1. Introduction The 2016 special issue of the Cambridge Journal of Economics places austerity mainly in the context of a neo-liberal reaction to Keynesianism.1 However, the British ‘Treasury view’ of the 1920s on the crowding-out effects of public expenditure is recognized as a chief forerunner of contemporary austerity policies (Blyth, 2013; Bridel, 2014; Konzelmann, 2014). What light can a study of austerity after the First World War cast on the nature of contemporary policies? This article expands upon austerity’s intellectual and historical origins, unraveling neglected analytic connections. Most scholars focus on fiscal austerity, which may be defined as cuts in public expenditure and the public payroll, increases in (mostly regressive) taxation, privatization and reductions in budget deficits. Its purpose is to increase investors’ confidence in a government’s ability to manage its finances (Konzelmann, 2014, p. xiv), implying that austerity is usually a response to actual or anticipated economic crisis. Austerity’s monetary form is considered by fewer scholars; Blyth (2013, p. 2) defines it as a ‘form of voluntary deflation’.2 Monetary austerity may reinforce fiscal austerity by constraining a government’s ability to finance its spending with money creation. Since the 2008 Crisis, fiscal austerity has predominated in Europe. However, after the First World War both forms of austerity were put into practice in most European countries. Great Britain led the way. As the central department for financial policies, the British Treasury had decisive authority in setting the austere economic agenda. In particular, the official who had the greatest weight with chancellors of the Exchequer was the Controller of Finance: first Sir Basil P. Blackett (1917–1922), and then Sir Otto Niemeyer (1922–1927). These two men personify the ‘Treasury-view’. The ‘Treasury view’ is usually understood in a narrow sense, focusing on the Gold Standard and opposition to public works (Clarke, 1988; Middleton, 1985, 1987; Peden, 1984, 1996; Skidelsky, 1981). Through systematic archival research, I reconstruct two central but neglected elements: the central role of savings and the importance of independent central banks. These two themes disclose the deep connection between austerity, individual sacrifice and technocracy, a 3-fold association that brings out the importance of the ‘Treasury view’ in analyzing contemporary austerity practices. The ideas and debates discussed in the paper mirror closely the ones of today. For all the changes in economic theory over the last 80–90 years, the underpinnings of austerity, both economic and moral, are remarkably similar to those of the 1920s I follow two parallel lines of analysis. The first and main one is a reconstruction of the worldview of the most prominent men at the British Treasury in the post-WWI years. There is no scholarship to date that reconstructs the economic doctrine of Blackett and Niemeyer, the two men who had tremendous influence in establishing British austerity policies in the 1920s. A close study of their activity as financial experts demonstrates that their influence surpassed national borders: their prescriptions were implemented not only in the UK, but internationally. I undertake a second line of analysis by discussing, for each building block of the Controllers‘ outlook, the affinities and dissonances between the thought of Blackett and Niemeyer and that of Ralph G. Hawtrey.3 After the First World War, Hawtrey held the unique position of ‘in-house’ economist of the British Treasury. Hawtrey’s copious memoranda constituted a large portion of the material in the hands of the Controllers of Finance. How influential was Hawtrey’s economic theory within the Treasury? This question has wider significance than a reconstruction of an unexplored episode in the history of economics. It provides understanding of the extent to which economic theory had operative force as a tool for technocratic policymaking. By using both published and archival sources, I show that the Treasury view, far from being only a pragmatic stance (Middleton, 1985; Gaukroger, 2008), was solidly grounded in Hawtrey’s economic theories. I demonstrate that Hawtrey’s theory provided strong theoretical justifications for the economic beliefs that were entrenched in the Treasury view, thus making these beliefs ever more solid. Blackett and Niemeyer agreed with Hawtrey on all of his austerity conceptions. However, their memoranda illustrate that they did not endorse Hawtrey’s monetary theory to its fullest consequences. Hawtrey’s peculiar kind of monetarism led him to be skeptical of prolonged deflation and to favor expansionary monetary management during a slump. These ideas were never mentioned by the two Controllers. They used Hawtrey’s economic theory to rationalize austerity policies that were in line with the Treasury view, while ignoring his most progressive ideas. Through this analysis, the technocratic essence of austerity rationality clearly emerges. Blackett, Niemeyer and Hawtrey considered their doctrine to be the outcome of a long-run economic view that is above politics, above class interests and morally imperative. The content of this doctrine explicitly required a severe rule of conduct, in particular for the working class, who had to undergo sacrifice and self-restraint in the name of a superior economic cause, namely, the supposed benefit of the whole country. Yet, as Adam Smith had written: ‘Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable’ (Wealth of Nations, I.8.35). This fundamental tension between a majority badly affected by austerity and a minority who benefited from less social redistribution is the essential feature, and main conundrum, of present-day austerity too.4 This essay is organized as follows. The first section after the introduction sets the context of the work. I introduce Blackett and Niemeyer, demonstrating their primary impact on post-WWI British economic policy. The atmosphere of theoretical and political criticism that the Treasury confronted will also emerge. The second section discusses the Controllers’ economic policies in relation to Hawtrey’s prescriptions. The third and fourth sections are devoted to the central role of savings and the Central Bank, and will show the full extent of Hawtrey’s influence. 2. The challenges to and influence of Blackett and Niemeyer Ever since the Victorian era, the ‘Treasury view’ had been the uncontested doctrine of British governing institutions (Skidelsky, 1981). After WWI, it was challenged for the first time by the members of the institutions themselves. Economic orthodoxy was no longer to be taken for granted. Evidence is abundant in the Treasury files and in The Times, the newspaper of the political establishment. In 1920, in a letter to the editor, strong words appeared in The Times. They introduce the guiding intuition of this essay. ‘Is the reduction of purchasing power a practicable proposition at this time? Is it consistent with the hopes which have been held out of the betterment in the conditions of the working class?’ (‘High Prices’, The Times, 18 May 1920). Three years later, The Times declared that ‘monetary policy has been a subject of keen controversy ever since the issue of the Cunliffe Report and the Government’s adoption of its principal recommendation’.5 The article reported that Mr. Keynes, ‘in rather striking language’, had condemned the rise in the bank rate, ‘alleging that it would discourage trade by raising the cost of financing it’ (The Times, 7 August 1923). Keynes’ criticisms of austerity, which began after 1922, are well known and studied.6 Yet, the critical voices extended well beyond Keynes. They included intellectuals such as the Oxford don, GDH Cole, whose contributions appeared regularly in the New Statesman, but also larger organizations of the ‘producing classes’. The Agricultural and Industrial Union and, especially, the Federation of British Industries (FBI) repeatedly wrote petitions to challenge the Cunliffe agenda, which they saw as the source of rapidly falling prices, economic dislocation, a severe check to exports, an increase in the real burden of international debt and substantial unemployment (Boyce, 1987, pp. 48, 64–65). In 1924, the Advisory Committee of Finance and Commerce of the Trades Union Congress and the Labour Party released a memorandum declaring its ‘grave objection’ to further deflation in order to secure the Gold Standard: ‘a