make the material fully intelligible to
a later generation. There will be a further volume printing
his social, political and literary writings and a final volume of
bibliography and index.
Those responsible for this edition have been: Lord Kahn,
both as Lord Keynes's executor and as a long and intimate
friend of Lord Keynes, able to help in the interpreting of
much that would otherwise be misunderstood; Sir Roy
Harrod as the author of his biography; Austin Robinson as
Keynes's co-editor on the Economic Journal and successor as
Secretary of the Royal Economic Society, who has acted
throughout as Managing Editor.
Elizabeth Johnson has been responsible for the Activities
volumes xv-xvm covering Keynes's early life, the Versailles
Conference and his early post-1918 concern with reparations
and international finance. Donald Moggridge has been re-
sponsible for the two volumes covering the origins of the
General Theory and for all the Activities volumes from 1924
to the end of his life in 1946.
The work of Elizabeth Johnson and Donald Moggridge has
been assisted at different times by Jane Thistlethwaite, Mrs
McDonald, who was originally responsible for the systematic
ordering of the files of the Keynes papers and Judith
Masterman, who for many years worked with Mrs Johnson
on the papers. More recently Susan Wilsher, Margaret Butler
and Leonora Woollam have continued the secretarial work.
Barbara Lowe has been responsible for the indexing. Susan
Howson undertook much of the important final editorial
work on these volumes.

XI

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 NOTE TO THE READER

In this and subsequent volumes, in general all of Keynes's own

writings are printed in larger type. All introductory matter
and all writings by others than Keynes are printed in smaller
type. The only exception to this general rule is that occasional
short quotations from a letter from Keynes to his parents or
to a friend, used in introductory passages to clarify a situation,
are treated as introductory matter and are printed in the
smaller type.
Most of Keynes's letters included in this and other volumes
are reprinted from the carbon copies that remain among his
papers. In most cases he has added his initials to the carbon
in the familiar form in which he signed to all his friends. We
have no means of knowing whether the top copy, sent to the
recipient of the letter, carried a more formal signature.
Crown copyright material appears by permission of the
Comptroller of Her Majesty's Stationery Office.
The editor also wishes to thank Eric Warburg and Sir
Sigmund Warburg for their courtesy in supplying copies
of Keynes's correspondence with Carl Melchior and of
Melchior's diary account of Keynes's visit to Berlin in
June 1923, and Joachim Kratz for his kind interest in
making an English translation of the diary extract.

xm

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 Chapter 1
THE DECLINE OF THE MARK,
1921-1922

The editing of the 'Reconstruction in Europe' supplements, culminating

in the publication in December 1923 of A Tract on Monetary Reform, ex-
panded Keynes's writing interests beyond their previous focus on repara-
tions and war debts to the broader field of the international monetary
system. It was at this time, during 1922 and 1923, that he made his most
concerted efforts for a rational treatment of Germany—officially, as an
expert adviser on the state of the mark, and unofficially, as a speaker and
writer; publicly, in the columns of the Nation, and privately, in attempts
to influence both British and German acquaintances in high places.
Linked with the reparations problem was the question of the health of
the German mark, which dropped disastrously in value with every Allied
endeavour to enforce payment for war damages. Early in 1921 Keynes
predicted that once actual reparation payments started, the mark would
collapse. The prediction occurred at the end of an explanatory article on
the foreign exchanges which cautioned speculative holders of marks who
were gambling on the eventual prosperity of Germany.
Keynes produced the article in February in response to a request by La
Nation, Buenos Aires, for him to write on any subject that he pleased. In
sending the manuscript to his American publisher, Alfred Harcourt, for
placing in the American press, he remarked (6 February 1921) that it was
'not an article to which I attach any particular importance—decidedly,
indeed, a second-grade article...'. Harcourt replied (24 February) that he
thought Keynes spoke 'rather too slightingly of it'; after trying the Saturday
Evening Post and the New Republic he sold it to the financial section of the
New York Evening Post for $50. Here it is given in the form in which it
appeared in England in the Manchester Guardian Commercial.

