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Keynes, the Labour Movement, and 'How to Pay for the War'



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Keynes, the Labour Movement, and How to Pay for the War
Richard Toye St. John's College, Cambridge
'The adoption of my plan would require the approval of the Labour
Party. But they will never be asked to approve inflation. It will just happen.'
- John Maynard Keynes, The Times, 28 November 1939
John Maynard Keynes's war-time proposals for compulsory saving or 'deferred pay',
developed between October 1939 and February 1940, generated massive public
controversy; indeed, Keynes himself judged that in terms of space and universality of
comment, the publicity aroused was considerably greater in volume than that caused
by his Economic Consequences of the Peace two decades earlier.
Yet whereas
historians have pored in detail over the origins of Keynes's General Theory (and over
the Labour Movement's reaction to it),
the evolution of his original compulsory
savings plan into the minor economic classic How to Pay for the War has been much
neglected by comparison. In particular, Keynes's attempts to solicit support from the
Labour Movement for his scheme have received virtually no attention. This is
surprising, as his attempts to accommodate Labour opinion were a key factor in
shaping the final outcome of his thought. But Labour's role in the affair also has a
wider interest, for the movement's attitude to the plan provides a snapshot of socialist
economic thought during the period of the Phoney War. Keynes injected further social
radicalism into his plan in order to make his more plan attractive to Labour; Labour
neither reciprocated the spirit of his concessions, nor accepted the consumer choice
philosophy upon which the plan's main principle was based.
Of the published material that relates to How to Pay for the War, the documents
assembled in The Collected Writings of John Maynard Keynes, Volume XXII form an
essential starting point.
However, references to Keynes's attempts to court the Labour
Movement are largely restricted to the accounts he gave of his experiences in letters to
Harold Laski (28 January 1940) and Geoffrey Dawson (11 March 1940).
The best
secondary accounts of the evolution of Keynes's proposals are undoubtedly those of
Donald Moggridge; but although Moggridge notes the economist's contacts with
different Labour groups and individuals, and the opposition to the scheme of TGWU
leader Ernest Bevin, his discussion of Labour's part in the affair remains somewhat
cursory, although its importance is acknowledged to a degree.
Equally, Keynes's first
biographer, Roy Harrod, noted that his 'scheme was in essence an attempt to woo
Labour to accept voluntarily an ordered plan for preventing a rise in purchasing power
in lieu of inflation,' but went into little more detail.
Donald Winch's account of
the proposals gives the barest mention of Keynes's desire to secure the goodwill of the
trade unions.
Nor have more general chroniclers of war-time politics treated the
question in much depth. Paul Addison's The Road To 1945 mentions Bevin's hostility;
Stephen Brooke's Labour's War devotes a paragraph to the Labour Party's attitude to
Keynes's scheme.
There is, however, a wealth of unpublished documents which
makes possible a more detailed consideration of the issue. Principally, this consists of
material in the Keynes Papers. This includes correspondence between Keynes and a
number of Labour figures (notably Clement Attlee, F.W. Pethick-Lawrence, G.D.H.
Cole, Ellen Wilkinson and Laski) as well as his hand-written notes for speeches given
to various groups including the Fabian Society and the National Trade Union Club.
There is also preserved in the Walter Citrine Papers a thirty page record of Keynes's
meeting with TUC leaders in January 1940, which, importantly, reveals not only what
he himself said but how the trade unionists responded.
The records of the Labour
Party committees which deliberated on the Keynes Plan are also illuminating.
How to Pay for the War was not merely an exercise in war finance. It is generally seen
in theoretical terms both as an important step in the development of national income
accounting in Britain, and as an application in reverse of the principles of the General
Theory, dealing with excessive, as opposed to deficient, demand.
But its significance
in political practice, as opposed to economic theory, has scarcely been considered, an
omission this article sets out to remedy. First, the relationship between Keynes and the
Labour Movement before 1939 is examined. Then, Keynes's initial proposals, and
Labour's reaction to them, are elucidated. His meetings with the Labour Party Front
Bench, a committee of the TUC, and the Fabian Society are detailed, as are Labour
reactions to his thus conditioned final proposals. The deliberations of the Labour Party
committee that ultimately rejected the plan are examined. Finally, consideration is
given to Moggridge's contention that Keynes's lobbying on the war finance issue
represented 'the most sophisticated and successful of his many campaigns as a
Keynes and the Labour Movement before 1939
The relationship between Keynes and the Labour Movement never ceased to be one of
ambivalence. The former despised the latter's class basis and the supposed intellectual
inferiority of its leaders, whilst trade unionists were deeply suspicious of an academic
with no experience of working class life, and socialists were allergic to Keynes's aim
of restoring the vitality of capitalism. Nevertheless, the inter-war period did see a very
gradual thawing of relations. During the 1920s he was actively committed on behalf of
the Liberal Party, although doubtful about its leadership and programme. In 1924 he
dismissed the other parties with the comment that 'by reason of the old-fashioned
dogmas and the class-interests they are compelled to serve, neither Socialists nor
Tories are likely to do anything sensible and effective in the near future.'
The Labour
Party was a class party, he wrote the following year, and its class was not his class: 'I
can be influenced by what seems to me to be justice and good sense; but the class war
will find me on the side of the educated bourgeoisie.'
Only after the debacle of the 1931 General Election did Keynes abandon the Liberals,
now fractured and chronically diminished, for good. The Labour Party, he concluded,
although reduced to a mere 52 Commons seats in the face of the National
Government's landslide, nonetheless represented 'the only organised body of opinion
outside the National Government, and which will therefore be called on some day,
presumably, to form an alternative government.'
Accordingly, he began to proffer
advice, suggesting, with perhaps an excess of subtlety, that Labour should seek new
notions of what was meant by 'economically sound', as well as venturing rather more
down-to-earth constructive criticism of its new programme.
Although still prevented
from joining the party by what he saw as, on the one hand, the timidity of Labour's
leaders, and, on the other, the extremism of their followers, in the General Election of
1935 he supported Labour.
But this hardly amounted to a full-scale rapprochement.
The Labour Party, too, kept its distance. The upheaval of 1931 led it to adopt policies
of physical planning based on nationalisation which were in many respects antithetical
to Keynes's conceptions of economic management. The How to Pay for the War
controversy would in time give stark illustration of this disparity. Thus although,
during the thirties, young Labour economists such as Hugh Gaitskell, Douglas Jay and
James Meade took an enthusiastic interest in Keynes's ideas, this had no significant
impact upon the party's official programme, even after the publication of the General
Theory. Expansionary policies, where mentioned at all, remained a mere lubricant
which might serve to smooth the transition to an overwhelmingly physically planned
'socialist commonwealth'.
The ideological gap, however, is not the sole explanation for Labour's failure to adopt
the policies that Keynes would have wished. The economist's personality proved a
stumbling block to warmer relations with the Labour Movement. In the early thirties
he enlisted the support of Francis Williams, City Editor of the Daily Herald and a
member of Labour's 'XYZ' group of financial experts, in order to help persuade the
party of his ideas: 'but not to much avail. Whenever Keynes actually met Labour or
trade-union leaders he managed to insult them.'
In particular, relations with his
former pupil Hugh Dalton, the man with perhaps the greatest influence over Labour's
economic programme, were always cool.
Furthermore, as Moggridge notes, Keynes' 1930s appointments diaries 'are singularly
free of entries suggesting meetings with the emerging generation of senior Labour
Of course, in the latter part of the decade, illness led to enforced
inactivity; he had to restrict his engagements, especially those outside Cambridge, in
1937 declining an invitation to lecture to the Fabian Society for this reason.
But it is
almost as though, having reached his famous conclusion to the General Theory that 'it
is ideas, not vested interests, which are dangerous for good and evil',
he was content
to sit back and let his ideas do their own 'dangerous' work. This attitude of benevolent
neglect kept him out of the Labour Movement's political backrooms in pre-war days,
in stark contrast to his later attitude in 1939-40. Then, as a vigorous advocate of his
own war-finance plan, he was not afraid to dirty his hands: he would be prepared to
court the 'vested interests' in the Labour Party and the unions, and would be prepared
to alter his ideas substantially if so doing would secure their acceptance.
The Times articles
Keynes first turned his mind to the twin problems of war-finance and inflation in
October 1939, giving a lecture on the subject to the Marshall Society in Cambridge on
the 20th of that month under the title 'War Potential and War Finance'.
His strategy
for gaining the proposals' acceptance was not to appeal to public opinion directly, but
to persuade representative political leaders of their virtue.
He thus sent a long
memorandum encapsulating the ideas in his lecture to a number of eminent persons
including Chancellor of the Exchequer John Simon and Labour Party leader Clement
Attlee: it was entitled 'The Limitation of Purchasing Power: High Prices, Taxation and
Compulsory Savings'. He subsequently divided the memorandum in two, and wrote in
a little extra length to make it suitable for publication in The Times on consecutive
days; he also omitted the original suggestion that the purchasing power of the
proposed compulsory savings should be guaranteed on the grounds that it would
distract discussion from the main plan.
