International
Design and the British Empire
― Keynes on the Relief
Problem ―
Toshiaki
Hirai, Faculty of Economics, Sophia
University
Professor
of Economics,
102-8554 Kioi-cho, Chiyoda-ku, Tokyo , Japan
e-mail: hirai-t@sophia.ac.jp
Abstract
The main purpose of this paper
is to assess Keynes’s political stance through an examination of his approach
to the relief problem in the 1940s. To what degree was Keynes a nationalist,
internationalist and imperialist? Can we grasp his stance in international
politics using these categories? In dealing with the relief problem, Keynes
changed his tactics several times in response to the changing circumstances in
which the British Empire found itself, and
thus this examination can provide broad insight into his political stance.
All we can say
is that Keynes made great efforts to reconstruct the post-war world, drawing up
an elaborate design, as well as to keep the British Empire’s position in world
politics ─
somehow or other ─
on
an equal footing with the US, under the disadvantageous circumstances that the
British Empire desperately needed financial and military support from the US US British
Empire .
International
Design and the British Empire
― Keynes on the Relief
Problem ―
The years during which Keynes and his contemporaries were active were years
during which the world tried to restore the Pax Britannica that had collapsed as
a result of the First World War. But this attempt was in vain, and as confusion
and division deepened, the world was engulfed by the Second World War. Under
those circumstances, Keynes was the figure who had the largest influence as an economist,
economic policy maker, and international system planner.
After his death, moreover, Keynes was to inspire, through the General Theory (1936), a deep
transformation called the “Keynesian Revolution” in the fields of
macroeconomics, economic policy and social philosophy in the post-war world. It
is no wonder that the third quarter of the 20th Century is often
known as the “Age of Keynes”.
The main purpose of this paper
is very limited: to assess Keynes’s political stance through an examination of
his approach to the relief problem in the 1940s. To what degree was Keynes a nationalist,
internationalist and imperialist? Can we grasp his stance in international
politics using these categories? In dealing with the relief problem, as will be
examined below, Keynes changed his tactics several times in
response to the changing circumstances in which the British
Empire found itself, and thus this limited examination can provide
broad insight into his political stance.
The paper is organized as follows. Section
1 includes a brief survey of Keynes’s activities in international politics up to
1940. In section 2, Keynes’s wide-ranging activities as a policy advisor in the
1940s are outlined. In section 3 the initial stage of the relief problem is
explained, and sections 4-6 examine in detail how Keynes responded to the
changing situation (i.e., what kinds of plans he put forward). In section 7,
Keynes’s response to UNRRA under the leadership of the U.S.
1. Keynes’s Stance in International Politics
Summarized
In order to understand Keynes’s activities in the 1940s, it is necessary
to know what kinds of ideas he put forward in the field of international
politics and economics up to 1940.
(1) An Idea
of the Reconstruction of Europe
The Economic Consequences of the Peace is the book that Keynes wrote immediately after
resigning as the representative of the Treasury for the Versailles Peace
Conference, to the disappointment of those involved in the proceedings. The
book is famous for, among other passages, an acid description of the “Big Three”
and the presentation of a figure considered to be reasonable as the amount of reparations
to be paid to Germany
After proposing to cancel all war debts
(which involved the abandonment of 2 billion pounds for the USA and 0.9 billion pounds for the UK
(i) To reorganize the Coal Commission
into a cooperative system for supplying and allocating coal throughout all of Europe .
(ii) To
set up a Free Trade Union in Europe that included the UK
(iii) To make an international loan for the rebirth
of Europe . This would be composed of loans
that would be used to obtain food and materials from the USA and a “Guarantee Fund”, to be set up by the
contributions (either in cash or kind) of the member countries of the League of Nations . The Guarantee Fund is considered to be
the foundation for the general reorganization of currency.
Here we clearly see the prototypes of various plans
for international systems which Keynes would put forward 20 years later, as
will be seen in section 2.
(2) A Tract on Monetary Reform
In the
Tract published in 1923, Keynes
explicitly advocates: (i) against deflationary measures, and for currency
devaluation policy; (ii) to put priority on the stability of the domestic price
level rather than on that of foreign exchanges; (iii) against the return to the
Gold Standard.
Concerning (iii), it
should be noted that Keynes did not maintain it on theoretical grounds alone,
but on American supremacy as well.
… gold now stands at an ‘artificial’ value, the future course of which
almost entirely depends on the policy of the Federal Reserve Board of the
United States (TMR, pp.134-5).
His final proposal was that the United States
as well as Great Britain should “aim at the stability of the commodity value of
the dollar rather than at stability of the gold value of the dollar, and to
effect the former if necessary by varying the gold value of the dollar” (TMR, p. 158).
(3)
Loan Negotiations
During
the First World War, Keynes was promoted to be a chief of Section A, which was
newly set up to be responsible for the international finance of the Treasury.
At that time Britain Great
Britain to the USA
(4) The Treatise
A Treatise on Money, published in 1930, is important for understanding Keynes as a
theoretician as well as an applied economist. This is a magnum opus in which
Keynes’s own theory of monetary economics was developed, being partially
influenced by Wicksell’s theory of cumulative process.
In his argument regarding the world economy,
the familiar second fundamental equation plays an essential role. According to
it, the price level in the short run depends on the difference between the
value of investment and savings throughout the whole world, while the price
level in the long run, under the Gold Standard, depends on whether the volume
of gold available as reserves increases more rapidly than the volume of trade.
