In March 1925 Lord Beaverbrook held a dinner with Churchill, then Chancellor, Keynes and a number of pro-gold standard Treasury men. The debate centered on whether a return to gold would:
Either i) “prevent life in a fool’s paradise of false prosperity” ii) “improve the terms of trade by overall cost reductions” and iii) “mean parity with Germany and the United States”.
Or i) mean “unemployment, downward wage adjustment, prolonged strikes” ii) “favor the special interests of finance at the expense of production” iii) “lead to a permanent contraction of production”.
Keynes spoke of the “paradox of unemployment amidst dearth”, when an economy can not clear wages and prices and falls into a liquidity funk. But the Treasury position prevailed and reluctantly Churchill went along. One month later, Britain restored the gold standard. It lasted seven, lean years. Everything Churchill and Keynes feared came true. Not one of the alleged benefits materialized. Churchill called it the worst decision of his career.
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In March 1925 Lord Beaverbrook held a dinner with Churchill, then Chancellor, Keynes and a number of pro-gold standard Treasury men. The debate centered on whether a return to gold would:
Either i) “prevent life in a fool’s paradise of false prosperity” ii) “improve the terms of trade by overall cost reductions” and iii) “mean parity with Germany and the United States”.
Or i) mean “unemployment, downward wage adjustment, prolonged strikes” ii) “favor the special interests of finance at the expense of production” iii) “lead to a permanent contraction of production”.
Keynes spoke of the “paradox of unemployment amidst dearth”, when an economy can not clear wages and prices and falls into a liquidity funk. But the Treasury position prevailed and reluctantly Churchill went along. One month later, Britain restored the gold standard. It lasted seven, lean years. Everything Churchill and Keynes feared came true. Not one of the alleged benefits materialized. Churchill called it the worst decision of his career.
How close are we to repeating this?
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