A one-day workshop on topics in the history of the UK economy during this century took place on 26 March, chaired by Peter Neary and Willem Buiter. Three full-length papers were presented by Michael Beenstock, James Foreman-Peck and Scott Newton, with two short presentations by Kent Matthews and Peter Neary. The topics focussed on the historical context of British macroeconomic policy and its setting in the international economy.

In the first paper (coauthored with Forrest Capie and Brian Griffiths), Michael Beenstock examined "The British economic recovery in the UK in the 1930s". This has often been linked with changes in economic policy which occurred in response to the world depression. Beenstock argued that these policy changes were not as powerful as sometimes thought. After the break with gold and the immediate devaluation, the sterling exchange rate rose despite the establishment of the Exchange Equalisation Account. The recovery was not export-led and the impact of the tariff on imports was small. Neither did expansionary fiscal policy lead to recovery, though the money stock rose strongly as foreign currency flowed in. Any direct stimuli were not in any case the result of direct policy choice.

Beenstock discussed another explanation of the recovery which focusses on the labour market. There the sharp rise and fall in unemployment was associated with a decline and then a rise in employment in the manufacturing sector and a contemporaneous rise and then fall in the participation rate. Beenstock suggested that the real wage played a key role. He observed that prices of traded goods fell in this period relative to both non-traded goods and wage rates. This caused a contraction in employment in the traded goods sector and a fall in the cost of living relative to normal wages, leading to an increase in labour supply.

The discussion following the presentation raised a number of points about the labour market. In particular, were changes in the administrative rules of the unemployment insurance scheme partly responsible for the observed variations in labour participation? Also, the high elasticity of labour demand implied by Beenstock was questioned in the light of existing empirical evidence. Discussants thought it important to analyse reasons for money wage stickiness, if this was held to be a major cause of fluctuations. If it reflected slow adjustment of expectations, then government actions (especially if unanticipated) could be powerful. Linking a high exchange rate and low import demand with too high a real wage was also criticised. It was suggested in particular that the impact of the tariff and the effect of low raw material prices on employment should be analysed.

James Foreman-Peck addressed the question "Were the Interwar Years a Transition?" using the framework set out in Michael Beenstock's book The World Economy in Transition. The book argued that the depression in the 1970s in the developed world was due to rapid industrialisation in the developing world. Slow structural adjustment of the developed economies to changes in relative prices led to structural or "mismatch" unemployment and a protracted period of readjustment and reallocation of resources. This analysis had also been applied to the 'climacteric' of 1860-1900, when Britain was overtaken by other rapidly industrialising nations.

Foreman-Peck argued that Beenstock's framework was not appropriate for the interwar period when, on the whole, newly industrialising countries increased their demand for imports of manufactured goods. Also, the relative price of energy fell in the early 1920s and early 1930s in contrast to the 1970s. The dislocation of the first world war had led to structural imbalance and reduced flexibility due to increased unionisation. But the major reason cited by Foreman-Peck for high unemployment in industrial countries in the 1930s was policy failure. The overvaluation of some countries' exchange rates was accompanied by deflationary domestic economic policies - policies which were continued even after the collapse of the gold standard. In contrast to the 1970s, there was a lack of international cooperation. The absence of appropriate institutions which intensified the depression in the 1930s.

In the discussion which followed Foreman-Peck's paper, it was suggested that postwar international institutions such as GATT and the IMF had had helped since 1973 to resist the spread of trade restrictions and prevent monetary collapse (although the Fund's deflationary conditionality programmes may have destabilized world macroeconomic adjustment. Comparable institutions had failed to emerge with the development of multilateralism from the 1880s to the 1920s. It was pointed out that the experience of developed countries was less uniform in the interwar years than recently; this was due to differences in structure as well as in economic policy. Some doubts were expressed about the deflationary effects on the world economy of overvalued exchange rates for a number of countries in the 1920s.

In his paper, Scott Newton analysed "The Sterling Crisis of 1947 and the British Response to the Marshall Plan". He argued that Britain's reluctance to join fully in the moves towards European monetary integration and trade liberalisation was governed by economic necessity rather than an anachronistic attachment to an imperial role. Her central concern, according to Newton, was that liberalisation would place pressure on sterling unless the dollar shortage were relieved by US loans, particularly to primary producers. Many such countries were unable to earn dollars and moreover were in the sterling area. This concern reflected the Britain's own experience of the convertibility crisis of 1947, when British dollar reserves fell sharply until convertibility was suspended. This experience also conditioned the British response to the Marshall Plan, which was to welcome the aid to Europe but to resist the European integration desired by America.