As published, on 14 and 15 November, under the title 'Paying For The War', the
articles highlighted the need to restrain working-class consumption during war-time in
order to avoid inflation:
Nothing is more certain that the wages bill of this country will increase...Thus
the working classes will have a substantially larger money income than before,
but they must not, at the best, consume any more than they did. For the wise
and just solution of this problem the leaders of the working class must be
taken into earnest and sincere consultation.
Keynes dismissed both rationing and anti-profiteering measures as 'pseudo-remedies'.
The former, against a backdrop of a general increase in purchasing power, would
simply divert demand from the rationed to the unrationed article, and ignored differing
consumer preferences; the latter 'exalts into undue prominence the least significant
cause of rising prices.' He therefore turned to what he saw as the three genuine ways
of restoring equilibrium between supply and demand. The first was inflation. To some
extent this was both inevitable and desirable, but to rely on it alone would be to invite
a 'vicious spiral' of prices and wages. The second remedy was taxation. Yet, not only
was it impossible to finance the war entirely out of current taxation without
borrowing, 'But to help solve our present problem it must involve taxation of the
working classes' as it was they who did three-fifths of the nation's consuming, and it
was their incomes which were expected to rise. Thus, 'The price remedy and the
taxation remedy are alike in depriving the working class of any benefit from their
increased earnings. Yet a large portion of the earnings now in question represents
increased effort on their part.' But if it were physically impossible for the community
at war to reward this increased effort by immediate consumption - and if immediate
consumption might in fact have to be reduced - there was no reason why it should not
be rewarded by a claim on future resources. This 'deferred payment' was Keynes' third,
and preferred, remedy.
The detail of his plan was that a percentage of all incomes in excess of a stipulated
minimum income would be paid over to the Government, partly as compulsory
savings and partly as direct taxes, on a steeply graduated scale. Some of this amount
would be credited to the individual in the Post Office Savings Bank, the balance being
used to discharge his or her tax liabilities, if any. The sums thus credited would carry
two-and-a-half per cent interest, and would be blocked for most purposes. They would
be unblocked and made freely available to the holder, probably by a series of
instalments, at some date after the war, thus helping the country through the
anticipated post-war slump. 'All methods of war finance are open to objections,'
Keynes wrote pointedly, 'But this new one offers some positive advantages which will
not go unnoticed, I hope, by the leaders of the Labour Party.' And he finished: 'If the
Chancellor of the Exchequer does not deliberately choose a positive method he will
inevitably slip into inflation merely by hesitating.'
The first phase of Keynes's public campaign was shortly afterwards concluded when
he published an article in the December 1939 issue of the Economic Journal
providing the statistical basis for an estimate of the required scale of compulsory
much of it was based on pre-war research conducted by Colin Clark, a
Cambridge economic statistician with long-standing ties to the Labour Movement.
Meanwhile, Keynes was being 'overwhelmed with a volume of criticism and
much of it from Labour circles.
Labour reacts
From the outset, Keynes had attached much importance to the acquiescence of the
Labour Movement in his scheme. In sending Attlee his original memorandum, he had
written: 'the way in which [the plan] strikes the Labour leaders is obviously vital...for
my part, I believe that it presents the only way of handling the financial end of the war
in a way that is at the same time just and advantageous to the working-class.' He also
offered to hold up publication in The Times, in the hope, as he told Harold Laski, that
he might be able to adapt the proposal to the feelings of the Labour leaders.
who Keynes believed had not fully understood the plan, replied that 'To take my own
case...Your scheme would impose upon me an amount of compulsory saving which
would be crushing.'
('No comment whatever on the relation of my scheme to the
working class', Keynes noted drily.
) Keynes wrote a long letter back, answering
questions of detail raised by Attlee, and adding:
The question is, do you prefer to be mulcted in the alternative ways? [i.e.
taxation or inflation]...Now it is not the slightest good your saying that you
cannot afford any of them. You have got to suffer the reduction one way or
another. The question is which way you prefer.
The response to this was typically Attlee-esque and curt: 'I was not, of course[,]
dealing with the general issues raised by your proposal, but only trying to elucidate its
exact basis.'
Keynes nonetheless waited another fortnight before he went ahead and
published in The Times. Thus, when Harold Laski accused him of approaching the
Labour leadership in a way calculated to cause them offence, he was able to defend
himself fully; Laski was forced to admit that he had 'a good alibi'.
By contrast, one prominent Labour leader appears to have behaved very badly in the
affair. On 17 November, two days after Keynes' second article appeared, a piece was
published in the Daily Express under the by-line of Arthur Greenwood, the Labour
Party's Deputy Leader. The Express, under Lord Beaverbrook's proprietorship, was at
this time running a violent laissez-faire campaign against rationing and all forms of
central control. The article in question was called 'Good enough for Hitler's workers -
but not good enough for ours, Mr. Keynes...': 'If Mr. Keynes' plan is adopted its
principles will be established - and the temptation to raid the pockets of the poor will
be far too alluring to be resisted', it read. '...This proposal goes beyond anything we
have tolerated in this country since democracy was established here.'
It is hardly
surprising that Keynes had 'seldom suffered a greater disappointment' than when
reading this.
But Greenwood's real offence was not in the views expressed, or the
manner of their expression (which Keynes was prepared to overlook), but in the fact
that they were apparently not his views at all. As New Statesman editor Kingsley
Martin reported to Keynes, once the latter had written to Greenwood correcting
misapprehensions contained in the Express article and offering to meet:
I have now heard the interesting story of your correspondence with
Greenwood...The Express article was written for him; he had no idea what it
was all about...He went into the Herald office in some perplexity about your
letter, not knowing what to answer because he had not even read your
This story lacks corroboration; but, if true, it would certainly explain why Keynes'
letter to Greenwood received no direct reply. And, if true, the scandal was
compounded by the fact that Greenwood would have received a substantial fee for the
article he hadn't written. 'You accused me of lack of tact in approaching the Labour
leaders', Keynes retorted to Laski, 'It appears that Beaverbrook understands the right
technique better than I do.'
The response of other Labour leaders was also disappointing to Keynes. F. W.
Pethick-Lawrence had been Financial Secretary to the Treasury in the second Labour
government, and held the status of 'financial expert' within the Labour Party; by
coincidence, he had been the examiner for the Tomline mathematics prize won by
Keynes whilst at Eton.
The two men were friendly; but Pethick-Lawrence now
wrote a long article attacking the notion of compulsory saving, which appeared in the
socialist weekly Forward on 25 November. He agreed with Keynes that the war
necessitated much abstinence from non-essential expenditure, but
at present there area million-and-a-half people unemployed, and it is unsound
economy to forego expenditure, with the result that more people are thrown
out of work until the tide of war expenditure has risen and is ready to absorb
Moreover, the enormous variation in individual circumstances meant that voluntary
rather than compulsory saving was desirable, if the latter could possibly be avoided:
this trust in good sense and patriotism was 'in accordance with the genius of our
people', upon whom it was unnecessary to impose 'a rigid scale of forced loans.' And
finally, 'statesmen and economists cannot expect the workers to make new and
unprecedented sacrifices until they are prepared to impose a special tax on capital
He also sent these views to Keynes direct, after receiving an initial letter
from the economist advocating his scheme and conveying disappointment at
Greenwood's article.
In peacetime Keynes would have naturally concurred with Pethick-Lawrence's
sentiment that it was wrong to try to deflate the economy in conditions short of full
employment. But the situation had now altered fundamentally, or was about to.
Keynes had, in a third Times article responding to his critics (published on 28
November), pointed out that heavy government expenditure combined with large-
scale unemployment was a situation that could not long persist.
This he also pointed
out to Pethick-Lawrence directly in the first part of December. Moreover, he insisted
that his plan was flexible, and asked for input from Labour:
The more I think about it, the more convinced I am that something of the kind
I suggest is required by the interests of the working class. But, of course, it is
capable of all sorts of variants, and can be protected by many safe-guards. I
wish you and your colleagues would prepare your own plan, absorbing so
much of mine as you find serviceable.
He had some grounds for optimism on this score, in that Pethick-Lawrence was trying
to arrange for him to meet the Labour Party Front Bench early in the New Year.
more ominously, Ernest Bevin now seemed to set his face against the scheme.
As the leader of Britain's largest union, Bevin was both highly influential within the
Labour Movement and an industrial force in his own right. His attitude to the Keynes
Plan was thus of vital importance. He did not yet condemn it explicitly; but by the turn
of the year his likely opposition could perhaps have been surmised. The root of the
difficulty was that he was determined to resist all reductions in working class living
standards, and if possible to fight for improvements. Poor relations between the
Chamberlain Government and the TUC did not help, for there was a frequent tendency
on the Left, to which Bevin may have fallen victim, to see Keynes as the dupe of
capitalists determined to use the war as an excuse to soak the workers. On 29
December he wrote (in a letter subsequently seen by Keynes, who thought it 'Almost
the worst thing I have read since the beginning of the war'):
My time has been taken up in trying to get wages commensurate with the cost
of living. I am determined to try to keep them up to a proper level. The powers
that be have won in the first round but that is only a temporary victory for
them. As our people sicken of this business they will revolt against the
depression of their standards.
