Letter: Economic policy then and now

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Sir: The circumstances accompanying the financial crisis of 1931 are more complex than Professors Little and Scott allow (letter, 12 October). They rightly point out that the policy of balancing the budget in September 1931 did not prevent Britain going off gold. But it can certainly be argued that going off gold with a balanced budget, and a commitment to balanced budgets, was crucial in restoring business confidence,

allowing interest rates to fall and producing the housing boom that led the recovery from the depression.

Keynes attacked the policy of balanced budgets in a depression. However, he accepted that 'conservative finance' might be psychologically necessary as a temporary measure once the pound had been floated, in order to secure the lower long-term interest rates to which he attached supreme importance, even though by itself it was a 'depressing influence'.

The other difference between 'then and now' which your correspondents ignore is that in 1931 retail prices fell by 7 per cent, whereas now they are rising by 4 per cent per annum. This makes the inflationary risk of expansion much greater now than then.

Yours sincerely,


University of Warwick


12 October