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Offers to write an article for the Economic Journal on the economics of war, a hitherto neglected subject.

Royal Economic Society, 3 Gower Street, W.C.—Would gladly consider an article from him for the Economic Journal on the same subject as his letter in The Nation (i.e. the economics of war; see 2/225).

Asks for copies of his article ‘War Economics’. Has been attending Keynes’s lectures at University College.

King’s College, Cambridge.—Will send him twenty reprints of his article in the forthcoming number of the Economic Journal (see 2/226).

46 Gordon Square, W.C.—Invites him to contribute an article to the Economic Journal on the subject of ‘Deflation after the War’.

(Dated ‘21.9.10’, but the year is wrong: Pethick-Lawrence’s article ‘Deflation and Prices after the War’ was published in December 1918.)

Sends his article on deflation (‘Deflation and Prices after the War’). Nothing in the report of Lord Cunliffe’s committee upsets any of the views he has put forward.

Charleston, Firle, Sussex.—The American economists and financiers most likely to be interested in a capital levy are Seligman, Taussig, and Norman Davis.

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Transcript

Charleston, | Firle | Sussex
18. 9. 19

Dear Lawrence,

I am really rather at a loss as to how to answer your letter about Americans interested in a Capital Levy;—the project is so remote from their ideas and their necessities. Amongst economists there is Seligman of Columbia and also old Taussig. Amongst financiers I hardly know whom to mention,—perhaps Norman Davis, whom you may find in Washington, is the best. With any of these, if you meet them, and with any others who know me, certainly make use of my name to any advantage you are able. I presume you will be seeing the New Republic crowd in any case.

Yours sincerely,
J M Keynes

King’s College, Cambridge.—Is pleased that Pethick-Lawrence likes his book (The Economic Consequences of the Peace). Agrees with his views on foreign investments.

Is writing a paper on the finances of Europe for the Royal Statistical Society. Asks who to contact for national budget figures. The Treaty of Versailles is gradually being recognised as a foolish thing.

Charleston, Firle, Sussex.—Recommends he contact the Economic Section of the League of Nations for information about the budgets of European countries (see 2/228).

Deplores the behaviour of the English, French, and German premiers at the indemnity negotiations. Suggests issuing a pamphlet on the present financial situation as a postscript to Keynes’s book (The Economic Consequences of the War).

His visit to Germany has suggested to him the idea of paying the fixed charges of railways out of taxation, leaving running costs to be borne out of the traffic. Asks whether this idea has been developed by economists. Alludes to French activities in Germany. Refers to Charles Trevelyan’s speech at the Political Economy Club propounding the capital levy.

46 Gordon Square, Bloomsbury.—Suggests sources of information on the subject mentioned by Pethick-Lawrence (the provision of free services; see 2/230), and outlines the main argument against providing such services. The subject is unsuitable for the Economic Journal, and Pethick-Lawrence’s proposal is almost certainly unsound.

Clarifies his ideas about the provision of free public services, and discusses Pell’s book The Riddle of Unemployment.

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Transcript

20th. February, 1923.

Dear Keynes,

Thank you very much for your letter of the 14th inst. {1} in reply to mine.

I quite understand your point of caution with regard to offering public services to people below cost. This would of course not occur if the public relief was confined to payment of interest on capital already expended. In the case of the road it actually goes beyond this and covers current capital expenditure. I think probably I shall attack the problem in a very general way and consider simply the question of “Prices under National Ownership”. Assuming there is going to be no move in the direction of Socialism this is certainly a very important question.

If I put anything together suitable for “The Economic Journal” I will let you see it in case you care to use it. In the meanwhile if you happen to have in mind the name of any special book on Municipal Finance and Municipal Trading which bears on the subject, you might put it on a postcard and let me have it.

