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        Summary of William Schmidt's Ph.D. Dissertation               
        for Columbia University,
"The Role of the Chancellor
        of the Exchequer in British Cabinet Politics


1.  When Keynes Was Ignored.

For my dissertation, I spent nearly a year collecting and
                reading documents relating to the role of the Chancellor
                of the Exchequer in British Cabinet policy discussions
                from 1919 to 1937.  

                The British Official Secrets Law had just been changed
                from 50 to 30 years, thereby opening up these records.
I was fortunate to be advised about this by Benjamin Schwartz
                    at the London School of Economics.  The Public Records Office
                    at this time was only a few blocks away.)

                I did not start my research with the intention to disparage
                these Chancellors or their advisors.  I certainly did not
                initially connect the British financial community (through
                the medium of the Chancellor) to Neville Chamberlain's
                disastrous policy of appeasement and the start of
                World War II.   This very real connection is still not made
                among historians.  This shows how dominant financial
                communities are and how good they are at avoiding public

                But I soon discovered Chancellors always seemed to be against
                expenditures for social goals like housing, public works or
                rearming.  They based their opposition invariably on the need
                to balance the national budget, to strengthen the Pound and
                to protect the British financial community from new taxation
                and not to cause any reductions in the amount of private capital
                available for investments.

                In this they always adhered to the "Orthodox" policy views
                promoted by the British Treasury civil servants and their
                clientele, London's financial community, the "City". 

                This financial orthodoxy dominated British Cabinet discussions
                of nearly all spending proposals even before the Chancellor's
                yearly budget was decided.  So pre-eminent were the Chancellors
                in the 1920s within the Cabinet, budgetary surpluses occurred in
                most years in the 1920s.

                The direct result of this was England's "Locust Years: 1919-1937."  
                Year after year,  Britain suffered much higher unemployment
                than elsewhere in Europe and North America at the same

                These policies also prevented the Baldwin and Chamberlain
                Governments of the 1930s from taking more steps to rearm in the
                face of the rise of German militarization under Hitler. 

                Three Conservative Prime Ministers in this period, Bonar Law,
                Stanley Baldwin and Neville Chamberlain had been Chancellors
                of the Exchequers before becoming Prime Ministers.  They
                are examples of the #2 man in the Cabinet becoming Prime
                Minister after faithfully adhering to views and values of the
                Treasury civil servants and the British financial community.

                Every British Chancellor of The Exchequer I studied followed the
                the "Orthodox" advise of the British Treasury Civil Servants
                and the financial community in  the "City", including the one
                Labour Chancellor, Phillip Snowden.                  

                It is the contention of my dissertation that they did so,
                despite the mounting evidence of the destructiveness of these
                policies, not only because it was easier to simply accept the
                Treasury's "departmental view", but also because they did
                not want a spending minister to gain too much public
                popularity.  I found no evidence that they were themselves
                directly pressured by the financial community.  Rather,
                the financial community pressured the Treasury and the
                Chancellors said and did what their Treasury civil servants
                advised.  This may or may not be a critical distinction. 

                Either way, by opposing all big new expenditures they could
                better forestall and prevent other spending proposals
                and, more importantly, as Chancellors retain their status
                as the #2 man, after the Prime Minister, in the British
                Cabinet and thus be the man most likely to become the next
                Prime Minister. 

               What was really needed from 1919 to 1935 was a massive program
               of  public works and housing.  After 1935, much more spending
               on the Navy and Air Force was needed.  All such policies were
               relentlessly opposed in the Cabinet by the #2 man there, the
               Chancellor of the Exchequer.

cannot be truthfully argued that every English economist or
                politician believed in the absolute need to balance the national budget
                very year, as the Chancellors seem to have.  Alfred Mond, for example,
                made a strong argument for public housing after World War I.  The
                economist Keynes warned starting in 1924 that the then Chancellor's
                (Winston Churchill) strict financial orthodoxy and restoring the Pound
                to the Gold Standard and the pre-war value of one Pound being equal
                to $4.80 (US)  would in five years bring on a deep economic depression.  

                Keynes was proven right.  The stock markets of the world all collapsed
                in 1929 right after Labour's orthodox Chancellor of the Exchequer backed
                the raising of Britain's "key" lending rate to 6 1/2 % to attract money back
                to England and out of the bloated American stock market. 

                The orthodox viewpoint even in the 1920s was not everywhere so
                dominant as many American economists still think.  A massive program
                of Public Works and deficit spending were the central ideas in the Liberal
                Party's 1928 campaign.  But by then, the Liberals could no longer compete
                nationally with the Conservative and Labour Parties.
 (For a discussion of the decline of Liberal Party see

The failure to appreciate Keynesian economics caused England's near-economic
                depression conditions to start in 1919,  America's did not start until 1930s.
                as did most of Europe.  In the 1930s,  America suffered from "deflation"
                and a thoroughly frightened Wall Street.  Who is to say this can't happen
                here again.   High interest rates and severe cutbacks in government spending
                could have that effect again, especially if the rich become frightened because
                of collapsing stock and real estate prices.   Lower interest rates,  a massive
                program of Public Works and the restoration of a truly progressive system of
                taxation are the best guarantees at America will not suffer its own "Locust Years". 

                Looking at the world before Keynes, we should go well beyond the UK experience.
                We would do well to study the policy-responses in the US, France and Germany
                to the high unemployment of the 1930s.  

                FDR's Public Works programs were started in 1933.  They did have a positive
                impact on the US economy.  As Keynes expected, they providing relief,
                they modestly lowered the very high unemployment rate,  they inserted
                spending money into the economy and they got the stock market to go
                up instead of down.  In a word, FDR's early Public Works programs saved
                Capitalism in America. 

                But in 1937,  FDR reversed course and took the "orthodox" advise of his
                Treasury Secretary, who wanted the President to cut back on national
                spending and balance the Federal budget.  This was disastrous advise.
                Soon there was a second Depression and the stock market fell 45%
                from September 1937 to March 1938.  FDR was no fool.  After this, he
                cautiously became more Keynes
ian.  But only World War II really ended
                the Depression in America.

                War preparations, it can be said, are a necessary component for  full
                employment in America.    Interestingly, a near-Depression had occurred
                between 1912 and 1914 in the US.  It was only the European belligerents'
                war-time that saved the American economy from a Depression.  This is
                another untold bit of American economic history. 


                                         READ KEYNES IN THE ORIGINAL.  
   INVESTORS' "ANIMAL SPIRITS":   Despite the need for new investments, if capitalists
   are sufficiently frightened and expect a deep recession, they will curb their investments
   and spending AND lay off their workers and cut production.
   THE "MULTIPLIER EFFECT": Each Dollar spent on Public Works has a 3-4x effect
   on GNP.
TARIFFS and PROTECTIONISM - "They do the trick."
                   Poor people spend all their money very quickly.  The rich do not.
                   They have no need to.   The Government can spur a weak economy
                   along much more effectively by providing jobs for working people
                   than giving money to rich people and expect them to spend it
                   or invest it, epecially if they are frightened and bearish.w, not contract.
"Wall Street , as an institution direct new investment into the most profitable
              channels in terms of future yield, cannot be claimed as one of the outstanding
              triumphs of laissez-faire capitalism…"


           2.  The British Experience with
         Financial Orthodoxy: 1919-1937
The British experience with Financial Orthodoxy should be a warning to all.
                Unfortunately memories quickly fade after a generation, especially when
                the dominant elites suppress the truth about how destructive their policies were.

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                 The story of the harm done working people in United Kingdom by the dominant
                 financial Orthodoxy of the 1920s and 1930s is seldom told in America.  Still, I think
                 the main ideas that make up this Orthodoxy are easy enough to understand.  Perhaps,
                 Americans will wake up and see what dire fate awaits them if they let their leaders
                 follow the very same Orthodoxy, wherein the highest priorities are:

                             Unlimited Private Wealth
                        Subservience to Private Financial Markets
                        Budget Balancing Each Year
                        Limited or No Public Works Expenditures 
                        A Strong National Currency

                 Throughout the 1920s and 1930's, this 'orthodoxy' was also called the
                 "Treasury view".   The primacy of tradition and departmentalism is seen
                 here.   Treasury officials always advised their Chancellors, who were
                 nominally their superiors, whenever the subject of Public Works came up in
                 Cabinet discussions to to tell their Spending Minister colleagues, first, that Government
                 borrowing money for Public Works would inevitably take away funds from
                 private borrowing and thereby hurt trade and, second, the private economy was
                 self-correcting and business conditions would soon improve, so that no such
                 special Public Works programs were necessary.


                                                    A Recipe for Deflation

                 Americans will readily recognize these dictates of Financial Orthodoxy as applied
                 by Presidents, Reagan, Clinton, Bush and Obama.     Someone in Britain now would
                 immediately see  that these are still central features of  Conservative Party thinking,
                 especially  under Margaret Thatcher and David Cameron.  

                 Each one of the Chancellors of the Exchequer in the inter-war period were staunch
                 defenders of this Financial Orthodoxy.  We might expect this from the Conservatives
                 who held sway throughout most of this period: 
                        Austen Chamberlain (January 1919-April 1921),
                        Robert Horne (April 1921- October 1922),
                        Stanley Baldwin (October 1922- August 1923),
                        Neville Chamberlain (August 1923-January 1924)
                        Winston Churchill (November 1924-June 1929)
                        Neville Chamberlain (November 1931- May 1937)

                 The very same policies were pursued by
                 Labor's Chancellor Philip Snowden  (January 1924-November 1924, 
                 June 1929-November 1931. 

                 Some might excuse these Chancellor's ever unyielding attachment to
                 Financial Orthodoxy in the face of so high a rate of unemployment year
                 after year from 1920 to 1938, by saying that Chancellors were only doing
                 what was expected of them, namely:
                          1)   fight government waste,
                          2)   keep government expenditures within the  limits of Government
                          3)   maintain the value of the Pound Sterling and prevent
                          a Weimar hyper-inflation,
                          4)  gradually pay off the World War I indebtedness and,
                          5)  above all, steer clear of the "event horizon" of the black hole
                          of Soviet-like socialism and central planning.

                 All these excuses  pale when compared to the human cost of persistently pursuing
                 policies which promoted high unemployment and a stagnating capitalist economy
                 year after year, throughout the 1920s and 1930.  Defenders of Financial Orthodoxy
                 in this era utterly ignored the emergence after World War I of widespread demands
                 that the Government properly compensate the soldiers who fought in the Great War
                 with decent jobs and housing.  They ignore the long history of Public Works
                 and Council (public) Housing in the UK.   And they ignore the leading
                 figures in the Liberal Party, like Auckland Geddes, Alfred Mond and Christopher Addison
                 who advocated for a vast public works program as early as 1919, nine
                 years before Keynes set out a grand plan for Public Works on behalf of
                 the Liberal Party in 1928.

                                                 Always High Unemployment   
                 British Unemployment in the inter-war years, 1920-1939, never went much below 8%. 
                 Think of the suffering, povery and the wasted potential.  This did not have to happen.
                 This path was chosen by the political and financial elites.  

                                   UK Unemployment      UK Unemploymen                 US Unemployment
                                   Unemployed                   Insured Unemployed
                                   As a Pct. of All             as a Pct of insured
                                   Employees                    Employees
                          1920         2.1%                          3.9%                                               5.8%
                          1921      12.2%                         16.9%                                             16.9%
                          1922      10.8%                        14.1%                                              10.9%
                          1923        8.9%                        11.7%                                                4.6%
                          1924        7.9%                        10.3%                                                8.0%
                          1925        8.6%                        11.3%                                                5.9%
                          1926        9.6%                        12.5%                                                2.8%
                          1927        7.4%                          9.7%                                                5.9%
                          1928        8.2%                        10.8%                                                6.4%
                          1929        8.0%                        10.4%                                                4.7%
                          1930       12.3%                       16.1%                                              13.0%
                          1931       16.4%                       21.1%                                              23.3%
                          1932       17.0%                       22.1%                                              34.0%
                          1933       15.4%                      19.9%                                               35.3%
                          1934       12.9%                       16.7%                                              30.6%
                          1935       12.0%                       15.5%                                              28.4%
                          1936       10.2%                       13.1%                                             23.9%
                          1937         8.5%                       10.8%                                             20.0%
                          1938       10.4%                       12.9%                                             26.4%
                          1939         8.5%                                                                                23.5%
                 Despite these dreadful numbers, year after year, the British Chancellor of the Exchequer
                 and the Prime Minister always,  whether they were from the Conservative or the
                 Labour Party, followed and  preached the same financial Orthodoxy.  This Orthodoxy
                 was the only path to economic salvation, they always claimed.

                                              The Conservative Mind
                While High Unemployment was not the stated aim of Financial Orthodoxy, that is exactly
                what its policies produced.  I think it can be argued that the Conservative Party
                in Britain and the "City", London's financial community, knew very well that
                Orthodoxy was an excellent way to keep the workers subservient, to contol their
                wage demands and to protect the rich from a successful political challenge. 

                If true, it means that their devotion to Orthodoxy was callous, cruel, self-serving
                and based on greed.  Were they biologically born without a compassion
                gene?  Or were the social/economic classes so separated in Britain? Certainly, 
                the physical separation of classes in England must have played some role.
                The Cabinet Papers do not show much discussion at any time from 1921-1937
                of the human costs of high unemployment.  So, it was much easier to de-humanize
                and disregard legitimate needs of the people one does not know.  As one
                English gentleman-officer in World War I famously commented: >I was quite
                amazed to discover that Welsh coal miners were as "white" as I am, once the
                Army washed away all their coal dust. <  

                Conservatives were definitely afraid a big national program of Public Works
                might actually succeed.  Not satisfied with criticizing Public Works as inefficient
                and unnecessary, they claimed such Government expenditures would crowd
                out legitimate private commerce and put the Government on a path toward
                "Bolshevism".   They loved using this word.  It stopped further thought.  
                When under-paid workers rebelled by the millions in 1926 and there was a
                General Strike, this too was called "Bolshevism".  It must be suppressed.  
                No mercy was to be shown them, said Chancellor of the Exchequer Winston Churchill. 

                (All this reminds me an old IWW song.
                Have a listen - )

                Some Conservatives did think more thoroughly about Public Works.  But they
                never set forth a plan to reduce unemployment in this way.  I suspect that they
                secretly feared that such a government spending program would become very
                popular and more such government programs would be demanded.  After all,
                the Government, had just successfully organized a massive war effort.  It's reasonable
                to think, therefore, that many Conservatives at this time must have guessed the obvious:
                namely, that millions would have loved a decent wage and the job security of
                Government work, especially when working in private industry paid little and
                was nearly always punctuated by long periods of enforced idleness. 

