P7. Trade of the World. British Policy of Expansion. Financing Increased Imports
[Letter to The Times, 21 April 1933, p. 8]
21 April 1933
Sir,--The burden of Mr. Brand's interesting article in your issue of to-day is that we should wait on a revival abroad, especially in America.  That such a revival is much to be desired is common ground. The matter on which one may well beg leave to differ from him is the policy of inertia which he recommends for Great Britain in the meanwhile.
His substantial point in defence of this view is expressed in the following words:--
That a depreciation of sterling would in certain circumstances be disastrous to other countries may be admitted. But there is all the difference in the world between a depreciation of sterling due to a withdrawal of funds from Great Britain and a depreciation due to an increase of British buying. The former would be a further drag on the world price level, would tend to widen the gap between world prices and world costs, and enhance the difficulties of foreign countries. The first impact of the latter on the outer world would come through an increased British demand for goods and have a stimulating effect.
Increases as well as recessions of demand spread in modern conditions from country to country with remarkable celerity. An increase of British purchases might well prove to be a contribution to world recovery. There is little doubt that the depreciation of sterling in the period 1931-32  had a depressing effect on the outer world; but this was precisely because the depreciation of sterling was associated not with an expansion but with a contraction of British imports.
Our proper policy is to increase employment and buying power at home. This might be expected to entail some increase of imports. The remarkable maintenance of our volume of imports during the period of great recession (1929-1931)  suggests that, if the process were reversed, the volume of imports would not greatly increase. This is no doubt due to the fact that they so largely consist of necessities of life, which even the unemployed have continued to consume. Some expansion of imports must, however, be expected, and, if no revival occurs abroad, the sterling foreign exchange rate might have to fall to stimulate a corresponding increase of exports. If the fall in sterling were kept within these limits other countries should not be damaged. If it is possible to keep the fall in sterling within these limits, Mr. Brand's point is fully met.
And it should be possible. If the authorities are known to be pursuing the policy of expansion in a firm and clear-sighted manner, there should be no weakening of confidence. Bear speculators can only succeed in depressing sterling if they can shake confidence and produce a more extended flight from sterling. But if confidence is sustained our authorities have quite sufficient funds to counteract bear operations. Sterling should not be allowed to fall below the rate required to finance our import trade, and the repercussion of our expansive policy will then be beneficial and not deleterious to foreign countries.
Mr. Brand in effect advises us to hand over the initiative to the United States for technical reasons. If it appears that the technical difficulties can be overcome, we should surely hesitate to adopt this advice. Tradition, temperament, and character are of great importance in the matter of leadership. May events show that we are still not altogether deficient in the required attributes.
2. Following its departure from gold in September 1931, sterling depreciated 30 per cent by the end of the year.
3. The volume of UK imports was 114.8 in 1929 (base 1913 = 100), 111.1 in 1930 and 113.6 in 1931; see for instance B. W. E. Alford, Depression and Recovery? British Economic Growth 1918-1939 (London: Macmillan, 1972), p. 57.
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