fall in prices, it is generally agreed, will be accompanied by a check to trade and an increase to unemployment’ (T 176/5, part II, fols. 2–3, June 1924). The memorandum very explicitly states: ‘An insistence on a rise in the bank rate at the present time, whatever may be said for it in the long run, looks very much like a sacrifice of the immediate interests of the general community to the immediate interests of the bankers’. This memorandum was underlined and commented on by Niemeyer himself. Like many others, it attests to the general awareness of the issue at stake: austerity policies had at their basis the sacrifice of the vast majority of British citizens. Theoretical criticism aside, the 1918 Reform Act, which trebled the electorate,7 made it ‘seem likely that social questions would dominate politics after the war’ (Peden, 1985, p. 47). Furthermore, the hardships of war encouraged politicians to promise social improvements, as there was wide determination that there should be no return to pre-1914 social conditions. Indeed, industrial unrest and the strength of labour unions were signals of increased politicization of the working classes. A Ministry of Reconstruction was set up in 1917 with instructions to draw up a program for social amelioration and economic improvement (Peden, 1985, p. 48). In December 1918, Prime Minister David Lloyd George inaugurated the slogan ‘home fit for heroes’, followed by the 1919 Addison Housing Act that proposed an ambitious popular housing program (Malpass, 2005). Other fields of progressive social reform were public education and health; Britain was in the forefront of social spending in these fields.8 Most importantly, after July 1921, concrete proposals to solve the unemployment crisis urged the abandonment of laissez-faire and monetary rigor. In autumn of that year, in the Scottish village of Gairloch, ministers discussed the reflationary alternative to economic orthodoxy,9 sponsored by Prime Minister Lloyd George. The Treasury file T 172/1208 is a compilation of the numerous external pressures the Treasury received to embrace an expansive policy of loan-financed public works aimed at boosting employment. The Treasury was bombarded by innovative proposals from various ministries: the Gairloch Scheme for a national development loan (T 172/1208, fol. 43), a railway electrification plan (fol. 85), a plan by Minister of Health Sir Alfred Mond for the utilization of war savings money for the unemployment relief works (fol. 87), etc. Britain seemed on the verge of a radical shift in its traditional economic policy. However, the two Controllers strongly opposed these ‘wild cat schemes’ (ibid.), advising the Chancellor of the Exchequer that ‘the national financial position makes it imperative to limit assistance to the barest minimum to prevent starvation’ (T 172/1208, fol. 143). Indeed, Treasury concerns were taken seriously, and these schemes, together with the more ambitious one of the Liberal Yellow Book in 1928, were never put into practice. The Treasury view dominated economic policy throughout the decade. Fiscal austerity went hand in hand with severe monetary deflation, pursued for the whole of the 1920s. Treasury bill rates had already been raised to 5% in November 1919; the imposition of a 7% Bank rate in March 1920 for over a year is emblematic of the deflationary pressures that characterized that period and that is considered if not the trigger, an important factor to explain the 1920–1921 slump that was followed by a long period of doldrums (Eichengreen, 1992; Feinstein et al., 2008). Already in December 1919 the Cunliffe Report had officially set the agenda of a return to gold: ‘The amount of deflation necessary to return to the prewar parity depended on developments abroad, particularly in the United States, the only country to return to gold quickly after the war’ (Moggridge, 1972, p. 24). Unfortunately, American prices were in persistent decline. Moggridge (1972) and Howson (1974) extensively document the discussions and policies of so-called dear money during all the steps toward a return to the Gold Standard at the prewar parity (4.86 dollars to the pound) achieved in 1925. Until the end, Chancellor Churchill was doubtful about declaring a return to gold. With their pointed memoranda against the numerous critics who were warning Churchill of the heavy sacrifices necessary to return to gold, Hawtrey and especially Niemeyer were the most influential advisers in favor of a return (Peden, 2004, pp. 27–40; see also Moggridge, 1972, pp. 65–79). Yet, ‘With real interest rates at an almost unprecedented 10% for the balance of the decade, in defense of an overvalued exchange rate, the consequences were just as bad as its critiques had anticipated’ (Boyce, 1987, p. 78). Indeed, British industry was depressed, and the ‘intractable million’ persisted. Blackett and Niemeyer had a prominent role in setting this austerity agenda. The Department of Finance of the Treasury, of which Blackett and Niemeyer were head, was responsible for both home and overseas finance. The Controllers of Finance were the principal direct advisors to the Chancellor of the Exchequer on all financial matters, including taxation, debt management and domestic and international monetary policy. All relations between the Treasury, the Bank of England and the money market were in their hands. Blackett and Niemeyer were in direct and personal contact with Governor Montagu Norman. The official historian of the Bank of England, Sayers (1976, p. 74), attests that Norman and Niemeyer were close friends. The annual budget of the Chancellor was prepared by the Treasury’s Department of Finance; the Controllers often directly wrote the budget speeches for the Chancellor.10 The Controllers’ influence over policymaking also derived from the fact that they were permanent officials. Until 1925, Blackett and Niemeyer were much more influential than the Chancellor himself, who was usually in office for a very short period and was rarely a financial expert (Peden, 2000, p. 137). This was true even with a heavyweight like Churchill in office. A 1927 note by the Governor of the Bank of France Emile Moreau referred to the opinion of the French ambassador in London: ‘He points out that Winston Churchill, who detests Poincaré, isn’t really in control of the Treasury. The man who does in fact control it is Sir Otto Niemeyer, the intimate friend of M. Norman’ (Boyle, 1968, p. 229).11 Already in 1921 Blackett had directly testified that ‘The day to day work of the department involves the assumption of responsibilities by the Controller of Finances which, when he makes the mistake of turning [his] mind to its magnitude are really staggering’ (T 199/3, cited in Peden, 2000, p. 135). Both Blackett and Niemeyer studied Literae Humaniores12 at Oxford, and were placed first in the Civil Service examinations (in 1904 and 1906, respectively); they were thus immediately posted to the Treasury. While Blackett became the first Controller of Finance in 1920, Niemeyer was his deputy and succeeded Blackett in 1922. Both men were part of the War Savings Committee (The Times, January 1931) and, as Controllers, participated in many governmental committees.13 Their influence on economic policy persisted even after their resignation from the Treasury. Both Niemeyer and Blackett were recruited by Montagu Norman to high posts at the Bank of England; Blackett was a Director there from 1929 until his death in 1935, and Niemeyer was, first, Executive Director and Advisor to the Governor (1927–1938), and then, from 1938 to 1952, he was a Director of the Bank. Their economic influence extended well beyond national borders: they formulated austerity reforms that were carried on in many foreign countries. In fact, while Controllers, Blackett and Niemeyer were members of the Financial Committee of the League of Nations. Niemeyer worked closely with Governor Norman and played a vital role in implementing the post-war financial reconstruction plans for Austria, Bulgaria and Greece. The schemes made international loans conditional upon efforts to balance the budget, stabilize the currency and especially to create private central banks, independent of government.14 Niemeyer advocated the same type of measures in his missions as financial expert in Australia (1930), Brazil (1931) and Argentina (1933). After six months in Brazil, Niemeyer submitted a report to the Brazilian government embodying a plan of fiscal and monetary