                So, a much bigger but unspoken fear developed, namely: if public works
                programs actually succeeded, what was the proper role for rich and for the "City". 
                What would be their justification then for having so much wealth while so many
                had so little.  Where would bankers, stock brokers,  industrialists, and
                Conservative politicians position themselves in a world where the government
                guaranteed everyone a decent paying job.  Bankers and their rich friends
                 might not be needed much.  Surely they would not be as important or so well-paid.
                It would be wrong to assume that Chancellors were troubled by the unemployment
                and suffering they caused.   The Cabinet Papers do not show they cared one whit
                about the pain their policies were inflicting on millions.  By going back on the
                Gold Standard in 1925, Churchill immediately caused a sudden plunge in coal exports. 
                Miners were laid off or had their wages cut. They went on strike in strike.
                The strike quickly spread.    Nearly 2 million workers struck in sympathy.  (For details.)

                Churchill who was then the Chancellor of the Exchequer advocated in the Cabinets
                for a full show of lethal force, including machine guns.  "Either the country will break
                the General Strike, or the General Strike will break the country."  He praised the
                Fascist dictator Mussolini for showing the whole world the right way to deal with
                "subversive forces."   The Cabinet Papers showed that Churchill wanted to force
                the miners back to work by denying their families Unemployment Relief and threatening
                them with starvation.  (Source.)

                                  Hooray Henrys as strike breakers      
                       Tory   Officer cadets were encouraged to volunteer as strike breakers     

                                 Tanks on the streets        
                                  Churchill insisted on an armed escort for a food convoy
                                                        The Minds of The Labour Leaders

                 The British Labor Party's official loyalty to the Financial Orthodoxy in the
                 inter-war had different motivations.  Realize that its leaders, MacDonald and Snowden,
                 saw the Liberal Party, not the Conservative Party, as their main political enemy. 
                 It was the Liberal Party they fought most often in urban constituencies.
                 When the Liberal Party fully accepted and highlighted J. M. Keynes' Public Works
                 proposals in their official "programme" for the national election at the end of 1928,
                 Labour's leaders could not very well accept the same ideas.  Keynes was a well-known
                 Liberal economist.   Instead, they quickly proclaimed their loyalty to orthodox
                 Budget Balancing and the supremacy of Private Finance.  They resolutely refused
                 to endorse public borrowing (deficit spending) to create new public jobs and
                 to rebuild England's infrastructure. 

                 These two Labour leaders apparently wanted to prove to the Electorate
                 and to the financial Establishment that they could run the British capitalist
                 system better than either of the other political parties could.  Were they
                 still socialists?   Who knows.  They were chosen to lead.   This was certainly
                 a strange position for the leaders of a Socialist Party, but MacDonald and
                 Snowden had reputations for independent thinking that went back to their pacifism
                 at the start of World War I.  The rank and file in the Labour Party was expected
                 to follow their leaders, not challenge them.   So, in the 1920s and until 1931,
                 when their leaders sought respectability and wanted to be accepted by the
                 financial Establishment, the rank and file accepted the Labour strategy of
                 first proving that they could run the country, before they would start talking

                 Also because their Labour Party never won an outright majority in the House
                 of Commons,  these two Labour Party's leaders in their 1924 and 1929-1931
                 governments, chose to follow the Orthodox Financial Policies, much like
                 Conservatives at the time had.  They definitely did not want to give credibility
                 to the upstart Liberal economist Keynes.

                This was even more true as the Financial Panic worsened in 1931.  Seeing how
                completely Private Finance froze up, they may have blamed themselves and
                tried to offer the "City" even more concessions.  In full crisis, the Labour
                Prime Minister MacDonald and Labour Chancellor of the Exchequer agreed
                to cut the Government's budget to the point even of drastically cutting back wages
                for those in Government, including even sailors in the British Navy.  They also
                agreed to dramatic cuts in the Unemployment Insurance benefits that millions
                depended on. 

                I think this is proof that these two leaders themselves panicked.  They could not
                reverse course and admit they had been wrong.  There was too much public spotlight
                on them.  They rightly feared the wrath of the public.  So they panicked and clung
                even more tightly to the tenets of the Orthodoxy and said they had no other choice
                but make severe spending cuts.  This was, of course, not true. Keynes and the
                Liberals had shown their were other choices.  MacDonald and Snowden simply lost their
                 nerve.   They hid behind the orthodox Treasury view. 

                 In the end, so upset were rank and file members of the Labour Party. that these
                 two "leaders" were expelled from the Labour Party in  1931.  The Labour
                 rank and file, however, were so disillusioned by the Labor Party Elite's subservience
                 between 1929 and 1931 to the "City" and Financial Orthodoxy, that they refused
                 to vote in large numbers for Labour until after World War II, by which time
                 Labour's leader Clement Atlee had fully embraced Keynesian Public Works and
                 deficit spending to promote recovery and employment.  In 1945, he was elected
                 Prime Minster by a landslide.   

                   The Tenets of The British and American Financial Orrthodoxy

                     1.   Balance the Budget no matter the costs.
                     2.   Private sector jobs are more legitimate than Public Sector.
                     3.   Take pride in a rising and lofty Dollar (Pound Sterling).  
                     4.  Wall Street rules. (The "City" know best.)
                     5.   No taxes on stock trades.  No limits on executive pay.                                                          
                     6.   Encourage Absolutely Free International Trade. 
                                   (British Conservatives did put up some tariffs on non-Empire imports.)
                    7.  Permit private investment capital freely to go abroad.
                     8.  Lower prices were desirable.

                   The only aspect of the British orthodoxy not followed now in America was in the
                   area of the Bank of England's relatively high Lending Rate.  The American FED, of course,
                   has made the interest rate on their loans to the the biggest banks very low and has been
                   buying long-term mortgages in the open market.  US Big Banks, it should be said, are 
                   the real beneficiaries of the Fed's very low interest rates loans, though home buyers
                   theoretically can save a lot of money buying a home, provided they can borrow the
                   money from a bank for a mortgage. 

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                American Bankers now pay very low interest on loans from the Federal Reserve. 
                This seems nice, until you realize that the big banks can do whatever they want
                with the cheap money.  They can Buy foreign bonds, make loans to allow American
                corporations to export jobs,  speculate aggressively, using leverage to the fullest,
                in stocks,  commodities, bonds currencies.  They are under no obligation to pass
                along the low rates to the American Public or even make any loans.   And they
                can and do use this cheap money make huge campaign contributions to American
                politicians to bribe them so that Wall Street always gets the inside track and
                its way when policies are being made.  Thus, the exception of lower interest rates
                has been twisted by Wall Street to ensure its hegemony continues  In America,
                Main Street is of lesser importance, just as working people and small shop keepers
                were when the "City" in London ruled England so absolutely in the 1920s and 1930s..

                  This Orthodoxy, apart from the experiment in low interest rates, is
                  fully supported by all Republicans.  Most Democrats in Congress and the President
                  also uphold the American Orthodoxy.  In this they are doing just what
                  the richest Americans and the biggest corporations want, apart from occasional
                  rhetorical lapses by Democrats made in the middle of their political campaigns.  
                  The reign of financial Orthodoxy in England had the same underlying basis:
                  National financial and budgetary policies always had to protect and promote
                  the interests of the richest Englishmen and the "City", London's financial
                  community, just as they saw these interests. 

                 My hope is by seeing just how badly England was served by this Orthodoxy, we Americans
                 may better come to understand why we have such high unemployment still and
                 why the Super Rich here seem to be the biggest benefactors of the Obama Administration's
                 financial, banking and budgetary policies.  The dire economic consequences of the
                 British Orthodoxy are familiar to most British economists, not just Keynesians. 
                 In America, Government was seen as the source of economic problems by Reagan
                 and his followers.  De-Regulation was preached for two decades by Milton Friedman
                 and Alan Greenspan.  Clinton's Treasury Secretary, Robert Rubin, continued this
                 laissez-faire, conservative ideology.  The pervasiveness of their Orthodox thinking
                 has prevented Americans from seeing that Keynes was not a "Red".  He
                 believed that Capitalism in Recession could only be saved from itself if the
                 Government launched Public Works' programs when Private Investment failed.

                 Government De-Regulation is now no longer held in high esteem.  Most Americans
                 understand that the loan policies leading to the Housing Bubble, the Bank's excessive
                 speculation and the fraud in selling sub-prime mortgage back securities were all
                 caused by a lack of government regulation.  On the other hand, the great need for
                 Public Works is not yet widely accepted by the Political and Financial Elites in America. 
                 But it is growing among the people.  They want decent jobs!  They are tired of waiting.

                 Americans understand that the American Financial Orthodoxy and "Trickle-Down"
                 is not working.  The bull market since 2009 has not seen a comparable increase in
                jobs.    Rising stock prices are making the rich a lot richer.  But they corporations
                are not investing in  new manufacturing here.  They continue to sit on billions hidden
                away in foreign tax havens.  Some times the corporations use this money to buy
                out a competitor  But mostly, big Corporarions are replacing American
                workers with new overseas factories.  As costs go down, the CEOs can report higher
                earnngs, make Wall Street happy and get even higher pay.

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                 Good paying manufacturing jobs in America are too scare.  The Unemployment
                 Rate for the unskilled is way over 12%. (2010)     

                  Americans are told by Obama and the Democrats to be patient.  "Don't rock the boat." 
                 "The Republicans would make things worse".  "We Democrats know what we're doing."
                 "The slow recovery is the fault of Republican obstructionism."  Do not buy these excuses. 
                  If the English experience of the 1920s means anything,  it means that the American
                  Financial Orthodoxy will keep tens of millions of America unemployed for a decade or
                  tow.   Almost nothing is being done by Democrats and their Wall Street backed,
                  free-trade, free-market Orthodoxy to rapidly increase the number of decent paying
                  manufacturing jobs.

                .  Even though the dire economic consequences of Orthodoxy are becoming clearer
                  and clearer in America,  just like the terrible, high unemployment was to people in
                  England in the 1920s, before the 1930s, the elites ignore these contradictions
                  almost totally.  So, the political problem remains.  As in England in 1926 or 1931,
                  what can the average American worker do?  Both major political parties' leaders
                  support the failing policy of Orthodoxy.  What will change their economic policies? 
                  England's experience does not make for hope.  Protest marches did not work. 
                  Even a General Strike in the UK did not work.  The best hope, sadly I conclude,
                  would seem to be to show the Elites that even the Wealthy will better promote their
                   own long-term interests much better if they work to expand the domestic American economy,
                   and create real jobs here, let the Government re-build our aging public infrastructure and
                 take away Wall Street's exceptional powers. 

                  There should be no need for so many retiring Americans to have to gamble their
                  savings in the stock market.  Wall Street may be essential, but it should not be so dominant.
                  Should not more people make things than service investors and short-term trading,
                  which is often parasitic and has no social value.   Of course, the Big Banks must be broken up.
                  They're bigger than ever.  They could easily shut down the whole economy in the next "Crash".
                  That they have not been broken up and there are no plans to do this shows clearly
                  how all-powerful the Financial Elite are politically. America is every bit as much dominated
                  now by Wall Street as England was in the 1920s, when the Treasury view and the needs of
                  the "City" over-ruled the needs of millions who were out of work and desperately needed
                  Public Works jobs since the Private Sector could not and would not provide them
                  year after year, after year, after year.
                  To seek change we must, I think, explain how and why the British political and
                  financial elites clung so stubbornly to an Orthodoxy which was clearly so destructive,
                  even of their own interests in the long run.  It's important to see that each of the
                  different actors on the political stage had somewhat different reasons for refusing
                  to reconsider their loyalty to Orthodoxy, even in the face of the terrible Unemployment
                  caused by it.

                  As you read what I write here, keep in mind the next set of statistics.  They
                  could very well be what is in store for America if our political and financial elites
                  do not shake off their ideological blinkers.

                 British Unemployment in the inter-war years, 1920-1939, never went much below 8%

                                   UK Unemployment      UK Unemploymen          US Unemployment
                                   Unemployed                   Insured Unemployed
                                   As a Pct. of All             as a Pct of insured
                                   Employees                    Employees
                          1920         2.1%                          3.9%                                               5.8%
                          1921      12.2%                         16.9%                                             16.9%
                          1922      10.8%                        14.1%                                              10.9%
                          1923        8.9%                        11.7%                                                4.6%
                          1924        7.9%                        10.3%                                                8.0%
                          1925        8.6%                        11.3%                                                5.9%
                          1926        9.6%                        12.5%                                                2.8%
                          1927        7.4%                          9.7%                                                5.9%
                          1928        8.2%                        10.8%                                                6.4%
                          1929        8.0%                        10.4%                                                4.7%
                          1930       12.3%                       16.1%                                              13.0%
                          1931       16.4%                       21.1%                                              23.3%
                          1932       17.0%                       22.1%                                              34.0%
                          1933       15.4%                      19.9%                                               35.3%
                          1934       12.9%                       16.7%                                              30.6%
                          1935       12.0%                       15.5%                                              28.4%
                          1936       10.2%                       13.1%                                             23.9%
                          1937         8.5%                       10.8%                                             20.0%
                          1938       10.4%                       12.9%                                             26.4%
                          1939         8.5%                                                                             23.5%

                                  What Underlay The Tenets of Financial Orthodoxy?

                 The supreme concerns of this Orthodoxy were: balance the national budget, pay-off
                 past government debt and restore the Pound Sterling to the Gold Standard. 
                 Deflation was welcomed, too.  In all these things, the central policy makers,
                 the Chancellor and the Prime Minister heeded only the advice of Treasury
                 bureaucrats and the private bankers in London's financial community, the "City".    

                 Orthodoxy's undeclared assumption must be noted, because of whose immediate
                 interests it best served.   Only the private allocation of capital was considered legitimate
                 in peace time.  Government expenditures should be strictly limited.  Borrowing money
                 for Public purposes always took money away from Private investment.  More jobs
                 could not be created by government housing or Public Works programs, because
                 such funds as would be used could only come from the same pool of Investment
                 Money that private investment drew from.  

                 This was the financial Orthodoxy that underlay all budgetary decisions in the UK
                 for nearly 20 years.  Its consequences grew more and more dire.  In many ways,
                 England hibernated.  Its economy stagnated.  Its industrial north suffered most.
                 But everywhere there was high unemployment, widespread poverty, industrial
                 obsolescence and a decline in competitiveness internationally. 

                 Still the political and financial elites allowed no breaches or challenges to their
                 Orthodoxy.    It was like a religious faith.  The more its economic consequences
                 brought economic suffering and pain, the more this was considered a positive development.
                 It meant society was paying off the price for some past indulgence or extravagance.   Soon,
                 purged of this sin, the economy would emerge cleaner, stronger, purer and
                 more efficient.   The champions of this financial Orthodoxy never wavered.   Their loyalty
                 to it was never shaken.  Heretics were excluded from positions of power and
                 publicly scolded.  Only loyal followers of the Orthodoxy became Chancellors and
                 Prime Ministers.   

                 We Americans now seem doomed be victimized in the same way by our own leadership.
                 It repeats all the same mistakes and for the same reasons.  The millions who
                 are unemployed are not heeded by our policy makers.  The 40 million who rely
                 on food stamps are considered "takers" by the Republicans and never mentioned
                 by President Obama.  Small business owners are forgotten and their stores are
                 replaced by big multi-national corporations who import most of what they sell.
                 In this, the Republican and Democratic Party elites only hear and heed the orthodox
                 views of Wall Street,  the Chamber of Commerce and the National Association of

                 As in England, it does not seem to matter how badly the Orthodoxy fails working
                 people.   Clearly, it is making the rich much richer.  And that is all that seems to
                 count to Republicans.  And truthfully, campaign rhetoric aside, this is also all that
                 matters to most Democrats in Washington, too.  