When Chamberlain, in his Mansion House speech of 9 January 1940, argued that it
would be a mistake to tie wages to the cost of living,
Bevin reacted angrily. 'The
policy of the Government as I see it,' he told the Daily Herald, 'is to talk about
sacrifices by people who had nothing to sacrifice when the war started.'
Of those wage-earners to whom Mr. Chamberlain talks of sacrifice, 90 per
cent. were on wage standards that left no margin.
To reduce their purchasing power...only reduces the efficiency standard of the
people, and such a policy can only result, if this war lasts a long time, in
outbreaks of labour troubles of a serious character.
This was fighting talk, perhaps motivated by the desire to outflank militant opposition
to the TUC leadership;
but Keynes believed that Bevin's 'bark is often worse than his
bite, and I should not yet despair of getting him round to some sort of rational
Yet Bevin chose, for the time being, to remain aloof from direct discussion
of Keynes's proposals.
The Daily Herald itself had claimed, soon after the plan’s publication, that it “has not
found much favour in either official or unofficial circles”, the latter category
presumably including the Labour Party.
The City Editor of Tribune believed that
Keynes had developed a 'most original and unorthodox' plan for cheating the working
Yet Keynes was not entirely without allies within the Labour Movement. One
of these was Harold Laski, stalwart of the Left on the party's Executive, who himself
admitted he was no economist but admired the Times articles for their persuasive
Once Keynes had related to him the story of his travails with Attlee and
Greenwood, Laski withdrew the charge that he had been tactless in approach, and
undertook to stimulate discussion of the plan within the NEC.
Another sympathiser
was G.D.H. Cole, whose New Fabian Research Bureau had been through the thirties
Labour's most fertile ground for economic discussion. On 6 January 1940, an
(unsigned) article by him in the New Statesman commended the scheme, albeit
because his preferred alternative, 'a Socialist system of production and distribution'
was excluded by the political situation at the time.
But neither of these men was in
the first rank of influence. Attlee, although perhaps fond of Laski, as time passed
found him progressively more irritating, in 1945 delivering the immortal rebuke 'a
period of silence on your part would be welcome.'
Nor was Cole much in official
favour. He told Keynes at the end of January that he had heard nothing from either the
TUC or the Labour Party: 'Possibly I am too much in disgrace to be consulted, on
account of my Popular Front activities.'
Thus lacking powerful advocates in the
Labour Movement, it was logical for Keynes himself to seek to meet groups within it
face to face.
Keynes meets the Labour Front Bench
By the end of November 1939 Keynes was receiving suggestions that he should
reprint his Times articles and his forthcoming Economic Journal article as a single
pamphlet, but thought that such a publication would be 'rather a mess.'
to rework the material into a more coherent whole, which might be published after
Christmas, his changes were not, however, to be merely stylistic. This would be his
chance to remould his proposals into a form more acceptable to the Labour
Movement. Having made the cosmetic (if psychologically significant) change in title
from 'compulsory saving' to 'deferred pay' in early December, three of his four
substantive alterations to the scheme were in place by 22 January, perhaps earlier.
'For my own part,' he wrote, 'I cannot but believe that the revised version ought to be
outrageously attractive to the Labour Party.'
On 24 January he met the Labour Party Front Bench in the morning and a committee
of the TUC General Council in the afternoon. Keynes's new scheme, which he now
presented, attempted to meet previous criticism in several ways. To begin with, there
was no longer any hint that working-class consumption would be reduced; the aim
was now merely to hold it level. Moreover, Keynes now 'fell in love with his own
scheme as a method of social reform' (Harrod).
His plan, he told Lord Stamp, was
'now not merely a piece of technique, but aims...for a bigger move towards equality
than any we have made for a long time.'
Accordingly, he proposed a system of family
allowances of five shillings per child under fifteen; thus a married man with two
young children would actually have more left in cash for all rates of earnings up to
nearly 75 shillings, and would accumulate substantial deferred pay too. In all, the
scheme would provide the working classes with better security against misfortunes,
and with increased wealth, 'for a right to deferred consumption is precisely what
wealth is.'
Moreover, he now suggested that accumulated credits could be repaid - the security of
the savings being a perennial Labour concern - via a post-war capital levy. This idea
came directly from F.A. von Hayek, who had raised it in the Spectator in November,
but Keynes had good reason to think it would find Labour approval. A capital levy
had been official party policy in the immediately post-1918 years, but was later
discarded by Labour's then leaders as an electoral liability. In the April 1939 the young
Labour economists Douglas Jay, Hugh Gaitskell and Evan Durbin suggested the party
call for 'Conscription of Wealth'; if the government accepted this, Labour should
accept the principle of military conscription in return. This plan for a special defence
levy was supported by Attlee and Dalton, but rejected by the Parliamentary Labour
Party, which still opposed the call-up and hence the proposed quid pro quo.
But the
idea of an emergency tax on wealth was quickly resurrected. After the outbreak of
war, most Labour thinkers who did not favour compulsory saving advanced a year-on-
year capital tax as an alternative. Keynes was certain this would 'not do what we want,
which is a reduction of current consumption rather than a transfer of capital assets to
the Treasury';
but a post-war levy was a different question. The other new touch was
that deferred pay would now be handed over by employers to trade union friendly
societies, and administered by them, which would help alleviate the oft expressed fear
that the state, or employers, would refuse to hand the workers' savings back to them
after the war was over.
The only record of what happened when this scheme was presented to the Labour
Front Bench is Keynes's own. He told Harold Laski the meeting was 'satisfactorily
non-committal on the whole, but it could scarcely be regarded as a serious discussion
of the business':
Of those there Attlee and [H.B.] Lees-Smith [MP] ran away after about quarter
of an hour, saying nothing, but I thought Attlee was obviously extremely
hostile. Dalton stayed on, friendly and non-committal, saying at the end that he
had been against the plan, but was now at least to some extent shaken and
prepared to consider it. [John] Wilmot [MP], whom I did not know before,
was clearly an enthusiastic supporter and said that he was 100 per cent converted.
Most of the actual discussion was between myself and Pethick-Lawrence, who
was, as usual, candid and delightful, but seemed to want a terrible lot of
breaking in if he was to contemplate a new idea. He vehemently advocated
voluntary saving on general principles of extreme laissez-faire...I assaulted
him vigorously and, though perhaps I flatter myself, I really think he was at the end
just beginning to see the point. But I rather felt...that I was up against such a
terrific degree of nineteenth century laissez-faire, that the discussion was more
of historical than current interest.
Keynes meets the TUC
Keynes's meeting with the TUC later that day was, from his point of view, rather more
satisfactory. This was in spite of the fact that TUC General Secretary Walter Citrine
was absent in Finland, and that Bevin, as Keynes believed, had 'carefully arranged not
to be on the Committee' in question.
(That committee, moreover, had already cast
doubt on the practicability of Keynes's scheme, preferring rationing and price control,
and had accordingly received endorsement for its view from Dalton and Pethick-
) Keynes now began by explaining his new proposals to the gathering. Not
only did he have to think about the technical problem of how to finance the war
without inflation, but 'He felt that there was here an opportunity for getting a big
constructive working class policy...The time of war might be just the moment for
getting some things they could not easily get in time of peace.'
He then went on to
outline, at somewhat greater length, the written scheme he had circulated to the
committee. At two significant points, however, he diverged from it.
At the point where Keynes was elucidating his capital levy idea, an unidentified
person interjected 'capital tax': 'Mr. Keynes said that he, personally, very much agreed
on that'. He continued:
they had talked after the last war of a capital levy in the form of instalments,
and that would create the machinery for a capital tax. A capital tax should be
part of their fiscal machinery...If, of course, it was paid by instalments they
could ultimately have its place taken by a permanent capital tax.
This was, to say the least, a radical suggestion, which duly took its place in How to
Pay for the War. The General Theory; had famously advocated 'the euthanasia of the
rentier'; its author now advanced a practical proposal for achieving that end. Keynes
was thus both genuinely passionate for social reform and willing to emphasise the
'socialist' aspect of his thought in order to accommodate Labour and trade union
The second divergence was on the question of rationing, something he hadn't put on
paper 'because it was of necessity controversial, and not of the essence of the scheme':
There was a good case for sugar and butter rationing but when they got to
general rationing its result would be to destroy consumer's [sic] choice.
It had been said you had either to tighten up the pocket or the pantry...He was
all for the pocket and not the pantry...Once they had constricted the pocket
they were coming on to the moment when they could have a Government
Keynes said such a scheme should consist of a narrow list including necessities made
into a Ministry of Labour cost of living index. The authorities should then undertake
to do their utmost (probably via food subsidies) to prevent the prices on that list from
rising 'something which he thought would only be operative if the list was small.'
