The Gold Standard and Deflation

In their attempts to grapple with the past, historians are apt to stress landmarks or turning-points, events which stand out in important respects from others that accompanied or immediately preceded them. Such an approach has, no doubt, considerable value, but it also carries with it certain obvious dangers. I suggest that these dangers now confront us in currently held views about the place of Keynes' writings on monetary policy during the nineteen-twenties (especially A Tract on Monetary Reform and The Economic Consequences of Mr. Churchill) in the thinking of the time. Recognition of the incisiveness of Keynes' argument, and of the wholehearted way in which he dissented from the orthodoxy of the Bank of England and the Cunliffe Committee, tends to conceal the existence of other currents of dissenting opinion which existed at the same time and to some of which his thinking was quite closely related. As examples of currently held views about the attitudes to monetary policy that were influential during the early nineteen-twenties, and about the significance of Keynes' attacks on orthodoxy, I want to refer to passages from the writings of three authorities on the period. The first is to be found in Professor Ashworth's volume in the Methuen Economic History of England. Ashworth sums up the matter in these terms: In order to bring back the exchange rate to par it was necessary to lower the British price level relatively to the American as a means of decreasing Britain's international expenditure relatively to its earnings. Since the American price level began to fall rapidly in 1920, the reductions needed in British prices were formidable indeed. To bring them about a drastic restriction of credit was applied, mainly by means of high interest rates, despite the adverse repercussions this must have on business activity and employment. This restrictive policy continued even in the depths of the slump in 1921 and 1922, when every other consideration would have suggested the opposite policy. Such was the prestige of the gold standard, however, that hardly anyone of authority or influence questioned the rightness of the policy. One of the few notable exceptions was J. M. Keynes. . A similar judgement, which at the same time introduces some new issues, is expressed in a recent article by Professor E. V. Morgan. Looking back on the monetary history of the 1920's, wrote Morgan, one of the most surprising features is the unanimity with which

Argument (complex analysis) · Deflation · Dissenting opinion · Earnings · Economics · Keynesian economics · Monetary policy · Order (exchange) · Orthodoxy · Period (music) · Political science · Positive economics · Theology · Value (mathematics) · Accounting · Economic Theory and Policy · Law · Philosophy

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