The Royal Economic Society has this year published the first eight of a projected twenty-four-volume series of The Collected Writings of John Maynard Keynes. Six of them are already in print or in library; the other two, edited by Elizabeth Johnson, contain a great deal of hitherto unpublished material on Keynes's activities from his graduation from Cambridge until his resignation from the Treasury in 1919. These two volumes throw a great deal of light both on the character, personality, and intellectual development of Keynes, and on the nature of economics as conceived and utilized, in both the academic world and in government, in the period up to and including the First World War. But I have no time to discuss these interesting matters.

It is tempting, in a very brief review of Keynes's early economics such as this, to attempt to discover in that early work the seeds of The General Theory. In the context of 1971, however, it seems to me far more interesting to look into his earlier work for signs of the evolution of thought that led up to Bretton Woods, the Keynes plan, and the establishment of the International Monetary Fund. These signs are to be found in the two major incidents with which these books are concerned: his work on Indian currency and finance, culminating in his brilliant feat of persuading the Royal Commission to change its conclusions on a crucial issue in international monetary management; and the views on international financial relationships in the broad sense that led him to write The Economic Consequences of the Peace.

The Indian currency problem, as Keynes first encountered it, was very briefly as follows. In 1892, the government had decided in favor of a gold rather than a silver or bimetallic standard, and had accordingly closed the mints to the minting of silver rupees and rupee notes as a token currency. The minting of silver rupees involved a substantial seigniorage profit for the government but required the maintenance of a reserve of silver and gold coins for exchange against inflows of domestic notes or of money from abroad. But gold was the standard, and maintaining the standard required two things: maintenance of a gold reserve in India and maintenance of a reserve of liquid sterling assets in London. The central problem for policy was that those who had favored, and still supported, the adoption of a gold rather than a silver standard believed that a gold standard required the actual circulation of gold coins and wanted reforms designed to promote the use and circulation of gold coins in India.

Keynes's main contributions to the debate at this stage were to advocate a gold exchange standard with a token silver coin circulation and to assert both that the existing Indian currency system was a gold exchange standard and that, in line with the evolution of the gold standard elsewhere, it should become more so, rather than being forced to move toward a full-bodied gold standard. Notable among his arguments in this connection were that gold coins in actual circulation are the part of the total currency least available to the monetary authorities in times of difficulty, so that centralization of the gold reserves in the hands of the authorities is the optimal policy; that gold in circulation loses the monetary authority the seigniorage on the fiduciary issue it replaces; that the revenue obtainable by investing international reserves in liquid sterling assets rather than barren gold was a significant consideration for India; and that it was inefficient to handle payments imbalances by actual physical movement of gold to and from India rather than by transfers of funds in London. In all these respects, Keynes's arguments foreshadow the structure of the post-Bretton Woods international monetary system, in which gold remains the reserve anchor of the system but the cost of holding it is reduced so far as possible by the substitution for it of interest-bearing credit instruments.

A financial scandal and a series of articles in The Times led to the establishment of the Royal Commission on Indian Finance and Currency, of which Keynes was nominated a member. Though he was the youngest member of the commission, it is quite clear from both his questioning and the acceptance of most of his arguments that, apart from Lionel Abrahams of the India Office, he was the only person involved on either side of the hearings who understood the monetary issues involved in the Indian currency system.

One of his most important contributions was a lengthy memorandum on an Indian State Bank [The Collected Writings of John Maynard Keynes, Vol. 15, Activities: India and Cambridge, 1906-14, pp. 148-211], eventually published as a separate section of the commission's Report, remarkable, in view of the short space of time which Keynes had to prepare it, for its exhaustive treatment of constitutional and operational issues and its command of relevant experience in other countries. His main concern was with establishing an economical currency system that would not tie up an excessive amount of resources in barren reserves. Yet it is interesting, in view of the emphasis in recent years on the need for developing countries to economize on international reserves and use expansion of the domestic money supply to finance economic development, on the basis of essentially Keynesian theory, to observe that Keynes the academic was roundly criticized by Abrahams the bureaucrat for his excessively conservative unwillingness to allow the resources accruing from seigniorage on the coinage and the expansion of the fiduciary issue to finance Indian industrialization (Vol. 15, pp. 214-15).

Later in the proceedings of the commission, Keynes was able to throw his weight successfully against those who wanted to expand the circulation of gold coin in India and to write into the Report many of the arguments contained in his book on Indian Currency and Finance. His major contribution to the Report, however, was made in the penultimate stages of drafting it, when he was laid low in Mentone with diphtheria, and his colleagues through half-understanding of his views arrived at a draft that would have made it impossible to provide an elastic currency and have accentuated the commitment of the resources backing the Indian money supply to sterile investments in reserves. The story is a complex one, both economically and diplomatically, and can only be understood by a careful reading of the editor's connecting text (Vol. 15, pp. 237-65); and Keynes won his point largely because it could be met by two very simple changes of wording, the import of which his fellow commissioners were presumably incapable of understanding.