This would shortly after harden into his final acceptance of the 'iron ration' proposal
put forward by Sir Arthur Salter, R.H. Brand and J.R. and Ursula Hicks; he eventually
chose to favour this course even though, as he had previously admitted, 'As an old
Treasury man I am scared of it' on grounds of expense.
After Keynes had finished his presentation, the trade unionists asked him many small
questions of detail. At one point, in response to the suggestion that the scheme helped
families at the expense of single men, he quipped that he 'thought it was the policy of
the trade unions never to admit that a man had less than three children!'
He also went
on to say he felt that the unions had been perfectly right in saying that it was not their
position to put forward a scheme, but that the Chancellor of the Exchequer should do
so. But when he reflected on the present Chancellor it became clear that the initiative
would have to come from elsewhere: he 'had to confess he was pinning more hope on
them [the TUC] than on the Chancellor'.
Keynes later told Laski that whilst the trade unionists 'were extraordinarily careful to
commit themselves to nothing, I felt the atmosphere most friendly, and above all
serious and intelligent.'
Of those present, those most apparently enthusiastic for the
scheme were George Hicks, the leader of the builders' union and a Labour MP, and
John Marchbank, General Secretary of the National Union of Railwaymen. There
were sceptical views expressed too. G.W. Thomson of the Association of Engineering
and Shipbuilding Draughtsmen suggested that the value of the deferred pay was likely
to be eradicated by future inflation, and when Keynes responded that their value
would be written up accordingly, argued 'it was impossible to conceive any
Government doing this.'
Returning to the theme a little later, Keynes admitted 'He
thought they would find it extraordinarily difficult to get an assurance' from the
Treasury on these lines.
In a lengthy summing up, George Woodcock, the Secretary of the TUC's Research and
Economic Department, said that the problem as a whole, from the unions' point of
view, was not an entirely economic question: 'They might accept completely all the
economic points, but it did not necessarily solve their problems.'"
In other words,
there were issues of political palatability at stake as well as the mere technical
question of restraining inflation - precisely the issues that Keynes had sought to
address when including in his proposals social reform 'sweeteners' like family
allowances, which were independent of his technique for paying for the war.
Woodcock further believed that the 'moral influence' of the trade union movement in
persuading people to save voluntarily should not be underestimated, but also
wondered whether Keynes' scheme should not be made more stringent.
distinguished visitor was much impressed.
Finally, Keynes made a suggestion:
the memo. which he had circulated was just an extract from the pamphlet
which he was writing, and which he would finish in about ten days. He was willing to
hold up publication of that until the [General] Council had discussed the
matter, and if they felt and were satisfied to work for anything on that line, he
would be content to abandon the field rather than butt in on his own. He would
much rather hand over to them the results of his thinking up to date, or assist
in any way, rather than put it as an individual. He had no pride in authorship.
Although the TUC 'deeply appreciated the extreme generosity of your offer' they
nonetheless refused it;
that it was made at all was yet another indication of Keynes'
willingness at this time not only to be flexible in his ideas, but to do everything he
could in order to see them accepted by the Labour Movement. His campaign now
continued accordingly.
Keynes meets the Fabian Society
By the time that Keynes addressed the Fabian Society at London's Royal Hotel at
lunchtime on 21 February, his new booklet was ready, and proof copies were being
received by those he sought to convert.
Having traded titles with his publisher
Harold Macmillan ranging from the dull Savings and Inflation to The Economic
Consequences of War, he had at last settled on How to Pay for the War: A Radical
Plan for the Chancellor of the Exchequer. His substantive proposals were thus in their
final form, the 'iron ration' idea now being definitely included. He told the Fabians:
I am a highly teachable person. I learn from criticism and before now have laid
myself open to the reproof that my second thoughts are often better than my
first thoughts - which is an indication, some people think, of a dangerous
instability of character...
Well it has happened again. I have played a low trick on my critics. I have
improved my plan and have thus slipt [sic] out of their net.
Having summarized the changes to the scheme, he went on to claim that 'this is the
right socialist solution'. It was 'a planned social scheme, aimed at increasing equality
and snatching new social advantages out of the exigencies of war.' He concluded,
moreover, that his plan allowed liberty and the right to personal choice to be made
harmonious with the welfare of the community as a whole: 'It is for the state to say
how much a man may spend out of his earnings. It is for him to say how he will spend
This, perhaps, was the crux of the difference between Keynes' philosophy and that of
many of those within the Labour Movement who opposed him. For, even amongst
those still attached, like Pethick-Lawrence, to nineteenth century ideas of laissez-faire,
there were few Labour champions of the right to consumer choice. As Hugh Dalton
had remarked to a Fabian conference in 1933, 'It was pedantic to think consumers'
preference important so long as there was great poverty. A dictatorship of
consumption was desirable.'
The emergency of war made it doubly so; the 'pseudo-
remedy' of widespread rationing was supported by most socialists as representing 'fair
shares' or 'equality of sacrifice'. Keynes's strictures against the shortages this would
produce underestimated not only the British genius for queuing, but also the extent to
which Labour had a genuine preference for direct physical controls as opposed to
more subtle methods of macroeconomic management. Yet in spite of this underlying
philosophical difference, the Fabian lunch was a success, Keynes having 'a pretty
strong impression that at least a majority were persuaded' and the word in Labour
circles being positive.
And on 27 February the book itself was published.
How to Pay for the War
Upon its launch, Keynes continued his vigorous propaganda campaign. He outlined
his proposals to an all-party group of MPs, and again at the National Trade Union
Club; he met the Chancellor and also gave a BBC broadcast.
Furthermore, How to
Pay for the War was greeted with near unanimous acclaim by economists of all
shades, including Dennis Robertson, Hayek and Lionel Robbins. The dissentients
were J.R. Hicks (who both feared evasions by the rich and thought the proposed
family allowances too generous) and Michal Kalecki (who believed that the
contribution that deferred pay would make to total savings would simply be offset by
a reduction in voluntary savings).
The plan was also supported by the Governor of
the Bank of England and other important City figures. Keynes discovered in the press
'an extraordinary and almost universal support'; outspoken opposition was restricted to
Sir Robert Kindersley of the (voluntarist) National Savings Movement, Beaverbrook,
and the Daily Worker.
In the face of this general approval Keynes joked that 'after
having tried all his life to remain unorthodox he now found orthodoxy always
catching up with him, without even the decent time-lag of past days.'
Unsurprisingly, however, the reaction within the Labour Movement was more mixed.
The New Statesman called on Labour to endorse Keynes's scheme, which was also
welcomed by H.N. Brailsford in Reynolds News, G.D.H. Cole in Tribune and Richard
Crossman in Left News.
Barbara Wootton, whose economic works were influential
within the Labour Party, reviewed the book favourably in the Political Quarterly.
TUC circles Keynes now counted amongst his supporters not only George Hicks and
Jim Griffiths (an MP and a former union leader) but Citrine. But ominously, 'Bevin is
unapproachable, not only by myself but by everyone', and would not, in fact, break his
silence until the end of March.
The General Council itself, moreover, did not at this
stage discuss deferred pay further, and did not even succeed in agreeing a statement
supporting a drive for voluntary savings until the end of April, once it had received
governmental assurance that new money lent to the nation up to £375 would be
ignored for the purposes of the Means Test.
On the positive side, the Ministry of
Labour believed that, even though the TUC leaders could not imperil their own
authority by admitting openly there should be no increases, Keynes's proposals had
encouraged voluntary wage restraint by the unions.
Yet conversely, one Inland
Revenue official had previously reported to the Chancellor 'that two of the most
influential of the Trade Union leaders have said that deductions from wages in
pursuance of the plan would inevitably be followed by claims for equivalent and
compensating increases in wages.'
And there were further 'dark questionings' by the
Labour Front Bench;
Pethick-Lawrence was still havering, - he eventually came out
against the plan - and A.V. Alexander, head of the Co-operative Movement, was
openly opposed.
These Labour doubts were based in part on a continuing failure to see that economic
conditions had changed since the slump. On the day after How to Pay for the War was
published, Lord Snell, the party's leader in the House of Lords, refused to countenance
any restriction in working class consumption whilst unemployment remained.
Keynes argued on the same day, to assume that this state of affairs would continue
was to accept that the war effort was to fall far short of what it might be.
But Snell
was merely echoing Aneurin Bevan, who earlier in February had challenged
economists: 'You can start your lectures when we have first maximised production in
Great Britain', i.e. at the full employment level. There were still over a million
unemployed; this was felt on the Labour side to be a symptom of the government's
half-hearted and lackadaisical conduct of the war effort, which was thought to be
lacking in planning and central direction. Meanwhile, restraints on luxury
consumption were thought to be insufficient. Such consumption should be reduced as
a token of good faith: if, after this, it still proved necessary to reduce the standard of
living of the workers, the question could be looked at again.