reform, exchange stabilization and the establishment of a central bank, to which he attached the statute of the New Central Bank.15 In Argentina, a central bank following Niemeyer’s pattern was established in 1935. As for Blackett, his international influence was felt when, from 1922 to 1928, he held the position of finance member of the Viceroy Executive Council in India. His efforts matched those during his mandate in Britain: he pursued the funding of floating debt, a balanced budget, expenditure cuts (especially in the railway system), stability of exchange rate and the attainment of gold parity. Blackett also succeeded in creating an independent Indian central bank. Blackett and Niemeyer were practical men; they never wrote scientific papers. However, as widely recognized financial and monetary experts of international standing, they had many contacts with the academic world. During WWI, Blackett lectured to the American Academy of Political and Social Sciences and died in a car accident on his way to give a lecture at the University of Heidelberg. In 1930, Niemeyer was granted the prestigious task of writing the entry ‘debt conversion’ for the fourteenth edition of the Encyclopedia Britannica. He was chairman of the London School of Economics Court of Governors (1941–1957), and a Governor until 1965. Still, the published evidence on the economic outlook of Blackett and Niemeyer is limited.16 In the following, I rely on these few publications, together with the memoranda they produced while Controllers of Finance. I will reconstruct the economic prescriptions that embody the elements of their Treasury view and look at the theoretical foundations, comparing them with Hawtrey’s ideas. 3. Austerity in practice 3.1 Fiscal and monetary rigor After WWI, the international panorama appeared explosive. At the time of the armistice, Britain owned $3,696 million to the USA (15% of GNP, a proportion that increased when sterling depreciated in 1919–1920 from $4.77 to $3.38 after American loans ceased). The USA, which had become the world net creditor, held uncompromising views: war debts had to be paid in full by the allies. American policy had a domino effect in causing international financial rigor, exacerbating the financial fragility of the allied countries.17 Hyperinflation and economic instability in central-eastern Europe haunted British policymakers, while the Bolshevik threat lurked in the background. Domestically the picture was also grim. The national debt had increased from £650 million in 1914 to £7,832 million at the end of the financial year 1919–1920 in nominal terms, or from 24% of GNP to 121% of GNP (Mallet and George, 1929, p. 411, table 19). And with almost one-third of national debt at maturity under five years, the problems of refinancing and debt management loomed large (Moggridge, 1972, p. 24). Moreover, the end of wartime controls over prices and investment increased capital flights and the current account deficit. Inflation mounted during the war and reached a legendary boom in 1919–1920 (Mitchell, 1980, p. 775, Table 2). Retail prices in 1920 were 2.44 times those of 1913. Rising prices threatened real wages, hence millions of workers were driven into the ranks of the trade unions (Tooze, 2014, p. 356)18 To counteract this economic and political disorder, Blackett and Niemeyer displayed a very solid economic agenda throughout the 1920s. Financial and monetary austerity went hand in hand with the support of a Gold Standard. In the minds of Hawtrey and the two Controllers, such recipe had proven successful after the Napoleonic Wars and had to be re-enacted.19 In 1925, Niemeyer wrote a note to the Chancellor to advise him on the next budget. He gave an effective summary of the post-war financial agenda: ‘The objectives of our national policy since the armistice have been: 1) to balance the budget out of revenue 2) to reduce the debt 3) to reduce public expenditure and, in consequence to remit taxation’ (T 176/21, fol. 26). Niemeyer proudly declared that all of these policies were successful: already in 1920 the budget had been balanced. Fundamental in this economy drive had been the Geddes Axe20 of 1921, which the Treasury had advised and strongly supported. Triggered by an anti-waste campaign, the Geddes Axe became a legend in British politics: the axe represented the largest expenditure squeeze in the UK between 1900 and 2013, except for the demobilization periods after the two world wars. Heavy spending cuts were applied to a budget that was already in balance (Hood and Himaz, 2014). From 1921–1922 to 1923–1924, social expenditure fell from £205.8 million to £175.5 million. Clear losers from the Geddes Axe included social security, housing subsidies, welfare spending and women in the civil service. The losers also included those who would have benefitted from the 1918 (and 1921) education acts (Hood and Himaz, p. 17). Beginning from 1919, defense expenditure was also cut (Peden, 2000, p. 169). Central government expenditure was 26% of real GDP in 1921; it fell to 22% in 1922 and again to 21% in 1923, remaining slightly below this level for the whole decade.21 Excluding debt charges, total expenditure fell by about 9% of GDP in the period between 1923 and 1925. In constant price terms, expenditure fell by over 16%. Orthodox financial conditions provided confidence in British credit; they allowed it to achieve a currency and exchange stability that was best embodied by the Gold Standard. Conversely, a Gold Standard required a balanced budget. The reciprocal relation between financial and monetary orthodoxy was common knowledge to the British establishment, especially to the likes of Hawtrey, Blackett and Niemeyer. The idea is clearly stated in Niemeyer’s Brazilian Report: ‘The two factors, budgetary equilibrium and stable money, must march together; and neither one can be maintained without the other’ (Niemeyer, 1931, p. 4). 3.2 Competitiveness, reduction of consumer outlay, and deflation In the eyes of Blackett and Niemeyer, the simple strategy outlined above was the only one that could lead to economic prosperity, since it encouraged the conditions for export-led growth. This strategy fitted particularly well the case of Great Britain, a country that was a great financial center, with an economy grounded on the export of goods and services. Accordingly, Blackett reminded the Chancellor that ‘The fact is that the only form of demand which will really help the situation is demand from abroad’ (T 176/5, part I, fol. 15, 8/6/21). Hence, the policy of deflation was not an option but, in Niemeyer’s words, an ‘imperative’: ‘We could only sell goods abroad in competition with the rest of the world, we must therefore be able, not merely to produce goods for sale, but to produce them at a cost which will compete with world prices, in other words, we must have our prices and therefore our goods consistent with the general world level’ (T 176/21, fol. 27). The necessity to lower prices in order to boost exports is repeated time and again in the notes and memoranda of the two Controllers. It essentially means that there was an obligation to suppress wages and reduce internal demand. Deflation must be an active policy of monetary management that should be pursued by the monetary authorities. Especially during the inflationary boom of 1919–1920, this idea was very clearly present in the many writings of Hawtrey that the Controllers studied. Hawtrey gave theoretical foundations to the phenomenon of inflation, embracing the idea of reducing the consumers’ outlay in order for deflation to be effective. While Niemeyer displayed these Hawtrian ideas in general, one of Blackett’s memos, titled ‘Dear Money’, specifically, and explicitly, employed Hawtrian theory and terminology. This document thus deserves careful analysis. On 12 February 1920, Blackett wrote to instruct Chancellor Austen Chamberlain. He began his memorandum by defining the phenomenon of inflation. Inflation is not primarily due to a rise of prices, he wrote. Rather, the rise of prices is just the most visible indication that a credit expansion has affected people’s purchasing power: ‘Credit inflation during and since the war has largely increased the purchasing power of the community. This has been caused mainly by government borrowing and particularly by Ways and Means Advances’ (T 176/5, part II, fol. 42).22 And again: ‘The rise in the purchasing power is due to the increase in manufacturing credit both in the