In another year’s time we shall have forfeited the claim we had staked out in the New World and in exchange this country will be mortgaged to America.’ It seemed certain that the USA would supersede the British Empire in the world order. ‘Well, the only course open to me is to be buoyantly bolshevik; and as I lie in bed in the morning I reflect with a good deal of satisfaction that, because our rulers are as incompetent as they are mad and wicked, one particular era of a particular kind of civilisation is very nearly over.’ A few months later into 1918 he remained unwontedly gloomy about prospects. The Americans, he thought, were set on reducing Britain ‘to a position of complete financial helplessness and dependence in which the call loan is a noose around our necks.’36
Alarms about German military advances in the spring of 1918 yielded to burgeoning Allied confidence in the approaching defeat of Germany. In a memorandum dated 31 October 1918 Keynes argued that in seeking war reparations from Germany, the Allies must assess Germany’s capacity to pay, and must not destroy Germany’s productive power. Germany needed to earn foreign currency by exports if it was to pay reparations, and could not export if its factories were unproductive. Keynes’s paper was the basis for the Treasury memorandum of 26 November 1918 which offered the preliminary figure of £4,000 million as the Allies’ claim for reparations, calculated that Germany could not afford to pay more than £3,000 million and, on the basis of Germany’s expected post-war export surplus, judged that £2,000 million would represent a satisfactory achievement in the circumstances. It reiterated that if Germany was to make satisfactory reparations, it must not be impoverished. Yet there was a regiment of ‘trade warriors’ – Dudley Docker’s Federation of British Industries (founded in 1916), the protectionists and the jingos – who wanted to disable the German manufacturing economy and leave the way unchallenged for English exporters. They resembled the hard-liners who supported the Morgenthau plan to dismantle German industry in 1944–5.
As a ploy to win votes in the general election called for 14 December 1918, Lloyd George appointed a committee to investigate the level of war reparations to be extracted from Germany. The committee was chaired by the Australian Prime Minister, Billy Hughes, who preened himself in the part of an audacious colonial teaching sense to starchy Europeans. It reported on 10 December that the war had cost the Allies £24,000 million (six times Keynes’s provisional estimate), which Germany had the power to repay in annual instalments of £1,200 million. Hughes and Cunliffe, together with a judge, Lord Sumner, were selected to represent Britain on the Reparations Commission at the Paris Peace Conference: Keynes and the Treasury were excluded; and Cunliffe with Sumner confronted the Germans with exigent and swollen demands. Sumner was the most eloquent law lord of his day, famed for his cynical epigrams and acidulous sallies: Asquith had considered appointing him Lord Chancellor in a Liberal Cabinet as recently as 1915, for he had once been a radical, but by 1919 he was a last-ditch reactionary who kept to his brief and belaboured the German defendants. Keynes likened him to a vulture, and Cunliffe to a pig.37
At the general election of 1918 the most eminent Liberal leaders, namely Asquith, McKenna, Runciman, Sir John Simon and Sir Herbert Samuel, were defeated by a gaggle of unmemorable mediocrities. Lloyd George remained Prime Minister at the head of a coalition of Conservatives and his pick of Liberal candidates who held loyal to him. The rump of Asquith’s supporters were derided as ‘the old gang’ in the gutter press, were reviled in the London clubs, cursed in the pubs, insulted in caricatures. Yet the electoral paroxysm that yelled for the Kaiser to be hanged, the obliteration of German prosperity and the humiliation of the Liberal leaders who had resisted conscription was already spent by April 1919, when the pro-Asquith Liberal candidate, Joseph Kenworthy, beat the coalition Conservative nominee, Lord Eustace Percy, in the Central Hull by-election.
Keynes was sitting in Chalmers’s room in the Treasury drinking tea on the first day of the new Parliament while members were taking their seats. When Stanley Baldwin, the Financial Secretary to the Treasury, who had the next room to Chalmers, looked in from the doorway, Keynes asked of the new MPs, ‘What do they look like?’ Baldwin replied, with the phrase that Keynes made immortal by quoting it in his best-known book, The Economic Consequences of the Peace, ‘A lot of hard-faced men who look as if they have done well out of the war.’ Keynes annoyed R. B. McCallum, the Oxford election analyst and biographer of Asquith, by publicizing Baldwin’s quip. McCallum, in his pioneering study Public Opinion and the Last Peace (1944), writing as a Scotsman, condemned Economic Consequences as ‘characteristically English in that lack of emotional balance which made it so very fair to our enemies and so harsh to our allies’. This quotation of Baldwin by Keynes insinuated that ‘a new class of men had entered parliament, predatory capitalists, who made the peace with an eye to their own gain’, McCallum thought, and it resounded through the century biasing ‘generations of self-righteous young people’. In fact, as he showed, the MPs crying for vengeful punishing of Germany were Brigadier Henry Page-Croft, Colonel Walter Guinness, Colonel Claude Lowther, Colonel John Gretton, Colonel Burn (soon to transmogrify himself into Sir Charles Forbes-Leith of Fyvie), Major the Earl Winterton and the less martial Ronald McNeill.* It was not war profiteers who most wanted Germany to be powerless, dismembered and discounted from the European balance of power, but die-hard militarists.38
The armistice agreed with Germany on 11 November 1918 had been concluded by the Allies’ naval and military representatives without consulting any civilian authorities. This made Marshal Foch the sole arbiter, untrammelled by military representatives of other Allies, of all negotiations with Germany involving the Blockade, the occupation of enemy territory and numerous financial questions. All negotiations involving ships and seas were, in Keynes’s words, ‘equally the uncriticised prerogative of the British Admiralty, represented by Admiral Browning, a most surly and ignorant sea-dog with a real and large hook instead of a hand, in the highest nautical tradition, with no idea in his head but the extirpation and further humiliation of a despised and defeated enemy’. The November armistice, which had been of only a month’s duration, was renewed for a further month in December 1918 – with supplementary economic provisions imposed by French and Belgian financial representatives without American or English cognizance.39
Keynes was the principal Treasury representative at the Paris Peace Conference from January until June 1919. He installed himself with other British officials at the Hôtel Majestic on 10 January. ‘No-one yet knew what the Conference was doing,’ he recalled.
But the peculiar atmosphere and routine of the Majestic were already compounded and established, the typists drank their tea in the lounge, the dining-room diners had distinguished themselves from the restaurant diners, the security officers from Scotland Yard burnt such of the waste paper as the French charwomen had no use of, much factitious work circulated in red boxes, and the feverish, persistent and boring gossip of that hellish place had already developed in full measure the peculiar flavour of smallness, cynicism, self-importance and bored excitement that it was never to lose.40
One of the Englishmen whom Keynes met at the Majestic was an elderly Apostle called Lord Moulton. Moulton was both a judge and Director-General of Explosives Supplies at the Ministry of Munitions. In addition to high explosives his department had charge of manufacturing poison gas, and controlled the country’s gas-works, coke ovens and oil supplies. After the Armistice he became the first chairman of the British Dyestuffs Corporation, a newly formed combine of trade warriors, with government nominees among the directors, created to seize international trade from the dominant German chemical conglomerates, which before the war had been exporting 80 per cent of their output of synthetic dyestuffs. ‘Moulton was visiting the Hôtel Majestic to promote a scheme by which German dyes might be secured and held off the market, to the advantage of the British Dye interests, but at the expense of the British Treasury,’ as Keynes told the Apostles two years later, following the law lord’s death. Knowing that Moulton wished to meet him, as the Treasury