There were also vestiges in Labour circles of the trade unions' traditional opposition to
family allowances, on the grounds that employers would use them as an excuse to
depress wages,
but this had not been raised at Keynes's meeting with the TUC, and
the allowances were at any rate inessential to his scheme. The 'iron ration', too,
aroused some limited controversy. As Bevan had put it, 'The proposition that steel
workers, miners and engineers shall subsist upon this restricted margin of
commodities, surrounded by the spectacle of war profiteers being able to buy goods at
highly inflated prices, but still able to buy them, will never be accepted by the
organised industrialists of this country.'
This view was not universal, however.
Another minor point was that Keynes had to spend much energy reiterating his belief
that deferred pay should not be taken into consideration under the Means Test. Yet
more substantial criticisms were also raised.
Perhaps the most convincing of these was political, not economic. Ellen Wilkinson
MP, the originator of the Jarrow March, argued that 'the Keynes Plan was a perfectly
sound proposal if considered in vacuo, but that, in practice, it was impossible to
consider it except in relation to the social and industrial circumstances in
would be carried into effect.' These circumstances consisted of the perceived class
antagonism of the Chamberlain government, and the habit of capitalist governments in
war-time of making, in exchange for sacrifices, promises to the workers which were
subsequently broken. All Keynes's safeguards depended 'on the promise of a
distinguished professor [sic] of economics - but not of the government who would
have to implement them.'
Keynes conceded, 'I would have no objection at all to your
saying that, whilst you would not accept my safeguards from Mr. Chamberlain, you
would accept them from a Government in which you had more confidence.'
Wilkinson had attacked the plan apparently without having read it; most of her
criticisms were ill-conceived, and Keynes managed to half-convert her. This was a
potentially important coup, as she had by then been co-opted onto the NEC committee
dealing with the scheme.
Another important issue was raised by a member of the secretarial staff of the
National Union of Railwaymen, who wrote to Keynes in a private capacity noting that
most trade union criticism of the plan was directed on the issue of the security of the
Keynes admitted that this objection, also raised by Wilkinson amongst
others, was difficult to meet, 'chiefly for the reason that there is so little that is definite
behind it.' But the savings would be simply another part of the National Debt: 'There
has never been a case of repudiation in this country, and I should have thought that
political reasons alone would have made the position of deferred pay quite safe.'
There was, of course, a subsidiary point: assuming that the government did repay its
debts, when would this happen, and after how much inflation? In this respect the
critics were ultimately shown to have had a degree of foresight: when a limited
version of Keynes' scheme was in time put into place, the resultant 'post-war credits'
depreciated heavily before they were eventually (and tardily) repaid.
By contrast, when Ernest Bevin finally showed his hand, his criticisms of How to Pay
for the War were less than brilliant. But the power of ideas is partly a function of the
power of the person who has them, and after he declared his opposition to the plan it
was unlikely that the rest of the TUC would overrule him, even had they favoured
compulsory saving. Speaking in Cornwall on 28 March he said that there was 'grave
danger' in the scheme, or any other like it, 'which might jerk the country out of its
organised industrial life.' 'We have the proof that all our finely balanced negotiating
machinery is standing the test of wartime conditions', he claimed. 'Then we get
professors without experience of the reactions likely to be produced by their advice,
seeking to promote fancy schemes.'
(Ironically, Keynes had previously imagined the
Chancellor of the Exchequer himself deprecating 'fancy schemes'.
) 'Their schemes
are likely to jolt the industrial machine, endanger production, and result in serious
disturbances and strikes at a critical moment.'
Bevin did not, in fact, manage to
articulate precisely what his objection to compulsory saving was, save for a general
distaste for compulsion itself; but his not-so-subtle threat to cause trouble were the
scheme implemented would surely have put the government off adopting the plan,
even had it been minded to in the first place.
The Labour Party decides
Meanwhile, the Labour Party NEC was determining its official position. This was a
convoluted and time-consuming process. In January, the Press, Publicity and
Campaign Sub-Committee, on which Laski served, had recommended a meeting with
Keynes; this proposal was then shelved by the Policy Committee, which nonetheless
agreed to meet specially to discuss the proposals. This meeting eventually took place
on April 4, reached no conclusion, and then reconvened on April 11.
Those present
included Dalton, Attlee, Douglas Jay, Pethick-Lawrence, Wilkinson and Greenwood.
The committee considered a document drafted by its secretary, G. Grant McKenzie,
which analysed the Keynes scheme in detail.
The plan was objected to first on grounds of administrative complexity; moreover, in
order to enable deductions to be calculated 'it would require employers to be informed
of the whole personal income and circumstances of all their employees', which 'would
create grave objection and difficulty.' (This was in the days before PAYE.) It was
acknowledged that Keynes had modified his scheme in response to criticism, but it
was argued that his modifications left untouched both the problem of evasion by the
rich, and the diversity of individual capacity to save.
Furthermore, 'the adoption of
the scheme would inevitably destroy the bulk of individual voluntary saving'; the
likely net yield of genuine saving generated was thus estimated to be only £140
million, much lower than Keynes' aim of £550 million. Assuming this lower estimate
'proved even approximately correct, the scheme would fail of its purpose, and would
not in any way justify the upset it would cause', this being presumably a reference to
Bevin's veiled threat of industrial action.
What, then, were the suggested alternatives? Unsurprisingly, the document focused on
increased taxation of middle and higher incomes and war profits, as well as on
rationing and the regulation of prices, and on a better organised scheme of voluntary
saving: 'If, after these methods have been thoroughly tried, prices are not under control
and inflation threatens, only then will it be necessary to consider whether compulsion
is necessary and practicable.'
There was, however, no mention of an annual capital
tax during war-time. This was peculiar, in that such a tax was an important feature of
the official policy pamphlet written by Douglas Jay, and of unofficial socialist thought
although, as Stephen Brooke points out, this idea did not command unanimous
support even in socialist spheres, Barbara Wootton in particular abjuring it on grounds
of administrative complexity.
At any rate, the committee subjected the document
only to slight amendment before approving it. It was not, however, to be published,
thus leaving a very slight opening for a future reversal in policy; but, to all intents and
purposes, Keynes' attempt to make his plan 'outrageously attractive to the Labour
Party' had now failed.
A 'sophisticated and successful' campaign?
Therefore, although Moggridge's contention that Keynes' propagandist campaign was
sophisticated cannot be doubted, can it really be classed a success? Certainly, the
system of deferred pay was eventually incorporated, as 'post-war credit', into the
Budget of April 1941, albeit on a rather limited scale. Yet this came about not as a
result of Keynes's original publicity drive, but only after he himself had been inducted
into the Treasury in the summer of 1940 and was able to advise the new Chancellor,
Kingsley Wood, continuously and directly. This, in turn, was only made possible by
the political changes of May, themselves brought about by the much larger
circumstance of the military disaster in Norway. But as of the beginning of that
month, Keynes was as far from achieving his objective as ever.
For, whatever his success in converting public opinion, so doing was only a subsidiary
aim of his propaganda: 'surely it is altogether impossible in a war to wait until
everything is obvious and more than obvious to the man in the street', he wrote, 'If you
wait so long as that, forces which one can no longer control will have been set
But in fact, it was the political leaders, whose support he coveted, who
remained immovable. At the end of January 1940, John Simon was saying privately
that he would abolish food subsidies and 'let prices rip' if the trade unions continued to
demand wage rises;
and although this threat to unleash inflation may have been
empty, his April Budget relied on voluntarism and increased taxation, offering nothing
to restrain prices in the way in which Keynes would have wished. On the Labour side
Keynes found many supporters but failed to break into the citadel. His friendly
reception from the TUC did not lead to any official pronouncement in his favour: on
17 March, the Reynolds News industrial correspondent, apparently apprised of the
TUC’s attitude, reported that “Mr. J.M. Keynes’s plan for compulsory saving is dead
so far as immediate practical politics is concerned.”
The unions subsequently came
out against compulsory saving on the ground that, even though it might be
immediately economically necessary, it was likely to have undesirable (and unnamed)
long-run political and economic consequences.
Nor did Keynes's attempts to court
the Labour Party Front Bench prevent the official (though private) rejection of his plan
by the NEC. This body did not, in fact, burn its boats entirely on the issue, but by the
beginning of May, as Moggridge acknowledges, Keynes's continued lack of success
brought a change in tactics. As he told Liberal MP Clement Davies, 'there is a good
deal to be said for concentrating on the inadequacy of the spending programme rather
than on the inadequacy of the fiscal programme. If we can get what is wanted done in
the former respect, the inadequacy of the latter should be shown up.'
This was, of
course, an implicit admission that he had thus far failed to demonstrate the inadequacy
of the fiscal programme either to the government or to the Opposition.
So why was it that Keynes, in spite of all his concessions, had failed to get his plan
adopted by the Labour Movement? He himself speculated that his 'incorrigible'
Labour opponents were simply weak-minded: 'I suppose the trouble is that they have
entirely lost any possibility of concentration, and there is nothing on earth they are
prepared really to give their mind to.'