                 Four years after the Housing Bubble broke, American real unemployment remains
                 very high.  Wall Street is happy, but Main Street is not.  Why do our government's
                 leaders, Republicans and Democrats, year after year, cry always for budget-balancing
                 Austerity and a Strong Dollar as their only solutions to what ails our economy?
                 Why do they not re-think their failed policies.  When will they admit they were wrong?
                 Studying the English experience shows how entrenched and self-perpetuating the
                 orthodox "Treasury view" was.  Their political leaders could no more abandon
                 their rich supporters, stop balancing national budgets on the back of working people.
                 or cease calling for Deflation and a much stronger national currency than ours can. 
                 England was a Plutocracy in the inter-war years.  America is a Plutocracy now. 
                 The inter-war years in England are known as the "locust years". The English
                 "roaring 1920s"  were years of needless high unemployment, rusting industry,
                 plant obsolescence, widespread poverty and needless suffering.  There were
                 marches.   There were demonstrations.  There was even a General Strike.
                 Still the financial experts and elites clung to their erroneous and destructive views and
                 solutions.    This is also the story of WHY the so-called experts and leaders, year
                 after year, government after government, never changed their thinking. . .
.   . 

                          wpe19.jpg (68059 bytes)  
                          Unemployment in Britain was always very in the "roaring" 1920s. There were even
                                   hunger marches to London in 1922, 1923, 1927 and 1929.  There  were also frequent clashes
                                   between the unemployed and the police. (Source.)   


                   The lowest English Unemployment fell to in the whole long period between 1921
                   and 1939 was 7.4%. Employment conditions were steadily poor in the 1920s
                   and awful in the 1930s.  As in America now, "the  incidence of unemployment
                   throughout the interwar period was generally higher for men (50% higher)...
                   and for older workers and youths between 21 and 25...It was particularly acute
                   amongst unskilled manual workers".  (Source.)             
                   From 1921 to 1939,  British Unemployment was always above a million people.
                   In 1933 it reached 3 million.   The number of hours typically worked also fell.
                   National unemployment rates can be compared, I think, even though methodologies
                   for their computation surely must have differed.  The data above shows
                   that England's rate was much higher in 1923, 1925, 1926, 1927, 1928 and 1929
                   than in the 1920s.  America's boom was brought about by new inventions,
                   cars, radios, washing machines...  England's industry, in contrast, was slow to
                   adapt.   Investments went overseas and imports were deliberately made cheaper
                   to allow England's financial community to enjoy the prestige of the Pound being
                   backed by Gold.
                                                     Orthodox British Policy Making

                   Except for the post war Lloyd George government's acceptance of the principle
                   that the severe housing shortage in the UK should be alleviated by the subsidizing of
                   council houses in 1919-1920 (The Addison Act) and the start of paying a
                   small amount of unemployment relief to manual workers in 1920, the economic
                   policies of the various British Governments from 1920 to 1939 were
                   always subordinate to a Financial Orthodoxy that was sometimes called the
                   "Treasury View".)  

                   In this, the highest Cabinet priority was placed on Governmental Austerity and Balancing the
                   Budget at all costs, no matter the levels of Unemployment.  There was a strong preference
                   for Limited Government.  Furthermore, England was expected to strive to return to,
                   and then say on, the pre-war Gold Standard, even if it meant Deflation.    Free trade
                   was a Liberal Party and Labor Party Preference.  The Conservative Governments
                   were mildly more protectionist. 

                                  ch_hillfieldsestate.jpg (295552 bytes)

                   By 1921, Conservatives accused the Ministry of Housing of high-handed
                   Bolshevism and the national government's role in helping to finance
                   council houses was rendered almost meaningless.
                   In the Cabinet's many deliberations on economic policies, always the
                   the financial community's interests were placed above
                   the needs of the average worker and the small shop keeper.  In England,
                   the most power political exponents of this Financial Orthodoxy were
                   the Chancellor of the Exchequer, the Prime Minister who usually had
                   been a Chancellor and the Treasury Department
who advised the
                   Chancellor and conveyed to the Chancellor the "City's" preferences
                   and perspectives on "investor confidence" and the likely success of
                   government borrowing. 

                         Why Did The British Government Pursue Only A  Policy of
                         Financial Orthodoxy between 1921 and 1937 despite the continuing
                         high level of Unemployment

               Economists typically place the blame for the stagnant inter-war British economy
               on the failure of private investment to keep up the country's infrastructure and
               technology.  The cotton, coal, steel and iron industries became uncompetitive
               internationally.  Newer industries, like cars and chemicals,  grew more slowly
               in the UK than in the US or Germany.

                                  Why did private investment fail in this? 

              The primary answer: it was was not sufficiently profitable to make such investments. 
              Interest rates were kept high to support the Pound.  Domestic demand was too strictly
              limited to buy what was already produced, primarily because so many
              consumers were poor, this a result of the high long-term unemployment.

              The UK's budget showed a surplus throughout the 1920s.  Excluding interest
              payments on World War I debt, tax revenue was greater than government
              spending.     By 1928, Conservatives might have asked themselves if balancing
              a budget just for the sake of balancing a budget served any good national
              purpose.   They did not.  The political reasons for laissez-faire were just
              too strong.  

             In 1925, the Pound Sterling was restored to its pre-1914 value of $4.80/Pound
             by Chancellor of The Exchequer Winston Churchill and Stanley Baldwin, the
            Prime Minister.   The cost to the British economy and to the British working class
            of this largely symbolic, patriotic victory was immense.

                  £-exchange-rate05-38-500x362.png (101114 bytes)

              Setting the Pound artificially high from 1926 to 1931 and from 1934 to 1939
              brought Deflation.   Wholesale actually prices in Britain fell by 23%
              between 1921 and 1929.   Going back on the Gold Standard necessitated
              high interest rates to induce foreigners to buy British bonds.  But this
              made loans more expensive and also reduced consumer borrowing.
              The high international value of the Pound ($4.80 = 1 Pound Sterling)
              made it much harder for foreigners to buy British goods.  British manufactured
              exports fell while imports increased.   It also became easier and much more profitable
              for British investors to take their money overseas.   The wealthy, of course,
              enjoyed being able to import more foreign products.  Restoring the Pound
              to its pre-War levels also made them feel that England had not lost its status
              as a world power.   Tory nationalists like Churchill were cheered by this. 
              Unfortunately, the poor and the working classes lacked sufficient employment
              and income to benefit from the Deflaton.

              And things got steadily worse. The working class as a whole steadily lost
              buying power due to the high unemployment and the way an abundance of men
              seeking work tended to reduce wages that were paid.  And without sufficient
              domestic buying power,  English factories hired fewer and fewer workers.  This vicious
              circle turned into a vortex in 1930.   

              Of course, Conservatives in the UK, just as they do in the US now,
              blamed the introduction of unemployment benefits in 1920.  These "benefits"
              were so meager, it hardly seems likely that many Englishman chose them
              voluntarily over employment. 

             The biggest irony of all:  Years of Austerity, Budget Surpluses, the Gold
             Stand and Financial Orthodoxy did little to reduce British national debt as
             a percentage of its GDP.  In 1922 the number was 180%.  In 1932 it was
             still 180%.   It remained little changed.  Even by the Conservative's
             own measuring stick, their policies had failed.  But the human costs were
             huge and awful.   Look the Unemployment Percentages below.  England
             experienced for 17 years the same level of unemployment that Americans
             have today.  
                          1920       2.1%
                          1921    12.2%
                          1922    10.8%
                          1923      8.9%
                          1924      7.9%
                          1925      8.6%
                          1926      9.6%
                          1927      7.4%
                          1928      8.2%
                          1929      8.0%
                          1930     12.3%
                          1931     16.4%
                          1932     17.0%
                          1933     15.4%
                          1934     12.9%
                          1935     12.0%
                          1936     10.2%
                          1937       8.5%
                          1938     10.4%
                          1939       8.5%

              1920-uk-debt-percent-500x358.png (115380 bytes)

               The 1926 General Strike in Britain was called to highlight
               the continuing high unemployment and wage reductions forced on coal miners
               in the aftermath of Churchill's return to the Gold Standard.

                                                     Who Was To Blame?
              I blame the governments, one after another, in this period for failing to put
              the millions of unemployed to work rebuilding the country's rusting infrastructure
              and thereby also losing the chance to boost their buying power so that they
              could buy more British goods.    This callous stubbornness doomed millions of
              people in England quite unnecessarily to long-term Unemployment, Depression
              and Poverty between 1919 and 1937. 

             Why were the governments so callous?  Why did they always ask what would
             be the consequences of a program of deficit-financed Public Works to the "City",
             London's financial community, and so seldom ask why the unemployed had to
             remain unemployed so long?

             The answer is that the cold economic orthodoxy of Austerity held sway in
             the "City",  in  the Treasury, and in the thinking of each Prime Minister
             and Chancellor of the Exchequer.  It was the dominance of this Financial
             Orthodoxy among all the political and financial elites that should be
             blamed.  The same orthodoxy rules American political and financial elites
             now.   America seems eventually doomed to repeat the English experience
             of the 1920s and 1930s, even more unnecessarily than Britain did.  You might think
             that American politicians might be aware of and learn something from England's
             locust years' experience.  Apparently, that is asking too much.

             The reasons for America's ideological blindness and stubbornness now
             seem remarkably similar to what I learned was true in England.  We should, I think,
             study the British experience closely. 

             US Policy-makers, both Republicans and Wall Street Democrats like Obama
             must somehow wake up and learn about the mistakes made year after year
             by England's top policy-makers in its dismal locust years: 1919-1937. 

             To the extent American policy-makers adhere to the same Financial Orthodoxy,
             they may doom America to its own "locust years"
, with the same tragically unnecessary
              consequences: high unemployment, badly neglected infrastructure,
              flight of capital abroad and poverty and poor health for tens of millions
              of Americans. 

              I have organized the discussion below as follows:

                        UK - 1919-1937:
                              Each Chancellor of The Exchequer Demanded The Rule of Financial Orthodoxy,
                              despite the Continuing High Unemployment and Substantial Long-Term Poverty.

                             Financial Orthodoxy:
                                    Budget Balancing,
                                    Limited Government,
                                    Going Back to Gold Standard and
                                    Special Preeminence of the "City" (London's Financial Community)

                             Why Did Financial Orthodoxy Prevail?
                                    1) The Recruitment Process for the Chancellor of the Exchequer and Prime Minister
                                    2) The Chancellors' Political Goals Made Him More Orthodox.
                                    3) The Treasury Department was Home to the High Priests of Orthodoxy. Why?
                                    4) The Rich Man's Financial Orthodoxy.

                             Orthodox Chancellors:
                                    Austen Chamberlain
                                    Robert Horne
                                    Stanley Baldwin
                                    Winston Churchill
                                    Phillip Snowden
                                    Neville Chamberlain

                             The Fabian Socialists' View of the Financial Orthodoxy.
                              Inter-War Year Challenges to the Financial Orthodoxy
                                    1) Addison's Proposals for Health Care in 1919
                                    2) Alfred Mond's Proposals for A Large-Scale Public Works Program in 1920
                                    3) Keynes vs. Chruchill's Return to Gold Standard: 1914-1926
                                    4) Liberal Party's Public Works Program: 1928
                                    5) Keynes vs. The Treasury's Orthodoxy
                                    6) Labor's Mosely Proposes A Massive Public Works Program: 1930-1931
                                    7) Churchill Seeks To Dramatically Boost Spending on RAF: 1933-1936.

                               Keynesian Deficit Spending and Public Works
                                     Turned down by Snowden and Neville Chamberlain: 1929-1935
                                     Adopted by Germany and Sweden, whose economies recovered quickly.

                               FDR and Keynesian Deficit Spending: 1933-1936

                    UK - 1919-1937
The theme of my 1972 dissertation at Columbia, The Role of the Chancellor
                    of The Exchequer in British Cabinet Politics: 1919-1937", was quite simple.
                    As second in command in the British Cabinet and heir-apparent to be
                    the next Prime Minister, the orthodox financial perspective and policies
                    of every Chancellor in this period did immense, unnecessary harm
                    to England and its people in its "locust years", 1919-1937.  This
                    became clearer and clearer.  Yet there was no change in their
                    thinking, year after year.  Liberal and then Keynesian criticisms of
                    this financial orthodoxy were always rejected.

                    It cannot be said that there were no other alternatives than cutting
                    government spending more and more deeply to balance the national
                    budget.   And it cannot  be said accurately that these alternatives did
                    not get sufficient political expression to allow the Chancellors and
                    their defenders correctly to say that no one advised them of anything
                    different than the prevailing financial orthodoxy.   Other solutions,
                    especially, massive Public Works programs and large-scale Rearmament
                    spending were set forth by spending ministers within the inter-war
                    Cabinets.   Yet every Chancellor, regardless of party, year after year,
                    invariably fought all new government spending proposals,
                   no matter their merits, no matter how many jobs they might have created,
                   no matter how unprepared the RAF was as Germany rearmed.  

                    Surely, the Chancellors must have read the dismal economics news
                    month after month, year after year.  They could see the suffering and
                    poverty that extended high unemployment and then Depression
                    brought.   Yet, they all dismissed these dismal facts as inevitable
                    and unalterable.  They chose not to see them as the direct consequences
                    of years and years of Austerity, Balanced Budgets and their own
                    "No"s to all new spending programs.

                    In this period, only financially orthodox policies were approved by the
                    British Cabinet  despite 18-years of steadily high unemployment and
                    misery for the millions of people stuck in poverty and poor health. 
The political leadership and the political system utterly failed, much like
                    has now in the US.
  Each year it should have become clearer and clearer
                    that completely new financial policies were needed.  Instead, the Prime Ministers
                    and Chancellors, year after year, stuck to the same old policies which had
                    always failed to bring about a real economic recovery and full employment. 

                    Such suffering we now realize was the result of the way Prime Ministers
                    (who were often ex-Chancellors) and Chancellors of the Exchequer
                    clung stubbornly to a financial orthodoxy that still grips manypoliticians
                    in the US, the UK on in Europe.  This was the Ideology of Austerity.  
                    Its principal tenets were:

                    1) Always, they said, "Balance The National Budget", no matter how much
                    unemployment it causes and no matter how much suffering would ensue
                    among the poorest in society. 

                    2) Always Protect or Enhance the National Currency.  The Gold Standard
                   represented the natural order of things.  Returning to it would bring
                   pre-war imperial greatness, glory and normalcy.   Clearly, the reasoning here
                   had a big emotional component.    But it utterly failed to restore the old order
                   and the smug satisfaction that went with it of owning a rich Empire and
                   the middle class enjoying a very high standard of living.
                    3) Never Challenge the Financial Community in their assessment of
                    how best to ensure sufficient confidence to accommodate government
                    borrowing needs and maximize private investment and economic growth. 
                    If the Treasury said that the "City"'s confidence would be jeopardized
                    by public borrowing to finance Public Works, then that should be
                    the end of discussion.  Always there was the danger that Public borrowing
                    would "crowd out" private finance. 