form of new paper currency or in the form of bank loans’ (ibid.). Hence, just like in Hawtrey’s analysis, the fundamental source of inflation is identified in the expansion of consumer expenditure. More precisely, Blackett makes it explicit that it is the increase of the purchasing power of a specific part of the population that is responsible for so dramatic a price spike. ‘The rise in the prices of most things in general demand’, he writes, ‘has also been accentuated by the fact that the redistribution of the purchasing power among the various classes of the community has been altered in favour of those whose purchases were most severely restricted by the narrowness of their purses’ (T 175/6, part II, fol. 46). Here, Blackett is pinpointing the increased bargaining power of organized labour that, until then, had offset the negative effect of inflation on real wages. Indeed, war had boosted demand for labour, raising money wages. Inflation reduced the purchasing power of money, but trade unions had been able to preserve real wages by demanding higher money wages, going on strike if necessary. On the other hand, unorganized labour, and especially the middle and upper classes, whose income came from investments, savings or pensions, experienced a reduction of their real income that was unable to keep pace with the price level. In particular, as the real value of savings fell, the traditional distribution of purchasing power amongst classes had been altered in favor of organized labour. In his note Blackett embraces Hawtrey’s theory of the centrality of credit and its fundamental instability to explain inflation.23 ‘The whole question moves in the realm of credit’, which, he states, ‘is a peculiarly unstable and sensitive phenomenon and depends on the psychologies of individuals not two of whom are exactly alike’ (T 176/5, part II, fol. 44). Hence, in order to counteract the expansive tendencies of credit, a restriction of monetary conditions, the so-called dear money policy, becomes crucial. Just like in Hawtrey’s theory, the essence of monetary management lies in the regulation of consumer outlays, that is, in the reduction of internal demand; this would in turn bring back prices to the level of the dollar (gold) parity that existed before the war. The result, Blackett suggests, can be achieved ‘by reducing the purchasing power in the hands of the community of the United Kingdom and by increasing the production in the United Kingdom of purchasable goods and services. The effect of any action in this direction will be to reduce home consumption and increase exports’ (T 176/5, part II, fol. 42a). Reduced home consumption, reduced imports and increased exports will continue ‘until equilibrium is obtained and its arrival signaled by the rise of sterling to par with gold and with dollars’ (T 176/5, part II, fol. 49). 3.3 The power of the bank rate Blackett and Niemeyer displayed strong confidence in the power of the bank rate, a faith based on Hawtrian theoretical foundations. The bank rate was effective thanks to the central role of merchants (or dealers) in shaping the level of economic activity. Merchants relied upon credit to finance their stocks: they borrowed from banks to buy goods, and could only repay loans when they sold the goods. The fundamental characteristic of the dealer was his unmatched flexibility in responding to changed market conditions: a rise in the bank rate implied a substantial increase in the cost of holding stocks. Even at a time of increasing profits, the merchant’s sensitivity to the bank rate would have an immediate reversal effect, halting inflation. In fact, a high bank rate deterred would-be borrowers and propelled banks to call in loans. As Blackett wrote (1920) of a rise in the bank rate: ‘This meant generally some fall in the prices of long term securities and a reduction of the volume of stocks or commodities carried by traders on borrowed money’ (T 176/5, part II, fol. 45). Niemeyer also advocated dear money in 1920 in order to revalue sterling with respect to the dollar. In a note to Blackett, he used a very Hawtrian paradigm, based on the pivotal role of the merchant, to discuss the primary argument in favor of dear money: ‘A high rate encourages merchants to trade quickly (they cannot afford to hold stocks) and this tends a) to bring down prices [and] b) to stimulate exports, however unpleasant its immediate taste’ (T 176/5, part II, fol. 69). Clearly, the immediate effect of dear money would be to raise the price of export goods. Both Niemeyer and Blackett were aware that, in the short run, a rise in the exchange rate is not an instrument to promote exports. Yet, they counteracted that point with two arguments. First, they believed that deflation would further the country’s role as a great financial center. Second, they thought that in the long run deflation would lower production costs, thereby making British exports more competitive. Hawtrey’s monetary theory displayed full awareness of the negative effects of dear money: business stagnation, vanishing profits, unemployment. Blackett appears to be responsive to this concern too, when, in his ‘Dear Money’ memo (February 1920), he writes that ‘deflation must be gradual and cautious’ (T 176/5, part II, fol. 50). He states that ‘the power for good’ of deflation is limited by the proviso that ‘it must not be carried to such lengths that it will cause a decrease in production’. Blackett displays a sharp understanding of the political stakes at issue: ‘Falling prices’, he continues, ‘are disliked by all traders, and however much a worker as a consumer may dislike high prices, he dislikes still more reductions in wages and lack of employment’ (ibid.). Yet, just one month later, Blackett pushed very strongly in favor of a dear money policy.24 By contrast, Niemeyer’s writings attest that he never took Hawtrey’s preoccupations against deflation seriously, even in the midst of the slump. In a note to the Chancellor in late 1921, Niemeyer was well aware of the manifold criticisms against dear money policy: ‘It is frequently stated that the ills we are suffering from are due to too rapid deflation’ (T176/5, part I, fol. 17). Yet, he denied that deflation was taking place: ‘there has been no real deflation, just a cessation of inflation’ (T176/5, part I, fol. 18: this idea is repeated in 1924: T 176/5, part I, fol. 209). Data on wholesale prices, however, reveal that severe deflation characterized the trade cycle 1920–1921.(Figure 1) Fig. 1. View largeDownload slide Wholesale Prices 1918–1938 (100 = 1900) Source:Mitchell (1980, p. 775). Fig. 1. View largeDownload slide Wholesale Prices 1918–1938 (100 = 1900) Source:Mitchell (1980, p. 775). Falling prices increased the value of financial assets that were fixed in nominal terms, notably the war-swollen national debt, and thus increased the wealth of holders of these assets—mainly the better-off members of the community or financial institutions. In 1925, when he was forced to recognize that the UK was undergoing an economic slump, Niemeyer insisted that the effect of monetary policy ‘is very greatly exaggerated with respect to other features, politics abroad and fear of disturbances at home’. In a very anti-Hawtrian fashion, Niemeyer argued that the main factors of depression were non-monetary. Political foreign instability ‘produces uncertainty and tends to make bankers and merchants curtail their credit for foreign business’, while tariffs obstruct free trade. The slump was due to the high costs of British industry and thus to high prices, especially of coal, which hindered exports. Deflation was the indispensable temporary burden necessary to cure all economic vices and to obtain the long-run benefits of the Gold Standard. Just like Hawtrey, Niemeyer was convinced that the Gold Standard, with its exchange stability, was the necessary condition for international trade to revive and for a great financial center such as London to prosper. A return to gold was not to be considered ‘as a class question... but from the stand point of the general interest’ (T 208/105, fol. 4). Once gold parity was achieved, Niemeyer believed, ‘for a time no doubt our current difficulties will be attributed to a return to gold. It is so much easier to do than to grapple with our real problem, how to reduce the cost of production and to cease thinking that we can consume more than we can produce’ (T 208/105, fol. 5). As it turns out, with Niemeyer’s argument we are back to