John Maynard Keynes

My Dear Prime Minister,

The choice is between a managed currency and the gold standard. I believe that a managed currency is inevitable and that the sooner we face this fact the better.

The present crisis has demonstrated beyond doubt that the gold standard, as it operates today, is not compatible with the maintenance of domestic prosperity and employment. We are being forced to choose between the external value of the pound and the internal welfare of our people.

The deflationary measures required to maintain our gold parity are proving ruinous to British industry and employment. We are sacrificing the substance of our economic life for the shadow of monetary orthodoxy. This cannot continue without inflicting permanent damage on our productive capacity and social fabric.

I urge you to consider that a managed currency, freed from the constraints of gold convertibility, would allow us to pursue policies directed toward domestic recovery rather than external balance. We could then adjust our monetary policy to the needs of British industry and employment, rather than to the arbitrary requirements of gold movements.

The international financial community may initially react with alarm to such a step, but I believe they will quickly recognize that a Britain with a stable domestic economy and full employment is a better trading partner and debtor than a Britain impoverished by adherence to an obsolete monetary system.

Other countries are already questioning the wisdom of the gold standard. If Britain takes the lead in monetary reform, we may find ourselves pioneers of a new and more rational international monetary system, rather than the last defenders of a system that has outlived its usefulness.

The technical difficulties of managing a currency are not insurmountable. What is required is the will to put the welfare of our people before the prejudices of financial orthodoxy. The Bank of England has the expertise to manage a currency in the national interest, if freed from the constraints of gold convertibility.

I believe history will judge harshly those who, in this crisis, chose the appearance of financial respectability over the reality of economic recovery. The choice before us is clear: we can continue to impoverish our people in service of an international monetary system that no longer serves our interests, or we can take control of our monetary destiny and chart a course toward recovery.

Time is of the essence. Each day of delay means more unemployment, more business failures, and more suffering for the British people. I implore you to act decisively before the crisis deepens further.

J. M. Keynes