The easing of the crisis in the summer of 1927 however served merely as the point of departure for its intensification. With the New York conference seeking to deal with the world’s economic difficulties through a relaxation of credit rather than by addressing its structural deficiencies, the way was cleared for continued overproduction and renewed speculation on Wall St. As global capital once more gravitated to the US, New York interest rates were again increased, reaching 5% by July 1928. Again however the rise failed to break the speculative boom but served only to increase the inward flow of gold and to force a tightening of rates elsewhere, while in addition, much American foreign lending now also began to be redirected to the domestic money circuit. The global effects of this sudden curtailment of US credit were severe, forcing many debtor nations into an even more pronounced state of crisis and threatening to undermine the stability of global capitalist relations as a whole. In an effort to sustain their balance of payments many debtor nations were now forced to run down their reserves, much of which was held in the form of sterling, and several countries including Holland, Germany, and especially France, also began converting their sterling holdings in a bid to move to a full gold, as opposed to a
gold exchange standard, putting pressure on the pound and heightening fears of a global gold shortage.175 Compounding this still further, the issue of reparations was now back on
the agenda, with German grievances over the provisions of the Dawes scheme (which included external monitoring of the German budget) and pressure for a final settlement leading to the establishment of the Young Committee in September to re-examine the subject.176
The deepening of the crisis once again put growing pressure on Britain. Though the current account was now registering its highest surplus since 1923, unemployment was once again rising and industrial production was once again falling following a brief respite during 1926-27. Moreover, the issue of monetary policy now also began to attract renewed attention, with the question of amalgamating the Bank and Treasury note issues, the final stage of the process of returning to gold by unifying the money supply under the complete control of the Bank of England, now on the political agenda and raising interest in the gold standard.177 Once more, criticism of the state authorities came from representatives of both
capital and labour. The ‘Mond-Turner’ conference for example complained that interest rate movements were now being determined too rigidly by the level of the gold reserves, and called for an enquiry into monetary policy and for greater attention to be given to the domestic economic situation.178 The wider labour movement were also dissatisfied. The
TUCGC were of the view that the unemployment situation was now a threat to ‘the very
175 Various in PRO:T176/27; BE:EID4/102. ‘Monetary Stability and the Gold Standard’ (League of Nations),
30/5/28; BE:ADM34/16. Norman Diaries 25/11/27; Brown Jr (1940), ps.400-2, 481-6, 567, 725; Kahn (1946), p.167; Kenwood and Lougheed (1971), pp.186-204; Sayers (1976), pp.192ff; Kindleberger (1986), p.56. Table 2; Ziebura (1990), pp.49-57; Eichengreen (1992), pp.187ff; Feinstein et al (1997), p.98.
176 Kindleberger (1986), pp.65-8.
177 BE:G1/464. Norman to Niemeyer 5/5/27; BE:ADM34/16. Norman Diaries; Various in BE:G14/312;
Feinstein (1972), Tables 37, 51-2, 57.
178 MRC:MSS.292/262/36. ‘Memo. Submitted on the Gold Reserve and its Relations with Industry’
(TUCGC/Mond Group), 1928; ‘Explanatory Memo. Submitted on the Memo. on ‘The Gold Reserve and its Relations With Industry’’, 1928 (hereafter ‘Explanatory Memo.’); TUC Annual Report 1928, pp.209ff.