Therefore, he argues, in order to stabilize the price level in the short run,
the cooperation of central banks is required to cope with the fluctuations
between the value of investment and savings. However, under the present system,
that was a difficult task, due to the competition between central banks. Under
the present situation in which the Gold Standard was rigidly observed, it was
also difficult to control the price level in the long run.
Keynes, after the above
argument, argues that the future ideal currency should be controlled by a
supernational institute, limiting gold to symbolic status even if it might be
used as an international standard (cf. Chapter 38, “Problems of Supernational
Management”). The idea developed here leads to the famous “International
Clearing Union” Plan.
2. Keynes’s
Activities as Policy Advisor in the 1940s
In July 1940 the
Chancellor of the Exchequer’s Consultative Council was set up “to help
and advise the Chancellor on special problems arising from war conditions”1
. Keynes accepted to be a member of the Council. This was the first time since
1919 that he had any formal connection with the Treasury. In August Keynes “took
a further step into the Treasury: he received a room in the building”2.
This was to see Keynes deeply involved in the Treasury matters, although he
continued to act as an unpaid adviser to the Chancellor. Thereafter he was to
be engaged on a range of important assignments, which can be classified in
three categories.
(i) The first
concerns external war finance and the balance of payments crisis. In this
context, Keynes was to play a key role in the negotiations with the United
States over lend-lease arrangements as well as the balance of payments crisis culminating
in the Anglo-American Financial Agreement of December 19453. Faced
with the overwhelming powers of the USA
both in military and financial terms, he worked as a hard-bitten negotiator, defending
and maintaining the British Empire .
(ii) The
second category is concerned with the shaping of the post-war world economic
order. In this connection, Keynes’s unexcelled ability in designing
international systems emerged in all evidence. Viewing
a problem in the context of the world, he worked out plans to deal with problems
efficiently.
His most important
and celebrated achievement was his contribution to the establishment of a new
international monetary system, although his International Clearing Union plan was
not adopted. Besides, he formulated proposals relating to the relief-reconstruction
problem, the commodity problem4, commercial policy, the reparations issue
and so forth. Keynes himself negotiated with the United States
On what
principles did Keynes devise these plans? The answer we would expect is that
they were based on different principles, according to the nature of the problem
concerned. We will take up three cases to illustrate this point ― the commodity problem, the
international monetary system and the relief problem.
In the case
of the commodity problem, Keynes designed international organizations named the
“Commod Control” and the “General Council for Commod Controls” ― organizations for buffer stock
operations, the purpose of which was to stabilize the short-term prices, while allowing
for gradual changes in the long-term prices of various primary commodities, and
to ensure due income to the producers concerned.
The fundamental principle on which the buffer
stock plan is based is his view of the market economy as is clearly seen in The End of Laissez-Faire (1926): if left
to the law of supply and demand the market economy cannot attain an optimum
allocation of resources. He believed that, since a competitive market system
abhors buffer stock, violent fluctuation in prices are caused, and that, in
order to avoid them, some sort of international organization dealing with
buffer stock is required ― an international
version of Vice-President Wallace’s “ever-normal granary”.
In the case of the international monetary system,
Keynes put forward the “International Clearing Union”, which is a multilateral
clearing system among the central banks once all the foreign exchange
transaction have been transferred there. For this purpose an international
organization named the “Clearing Union” is set up, each country having there
its own account. Every international transaction is recorded in the account of the
nations concerned in terms of “bancor”, which is an international currency used
only for international transactions. The Clearing Union is endowed with credit
creating capacity (each nation should fix the exchange rate in terms of bancor).
The most innovative points of this plan are
as follows: (i) the bancor occupies a position as international currency, wile gold
loses its position as international currency and all the existing currencies such
as dollar and pound sterling remain as local currencies; (ii) the foreign
exchange markets will disappear; (iii) credit is created in accordance with the
economic growth of the world economy.
International financial transactions will be
concentrated on the Clearing Union, while international transactions of goods
and services are left to the free activities of private firms. Keynes states
that the Clearing Union plan is an international version of a system that is
taken for granted in a domestic banking system.
The
basic principle upon which the Clearing Union plan is based is an international
monetary system which, if needed, could increase or decrease the amount of
international currency so that deflationary or inflationary trends in the world
economy could be cancelled out, and world trade could grow accordingly. Keynes
expressed the view that each government should pursue prosperity and stability for
its own economy by means of economic policy. He continued to criticize the Gold
Standard because it should deprive governments of this degree of discretion, as
is clearly seen in the Tract and the General Theory.
In the case of an international monetary
system, however, there is no doubt that Keynes, at the same time, was wary of
the United States, as is demonstrated, e.g., in the Tract, where he explicitly stated that a return to the Gold
Standard meant no more than the de facto
US Standard. The bancor was an international currency, independent of the US
dollar.
In the case of the relief problem, Keynes proposed
the
“Central
Relief and
Reconstruction
Fund” (hereafter CRRF), the task of which was to manage a joint fund comprised
of money donations or contributions in kind from various countries. The basic
principles behind the CRRF was to create an ideal international organization to
distribute commodities, efficiently and with humanitarian criteria, among
countries in need of relief. In this respect the Fund was to be regarded as an
economic organization. As will be explained later, however, due to developments
in the UK
(iii) The third
category concerns the formation of the post-war domestic order. In this area,
Keynes was particularly involved in problems of employment and social security.
