Las inclinaciones hacia la diagonal

In spite of these difficulties however, by 1924 conditions were now improving for Britain’s state authorities. Though still uncertain, the world political and economic situation was beginning to look more stable. The introduction of financial reforms in Germany, including the creation of a new currency (the Rentenmark) and a politically independent central bank (the Reichsbank) had begun the process of a return to stability, while an international committee headed by the US General Dawes had been established to examine ways of balancing the German budget. The resulting plan devised by the committee also contained measures for facilitating international economic reconstruction and recovery as a whole, based upon a global expansion of American credit to debilitated countries through the recycling of excess US money capital. In particular, US capital loaned to Germany would enable reparations repayments to be met, thus enabling many other countries to meet their debt obligations and ostensibly resolving the protracted disputes over reparations and war debts. Indeed as 1924 progressed, global economic

29 MRC:MSS.200/F/4/24/9. FBI Bulletins (1924 issues); MRC:MSS.200/F/3/S1/14/3. ‘Taxation Policy’

(FBI), 27/2/24; PRO:T160/197. Evidence to the Chamberlain-Bradbury committee by the FBI (30/7/24), by Goschen, McKenna, Goodenough; PRO:T176/5 Pt.1. OGM Speech by McKenna, January 1924; Kynaston

conditions not only recovered but also developed into a new boom centred on European reconstruction and an upswing in America.³⁰

Domestically, the worst of the slump was also now over. Industrial production surpassed prewar levels for the first time, and though the staple trades continued to suffer, Britain’s new industries continued to grow.³¹ The uncertainty over economic policy and the decline in sterling were also soon dispelled as the new Labour government announced its commitment to economic orthodoxy, in particular its desire to adhere to the deflationary principles of the Cunliffe report and to see Britain return to gold ‘as soon as possible’.

Plans for a capital levy were also dropped, and state intervention to deal with unemployment remained minimal, with the government claiming that the problem could only be resolved by greater economic flexibility and adaptation to global conditions.³² Furthermore, despite the rise in industrial unrest the labour movement also remained weakened compared to recent years. Though the number of new stoppages rose, the actual number of working days lost continued to fall and trade union membership fell to its lowest point of the interwar period.³³ By the middle of the year the resurgent unrest itself was now also subsiding. As the LRD observed, by July the ‘forward move’ had ‘distinctly slowed down in pace’, and by August it had almost disappeared.³⁴

Also of benefit to the authorities was that while the notion of a deliberately managed money was gaining wider credence, discontent over monetary policy was paradoxically now diminishing and the majority of opinion in Britain was not averse to a

30 Clay (1957), Ch.5, pp.190-217; Kenwood and Lougheed (1971), pp.186-96; Eichengreen (1992), ps.147-52, 224-6.

31 Feinstein (1972), Tables 51-2.

32 Various in PRO:CAB23/47, PRO:PREM1/76 and PRO:T208/55; PRO:T172/1499B. ‘Post-War Reports and Conferences’. Undated; Snowden (1934), pp.596-616; Cole (1948), pp.408ff; Marquand (1977), p.310.

33 Butler and Butler (1994), p.373.

34 Monthly Circulars of the LRD, June to September 1924.

return to gold. The bulk of the labour movement remained primarily concerned with more directly tangible issues such as wages, working conditions, and unemployment, the TUC’s policy charter ignored the issue of monetary policy completely, the Labour Party leadership were firmly wedded to the gold standard, and despite the more radical stance of the left the general attitude of labour remained indifferent towards the subject. Indeed as the Labour Party later put it, though the process of deflation had produced ‘serious industrial and social consequences’, the issues of the gold standard and monetary policy were at this time ‘the subject of surprisingly little political discussion’.³⁵

