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Pethick-Lawrence Papers Keynes, John Maynard (1883–1946), 1st Baron Keynes, economist Imagen Con objetos digitales
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Letter from Lord Boothby to Lord Pethick-Lawrence

1 Eaton Square, [London].—Explains why he considers the amount of international monetary reserves inadequate, and suggests remedies.



1 Eaton Square.
March 20, 1961.

Dear Pethick,

Thank you for your letter.

I am sorry my debate {1} had to be postponed until March 28, but the Government rightly wanted it taken as a separate subject.

My point is that the amount of international monetary reserves are inadequate to support the ever-growing volume of production and trade in the free world; with the result that the two great international currencies, the dollar and sterling, are under alternate but continuous pressure.

After the war it was assumed—by all except Keynes—that we could rely upon increased gold production and continued growth in holdings of dollars and pounds sterling. This has proved a false assumption. The total amount of funds capable of international movement is now very large indeed, compared to our reserves and IMF drawing rights. And it is this vulnerability that has caused us to adopt what has been described as the “Stop-and-go” policy of recent years, with disastrous effects upon our own economic growth and productivity.

The truth is that the price paid at Bretton Woods for fixed exchanges was supposed to be adequate international monetary reserves; and, owing to the rejection of Keynes’s scheme for the creation of international money in the form of “Bancor”, the necessary reserves were not in fact provided. The monetary system of the free world is therefore obsolete.

Various remedies have been propounded, and I shall touch on some of them.

A rise in the price of gold (now pegged at a wholly artificial level) is obviously one. But it would not be permanent; and I think that at present it is politically impossible.

It is, however, not insuperably difficult to devise means of creating more international liquidity and of converting present holdings of national reserve currencies—sterling and dollars—into holdings of reserves with international backing.

The culmination of a radical revision of the international monetary system should, in my view, be the transformation of the International Monetary Fund into an international central bank, the deposits of which would be an international currency on the lines of Keynes’s “Bancor”. This could be achieved in successive stages; but would ultimately require a revision of the Bretton Woods Charter. The main objective is a reorganisation of the international financial system designed to facilitate economic growth, and to remove the constant threat to balances of payment caused by the movement of “hot” money.

I therefore intend to ask for an international economic conference to consider the whole problem. And I am encouraged by the fact that the Radcliffe Committee saw “great merit in the proposal for a transformation of the I.M.F. into an international central bank”; and that President Kennedy said in his Inaugural Address, “We must now, in co-operation with other lending countries, begin to consider ways in which the international monetary institutions—especially the International Monetary Fund—can be strengthened and more effectively utilised, both in furnishing needed increases in reserves, and in providing the flexibility required to support a healthy and growing world economy”.

I do not know how many speakers there will be. But Derick Amory, Robbins and Bob Brand are certainties. Walter Monckton will be there. And I am hoping to persuade Cyril Radcliffe to do his duty!
It should be an interesting debate on a topic which, in my belief, is of major importance—perhaps the most important of all.

Yours ever,
Bob B.


Letter-head of the House of Lords. At the head have been written ‘File.’ and ‘620’.

{1} A debate on ‘International Liquidity in the Free World’. See Parliamentary Debates (Hansard): House of Lords, vol. ccxxx, pp. 51–107.

Letter from Lydia Keynes to F. W. Pethick-Lawrence

46 Gordon Square, Bloomsbury.—Is unable to come to he House of Commons (see 2/262), as she and her husband are going to Berlin. Is amused by his reference to the Hammersmith ballet (the ballet by Ashley Dukes in the revue Riverside Nights?) as a ‘parody’.

Carbon copy of a letter from F. W. Pethick-Lawrence to J. M. Keynes

Explains why he opposes the introduction of compulsory saving.



22nd. November, 1939.

Dear Keynes,

Thank you for your letter. I am glad you like the speech I sent to you.

Of course I read with great interest your articles in The Times on compulsory saving as indeed I do everything of yours that gets into the public press, and I have thought about your proposal a great deal. I have not read Greenwood’s article so I do not know the line he took with regard to them.

