Treasury View, The

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Treasury View, The


In April 1929 the British chancellor of the exchequer, Winston Churchill (18741965), defended the orthodox Treasury doctrine which has steadfastly held that, whatever might be the political and social advantages, very little additional employment, and no permanent additional employment can, in fact, and as a general rule, be created by state borrowing and state expenditure (House of Commons 1929, p. 54). Churchills comment, made during the 1929 general election campaign, was designed to blunt opposition proposals for large-scale public works to reduce unemployment. Churchills view was reinforced the next month by a white paper restating the practical and doctrinal objections to public works. The issues were aired again in an examination by the economist John Maynard Keynes (18831946) of the senior Treasury official Sir Richard Hopkins (18801955) before the Committee on Finance and Industry (established by Labour prime minister Ramsay MacDonald [18661937] in 1929 to examine the impact of the financial system on the economy).

Britain did not launch an expansionist policy against unemployment (comparable to that implemented in Sweden after 1936), and some have identified the Treasury view as the main obstacle. Histories of economic thought published during the Keynesian era (such as Michael Stewarts Keynes and After [1969]) blamed the grip of outmoded ideas on senior Treasury officials. The opening of Britains public records brought a new agenda to the debate. A number of historians found in interwar Treasury papers little doctrinal argument but many practical administrative difficulties, most of which related to the Treasurys management of public finance. However, the (delayed) release of further Treasury papers to the Public Record Office in mid-1986 allowed Peter Clarke (1990) to create a more complex analysis. He demonstrated that in the early 1920s senior Treasury officials believed that British prosperity depended upon firm commitment to the liberal international order: the gold standard, free trade, and the balanced budget. This was the knave-proof fiscal constitution that senior British officials had deployed against the grandiose, expansionist ideas of cabinet ministers from 1918 to 1919. It held that the ultimate causes of unemployment lay in lagging exports and could be remedied by industrial modernization, lower unit labor costs, and higher foreign lending (within limits). Thus, diverting money into home investment would exacerbate the problem.

Personnel changes, growing recognition that the gold standard adjustments had not worked, and the impact of the return from Harvard University of the economist R. G. Hawtrey (18791975, a senior Treasury official but with limited day-to-day influence over policy) brought a new, more flexible approach from 1930. Hawtrey demonstrated the stickiness of the gold standard adjustment processes, underlined the possible effectiveness of refla-tionary finance, and encouraged Hopkins and others to think more creatively and flexibly about economic relationships. This paved the way for a still more productive interchange between Treasury officials and leading economists in the 1930s, as noted by Susan Howson and Donald Winch (1977).

Unfortunately, econometric work has suggested that Keynesian policies offered only a palliative to Britains interwar unemployment problem. T. Thomass macromodel (1981) of the interwar economy and Sean Glyn and Peter Howellss calculation (1980) of the interwar multiplier both pointed to the extreme improbability that unemployment could be reduced to normal levels by monetary and fiscal policy. Thus, one is left with the conclusion that the Treasury view may have acted as a barrier to independent, expansionist policies at a critical moment, but it was only one of a number of impediments, and the bold assumptions of Keynes and the Keynesians, both at the time and during the 1950s and 1960s, that there was an easy solution to unemployment were misplaced.

SEE ALSO Keynes, John Maynard; Policy, Fiscal; Policy, Monetary; Unemployment


Clarke, Peter. 1990. The Treasurys Analytical Model of the British Economy Between the Wars. In The State and Economic Knowledge: The American and British Experiences, eds. Mary O. Furner and Barry Supple, 171207. Cambridge, U.K.: Cambridge University Press.

Glynn, Sean, and Peter Howells. 1980. Unemployment in the 1980s: The Keynesian Solution Reconsidered. Australian Economic History Review 20: 2845.

Hatton, T. J. 1985. Unemployment in the 1930s and the Keynesian Solution: Some Notes of Dissent. Australian Economic History Review 25: 129148, 149157.

House of Commons. 1929. Memoranda on Certain Proposals Relating to Unemployment, Cmd 3331. London: HMSO (His Majestys Stationery Office).

Howson, Susan, and Donald Winch. 1977. The Economic Advisory Council, 19301939: A Study in Economic Advice during Depression and Recovery. Cambridge, U.K.: Cambridge University Press.

Stewart, Michael. 1969. Keynes and After. Harmondsworth, U.K.: Penguin. 3rd ed., 1986.

Thomas, T. 1981. Aggregate Demand in the United Kingdom, 191845. In The Economic History of Britain since 1700. Vol. 2: 1860 to 1970s, eds. Roderick Floud and Donald McCloskey, 332346. Cambridge, U.K.: Cambridge University Press.

Alan Booth

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