Why did the political leadership fail so badly?

  1)  The Political Recruitment Process

                    The complete adherence to the Financial Orthodoxy, just laid out, by each
                    Chancellor of the Exchequer and each inter-war Government
                    came about, first, because each Conservative Prime Minister in this period
                    had himself been Chancellor and it was the Prime Minster, of course,
                    who picked who would be his own Chancellor in his Cabinet.  Naturally,
                    these Prime Ministers picked as their Chancellor and #2 man in
                    the Cabinet, someone who held views and opinions like their own.
                   That their official residences, #10 and #11 Downing Street, were right next
                   to each other also reinforced like thinking.  

                    Strikingly, except for the Labor Governments, 1924 and 1929-1931, the 
                    man who picked the Chancellor, had himself been Chancellor and, therefore,
                    had himself been heavily influenced by the same recruitment process
                    that favored orthodoxy.  In addition, the high priests of Orthodoxy in the Treasury
                    Department heavily influenced the thinking of the Chancellors
                    who became Prime Ministers as well as the current Chancellors of the Exchequer.  

 2) The Conservative Chancellor's Political Goals

Chancellors chose financial Orthodoxy and Austerity because
                    they thought it served their political interests.   They were already
                    second-in-command and heir-apparent to the office of Prime Minister.
                    Why, they thought, take a chance and risk becoming Prime Minister?
                    Why surprise or shock others, and there were many, who expected the
                    Chancellor to stick to an orthodox financial path. 

                   In fact, many of the inter-war Chancellors did become Prime Ministers. 
                   (Austen Chamberlain, an exception, did become the Parliamentary leader
                   of his party,  but chose to remain loyal to Liberal Lloyd George's
                   government rather than seek the Prime Ministership when Conservative
                   back-benchers decided to break free.)  Four inter-war Conservative Prime
                   Ministers,   Bonar Law, Stanley Baldwin, Neville Chamberlain and
                   Winston Churchill, were each very orthodox Chancellors before they
                   became Prime Ministers.

                    Importantly, as heir apparent, the Chancellors saw no reason to give
                    the wherewithal to a spending minister that potentially might enable
                    that minister to build up such a favorable reputation on his own that it
                    would allow him to successfully challenge the Chancellor when a
                    a new Prime Minister was to be selected.   Why help a spending minister
                    up the same promotion ladder the Chancellor was on?  Intra-Cabinet,
                    political alliances were less important to the Chancellor than keeping
                    the favor and trust of the Prime  Minister.  They knew that the Prime Minister
                    could ask the Chancellor to resign at any time. 

                    Furthermore, It clearly would not help the Chancellor's chances to succeed
                    to the Prime Ministership if he said anything that would disturb the "City"
                    or weaken the Pound Sterling.  So, why not continue being a strict budget
                    balancer and make a reputation for fighting government waste?  

                    I believe that this deep-rooted ideology of Austerity and Orthodoxy
                    were promoted by the Chancellor not because the Financial
                    Community secretly pulled political strings, as Marxists might allege.
                    The Financial Community did not have to pull any strings or make
                    make big campaign contributions, as in America,  There was no such need.
                    All the Chancellors were already their natural allies.  The Chancellors shared
                    the same thinking and fully appreciated the political advantages of adhering
                    to   the financial orthodoxy.   They were already on the fast  track to become
                    Prime Minister provided they did not do something foolish and provided they
                    did not allow a spending ministers to gain a grander reputation that would
                    threaten their own. .  

                    Their adherence to the prevailing financial orthodoxy was thus a matter
                    of political convenience.   Chancellors in this period opposed all increases
                    in government spending.  Exceptions I could not find.  They did not pick
                    and chose some new spending proposals to reject and some to
                    accept.   When they were over-ruled in the Cabinet, they formally dissented.
                    They believed that encouraging any one spending proposal would
                    encourage others.  And they said this quite openly.  In this way there
                    was no need to think hard and develop a subtle,  layered, nuanced
                    view of national finance and macroeconomics.  Rather, they could claim
                    to be maintaining the grand tradition of the Treasury and the Chancellor.
                   Chancellors of the Exchequer were not part of a hidden financial cabal 
                   Their Orthodox views and loyalties were openly expressed.  And it served
                   their political goals to  work hard to reinforce, rather than challenge,
                   the Financial Orthodoxy in the mind of the Public and the Press.                
                   A complete acceptance of the tenets of Austerity and Orthodoxy were
                   viewed by the Chancellor as the best way to keep the financial community
                   happiest and to avoid financial panics.  Interestingly, Snowden the
                   Labour Chancellor was as devout a believer of Austerity and Financial
                   Orthodoxy as any of the Conservative Chancellors.  We will look at his
                   case closely further below.

                  Orthodoxy was expected of Chancellors in the secret and private Cabinet
                  discussions of public policy and finance.  Orthodoxy is what they delivered
                  behind the scenes.  One might think that given the secret nature of Cabinet
                  deliberations (This is the so-called "collective responsibility"), they
                  might have voiced a heterodox view now and then.  I could find
                  no instances of this in all the Cabinet memoranda and minutes I read
                  at the Public Records office in London. 

                  It was as though they turned off their "free will" and their ability to do
                  critical thinking.  All the inter-war Chancellors played this orthodox role
                  in exactly the same way.   The arguments a Chancellor used against spending
                  proposals to build Council Houses in 1920,  to launch a Public Works program
                  in 1920 or 1930,  or to expand and modernize the RAF (Royal Air Force) in 1934
                  were always the same.  Such expenditures would cost too much.  The budget
                  could not afford them.  They would cause a budget deficit.   In turn, this
                  would jeopardize investor confidence, hurt the Pound (and the stock market)
                  and drive up the costs of borrowing from home and abroad.  At best, such
                  spending proposals were "ill-timed".   Usually, they were considered "wasteful",               
                  "dangerous if they encouraged others to also seek new spending" and
                  "damaging to investor confidence".  

 3)  The Treasury Was Home to The High Priests of Financial  Orthodoxy.
                    The Chancellor depended upon the Treasury's civil servants to advise
                    him and give him the arguments and numbers that he used in the
                    Cabinet papers and discussion, as well as in his speeches in Parliament,
                    including his annual presentation of the Government's budget.   It was
                    much easier to get the Treasury to do what it had always done, namely
                    demonstrate how a budget must be balanced,  than to get it to
                    advance arguments in favor or public borrowing that would break
                    with its traditions.   None of the Chancellors I studied questioned the
                    traditional, orthodox view that each year the national budget must always
                    be balanced.

                    The Chancellor with Cabinet approval could seek or modify taxation.
                    But with one exception, he never challenged the Treasury's position
                    on how much revenue might be raised by different taxes and through
                    government borrowing.  The Treasury's views and recommendations
                    seem always to have been accepted.  They were never challenged.
                    The only exception, perhaps, was Chancellor Bonar Law in 1915, when
                    he proposed that the Government issue War Bonds with a lower
                    interest rate than the Treasury advised.  Law claimed correctly that
                    an appeal to patriotism would be successful. 

  Why were the Treasury civil servants so orthodox in their thinking?

Wikopedia says Treasury orthodoxy was the view that fiscal policy
                    has no effect on the total amount of economic activity.   In his 1929
                    budget speech, Winston Churchill said the 

                             "The orthodox Treasury view ... is that when the Government borrow[s]
                               in the money market it becomes a new competitor with industry and
                               engrosses to itself resources which would otherwise have been employed
                               by private enterprise, and in the process raises the rent of money to all
                               who have need of it."

Chicago's Milton Friedman agreed with the Treasury view.  He helped make
                     Libertarian economics popular in the 1980s and 1990s.  The Crash of
                     2008 showed just how fatally flawed this orthodoxy was.  Bankers
                     investment decisions as in the case of Lehman Brothers or Washington
                     Mutual could be disastrously wrong.                                    

    Rebuttal is easy.   In the first place, the Government could instruct
                      the Bank of England to print  a lot more money, which the government
                      would borrow and then spend on Public Works.  The pool of money
                      to be borrowed could thereby be made much bigger. 

                     But let's assume there was no new printing of money.   The Treasury
                     orthodoxy falsely  assumed that what the private sector borrowed  was
                     soon invested in the UK with the result that national employment nuumbers
                     would be raised.   Only by making this assumption, could they assume
                     that private sector borrowing would be exactly as effective in boosting
                     employment.   Yet, clearly relying on private investment failed to
                     create enough jobs for nearly two decades in England.

                     Showing its own bias, and how completely its collective thinking was
                     captured  by the ideology of the promoters of financial capitalism, the
                     Treasury managed to assume that private investors would (1) use
                     borrowed money at least as constructively as the Government would,
                     (2) that it would help create jobs in the UK,(3) that such private investments
                     would rebuild the infrastructure as needed, (4) that it would bring about
                     innovation and a modernization of the manufacturing base and (5) otherwise
                     would make more of the things that working people needed. 

                     All of these assumptions were clearly not true and did not happen.  A lot of
                     the borrowed money in this era went overseas and to the U.S., in particular.
                     This was encouraged by the artificial pegging of the Pound to the Gold Standard. 

                     Some of the borrowed money also went to rich Englishmen who bought
                      yachts, took around-the-world trips or purchased homes on the Riviera. 

                      A lot of the privately borrowed money allowed British brokerages and banks
                      to speculate in stocks.

                     Certainly, there is little evidence to make us believe that private investments
                     boosted employment as much as planned public works would have. 

                     Even more telling problems arose for the Orthodoxy when the speculative
                     bubble in shares broke and the economy turned down.   In a deflationary
                     period, there is every incentive for rich people to borrow money and then
                     just to sit on it, waiting for lower prices to deploy it.  In the severe Depression
                     of the 1930s, the private sector lost its nerve completely.  Private investment
                     was paralyzed. It largely stopped altogether.  Left to sort itself out, there is
                     no telling how long the Depression would have lasted.   The private sector
                     froze up in panic and chose to wait for someone else to boost the economy
                     and start buying things again.  Private borrowing for plant modernization
                     stopped completely. 

                    ,What was the government to do, just wait around until the private sector
                     got their nerve back?  This inter-war era shows how readily corporations
                     in panic mode choose to hoard rather than spend their savings, though some
                     may buy out competitors when their shares have fallen far enough. 

                     Banks also enter a panic mode.  They refuse  loans to even reliable and
                     good customers.  So the "velocity" of money flow may in these bad times
                     slow down to close to zero and unemployment sky-rockets up and falls
                     only very slowly, until the inventories of necessities is finally exhausted.

                     By contrast, when massive Public Works jobs were launched, as they were
                     by FDR in 1934-1936, thousands and thousands of workers gained badly
                     needed employment.  And they, unlike rich people, spent almost 100% of their
                     new income immediately.   The benefits did not stop there to the economy. 
                    The money spent in this public employment meant immediate income for
                     shop-keepers in poorer areas.  As their inventories started finally to go down,
                     they would buy more inventory and even hire new help themselves.

                     These points seem simple enough.  The real question is why
                     did the Treasury side with the rich against the unemployed poor?

When Churchill wanted political arguments to make on behalf of
                     Laissez-faire, Austerity, Balanced Budgets and Going back on the
                     Gold Standard, the Treasury was happy to comply and produce
                     a lengthy series of "rebuttals" to Keynesian arguments on behalf
                     of the 1928 Liberal Public Works' investments' Plan.


                    First, and foremost, Orthodoxy was their "meal ticket".    The Treasury
                    enjoyed their special financial position.  In trying to refute Keynes,
                    they fought to maintain their authority and prestige.  They wanted to
                    pretend and believe that only they were masters of the arcane complexities
                    of national finance.   After all, they knew the sum of all the spending
                    departments' demands on the Treasury.  They liked to pretend that
                    only they, among civil servants, could argue from a national viewpoint
                    and responsibly match government spending with government revenue.. 
                    They enjoyed their authority vis-a-vis other departments.  They were the
                    ones most responsible for preventing wasteful spending.  They could
                    get and challenge the spending of any other department.  

                    There is another answer to the question of why they clung to their orthodoxy
                    in the face of so much evidence in the Unemployment numbers
                    that their preferred policies were failing the country.  This was TRADITION.
                    It was always easier for Treasury civil servants to do what they had always done. 
                    Using the long familiar techniques to measure Spending and Revenue
                    was a lot easier than developing new measures of Marginal Consumption,
                    Marginal Investment, Hoarding, Money Flow, Capital Outflow or the Multiplier. 

                    There is another reason why the Treasury was home to Financial Orthodoxy
                    in the British civil service.  Years of close relations with the London
                    Financial community took their toll on independent thinking.  The Treasury
                    depended on stock and bond brokers to carry out the government's
                    financing needs.   They got many of their numbers from the big banks
                   of the times.  "Public" finance was completely dependent on the "City";
                   The Bank of England did not print more money in bad times. 
                   Always, it was the Treasury that articulated the "City's" views
                   on changing events to the Chancellor.   

                    Treasury officials seem to have accepted with no debate or question
                    the City's preference for keeping the Pound as strong strong as possible,
                    The City naturally wanted London to remain the dominant international
                    financial center of the era.  They wanted the Pound back on the Gold
                    Standard, so it would be widely used as an international currency, thereby
                    attracting foreign capital to and making bigger profits for London's
                    key banks and brokerages.   It was the Treasury, on behalf of the"City"
                    that persuaded Churchill as Chancellor to return to the Gold Standard
                    in 1925.

                    Lastly, the simple answer is that Treasury bureaucrats, like any groups
                    of government workers is apt to do, sought security.  Why draw attention
                    to themselves by doing anything unconventional?  Why risk demotion or
                    dismissal.    There was nothing to be gained by challenging the Orthodoxies
                   of Austerity, Budget Balancing, the Gold Standard and the Supremacy
                   of Private Finance and the "City".   Reading the Treasury's rebuttals of
                   Keynesian Public Work proposals in 1929-1931 makes it clear that all
                   the higher Treasury officials, namely the ones who wrote the official papers
                   the Chancellor circulated in the Cabinet and the ones who communicated
                   regularly with the Chancellors,  fully accepted the prevailing Orthodoxy.

                   Implicit or explicit in everything they wrote or said was that the national
                   budget had to be balanced.  Otherwise, the financial trust needed for the
                   government to continue to borrow successfully from rich people would
                   be jeopardized.   Under no circumstances except in war-time, should
                   the government's borrowing needed be allowed to  threaten the private
                   investment market or the London financial community in the "City".

     4) The Rich Man's Perspective
                     Rich people bought most of the government's bonds.  They
                     paid most of the taxes that the government ran on.  The Conservative
                     Political Party leadership in the 1920s and 1930s were all very well-off.
                     To understand why Austerity, Balanced Budgets , Limited Government
                      and the Gold Standard always dominated the Chancellors perspectives
                      and policies, we have to consider what I call the "Rich Man's Perspective."

