A)  The chaos of Pre-war Social Security AND the madness of the Geddes Axe

 

 

Problem of Social Security in the late 20s and the 30s was that the administrative organisation and distribution  of it was a mess. Some payments came from central government, others from local government...and furthermore it suffered from incremental disintegration whereby bits were added on and others taken off to adjust social security payments to changing circumstances in the heated world of the Depression years. The various types of payments and the rules surrounding them became more and more chaotic over time...all this needed sorting out and that was the task given to Sir William Beveridge and his committee.

 

It was expected that the Beveridge committee would merely 'tidy-up' social security in Great Britain; instead in the recommendations of the report of his committee was a contained a blueprint for a comprehensive and integrated 'cradle to the grave' welfare state.

 

 

 

B) 'Beveridge': a “comprehensive policy of social progress,” and

 

“An attack upon [the 5 Great Giants]....

 

Want (poverty), Disease (Health), Ignorance (Education), Squalor (Housing), and Idleness (Employment).”

 

"...social security must be achieved by co-operation between the State and the individual. The State should offer security for services and contribution. The State in organizing security should not stifle incentive, opportunity, responsibility; in establishing a national minimum,it should leave room and encouragement for voluntary action by each individual to provide more than that minimum for himself and his family."

 

1942 Report on Social Insurance - 'The Beveridge report' - a 'Liberal' report... NOT labour or socialist in tone/ideology

The report  entitled Social Insurance and Allied Services was prepared by a committee under the chairmanship of Sir William H. Beveridge.

The members of the committee were drawn from different departments concerned with the well being of citizens including Home Office,

Ministry of Labour and National Service, Ministry of Health, and Treasury. The report was submitted to the British Parliament in November 1942.

 

 

 

 

"Next to  war,  unemployment has been the most widespread, most insidious, and most corroding malady of our  generation: it  is  the

specific social disease of western civilisation in our time."

 

The validity of The Times's verdict of 1943 is incontrovertible: both contemporaries and post-war writers have judged, and condemned, the interwar period as a bleak episode in our national history. This view principally derives from the particular characteristics of Britain's-interwar unemployment problem, its quite unparalleled magnitude,  its prolonged nature, and its attendant social misery; it is clearly reflected in the literature of the period, in popular memory of it, and in the attitudes of later politicians...who have continued to allude to the interwar period as an example, indeed object-lesson, of the failures of unregulated capitalism. (Middleton, Ph.D. thesis, Cambridge, 1981)

 

 

 

C) John Maynard Keynes:

 

Keynesian Economics: heralding a measure of government intervention to save capitalism from its free market excesses - again NOT a socialist measure...despite much comment along these lines in the post-war period. Expansionism via government support - borrow this year to invest (reflate economy) and  pay back later because economy will have revived and so therefore will tax receipts and other governemnt income eg. exports - sometimes called deficit financing. THIS is widely ascribed to Keynes himself and is argued to be his response to the  (Sir Edward) Geddes... 'Axe' (massive expenditure cuts on key areas of government spending in the economic downturn after 1922

 

...and contra the Treasury policy (though widely accepted by the Government) of a balanced budget). (see Middleton, p.37) Government Income should equal expenditure in any single year.

"The Treasury View was, in the 1920s and 1930s, the British name of the doctrine of the government balanced budget. The idea was that the government should constantly keep its overall expenditures in line with total tax revenue regardless of the cyclical state of the economy. Besides being regarded as a practical golden rule for liberal, free-market governments, the Treasury View had a connection with a cornerstone of neoclassical (macro)economics known as Say’s Law, or “supply creates its own demand” – the predecessor of modern “supply side economics”. With aggregate demand constantly in line with (full-employment) aggregate supply thanks to spontaneous market forces, there is no need for government deficit spending. Indeed, any additional penny of public expenditure is a subtraction from, not an addition to, the given gross domestic output available for private uses." (Roubini 2010)

 

 

Others (see below) - Backhouse and Bateman - have pointed out that though many have claimed deficit financing to be the key aspect of Keynes's own solution to the Depression, actually this was the message others chose to assume he was advocating. Backhouse et al argue that Keynes argued that, what is called the 'Sinking Fund' - the idle money (waiting to be spent) that government accumulates to re-pay borrowings - should be used to support investment AS A WAY to stabilise employer/business investments and confidence so as to ensure continuity of employment for employees.

