The 1925 Return to Gold: Keynes and Mr Churchill's Economic Crisis

70 Pages Posted: 13 Aug 2009 Last revised: 6 Sep 2009

See all articles by James Morrison

James Morrison

London School of Economics & Political Science (LSE) - Department of International Relations

Date Written: 2009

Abstract

Winston Churchill’s decision in April of 1925 to resume convertibility of the Pound Sterling at the pre-WWI parity prompted one the greatest financial crises of the century. Churchill chose this course despite John Maynard Keynes’ prescient predictions that deflation, unemployment, and domestic unrest would follow. This paper attempts to explain Churchill’s fateful decision. It argues that Churchill was intimately familiar with Keynes’ insistence that the return to gold would create transitional unemployment. Churchill, however, was principally concerned with the structural unemployment endemic to the postwar economy. Keynes' theory, however, did not account for structural unemployment. Churchill gambled that the drastic policy would force through fundamental adjustments necessary to meet the realities of Britain’s new position in the world economy. Keynes’ failure to influence Churchill in 1925 illuminated the gaps in his policy-making framework and drove his subsequent intellectual development. This paper follows in the tradition of those scholars who have shown the influence of positive ideas and intellectuals on policy. Borrowing from work on the history of science, it attempts to link the development and construction of these ideas with their adoption and implementation.

Keywords: Keynes, Gold Standard, Churchill

JEL Classification: B31, F31

Suggested Citation

Morrison, James, The 1925 Return to Gold: Keynes and Mr Churchill's Economic Crisis (2009). APSA 2009 Toronto Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1449829

James Morrison (Contact Author)

London School of Economics & Political Science (LSE) - Department of International Relations ( email )

Houghton Street
London, WC2A 2AE
United States

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