Why Was Keynes Keen to Invest in American but Not in British Investment Trusts?

Abstract

The literature on John Maynard Keynes’s activity as an investor has substantially grown in the last decade (e.g., Chambers and Dimson 2013; Accominotti and Chambers 2016; Chambers and Kabiri 2016; Cristiano, Marcuzzo, and Sanfilippo 2018; Marcuzzo and Rosselli 2018; Marcuzzo and Sanfilippo 2016, [2020] 2022). The contribution of the present paper is to investigate a specific feature of Keynes’s investment activity on his own account: his preference for American rather than British Investment Trusts. While this feature has also been observed in his investments on behalf of King’s College (Chambers and Kabiri 2016), we focus here on his personal portfolio, and we also provide a set of possible explanations for his preference. We maintain that some reasons have to do with the different structure and characteristics of the Investment Trusts in the two countries. Others relate more closely to the kind of investment policy typically adopted by the American Investment Trusts, which was much more in line with Keynes’s own approach to investment—especially regarding the stocks selection. We also attribute a role to his epistemological approach, i.e., the view that, although a full and perfect knowledge is not reachable by individuals due to the radical uncertainty characterizing the environment (“we simply don’t know,” Keynes 1937) and to the limitations of the human mind, reliable information remains, however, a guide for rational decision making, also in financial markets. Following this approach, as we will show, Keynes preferred to delegate his investment choices in the US stock market to those professionals—the managers of the Investment Trusts—who possessed, in his opinion, the wider set of reliable information on that market, while keeping for himself the investment choices in the UK stock market.