 

As Backhouse puts it: "Keynes’s argument was that since the money in the sinking fund was being held and not invested, that it could be put to use to stimulate the economy without any harm, since the projects that it would support would eventually generate income to replace the money in government coffers....Keynes argued for using the sinking fund to undertake public works in the hope that if entrepreneurs and business managers came to believe that this kind of stimulus would be forthcoming when the economy slowed that they would maintain their expectations of future profitability and so prevent the swings in investment that caused unemployment. In other words, Keynes believed that profit expectations could be stabilized by well-timed, government expenditures on public works; and if expectations could be stabilized, then employment could also be stabilized. Such a plan for stabilizing expectations and employment would undoubtedly help a welfare state run more effectively, as Beveridge argued. In such a world, fewer people would require unemployment payments and tax revenues would be higher.

 

 

Keynes as an old Bloomsbury group member (a high-powered group of writers (e.g. Virginia Woolf) and artists and aesthetes (Roger Fry) at the turn of the 20thC through to the 1940s) wanted the individual to be civilised and happy viz his creation of the Arts Council - but this vision of high culture for all was not quite what most of the public had in mind. As such Keynes did not base his idea of individual welfare on a utilitarian scale (Can we really evaluate personal pleasure in terms of  gains and losses?). Keynes was concerned about the relations between (un)employment, uncertainty, entrepreneurial confidence, and fiscal management to ensure high stable employment.

 

AND...It just so happens that the 'scourge' of unemployment was one of the '5 Great Giants' to be slain as detailed in the Beveridge Report - the 'Report on Social Insurance and Allied Services' 1942.

 

 

BUT... (and note the difference between Keynes's own ideas and those that were developed in to Keynesian-ism)

 

...the traditional...argument is that Keynes provided the rationale for a large public sector and this is simply not true. Keynes had little to say about the size of the state and he was never a vocal advocate of expanding the size of the state. Keynes’s greatest concern was in securing a rate of employment that was as high and as stable as possible. Since most people associate the welfare state with large redistributive programs in health care, family expenditure, and unemployment insurance, the direct link to Keynes is not immediately obvious. Thus, one must take care in specifying exactly what is meant when one claims that Keynes played a role in the creation of the welfare state." (Backhouse & Bateman (2010) Losing the Foundation: How the welfare state lost its Keynesian Foundation

 

In her 2012 article: Keynes and the Welfare State, Marcuzzo has argued that the foundations and assumptions of Beveridge's economic thought were markedly different from those of Keynes

 

 

 

 

D)  Economic Stability was crucial: Bretton Wood Conference 1944.

The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western Europe, Australia, and Japan after the 1944 Bretton-Woods Agreement.

The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate (± 1 percent) by tying its currency to gold and the ability of the IMF to bridge temporary imbalances of payments. Also, there was a need to address the lack of cooperation among other countries and to prevent competitive devaluation of the currencies as well.

Preparing to rebuild the international economic system while World War II was still raging, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, United States, for the United Nations Monetary and Financial Conference, also known as the Bretton Woods Conference. The delegates deliberated during 1–22 July 1944,

Setting up a system of rules, institutions, and procedures to regulate the international monetary system, these accords established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group.

The United States, which controlled two thirds of the world's gold, insisted that the Bretton Woods system rest on both gold and the US dollar. Soviet representatives attended the conference but later declined to ratify the final agreements, charging that the institutions they had created were "branches of Wall Street". These organizations became operational in 1945 after a sufficient number of countries had ratified the agreement.