                      Why court disaster with new economic policies?  I'm rich.  I don't
                      want my savings to deteriorate in value?  I want it to appreciate in value.
                      I want my loans paid back in money that is more dear than when I loaned it?
                      By all means, return to the Gold Standard.  I want my expensive
                      imports to be cheaper.  And if the Pound goes up, will not my Shares
                      on the Bourse also rise?  And what's this about more public employment?
                      All my friends at the Club agree, they are lazy and drunken incompetents.
                      The only honest work is private work.  Worse, why should we let the people
                       see that the government can provide council houses cheaper than
                       our private builders can make?  Soon, workers will want public
                       health care?  They'll want the trains to be run by the government?   They'll
                       start thinking that there need not be millions who are unemployed
                       for years and years, at a time?   What if they realize that we wealthy
                       people are really good job creators, at all?  Keep workers dependent
                       on us employers.  We'll take care of them.  We don't need government
                       to tell us how to run our factories or stores.
                                                    The Socialists' Perspective

                      The Treasury's view was not accepted by rank and file members of the
                       Labor Party.  They had a more Marxist view of "financial orthodoxy",
                       budget balancing and protecting the Pound Sterling at all costs. 
                       They saw the private interests' resistance to government spending
                       to build public housing,  better railroads, new parks, schools and
                       libraries, etc. as class warfare.  Public works were very badly needed
                       after World War I.  Millions of returning soldiers were looking for
                       jobs.  Why they wondered were the jobless not put to work building houses?
                       Why did orthodox financial thinking reject such obvious solutions to
                       social needs? 

                     Both revolutionary and Fabian socialists considered the government's
                     policies to protect the financial community at all costs as proof that the
                     government was controlled by rich and powerful capitalists, especially
                     those in high finance.  Marx had taught that capitalists seeking higher
                     profits inevitably try to drive wages down.  Capitalists are actually quite          
                     pleased when high unemployment causes real wages to fall. 

                     Such was exactly the experience of England's large working class. 
                     There can be little doubt that the capitalist upper class had always
                      been afraid that the masses would use greater economic security,
                      such as Keynesian public works programs would provide, to organize
                      workers for higher wages.   This the financial community and the
                      business community knew full well would threaten their political power
                      as well as their profits.   
                       Even more fearful for the well-to-do, was that the masses would
                       see that Government actually could do a fine job in many areas
                       of the economy.  Health care.  Schools.  Housing.  Transportation.   BBC.
                       This was very dangerous for the rich. 
Once the lower class majority
                       saw that the rich were dispensable and that private interests seeking
                       profits (1) hurt the general welfare, (2) deprived ordinary people of much
                       needed goods and services, then more and more sectors of the economy
                       might be nationalized and run as public charters.
  Private interests would
                       then no longer be able to compete.   Weakened, the special influence of
                       the rich would gradually shrink until it was not significant.   This was
                       the Fabian view of Sydney and Beatrice Webbs and George Barnard Shaw
                       who founded the London School of Economics.

                       In their view socialism could come about peacefully through small,
                       discrete changes.  Sadly, we realize now, the Webbs seriously
                       underestimated how fiercely the wealthy would fight even piecemeal
                       growth of government services and how the career interests of Chancellors
                       of the Exchequer would sustain the failing status quo.  Fabians also
                       did not understand how entrenched  orthordoxies like "balanced budgets",
                       "austerity" and a strong Pound Sterling were in the Treasury bureaucracy
                       and civil service.   If only to keep themselves on a status above bureaucrats
                       in other spending ministries, these orthodoxies fit the needs of the Treasury staff.
                       They delighted in thinking themselves as the Elite among civil servants in the UK.
                       What better way to promote the status and importance of the Treasury
                       and its staff in all intra-governmental relationships, than enshrine as gospel
                       the Orthodoxy of Budget Balancing, No Matter The Cost.   In this way,
                       even moderate sized expenditures elsewhere had to be approved by the Treasury. 

                                 File:The Land Registry Offices, Lincoln Inn Fields.jpg   
                                 London School of Economics was founded by Fabians.


   Chancellors of The Exchequer: 1919-1937

                                                                Laszlo - The Rt. Hon. Sir Austen Chamberlain.jpg

                        Conservative Austen Chamberlain, brother of Neville Chamberlain.
                        Chancellor of the Exchequer: 1918-1921 and then Conservative
                        Party Leader.

                         Following the victory of the Lloyd George coalition in the elections of 1918,
                         Austen Chamberlain was appointed to the position of Chancellor of the
                         Exchequer in January 1919.  In his view, his major task was to return
                         war time government spending to more normal levels.  He fervently
                         resisted efforts within the Cabinet by Liberal spending ministers
                         to put returning veterans to work building public housing and
                         hospitals.   Government spending was cut by 75% from 1918 to

                         Austen Chamberlain served as Chancellor until 1921 when he rose to
                         the pre-eminent position of Leader of Conservatives in the
                         House of Commons.  Bonar Law, himself a Chancellor during
                         the war,  stepped down for reasons of health.  It appeared that
                         Austen Chamberlain was in position to become the next Prime Minister. 
                         Lesser known Robert Horne  became Chancellor for a few months.

                         But Chamberlain's loyalty to the Liberal Prime Minister,  Lloyd George,
                         cost him politically among Conservative MPs.  Because of the rules
                         of Cabinet Secrecy, they had no way of knowing how fiercely
                         Chamberlain had fought Liberal spending ministers.  "In the autumn
                         of 1922, Chamberlain faced a backbench revolt (largely led by Stanley Baldwin)
                         designed to oust Lloyd George, and when he summoned a
                         meeting of Conservative MPs ...a motion was passed in favor of
                         fighting the forthcoming election as an independent party.  Chamberlain
                         resigned the party leadership ...and was succeeded by a revived Bonar Law.
                         In the aftermath of the back benchers's revolt,  Bonar Law formed a
                         new government and Chamberlain was not offered a position.  Instead,
                         Stanley Baldwin was made the new Chancellor in recognition of his
                         role in ending the Lloyd George national government.

                                                                 Robert Horne cropped.jpg

                          Robert Horne, who was Chancellor between 1921 and 1922,
                          refused work in Bonar Law's new Cabinet in a lesser role.
                          Two years later, he also refused to be Minister of Labour in
                          Baldwin's government,  preferring private work in the "City"
                          in the area of foreign investments.

                                                                 Stanley Baldwin ggbain.35233.jpg
                              Stanley Baldwin was Chancellor of The Exchequer, 1922-1923,
                              in the Bonar Law Conservative Government.  He was Prime Minister
                              between 1923-1929 and 1935-1937.  In 1923 he served as Prime Minister
                              and Chancellor of the Exchequer.

                      Baldwin's career points to how positions with the Treasury served as
                      among the best political posts to step up from to become Prime Minister.
                      His relationship as Chancellor to the spending ministers was typical,
                      apart from his efforts to get the rich to voluntarily pay more to the Government
                      based on a patriotic appeal during World War I and his promotion of
                      tariffs while Chancellor and later as the new Prime Minister.  He imbibed
                      the standard Treasury financial orthodoxy not just as Chancellor but
                      as Financial Secretary to the Treasury.

                                                                  Baldwin's   Background

                     "After receiving a third-class degree in history at Cambridge, he went into
                     the family business of iron manufacturing...  Baldwin proved to be very adept
                     as a businessman, and acquired a reputation as a modernizing industrialist.
                     Later he inherited £200,000 and a directorship of the Great Western Railway
                     upon the death of his father in 1908...During the First World War he
                     became Parliamentary Private Secretary to Conservative leader
                     Andrew Bonar Law...

                     In 1917 he was appointed to the junior ministerial post of
                     Financial Secretary to the Treasury where he sought to encourage
                     voluntary donations by the rich in order to repay the United Kingdom's
                     war debt...He personally donated one fifth of his the form of
                     £120,000 of war loan stock to the Treasury.[3   In late 1922 dissatisfaction
                     was steadily growing within the Conservative Party over its coalition
                    with the Liberal David Lloyd George. At a meeting of Conservative MPs
                    at the Carlton Club in October, Baldwin announced that he would no longer
                    support the coalition and famously condemned Lloyd George for being a
                    "dynamic force" that was bringing destruction across politics. The meeting
                     chose to leave the coalition, against the wishes of most of the party leadership.
                     As a result Bonar Law, the new Conservative leader, was forced to search
                     for new ministers for his Cabinet and so promoted Baldwin to the position
                     of Chancellor of the Exchequer. In the November 1922 general election
                     the Conservatives were returned with a majority in their own right.  Bonar
                     Law resigned in January 1923 and Baldwin succeeded him, serving
                     as Prime Minister and until August 1923, as Chancellor.
                    1923 was a year of falling prices and rising unemployment.   The Bank of England
                    paid no heed to these Deflationary signs.  They sought to prepare the way for
                    the return of the Pound Sterling to the Gold Standard so that the City of
                    London could again become the center of international finance.  With the
                    Chancellor of the Exchequer's (Stanley Baldwin) approval, they raised the
                    base interest rate from  3% to 4%.  In July 1923, Keynes publicly condemned the
                    the City's "narrow" interest in this, saying such a deflationary policy
                    would soon prove to be a "horrible" mistake.  Liberal Party Lloyd George
                    went further and called for a large scheme of Public Works. (Source.)
                    Neither the Conservatives nor the Labour Party Leadership seriously
                    considered such a plan.   Baldwin, Neville Chamberlain (the new Chancellor
                    in August 1923) and then Phillip Snowden, the next Chancellor in 1924
                    dismissed an expansionary program of massive Public Works quite
                    of hand. (Source.)   Snowden claimed Lloyd George had made false
                    proposals like this at the end of the Great War and nothing had come
                    of it when he was Prime Minister.

                    Baldwin appointed Winston Churchill as Chancellor in January 1924.

Sir Winston S Churchill.jpg

                                                    Churchill's Admits His Biggest Mistake

                     Churchill said that the biggest mistake of his long political career was trying in 1924
                     to push up the Pound by putting it back on the Gold Standard in the middle of an
                     economic slow-down and trying then to cut government spending to balance
                     the budget.   He claimed he wanted Britain to return to pre-war conditions.
                     The actual result was deflation, higher unemployment, and a miners' strike
                     that led to the General Strike of 1926.   Interestingly, Churchill was advised by
                     Keynes not to take England back to the Gold Standard, but chose to
                     accept the advise of a former Chancellor of the Exchequer, Robert McKenna,

"The return to the pre-war exchange rate and to the Gold Standard depressed
                    (British) industries. The most affected was the coal industry. Already suffering
                    from declining output as shipping switched to oil, as basic British industries
                    like cotton came under more competition in export markets, the return to the
                    pre-war exchange was estimated to add up to 10% in costs to the industry

                     With Unemployment above 8%, the ex-Chancellor, now Prime Minister,
                     Stanley Baldwin, fell back onto slogans like "Safety First" and "Trust Baldwin"
                     rather than produce any new policy to reduce unemployment.  Churchill
                     must have sensed that his policies had contributed to the weak economy
                     in 1928.  He sought better justification from the Treasury for his policies
                     to ward off the Liberal Party call for a massive public works program.
                     It took 25 years, but Churchill did to his credit, come to see his mistakes
                     as Chancellor and to appreciate that an the economist J.M. Keynes
                     had been correct.  At the time, J.M. Keynes, penned in the "Consequences
                     of Mr. Churchill" (1926).  In it he warned that taking England back on
                     the Gold Standard would add deflation to the already high unemployment
                     and that would certainly cause a Depression.  Keynes was exactly right.
                     A Depression followed three years later.      

Public Works Advocates in British Cabinet, 1919-1930

                      Even before Keynes, Liberals had advocated Public Works to reduce
                      unemployment.    Prime Minister Asquith's 1909 Development Plan did
                      this.    It was not just the more radical members of the Labour Party
                     that saw
what a dead-end laissez-faire capitalism.  Several members
                     the Coalition Cabinet in 1919 and 1920 advocated greatly expanded
                     Public Works to ensire fuller national employment,  most notably:
                     Auckland Geddes,   1919-1920(Conservative - Unionist)

                     Dr. Chistopher Addison 1919-1920, (Liberal)

                     Alfred Mond (Liberal) in 1920 founder of Imperial Chemical Industries),

                     ex-Prime Minister Lloyd George starting in 1923 and

                     Labour Party maverick Oswald Mosley in 1930.   Mosley put forth a
                     memorandum in January 1930, calling for the public control of imports and
                     banking as well as an increase in pensions to boost spending power.

John Meynard Keynes

                                        wpe1B5.jpg (4916 bytes)

                    In July 1923, Keynes lambasted the Baldwin government and the Bank of
                    England for raising the base interest rate from 3% to 4% and then 5%,
                    despite the high unemployment.  They did this to shore up the Pound and
                    make it easier to go back on the Gold Standard.   Keynes wrote in the Nation:
                    "The Bank of England acting under the influence of a narrow and
                    obsolete doctrine has made a great mistake."  In November 1923,
                    Keynes published A  Tract on Monetary Reform.  He called the
                    Gold Standard  "a barbarous relic".  Devaluation was much more
                    preferable than deflation.

                    In May 1924, when British Unemployment reached 1 million, he called
                    for a massive government program of Public Works.  Keynes explained
                    that the chronic high unemployment in the 920s was caused by
                    inadequate private investment.  He claimed that deficit spending by the
                    government could make up for this and reduce unemployment. 
                    Meanwhile, speculators who expected Britain to return to the Gold Standard,
                    were busy driving up the value of the Pound.  This made imports easy.
                    It encouraged saving and speculation.  It discouraged exports and
                    investments in industrial production and hiring.

                    On April 29, 1925, Chancellor of the Exchequer, Winston Churchill, accepted
                    the advise of his economic advisers at the Treasury and Bank of England.
                    Britain officially returned Sterling to the Gold Standard. 

                    Between 1925 and 1926, British coal exports plummeted.  Mine owners
                    cut the mine owners pay.  A general strike in support of the miners
                    occurred in May 1926.

                    May 10, 1930, Keynes wrote in the Nation:
"The fact is - a fact not yet recognized by the great public -
                            that we are now in the depths of a very severe international slump,
                            a slump which will take its place in history amongst the most acute
                            ever experienced. It will require not merely passive movements of
                            bank rates to lift us out of a depression of this order, but a very active
                            and determined policy."

                    December 1930 Keynes publishes A Treatise on Money.
                            in it, he distinguishes between Investment and Saving.
                            If Investment exceeds Saving, there will be inflation Keynes says.
                            If Saving exceeds Investment there will be recession.
                            Thus, in the midst of an economic depression, the government's
                            correct course of action should be to encourage spending and
                            discourage saving.  