I have just been reading Pell’s book on “The Riddle of Unemployment” {2} which all boils down to his proposal that prices should be kept stabilised through manipulation of the bank rate with an inconvertible paper currency. If you are reviewing it yourself in “The Economic Journal” I shall be interested to see your views about it; if not I should like to know some time what you think of it. It is somewhat arrogantly written but it seemed to me offhand a very valuable suggestion. The two points of criticism that occur to me are, firstly, that there would be considerable opposition among business men to raising the bank rate just at the very time trade began to revive and prices show their first upward tendency, and secondly, whether even this proposal would in fact keep prices stationary or only make the oscillations in prices less intensive than at present. In the metaphor which I used in my little book on prices published by the Oxford Press {3}, would Pell’s machinery produce a completely sensitive governor?

Don’t trouble to reply to this if you are too busy.

Yours sincerely,
[blank]

J. Maynard Keynes Esq.,
46, Gordon Square,
W.C.1.

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{1} PETH 2/198.

{2} The Riddle of Unemployment and its Solution (1922), by Charles Edward Pell.

{3} Why Prices Rise and Fall (1920). A revised edition was issued in 1923.

107 Albert Bridge Road, S.W.11.—Is in favour of stabilising the price level and therefore does not believe the Treasury Minute should be abrogated at present (see 1/192), as it is a defence against inflation.

(Printed letter-head of the London School of Economics, which Dalton has enclosed in square brackets.)

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Transcript

107 Albert Bridge Road, S.W.11.
5/3/24.

Dear Pethick Lawrence,

I should like a talk with you sometime before the next Finance Committee meeting. I regret to find that I shall again have to leave early, as I have an engagement at 6.30 on that day to dine with Charles Latham and the London Accountants.

Shortly, my view is the following.

I am in favour of stabilising the price level now & in the near future, though, looking further ahead, I hesitate to commit myself to a definite policy. Many factors seem to me to complicate the distant view.

I am more afraid of inflation in the near future than, I think, you are. I want stabilisation as a defence against the F.B.I., no less than against the old-fashioned deflationist authorities, who are, I think, the weaker of the two possible disturbers of the price level.

I don’t, therefore, feel happy about abrogating the Treasury Minute at this stage. It is our only real defence against inflation at present.

Nor am I so certain as, I think, you are that the Minute will operate to check a healthy, as distinct from a hectic & inflationist, trade revival in the near future.

Keynes said a few months ago at a Committee, of which I am a member, that he thought there was a good deal of margin in the situation, even with the Treasury Minute unchanged. In addition to the margin in the Currency Note Issue, he attached importance to the prospect, with reviving trade, of a more rapid circulation of bank deposits. I would add another factor, pointing in the same direction, namely the prospect of an increase in trade credits (between business men,—I don’t mean bank credits), as confidence grows.

Further, our situation may be eased by a rise in American prices, sufficient to restore the pre-war parity of exchange & lead to British imports of American gold. This has been long in coming, but it may come quickly, if the Federal Reserve Board’s stabilising policy gives way before the strong forces opposed to it.

My present feeling, therefore, is to pronounce in favour of a stable price level as our immediate objective, without committing ourselves to anything very general in the way of economic principles, & not to mention explicitly the Treasury Minute. Nor would I say that a future rise in bank rate is undesirable. If prices continue to rise as they have been doing lately, it may be desirable to raise bank rate in order to secure stability. My belief, (in opposition to that of others, I hear) is that you can stabilise any level of price you choose, & that there is no causal relation between the level chosen & the volume of unemployment.

If, for the time being, we could get the Govt to agree to stabilisation of the price level as a principle, and, implicitly, to whatever measures may be required to secure it, I should feel satisfied.

But I wouldn’t meet trouble half way, or give any encouragement to profiteers, by proclaiming in advance that more money shall be printed than the Treasury Minute allows.

Yours sincerely
Hugh Dalton.

Was sorry to miss this afternoon’s meeting on the stabilisation of prices. Is writing a book on the national debt. Asks whether American bankers oppose the repayment of the English debt to America, and for details of the German indemnity.

46 Gordon Square, Bloomsbury.—Gives details of the German indemnity due to the British Empire under the Spa agreement (see 2/232), and refers to a resolution by American bankers on Inter-Allied debts.

King’s College, Cambridge.—Sends a copy of his memoir of Marshall. Looks forward to reading Yule’s paper on population, but has little confidence in what he is likely to say.