where we started from, namely, to the most Hawtrian of all economic theses: in order to keep credit in check, consumer outlays must be curtailed. For Niemeyer, deflation had also to be defended on fundamental pedagogic grounds. During the inflationary boom, ‘people were living in a fool’s paradise’. In 1921, Hawtrey himself wrote: ‘We have after all made one big step in advance. We have all of us realized that after four years of devastating war the country is and must be poorer than before’ (T 176/5, part I, fol. 17a). In Niemeyer’s words, deflation has an ‘educative effect’ that is easily invalidated if dear money is halted: ‘Finally a reversal to cheap money will undo all the educative effect of even 6% [bank rate]. People will say, scarcity is over: money is cheap: there is no need for economy and rush down the steep place for inflation until the shilling goes down the way of the franc or the mark’ (T 176/5, part II, fol. 70). Pedagogy and morality are closely associated. Moral imperatives coincide with correct individual behaviour in order to fulfill the export-led growth that is proper to Britain as a great financial center. In discussing Niemeyer’s and Blackett’s practical economic prescriptions, the need to curtail costs, in particular labour costs, and consumption, particularly working-class consumption, has emerged as the main pillar of their economic agenda. The importance of reducing consumer outlays is also at the center of Hawtrey’s economic model. It is evident how both Controllers fully used Hawtrian concepts to justify the contraction of credit and the effect of the interest rate. The only real difference that emerged was on the evaluation of the perils of a protracted deflation. In order to fully demonstrate the influence of the ‘in-house economist’ on the Controllers, we must now turn to the two main pillars of the Hawtrian theory: savings and the Central Bank. 4. Savings For the three Treasury officials, the labour class should sacrifice wages and consumption in the name of economic recovery. This sacrifice, however, is not merely necessary to improve Britain’s balance of payments and economic competitiveness. Abstinence is the fundamental source of private savings, the pillar of economic recovery. Savings in British society must be enhanced with all possible means. First of all, there should be a strong pedagogic effort, a national education towards saving. Blackett was very active in this respect. During WWI, he was a prominent member of the War Savings Movement of Great Britain. Between 1916 and 1917 he traveled around England and the USA to give speeches in front of different audiences, from associations of bankers and the American Academy of Political and Social Science to teachers and simple citizens. Savings were essential to win the war. With a moralizing rhetoric, Blackett taught the population to undertake sacrifice. Blackett declared that the War Savings Committee had ‘enforced the lesson of patriotic abstention from self-indulgence’. People should ‘deny themselves firmly’ (Blackett, 1918, p. 16). This prescription should not be interpreted as a grim and exceptional case, but rather as a condition for progress to be developed into a universal norm. Blackett affirmed, ‘Are we not all tired for the ostentatious extravagances of the pre-war period, has war not taught us that our sense of values had gone wrong?’ (ibid., p. 20). Learning the custom of thrift should begin at a very early age: ‘By not buying candy, or by not going to the movies, they [children] could increase the amount standing to their credit in the school Savings Association’ (ibid., pp. 73–74, Speech for the Convention of the Association of Teachers of the State of New York). Blackett was pleased that British citizens had been good students of thrift. There had been a successful diffusion of savings associations at a local level where ‘people in cooperating and competing [positions] react favorably with each other’s saving propensities’ (ibid., p. 35). Yet, the crux of the matter was to induce the working class to save. Blackett was aware of the radical redistributive change propelled by the war: ‘This war is bringing, in all the belligerent countries, large sums into the pockets of the wage earners’ (ibid., p. 77). Being for the first time able to live beyond bare survival, the working class had soon begun to waste. ‘There was unfortunately a terrible amount of useless and wasteful extravagance’, Blackett remarked. ‘The cheap jewelry trade was booming...’ As a consequence, the state had been forced to provide ‘extra food and luxuries for masses of the people’ (ibid., pp. 29–30), instead of concentrating all resources for the war. To avoid such squandering of resources, workers should learn how to behave: It is for many of them [the workers] the opportunity of a life time; indeed, it is the opportunity of generations. For once there is some surplus over bare necessities which can be saved and set aside against a rainy day or as the nucleus of a capital fund. Many are learning it and are seeing that they can help themselves and their country by savings. (ibid., p. 77) The wealthy classes had an important role to play, namely, setting the example: What the well-to-do can do is by the force of their personal example acting upon and influencing public opinion to show the way to the workers...It is amazing what a difference personal example among the well-to-do, and particularly in the case of women, makes on the effectiveness of the War Savings campaign among the workers. (ibid., p. 18) Blackett underlined that thrift is an economic virtue that is not contingent on war necessities. Accordingly, the pedagogic function was even more fundamental for the long run: ‘The war savings movement has in the first place increased savings banks deposits during the war. Still more important it is educating a vast new army of future clients for savings institutions after the war’ (ibid., p. 38). Reconstruction required a plentiful supply of capital, and ‘there is no way that capital can be made available except through saving’ (ibid., pp. 20–21). These ideas were deeply shared by Niemeyer, who exported the virtuous British economic model to Brazil: ‘It is advisable to encourage the formation of a voluntary committee of suitable persons for the organization and propaganda of thrift throughout the country’ (Niemeyer, 1931, p. 22). In March 1920, Blackett sent to the Chancellor a recent article in the Times by A. C. Pigou, the professor of economics at Cambridge. The article, Blackett wrote in his accompanying note, put briefly many of the arguments he had developed at length. Pigou stressed that the importance of dear money did not merely rest upon the need to improve our exchange rate to reach gold parity. Dear money was also, if not primarily, a fundamental instrument to incentivize savings-capital formation: ‘The country is in tremendous need for new capital for reconstruction and development. It is imperative therefore that people should save. Cheap money does not encourage them to do this. Dear money does’ (Pigou, ‘Dear Money, A Remedy for High Prices: The Inducement to Save’, 1 March 1920). In accordance with Hawtrey and Pigou, and against Keynes’ critiques after 1922, Niemeyer and Blackett held that idle savings were not a problem. Savings were lacking and had to be increased and incentivized. 