In his presentation, Newton argued further that the liberalisation taking place in the early 1950s, while maintaining fixed exchange rates, represented a victory of consumer and financial interests over those of manufacturing. This conflict of interests had been present in the nineteenth century and was reflected in the tariff debate before World War I. This raised questions about the usefulness of an interest group analysis, particularly when some groups were so wide. Also, the identification of common interests even among an association of manufacturers such as the Federation of British Industry had not been established.

As far as the decision-making process was concerned, a distinction should be made between the predictions of economic advisors and restrospective counterfactual hypotheses. The views held in the Treasury and the Bank of England were based on concern about the management of the sterling balances, which some argued should be reduced. The adherence to fixed exchange rates resulted not only from Britain's role as sterling area banker but also from doubt that trade flows would respond appropriately to exchange rate changes. It was suggested that these views might have been misplaced, that a free float might not have led to a massive depreciation, and that the sterling balances merely represented a temporary transfer problem. Perhaps Britain's clinging to the role of sterling area banker was a post-imperial misperception, but reserves might have fallen sharply with the demise of sterling.

Kent Matthews presented an outline of a macroeconomic model of interwar Britain based on the Liverpool model of the post-war period. Econometric estimates of the labour market equations showed a positive relationship between unemployment and the real wage and a negative relationship between unemployment and output. The wage equation showed the real wage related positively to real benefits and negatively to unemployment. Some participants queried these estimates, particularly since some key coefficients appeared to be insignificant. Simulations of the model indicated that a "balanced budget" increase in government spending raised GDP and inflation and lowered unemployment and the real exchange rate, but these effects decayed to zero in 10 years. By contrast a reduction in real unemployment benefits in the model permanently raised GNP and reduced unemployment and the real exchange rate.

Peter Neary discussed "Protection, Economic War and Structural Change: The 1930s in Ireland" (co-authored with Cormac O'Grada). This analysed the effects of the "Economic War" between the Irish Free State and Britain from 1932 to 1938, which was touched off by the new Irish government's refusal to pay "land annuities". During the period, agriculture contracted and manufacturing employment grew rapidly as a result of tariff protection. Using a model with sector-specific capital and mobile labour, Neary argued that the effects of the change in relative prices due to the tariff would be rises in the nominal wage rate and the real return to manufacturing capital. Contemporaries suggested that one effect of protection had been an inflow of capital to manufacturing, and including this effect in the model gave a rise in the real wage. In addition policy towards agriculture encouraged it to become more labour-intensive, and this should have slowed the outflow of labour from agriculture to manufacturing. A further issue raised by Neary concerned the aggregate cost of the economic war to Ireland. When compared with the reduction in value of the Irish debt negotiated in 1938, it suggested a likely net benefit.

The meeting concluded with a discussion of research priorities for recent economic history. Although the comparison of the 1920s-30s with the 1970s-80s seems of considerable interest in several dimensions, it was suggested that in some respects the analogy might be forced too far - e.g., the recession of the 1930s did not follow a period of sustained expansion, for the UK and many other countries. Interest was expressed in the early 1920s (especially the UK recession of 1921); the striking deceleration of growth in the Edwardian period; and the late nineteenth century.

There was enthusiasm for historical cross-country comparisons: in the response to debt servicing problems in the 1930s (and evaluating the costs of repudiation to those countries which did cease debt service); in macroeconomic adjustment; in short-run relations between output and employment; in structural change and its relation to macroeconomic performance; in savings behaviour and its relation to the current account; and in the effects of protection in the 1930s on capital inflows and investment behind tariff barriers. There was also interest in studies of individual industries, and perhaps firms, especially in the tradeable goods sector.

Both data problems and methodology attracted attention. Much work seemed to rely on a few "accepted" data sources which appeared in the 1940s and should perhaps be re-evaluated now; and some participants stressed the importance of cooperation on data sources and the possible role of the CEPR in facilitating it. Finally, one participant expressed optimism about the increasing sophistication of explanations in economic history: from comparing alternative bivariate models, to equations with several explanatory variables, and now structural models with many equations. Researchers should be cautious, however, in taking existing complete models estimated on a recent period and simply applying them to data of an earlier period.