Concerning Keynes’s view on employment, as articulated in the General Theory, it finally won the
controversy with the Treasury and got through to the government, bearing fruit
as The White Paper on Employment (1944).5
Regarding social security policy, Keynes contributed in no small degree to
getting the Beveridge Plan implemented.6
3．The Initial
Discussion Process
At the outbreak of World War II , Britain U.K. Britain
The Sub-Committee recommended that Britain Britain
Initially Keynes believed that “if this is
[to be] anything at all it [must be] a world scheme of the greatest possible post-war
significance, which the United States, if they understood it, would want to be
very much in at the first row” (JMK.27,
p. 5). He insisted that any plan should be drawn up in complete collaboration
with the U.S.
In November 1940, Leith-Ross suggested that
any plan concerning the problem of surpluses should have the following three
objectives:
(i)
to accumulate commodities in preparation
for post-war relief initiatives;
(ii)
to relieve producing countries suffering
from the collapse of their markets due to the war;
(iii)
to put production adjustment into effect
for the purpose of preventing (a) the re-emergence of surplus commodities
during the war, and (b) the occurrence of disequilibrium after the war.
Keynes
whole-heartedly agreed that these objectives should form the basis of any plan
for dealing with the surplus commodities problem. In December 1940 he recommended
that commercial firms be set up, part of the capital of which should be raised
in the relevant producing country. At the same time, he stressed the importance
of gathering and analyzing data (especially price data) on the surplus
commodities. In this connection, in February 1941 he advised that the U.K. U.K. 19
February 1941 , which accepted it more or less as it stood. It
should be noted that this proposal took into account the fact that Britain
In the spring of 1941, Keynes was involved in
the Anglo-American negotiations on wheat and cotton.8 Two points
concerning these negotiations are worth mentioning. One is Keynes’s doubt
concerning the American proposal for export quotas. The other concerns the
problem of how the United
States United States
On a visit to Washington Europe back
on its feet once the war was over. In other words, the solution of the
commodity problem could assist in the solution of the relief problem.
Evidently, then, in mid-1941 there was
acknowledged agreement between Keynes, Leith-Ross, and the U.S. Government on
the issues of post-war relief and surplus commodities. Before proceeding to
examine how discussion of the relief problem was to progress subsequently, we
should take note of the fact that Keynes’s proposals, although expressed in
terms suggesting a spirit of internationalism, were distinctly not in conflict
with the protection of British interests.11 Where the British
interests and internationalist ideals coincide, the internationalist aspect is
stressed in his proposals; but where they conflict, the interests of the
British Empire invariably takes precedence. In this respect Keynes was a champion
of the British Empire as well as a realist. It
is in the course of the discussions on the relief problem that this feature appears
unquestionably manifest.12
4. The “Central
Relief and Reconstruction Fund” (CRRF) Plan
The plan Keynes had sketched to Acheson was
succeeded by a proposal of carrying out relief operations through the
establishment of a Central Relief and Reconstruction Fund.13 This
was set out in the “Treasury Memorandum on Financial Framework of Post-war
European Relief” of 24 October 1941 (JMK.27,
pp. 46-51; hereafter the “CRRF Plan” or the “Keynes Plan”, for Keynes was its
chief author).
The central idea of the Keynes Plan was that
the CRRF should operate a joint fund comprised of money donations or
contributions in kind from many countries. The basic principles of the CRRF
were as follows: (i) it should be responsible for collecting and distributing
all required relief materials (it should be authorized to buy the commodities
required at fair prices from any country); (ii) it should determine, on the
basis of some appropriate principle yet to be established, the proportion of
the relief materials which a country should receive gratis or should be liable
to pay.
All transactions were to be booked in the
joint fund. To allow the CRRF to estimate the scale of transactions, the
following conditions were proposed: (i) the CRRF should request allied
governments to produce lists of their requirements, while at the same time
taking the enemy countries, France and China into account; (ii) the CRRF should
make estimates of the quantities of commodities available to it; (iii) the CRRF
should investigate the financial position of each of the countries concerned,
knowledge of which would be prerequisite for equitably determining the
proportions in which assistance should be granted free of charge or made
payable.
Keynes considered the CRRF, conceived as
above, greatly superior to the idea of having various countries giving relief
in kind separately, and sincerely wished to see it set up. He argued that
establishing the CRRF would obviate the need for making separate financial
arrangements for each commodity, whilst the alternative idea would result in
the distribution of commodities becoming a messy affair, due to the absence of
any necessary correspondence between the commodity quantities available and an
appropriate financial burden.14
At first lacking in “[a] picture of the whole
scene” ― lack of which Keynes thought is likely to lead to disaster15
― it
appears that Leith-Ross came to form his own ideas through discussion with
Keynes. In a letter to Keynes dated 20 November 1941 (JMK.27,
pp. 55-56), Leith-Ross advocated the establishment of an international relief
organization not dissimilar to the CRRF (hereafter the ‘Leith-Ross Plan’), as
an alternative to the Keynes Plan.
Subsequently discussion arose concerning the
relative merits of the two plans. The Keynes Plan and the Leith-Ross Plan were
alike in seeing the establishment of some form of central relief organization
as the cornerstone of post-war relief operations. The Leith-Ross Plan also
envisaged having various countries make contributions to a central organization,
on the basis of which the organization was to determine the extent to which the
relief materials provided to various countries should be regarded as gifts or
as payable items. The point of difference at this stage, in fact, lay less in
any difference of principle than in the pace at which each plan should be
implemented. This comes out clearly in some remarks Keynes made on particular
points of the Leith-Ross Plan in a letter dated 2 December 1941 (JMK.27, pp. 56-59):
(1) On the
organizational structure in the Leith-Ross Plan ― an American
chairman, a British vice-chairman, various divisions and so forth ― Keynes remarks
that at this stage it is far more important to forge consensus on the general
principles of the organization than to fix the precise details.
