Keynes to Churchill: "What an imbecile Currency Bill...."

Written by Ralph J. Benko

Tuesday, October 30, 2012

In 1928 [Keynes] wrote a rude letter: “Dear Chancellor of the Exchequer, What an imbecile Currency Bill you have introduced!” Churchill replied with his customary courtesy, revealing his continued respect for the wizard economist: “My dear Keynes.... I will read your article enclosed and reflect carefully, as I always do, on all you say.”

In the Winter 2011-12 issue of Finest Hour, a journal of Churchill studies, at pages 21-22, there is an excellent study, by H.W. Arndt, of Churchill's predicament over the restoration of the gold standard as Chancellor of the Exchequer ... and of his relationship with Keynes, entitled The Wizard and the Pragmatist.

It is probably true that “Churchill understood modern no better than old-fashioned economics,” but he had acute intelligence and great power of application. Within weeks of assuming his new office he was presented by Montagu Norman, Governor of the Bank of England, with a plan to prepare for a return to gold at par by the end of 1925. He worried about the domestic implications and wrote a substantial paper, dubbed “Churchill’s Exercise,” setting out his objections to a quick return to gold. This led Sir John Bradbury, head of the Treasury, to observe that Churchill “appears to have his spiritual home in the Keynes-McKenna sanctuary.”

It is not certain whether Churchill was expressing his own view or merely provoking his official advisers into stating their case. If the latter, he was certainly successful, eliciting long and trenchant replies. But there is also no doubt that Churchill was genuinely perplexed and torn. On reading another article by Keynes on “The Return Towards Gold,” Churchill complained in another memorandum:

The Treasury have never, it seems to me, faced the profound significance of what Mr. Keynes calls ‘the paradox of unemployment amidst dearth.’ The Governor shows himself perfectly happy in the spectacle of Britain possessing the finest credit in the world simultaneously with a million and a quarter unemployed.

Attempting to resolve his doubts, Churchill arranged for a dinner on 17 March 1925 to which he invited Bradbury and financial controller Sir Otto Niemeyer for the Treasury and Keynes and McKenna for the opposition. Till midnight and beyond, Keynes and McKenna argued that at prewar parity, sterling would be overvalued by 10%, and adjusting to the higher rate would mean unemployment and industrial unrest. Churchill, “ready to and anxious to be convinced as far as my limited comprehension of these extremely technical matters will permit,” asked McKenna: “...you have been Chancellor...what decision would you take?” McKenna said there was no escape, but “it will be hell.” ... In July, Keynes’s pamphlet, The Economic Consequences of Mr. Churchill, ferociously opposed a return to gold as a fixed exchange-rate system because of its effects on unemployment and the balance of payments. It was not directed at Churchill personally: WSC, he said, had made the decision “partly because he has no intuitive judgment, partly because of the clamourous voices of conventional finance, and, worst of all, because he was gravely misled by the experts.”

Churchill, who almost always rose above the Parliamentary fray, did not resent Keynes’s criticisms. In Parliament, he charged Snowden with inconsistency in first urging an early return to gold, and then attacking the government for taking that course, contrasting this “with the position of Mr. Keynes, who is, I suppose, by far the most distinguished and able exponent of opposition to the return to gold. He is the great advocate of a managed currency, the most powerful and persuasive advocate.” Keynes’s warnings about the economic and social consequences of the return to gold at par were soon borne out by the 1926 General Strike. ...

Keynes had little sympathy with the forceful tone Churchill adopted as editor of the government strike journal, The British Gazette, and indeed with Churchill’s increasingly conservative positions in the last three years of his Chancellorship. In 1928 he wrote a rude letter: “Dear Chancellor of the Exchequer, What an imbecile Currency Bill you have introduced!” Churchill replied with his customary courtesy, revealing his continued respect for the wizard economist: “My dear Keynes.... I will read your article enclosed and reflect carefully, as I always do, on all you say.”