The world exchange rates were pegged to the Dollar/Gold price ($35 per oz of gold) and exchange rates were not allowed to fluctuate over 1%

A major point of common ground at the Conference was the goal to avoid a recurrence of the closed markets and economic warfare that had characterized the 1930s. Thus, negotiators at Bretton Woods also agreed that there was a need for an institutional forum for international cooperation on monetary matters. Already in 1944 the British economist John Maynard Keynes emphasized "the importance of rule-based regimes to stabilize business expectations"—something he accepted in the Bretton Woods system of fixed exchange rates. Currency troubles in the interwar years, it was felt, had been greatly exacerbated by the absence of any established procedure or machinery for intergovernmental consultation.

In case of balance of payments imbalances, Keynes recommended that both debtors and creditors should change their policies. As outlined by Keynes, countries with payment surpluses should increase their imports from the deficit countries, build factories in debtor nations, or donate to them—and thereby create a foreign trade equilibrium.[27] Thus, Keynes was sensitive to the problem that placing too much of the burden on the deficit country would be deflationary.

The British plan, referred to as Keynes Plan after its principal author, called for an international clearing union with an international currency that could be used to

settle the accounts between members. Members with surplus in their international balance would commit funds to the union and members with deficit in their international balance would use credit extended to them by the union. Such an overdraft facility would be in an international currency and in the books of the union.

 

One can see the underlying idea of monetary cooperation, planning and redistribution that lay at the heart of Keynes's thinking

But the United States, as a likely creditor nation, and eager to take on the role of the world's economic powerhouse, opposed many of Keynes's concerns.

 

 

Thus the terms of the Bretton Woods agreement led to US economic dominance as well as the US becoming the world's banker and the opening up of free trade.

 

1945 - massive and shocking majority of Atlee's labour party over Churchill's Conservative party -147 seat majority. (Marr)

 

Economic crisis of the Govt - 1946 loan from US not enough (Marr) and Winter of 1947. (Marr)

 

 

 

E)  Marshall Plan 1948: UK and Europe had used up almost all its financial reserves in the war effort where as the US economy had grown. The IMF could not help sufficiently to pay/loan to Europe to restructure economic growth. That task fell to the USA

 

World War II was over but Europe was devastated. Factories and roads had been destroyed, international commerce and trade had been disrupted, and industrial production was recovering at a very slow pace.  To add to the misery there had been crop failures and bad harvest. There were shortages and hunger everywhere. It was not surprising that Europeans were discouraged, desperate, and angry.

 

On the horizon loomed the spectre of a communist takeover of European countries. Albania, Poland, Czechoslovakia, and others were already written off. Countries such as Italy, Greece, France, and Austria were not safe. People in these countries were desperate and easy prey to communist propaganda.

 

Up to the spring of 1947, the United States had provided credit and aid to Europe. Although substantial in sum, these had the nature of relief funds, and credits and loan had strings attached to them. The fact was that Europe needed long term growth and a hope for the future. The United States had the means to rescue Europe, and the Truman administration rose to the challenge.

 

Secretary of State George Marshall announced the plan for the European recovery in his commencement speech at Harvard University on June 5, 1947.

 

According to Marshall, Europe was in a critical situation because..."Raw materials and fuel are in short supply. Machinery is lacking or worn out. . . . Thus a very serious situation is rapidly developing which bodes no good for the world."

 

He added: "Europe’s requirements for the next three or four years of foreign food and other essential products—principally from America—are so much greater than her present ability to pay that she must have substantial additional help, or face economic, social and political deterioration of a grave character. The remedy lies in breaking the vicious circle and restoring the confidence of the European people in the economic future of their own countries and of Europe as a whole. It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace...."

 

From its inception in 1948 to its finish in 1952 when the Marshall Plan was ended, the United States spent about $13 billion. $13 billion was about 4.4% of the United States GDP in 1950. In 2006 4.4% of the US GDP was more than $580 billion. Thus, the sum was substantial and required a real sacrifice by the US taxpayers.

 

It also gave European governments the resources to fund social and welfare programs and at the same time continue with economic liberalization. Further, the aid was both an economic and political boost that brought confidence to Europe and jump-started the growth.