(2) The Leith-Ross
Plan stresses that contributions should be made in cash and the contributions
of Britain and the U.S.
(3) The
Leith-Ross Plan emphasizes that the main primary commodities should be secured
in quantities as large as possible. Keynes remarks that, at the present stage
of the war, such an attempt would be pointless.
(4) The
Leith-Ross Plan advocates a flexible extension of Lend-Lease, and suggests that,
should the relief organization functions ineffectively, some adjustment might
be required. Keynes remarks that, as this would require separate negotiations
with each of the countries concerned, it would be inconsistent with the
original plan of joint finance.
We can safely say that at this point Keynes firmly
adhered to the CRRF Plan. He abandoned it shortly thereafter, taking up the
idea of “a flexible extension of Lend-Lease” instead. As a result of this,
differences between the two central fund plans became irrelevant.
5. A Change of
Tack
Keynes’s letter to Waley of 4 February 1942
reveals the magnitude of his change of mind.16 He points out that as
Britain ’s balance of trade
will certainly fall into severe difficulties after the war, it will almost
certainly be impossible for Britain Hopkins ,
and finally completed by Keynes, the letter (hereafter the ‘Wood Paper’) was
sent to Dalton 1 May 1942 . In
the Wood Paper, the Treasury’s former support for the CRRF Plan is withdrawn,
and instead the desirability of having Lend-Lease continued is stressed.17
The argument offered in the Wood Paper is as
follows. Britain Britain Britain
should now aim at is to persuade the United States
I am
now disposed to think that what we should aim at is that the United States
should continue the lend-lease system to cover post-war supplies to those
countries (which will probably include ourselves) which are unable to pay in
gold and dollars, and that Canada and perhaps other producing countries should
also agree to make their goods available on gift, or terms similar to those of
lend lease, until the countries of Europe are in a position to resume their
export trade on a scale sufficient to pay for their needs in cash. It seems
reasonable to hope that the United States
and Canada
That Treasury policy changed in recognition
of Britain Britain Britain
among the countries in which supplies will be in shortage at the end of the war
(while the U.S. , India
... the
United States
In other words, the great change in situation
concerning the post-war relief problem, apart from the prolongation of the war
(the Pacific War broke out in December 1941), occurred not in America or the British Dominions, but in Britain
Under
the [CRRF] plan we, in common with all other countries asking for assistance,
would have to go before the [relief] council and give figures of our gold and
foreign exchange resources in order to prove that we cannot pay cash for what
we need; and I think we should try to avoid being placed in this position (JMK.27, p. 65).
The CRRF Plan had aimed at creating a central
agency to collect commodities from abundant countries and distribute them to
needy countries, so that it clearly had an internationalist flavor. The
Treasury abandoned this plan primarily on account of the rapid deterioration in
Britain ’s position, adopting
instead the more pragmatic, less idealistic, line of getting Lend-Lease (which
had come into being as the inevitable result of the prolongation of, and entry
of the U.S.
In
truth the problem seems to me to merge into the much larger question of general
financial arrangements after the war for the rehabilitation of countries that
are short of external resources, which will include both Russia
It is important to bear in mind that by this
time the nature of the confrontation between the Treasury and the Board of
Trade had completely changed. Up to this point, the difference between the two
had centered around the pace of implementation demanded by two otherwise
similar rival plans. But now the difference widened as the Treasury ditched the
CRRF Plan altogether in favor of getting Lend-Lease extended, while the Board
stuck to its initial ideas, i.e. the Leith-Ross Plan.
(i)
Britain should pool post-war supplies with Allied Governments through an
international organization; (ii) supply arrangements should be
coordinated;(iii) Britain should, subject to replacement, make non-essential
stocks available temporarily to the relief organization; (iv) Britain would
maintain rationing until other countries were provided for; (v) British post-war
requirements should be subject to the same examination as those of other
countries; (vi) Britain should do everything possible to re-provision Allied
territories after their liberation and (vii) Britain should be willing to
contribute to relief when the time came on the principle that she would do all
that was possible in the way of assistance (JMK.27,
p. 66, fn.1. Numbering added).
With regard to the Dalton Paper, Keynes, in
his letter to Waley of 1 June
1942 (JMK.27, pp. 67-70),
warned that, as circumstances rendered accurate forecasting impossible, it
would be dangerous to undertake such a comprehensive commitment. He suggested
that the Chancellor should draw Ministers’ attention to the following:
(1) The dangers
involved in any strong commitment to the rationing system and the re-supply of
foodstuff to the Allied territories. As proposed, rationing reflects an
impractical and unfeasible altruism. It would be unfair to speak of
re-supplying the Allied territories with foodstuff since this would raise hopes
which it will, due to the escalation of the war, prove impossible to fulfill.
