Tuesday, February 3, 2015

UK Keynesianism in the 1940s and 1950s

Booth (2001) provides a most fascinating study of the influence of Keynesian economics in the British government and amongst policy makers in the years after 1945.

In essence, Booth points to the “Economic Section” of the UK Treasury, which had been transferred from the Cabinet Office to the Treasury in 1953. The Economic Section was a stronghold of Keynesian economics after 1945, and certainly under its head Robert Lowe Hall (1901–1988) (Booth 2001: 288–289), who held this position until his retirement in 1961.

One important and early success of the Keynesians in the Economic Section was to defeat the attempt to liberalise the exchange rate in the 1950s (the so-called “Robot” plan) when this would have been at the expense of domestic employment stability (Booth 2001: 290–292).

Booth (2001: 295) concludes that monetary policy from the 1940s and 1950s onwards relied more on direct control of bank lending (a policy that had been favoured by Keynes and continued to be supported by Robert Hall) than on interest rate changes. The credit control policy is also favoured by modern Post Keynesians, and shows how monetary policy interventions in the post-WWII era in the UK were actually closer to heterodox Keynesianism than modern New Consensus macroeconomics.

Moreover, it can be noted that an early attempt in 1955 by the Treasury to ignore Keynesian advice and to engage in fiscal stimulus accompanied by mere reliance on interest rate policy to control inflation failed, and the failure provoked the famous Radcliffe committee (which was appointed in 1957) and its later rejection of the quantity theory (Booth 2001: 296–297). The report of the Radcliffe committee in 1959 represented a victory for British Keynesians and their victory over early misguided experiments with monetarism by the Treasury (Booth 2001: 297).

Booth (2001: 302) also points out that the occasional cautiousness of Robert Hall about fiscal policy and his concern for business confidence and the British balance of payments are perfectly consistent with the ideas of Keynes and Keynesian economics – despite the misunderstandings of some modern British historians who have re-assessed this period.

It is also fascinating that Robert Hall and the British Keynesians were, even if their advice was not always followed properly, very much concerned with incomes policy as a method for controlling inflation (Booth 2001: 303), which is now one central aspect of Post Keynesian inflation policy.

A final point of great interest to Post Keynesians is that Wynne Godley came to work in the Economic Section of the Treasury in 1956 when Robert Hall was still the head, and Godley received his early training as an economist in the Treasury under his seniors Jack Downie and Bryan Hopkin (Godley 2000: 232).

Booth, Alan. 2001. “Britain in the 1950s: A ‘Keynesian’ Managed Economy?,” History of Political Economy 33: 283–313.

Godley, Wynne. 2000. “Wynne Godley,” in Philip Arestis and Malcolm Sawyer (eds.). A Biographical Dictionary of Dissenting Economists. Edward Elgar, Cheltenham. 232–240.

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