Yet even were one to accept this damning
verdict in its entirety, it would still be only a partial explanation. It is possible to
wonder further if Keynes' charm offensive, for all its sweet reasonableness, came a
little late for the Labour Front Bench. As recently as January 1939, he had publicly
described the official leadership as behaving like 'sectaries of an outworn creed
mumbling moss-grown demi-semi-Fabian Marxism'.
It is perhaps not inconceivable
that they might have taken offence. But again, this cannot be the whole answer.
It is thus necessary to turn again to the pronounced ideological differences between
Keynes and the Labour Movement. These, of course, cannot serve as an entire
explanation; both Laski and Bevan, for example, shared a similar marxian outlook,
but the former approved Keynes's plan whereas the latter did not. But the attitude to
the scheme held by Attlee, Bevin and others does suggest a wide disparity between the
Labour leadership's economic viewpoint and that of Keynes. On this evidence it is
difficult to fully accept Elizabeth Durbin's conclusion that by 1939 the majority within
the Labour Party understood the importance of the Keynesian message for
The fact that, on occasion, Keynes himself barely received courtesy from
Labour leaders is suggestive; but more significant was the general socialist preference
for specific controls on consumption as opposed to the more general demand
management represented by compulsory saving. Even Douglas Jay, perhaps the most
consciously 'Keynesian' of Labour economists, proved unable to accept Keynesian
precepts when these were aimed at reducing demand rather than expanding it.
Moreover, the Keynes scheme's supporters within the Labour Movement hankered
after physical control as well - for Richard Crossman compulsory saving was 'not a
substitute for a Labour plan of war-economy', but one feature of a plan which should
feature price-fixing, rationing, and unified control of food production 'if possible on
the basis of the nationalization of the land'.
It must not be forgotten, moreover, that Labour's leaders always had their eyes on
what was politically popular. 'I don't know if it is good economics, remarked Emanuel
Shinwell MP of the April 1939 'Conscription of Wealth' proposal, 'but it certainly
sounds good politics to me.'
This stood too for the similar solutions put forward by
Labour after the outbreak of war. By contrast, one must suppose that Keynes's ideas
were ultimately judged not to be 'good politics'. At a less cynical level, it is also
possible to appreciate Labour leaders' genuine concern for the condition of the
workers at a time when wages were already falling behind prices, and when large-
scale unemployment still remained: compulsory saving could easily be seen as yet one
more sacrifice at a difficult time. Furthermore, Keynes believed that a long war was
necessary, and that within a reasonably short time it would involve total economic
mobilisation. This was not equally clear to everyone. As Bevan told the Commons at
the end of April, before the details and repercussions of the Norwegian disaster were
known, 'Mr. Keynes himself pointed out that the necessity for his plan does not arise
until the nation's resources are fully employed. So long as we have 1,000,000 men and
2,000,000 women who might be employed in an extremity, it does not seem to me that
this House is called upon to consider the details of Mr. Keynes's plan.'
Thus as long
as the war appeared to be 'Phoney', and the economic effort involved half-hearted, it
seemed to some Labour thinkers correspondingly less necessary to worry about how to
pay for it, especially if the answer involved the painful restraint of working-class
Together, these various reasons do much to explain why, by April 1940, Keynes had
failed to win the Labour Movement's acceptance of his plan. But the truly defining
factor was the political situation more generally. For, whilst Chamberlain and Simon,
seen by the Labour Movement as representatives of the class war, remained in their
respective positions, it was impossible for Keynes to succeed. Even had their
government sponsored his plan, Labour would have rejected it; a fact which in turn
prevented the government adopting it in the first place. But Churchill's accession to
power changed all this. By August, the Labour Party was prepared to examine the
issue afresh.
By October, Greenwood, of all people, now Minister without Portfolio,
was himself advocating forced saving.
The following spring, Kingsley Wood's
Budget, which included a version of Keynes's scheme, was warmly welcomed by all
the main political parties (although the TUC remained opposed to compulsory
Why this change of heart? To begin with, it was clearly now easier for the Labour
Movement to accept assurances about the security of deferred pay from a government
in which, with Attlee, Greenwood and Bevin in important positions, it was generously
represented. Second, as the economy became more fully mobilised, the rapid
reduction of unemployment rendered redundant the argument that action against
inflation was as yet unnecessary. Furthermore, the Treasury scheme, as put into effect,
was on a notably small scale, yielding only £125 million a year: 'It was thus more of
an experiment than the centrepiece of war finance', in Moggridge's words.
corollary of this, of course, was that the scheme was merely the junior partner to large-
scale rationing and profits-limitation exercises - war finance methods that the Labour
Movement very much approved. The concession of principle involved, if any, was
therefore slight.
Ultimately, the, Keynes' propagandist campaign was not, on its own terms, successful
- except to the extent that, if indeed at all, its educative value encouraged voluntary
wage restraint by the unions. This was in spite of the campaign's sophistication, and in
spite of Keynes's willingness to adjust his ideas in order to get his plan accepted.
Indeed, before May 1940, the political conditions for the scheme's acceptance did not
exist. If, after Keynes returned to the Treasury, the story turned out to have a
reasonably happy ending, he had, in the meantime, be shown an important lesson
about the comparative importance of vested interests and economic ideas.
I am grateful to Hans Singer, Peter Clarke, John Toye and Janet Toye, who have all
made helpful comments on drafts of this article. The usual disclaimer applies. Minutes
of the National Joint Advisory Council to the Ministry of Labour copyright the TUC.
J.M. Keynes to Alfred Harcourt 3/1/40, Keynes Papers HP/7/88-9, King's College,
See Donald Winch, Economics and Policy: A Historical Study, pp339-350 (London,
1969), Sidney Pollard, 'Trade Union reactions to the economic crisis', Journal of
Contemporary History 4 (1969) no.4 101-115, Ben Pimlott, Labour and the Left in the
1930s (Cambridge, 1977) pp38-40, Elizabeth Durbin, New Jerusalems: The Labour
Party and the Economics of Democratic Socialism (London, 1985), passim, Robert
Skidelsky, Interests and Obsessions: Selected Essays (London, 1993), pp107-135
Donald Moggridge (ed.), The Collected Writings of John Maynard Keynes Volume
XXII: Activities 1939-1945: Internal War Finance (London, 1978) (henceforward
JMK XXII), pp40-155. How to Pay for the War itself is included in The Collected
Writings of John Maynard Keynes Volume IX: Essays in Persuasion (London ,1972)
(henceforward JMK IX), pp367-439
JMK XXII, pp97-99, 101-104. See also the editorial note on p91.
Moggridge, Maynard Keynes: An economist's biography (London, 1992), pp629-634,
Moggridge, Keynes, (Basingstoke 1993), pp130-133
R.F. Harrod, The Life of John Maynard Keynes (London, 1951), pp491-2
Winch, Economics and Policy, pp259-63
Paul Addison, The Road To 1945: British Politics and the Second World War
(London, 1994), pp58-9, Stephen Brooke, Labour's War: The Labour Party during
the Second World War (Oxford, 1992), p245
Keynes Papers (section HP), King's College, Cambridge
'Report of Meeting of the Trade Union Side of the National Advisory Council to the
Ministry of Labour with Mr. J.M. Keynes, on Wednesday, 24th January, 1940, at
3.p.m.' (henceforward 'Keynes-TUC meeting'), Citrine Papers 5/19, British Library of
Political and Economic Science (BLPES)
Harrod, John Maynard Keynes, pp490-1, Peter Clarke, Hope and Glory: Britain
1900-1990 (London, 1996), p210, Winch, Economics and Policy, p261
Moggridge, Maynard Keynes, p629
'Copy of a Letter from Mr. J. Maynard Keynes, CB, (Author of "Economic
Consequences of the Peace").' (A handbill distributed in Cambridge during the 1924
General Election), Keynes Papers A/24/129. I am grateful to John Toye for this
JMK IX, p297
Moggridge (ed.), The Collected Writings of John Maynard Keynes Volume XXI:
Activities 1931-1939: World Crises in Britain and America, (London, 1982)
(henceforward JMK XXI), p128
ibid, pp33-38, pp128-137
Robert Skidelsky, John Maynard Keynes Volume Two: The Economist as Saviour
1920-1937 (London, 1992) p438, p536
See Richard Toye, The Labour Party 1931-1935: The Meaning of Defeat, M.Phil
thesis, University of Birmingham, 1997, Chapter 3
Francis Williams, Nothing So Strange: An Autobiography (London, 1970), p110
Ben Pimlott, Hugh Dalton (London, 1985), p56
Moggridge, Maynard Keynes, p466
Keynes to F.W. Galton 3/5/37, Fabian Society Papers A 7/4 ff36-7, BLPES
Moggridge (ed.), The Collected Writings of John Maynard Keynes Volume VII: The
General Theory of Employment, Interest and Money (London ,1973), p384
Moggridge, Maynard Keynes, p629
See Keynes to J.L. Garvin 13/3/40, Keynes Papers HP/4/90-1
JMK XXII pp41-51
JMK XXII, pp52-73. This was in fact written earlier than Keynes' third Times
article, but was published later. Supplementary notes followed in March and June
1940, and a privately printed 'Budget of National Resources' in March 1940.
