Edited by Robert W. Dimand and Harald Hagemann
Chapter 23: The Economic Consequences of Mr. Churchill
Keynes was the leading critic of the 1925 decision of Winston Churchill, then Chancellor of the Exchequer, to restore the convertibility of the pound sterling at the pre-war parity with gold and the dollar on the advice of Montagu Norman, Governor of the Bank of England, the so-called “Norman conquest of $4.86”. In articles collected in his provocatively titled pamphlet The Economic Consequences of Mr. Churchill, Keynes argued that returning to the gold exchange standard at the pre-war parity would overvalue the pound sterling, requiring a deflation of prices and money wages that could be achieved through severe and prolonged unemployment. While ensuing events appeared to vindicate Keynes’s warnings (even in Churchill’s opinion), Churchill’s advisers could argue that the problems of the late 1920s were not the inevitable consequence of the British return to gold but also depended on subsequent policy decisions, notably France’s return to the gold exchange standard at a rate that undervalued the franc.
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