From the Manchester Guardian Commercial, 24 March ig2i

WILL THE GERMAN MARK BE SUPERSEDED?

The object of this article is to deal with a popular mistake
about the foreign exchanges which seems to be extremely

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 ACTIVITIES 1922-1932
common. It is popularly supposed that the future of the
exchange value of a country's currency chiefly depends upon
its intrinsic wealth in the form of natural resources and an
industrious population, and that a far-sighted man is right
to. expect an ultimate recovery in the value of its money if the
country looks likely to enjoy in the long run commercial or
industrial or agricultural strength. The speculator in Rum-
anian lei keeps up his spirits by thinking of the vast resources
of that country in corn and oil, and finds it hard to believe
that Rumanian money can in the long run be worth less than
the money of, say, Switzerland. The speculator in German
marks bases his hopes on the immense industry and skill of
the German people, which must, he feels, enable her to pull
round in the long run.
Yet this way of thinking is fallacious. If the conclusion of
the argument was that in the long run the Rumanian peasant
and the Rumanian proprietor ought to be able to live com-
fortably, or that an industrial nation like Germany must be
able to survive, the conclusion might be sensible. But the
conclusion that certain pieces of paper called bank notes must
for these reasons come to be more valuable than they are now
is a different kind of conclusion altogether, and does not
necessarily follow from the former. France was the richest
country in the world, not excepting England, when, in the
last decade of the eighteenth century, her paper money, the
assignats, fell, after five years' violent fluctuations, to be worth
nothing at all on the bourses of Lisbon and Hamburg.

Against recovery
War, revolution, or a failure of the sources of the national
wealth generally begins the depreciation of a paper currency.
But the recovery of this money to its former value need not
result when the original calamity has passed away. A recovery
can only come about by the deliberate policy of the govern-

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 THE DECLINE OF THE MARK
ment, and there are generally weighty reasons against
adopting such a policy. In the case of the money of the
French Revolution, the depreciated notes were simply swept
away, and their place taken by a new currency of gold. I do
not remember any case in history in which a very greatly
depreciated currency has subsequently recovered its former
value. Perhaps the best instance to the contrary is that of the
American greenbacks after the Civil War, which eventually
recovered to their gold parity, but in their case the maxi-
mum degree of the depreciation was moderate in comparison
with recent instances. The various sound currencies existing
throughout the world in the years before the war had not
always existed, and had been established, many of them,
upon the debris of earlier irretrievable debasements.
For it may not be in a country's interest to restore its
depreciated money, and a supersession of the old money may
be better than its resuscitation. A return even of former
prosperity may be quite compatible with a collapse in the value
of the former currency to nothing at all.
Let me apply some of these considerations to the case of
the German mark. As I write there are about 250 marks to
the £1 sterling, but within the last twelve months the rate has
been as high as 360 and as low as 120. As the par value of
the mark is 20 to the £1 sterling, German bank notes are now
worth less than a tenth of their nominal value. Even without
a Bolshevik government matters can be much worse than this;
for the bank notes of Poland or Austria are worth less than
a hundredth of their nominal value. But for the purposes of
our argument let us take the less extreme case of Germany.

Germany today
Now it is well known that at the present time there are many
causes at work which are tending to make the value of the
mark progressively worse even than it is at present. The

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 ACTIVITIES 1922-1932
expenditure of the government is about three times its rev-
enue, and the deficit is largely made up by printing additional
notes, a process which everyone agrees must diminish the
value of the notes; Germany's commercial exports (i.e., ex-
cluding deliveries under the Treaty), although showing some
substantial recovery from the worst, are still short of her
absolutely essential imports, and thus the balance of trade is
against her; the economic condition of her neighbours, Russia
and the fragments of the former Austro-Hungarian Empire,
which used to be her best customers, make impossible any
early revival of trade with them on the pre-war scale, and
these very adverse conditions are present and operative, in
spite of the fact that as yet Germany is not making current
payments on account of reparation up to the standard, or
anything like it, of even the most moderate proposals for a
settlement of the Allies' demands. If and when these demands
materialise in payments the difficulties of the budget and the
difficulties of the trade balance are certain to be aggravated.