Similar views were also evident from representatives of capital. The ABCC continued to favour a return to gold and were now hopeful that this could be achieved within a ‘comparatively short period’, while City opinion, though divided over the use of deflation to force the issue, was also overwhelmingly in favour of an eventual return.³⁶ Even the FBI, despite their criticisms, were not opposed to a return to gold per se, nor necessarily to the use of deflation, but were rather concerned with the use of excessively rapid deflation in order to return at the prewar par. Indeed, the Federation now considered a general return to gold as essential for a revival of both international and domestic prosperity, and did not regard a managed money scheme as being practicable for anything other than a temporary interim measure preceding a return. As such, whilst the FBI favoured a waiting policy in the hope that US inflation would carry sterling to par with only a ‘temporary retardation’ of exports, they also continued to accept that there were

35 TUC Annual Report 1924, p.482; Monthly Circular of the LRD. April 1924. Vol. XIII. No.4; Labour Party Annual Report 1928; BE:OV9/262. ‘Purchasing Power of Gold’ (League of Nations), 20/11/28; Snowden (1934), pp.596ff; Cole (1948), pp.408ff; Boyce (1988), pp.180ff.

36 MRC:MSS.200/F/4/24/9. FBI Bulletins 29/1/24. 7(5); 5/2/24. 7(6), 12/2/24. 7(7); PRO:T160/197.

Evidence to the Chamberlain-Bradbury committee by Schuster, Goschen, Currie, Leaf, Paish, McKenna, and Goodenough (Chairmen of Britain’s leading banks); PRO:T176/5 Pt.1. OGM Speech by McKenna, January

‘other considerations’, primarily the need for global economic recovery, which could make deflation necessary.³⁷

These improvements in domestic and international economic conditions combined with this easing of discontent over monetary policy and the general lack of opposition to the gold standard now enabled the authorities to begin considering a return to gold in more detail. At the Treasury concerns were now rising that Britain could ‘very suddenly’ be left isolated and weakened by a quick return to gold by the rest of the world, while at the Bank of England Norman was growing increasingly anxious for a rise in interest rates to bolster the pound. Political sensitivities over the issue however were still prevalent. Baldwin for example was fearful that renewed deflation could lead to a resurgence in labour unrest and the popularity of Socialist ideas, and officials generally were keen to avoid re-igniting public interest in the subject.³⁸ As Niemeyer maintained, public debate on monetary policy would raise hopes of a managed money and inflation, the loose talk of which had ‘already done us an infinitude of harm’, whilst as Norman pointed out, raising interest in the issue by announcing a specific date for a return would be ‘difficult and perhaps dangerous.’ As he explained:

“There have always been some here for whom the idea of gold was repugnant because they favoured, or pretended to favour, some new-fangled scheme: there have been public speakers….who were liable to torpedo confidence at any time: there have been many who feared a crisis if prices were deliberately forced down and margins on loans eliminated….Therefore, on the whole, my feeling is that however wearisome the pace has been, we have been wise so far to hurry slowly.”³⁹

37 PRO:T160/197. FBI evidence to the Chamberlain-Bradbury committee 30/7/24; MRC:MSS.200/F/4/24/9.

FBI Bulletins. 5/7/24. 7(31); 5/8/24. 7(32).

38 BE:G3/180. Norman to Blackett 21/5/24; Norman to Silberling 13/6/24; 14/6/24; BE:ADM34/13. Norman Diaries 13/6/24; BE:C40/737. Norman to Strong 27/3/25, 24/4/25; PRO:T160/197. Niemeyer to Snowden 5/4/24; PRO:T176/5 Pt.1. ‘Sterling and the Gold Standard’ (Hawtrey), 26/4/24; Williamson (1999), pp.169ff.

39 PRO:T176/5 Pt.1. Niemeyer to Snowden, March 1924; BE:G3/181. Norman to Strong 16/10/24.

Unable to find a justifiable excuse for putting up interest rates however, Norman was forced to abandon the idea of a rise. Nonetheless, the pound soon began to appreciate as the FRBNY engaged in a series of cuts to 3% by August in a bid to allay domestic fears of a recession and to encourage a return to gold by Britain and Europe. As such, the differential with New York was now sufficient to fuel expectations that Britain would soon return to gold at the prewar par, provoking a speculative inflow of capital and causing sterling to rise from the summer.⁴⁰

With officials increasingly keen to engineer a return, in June an official committee known as the Committee on the Currency and Bank of England Note Issues (though better known as the Chamberlain-Bradbury committee after its two chairmen) was established.

