P3. Restoration of prices. Fresh Money for spending

[Letter to The Times, 5 July 1932, p. 10]

5 July 1932

Sir,--The progress of the crisis is continually confirming the view that the most serious evil from which we are now suffering is the great fall in wholesale prices of the last two and a half years. This has brought about serious maladjustments throughout the economic system, owing to the fact that some prices move readily under the influence of supply and demand, while others are relatively inflexible. The most practicable remedy for this situation is to operate upon the prices which are adjustable; these should be raised until they bear the same relation to the fixed prices as they bore at the outset of the crisis.

This may be brought about in various ways, of which we propose to mention three:--

1. Private individuals and institutions can assist by spending according to their capacity. In cases of doubt, the patriotic motive should weigh on the side of expenditure rather than economy.

2. The banking system should endeavour to increase the quantity of means of payment at the disposal of the public, both by being willing to give credit on the easiest possible terms, on all usual types of security, and by purchasing securities in the open market.

3. The Government is at the hearth of the economic system, and its operations have far-reaching effects for good or evil. It is therefore essential that its actions should be shaped in accordance with the general policy here outlined.

Until the restoration of prices is achieved, it should undertake to impose no additional taxation, it should be prepared to remit existing taxation, where that presses hardest, and it should encourage departments, local authorities, &c., to speed up their expenditure on all sound schemes of construction and development. The Government should obtain funds for these purposes from the banks, which will thus be assisted in their efforts to put fresh money into circulation.

To secure confidence and allay possible anxieties, the Government should explicitly declare its policy in advance. A definite pronouncement of this kind should remove all fears of uncontrolled inflation--fears which arise primarily from a sense of uncertainty.

In these circumstances the Government should be able to secure the external value of sterling against speculation or alarmist withdrawals. The policy of reducing the commodity value of sterling should not be associated with one of deliberate external undervaluation. So long as the financial structure of other countries is in a position of extreme jeopardy, no attempt should be made to gain a competitive advantage by depressing the external value of the pound below its internal value. An improvement in our balance of trade secured in this way would only produce a further fall in world prices, and a consequential deterioration of the world situation.

W. M. Allen, R. F. Bretherton, E. H. P. Brown, E. G. Dowdell, L. M. Fraser, R. L. Hall, E. L. Hargreaves, R. F. Harrod, E. M. Hugh-Jones, J. E. Meade, R. Opie, A. B. Rodger, E. G. Wilson (Members of the Economics Staff, University of Oxford), L. Alston, C. G. Clark, C. R. Fay, C. W. Guillebaud, J. Hilton, M. T. Hollond, R. F. Kahn, J. M. Keynes, H. C. B. Mynors, E. A. G. Robinson, J. Robinson, G. F. Shove, W. S. Thatcher (Members of the Economics Faculty, University of Cambridge), G. C. Allen (University College, Hull), H. Barger (University College, London), J. R. Bellerby (Liverpool University), C. Braithwaite (Birmingham University), A. M. Carr-Saunders (Liverpool University), P. Sargant Florence (Birmingham University), D. T. Jack (The University, St. Andrews), J. H. Jones (Leeds University), J. F. Rees (University College of South Wales), J. W. F. Rowe (London School of Economics), J. G. Smith (Birmingham University), J. Sykes (University College, Exeter), J. G. Walker (Birmingham University), P. B. Whale (London School of Economics), B. Wootton (University of London).

  1. 1. This letter was jointly promoted by Harrod and Meade. It is not clear who drafted it, as the preliminary versions do not survive. They jointly signed the letter requesting adhesion from their fellows (of which only a fragment survives, in MP 2/5/10), and were both engaged in the collection of signatures, although Meade seems to have been more active on this task. Harrod kept contact with The Times (see letter 244 ).

    Most of the correspondence relating to this letter is preserved among Meade's papers, in file 2/5, including three letters from Dalton, five from Kahn (concerning collection of signatures in Cambridge), and more from J. H. Jones, Paul Einzig, J. Rowe and H. Henderson, G. F. Shove, G. D. H. Cole, G. N. Clark, Keynes, H. Withers, C. W. Guillebaud, Beveridge, J. F. Rees, Hawtrey, Hicks, C. Kisch, Humphrey Mynors, G. W. Daniels, Barbara Wootton, Robert Hall, R. G. D. Allen, Carr-Saunders, Redvers Opie, P. Sraffa, A. L. Bowley, H. Gaitskell, P. Barrett Whale, H. Clay, J. Hilton, Macgregor, W. M. Allen, W. T. Layton, J. G. Smith, E. G. Wilson, Gregory, D. T. Jack, H. O. Meredith, S. Bates, Cannan, P. Sargant Florence, C. R. Fay, J. Sykes. The letters from Beveridge (dated 16 June 1932), Hilton (21 June), and Kisch (16 June) were addressed to Harrod. Hilton announced that he signed (MP 2/5/49), Beveridge did not feel sufficiently sure that he knew what ought to be done about prices to sign (MP 2/5/19), while Kisch's position at the India Office made it impossible for him to sign (MP 2/5/26-26).

    Harrod used this letter to give additional authority to his advocacy of a reflationary policy (see letter 249 of 6 July to Walter Runciman, President of the Board of Trade), thereby resuming the thread of the argument advanced in his recent letters on "Monetary Policy" to The Economist (Harrod 1932:2 and 1932:3 ) and discussed with Runciman (letters 240 , 242 , 243 and 246 ). While failing to convince Runciman, Harrod's and Meade's argument appealed to Alfred L. Beit, who wrote on 5 July that he had definitely come round Harrod's point of view about public works (in HPBL 71191/30).

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