John Maynard Keynes: the economist as investor* (original) (raw)

2018, Review of Keynesian Economics

Keynes the investor has recently attracted the attention of several scholars and quite a few articles have come out in the last five years. A description of Keynes's dealings has emerged, assessing his performance as an investor as superior but not as stellar as had previously been believed. However, overall evaluation of Keynes's performance is still lacking. This paper contributes to this growing literature by filling some of the gaps, especially in relation to Keynes's investment philosophy and economic theory, and by undertaking a more comprehensive review of the available evidence, drawing on some unpublished sources which have not as yet been fully exploited. Keynes started up as an occasional investor in the stock market when he was very young. After 1919, thanks to the proceeds of the best-selling The Economic Consequences of the Peace, his dealings grew in magnitude as well as scope. Currency speculation became the main business for a while, leading to a serious loss in 1920, which Keynes had already recuperated by 1922, thanks to the revenues coming from speculation in commodities (metals and cotton) and some still unsystematic forays in securities. Meanwhile, investment had become his main source of income. The data on income by source reported by Moggridge (CWK XII: 12, Table 4) show that commodity speculation took the lion's share during the 1920sa pattern that probably began to change when Keynes's second major setback came in 1928, and then in the wake of the 1929 crash. Even though Keynes went on trading commodities until the closure of these markets in 1939, early in the 1930s he shifted to equities, his main sources of income being capital gains and dividends. Connected to this is Keynes's exposure on the American stock market, which shows up in the 1920s data and then in 1932-3, before taking on substantial proportions as from 1934. Keynes continued to invest until the time of his death in 1946, building up a conspicuous fortune over a period of about a quarter of a century. Parallel to his personal investment activities, there was an intense career as institutional investor. Keynes became director of the National Mutual Life Insurance Company in 1919, and then chairman in 1921, a post he retained until October 1938. He joined the board of the Provincial Insurance Company in 1923, lessening his involvement in the board only when he joined the Treasury in 1940. Keynes also entered on the Boards of a group of investment trusts founded by O.T. Falk, a former colleague of Keynes at the Treasury. He was a director of the Independent Investment Company (1923-46), the A.D. Investment Trust (1921-27) and the P.R. Finance Company (1924-36, Chairman 1932-36). In addition to these investment companies, there was the Syndicate that Keynes and Falk created for their speculation in foreign exchange, and into which they channelled additional money from friends and relatives (CWK XII: 1, 3-5, 30-5). In 1921, Keynes became Second Bursar of King's College, Cambridge, and then First Bursar in 1924, a post he retained until the end of his life. Keynes the investor has not been investigated as much as other aspects of his life and work, especially because of the nature of the sources; in his papers there are many files of ledgers, correspondence with brokers, consultants and accounts which are not always easy to decipher and make use of. Moreover, reconstructing the working of the financial markets in the inter wars period would require a full knowledge of data (asset prices, derivatives, commissions, institutional arrangements) which are not always available. Notwithstanding these difficulties, Keynes the investor has recently attracted the attention of several scholars and quite a few articles have come out in the last five years (