Would Keynes have invested his money in Bitcoin?


John Maynard Keynes was the greatest economist of the twentieth century. What is less well known is that he had a parallel career as investor: quite successful at the start of his career and spectacularly successful later when he changed his strategy.

After the First World War, his income depended more on his investments than on his academic work.

In addition to his personal investments, he managed the investments of King’s College Cambridge, of which he was a member.

Under his leadership, the value of the King’s College fund increased twelve times over a period in which the larger markets have not even doubled.

It has been said that Keynes achieved these high returns by not spending a half hour every morning to the task before getting out of bed.

Keynes cited with approval to his friends a line of Volpone, a classic poem:

“I pride myself more on the clever purchase of my wealth than on the happy possession”

He certainly seemed to place more importance on the skill with which he made money than on the money itself. He saw strategy as an alternative to art for someone who does not have the required talent.

Young Keynes

Keynes, in his youth, was very confident in his own abilities, and less in those of the general public.

In his early investments, he tried to take advantage of market timing, staying right in front of the crowds.

Compared to the crowd at that time, young Keynes invested more in stocks (stocks) than in bonds (debt).

He also speculated on exchange rates and commodities. And he was much more willing than the crowd at the time to invest outside his country, being fond of Australian government bonds.

Among his portfolio were modern artwork. Some were his friends but – judging by the records he kept of their prices – some were also used as investments.

He spent 13,000 yen to accumulate works of art valued at 76 million yen in 2019.

Keynes’ artistic judgments produced an annual real rate of return of 6%, which is similar to what he might have earned in stocks. But it provided him with what stocks couldn’t – what the arts and literary group Bloomsbury, of which he was a part, called “the pleasure of beautiful objects”.

This young Keynes would have certainly thought of Bitcoin, believing that he could buy something before it got big, then sell on time.

But the formula didn’t always work, even for him.

Older and Wiser Keynes

The former Keynes switched to value investing, carefully selecting and holding stocks with the prospect of good long-term returns. It turned out more success.

He now considered that trying to get the timing right for cyclical investing was “impractical”, claiming that most of those who attempt to do so “sell too late and buy too late”.

He wrote that most of those who try it focus too much on capital appreciation and too little on “immediate return or future prospects and intrinsic value.”

One of the most successful investors today, Warren buffett, wrote his admiration for Keynes shine and imitated his style.

Shortly before his death, Keynes warned of the dangers for investors to join the bandwagon. As he says “if everyone agrees on its merits, the investment is necessarily too expensive and therefore unattractive”.

During this most successful period, Keynes avoided betting on products without fundamental value.

And he worried about them for broader reasons. As he says in his 1936 General theory:

“When the development of a country’s capital becomes a by-product of a casino’s activities, the job risks being done badly.”

The Keynes of the last days would not have bought Bitcoin and even preached against it.

These are the Keynes whose investments have been the most successful.

John hawkins is a lecturer at the Canberra School of Politics, Economics and Society and NATSEM at the University of Canberra.

Cornish Selwyn is Adjunct Associate Professor in the Research School of Economics, Australian National University.

This article first appeared on The conversation.


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