534. Harrod to H. D. Henderson , 1 March 1936 [a] , [1]

Christ Church, Oxford #

1 March 1936

Dear Henderson

I woke up in the middle of the night with the solution of your conundrum on the tip of my tongue. Surely it is this.

Maynard thought both in August & September [2] that much the most sensible thing to do would be to leave the gold standard. Both in August and September he thought it would be far better to raise a loan than to economize. But in August he thought that going off the gold standard was quite impracticable in the view of the state of opinion in the Treasury etc.--and that was surely a reasonable thing to think. When he urged a loan, it was not to save sterling but to avoid putting the May plan [3] into operation. He rightly judged that the authorities, if they regarded the abandonment of gold and economy as alternatives, would opt for the latter. Hence his urgent advice to raise a loan.

Your Treasury friends, not appreciating the vehemence of his hostility to economy, thought he was urging a loan to save the gold standard. They were annoyed when he wrote to the paper to say what fools they had been to raise loans instead of departing from the gold standard. [4] But the reason why he did not urge departure from the gold standard in August was not that he did not think it by far the most sensible course, but because having preached against the gold standard quite in vain for a number of years he had come to regard that cause as utterly dead [5] and in August was taking more practicable means, as it seemed to him, of averting the disaster [b] of an economy campaign.

I write all this because I was momentarily shocked by your narrative. But on reflexion it appears to be but another example of Maynard's usual fate of being perfectly consistent and yet accused of utter inconsistency because people do not pause to think out--and from one point of view why should they?--what his real position is.



  1. 1. A letter virtually identical to the present one (mutatis mutandis) was sent to James Meade on the same day (in MP 2/4(30-31), photocopy in HP (NC)). This, together with Harrod's reference to Henderson's narrative, suggests that Henderson's conundrum was raised in the course of a discussion between the three men.

    2. Harrod is referring to Keynes's position in the weeks preceding the abandonment of the gold standard, in September 1931.

    3. The Report of the Committee chaired by Sir George May, recommending economy for £120 million, was published on 31 July 1931.

    4. In an article in The New Statesman and Nation of 29 August, Keynes outlined the kind of policy necessary to maintain the gold parity of sterling, claiming that if it were not decided to abandon the gold standard, the effort to retain the gold parity "should be made with energy and decision" (the article "Notes on the Situation" is reproduced in Keynes's Collected Writings, vol. XX, pp. 596-98).

    5. This interpretation is not entirely accurate. Keynes, in fact, at the beginning of August thought that it was "nearly certain that we shall go off the existing parity at no distant date" (Keynes to MacDonald, 5 August 1931, reproduced in Keynes's Collected Writings, vol. XX, pp. 590-93). On the other hand, Keynes acknowledged that "it is probable that the public opinion is not ready for devaluation, whether or not devaluation is desirable on it merits" ("Notes on the Situation", The New Statesman and Nation, 29 August 1931, in Collected Writings, vol. XX, p. 596).

    1. a. ALS, four pages on two leaves, in HHP 22A/6.

      b. Ms: «desaster».

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