The key issue, in very simple terms, was whether the fiduciary circulation of twenty crores of rupees to be permitted against the paper currency circulation should be a maximum, or whether the normal reserve of forty crores of rupees should be considered a minimum; and in the latter case, whether the minimum reserve ratio of one-third should apply to the note circulation gross or net of the government's own holdings of currency. By inducing the commission to settle for a minimum normal absolute cash reserve rather than a maximum fiduciary issue, and application of the reserve ratio to the net circulation of notes, Keynes freed the hands of the Indian monetary managers to provide an elastic supply of credit through the lending out of seasonally surplus cash and to invest money holdings above the normal at their discretion in domestic or foreign earning assets. The final Report thus came out against a rigid gold-circulation or proportional-gold-reserve standard, and in favor of a much more economical and flexible minimum-absolute-reserve standard, or more briefly an intelligent gold-exchange standard. (Unfortunately, the outbreak of the First World War led to the shelving of the Report, and India did not get a central bank until 1935.)

Keynes's activities in the period of approaching and initiated war, August-December 1914 [The Collected Writings of John Maynard Keynes, Vol. 16, Activities: The Treasury and Versailles, 1914-19, pp. 3-72], present him in a not altogether attractive light as a young man anxious to obtain an important job in wartime economic management and not too scrupulous about taking sides with the Treasury and the Bank of England against the commercial banks and the City of London to further his ambitions. He surged forward with a memorandum and subsequent articles and correspondence against the proposal of the joint stock banks to suspend gold convertibility of sterling, arguing correctly (and consistently with his earlier ideas on Indian finance) that the purpose of reserve holding is external and for use in emergencies and that the proper policy was to replace the internal gold circulation by notes; and he was cock-a-hoop about Lloyd George's taking his point that suspension of the Bank Act with respect to the maximum on the fiduciary issue was not equivalent to suspension of gold convertibility but instead a means of strengthening the ability to maintain convertibility.

Subsequently, he busied himself in preparation for the hoped-for Treasury appointment in studies of the initial wartime financial arrangements of Germany, France, Russia, and other allied countries. A major theme of these studies, which recurs persistently in his later work for the Treasury on problems of interallied finance, is the irrationality of the approach of other countries to the domestic position and international use of gold. Gold was the focal point of all the problems of interallied finance with which Keynes was concerned during this period, through the American entry into the war and the peace treaty negotiations; and there are some interesting though not very direct parallels between Keynes's efforts to induce the Americans to understand the reserve currency position of sterling in that period and recent American efforts to induce the Europeans to understand the reserve currency position of the dollar. There can be no doubt that Keynes's prolonged grappling with the role of gold in the context of interallied finance in the First World War stripped his mind of any lingering remnants of the prewar mystique of gold, drove home to him the importance of proper management of international credits, and laid the foundations for his bold and brilliant proposal of the "bancor" system as the basis for post-World War II international monetary reconstruction. At the same time, he remained thoroughly persuaded of the necessity of maintaining the convertibility of sterling into gold at a fixed parity—some of his arguments for specie now appear rather specious (Vol. 16, pp. 9-10)—and the ideas he formed in relation to Britain's special position among the allies as the only reserve currency country undoubtedly influenced the details of his "bancor" plan—though by that time his experience of the adverse effects on British employment of an overvalued currency in the 1920's had converted him to the concept of the "adjustable peg."

Keynes's early work at the Treasury was hectic, heady,

and highly varied, involving not only his main concern of interallied finance but also other issues such as inflation—contemporary Keynesian antimonetarists would be well advised to read his memorandum on "The Relation of Currency Inflation to Prices" (Vol. 16, pp. 76-78)—and an artful deal, rather tactfully glossed over by the editor, to relieve the Government of India, to the benefit of the British consumer, of the surplus of Indian wheat created by that Government's desire to prevent inflation of Indian food prices by embargoing the export of wheat at a world price far above the domestic Indian price.

In 1915-16, Keynes became involved in the general issue of wartime economic management, which happened to focus on the issue of conscription—an issue on which his personal concern about his conscientious objector friends of Bloomsbury joined hands rather uncomfortably with his views on the economics of the situation. Briefly, his position was that, unless Britain could drastically cut home consumption by increased taxation of the middle and lower classes, it had to choose between continuing to support its allies with munitions and material, and fielding a larger army of its own (Vol. 16, pp. 110-25 and 157-61); and he argued, rather emotionally but correctly in the light of subsequent history, that the former course represented the best course for beating Germany. (It would also have eased the problems of the peace treaty negotiations, which were intimately associated with the fact that Britain in effect supplied her allies with American goods financed by British debts to the United States.)

