An Unholy Trinity: The Influence of John Locke, Adam Smith, and John Maynard Keynes on Britain’s Three Great Transformations

: Abstract: This book-length project traces the processes by which three key intellectuals—John Locke, Adam Smith, and JM Keynes—developed, saw adopted, and helped to implement their foreign economic policy strategies in Britain. Each theorist developed a unique response to the timeless challenge of the Mundell-Fleming “unholy trinity,” the inability to simultaneously maintain stable exchange rates, open capital markets, and domestic monetary policy autonomy. Interacting directly with key policymakers, Locke, Smith, and Keynes were each instrumental in initiating three of Britain’s great policy transformations: the adoption of the fixed exchange rate regime in the 1690s, the shift toward free trade in the 1780s, and the abandonment of the gold standard in the 1930s. Once adopted, these ideas became institutionalized as the policy paradigms that reigned for decades. This project revises our understanding of these canonical figures, their involvement in three major shifts in the history of foreign economic policy, and the broader relationship between states and markets.

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Keynes Adjusts: JM Keynes, the 1931 Financial Crisis, and the Death of the Gold Standard in Britain

: Britain's suspension of gold convertibility in September 1931 was one of the most surprising and significant events in the history of the global financial system. Whereas London had traditionally been the center of the international gold standard, in the 1930s Britain led the world into the era of adjustable exchange rates. Previous explanations have maintained that the configuration of domestic institutions and interest groups determined Britain's response to changing international conditions. There was, however, ample domestic political will and international support to save the gold standard. Britain was actually forced to suspend convertibility because key policymakers possessed the wrong ideas about how to save the gold standard. Even after the National Government balanced the budget on the terms dictated by international financiers, the attack on sterling continued. Fixated on the budget deficit, the Bank of England overlooked sterling's 30% overvaluation and failed to make the necessary interest rate increases. When Prime Minister MacDonald consulted JM Keynes at the height of the crisis, Keynes deliberately avoided exposing the Bank’s mistake precisely because he hoped to force a suspension. The collapse of the gold standard in Britain was thus the product of the Bank's mistaken monetary policy and Keynes’s deliberate political strategy.

Paper (Last Updated: August 2010)