(2) The dangers
involved in proposing a ‘joint account’ for supplies. This would mean leaving
the decision as to what would be a reasonable volume of imports to an outside
authority.19
(3) The failure
of the Dalton Paper to clarify that the proposals are restricted to foodstuff
only and do not apply to raw materials. Not to make this restriction would pose
a serious obstacle to the development of exports.20
(4) It should
also be clarified that even if Britain
should have the ability to give aid, it will be restricted to the extent of her
being given aid by the United
States
These suggestions formed the basis of the
Chancellor’s note which was submitted to the Committee on Reconstruction
Problems.21
The confrontation between the two ministries ― by implication
between Keynes and Leith-Ross ― persisted thereafter. Thus we find Keynes
commenting on Leith-Ross’s new proposal in his letter to Dunnett and others of 18 November 1942 (JMK.27, pp. 73-79). It is worth noting
his points in order of importance:
(1) The new
Leith-Ross plan argues for the discipline of “a genuine pooling of supplies ― inclusive of
not only food but also raw materials”. According to Keynes, this shows a
terrible intellectual disorder22, and would represent a level of
international communism far beyond anything the public could possibly accept.
(2) The
rationing system proposed by the new plan presupposes complete equality of
treatment to such an extent as would cause serious political problems.
(3) The new plan
has been drawn up without taking into consideration the reality of Britain U.S. while Britain
(4) Leith-Ross
is inclined to give a strong position even to the small countries in terms of
representation on the Anglo-American Boards.
The kernel of Keynes’s criticism of the new
Leith-Ross Plan is that it is based on an extreme egalitarianism, amounting to
international communism, which completely neglects Britain
Sir
F. Leith-Ross has produced so devastating a document because he in effect
imposes on this poor country [Britain
6. A Degree of
Compromise
On 6 January 1943 Keynes sent a paper to the Chancellor and
Leith-Ross. Entitled “Finance of Post-war Relief” (JMK.27, pp. 79-86), it became an official Treasury paper after some
revision. In tone the paper can be said to represent a compromise between the
rival approaches to the relief problem, for while it takes a fundamentally
pragmatic line that Britain
The paper advocates the implementation of
relief along the general lines of the “War Arrangements” which were already in
effect. The physical side and the financial side of operations are
distinguished.
The Combined Boards are to be responsible for
the physical side. Taking “efficiency” into consideration, the Combined Boards
should determine the best sources of relief materials, coordinating relief
demands with the civilian requirements of the rest of the world.
On
the other hand, the financial side is to be determined on the basis of some
appropriate financial arrangement between a given supplying country and the
corresponding recipient country. An individual arrangement should decide
whether supplies are to be payable, on the basis of some criterion yet to be
decided, acceptance of which on the part of the U.S.
Keynes saw several advantages in this plan:
(i) it is the only efficient method of making relief supplies swiftly available
given the restrictions on resources; (ii) it does not deprive Britain of
eligibility for Lend-Lease; (iii) as there is no central organization endowed
with fixed resources, such as CRRF would have been, there can arise no
situation in which Britain is burdened with premature debts.
In a way the role envisioned for the Combined
Boards is little more than that of an advisory body. For although the plan may
grant the Combined Boards considerable
authority, final decisions are always left to the countries giving
supplies. Keynes points out, however, that under this plan, Britain
Here again we feel the strain of the British
interests in Keynes’s thinking. When Britain Britain
7. Keynes’s
Response to UNRRA
Not long after these exchanges the relief
problem came to be discussed under the leadership of Harry White25,
Assistant Secretary of the Treasury of the United States, in consequence of
which the United Nations Relief and Reconstruction Administration (UNRRA) was
established in November 1943 at a 44-nation conference at the White House. The
task was to provide economic relief to Europe
after the War, and to rescue the refugees. More than 70 percent of UNRRA’s fund
was provided by the American Government. This meant that the initiative in the
relief problem was put under the US
Keynes’s
response to UNRRA changed over time, tracing a convoluted contour. Though he
went on calling it a “chimera”, around September 1943 he began to approach the
idea more favorably. He commented on the “White Plan” in a memorandum of 17
September to Ronald Campbell and R. Law entitled “Finance of European Relief” (JMK.27, pp. 90-92), in which he refers
to several of the plan’s tenets:
(1) Irrespective
of whether free or payable, all supplies should be given to recipient countries
along with invoices expressed in value, and should be dealt with on a
commercial basis as soon as possible. In the case of gifts, supplying countries
should withdraw the amount involved from the contributions to relief finance. ― Keynes is in agreement
with this.
(2) Prices
should be inclusive of freight charges, for which supplying countries should
pay. ―
Keynes judges that, financially speaking, this would be advantageous to
Britain.
(3) The plan
aims at establishing the principle that loans made by a given country should be
used by the recipient country only for the commodities specified to, or for
payment within, the former (i.e., all loans should be tied). ― Keynes remarks
that the U.S. Administration would, in this way, be able to use their funds to
provide for cash purchases outside the United States
(4) The standard
of contributing one percent of national income to UNRRA should be established. ― Keynes comments
that if this were agreed to, the U.S. Administration would obtain a stronghold
in negotiations with the Congress.
Here we see Keynes displaying a positive
attitude towards the White Plan which laid the groundwork for UNRRA. It was not
until the beginning of 1945 that he next had occasion to comment on the relief organization.
This time, however, he was highly critical of UNRRA, complaining that it was
completely betraying the role it had initially been set up to play. His letter
to Wilfrid Eady of 3 January 1945, for example, expresses a strong desire to
see it dissolved.26 He thinks the best option for Britain
to
carry on with the present military basis in the very small number of non-paying
non-enemy countries and persuade the U.S.A.
The words “present military basis ... non-enemy
countries” appear to indicate Lend-Lease. Keynes suggests that Britain should seek to return to the status quo
ante through the dissolution of UNRRA, try to get Lend-Lease continued in
certain countries, and try to get the U.S.