Ostensibly designed to consider the technical question of amalgamating the note issues, in reality the committee was set up to examine the means by which a return to gold could be brought about.⁴¹ In particular, the committee were concerned with the question of whether deflation should now be imposed in order to raise sterling to par quickly, or whether they should continue waiting for US inflation in the hope that this could be achieved with less friction. For key officials however, neither option offered an ideal solution. On the one hand, deflation was thought to be difficult to achieve and would entail a long period of high interest rates and economic dislocation.As Hawtrey explained:

40 BE:ADM34/13. Norman Diaries 13/6/24; BE:G3/180. Norman to Strong 16/6/24; Brown (1940), Ch.12;

Keynes (1951), p.229; Morgan (1952), pp.213ff; Howson (1975), p.56; Sayers (1976), p.139.

41 The committee was initially led by Austen Chamberlain, who was replaced by Bradbury after being made foreign secretary in the new Conservative government: BE:G35/5. Norman to Strong 26/2/25, 15/4/25;

BE:G3/181. Norman to W. H. Clegg 13/10/24; BE:G3/180. Norman to Niemeyer 16/4/24; PRO:T160/197.

Niemeyer to Snowden 5/4/24; Notes by Niemeyer; PRO:T176/5 Pt.1. ‘Sterling and the Gold Standard’

“no method of returning to the gold standard at pre-war par (apart from a rise in prices in America) can avoid the depression and unemployment incidental to a fall in prices.”⁴²

On the other hand, continuing to wait for US inflation was now thought to be increasingly futile, with the growing view being that US prices would not now rise and that British prices would therefore have to fall. As Norman for example put it, whilst American inflation ‘would make it much easier’ to return to gold, this was now unlikely and Britain would instead have to endure a ‘big fall in price.’ For Norman and Addis however (the Bank’s representatives to the committee), this was still considered to be worth the

‘sacrifice’. Deflation, they argued, would not only force Britain to become competitive, but by enabling a return at the prewar par would also provide for economic stability, ensure international confidence in sterling, and prevent a future resurgence of inflation and hence

‘further social disturbances, further strikes and discontent.’ Moreover, adherence to such an

‘automatic’ regime with its clear economic signals was also seen as enhancing their freedom of manoeuvre. As Norman, complaining of the Bank’s organisation again explained, ‘I certainly am not blessed with a ‘machine’ which so far runs itself that I am free to be away from London as much as I would like’, while as Addis put it, a government announcement of its intention to return would provide the Bank with ‘the reason, and if necessary the excuse’ for its actions.⁴³

Aware of the potential dangers of deflation however, not least the possibility that this could lead to political pressures for the nationalisation of the Bank, Norman and Addis were also keen to ensure that responsibility for the operation of monetary policy would lay

42 PRO:T176/5 Pt.2. ‘Sterling and Gold’ (Hawtrey), 4/7/24.

43 PRO:T160/197. Evidence of Norman and Addis to the Chamberlain-Bradbury committee 27/6/24;

BE:G35/5. Norman to Strong. 18/2/25.

entirely with the government. As the Governor again explained, while it was ‘difficult not to have political views’, it was however ‘dangerous to express them’, and whilst the Bank was willing in principle ‘to lend its services for the re-establishment of a free gold market in this country….[it] would not desire to participate in the result of Exchange operations.’

Furthermore, although the Bank would possess formal authority for sterling once Britain was back on gold, Norman was also insistent that the Chancellor would nonetheless remain

‘the ultimate authority for the maintenance of the Currency, and therefore of the Exchanges.’⁴⁴