Who would benefit?

But let us put aside these considerations for the moment, and
look a little further ahead. Most of those who look for a
recovery of the mark are not thinking of this year, or even,
probably, of next. They believe that ultimately Germany will
pull round, and that when this occurs the mark will recover
also.
Now though the process of the depreciation of money (i.e.,
the rise of prices) is easy, though painful, the reverse process
of appreciation (i.e., the fall of prices), though difficult, is also
painful. The upset to the economic organisation of a country
caused by falling prices is quite as bad, as we have all been
finding out lately, as the upset caused by rising prices. Both
are bad, but once we have suffered the evils of rising prices,
they are not obliterated by following them up with the evils

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 THE DECLINE OF THE MARK
of falling prices. This applies everywhere, but in Germany
there are two special considerations which it is my particular
purpose to emphasise in this article.
Germany has a national debt which now amounts to 350
milliards of paper marks, and is likely to amount to a still
higher figure before equilibrium has been obtained in her
national finances. If the mark were to double in value—far
more if it were to increase tenfold—the money burden of the
service of this debt would remain the same, but its real burden
would be proportional to the increase in the value of the mark.
The portion of the German revenue (measured in goods)
which would have to be paid over as interest to the holders
of the German national debt would be increased in the same
proportion. That is to say, German resources, which would
otherwise be available, in part at least, for reparation, would
be diverted to the German propertied classes. The Allies
would hardly allow this. Yet the only alternative, a partial or
complete repudiation of the German debt, is a precedent
which they might hesitate to encourage.
Furthermore, the holders of the German public debt, who
are mostly Germans, are not the only persons into whose
pockets an improvement in the value of the mark would put
a great deal of money. There are also the foreign speculative
holders of German currency. It has been estimated by the
experts of the German government that the amount of
German money held abroad and of credits granted to Ger-
many by foreigners, by far the greater part being in terms
of paper marks, amounts to about 70 milliards of paper
marks, of which something less than half is held in the form
of actual German paper money. We can probably reckon
therefore that the amount of German bank notes and bank
balances held more or less speculatively outside Germany is
not less than 50 milliards of paper marks. At the rate of
exchange—250 marks equal £1—these holdings are worth
£200 million. But at par they would be worth £2,500 million,

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 ACTIVITIES 1922-1932
and even at 100 marks equal £1 they would be worth £500
million. As a speculative holding of German notes yields the
holder no interest, he presumably does not intend to keep
them as a permanent investment and is only waiting for an
opportunity of realising them at a profit. A permanent
improvement in the value of the mark would entail, therefore,
paying over to foreign speculators very large sums of money
which would otherwise be available for reparation. There
would be no great advantage to Germany in this, and the
Allies would hardly allow the claims of the speculators to
rank in front of reparation.

Against Allied interests

In addition, therefore, to all the usual difficulties of reinstat-
ing a fallen currency, there are strong reasons in the case of
Germany for thinking that a reinstatement cannot be under-
taken. Germany has two classes of foreign creditors to deal
with—the Allies, who have reparation claims which are ex-
pressed in terms of gold marks, and the foreign speculative
holders of German bank balances and of German currency,
which are in terms of paper marks. To increase the value of
the paper mark in relation to the gold mark benefits the latter
at the expense of the former. It is not particularly in the
interests of the German government to pay over huge sums
to foreign speculators, and it is decidedly contrary to the
interests of the Allied governments. Whatever temporary
fluctuations there may be, it is therefore extremely unlikely
to happen.
I do not expect, therefore, a permanent recovery in the
value of the German paper mark. Possibly it might be stabi-
lised at some very high figure to the £1 sterling. But if the
Allies persevere with their reparation demands the mark is
much more likely to continue its fall until the final stage is
reached, when the simplest and most sensible course will seem

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