Moggridge, Maynard Keynes, p631, JMK XXII pp124-132
The Times, 22/2/40
Keynes to C.R. Attlee 24/10/39, Keynes Papers HP/2/2, Keynes to H.J. Laski
11/12/39, Keynes Papers HP/2/22-24
Attlee to Keynes 30/10/39, Keynes Papers HP/2/3
Keynes to Laski 11/12/39, Keynes Papers HP/2/22-24
Keynes to Attlee 31/10/39, Keynes Papers HP/2/4-7
Attlee to Keynes 2/11/39, Keynes Papers HP/2/8
Laski to Keynes 5/12/39, Keynes to Laski 11/12/39, Laski to Keynes 12/12/39,
Keynes Papers HP/2/21-25
Daily Express 17/11/39
Keynes to Arthur Greenwood 19/11/39, Keynes Papers HP/2/10-11
ibid, Kingsley Martin to Keynes 19/12/39, Keynes Papers HP/2/28
Keynes to Laski 29/12/39, Keynes Papers HP/2/26
F.W. Pethick-Lawrence, Fate Has Been Kind (London, 1943), p25
Forward, 25/11/39
Keynes to Pethick-Lawrence 19/11/39, Pethick-Lawrence Papers P-L2/216, Pethick-
Lawrence to Keynes 22/11/39, Pethick-Lawrence Papers P-L2/250
Keynes to Pethick-Lawrence 11/12/39, Pethick-Lawrence Papers P-L2/217
Pethick-Lawrence to Keynes 8/12/39, Pethick-Lawrence Papers P-L2/251
Ernest Bevin to B.S. Rowntree 29/12/39 (copy), Keynes to Lord Stamp 12/1/40,
Keynes Papers HP/2/37-8
The Times, 10/1/40
Daily Herald, 10/1/40
See, for example, TUC General Secretary Walter Citrine's remarks to the Chancellor
of the Exchequer the previous week: 'the Chancellor clearly urged that increases of
wages should not be in the same proportion as increases in the cost of living. In Sir
Walter's view...workers would repudiate leaders who asked them to do this. Moreover,
the trade unions had at all times to counter definite opposition designed to discredit
the existing trade union leadership in the eyes of the trade union members...and
nothing should now be done to afford opportunities for subversive opposition to that
constitutional leadership.' It is possible that Bevin was thinking on similar lines.
Minutes of the National Joint Advisory Council to the Ministry of Labour, 3/1/40,
TUC Archive MSS.292/108.2/1, Modern Records Centre, Warwick University
Keynes to Stamp 12/1/40, Keynes Papers HP/2/38
Daily Herald, 20/11/39
Tribune, 24/11/39
Richard Kahn to Keynes 30/11/39, Keynes Papers HP/2/20
Laski to Keynes 12/12/39, Keynes Papers HP/2/25
New Statesman, 6/1/40, G.D.H. Cole to Keynes 9/1/40, Keynes Papers HP/3/89
Kingsley Martin, Harold Laski 1893-1950: A Biographical Memoir (London, 1953),
Cole to Keynes 30/1/40, Keynes Papers HP/3/93
Keynes to Geoffrey Dawson, n.d. (subsequent to 20/11/39), Keynes Papers HP/6/37-
JMK XXII p84, pp91-6
Keynes to John Parker 18/1/40, Keynes Papers HP/2/79
Harrod, John Maynard Keynes, p492
Keynes to Lord Stamp 29/1/40, Keynes Papers HP/2/39-41
JMK XXII, pp94-6
Spectator, 24/11/39
Douglas Jay, Change and Fortune: A Political Record (London, 1980), pp78-9
ibid, pp97-8
Keynes to Stamp 29/1/40, Keynes Papers HP/2/39-41
Memorandum 'Wages, Prices and Standards of Living During the War' issued to the
General Council 20/12/39, Minutes of the National Joint Advisory Council to the
Ministry of Labour (General Council side) 16/1/40, TUC Archive MSS.292/108.2/1,
'Second Memorandum on Wages, Prices and Standards of Living During the War',
16/1/40, Keynes Papers HP/2/49-55
'Keynes-TUC meeting', p2
ibid, pp9-10
ibid, pp10-11
Keynes to R.H. Brand 5/1/40, Keynes Papers HP/3/123
'Keynes-TUC meeting', p17
ibid, p18
'Keynes-TUC meeting', pp20-21
ibid, p23
ibid, p25
ibid, pp25-26
'Keynes-TUC meeting', p28
George Woodcock to Keynes 30/1/40, Keynes Papers HP/2/76-7
The Times, 22/2/40, William Piercy to H.V. Berry, 22/2/40, William Piercy Papers
5/72, BLPES
Notes for a speech to the Fabian Society, 21/2/40, Keynes Papers HP/2/88-99.
'Conference on Some Aspects of Socialist Planning, 4-5 November 1933', Fabian
Society Papers J14/2.
JMK XXII, p103, Piercy to Berry, 22/2/40, Piercy Papers 5/72
Moggridge, Maynard Keynes, p633
ibid, pp106-110, Hans Ulrich Esslinger, 'Re-interpreting Keynes' How to Pay for the
War: A two-sector model of financing economic development', in Gabriele Kohler,
Charles Gore, Utz-Peter Reich and Thomas Ziesemer (eds.), Questioning
Development: Essays on the theory, policies and practice of development
interventions (Marburg, Germany, 1996), p203n
The Times, 21/3/40
New Statesman, 2/3/40, Reynolds News, 10/3/40, Tribune 29/3/40, Left News, April
Barbara Wootton, 'Who Shall Pay for the War?', Political Quarterly, 11 (1940), 143-
JMK XXII, p101
TUC General Council minutes 24/4/40, TUC Archive MSS.292/20/24
P.R.O. Interdepartmental Committee on Economic Policy (40) 9th Meeting, Item 2,
17/4/40, cited in W.K. Hancock and M.M. Gowing, British War Economy (London,
1975), p165
In a minute of 16/3/40 cited in R.S. Sayers, Financial Policy 1939-45 (London,
1956) p34n
JMK XXII, p103
Stephen King-Hall to Keynes 18/3/40, Keynes Papers HP/4/28, King-Hall to
Keynes, n.d., March 1940, Keynes Papers HP/4/24, Parliamentary Debates Fifth
Series Volume 360 24/4/40 col. 231
Parliamentary Debates Fifth Series Volume CXV House of Lords 28/2/40 col. 654
Notes for a talk by Keynes at the House of Commons, 28/2/40, Keynes Papers
Parliamentary Debates Fifth Series Volume 357 House of Commons 8/2/40 cols.
See, for example, the remarks made by Charles Dukes (General Secretary of the
National Union of General and Municipal Workers) in February 1940, cited in Labour
Research Department, The Keynes Plan - its dangers to the workers (London, 1940),
Parliamentary Debates Fifth Series Volume 357 House of Commons 8/2/40 col.
Ellen Wilkinson to Keynes 13/3/40, Keynes Papers HP/4/124-6
Keynes to Wilkinson 14/3/40, Keynes Papers HP/4/127-8
Wilkinson to Keynes 10/4/40, Keynes Papers HP/4/129, NEC Minutes 20/3/40,
Labour Party Archive (LPA)
A.E. Ward to Keynes 8/3/40, Keynes Papers HP/4/131-5
Keynes to Ward 9/3/40, Keynes Papers HP/4/136-7
Daily Herald, 29/3/40
Notes for a talk by Keynes at the House of Commons, 28/2/40, Keynes Papers
Daily Herald, 29/3/40
NEC Press, Publicity and Campaign Sub-Committee minutes, 16/1/40, NEC Policy
Committee minutes, 8/2/40, 14/3/40, 4/4/40, 11/4/40, LPA
NEC Policy Committee minutes, 11/4/40, LPA. Keynes had in fact discussed the
possibility of evasion with J.R. Hicks and others, but only in private, and not with any
members of the committee. He had told Hicks on March 13: "I do not deny that there
may be some leakage...But that, I feel, is an inevitable consequence of almost any kind
of drastic remedy." JMK XXII, p110
NEC Policy Committee minutes, 11/4/40, LPA
Douglas Jay, Paying For the War (Labour Party, April 1940). The most important
unofficial Labour statement on war finance was E.F.M. Durbin’s How To Pay For
The War: An Essay on the Financing of War (London, 1939), written before Keynes
published his Times articles, containing an appendix by Hugh Gaitskell proposing a
capital tax (pp109-113).
Brooke, Labour's War, p245, Barbara Wootton, 'Who Shall Pay for the War?',
Political Quarterly, 11 (1940), 143-154
Keynes to Garvin 13/3/40, Keynes Papers HP/4/90-1
John Colville, The Fringes of Power: Downing Street Diaries 1939-1955 (London,
1985), p78
Reynolds News, 17/3/40
TUC Report 1941, p185
Moggridge, Keynes, p131, JMK XXII, p143
Keynes to King-Hall 12/3/40, Keynes Papers HP/4/25
JMK XXI, p495
Elizabeth Durbin, ‘Fabian Socialism and Economic Thought’ in Pimlott (ed.),
Fabian Essays in Socialist Thought (London, 1984), p44
Left News, April 1940
Jay, Change and Fortune, p79
Parliamentary Debates Fifth Series Volume 360 House of Commons 25/4/40 col.