This piercing through of the veil of money and finance to the underlying real economics of the allocation of output and specifically of labor resources has generally been held to be the great contribution of "Keynesian economics" to financial management in the Second World War; hence it is important to note both that Keynes had arrived at this approach already in the early stages of the First World War, and that its application requires none of the novelties of The General Theory—Keynes was able to handle the monetary aspects of the approach quite satisfactorily with elementary quantity theory, including the concept of "hoarding." (The concept of the inflation tax appears in Vol. 16, p. 127.)

In February 1917, Keynes was made head of a new division of the Treasury, charged with responsibility for all questions of external finance, which in practice meant financial relations with the Americans. The details, which are hauntingly reminiscent of the same relations after the United States entered the Second World War, deserve only a brief comment here. Keynes encountered the same three major problems as recurred on the later occasion—difficulty in effecting firm bargains with administration officials who had ultimately to wangle their bargains through a suspicious Congress, difficulty in winning U.S. understanding of the allied-war-finance implications of Britain's reserve-currency role, which centered on getting U.S. acceptance of the use of American loans to other allies to repay their loans from Britain, and the refusal of American opinion to allow American aid to be spent on goods from non-U.S. sources—and his haughtiness and impatience toward the Americans, which sometimes had to be restrained by his official and political seniors, gave him a reputation for rudeness that made him less effective than he might have been.

After the Armistice, Keynes became concerned with the question of reparations, and subsequently with the negotiation of the Peace Treaty. The "Memorandum By The Treasury on The Indemnity Payable by The Enemy Powers for Reparation and Other Claims" (Vol. 16, pp. 344-83), which he prepared, is a masterpiece of applied economic analysis, assessing both the claims that the allies might make for specific war damage and Germany's capacity to pay, finding the latter less than the former but in a comparable range of magnitude, and recommending quick rather than protracted payment, in the awareness that in the latter case Germany would have to build up her exports at the expense of Britain's traditional industries. A more important consideration, which dominated Keynes's reaction to the Peace Conference, was that no sovereign country had ever been or could be forced into a position of abject economic servitude for a substantial period of years.

Keynes attended the Peace Conference in Paris as the senior Treasury member of the British delegation and the official representative of the British Empire on the Supreme Economic Council, and eventually resigned in disgust at the terms of the resulting treaty. Much of his writing at that time is cannibalized in his Tbe Economic Consequences of the Peace, and needs no summary here. What stands out from the record (Vol. 16, Ch. 5) is his desperate humane effort to get Europe and especially the defeated enemies started on the path to reconstruction in the face of the wildly unrealistic demands of the European allies for massive reparations and the growing incomprehension of and hostility toward these allies of the United States, which then as in the Second World War, in accordance with the anti-European and sport-oriented psychology of America, showed more love for the defeated opponent than for its own seconds in the ring. Keynes tried increasingly frantically to clear the financial problems of war debts and reparations out of the way of the relief of German and Austrian misery, first by a proposal to cancel out war debts (which for a time was an official British proposal) and then by a proposal for a joint guarantee of reparation bonds to be issued by Germany, only to be met by a U.S. refusal to recognize the problem or consider the proposed solution. The mood in which he resigned is illustrated by two letters both of which begin with the statement "on Saturday I am slipping away from this scene of nightmare. I can do no more good here" (Vol. 16, pp. 469 and 471).

What does all this tell us, in the way of suggestion about the formative experiences that helped to lead Keynes up to his major role in the establishment of the International Monetary Fund system? Very little of specific substance, it must be confessed, apart from the fundamental idea that monetary and financial institutions and arrangements should be designed to promote the prosperity and progress of the people, and the belief that it is worth the while of an intelligent and knowledgeable man who has the opportunity to influence decisions to hand on and to keep proposing potentially negotiable plans so long as there is any hope of circumventing the blind unreasoning stupidity of the politicians. One might go further, stretching a point, and see in Keynes's concern for the milk-starved children of Austria the seeds of his later concern for establishing an international monetary system that would preserve and guarantee the priority of domestic full employment over the potentially hideous discipline of external balance, which was the original intention of his "bancor" proposal, however far the International Monetary Fund system in practice has drifted from that intention. But Keynes's concern in this period was with the problem of an impossible war-created structure of international debts and claims within a fixed-exchange-rate system rather than with the international monetary system itself. Later in 1919, he participated in a conference of bankers and others in Amsterdam, which among other things discussed the possibility of a new international currency; but that story is reserved for a subsequent volume in the Collected Writings.