King’s College, Cambridge.—Has written to Snowden proposing an amendment (to the Gold Standard Bill) repealing Section IV of the Bank Act, 1844. He overlooked the importance of this point in his article in this week's Nation.

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Transcript

King’s College, Cambridge
3 May 1925

Dear Pethick-Lawrence,

In my article in this week’s Nation, which you may have seen, I made a bad mistake and gave the Treasury more credit than they deserve. I forgot Section IV of the Bank Act, 1844, which they are not proposing to repeal. This Section obliges the Bank of England to buy gold bullion in unlimited amounts at £3-17-9.

Thus all the dangers, which in my article I thought they were avoiding, they are in fact inviting.

If an amendment could be carried on Monday, repealing Section IV of the Bank Act 1844, it would be an enormous improvement.

I have written a letter to Snowden on the same lines as the above. If you agree with me, I wish you would go round to see him on Monday morning.

Yours sincerely,
J M Keynes

Thanks him for his ‘important’ letter (2/201). Refers to his own comments on the subject (in the Commons?) the day before and to Keynes’s public statement in today’s Times.

Apologises for missing a meeting of the Royal Economic Society. Comments on Keynes’s evidence (about the capital levy) before the Colwyn Committee (on the National Debt). Asks for his opinion of an annual tax on capital.

King’s College, Cambridge.—Will send him his capital levy evidence when it is printed. Thanks him for his efforts ‘about gold’ (i.e. in opposing a return to the gold standard), and deplores Snowden’s behaviour (see Fate Has Been Kind, p. 141).

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Transcript

King’s College, Cambridge
10. 5. 25

Dear Lawrence,

I will send you my Capital Levy evidence when it is printed,—it is in no way confidential so far as I am concerned. I am against an annual tax on capital, because I think one can get almost all the same results by differentiating further against unearned or investment income, without the difficulties of valuation. From the point of view of relaxing {1} saving, I am more afraid of a tax on profits than of a tax on capital.

Thanks for doing your best about gold. In my opinion Snowden disgraced himself with his insincere speech of mock opposition. Why is half your party hard boiled and the other half addled? (Just like mine—except that my left wing is h.b. and right wing a., whereas your right wing is h.b. and left wing a.)

Yours sincerely
J M Keynes

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{1} This word is indistinct.

Congratulates him on his forthcoming marriage. Commends his articles on the gold standard. Will raise a question on the subject in the Commons in connection with the Appropriation Bill. Asks why the price of bread has not fallen with the rate of exchange.

46 Gordon Square, Bloomsbury.—Explains why the price of bread has not fallen with the rate of exchange (see 2/235).

Commends Keynes’s pamphlet.

Asks his opinion of certain arguments in Abbati’s book The Unclaimed Wealth.

King’s College, Cambridge.—The contention in Abbati’s book (The Unclaimed Wealth; see 2/237) may have something behind it, but its exposition is muddled.

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Transcript

King’s College, Cambridge
22nd January, 1926.

Dear Pethick Lawrence,

When I looked through Abbati’s book I had the impression that there was something behind the contention which he was trying to sustain. You will find something which I think is not entirely disconnected from Abbati’s point in a little book of D. H. Robertson’s, which will be published shortly. But, on the other hand, I felt that, as expounded by Abbati, it was all a fearful muddle—truth mingled with error—so that it was almost impossible to disentangle how far he was right and how far wrong.

Like so many recent writers on monetary theory, he is, I think, in a position of perceiving for a good reason that the orthodox theory won’t do, yet not clear enough in his head to criticise coherently, or to build up an alternative which will hold water.

Yours sincerely,
J M Keynes

F. W. Pethick Lawrence, Esq., M.P.,
11 Old Square,
Lincoln’s Inn,
W.C.2.

Mr Pethick-Lawrence thinks Keynes might be interested in the enclosed (see 2/238b).

(Carbon copy of a typed transcript.)

Points out some omissions in Professor Procopovitch’s recent article in the Economic Journal (on the distribution of national income), and offers to provide addenda.