                   At that time,  he did not mention such concepts as "the multiplier effect", "marginal
                   consumption" or the "liquidity trap", which were only incorporated into his larger
                   macro-economic analysis in 1936.                                                  

                     Keynes' seminal "The General Theory of Employment, Interest and Money" (1936)
                     grew out of his many years of confrontation with the economic orthodoxy
                     of the British Treasury.   Keynes knew the Treasury and its orthodox fiscal
                     thinking all too well.  He had worked there in WWI.  In fact, he was one of
                     Lloyd George's key economic advisors at the Paris Peace Conference of 1919. 

                     He totally disagreed with the harsh terms placed on Germany.   He predicted
                     disastrous economic  and political consequences would follow.  Germany's
                     hyper-inflation in 1923 was a direct consequence of the Carthaginian reparations
                     demanded of Weimar Germany for the Kaiser's Imperial German war.  Keynes
                     willingness to challenge orthodox thinking must have been boost mightly
                     by how exactly hist predictions were borne out.  It is often said by wiping out
                     Germany's middle class, it was much easier for the Nazis to rise to power
                     and for Jewish politicians and bankers to be blamed by the extreme right
                     in Germany.  In college, Yale, we had to read Keynes
The Economic Consequences of the Peace (1919)  
                    It was a superb lesson in how prescient someone can be and yet still not
                    be listened to by the establishment, by policy makers or by the public.

                    In early 1929, Keynes wrote much of the Liberal Party's manifesto on the
                    desirability of Public Works.  Amazingly, the Labour Party would have no
                    part of this program.  Perhaps, many felt there was no way to reform Capitalism.

                                wpe1B5.jpg (69344 bytes)

                                Ex PM Lloyd George, March 1, 1929
                          "If the nation entrusts the Liberal Party at the next General Election with
                     the responsibilities of Government, we are ready with schemes of work which we can put
                     immediately into operation, work of a kind which is not merely useful in itself but essential
                     to the well-being of the nation. The work put in hand will reduce the terrible figures of
                     the workless in the course of a single year to normal proportions, and will, when completed,
                     enrich the nation and equip it for competing successfully with all its rivals in the business
                     of the world. These Plans will not add one penny to national or local taxation. It will require
                     a great and sustained effort to redeem this pledge, but some of us sitting at this table have
                     succeeded in putting through even greater and more difficult tasks in the interests of the nation."

Extract from Mr. Lloyd George's address to
                           Liberal Candidates on 1st March, 1929.


"THE word written to-day on the hearts of British people, and graven on their minds is Unemployment. For eight years, more than a million British workers, able and eager to work, have been denied the opportunity. At the end of 1928 the total reached a million and a half; a quarter of a million more than a year before. These workers with their dependents, represent four or five million souls. They are a very nation, denied the opportunity to earn their daily bread, condemned to hardship, to wearing anxiety and often to physical and mental demoralisation. What a tragedy of human suffering; what a waste of fine resources; what a bankruptcy of statesmanship! This is by far the biggest single issue before the country. All parties will claim to have a solution, It is the task of the electors to decide which solution is the most likely to achieve success. In making a decision, they must consider not only the superficial attractiveness of the various proposals, but the extent to which they are based on sound reasoning and patient enquiry, and will be backed by driving power and by experience. This is a brief outline of the proposals of the Liberal Party. They have been developed as the result of enquiries of the most exhaustive character, lasting over years; indeed, even political opponents have paid tribute to the thoroughness and the ability put into the work of investigation.

                   wpe1B5.jpg (3097 bytes) 


                     In 1929, Keynes himself made numerous speeches mocking the balance-the-budget
                     Treasury bureaucrats and the City's orthodoxy above all else..   He showed that
                     putting a man to work would make needed  improvements to the country's
                     infrastructure and would only cost the government half of what it paid him,
                     because the Treasury was already paying him an unemployment "dole". 

                                  Keynes Described but Did Not Quantify The Multiplier Effect"       

                     The new employee, he argued,  would spend all his money, as would the
                     merchants that he then made purchases from, thus producing a chain of
                     additional economic activity which would boost country's economy.  This was
                     to become the famous "multiplier effect".    Other economist like R.F.Kagan
                     took this concept and first quantified it in 1931.

                     As merchants' profits rose again, so would the revenue the to the national
                     Treasury.  That would, in turn, boost business confidence and interest rates
                     would not go up, as the Treasury's pundits warned.  For details see

Keynes was not advocating socialism or central planning.  He simply wanted to
                      find ways to restore full employment and business confidence when, left to
                      laissez-faire alone, all he could see  was economic stagnation, poor housing,
                      high unemployment and a worsening public infrastructure.  Britain's locust years,
                     1919-1938, increasingly sound like America after 2009.

                                              MUCH WORSE UNDER LABOUR PARTY.

                                                         200px-Philip_Snowden,_1st_Viscount_Snowden.jpg (11827 bytes)
                     Philip Snowden, Labour's Chancellor of the Exchequer, 1924 and 1929-1931.
                     Clement Atlee who served in the Labour Cabinet with Snowden and later became
                     Prime Minister after World War II, wrote the Snowden was a "docile disciple of
                     orthodox finance".  "I had not thought him (Snowden) capable of such virulent
                     hatred" for and "betrayal" of those in the rank and file of the Labour Party.
As It Happened (1954).

Sadly, Phillip Snowden, Labour's Chancellor from 1929-1931, bought "hook, line
                     and sinker" the anti-Keynesian orthodoxy put out by Treasury officials,
                     the Bank of England and the  "City" (London's financial community.  
                     He reduced taxes on some popular items but allowed no new public
                     works programs to pass.  He later claimed he could not do so because
                     Labour was a minority government that survived by getting Liberal
                     votes in the House of Commons and the Liberals would not permit
                     deficit spending.
                     His September 1931 Budget severely cut public spending and public sector
                     wages while raising income taxes on average workers from 22.5% to 25%. 
                     It also reduced unemployment benefits by 10%.    Snowden
had wanted
                     a 20% cut.  He warned that
balancing the budget was the only way to
                     restore confidence in sterling
; that if his recommendations were not
                     accepted, sterling would collapse and
   "if sterling went the whole international financial structure
                                  would collapse, and there would be no comparison
                                  between the present depression and the chaos and
                                  ruin that would face us."

                     These brutal measures utterly failed to do any good.  They made the lives
                     of many poor working people much more miserable.   Unemployment
                     actually rose  to 3,000,000.  There was a Mutiny in the Royal Navy. 
                     And despite all the austerity measures, there was still a run on the
                     Pound and in Britain was forced leave the Gold Standard in panic mode.
                     As a consequence, the Pound Fell 25% and world wide stock markets
                     collapsed.    .   

                     They also led directly to the fall of the Labour Government.  Several
                     ministers refused the cuts in benefits and resigned.   The Prime Minister
                     and  then formed a new national government with Conservative
                     and Liberal ministers.  Neville Chamberlain, was soon to become the new
                     Chancellor of the Exchequer.  He had previously called for further government
                     cuts and no new taxation on the wealthy.   Meanwhile, both Snowden and
                     MacDonald were expelled from the Labour Party. 

Why did the Labour Chancellor support Austerity?

                     It cannot be said that Snowden sought to his increase his popularity
                     within the Labour Party by adhering to the same financial Orthodoxy
                     that Conservative Chancellors did.  This made him immensely
                     unpopular.   So, why did he accept its dictates so completely?

                     He and MacDonald, as the Labour Party leaders first to come to power
                     in the UK, apparently wanted to prove that they were worthy of the trust
                     of their  "betters" when they were called to form a government.
                     (Doesn't this sound like President Obama's subservience to the big

                     An additional reason why these Labor leaders refused to embrace
                     a massive scheme of public works was that they did not want
                     to bring credit to the Liberal Party, their main political opponents in
                     many working class constituencies.    Unlike Snowden and MacDonald,
                     Lloyd George and the Liberals had listened to Keynes call for public works
                     and deliberate deficit spending to increase Consumption and reduce
                     the chronic high unemployment.  

                     Exchequer Chancellor, Philip Snowden, was formerly a passionate
                     Christian Socialist.  In his autobiography, he proudly proclaimed
                     he had never read anything Karl Marx had written.  He did not
                     believe in a general strike by labor.  He believed moral appeals
                     would gradually bring about a more just, socialist society.  He had
                     no "clue" what to do about  the Depression as Chancellor.   He is
                     alleged to have said in office in 1930: "No one told us what to do".  

                     Snowden seems to have been prone to public dissembling.  Within the
                     British Cabinet, he fought harder than anyone else against Public Works
                     expenditures and measures to ease the burden on the unemployed.   
                     What surprised me as I did my dissertation's research at the Public
                     Records Office in London and read the previously sealed and secret
                     Cabinet Papers was that Snowden used the very same language as each
                     of the other Conservative Chancellors of the 1920s.  There was no
                     difference.    He denounced new spending proposals because they
                     would further unbalance the national budget and worsen confidence
                     in the Pound.  

                     He piously called for the nation to spend only what it could presently
                     afford, implying just like Republicans in America in 2011. that past
                     profligate spending was to blame for the crisis of finance.  Never in
                     any of his Cabinet memoranda, which were then circulated to other
                     ministers in the MacDonald Government, did he ever question the
                     financial advise given him by his Treasury advisers and the London
                     Financial establishment.   Perhaps, he was afraid to ask what exactly
                     would be the consequence of a decline in Sterling, for fear that simply
                     asking the question would make it seem that Devaluation was
                     being actively considered.  This is the explanation he gave in his
                     memoirs.    But why did he not even ask such questions as: 

                                "Would not some British exports be increased by a
                                  weakened Pound?  Who would benefit?  Who would lose? 

                                 "Would not the unemployed who might be provided new
                                 government jobs boost Labour Party voting?

                                  "Would not their new public employment reduce government
                                   expenditures by getting them off the 'Dole'?  

                                   "And would not their spending help the economic condition
                                   of local grocers, the cobblers and the dry goods' haberdashers?"

                     As I say, there is no evidence that Snowden ever asked any of
                     these questions of the Treasury civil servants under his command.
                     My judgment us that he did not have enough understanding of
                     his responsibilities as Chancellor to ask such questions.  Worse,
                     he even seems to have taken a perverse delight in telling his Labour
                     colleagues that they were not privy to the information and the
                     superior understanding he had about public finance. They were quite
                     wrong, he lectured them as school children, to ask the government to
                     break tradition at such a dangerous time of financial crisis, deliberately
                     unbalance the budget and launch a massive scheme of Public Works,
                     as the Liberal Party had proposed in its 1928 Platform.  His air of
                     superiority in this matter as he spoke in Commons grated upon
                     Labout   back-benchers.

    "In February 1931, Philip Snowden made a speech in the House which
                          created a sensation. He hinted at large economy measures, including cuts
                          in the social services and unemployment benefit, in order to balance the coming
                          Budget and maintain the gold standard. Meanwhile wholesale prices continued
                          to fall on a world scale, businesses were losing money in some cases and making
                          very little in others, so that revenue from taxes was declining. A big budget deficit
                          was foreseen. In this debate I remember Lloyd George spoke and referred
                          to the Chancellor sitting on ice surrounded by 'the penguins of the City'.
                          Having received Snowden's speech with stony silence, we on the Labour
                          benches roundly cheered Lloyd George.

                         "The next day there was a meeting of the Parliamentary Labour Party. Snowden
                          soundly rated us like naughty schoolboys for having done this. I remember many
                          of us, including myself, replied that we would applaud anyone who talked sense,
                          but we did not get that from some of our leaders." 
Morgan Philips Price, My Three Revolutions (1969)

                      His obstructionism was politically disastrous.  The Labour
                      Government fell and did poorly in subsequent elections.  Many
                      rank and file Labour supporters became discouraged and
                      turned away from the Party.  Many probably reasoned:  "What
                      was the point of voting Labour?".

                      Out of office, Snowden continued to defend the Treasury
                      view that there was no way to pay for massive public works programs.
                      He called such talk "Bolshevism run mad".   For this he was knighted.
                      Snowden was expelled from the Labor Party.   As Viscount Snowden,"
                      he was in political limbo until 1937.  In that year, he must have taken
                      the the time to actually read Keynes.  With colossal disingenuousness,
                      he bitterly blamed the Labour Prime Minister for not launching a
                      Public Works program.               

                                                              PRchamberlainN2.jpg (4499 bytes)

                          Neville Chamberlain, Chancellor of the Exchequer, 1931-1937.
                          Prime Minister, 1937-1940.

                      Year after year, as Chancellor in the MacDonald National Government
                      and then the Baldwin Conservative Government, Neville Chamberlain
                      fought against boosting military expenditures, especially for the RAF,
                      as proposed by Churchill,  who was then back in the Cabinet as
                      a spending minister.   This was Chamberlain's doing.

"His biographer, Andrew J. Crozier, has argued: "He (Baldwin)proved a powerful
                            Chancellor of the Exchequer...who as leader of the Conservatives was happy to
                            leave formal power in the hands of MacDonald... (and) the substance of power
                            in Chamberlain's hands. From the beginning Chamberlain was in complete control
                            of budgetary and economic policy and added to that social and industrial policy
                            as well. Furthermore, once the international crisis of the 1930s deepened, he
                            became a dominant voice in both rearmament and foreign policy. His was a
                            formidable presence in the cabinet: not only did he read his own departmental
                            briefs, but he seemed to read everyone else's as well."

                            On 8th March 1935 Chamberlain wrote in his diary: "I am more and more
                            carrying this government on my back. The P.M. (MacDonald) is ill and tired,
                            S. B. (Stanley Baldwin) is tired and won't apply his mind to problems. It is
                            certainly time there was a change".


                      It is said that Chamberlain changed course in 1936 and backed
                      such spending.  The Cabinet Papers that I read in doing my
                      dissertation show exactly the opposite.  Again, Cabinet Secrecy
                      and the doctrine of Collective Responsibility make it hard for
                      outsiders to know what positions individual ministers took in
                      internal cabinet  debates.  
                       Some of the Cabinet papers are now available on the internet.             

                                      Treasury Responses to Keynes: 1925-1946
                    Much of what is quoted below comes from

                            Keynes' Advocacy of Public Works
                          Was Ignored by Policy-Makers

In 1925 John Maynard Keynes married the ballerina, Lydia Lopokova, and moved to Tilton, a farmhouse near Firle in East Sussex. The marriage proved a great success and when apart they wrote every day. The couple had no children.Other members of the Bloomsbury Group, including Virgina Woolf, Leonard Woolf, Vanessa Bell, Clive Bell, and Duncan Grant also lived in the area.

Keynes challenged as false the analogy between national and individual finances.

Keynes became increasingly interested in what he called "the management of the economy". According to Alec Cairncross: "Two forms of economic instability preoccupied him. Of these the first was instability of prices, inflation, deflation, and all that went with them; the second was unemployment and the fluctuations in economic activity giving rise to it. The two were, of course, interconnected since the movement of prices reacted on the level of activity: but the analytical approach to the problem of inflation, for example, was very different from the analysis necessary for an explanation of unemployment."

Keynes visited
the Soviet Union in 1926. He was interested in the economic measures being taken by the communist regime and when he returned to England he wrote The End of Laissez-Faire. After the onset on the Great Depression in 1929, Keynes began to address the problems of unemployment. In a series of articles,
The Means to Prosperity, written in The Times, Keynes argued that the government should "spend its way out of the depression".