4.1 Taxation to impose thrift Blackett, Niemeyer and Hawtrey conceived of a virtuous circle: deflation prompts savings while savings stimulates deflation.25 Education on thrift and monetary incentives may induce a larger number of people to save. However, class differences testify to a substantial difference in the saving propensity of the individual, the working class being less prone to save or invest. This is why the instrument of taxation (especially regressive taxation) becomes crucial: it enforces a transfer of wealth from the poor non-saving classes to the wealthy savers. Following Hawtrey’s teachings, Niemeyer expressed these very ideas (T 170/135). Until 1932, the largest item in the chancellor’s budget was debt service, which meant transferring tax revenue to holders of the national debt, the portion of the community that was more inclined to save. Moreover, indirect taxation was, as always, the most effective way for transferring purchasing power from people whose incomes were too small to be liable to the income tax. In October 1921, Niemeyer sent a note to the Chancellor of the Exchequer: When debt is repaid out of money collected by taxation from the citizens at large it is used to pay off loan holders, that is that portion of the community that is more inclined to save than the rest, and the tendency will be for the investor who is paid off to reinvest his money on other securities. In other words, debt repayment extracts money from those who are not likely to save and invest and makes it available to those that are more likely to do so. (T 176/5, part II, fol. 39) In this framework, taxation should be regressive. As Niemeyer wrote: ‘The level of taxation must not be inconsistent with the economic life of the country and with the accumulation of fresh capital’ (T 176/39, fol. 62). The implication is that taxation for the wealthy classes should be kept low. Blackett and Niemeyer opposed all the post-war proposals of a capital levy or super taxes. Since the wealthy classes have a natural propensity to save, high direct taxation would check savings and discourage investment. Yet, as Niemeyer declared, ‘in no circumstance would I reduce taxation if it meant 1) an unbalanced budget or 2) a lesser provision for the reduction of debt’. The second proviso was based on the same idea expressed above: the reduction of internal debt by ‘a sinking fund collected from all taxpayers and paid out to those who are ex-hypothesis investors is the finest way of providing industrial capital’ (T 176/39, fol. 20). Once again, Niemeyer’s words perfectly matched Hawtrey’s, who in 1920 wrote: ‘In fact taxation for debt redemption takes money from people who might otherwise spend it on themselves and uses it to increase the resources of the capital market’ (‘Mr McKenna on over taxation’, HTRY 1/14). The Hawtrian assumption of the automatic connection between saving and investment in the action of the savers-investors is manifest. Hence, a sinking fund addressed at funding the floating debt was essential to free private capital, which was considered the only possible engine to restore the national economy. 4.2 Unemployment In 1921, Niemeyer wrote a note to the Colonial Secretary, Winston Churchill, who had asked him to disclose the Treasury view concerning financial conduct and employment. Niemeyer’s reply was concise but effective: ‘The best assistance that the State can give to unemployment is 1) to decrease expenditure 2) to repay its debts’ (T 176/5, part II, fol. 39). By keeping in mind the previous section, we may fully understand the meaning of this simple recipe. The state has to strive in order to release all possible resources for the market that are made available by private savings. In the Controller’s words: ‘Industry could not permanently prosper while the state was absorbing the greater part of investible savings...the reduction of debt means the return of so much cash in the investment market’ (T 176/21, fol. 26). For this reason, any sort of public investment plan was a chimera for the long-run unemployment problem. Blackett and Niemeyer agreed with Hawtrey (T 176/11). Government borrowing diverted private savings from the investment market that would have been invested in other private productive enterprises. As is well known, Hawtrey was the father of this crowding-out argument that both Blackett and Niemeyer fully endorsed.26 However, there was more to this than simple crowding out. Indeed, the most likely source of government borrowing was not ‘genuine savings’, but rather new credit expansion. Hence, inflation would be the most likely result of government intervention to cure unemployment—that same inflation, that is to say, that represented the primary cause of unemployment itself. Government intervention was therefore quintessentially harmful: ‘Ambitious schemes of expenditures or credits can only intensify the evils of unemployment by maintaining wages and prices and making its ultimate remedy more difficult’ (T 176/5, part II, fols. 38–39). The unemployment problem could only be solved through the revival of foreign trade that, in turn, required more economic competitiveness, namely, lower export prices. Inflation would instead increase those very prices. Blackett and Niemeyer were well aware of the increased bargaining power of the labour class, which could prevent the burden of inflation from falling upon the working class (T 172/1208). Thus, rather than being a device for reducing real wages, inflation would push wages up, escalating costs of production and export prices (T 176/5, part II, fol. 35). The diagnosis of the source of unemployment in the excessive level of wages is crystal clear: ‘If present wages are to be maintained a certain part of the population must go without wages. The practical manifestation of which is unemployment’ (Niemeyer, T 176/5, part II, fol. 37). In Niemeyer’s words: ‘The problem is therefore, by giving the minimum assistance necessary to prevent starvation to do as little as possible to create permanent unemployment by maintaining uneconomic prices’ (T 176/5, part II, fol. 40). Like Hawtrey, Niemeyer and Blackett were firm believers in the power of deflation: dear money would affect the real economy. Wages would follow the fall of wholesale prices (see: T 176/5, part II, fols. 35–36). Following Hawtrey’s economic model, Blackett and Niemeyer believed that the solution to unemployment lay in deflationary monetary management, not government expansionary intervention. It was not the government, but the ‘apolitical’ institution of the Bank of England, who should take charge. 5. Central banks Like Hawtrey, Niemeyer and Blackett envisaged a reciprocal virtuous dependency. The deflationary agenda of the Treasury, especially in the form of redemption of the floating debt, allowed the Bank of England to gain back its full control of monetary policy. The anomalous situation of the Treasury’s war-time involvement in monetary policy should and would disappear. In fact, due to the large amount in circulation, Treasury bills were still the decisive factors in monetary management. On the other hand, a check of inflation could only be secured in the long run if the Bank of England took charge of the monetary policy. The Gold Standard represented exactly this guarantee. The ideological components underlying this assumption deserve further analysis. The common belief was that sound economic principles, especially monetary stability, are secured only by an institution that is above politics and thus above democratic control. All political enterprise is associated with grim self-interest that brings about the squandering of public revenue, inflationary drives, lack of confidence and monetary instability. On the other hand, private agents like the technocrats working at the Central Bank were considered the guardians of orthodox monetary policy, which secured market confidence in the stability and efficiency of the monetary system. After WWI, these ideas represented the common consensus of the international economic establishment, as demonstrated by the resolutions of the Brussels (1920) and Genoa (1922) economic conferences.27 These principles had to be promoted internationally. In 1931, Niemeyer was the economic expert who created the independent institution of the Central Bank of Brazil, replacing the previous national bank. In submitting his report to the Brazilian government, Niemeyer was very explicit. In case of political interference on the note issue, ‘political consideration and the pecuniary exigencies of the Government rather than considerations of sound monetary economy are likely to sooner or later become dominant...The risk of excess issues, inflation and depreciation of the currency is constant’ (Niemeyer, 1931, p. 17). To avoid this outright disaster, the solution was very clear. The Central Bank must be ‘an entirely private commercial undertaking’ (Niemeyer, 1931, p. 18), led by private agents independent of any sort of political or democratic liability. This vision is in line with that held by Niemeyer, Blackett and Hawtrey on the legitimate relation between the Treasury and the Bank of England. As a government representative, the Chancellor did not have, and ought not to have, any official role with respect to the bank rate. The Bank’s absolute autonomy regarding monetary policy should be firmly upheld. Setting the bank rate was to be the decision of a ‘private corporation’ (T 176/13, fol. 26); no consultation with the government of the day should take place. The war-time cooperation between the Bank and the Treasury was an exceptional parenthesis, to be quickly surpassed. The official Genoa Resolutions had been wholly drafted by Hawtrey, who was a paladin of central bank independence. Hawtrey advocated the priority of the Central Bank in setting the monetary agenda, the cornerstone of any economic policy. Not only Blackett and Niemeyer, but also Governor Norman, were ‘fanatically attached’ (Sayers, 1976, p. 523) to the Genoa doctrine. On 17 February 1929, Blackett proudly testified: ‘I arranged with the Chancellor of the Exchequer soon after April 1920 to revert to the prewar practice of either not informing the Chancellor of Exchequer in advance of an intended change in the bank-rate or letting him know only at about 10.30 or 11 of the Thursday.’ This faith in economic expertise led Blackett and Niemeyer to the same Hawtrian optimism regarding the immediate positive consequence of a return to the Gold Standard.28 The Standard would lead to price stability, stable exchange conditions and revival of trade, thus securing British hegemony as a center of financial trade.29 Niemeyer’s words in 1925 could have been written by Hawtrey himself: We should all like to see price stability but surely it should be world price stability. This country is above all things a world trading country. Importing exporting, financing all over the world. In order to get real stability we must first get a stable measuring rod... This is what we get from our fixed standard. (T 208/105, fol. 11) Such positive economic consequences were the result of the automatic control of credit that the Gold Standard would secure (see Blackett, ‘Dear Money’, T 175/6, part II, fols. 42–61), thereby making monetary policy ‘knave proof’ with respect to political interference. However, both Controllers went beyond a mere belief in laissez-fare. This point is crucial in order to assess the depth of Hawtrian influence. Indeed, it was Hawtrey who introduced the idea of the Central Bank’s monetary management under the Gold Standard. Important proof of Hawtrey’s authority is given in a letter that Niemeyer wrote to Governor Norman, suggesting an operation of monetary management. On 20 November 1923, Niemeyer wrote: ‘Dear Norman, I think you, like myself, are much concerned at the present rate of the dollar exchange’ (T 176/5, part I, fol. 175). Since the exchange rate was worsening, Niemeyer suggested a direct intervention of the Bank of England to sell gold to America in order to increase American rediscounts and ‘turn exchange in our favor.’ Hawtrey suggested the same solution in many of the memoranda that Niemeyer had studied.30 Even in his report for Brazil, Niemeyer spoke of open market operations by the Central Bank in order to intervene directly to sell government securities ‘when credit requires tightening’ or for ‘repurchasing them when relief is required’ (Niemeyer, 1931, p. 19). As it turns out, the imprint of monetary stabilization through active monetary management was surely a Hawtrian legacy of which Niemeyer and Blackett became faithful spokesman. 6. Conclusion A double line of inquiry has been developed in this paper. To begin with, I investigated the policy role of Controllers Basil Blackett and Otto Niemeyer. The two men had great sway in implementing the British and international economic agenda of austerity in the post-WWI years. Through the study of Treasury archival material and their few published works, I discussed the main elements of their Weltanschauung. There is evidence that both Controllers read, underlined and collected all of Hawtrey’s copious memoranda. Second, I examined the appropriation of Hawtrey’s economic theory by the two practical men at the Treasury. I demonstrated that the ‘in-house economist’ refined the theoretical grounds of Blackett’s and Niemeyer’s economic prescriptions. Hawtrian conceptual tools were fundamental for strengthening the post-WWI Treasury view at a time when its principles were no longer considered natural and self-evident, but were challenged from within the political-economic establishment. Blackett’s and Niemeyer’s prescriptions of fiscal and monetary rigor went hand in hand with their support of the Gold Standard. Hawtrey’s ideas on credit instability, the power of the bank rate and the crowding-out argument against public works were part of the Controllers’ outlook. The two men also shared Hawtrey’s optimism about the positive effects of standard return to gold for exchange rate stability and for securing Britain’s position as a great financial center. Typically, the Hawtrian solution invoked a reduction of internal demand, i.e. consumer expenditure, in order to check inflation, combined with the curtailment of wages and prices to support economic competitiveness. In the midst of this largely common ground, a divergence with Hawtrey’s economic theory did emerge. Indeed, after 1922, Hawtrey suggested an expansion of credit in order to reverse the economic downturn. While in his memorandum ‘Dear Money’, Blackett perceived the risks of perpetual deflation, his policies both in Britain and abroad (India) were clearly deflationary. As for Niemeyer, he denied altogether the negative effects of deflation, endorsing it as the only long-run cure to concretely reduce labour costs and prices. My analysis in this essay suggests that Hawtrey’s influence is irrefutable in at least two essential building blocks of the ‘Treasury view’: the importance of savings and the priority of central banks. Just like Hawtrey, Blackett and Niemeyer granted a central role to savings as the direct source of capital formation, and envisioned taxation as an essential instrument of forced redistribution in favor of the savers-investors and against the low-income, low-saving working class. Moreover, Niemeyer and Blackett abandoned monetary laissez-faire to embrace the view of active monetary management (under the constraint of the Gold Standard) by the Central Bank, a technocratic institution completely insulated from political control that should be preoccupied primarily with international exchange stabilization and financial equilibrium. Scholars of the 1920s British Treasury have focused on the Gold Standard and the opposition to public works, but have not granted enough attention to the other conceptual building blocks represented by savings and central banks’ autonomy. In this essay, I have demonstrated these notions’ centrality in the thought of Hawtrey, Blackett and Niemeyer. This focus allows us to shed light on the strong connection between austerity, individual sacrifice and technocracy. Perhaps in a more subtle manner, the treble connection emerges in present-day austerity policies. Austerity doctrine saw practical realization: the 1920s deflation halted the expansionary programs in social welfare that were promised in 1918–1919, while money wages in industry decreased by 35% from 1920 to 1923, remaining more or less stable around the 1923 figure (between 99 and 102, with 1929 = 100) for the rest of the decade.31 Yet, the most emblematic measure of socio-economic sacrifice is given by the unemployment phenomenon: the unemployed insured labour force shifted from 3.9% in 1920 to 16.9% in 1921, lingering around 10% until 1930, when it peaked again to 16.1%.32 Meanwhile, the budget was balanced out of current revenue in 1922/1923 and gold parity was reached in 1925.33 The priorities of austerity had been achieved. The cost in terms of unemployment is familiar to critics of contemporary austerity policies. The Treasury’s intention of redistributing purchasing power from people with a high propensity to spend to those with a high propensity to save, with a view to increasing investment, has not been directly replicated in contemporary austerity, but the idea that the burden of adjustment in a crisis should be placed on wage earners has a contemporary resonance. I would like to thank Pierluigi Ciocca, Giovanni Dosi, Claude Diebolt, Alessandro Nuvolari, Anwar Shaikh, Adam Tooze, Cristina Marcuzzo and Duncan Foley for all their valuable ideas in developing and improving this project. A special thanks to George Peden and Nicola Giocoli for their fundamental support and advice throughout the research and writing process. All shortcomings are my own. 