stability of the nation’ and thought that monetary policy was ‘highly injurious’,whilst the Labour Party conference as a whole, and not merely the labour left were now also calling for an enquiry and for the nationalisation of the Bank of England (albeit within the indirect model of a public corporation run by a board of politically neutral appointees).179 Some on
the more radical left however were now calling for the wholesale abandonment of the gold standard, while the government were also under concerted attack over their attempts to neuter the labour movement through the Trade Unions and Trade Disputes Bill.180
From capital, although the City maintained their support for the gold standard (despite McKenna continuing to call for lower interest rates and an enquiry), the FBI were now also discontent, claiming that their warnings over the return to gold had been proved ‘right in every single particular’, while the Mond group attacked the return to gold for having damaged trade and promoted industrial unrest. Along with the labour left there was now also a growing feeling within industrial circles that monetary policy was biased in favour of the interests of finance, with Vincent Vickers, a former Bank of England director proclaiming for example that an increasing number of ‘influential industrialists’ were now coming to realise this fact.181
Dissatisfaction with economic conditions was also increasingly evident from other sources. Public petitions were presented to Parliament demanding an enquiry into the
179 MRC:MSS.292/560.1/1. ‘Development of Economic Policy’ (TUCGC), November 1928;
MRC:MSS.292/265/1. ‘National Finance and Banking’ (TUCGC), 15/2/28; MRC:MSS.292/135.01/2. ‘Statement on Unemployment’ (TUCGC), 1/12/28; Labour Party Annual Reports 1927, pp.264-5; 1928; TUC Annual Reports (1927), pp.453-5; (1928), p.230; Lansbury’s Labour Weekly 30/4/27; New Leader 24/6/27. XIV(35).
180 Lansbury’s Labour Weekly (1927 issues); Industrial Review (1927 issues).
181 MRC:MSS.200/F/3/S1/14/6 & 15/6. V. Vickers to FBI Chairman 2/7/27; to FBI Secretary 6/7/27; FBI
Secretary to V. Vickers 4/7/27; R. T. Nugent to A. Wigglesworth 28/2/28; to R. A. Kerr Montgomery 18/4/28, 16/5/28; FBI General Economic Dept. to Colonel F. V. Willey 13/6/28; FBI General Secretary to R. A. Kerr Montgomery 12/12/28; MRC:MSS.292/135.01/2. ‘General Memo. on Unemployment’ (Mond Group), August 1928; MRC:MSS.200/F/4/24/12-13. FBI Bulletins (1927-1928 issues); Keynes (1951), pp.242-3;
effects of monetary policy, while in Parliament itself the Liberals were leading calls (publicly supported by Keynes and Henderson) for reducing unemployment with large- scale public works.182 Official circles too were now growing more concerned. The high and
rising cost of unemployment benefit for example was an increasing source of anxiety to the Treasury, forcing the adoption of ever more manipulative accounting measures in order to sustain the impression of a balanced budget, while Hawtrey continued to press for lower interest rates to help stimulate the economy. Sir Richard Hopkins (the head of the civil service) was concerned that the amalgamation of the note issues would generate greater public interest in the issue of monetary policy and create ‘constant difficulties as to publicity’, while Churchill, still concerned with the political impact of unemployment, continued to berate senior figures at the Bank and the Treasury for their indifference to the problem, and for ‘their’ policy of forcing economic reconstruction through the pressure of deflation.183
At the Bank itself, such criticisms continued to constrain their response to the crisis. The possibility of easing pressure on the pound through higher interest rates was again rejected by Norman firstly in November 1927 on the basis that this would be ‘grossly unfair to industry’ and beneficial to no-one, and then by Cecil Lubbock, the Bank’s Deputy Governor in mid-1928 (temporarily in charge with Norman absent through illness) on the grounds that this would merely force even higher rates elsewhere, and would attract undue ‘public attention’ given the scale of unemployment. Instead, the Bank were yet again forced into the use of open market operations to protect the pound, while Norman now
182 Various in MSS.200/F/3/S1/19/1; Winch (1969), pp.108-9.
183 PRO:T175/125. Hopkins to Churchill 27/3/28; to Sir William Graham-Harrison 11/4/28; and to Niemeyer
17/4/28; PRO:T172/1500B. Grigg to Churchill 14/4/28; PRO:T160/463. ‘Mr. McKenna on the Gold Standard’ (Hawtrey), 30/1/28; the Times 30/10/28; Grigg (1948), p.199-200; Hancock (1962); Middlemas (1969a), p.137.Gilbert (1976), pp.289-95; Ponting (1994), pp.298-9.