I fully appreciate the motives that underlie your scheme and I recognise that if we have inflation during the present war the people who will be hardest hit will be the very poor who have tiny fixed incomes. At the same time I should not be frank with you if I did not add that I do not favour compulsory saving if it can possibly be avoided. The cirsumstances† of individual people are so different that what would be too small a modicum for some of them would be an impossible burden for others and would lead in my opinion to very great difficulty for them and give rise to much unemployment.

In any case you will probably agree that the time for the adoption of any compulsory scheme has not yet arrived while there are still a million and a half industrial workers unemployed as well as large numbers of people in the middle classes who are not included in this figure.

I therefore for the present prefer to see voluntary saving going forward. If the time should ever come when this proves inadequate some scheme of compulsory saving may have to be adopted. But it seems to me that such a scheme would have to include much more drastic proposals even than yours to prevent persons with other means selling capital and so evading the effective control of spending that you wish to enforce. Would it not be necessary for instance to close the Stock Exchange and prohibit other forms of realising capital? These in turn would create fresh difficulties of their own.

With regard to your suggestion that you should come to discuss this with myself and others at the House of Commons some day in the middle of the week, I have not had an opportunity yet of mentioning this to my colleagues; but for my own part and I am sure for some of them, it would be a very interesting experience as you have always so much light to throw on economic problems.

Yours sincerely,

Professor J,† Maynard Keynes,
King’s College,


† Sic.

Carbon copy of a letter from F. W. Pethick-Lawrence to J. M. Keynes

Has returned from India. Encloses a letter summarising his views of the situation in that country (see 6/135), and two others describing the Indian National Congress (wanting) and his meeting with Gandhi, Tagore, and Bose (see 6/133). His wife is recovering from the illness she suffered on board ship. Refers to adverse reactions to his recent pronouncements on the subject of free trade.

Carbon copy of a letter from F. W. Pethick-Lawrence to J. M. Keynes

Summarises his recent address to the Free Trade Union Congress on ‘Pitfalls for Free Traders’, which provoked a surprising amount of indignation.



4th. October, 1926.

Dear Keynes,

Your book on “Laissez-Faire” {1} and the paragraphs about it in this week’s “Nation” prompt me to write you a word for your personal interest only, with regard to my visit to the Free Trade Union Congress at Manchester and my address on “Pitfalls for Free Traders” which I delivered to them.

I set out to establish five points:

1) That free traders were unwise if they said without qualifications when a new duty was being imposed that the price of the article would rise. I quoted artificial silk and motor cars as an illustration.

2) I urged them to disentangle free trade meaning free imports, from free trade meaning laissez-faire and unlimited individual competition.

3) I warned them that in opposing Imperial Preference, the argument based on the idea that the preference given to our traders in Australia was quite worthless, was rather a dangerous one to maintain.

4) I warned them that the doctrine of exports balancing imports was only true when invisible exports and imports were taken into consideration, and said I was doubtful whether any economists to-day (when there are pools of unemployment in various countries, unstable and artificial exchanges, and politically created loans, reparations, etc.) would be prepared to put his hand upon his heart and say that the current effect of an order for a million pounds placed abroad, would be identical with the same order placed at home.

5) I warned them that free traders must not be indifferent to labour conditions if they wanted to continue to have the support of the majority of the people of this country, and that though I thought tariffs were the wrong way, some consideration ought to be devoted to the question of production under sweated conditions in other lands.

I was purposely controversial but I was hardly prepared for the storm of indignation which I evoked. Every one of my points was very hotly challenged and had there been more time I should have had a torrent of opposition to meet. All the same, one or two of the best men in the meeting afterwards said that though they did not necessarily agree with everything, they thought there was a great deal of truth in what I had said.

Do not trouble to reply to this letter: I thought you would be amused to know how little some of the Manchester free traders have moved with the times.

Yours sincerely,

J. Maynard Keynes Esq.,
46, Gordon Square,


{1} The End of Laissez-Faire (1926).

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