A) The chaos of
Pre-war Social Security
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
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.
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
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
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 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. 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
Thus the terms of the
Bretton Woods agreement led to US
economic dominance as well as the
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)
World War II was over but
On the horizon
loomed the spectre of a communist takeover of European countries.
Up to the spring of 1947,
Secretary of State
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
From its inception in 1948 to its finish in 1952 when the
Marshall Plan was ended, the
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