Pethick-Lawrence to Attlee 21/8/40, Pethick-Lawrence Papers P-L1/68-76
Colville, The Fringes of Power, p269
Moggridge, Maynard Keynes, p647
... Keynes's response that by allowing inflation Labour would also lose − and most probably even more − did not go down well. 6 Some substantial part of Labour's resistance rooted in their distrust against Keynes as an academic bourgeois with no experience of working-class life who aimed to maintain the vitality of capitalism (Toye 1999). ...
... Also to meet the latter objection, third, Keynes suggested a capital levy, an old Labour claim after 1918, that should be imposed after the war in order to collect the finance for refunding the deferred pay and to reduce the stock of public debt that would swell with the length of war. This fiscal instrument then could be used as a starting point for a regular future capital tax (Keynes 1940: 379, 406-7;Moggridge 1992: 631-3;Toye 1999). ...
... But rationing and price controls worked quite well. It was believed that Keynes's proposals had contributed to wage restraint (Harrod 1951: 583;Toye 1999). Looking at the long-term performance of the UK economy however, it was argued that Keynes's plea for higher taxes, instead of letting public debt pile up, might have contributed to persistent low growth (Cooley/Ohanian 1997). ...
... To make his proposal more attractive to Labor leaders, which Keynes thought important for its acceptance, he modified it to include family allowances and a postwar capital levy (Toye 1999). Further, "trade union friendly societies" rather than the government would be administering the deferred pay accounts to alleviate Labor's concern that the government couldn't be trusted to pay back workers after the war (Toye 1999, 268). ...
... The UK ended up adopting Keynes's proposal for deferred pay on a smaller scale in the form of postwar credits (Toye 1999). In 1941, in addition to raising taxes on firms and higher income households, the government reduced the earned income allowance and personal allowances, basically raising taxes on "the small taxpayer." ...
The cost of the Green New Deal is usually estimated in financial terms, adding the projected costs of the various programs which leads to the conclusion that large tax hikes would be needed to pay for it. In this paper, we apply the methodology developed by J. M. Keynes in How to Pay for the War to offer a better approach for evaluating the affordability of the GND. We argue that the cost of the GND must be measured in terms of real resources, not financial costs. Affordability cannot be determined by adding up the financial costs and weighing them against prospective tax increases. What is required instead is a careful accounting of the resources the GND will require, weighing those against resources it will release plus what is already in excess supply. Only then can we determine whether a reduction of aggregate demand is needed, and consequently, whether we need counter-inflationary measures, such as tax hikes. While we acknowledge the major uncertainties involved in estimating real resource costs, we argue that our approach to affordability is much more relevant than the mainstream one.
Full-text available
Resumen: Al comienzo de la Segunda Guerra Mundial, John Maynard Keynes propuso un novedoso plan sobre cómo debía afrontar la sociedad británica el problema de la financiación de la guerra. Una versión ampliada de su propuesta fue publicada en un panfleto titulado How to pay for the war (1940). Esta fue la primera contribución relevante que este economista hizo al esfuerzo de guerra británico durante este conflicto. Las guerras implican un gran gasto público. En este sentido, el estudio del plan de Keynes puede arrojar luz sobre las diferentes formas de financiar el gasto público de nuestras sociedades y sus implicaciones macroeconómicas. Por este motivo, este artículo, en primer lugar, realizaremos una contextualización histórica de How to pay for the war y explicaremos los detalles de esta propuesta. Además, en segundo lugar, realizaremos una modelización del plan de Keynes y mostraremos que puede ser de utilidad para el diseño e implementación de políticas públicas en el contexto actual. Abstract: At the beginning of World War II, John Maynard Keynes prepared an original plan detailing how the British society should deal with the problem of war finance. The enlarged version of his proposal was published in a pamphlet under the title How to pay for the war(1940). It was the first relevant contribution that this economist made to the British war effort during the conflict. Wars imply a large public expenditure. In this sense, the study of the Keynes plan can shed light about the different ways to finance the public spending of our societies and their macroeconomic implications. For this reason, we will start this paper with a historical contextualization of How to pay for the war and explain the details of this proposal. Then, we will carry out a modelization of Keynes's plan and will show that it can be useful in the design and implementation of public policies in the current context.
Full-text available
Recent contributions on ‘financial repression’ and ‘money illusion’ have referred to Maynard Keynes's How to Pay for the War as a supporting document. This article discusses whether Keynes prescribed policies of ‘financial repression’ that were implemented in the United Kingdom, and other countries, following World War II. It seems reasonable that Keynes's writings were instrumental in translating British monetary experiences of the 1920s and 1930s into expectations of policymakers during and after World War II, including a belief in ‘money illusion’ that suggested the use of inflation for driving down real interest rates of public bonds. If this was the case, How to Pay for the War could indeed provide an important explanation for the why and when of ‘financial repression’. This article argues that How to Pay for the War only partly provided support for a policy of ‘financial repression’, and none for using inflation as a ‘tax gatherer’ to the detriment of domestic savers in general. Crediting Keynes as a source for widespread ‘money illusion’ is also out of line with the historical record.
Early in the Second World War, Australian Government economists, including Financial and Economic Committee members, agreed that taxation was central to shifting resources from consumption to war spending and containing inflation. As Australia's war effort expanded in 1941–42, all advisers accepted the need for more economic controls. Differences emerged about the desired extent of controls. Some saw controls, including rationing and price stabilisation, as an alternative to higher taxation. In these debates and in policy determination, Keynes' views were influential, as to some extent were those of Kalecki and Balogh. Other influences included the policies of Australia's allies.
Full-text available
This article examines the Labour Party's attitude to the finance of the British rearmament programme in the later 1930s, principally with reference to debates in the House of Commons. It is suggested that the Party's opposition to the National Government's borrowing for rearmament was strongly influenced by continuing bitterness over the political crisis of 1931; and that focusing criticism on the economic aspects of the rearmament programme helped Labour to mask its divisions over the validity of rearmament itself. Labour politicians' varying reactions to John Maynard Keynes's arguments in favour of defence borrowing are explored; as is the Party's attitude to, and impact upon, Neville Chamberlain's 1937 proposals for a ‘National Defence Contribution’. Moreover, it is argued that, as the political situation in Europe deteriorated, Labour's policies were influenced further in the direction of central planning and ‘conscription of wealth’, as an alternative to borrowing, which was alleged to be inflationary. Finally, it is suggested that the party's attitude to these questions is illustrative of the way in which economic ideas in the public sphere are inevitably conditioned by the political interests of the politicians who promote them.
Keynes Volume Two: The Economist as Saviour
  • Robert Skidelsky
  • John Maynard
Robert Skidelsky, John Maynard Keynes Volume Two: The Economist as Saviour 1920-1937 (London, 1992) p438, p536
Nothing So Strange: An Autobiography
  • Francis Williams
Francis Williams, Nothing So Strange: An Autobiography (London, 1970), p110
An economist's biography
  • Maynard Moggridge
  • Keynes
Moggridge, Maynard Keynes: An economist's biography (London, 1992), pp629-634,
General Secretary of the National Union of General and Municipal Workers) in February 1940, cited in Labour Research Department, The Keynes Plan -its dangers to the workers
  • See
See, for example, the remarks made by Charles Dukes (General Secretary of the National Union of General and Municipal Workers) in February 1940, cited in Labour Research Department, The Keynes Plan -its dangers to the workers (London, 1940), p7 107 Parliamentary Debates Fifth Series Volume 357 House of Commons 8/2/40 col.
), p210, Winch, Economics and Policy, p261 13 Moggridge, Maynard Keynes, p629 14 'Copy of a Letter from Mr
  • John Maynard Harrod
  • Keynes Clarke
  • Glory Hope
Harrod, John Maynard Keynes, pp490-1, Peter Clarke, Hope and Glory: Britain 1900-1990 (London, 1996), p210, Winch, Economics and Policy, p261 13 Moggridge, Maynard Keynes, p629 14 'Copy of a Letter from Mr. J. Maynard Keynes, CB, (Author of "Economic Consequences of the Peace").' (A handbill distributed in Cambridge during the 1924
Keynes Papers A/24/129. I am grateful to John Toye for this reference. 15 JMK IX The Collected Writings of John Maynard Keynes Volume XXI: Activities
General Election), Keynes Papers A/24/129. I am grateful to John Toye for this reference. 15 JMK IX, p297 16 Moggridge (ed.), The Collected Writings of John Maynard Keynes Volume XXI: Activities 1931-1939: World Crises in Britain and America, (London, 1982) (henceforward JMK XXI), p128 17 ibid, pp33-38, pp128-137