Keynes and the Provincial investment problem

From early 1924 until his death in 1946, Keynes was actively involved in managing the assets of the Provincial Insurance Company, based in Kendal, Westmorland. From 1940, increasing responsibilities advising the UK Government meant a gradual reduction in day-to-day management activities, his replacement being Ian Macpherson, the senior partner of the London stock-broking firm, Buckmaster & Moore, who was well known to both Keynes and F. C. Scott, The Provincial’s managing director. The Provincial materials reproduced in Chapter 1 of Volume XII of The Collected Writings suggest increasing differences of opinion between them on investment policy from the late 1930s. A review of their correspondence in the Keynes Archive at King’s College, Cambridge, demonstrates that such differences were more serious than previously understood, with Scott imposing a significant change to Keynes’ policy in 1942 by creating the low-volatility Stable Fund accounting for 40% of total assets. Eventually, in mid-1944, this change presented Macpherson with a problem he described to Keynes as ‘most intractable’ and also involved him telling Keynes that Scott ‘does not understand the elementary principles and theory of investment’. In this article, we review Keynes’ relationship with The Provincial, tracing the development of this ‘most intractable problem’ by means of three Case Studies, which provide insights into not only his role at The Provincial but also the principles underlying the unconventional, oblique investment approach he practised in the 1930s and 1940s, as distinct from his credit cycling policy of the 1920s.