There can be no doubt that Keynes sincerely
wished to see these hopes fulfilled. Not much later (in his letter to Eady
dated 21 February 1945 ),
however, we find him advocating fundamental reform of UNRRA with regard to
function and leadership, rather than complete dissolution. In the same letter
we again find him discussing the relief problem from an internationalist
perspective:
When
we first began to talk about UNRRA, we assumed that it would be a genuine
international body covering the whole of the above27, though, of
course, not giving more to ex-enemies than was appropriate. I cannot see that
there can be any other durable solution except reviving this plan (JMK.27, p. 98).
In 1946 Keynes gave up the hope of reforming
UNRRA, and returned again to the idea of (gradual) abolition. This is evident,
for example, in “Post-UNRRA Relief” (JMK.27,
pp. 100-103), a paper dated 14
February 1946 which he sent to Waley. For our purposes it is
instructive to note two points concerning this paper:
(i) The relief
problem is regarded as one which should be for discussion between the U.S. and Britain
(ii) The relief
problem is discussed from the point of view of how Britain
As it
turned out, UNRRA’s liquidation was determined in August 1946 (the dissolution
was made in 1949).29
8. The Strain of
British Interests
We have already seen that an element of the
British interests are clearly discernible in Keynes’s thinking on the relief
problem. It is even more conspicuous in his letter to Eady of 3 January 1945 on “UNRRA and
British Liberated
Territories in the Far
East ” (JMK.27, pp.
93-95). Here Keynes rejects the idea that Britain
should get loans from the U.S.
in order to reconstruct the Crown Colonies in the Far East ,
on the grounds that there would be a great danger that the Americans would
demand, in reward, that the Colonies be put into trusteeship:
I
particularly dislike the idea of having to borrow from the U.S. Government for
the purpose of rehabilitation in Burma
Keynes’s overriding concern here is plainly
maintenance of the Empire. Provision of relief to the Colonies must be the
responsibility of the British Empire , which
ought not to let other countries interfere. Unless UNRRA relief, which would be
included in “general requirements”, can be obtained, Britain Britain India
in the case of Burma , and Hong
Kong in the case of Malaya ) should
contribute. We cannot carry all these burdens unaided, and it will only lead in
the end to humiliation if we try to. The balances of the Crown Colonies are so
colossal that we ought to seek some contribution from them. The most seemly way
of doing this would be to get them to make a fairly handsome contribution to
the needs of their less fortunate brethren.30
No effort must be spared in finding a
solution to the problem of relief and reconstruction of the British Colonies in
the Far East within the British Empire . ― Here we see
Keynes, with his passionate commitment to the British Empire31,
struggling to protect the vested interests of a weakened Britain from the
ambitions of an unprecedentedly powerful United States.32
Keynes took the maintenance of the British Empire for granted. We have no evidence that
Keynes criticized the British Empire or, more
generally, Imperialism33 as a
political system somehow or other. In that sense he was an imperialist. We
might say that Keynes stands on the same line as James Mill did.
9. Conclusion
You
might raise the following question: to what extent was Keynes a nationalist, an
internationalist, and an imperialist? This is no simple question, and to some
extent it has to do with the position of the UK US
In terms of economic performances the US had already been much bigger than the UK UK UK US UK
The development of Keynes’s stance on the post-war
relief problem followed a convoluted course.
(i) When he
first put forward the CRRF Plan, there was manifestly broad agreement between
himself, Leith-Ross, and the U.S. Government.
(ii) Around
February of 1942, however, Keynes’s thinking altered considerably. He now
perceived the necessity of a change of tack36, foreseeing that Britain ’s post-war balance of trade situation
would be likely to be grim, and Britain Britain
(iii) Keynes’s next move was to put forward a
compromise plan which maintained
the pragmatic approach to Lend-Lease whilst
also retaining a degree of internationalism
in the form of the role assigned to the Combined Boards. This, after some
revision, became the official plan of the Treasury.
(iv) From around the end of 1943 on, however,
the relief problem was to be posed and addressed under the leadership of Harry
White of the United States
Keynes
occupied a powerful position in the United Kingdom British Empire his authority and
influence stood secure. On the wider, international front, however, he
repeatedly suffered setbacks in seeing his aims realized. With Britain militarily and economically exhausted,
and the US
Thus on the
one hand Keynes witnessed the success of his ‘New Liberalism’ – the mid-way path between liberalism and socialism37 ― and his employment
policy through the General
Theory,
while on the other he
saw the virtual demise of the British Empire. It was in his last testimony
immediately before his death that Keynes pointed out the danger the United Kingdom risked in assuming the
benevolence of the Big Powers in “Political and Military Expenditure Overseas”38,
but expressed strong confidence in the international competitiveness of British
industries in “Random Reflections from a Visit to USA
The
following two are, respectively, what occurred after Keynes’s death and a “if”
story.
