|Sir Stafford and the Egyptian sterling balance|
I have a formal portrait of Grand Admiral Dönitz kicking around somewhere just for this post, but now that the time has come, I much prefer General Gordon. Egypt's £402 million in sterling holdings (as of 1945.)
Okay, that was facetious. Sir Stafford didn't throw himself on a spear. He went off to a spa in Switzerland for treatment of his colitis, and stayed there until he died of cancer in 1952. Severe colitis seems to have had a disproportionate effect on mid-century policy makers, and a search of the literature turned it up as one symptom of cocaine abuse. I wouldn't have been looking if I didn't have a nasty, suspicious mind, but what can I say? In any case, the deeper irony might be that Cripps should have adopted Gordon's solution. It's hard to see how staying in Egypt over the protests of the Egyptians and at great cost to the sterling balance benefitted anyone, and it certainly didn't benefit the Egyptians, who saw their trapped and alienated balance eroded by inflation and, of course, devaluation.
Devaluation is, of course, the issue here. On 18 September, 1949, the exchange rate of the pound was reduced from $4.03 to $2.80. It is telling that a Google search on the subject led me to an extract of Sir Alex Cairncross' book on the subject, which implies that the date was 6 September, and to the proceedings of a 4 October 1989 seminar asserting that the devaluation took place "forty years ago almost to the day." Meanwhile, Wikipedia's account, where I finally resorted with the, to my mind, very reasonable question of the exact date, has a bizarre discussion that has the decision being taken off the cuff by the Prime Minister with advice from three junior ministers, Hugh Gaitskell, Harold Wilson and Douglas Jay. They then fired, per Wikipedia, a circular to Cripps in Switzerland, expecting him to object. When he didn't, away they went.
This is not, of course, how it happened. The decision to devalue was taken on 6 September, by Sir Stafford, with the consent of the inner cabinet, after a Washington meeting with American financial officials, with Cripps being minded by Ernie Bevins. The disadvantage of getting your news from weekly papers is that you don't necessarily have the exact date down, but I do know this! Just as I know that the devaluation was announced by Cripps and defended by him in the House. I don't know where Wikipedia's account is coming from, but it's obviously more useful for critics of parliamentary Labour.
I'm also beginning to suspect that history isn't always the economic historian's strong suit. The role of the Americans reflects the fact that this wasn't a devaluation of the pound so much as a revaluation of the dollar, inasmuch as everyone else on Earth followed suit. I had to go to an archived number of The New International to find someone willing to make that point, and even our redoubtable comrade promptly goes off the rails to start talking about "machinery, capital equipment and other purchases," and rail against the slow growth in British productivity.
In practice, the British economy promptly recovered, exports rebounded.
At some point, The Economist troubled itself to point out that constant talk of devaluation since the beginning of the American recession had led to people holding off on buying British goods in anticipation. This would make the run on Britain's dollar and gold balance something of a self-fulfilling prophecy. Sometimes, The Economist does make sense; the problem with this point is that it doesn't support navel gazing, so we are going to proceed not so much by refuting it as by ignoring it.
Actually, ignoring is going to be a leitmotif here. If it's a world problem, after all, the causes ain't local. This isn't rocket science. Or, rather, it's an American problem. I'm not an economics-talking guy, so I'm probably completely out to lunch (as well as being a bit high on Neo-Citron)but I fail to see how you're going to deal with American inflation under a fixed-exchange rate scheme otherwise! The postwar system stipulated fixed exchange rates for American money, the reserve status of the dollar and the pound, an a principal role for gold, with its price fixed at $35/oz. To make this system work, the United States could not run a positive trade balance, and, if it did, without mechanics in place to balance it on the American side, the alternative was deflation in the rest of the world to reduce American imports, American foreign aid in large quantities, and, in the long run, import substitution. I imagine that's where "petrodollars" come from, but I don't want to preempt a "lazy Wednesday" post of twenty years hence!
All that said, it's fair to say that British authors are going to have a British focus, and that it is going to be very, very hard to get subsequent history and partisan politics out of the story. Or current! When you hear people who just can't resist picking on union featherbedding, working day reductions, the "welfare state" and "socialism," you're hearing people who are "not letting a crisis go to waste."
With that out of the way, I want to look at the preliminary report of the Steel Working Party of the Anglo-American Council on Productivity to the United States. Again I have a tiny problem, in that the only source I could track down that discussed the working party in any detail is clear that it visited the United States in the spring of 1951, not 1949, but the conclusions remain the same. How did that happen? I'm not sure, nor am I sure that the Group of 1951 was the same as the 1949 one. If it is my curiosity about the composition of the group is answered by my source, which admits that, of the fourteen members, only two of them drawn from trade unions. This seems pretty suspicious to me to start with given just how strongly the report comes down on the side of criticising the labour side.
Anyway, here we have a meta-technological claim of the first water. Apparently, something is going very, very wrong in terms of growth in British total factor productivity, which is the closest we've come to a measurement of technological change. Britain is an outstanding case of failure of technological policy . . . Or is it? (Dunh dunh dunh!)
So, according to the group, "US labour productivity in terms of in man/year output was three times as high as in the UK for blast furnaces, 1.8 times for open-hearth and roughly 1.5 times for rolling mill," and it gets worse when the longer British working week is taken into account. (Which really wants me to reach back through time and punch Joseph Phillips in the face, but never mind. He wrote for Newsweek. Life punished him enough. ((I'm being completely unfair here, but if he had the same gig at Time, he'd have a 10,000 word Wikipedia biography.))* The AACP's figures are even bigger than the ones that L. Rostas produced. Which, we'll remember, were criticised by the British Iron and Steel Federation:
It also seems a bit strange given the ramping up of British steel production from 5 million tons in 1930 to 25 million tons in 1957,
. . . even as American production
|By Plazak - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=42008699|
. . . didn't.
If you're wondering about historic employment in the British steel industry, I do not, at least at the moment, have you covered. I do find a mad-eyed Marxist willing to claim that the British steel industry had an employment of 130,000 in 1954, and that a retrospective article at CNN Business is willing to put the number at 700,000 American workers in 1948.
Exactly how Britain has kept pace with the United States while experiencing one third the population growth and without increasing the relative proportion of workers in the steel industry to any obvious extent while experiencing slower productivity growth . . . puzzles me. The bare numbers, which indicate there are at best as many more tons of steel produced in the United States as there are workers, makes it all seem that much more dubious.
Given that British and European steel consistently underpriced American in the export markets in the 1950s, one has to wonder just how meaningful any of this is. Something is making up for all that missing technology. Maybe it's that Europeans are being underpaid?
So that's it. It's all a complete mystery, even today. Economic historians are running around, reading sixty year old papers, and agreeing with the ones they agree with. Not terribly analytic, and not much of an advance in our knowledge. It's hard to see what's going on. Well, apart from the blitheringly obvious political and anti-union angle, that is. That would seem far too obvious an explanation to me, but what do I know? I'm just a historian of technology. I'm not even 100% sure how soap works!
Or maybe economic history has to seriously up its game.
*That's a lot of parentheses. I blame Neo-Citron. Delicious Neo-Citron.