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More precisely, monetary austerity may be defined as deliberate monetary contraction by the central bank for the purpose of deflating prices in general or increasing interest rates, thereby increasing confidence in the value of money or the central bank’s ability to maintain a fixed exchange rate. 3 Hawtrey published books and articles which became classics in the economic literature, including: Good and Bad Trade (1913), Currency and Credit (1919), Monetary Reconstruction (1922), The Art of Central Banking (1932) and ‘Public expenditure and the demand for Labour’, Economica, vol. 5 (1925), 38–48. To avoid repetition, I do not devote a separate section to Hawtrey’s thought. For a general overview of Hawtrey’s economic theory, see Gaukroger (2008), Black (1978), Davis (1981), Deutscher (1990), Laidler (1993) and Howson (1985). See also Mattei’s (2018) working paper. 4 On contemporary uneven distribution of the burdens of austerity, see Crotty (2012) and Peck (2014). 5 The Committee on Currency and Foreign Exchange of 1918, known as the Cunliffe Report, had firmly set the agenda of British post-war austerity. See Mattei (2016, p. 137). 6 See Clarke (1988), Peden (2004), and Skidelsky (1967, 1981, 1995). 7 The Reform Act removed property and residential qualifications for male voters over twenty-one years of age and enfranchised women over thirty. 8 All of these social programs were victims of the austerity drive of 1921–1922 (initiated with the Geddes Axe). For a detailed account and history of the housing, education and health programs, see Peden (1985, pp. 48–52). For a long-term and comparative perspective, see Lindert (2004). 9 On the Gairloch meetings and their relevance, see Peden (1993). 10 For example, in T 172/144b fols. 322–33, the Chancellor receives the 1925 Gold Bill and Budget Speech that Niemeyer had written. The document formally announces the return to gold and its economic modalities. 11 Boyce, speaking of Chancellor Snowden in 1923, states that ‘Snowden, dazzled by Norman, was also ready to defer to Sir Otto Niemeyer, his chief treasury financial adviser, who soon dominated him as completely as he did other Chancellors after the war’ (Boyce, 1987, p. 51). 12 The Oxford degree literae humaniores combined ancient history and philosophy, using Greek and Latin texts, with modern philosophy, including logic. In other words, Blackett and Niemeyer were not economists by formation. See Peden (2000, pp. 20–21). 13 Niemeyer also took part in the ‘Committee on liability of dominion and foreign governments to UK taxation’ and, with A. C. Pigou and Bradbury, in the ‘Committee on the currency and Bank of England note issue’, also known as the Chamberlain-Bradbury Committee (Moggridge, 1972, p. 38). 14 See the articles in The Times: ‘New Greek Loan’, 14 September 1927; ‘The Bulgarian Loan Negotiations’, 3 December 1927; ‘The Problem of Security’; 27 February 1928; and ‘End of Geneva Meeting’, 12 March 1928. 15 See Niemeyer (1931) and the articles in The Times: ‘Rio De Janeiro City Improvements’, 29 April 1931; and ‘Financial Reform In Brazil’, 28 July 1931. 16 Blackett published War Savings in Great Britain, or the Gospel of Goods and Services in 1918 and Planned Money in 1932. Niemeyer submitted to the Brazilian government his Report on the finances of Brazil, with proposed statutes for a central reserve bank of Brazil, in 1931. 17 The most authoritative analysis regarding war debts and reparations is still Moulton and Pavlovsky (1971). 18 Union membership rose from 1,572,39 in 1914 to 4,317,537 after the war. For a complete reconstruction of the British economic context from 1914 to 1919, see Peden (2000, pp. 72–124) and Peden (1985, pp. 36–45). For an international perspective, see Feinstein et al. (2008). 19 Comparison with the economic situation and policies after the Napoleonic wars (1803–1815) was part of the post-WWI discussion at the Treasury. This is testified by articles on the topic collected within the Treasury files and other memoranda (see T 208/49 and T 176/39). For example, in a memo discussing the problem of war-debt redemption, Hawtrey concluded with the following words: ‘There would seem a great many points in favor of at least a serious trial of the system which proved both safe and economical in the past’ (T 176/39). Indeed, similarly to 1918, in 1815 the UK had to deal with the very large public debt (relative to GDP) incurred to finance those wars and the deflationary results of the drastic reduction in military expenditures. Economic policy focused on protecting agriculture (by adopting a Corn Law which prohibited cheap imports), protecting creditors (by going back on the Gold Standard at the old parity) and reducing the need for borrowing by cutting government expenditure. Public works were rejected on the grounds that they merely diverted resources from more profitable private-sector projects. As a historian of this period has observed, ‘it was by appealing to the stoicism of Lord Liverpool’s government one hundred years before that “orthodox” politicians and economists in the 1920s helped to keep such cranks as Keynes at bay’ (Hilton, 1977, p. viii). 20 The Committee of National Expenditure known as the ‘Geddes Committee’ was appointed by Prime Minister Lloyd George and Chancellor Robert Horne. It was supplied and guided by Treasury briefs and supposed to advise the Chancellor of the exchequer. It recommended severe measures of economy: £87 million in cuts, of which £52 million were put into place. Hood and Himaz write: ‘those are remarkable reductions in historical perspective, amounting to about 20 per cent of central government spending, when the “Geddes” cuts are put together with those agreed between government departments and the Treasury in the summer of 1921’ (Hood and Himaz, 2014, p. 14). See also: Interim Report (Cmd, 1581), Second Interim Report (Cmd, 1582) and Third Report of the Committee on National Expenditure (Cmd. 1589). See McDonald (1989). 21 Measured at 1900 prices. Central government expenditure adjusted for the calendar year. Source: Mitchell (1980). 22 Ways and means advances: credit created for the government by the Bank of England on the basis of the future taxable capacity of the country. 23 This is true also for Niemeyer, who writes: ‘The amounts of notes demanded or repaid depends on the demand for currency, that is to say, on the needs of credit. In short, it is credit that governs the currency and not currency which governs credit’ (T 176/5, part I, fol. 210). 24 It was only after the 1929 crisis and the grave period of deflation following it that, in his 1932 book Dear Money, Blackett manifested full concern for the ‘vicious spiral of deflation’ especially affecting unemployment (see Blackett, 1932, pp.46, 47). In a very Hawtrian tone, Blackett expressed his conviction about the reflationary power of the Central Bank’s rediscount rate and stressed the Central Bank’s skill to undertake timely action in order to stabilize prices (see Blackett, 1932, ch. 8). 25 Hawtrey wrote: ‘For the success of future funding loans deflationary measures are essential’ (T 176/5, part II, fol. 75). Conversely, Blackett suggested that: ‘A third means of deflation are savings subscribed directly by the general public such as war savings certificates’ (T 176/5, part II, fol. 54). Hawtrey was of the same idea: ‘the sale of bonds tends to produce a contraction of credit’ (T 208/50, fol. 2). 26 For a full expression of Hawtrey’s crowding-out argument, see Hawtrey (1925). However, Hawtrey had already set out these ideas in his book Currency and Credit (1919). 27 On the two international conferences and their significance as landmark events for the rise of global technocracy, see Mattei 2017A and Mattei 2017B. Hawtrey and Blackett were prominent experts at Genoa. 28 See Hawtrey, ‘The Gold Standard’, 2 February 1925, T 208/54, reprinted in Peden (2000, pp. 33–40). 29 Just like Hawtrey, Niemeyer and Blackett denied the validity of the opinions according to which, with the Gold Standard, Britain would lose independence with respect to the USA. 30 See ‘Export of Gold to America’ of March 1923 (T 176/5, part I, fols. 120–24) and ‘Sterling and Gold’ (T 208/54, fols. 24–31). 31 See Mitchell (1980, p. 196, Table C4). 32 For data regarding British annual average percentage unemployment, both for the insured workforce and the total workforce, see Peden (2000, p. 129). For international figures, see Mitchell (1980, p. 176, Table C2). 33 See Peden (2000, pp. 144–66). © The Author(s) 2017. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)
Cambridge Journal of Economics – Oxford University Press
Published: Nov 16, 2017
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