(v) In the end, it was under the Marshall
Plan (the “European Recovery Program”), which took effect in 1948, that relief (and
reconstruction) was carried out. Loans were systematically allocated by the Economic
Cooperation Administration (ECA) of the U.S. through the Organization for
European Economic Cooperation (OEEC).40 In the US-occupied
territories, GARIOA-EROA was set up on the basis of American loans.41
Roused from complacency by the onset of the Cold War, the U.S., which even in
the immediate post-war period had been extremely reluctant to get involved in
European affairs, became ─ well aware of the role it was taking on ─ the leader
of the West ─ in
the new international order from 1949 on. The world, in which Britain Britain
(vi) How would
Keynes have acted if he had lived longer to see the development of the Marshall
Plan? In a word, the Marshall Plan, which made a great contribution to the path
leading up to EU42, might be regarded as an amalgamation of Keynes’s
idea expressed in his Economic
Consequences of the Peace (see Section 1 (1)) and CRRF. He would probably
have endorsed the Marshall Plan, the principal architects of which were Clayton
and Acheson, who were in good relation with Keynes, and led the planning and
management of OEEC (remember that it was Bevin, Foreign Secretary of the Attlee
Government, UK, who led the initiative on the European side). This seems
clear-cut.
What remains uncertain, however, is how he
would have dealt with the other aspect – the position of the UK UK ,
the emergence of the two hegemons (USA
and USSR ), the Suez Crisis –
into consideration, he could not have done anything to prevent the British Empire from disintegration such as was to be seen
in the Macmillan Government. Confronting this situation together with de Gaulle’s
opposition of the UK
The
paper ends by saying that: if seen from the world politics, Keynes is a
designer for the international order as well as a defender of the British
Empire; if seen from social philosophy, he is a champion of the “New Liberalism”
43; if seen as an individual, he is a Moorean and a member of the Bloomsbury culture.
Notes
1) Moggridge (1992, p. 636).
2) Moggridge (1992, p. 638).
3) President Truman announced the immediate
termination of Lend Lease on 17 August. The principal negotiator leading up to
the Anglo-American Financial Agreement was William Clayton, Undersecretary of
Economic Affairs at the State Department, for which see JMK.24, Ch.4, “The Loan Negotiations”. Clayton, who was to be the “intellectual architect of the [Marshall
4) See Hirai (2000,
Chapter 5).
5) See Hirai (2003, Appendix 2).
6) See Hirai (2003, Appendix 3).
7) Leith-Ross visited Japan
in 1935 in order to persuade the Japanese government to be cooperative in relation
to an aid problem to China Tsushima (1962, pp.252-257).
8)
The International Wheat Agreement was concluded in 1949. This was to be
superseded by the Wheat Trade Articles of the International Grain Agreement
concluded in 1967.
9) It
should be noted that Acheson together with Clayton was to be a principal
architect of the Marshall Plan, as is seen in his famous address of 1947 in
Cleveland insisting that “a coordinated European economy … was a fundamental
objective” (from Behrman, 2007, p.58).
10) See Hirai (2000,
Section 1 of Chapter 5).
11)
In his contributions to the formation of the post-war world, Keynes
persistently endeavored to create circumstances which would allow Britain U.S. U.K. in many negotiations
with the U.S. , including
those on the Anglo-American Mutual Aid Agreement of February 1942 and on the
international monetary system, Keynes constantly took pains to secure Britain
12) In contrast to the relief problem, in
which supplying countries can be clearly separated from receiving countries, in
the case of the commodity problem it is possible to maintain an
internationalist standpoint, irrespective of a change in the situation of one’s
own country, without serious sacrifice, because the aim there is no more than
the stabilization of commodity prices.
13) The term “relief” is used to cover a
period of six months to one year immediately after the end of the war, while “reconstruction”
refers to a longer period of three to five years.
14) If we accept the intention Keynes
expresses here at face value, then it is difficult to understand subsequent
developments. For, as shown later, he came to reject this plan when Britain
15) In his letter to Waley of 19 September
1941, Keynes disagrees with Leith-Ross, saying: “The worst and most muddled and
most expensive and most inefficient solution would be to allow ourselves to be
tackled by each commodity and each Ally separately without any picture of the
whole scene, with Sir Frederick Leith-Ross busy and insistent to give away as
much as possible and to make sure that our contribution shall be as large and
the contribution of others as small as he can maneuver to make them” (JMK.27, p. 45).
16) The main reason for this change is that
the forecast that Britain Britain
17) According to the Lend-Lease Act (March
1941), the U.S. U.S. would ask the UK UK
The Lend-Lease was later extended to other
countries, including the Soviet Union . The British Empire received 30 billion dollars (65 percent:
munitions; 10 percent: shipping; 25 percent: food and a wide range of goods.
See Sayers, 1956, p. 546), of which only 6 billion dollars were repaid. During
the period from 1941 to the first half of 1945 the British Empire got munitions
worth 20.7 billion dollars from the United States
18) In January 1942 Canada agreed to provide the United Kingdom
19) Evidently, Keynes rejected the CRRF Plan
on the grounds that it would deprive Britain
20) “It would mean that we might be deprived
of supplies necessary for exports just at the moment when the development of
exports is essential to our national life” (JMK.27,
p. 69).
21) Wood, K. (Chancellor of the Exchequer.)
Post-War Relief Policy, 2 June 1942 (No.87, Department of Economics Library, Univ. of Tokyo Dalton
22) “I speak of a confusion of mind because it entirely ignores the special problems of a country like ourselves which, unless it is to go on living permanently on charity, must develop its exports. The principle suggested would mean that we could have no raw materials for export trade until, e.g.,Poland
22) “I speak of a confusion of mind because it entirely ignores the special problems of a country like ourselves which, unless it is to go on living permanently on charity, must develop its exports. The principle suggested would mean that we could have no raw materials for export trade until, e.g.,
23) See JMK.27,
p. 78.
24) This was set up by Britain and the United States Britain
and the United States alone concerned
Canada
25) White is too famous for the main
architect of IMF. For his activities in the 1930s at Harvard see Laidler and
Sandilands (2002).
