Professor Roger Middleton. Lessons of the 1930s British Monetary and Fiscal Policy in the 1930s Chatham House, 29 November 2010.
Lessons of the 1930s
British Monetary and Fiscal Policy in the 1930s
Chatham House, 29 November 2010
[T]oday we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time – perhaps for a long time.
Keynes (1972 , p. 126)
In seeking to understanding the British version of the Great Recession, beginning 2008.QII and (provisionally) ending 2009 QIII, it has been natural to return to history for lessons as well as to follow closely contemporary experience elsewhere, not least in the US.
The much-visited NIESR ‘progress of the current recession’ provides an immediate historical reference point for:
four recessions and a depression:
Will focus on three aspects of my OXREP paper:
Britain had a ‘great depression’, not a Great Depression, as can be seen from the path of real GDP
Thus, UK had a relatively mild contraction phase and much more pronounced expansion:
Figures 2 and 3 of OXREP paper (reproduced side by side in next slide) show the change in GDP and components for the two economies for the three phases; very different situations, relative policy space and thus potential efficacy for monetary/fiscal policy activism, whether pre-Keynesian or Keynesian-inspired:
Now turn to look at fiscal policy
For the 1930s there are two stories told:
Concurrently, and especially once policy history begins from late 1960s, a rich history on whether the Keynesian solution was practical given the ‘Treasury view’, this itself highly contestable as it was gravely misrepresented by Keynes and the Keynes.
Will examine three aspects of the 1930s fiscal policy debate which have resonance for the Great Recession:
My OXREP paper, a much earlier book and a forthcoming Virtual Issue of the Economic History Review (Middleton 1985; 2010a; b) provide a much fuller story, but the 1930s British economy shows:
Dimsdale, N.H. and Horsewood, N. (1995) ‘Fiscal policy and employment in interwar Britain: some evidence from a new model’, Oxford Economic Papers, 47 (3), pp. 369-96.
Keynes, J.M. (1930) ‘The great slump of 1930’, National and Athenaeum, 20 and 27 December. Rep in JMK (1972) IX, pp. 126-34.
Keynes, J.M. (1933) The means to prosperity. Rep in JMK (1972) IX, pp. 335-66.
Keynes, J.M. and Henderson, H.D. (1929) Can Lloyd George do it? - The pledge examined. Rep in JMK (1972) IX, pp. 86-125.
Middleton, R. (1985) Towards the managed economy: Keynes, the Treasury and the fiscal policy debate of the 1930s. London: Methuen.
Middleton, R. (2010) ‘British monetary and fiscal policy in the 1930s’, Oxford Review of Economic Policy, 26 (3), pp. 414-41.
Middleton, R. (2010b) ‘Macroeconomic policy in Britain between the wars’, Economic History Review, 63.VI, forthcoming.
Thomas, T. (1981) ‘Aggregate demand in the United Kingdom, 1918-45’, in R.C. Floud and D.N. McCloskey, eds, The economic history of Britain since 1700. Cambridge: Cambridge University Press, vol. 2, pp. 332-46.