John Maynard Keynes Narrates the Great Depression: His Reports to the Philips Electronics Firm

^†Unpublished writings of JOHN MAYNARD KEYNES copyright The Provost and Scholars of King’s College Cambridge 2023.

Abstract

In October 1929, the Dutch electronics firm Philips approached John Maynatd Keynes to write confidential reports on the state of the British and world economies, which he did from January 1930 to November 1934, at first monthly and then quarterly. These substantial reports (Keynes’s November 1931 report was twelve typed pages) show Keynes narrating the Great Depression in real time, as the world went through the US slowdown after the Wall Street crash, the Credit-Anstalt collapse in Austria, the German banking crisis (summer 1931), Britain’s departure from the gold exchange standard in August and September 1931, the US banking crisis leading to the Bank Holiday of March 1933, the London Economic Conference of 1933, and the coming of the New Deal. This series of reports has not been discussed in the literature, though the reports and surrounding correspondence are in the Chadwyck-Healey microfilm edition of the Keynes Papers. We examine Keynes’s account of the unfolding events of the early 1930s, his insistence that the crisis would be more severe and long-lasting than most observers predicted, and his changing position on whether monetary policy would be sufficient to promote recovery and relate his reading of contemporary events to his theoretical development.

Notes

^† Unpublished writings of JOHN MAYNARD KEYNES copyright The Provost and Scholars of King’s College Cambridge 2023.

1 “Thursday, October 24, is the first of the days which history – such as it is on the subject – identifies with the panic of 1929” (Galbraith 1961, 103–104), but already on Monday, October 21, Irving Fisher had characterized the fall in stock prices as just the “shaking out of the lunatic fringe” and on Tuesday, Charles Mitchell of the National City Bank declared that “the decline has gone too far” (Galbraith 1961, 102).

2 Philips Incandescent Lamp Works, later Philips Electronics, successor to a firm founded by Lion Philips (originally Presburg), maternal uncle of Karl Marx (Gabriel 2011, 44, 110, 291-93, 295, 299, 315, 334, 366). Although relations between uncle and nephew were “strained by politics” (Gabriel 2011, 291), Mary Gabriel (2011, 299) refers to Marx’s “fund of last resort, his uncle … He had sold himself to this pragmatic businessman as a successful writer only temporarily short of cash.” Gabriel (2011, 642) remarks that “Marx’s dabbling in the stock market has been questioned by some scholars, who believe he may simply have wanted his uncle to believe he was engaged in ‘capital’ transactions, not Capital.” After the death of Lion Philips, his sons did not reply to Marx’s letter asking for help with his daughter Laura’s wedding (Gabriel 2011, 364). Anthony Sampson (1968, 95) reported that the firm’s chairman Frits Philips was “a keen Moral Rearmer and a fervent anti-communist, embarrassed by the fact that his grandfather was a cousin of Karl Marx.”

3 For a sense of what £150 a year might have meant to Keynes: Moggridge (1992, 508, 585) and Skidelsky (2003, 417–418, 519, 565) report that Keynes’s net worth fluctuated from £44,000 at the end of 1927 to £7,815 at the end of 1929, then rising to over £506,222 at the end of 1936, dropping again to £181,244 at the end of 1938. The offer from Philips came at a particularly low point in his finances. According to Skidelsky (2003, 265) “investment, directorship and consultancy income” accounted for more than 70% of Keynes’s income between 1923-24 and 1928-29 (including £1,000 a year as chairman of National Mutual Life Assurance), books and articles for another 20%, leaving no more than a tenth of income from such academic sources as teaching, examining, being secretary of the Royal Economic Society and editor of its journal, and being Bursar and a Fellow of King’s College.

4 However, writing to Keynes on January 21, H. du Pré was moved “to remark that the latest figures from the Argentine which, according to the handwritten note at the bottom of your letter, you intended to enclose, were not received here, so that we cannot give you an opinion about their importance for us.”

5 When the majority report of the May Committee on National Expenditure projected on July 31, 1931, that the budget deficit for 1931-32 would be £120 million, necessitating £96 million of cuts to unemployment benefits, road construction, and government and armed forces pay, it counted all borrowing by the Unemployment and Road funds as “public expenditure on current account” as well as “the usual provision for the redemption of debt” of £50 million (Winch 1969, 126–130). Keynes accused the majority on the May Committee of not “having given a moment’s thought to the possible repercussions of their programme, either on the volume of unemployment or on the receipts of taxation” – he estimated it would add 250,000 to 400,000 to the unemployed, and reduce tax receipts by £70 million (New Statesman and Nation, August 15, 1931; Keynes 1971-89, Vol. IX, 141–145; Winch 1969, 130, Skidelsky 2003, 446).

6 With regard to Britain, Keynes noted that “There is, however, tremendous pressure of public opinion towards the Government Economy, which means in the main a reduction in the salaries of Government employees and of the allowances of the unemployed. It is equally difficult for the present [Labour] Government either to refuse or concede concessions to this trend of opinion. But if a movement in this direction takes place, which is still most doubtful, it remains exceedingly open to argument whether the result on the actual level of unemployment will be favourable.”

7 Keynes had given three Harris Foundation Lectures on “An Economic Analysis of Unemployment” at the University of Chicago in June and July 1931, published in Quincy Wright, ed. (1931), and reprinted in Keynes (1971-89), Vol. XIII. These lectures mostly expounded the analysis of Keynes’s Treatise, but the third lecture also examined the debt-deflation process, the undermining of the financial structure by an increase in the real value of debts and fall in the nominal value of collateral (Keynes 1971-89, Vol. XIII, 359–361, see Dimand 2011).

8 He also raised a “small personal matter”, asking for advice on buying a new wireless set that would “have a thoroughly good loud speaker, both for voice and music reproduction and should be able to pick up distant stations such as Moscow.”

9 A passage crossed-out in the draft of Keynes’s November 1931 letter, in the section discussing the general election, stated that, “As has been the case in the last three or four General Elections, it is that old wretch Lord Rothermere [publisher of the Daily Mail] who has been dead right. It is said that he has made a profit on the crisis of £100,000, buying majorities on the Stock Exchange.” Skidelsky (2003, 472) relates that Keynes “consistently lost money (his own and his friends’) on the results of general elections.”

Additional information

Notes on contributors

Robert W. Dimand

Robert W. Dimand is a professor of economics at Brock University, Canada, and a visiting professor at Yale University, and author of The Origins of the Keynesian and an editor of The Elgar Companion to John Maynard Keynes.

Bradley W. Bateman

Bradley W. Bateman is president emeritus of Randolph College, Virginia, coauthor of Capitalist Revolutionary: John Maynard Keynes and an editor of The Cambridge Companion to Keynes.