26) “The
really right thing to do is to liquidate UNRRA and thus release our
contribution to them, which in spite of its size, looks most unlikely to pull
its weight. So far UNRRA is the world’s greatest flop, and I see little
likelihood of its recovering” (JMK.27,
pp. 94-95).
27) “The whole of the above” suggests twelve
items with which the relief problem was faced. These are listed under Keynes’s
assessments:
I. Items for which UNRRA does nothing:
(a) Items
utterly unresolved: (1) Relief in Germany; (2) Relief in Austria; (3) Relief in
Italy after the end of the military period; (4) Relief in Italy after the
exhaustion of the present limit of the amount for the military period; and (6)
The Balkans during the military period after the limit has been reached.
(b) Item which
has been out of UNRRA’s control because its purpose was suspected to be
policing of the countries concerned: (5) The paying Western Allies.
(c) Item which
UNRRA is not asked to undertake: (9) Relief in liberated British territories in
the Far East .
(d)
Item still in the future: (10) Relief in other Far eastern territories
.
II. Items which UNRRA either undertakes or is
committed to undertake:
(a) Item which UNRRA undertakes to a degree,
but not so satisfactorily: (11) Refugees and displaced persons.
(b) Item which UNRRA undertakes in theory:
(12) Sanitation and health services.
(c) Item which
UNRRA is committed to undertake: (7) The Balkans after the military period.
(d) Item for
which UNRRA is expected to do something: (8) Relief in Poland
28) “The next step in the argument would be
to limit narrowly the list of countries which look likely to be fairly strong
candidates for post-UNRRA relief. I think most of us agree that these are Italy , Austria
and Greece
29)
UNRRA was headed by a Director-General, and governed by a Council which is
composed of all states and a Central Committee which is composed of the US , UK ,
China and the USSR Russia ’s
influences on the eastern and central Europe
(see Behrman, 2007, p.51). Its functions were transferred to United Nations
institutes such as the International Refugee Organization, the UNICEF.
30) See JMK.27,
p. 94.
31) Skidelsky (1983, p. 91) states that “throughout
his [Keynes’s] life he assumed the Empire as a fact of life and never showed
the slightest interest in discarding it. ... He never much deviated from the
view that ... it was better to have Englishmen running the world than
foreigners”.
32) This is also seen in “Overseas Financial
Policy in Stage III” (May 1945. JMK.24,
pp.256-295) in which he appeals to how “in [loan] negotiation [with the USA the UK
33) In passing, item ‘Imperialism’ cannot be
found in JMK.XXX.
34) Imperialism has two facets. There is the will
to expand territorial boundaries as much as possible and there is the will to
defend the territory once occupied. If Keynes was indeed an imperialist, it was
in the latter respect (as, so to speak, a “defensive imperialist”). In the
interwar years, albeit with weakened position, the British
Empire remained the dominant player in world politics.
35) His stance on the Munich Agreement (September
1938) vividly shows this feature as well. See “A Positive Peace Programme” (The New Statesman and Nation, 25 March
1938) in which setting-up of “European League” is advocated (JMK.28, p.100) and “Mr Chamberlain’s
Foreign Policy” (The New Statesman and
Nation, 8 October 1938) in which he refers to “[t]he attraction of this politik
to ourselves is obvious. Our sea-power and our overseas Empire remain for the
present unchallenged …”(JMK.28,
p.126).
36)
The outbreak of the Pacific War, and the occupation of Southeast Asia by Japan Britain ’s colonies in Southeast
Asia fell to the Japanese Army. The U.S.
declared itself at war with Japan
37) He
advocated “New Liberalism”. However, his political activities took a convoluted
path, reflecting the political situation then reigning in the UK
38) JMK.27, pp. 465-481.
39) JMK.27, pp. 482-487.
40) The
law concerned is Foreign Assistance Act of 1948. The total sum of aid to the
OEEC composed of 15 countries amounted to 13 billion dollars, 89 percent of
which was gratis. Although it ended in 1951, it was the starting point of the
long road which led eventually to the European Union.
41) The total sum of aid from 1946 to 1951
reached 1800 million dollars. 1300 million dollars was gratis, and 500 was
repaid.
42)
It seems unfair to regard the Marshall Plan as the victory of capitalism over
communism, for the Marshall Plan itself was based on elaborate planning, not
leaving everything to the free working of the market and the free activities of
enterprises. It is true that the Marshall Plan was willing to give room for the
market and enterprises, but it was subject to the great international design.
43) Let
us see Keynes’s contemporaries in terms of politics and social philosophy.
Hawtrey disliked and criticized Imperialism from an ethical point of view,
saying that it stands on the “false ends”. His unpublished book, Right Policy, deals with Imperialism in
various places. The key concept with regard to the world to Hawtrey is “Balance
of Powers”. The world in which there exist independent states should be called
a kind of “International Anarchy”, which cannot bring about the peace. He emphasized
the importance of “Peace Coexistence” through the concert of Great Powers
(cf.p.522). Leonard Woolf, who held an idea of the international government for
the Labour Party, criticized Imperialism. “In many ways [Leonard] assumed
Hobson’s mantle as Britain ’s
foremost anti-imperialist theorist” (Wilson
It
should be noted, however, that as far as social philosophy is concerned the
four distinguished economists in the Cambridge School — Keynes, Pigou,
Robertson and Hawtrey — are rather close, for all of them were critical of
capitalistic society as it stands, and felt the necessity of rectifying it.
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