During this period he was a member of the Liberal Party and worked closely with its leader, David Lloyd George. In 1929 Lloyd George published a pamphlet, We Can Conquer Unemployment, where he proposed a government scheme where 350,000 men were to be employed on road-building, 60,000 on housing, 60,000 on telephone development and 62,000 on electrical development. The cost would be £250 million, and the money would be raised by loan. Keynes also published a pamphlet supporting Lloyd George's scheme.

These views impressed Richard Tawney who wrote a letter to Ramsay MacDonald, the leader of the Labour Party, about the forthcoming election: "If the Labour Election Programme is to be of any use it must have something concrete and definite about unemployment... What is required is a definite statement that (a) Labour Government will initiate productive work on a larger scale, and will raise a loan for the purpose. (b) That it will maintain from national funds all men not absorbed in such work." MacDonald refused to be persuaded by Tawney's ideas and rejected the idea that unemployment could be cured by public works.

In the 1929 General Election the Conservatives won 8,664,000 votes, the Labour Party 8,360,000 and the Liberals 5,300,000. However, the bias of the system worked in Labour's favour, and in the House of Commons the party won 287 seats, the Conservatives 261 and the Liberals 59. MacDonald became Prime Minister again, but as before, he still had to rely on the support of the Liberals to hold onto power.

The election of the Labour Government coincided with an economic depression and Ramsay MacDonald was faced with the problem of growing unemployment. In January 1929, 1,433,000 people were out of work, a year later it reached 1,533,000. By March 1930, the figure was 1,731,000. In June it reached 1,946,000 and by the end of the year it reached a staggering 2,725,000. That month MacDonald invited a group of economists, including John Maynard Keynes, J. A. Hobson, George Douglas Cole and Walter Layton, to discuss this problem.

In March 1931 Ramsay MacDonald asked Sir George May, to form a committee to look into Britain's economic problems. The committee included two members that had been nominated from the three main political parties. At the same time, John Maynard Keynes, the chairman of the Economic Advisory Council, published his report on the causes and remedies for the depression. This included an increase in public spending and by curtailing British investment overseas.

Philip Snowden rejected these ideas and this was followed by the resignation of Charles Trevelyan, the Minister of Education. "For some time I have realised that I am very much out of sympathy with the general method of Government policy. In the present disastrous condition of trade it seems to me that the crisis requires big Socialist measures. We ought to be demonstrating to the country the alternatives to economy and protection. Our value as a Government today should be to make people realise that Socialism is that alternative."

When the May Committee produced its report in July, 1931, it forecast a huge budget deficit of £120 million and recommended that the government should reduce its expenditure by £97,000,000, including a £67,000,000 cut in unemployment benefits. The two Labour Party nominees on the committee, Arthur Pugh and Charles Latham, refused to endorse the report. As David W. Howell has pointed out: "A committee majority of actuaries, accountants, and bankers produced a report urging drastic economies; Latham and Pugh wrote a minority report that largely reflected the thinking of the TUC and its research department. Although they accepted the majority's contentious estimate of the budget deficit as £120 million and endorsed some economies, they considered the underlying economic difficulties not to be the result of excessive public expenditure, but of post-war deflation, the return to the gold standard, and the fall in world prices. An equitable solution should include taxation of holders of fixed-interest securities who had benefited from the fall in prices."

The cabinet decided to form a committee consisting of Ramsay MacDonald, Philip Snowden, Arthur Henderson, Jimmy Thomas and William Graham to consider the report. On 5th August, John Maynard Keynes wrote to MacDonald, describing the May Report as "the most foolish document I ever had the misfortune to read." He argued that the committee's recommendations clearly represented "an effort to make the existing deflation effective by bringing incomes down to the level of prices" and if adopted in isolation, they would result in "a most gross perversion of social justice". Keynes suggested that the best way to deal with the crisis was to leave the gold standard and devalue sterling. Two days later, Sir Ernest Harvey, the deputy governor of the Bank of England, wrote to Snowden to say that in the last four weeks the Bank had lost more than £60 million in gold and foreign exchange, in defending sterling. He added that there was almost no foreign exchange left.

Philip Snowden presented his recommendations to the MacDonald Committee that included the plan to raise approximately £90 million from increased taxation and to cut expenditure by £99 million. £67 million was to come from unemployment insurance, £12 million from education and the rest from the armed services, roads and a variety of smaller programmes. Arthur Henderson and William Graham rejected the idea of the proposed cut in unemployment benefit and the meeting ended without any decisions being made.

The cabinet met on 19th August but they were unable to agree on Snowden's proposals. He warned that balancing the budget was the only way to restore confidence in sterling. Snowden argued that if his recommendations were not accepted, sterling would collapse. He added "that if sterling went the whole international financial structure would collapse, and there would be no comparison between the present depression and the chaos and ruin that would face us."

The following day MacDonald and Snowden had a private meeting with Neville Chamberlain, Samuel Hoare, Herbert Samuel and Donald MacLean to discuss the plans to cut government expenditure. Chamberlain argued against the increase in taxation and called for further cuts in unemployment benefit. MacDonald also had meetings with trade union leaders, including Walter Citrine and Ernest Bevin. They made it clear they would resist any attempts to put "new burdens on the unemployed".

At another meeting of the Cabinet on 20th August, Arthur Henderson argued that rather do what the bankers wanted, Labour should had over responsibility to the Conservatives and Liberals and leave office as a united party. According to Malcolm MacDonald, the opposition to the cuts in public expenditure was led by Henderson, Albert Alexander and William Graham. MacDonald went to see George V about the economic crisis on 23rd August. He warned the King that several Cabinet ministers were likely to resign if he tried to cut unemployment benefit.

After another Cabinet meeting where no agreement about how to deal with the economic crisis could be achieved, Ramsay MacDonald went to Buckingham Palace to resign. Sir Clive Wigram, the King's private secretary, later recalled that George V "impressed upon the Prime Minister that he was the only man to lead the country through the crisis and hoped that he would reconsider the situation." At a meeting with Stanley Baldwin, Neville Chamberlain and Herbert Samuel MacDonald told them that if he joined a National Government it "meant his death warrant". According to Chamberlain he said "he would be a ridiculous figure unable to command support and would bring odium on us as well as himself."

On 24th August 1931 MacDonald returned to the palace and told the King that he had the Cabinet's resignation in his pocket. The King replied that he hoped that MacDonald "would help in the formation of a National Government." He added that by "remaining at his post, his position and reputation would be much more enhanced than if he surrendered the Government of the country at such a crisis." Eventually, he agreed to form a National Government.

John Maynard Keynes was extremely active in his campaign to encourage the government to take more responsibility for running the economy.   In 1931 he agreed an amalgamation of the Nation with the New Statesman, a journal owned by the Fabian Society. Keynes now became a regular contributor to what was now Britain's leading intellectual weekly.

In 1936 Keynes published his most important book A General Theory of Employment, Interest and Money. It revolutionized economic theory by showing how unemployment could occur involuntarily. In the book Keynes argued that the lack of demand for goods and rising unemployment could be countered by increased government expenditure to stimulate the economy. His views on the planned economy influenced President Franklin D. Roosevelt
and was a factor in the introduction of the New Deal and the economic policies of Britain's post-war Labour Government.

During the Second World War Keynes was an unpaid advisor to the Chancellor of the Exchequer and wrote the influential How to Pay for the War (1940). He attended the Bretton Woods Conference in 1944 and the Savannah Conference in 1946. He was also involved in the negotiations on Lend-Lease and the US loan to Britain.

      British Research Sources on-Line now:
                        When the Conservatives were in power:

                        When the Labour was in Power.

           3.      THE CONSEQUENCES OF
               IN THE US, GERMANY AND

                      USA - 1930-1939
                      Germany -1930-1933
                      France - 1930-1932

                   The Growing Depression Worsens                          

                              Hoover - 1930-1932
Much too late, towards the end of his life, President Hoover rued following the
                      laissez-faire  advise of  Andrew Mellon, his Treasury Secretary, as they dealt with
                      the gathering Depression.  Tragically, Hoover ran a Federal  Budget surplus in 1930
                      and  engaged only in paltry increases (under $257 million / year)  in federal government
                      spending in 1930 and 1931, just when private investment and government revenue
                      were collapsing. 1932 did see a big increase in government spending, but
                      the next year Hoover's budget again reduced government spending, despite
                      national unemployment levels of 25%.

                      "Tea Party" types champion Keynes critics like Freidrich Heyek.  They seem not
                      to understand that Hayek was essentially, a hands-off liquidationist. 
Hayek argued
                  it was "difficult to see what lasting good effects can come from credit expansion. The
                  thing which is most needed to secure healthy conditions is the most speedy and complete
                  adaptation possible of the structure of production.  If the proportion as determined by the
                  voluntary decisions of individuals is distorted by the creation of artificial demand
                  resources [are] again led into a wrong direction and a definite and lasting adjustment is
                  again postponed. The only way permanently to 'mobilise' all available resources is,
                  therefore to
leave it to time to effect a permanent cure by the slow process of adapting
                  the structure of production."

Keynesianism -1936

The economist JM Keynes in 1936 wrote that in a panic, the government must
                       intervene directly to create jobs with public works' programs.  In that way, the booms
                       and busts of a capitalist, market driven economy could be greatly reduced.

                       He warned of the "liquidity trap", when monetary policy is unable to stimulate much
                       of an economic recovery. 

                       A   Depression, Keynes showed,  is self-perpetuating and self-accelerating, in large part
                       because the working class has so little money and cannot buy what is produced.
                       The wealthy, of course still have money.  But the savings of the rich do not always
                       translate automatically into investments and jobs.  In a panic and recession, there
                       is just too much fear. 

                      He introduced the term, the "multiplier effect" and made much of how  the "rates of
                      marginal consumption" vary enormously according to where the Government
                      spends its money and on whom.  Bribing officials in Afghanistan has very few,
                      if any downstream economic benefits in the US .  Paying a poor person to dig
                      ditches in a depression has a high multiplier effect. Each additional dollar of income
                      for the poor person is immediately spent. The recipient of the money thus spent,
                      then has money to spend and so on..  On the other hand, the rich person may just
                      save his extra dollar and put it into a bank that is too scared to make loans. 

                      Accordingly, Keynes reasoned that the best way out of the Depression would be
                      for the government to hire the unemployed in massive Public Works programs. 
                      he people hired would spend 100% of their money and this would stimulate
                      business, such that a Dollar in public works'  wages would bring three to four
                      dollars in new buying.  The additional business produced by a massive public
                      works program would restore confidence and unfreeze spending and private
                      investment.  In the end, Government Revenues would rise much more than the
                      initial government expenditures.

                       Wikpoedia writes:
"In the 1930s, Keynes spearheaded a revolution in economic
                       thinking, overturning the older ideas of neoclassical economics that held that free
                       markets would in the short to medium term automatically provide full employment, as
                       long as workers were flexible in their wage demands. Keynes instead argued that
                       aggregate demand determined the overall level of economic activity, and that
                       inadequate aggregate demand could lead to prolonged periods of high

                        Following the outbreak of World War II, Keynes's ideas concerning economic policy
                        were adopted by leading Western economies.   During the 1950s and 1960s, the success
                        of Keynesian economics resulted in almost all capitalist governments adopting its
                        policy recommendations,..."


             wpe1B5.jpg (10183 bytes)

Keynes now is often over-simplified in order to better criticize him.  He did not believe
                      in hiring men to dig a ditch and others to fill it in.  Carefully planned public works
                      were what he wanted, those which would repair the nation's infrastructure and
                      thereby provide badly needed jobs.  Who now challenges the benefits of TVA or
                      Boulder Dam? 

                      "Supply-side" economics is not Keynesian. Cutting taxes to grow the economy
                        and ultimately to increase federal revenues works well if it induces investors
                        to create and expand US enterprises.  But if it only serves to increase speculation
                        in Gold and Commodities, make other countries' economies grow at the
                        expense of American jobs or lets millionaires take more excursions abroad,
                        then there is no "trickle down".  Keynes did not believe that tax breaks for investors
                        would build the roads, trains, houses, hospitals  and schools that were needed
                        by society.

                                         FDR - 1937
Few Americans were familiar with Keynesian thinking even in 1932.  FDR, for
                        example,  promised that he would balance the budget.   Fortunately, once in
                        office his federal budget deficits were much bigger than Hoover's.  This did
                        not prevent a big rally in the stock market.  The DJI roared back from 50 to 170
                        from 1933 to 1937.  Unemployment was slower to recover.  Even so,  U.S.
                        Treasury Secretary Morgenthau put the fear of "over-speculation" and "inflation"
                         in FDR's ear.    Despite warnings from his Brain Trust, who were familiar by
                         then with Keynesianism,  FDR in the spring of 1937 decided to get southern
                         Democrat support for his policies by announcing new spending cut backs and a
                         desire to balance the budget despite the unemployment of 14%.  This meant drastic
                         reductions of WPA and other New Deal jobs' and public works' programs.   The
                         fragile economic recovery immediately stalled out, the stock market fell 47%
                         in six months while unemployment rose sharply.   This was the Roosevelt Depression.
                         To his credit, FDR in early 1938 saw his mistake and no longer sought to
                         balance the budget in the middle of the Depression.
                         ( See )

   The Federal Budget and The Unemployment Rate: 1929-1945

       Tax       Federal    GNP       Unemp.
Year   Receipts  Spending   Growth    Rate
1929      --       --         --      3.2%  < Hoover era, Great Depression begins
1930     4.2%     3.4%     - 9.4%     8.7
1931     3.7      4.3      - 8.5     15.9
1932     2.9      7.0      -13.4     23.6
1933     3.5      8.1      - 2.1     24.9   < FDR, New Deal begins; contraction ends March
1934     4.9     10.8      + 7.7     21.7
1935     5.3      9.3      + 8.1     20.1
1936     5.1     10.6      +14.1     16.9
1937     6.2      8.7      + 5.0     14.3   < recession begins, May
1938     7.7      7.8      - 4.5     19.0   < recession ends, June
1939     7.2     10.4      + 7.9     17.2
1940     6.9      9.9  
1941     7.7     12.1  
1942    10.3     24.8   
1943    13.7     44.8   
1944    21.7     45.3   
1945    21.3     43.7
          (Source: )

                        Germany - 1929-1932
           When the Great Depression hit Germany in 1930, successive German Chancellors 
                     responded in orthodox ways.  Mainly they sought to balance their budgets by 
                     cutting government expenditures.   Predictably, this only deepened the country's
                     economic and political slide downward.  

As unemployment worsened, and lowered still 
                     further government revenues.  A series of political crises and national elections
                     which brought in a new Chancellor who followed the same policy of cutting government
                     spending.  In 1932, Hitler rose to power in large part because of the failure of
                     the moderate parties to adopt a pragmatic Keynesian approach.  His policies 
                     put Germans back to work by the millions, most notably by building the Autobahn 
                     and massively rearming. 

             Chancellor Hermann Muller (1928-1930) headed a very broad and unweildy 
                     coalition of his own Social Democrats, Centre Partyand the nationalist German 
                     Peoples' Party. 

             Brüning (1930-1932) as chancellor said he wished to free Germany from 
                      Reparartions, but would have to tighten credit, raise taxes, reduce government 
                      spending and roll back wage increases.   Working people were hit the hardest.
                      His policies only served to increase the popularity and Reichstag voting strength 
                      of the Nazis and Communists. 

                         France - 1930-1935  

Keynes counter-cyclical fiscal writings were not translated int French until 1942.
                      The Third French Republic featured a parliamentary system of government with
                      a high degree of political fragmentation.  Coalition governments were inherently
                      unstable and had no power to boldly provide government employment or
                      taxation of the rich.  This increased discontent, bred more extremeism and
                      hurt business confidence further.

                From     France

The distress of the population had political consequences. A riot on 6 February 1934 led to the fall of the government and a nation which had traditionally leaned to the right elected the socialist Popular Front government in 1936.

The Popular Front, an alliance of Socialists and Radicals with support outside the government of the Communists, was led by Léon Blum. The Popular Front introduced many measures such as the 40-hour working week and holidays with pay, but Blum felt handicapped in introducing more than limited changes to the economy because of his dependence on the more right-wing Radicals. This did little to placate a population anxious for change and a wave of strikes broke involving two million workers [9] Factories were occupied and membership of the Communist party rose to 300,000 in 1937.

In the night of 7–8 June 1936, employers and unions signed the Matignon agreement by which they raised wages by seven to 15 per cent to increase workers' buying power, to stimulate the economy and to bring an end to the strikes. Blum brought in measures to control cereal prices, to insist that the Banque de France place the national interest above that of the shareholders, and nationalised the armaments industry. That upset the Left, which saw too much legislation, and did nothing to please the Right, which believed that state involvement in a capitalist economy would bring about disaster.

The Radicals would not accept currency controls and the result of the unrest was that capital fled abroad. That weakened the economy and employers tried to minimise the results of the Matignon agreement, which created more social tension and in turn a further flight of capital.

Devaluation of the franc by 30 per cent became inevitable, despite government assurances that it would not happen. In January 1937, Blum went further and announced "a pause" to social reforms. The Senate refused to give him emergency powers to cope with the recession and he resigned on 20 June 1937 and the first Popular Front began to fall apart. A second had even less success.

The President, Lebrun, called on the Radical leader Édouard Daladier to form a new government without the Socialists. Daladier relied on liberal economics to rescue, or at any rate keep afloat the economy on a worldwide sea of financial difficulties. Employers and police acted harshly against strikers and determined to root out "troublemakers". In 1938 the Senate gave Daladier the emergency powers that Blum had been denied and the government favoured employers over workers in industrial disputes, particularly in companies which had come close to coming under the control of their workers.[10]

                           Sweden - 1935
"Sweden's quick recovery was astonishing. By 1934, real output had
                      recovered to 1929 levels. By 1935, it was 7 percent above it. Growth would
                      continue well into World War II. Sweden's success owed everything to its liberal
                      government. In 1932, Labor returned to power. The Swedish Finance Minister was
                      heavily influenced by a group of economists led by Gunnar Myrdal, who had been
                      advocating Keynesian-like solutions for years. The Labor government promptly
                      ran large deficits, and within two years had spent itself out of the Depression. "

          4.  Worries about The Present

                 Keynes' Multiplier Now Is Smaller.
  America's Manufacturing Base Needs Restoration

In the 1930's international trade was not nearly so important as now.  Cheap
                        imports were not so plentiful as today, when if a worker is hired to help build,
                        say, a public high speed transit system with federal government money, he might
                        well spend  some of his stimulus-paycheck at Target, Walmart or Home Depot,
                        where so many things are imported, especially from China.   In this, the Public Works'
                        expenditures boost the Chinese economy, and to that amount, less the American

                        What's worse, if the steel to be used for the cars and rails is not American made,
                        the multiplier drops some more.   In fact, the US Federal Government is very lax
                        compared to other industrialized countries when it comes to requiring special
                       efforts first be taken to buy American.  Again the Keynesian multiplier is reduced
                       in our times, compared to the 1930s.

                       Another factor that reduces the Multiplier, is that some of those hired in this
                       Public Works project
would very likely have been hired by a private employer
                       somewhere else in, say, 3, 6 or 12 months.  To consider this worker's employment
                       to be completely due to public infrastructure expenditures,  one would have to
                       have the Public Works project heavily employ the unskilled and untrained.   In fact,
                         "creaming" of the of the unemployment pool would be quite common.   To the extent,
                         that this is so, the multiplier is made smaller and GNP does not grow so fast as one
                         might hope because of these projects.. 

                         Obama's modest 2009 stimulus, used "shovel-ready projects"  which State
                        and Local Governments were intending anyway to undertake in the not too distant
                        future.  Obama's stimulus did have the positive effect in these cases of
                        speeding up the expenditures and hiring.  But it is less clear that it helped
                        employ the less skilled and untrained or made any dent in the problem of the
                        long-term unemployed.  At least half of the current unemployed have been so for
                        more than 6 months.

                        Wars and military bases are hugely expensive.  Literally, trillions are spent
                        overseas where there is relatively little secondary or tertiary benefits to the US
                        economy.   Private contractors like Blackwater and Halliburton have even become
                        foreign based.  From the view point of increasing jobs and GNP, it would be hugely
                        beneficiary to shift from Military Spending to Public Works.
  The financing of a
                        massive public works program might slightly serve to increase interest rates. 
                        But since 1/2 of all Federal Expenditures is for the military, any conceivable
                        shift of priorities and spending on Public Works would not be much of a threat
                        to the bond market or inflation, except perhaps locally where skilled workers'
                        wages might go up.  And if the Dollar were actually weakened, because of more
                        public sector spending, it would serve to reduce imports of manufactured goods
                        and increase their exports from the US.   Presently,  the slack in the economy is too
                        great to cause any chance of wage inflation.

                        From this, it is clear that if Obama really wanted to increase US employment
                        and help the economy the best way, he would act quickly to prevent the flight of
                        investment capital overseas.  He should impose tariffs and rethink all those trade
                        agreements that have allowed foreign imports to supplant domestic manufacture. 


In 1932, Keynes told a Parliamentary committee that "The thing about tariffs is -
                          they do the trick
" .  He grew to consider tariffs to be vital to smooth the economic
                          cycle and provide greater employment through government intervention.
                         ( See -   )  Keynes considered tariffs to be necessary
                         where the government sought to maintain its currency and at the same time
                         increase employment at a time when wages were falling. 

                                                               His Favorite Solution

                         "(D)omestic investment could be indirectly subsidized to increase domestic output and
                           reduce foreign lending. Keynes called this "my own favourite remedy," which could be
                           accomplished by a  tax on foreign bonds, by changes in the banking system to increase
                           domestic lending, or even by direct capital expenditures by the government.


                              OBAMA - 2011
Mr. President, Community Colleges Are Not The Problem
Obama simplistically asserts that American workers don't have the skills to compete.
                      That is not the problem.  It is how easily corporations can locate overseas
                       where wages and safety conditions are much lower.  In this, he is the mouthpiece
                       of the free traders on Wall Street, who are only interested in coroporate profits,
                       not in American workers or even American consumers.

   Obama will not release his college transcripts.  So, maybe he did study
                       history and economics at some point.  What is clear, is he shows
NO awareness
                       whatsoever of these economic lessons or the general theories of Keynes.
                       Instead, to get campaign contributions, he has called himself a Free Marketer
                       of the Chicago school.  Milton Friedman is his hero, not Keynes.  Friedman's
                       position on the Depression is that it was caused by tight Fed monetary policies.
                       Obama and Bernanke have made interest rates about as low as possible.  Wall
                       Street has benefited, but Main Street has not.  Low interest rates do not ensure
                       that banks will loan money or that those who do borrow will invest in job-creating
                        ventures in the US.  Instead, the low interest rates have fueled American
                        investments overseas and speculation in stocks and commodities.  The
                        only nod Obama gave to Keyes was his drop-in-the-bucket sized public works
                        programs in 2009.  These did create some jobs, but not nearly enough of them.
                        Obama ignored Keynes completely, In not insisting on new taxes on the wealthy
                        and corporations in 2010 when his party had a majority.  He keeps relying on
                        on the self-serving advise of his Wall Street-based advisors.  I see no evidence
                        that he understands the basics of Keynes, taught in every ECON-101.

                                                             The 1930's All Over Again.

                        History seldom gives us a second chance.  The tragedy is that Obama has lost
                        a perfect opportunity to use the Presidential "bully pulpit" and raise the public's
                        knowledge of Keynes' arguments for a massive public works program.   Instead,
                        he accepts completely the premise that comes from the right-wing talk show hosts,
                        that government spending is inherently wasteful, that government is a "barren
                        whore" and the Federal, State and City budgets must be balanced by lay-offs and
                        reduced spending.  I fear this will be disastrous, even calamitous in the years
                         to come.   The stock market may rally, but bigger Wall Street profits do not
                         mean decent jobs and prosperity on Main Street.  The British experience
                         in the 1920s should show our political leaders that Austerity, a Strong Dollar
                         and no new national Public Works program will utterly fail to produce Prosperity,
                         Full Employment and a restored  infrastructure in America.
                         And that is what the stock market is now saying.

Tea Party Terrorism Show How Vulnerable The Economy
            Is To Small Minority Terrorism

wpe1B5.jpg (26519 bytes)
          Newsweek's Queen of Rage has said she would vote to bring the
               government down, rather than increase the Debt limit. 
The Tea Party people are entitled to their opinions, but not to their own
                     facts.   They also not entitled to threaten the default of the US Treasury
                     when the country is at war. 
Treason?  They are lucky they are dealing with
                     the spineless Obama.  Lincoln would have had them arrested.  He jailed and
                     suspended habeas corpus for far less grave offenses to the nation in the Civil War.
                      Wilson put pacifists and union strikers in jail in World War I.  He would not have
                      tolerated the tea party putting a dagger at the US government.

                      Congress voted the very appropriations that have rung up the debt.  They can
                      vote to increase taxes or not, and to stop spending, as they wish.  But they ought not
                      come back and threaten to bring down the entire government when their deficits
                      reach a certain point, and certainly not while the country is at war.  That is

                      What's worse, the deficits occurred, first, because of Republican tax cuts for the
                      wealthy   These have cost $800 billion over the last 10 years, not including the
                      reduction in the Estate Tax.  And second, the deficits have occurred because of
                      the wars started by a Republican President.  The most expensive war, the Iraq War,
                      was started with utter lies about WMDs and to serve the personal interests
                      of Bush and Cheney.  Bush who needed a nice little war to save his Presidency
                      from defeat in 2004 because of the collapsing economy.  VP Cheney sought to
                      help his former company Halliburton which was badly faltering in 2002, just before
                      the  war.   The Iraq war probably saved it.  And it made billions off the war as the #1
                      inside-track contractor that never even had to bid to get billions of open-ended,
                      cost-plus Iraq war contracts.   The Iraq War will cost the US more than 3 trillion. 
                      Bush-Cheney did nothing to raise the revenues to pay for this war!
                       I wrote at the time, the Bush-Cheney plan, all along, was to bankrupt the US Treasury,
                       so that the social programs of the New Deal, The Fair Deal and The Great Society,
                       for the elderly and the needy would each have to be shredded.  

                        Right wing corporate ideologues like the Koch brothers seem quite ready to take us
                        back to the Gilded Age of robber barons, bullies, moguls and monopolies.  They
                        seem to actually want us to go back to an era of dangerous 12 hour work-days,
                        poverty wages, banned unions, child employment,  water and air pollution,
                        contaminated food and unsafe drugs.  To the Tea Party cultists, government is a
                        barren whore and the free market solves every thing.  They are closet fascists who
                        believe in Ayn Rynd's superman.  In the
Fountainhead’. One of her heroes boasts
                        that he is the polar opposite of Robin Hood:
He was the man who robbed the rich
                        and gave to the poor. I’m the man who robs the poor and gives to the rich, or to be
                        more exact, the man who robs the thieving poor and gives back to the productive rich.


                        Obama is trapped by his Chicago free market thinking and Wall Street advisors.
                        He desperately needs to read some American history.  And he needs to grow a
                        backbone and realize he is dealing with liars, thugs and bullies.  They should not be
                        appeased or coddled.  They should be called out for what they are, fanatical,
                        know-nothing, cultist pawns of the predator super-rich.   

                        Obama's failure to show backbone and lead the country will have a devastating
                        effect on all Americans in 2011 and 2012.  In serving his rich political
                        campaign financiers, Obama may actually be doing them more long term harm
                        than FDR ever did.

              Further   Reading -

                                       Obama as Confidence Man and Puppet?

           His coziness with Wall Street elites has largely gone un-noticed.  But
           the truth is Obama never really challenged Wall Street despite their high
           crimes in causing the 2008-2009 Crash.  He told Jay Leno that their elites
           had committed no punishable crimes.  He said this without any real
           investigation and he brought on no investigation of the many cases of
           fraud they committed.  It was this statement that sent the stock market
           soaring back up in March 2009.

           Obama does have his critics.

                          -  "Obama is but a figurehead of an unelected government in the US"
                          -   "In the ...US budget debacle, Obama is pathetically doing the bidding of Wall Street."
                          -   "He’s a fraud, a crime boss, a moral coward and serial liar, fronting for wealth, power and privilege."
                          -    "He empties your Social Security funds to bail out the arch financiers who swindled your pension
                                investments. He appoints and praises the architects of collapsed pyramid schemes to high office
                                while promising” better times ahead." 
                          -    "Under Obama, however, corporate crooks take the money and run, rewarding themselves with
                                 generous bonuses, stock options and benefits, investing some abroad, and stashing the rest in offshore tax havens."

                          -   "The debt ceiling crisis is a manufactured one, engineered to extort concessions that will lock
                                the middle class in debt peonage for decades to come. "
                          -    "Recall that Obama’s bid for presidential election in 2008 was avowedly based on ending the
                                US-led wars in Afghanistan and Iraq. He also denounced his incumbent rival George W Bush over
                                the use of special powers that enabled such aberrations as the Guantanamo Bay concentration camp
                                and a host of draconian home security policies infringing on civil rights. But on every count, Obama has
                                reneged on his supposed opposition to the US “war on terror”. Indeed, under his watch, the
                                US has expanded its militarist foreign policy....

                          -    Obama has done nothing to roll back draconian home security policies... The end result is the
                                banana republicanization of America...where a small percent of the population has a disproportionate
                                share of wealth and power, where ordinary people are exploited, often persecuted, and where profits 
                                are privatized while working households bear the burden of debt."

                           -    "Harry Reid came out of a meeting with Obama over the weekend “visibly shaking” he was so angry
                                 at how little the president seemed to care about the process and related details of the agreement, and
                                 how flip and dismissive he was toward Senator Reid. “Just get something for me to sign Harry…”