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England, Montagu Norman. He eventually succeeded in interesting the City in ‘placing industry on a broad and sound basis and ready to support any plans that in its opinion lead to this end’, and by March 1930 what might now be called a Public Private Initiative, the Bankers’ Industrial Development Company, had been set up to finance rationalised industry, with £6 million coming from the Bank of England and over forty merchant banks, clearing banks and other financial institutions.

      As Thomas was speaking to the Commons, all sorts of other ambitious plans were being drafted. These included a £37.5-million, five-year road-building programme, improvements on the railways, £1 million for colonial development schemes which included building a bridge across the Zambezi — and plans to attract new industries to those areas of Britain where unemployment was highest. Thomas went to Canada for several weeks to try to stimulate the market for British coal and ships. His success was very limited. One of the three assistants who had been appointed to help him in his gargantuan task when they weren’t busy with their other responsibilities, Tom Johnston, Under-Secretary of State for Scotland (the other two were the wealthy and arrogant Sir Oswald Mosley, once a Conservative MP but now Labour’s Chancellor of the Duchy of Lancaster and fizzing with new schemes, and the veteran politician George Lansbury, whose espousal of ‘Poplarism’ — named after a rate strike in London’s deprived East End in 1921 — had made him a symbol of local defiance of central government in the interest of the poor and needy) pressed for the construction of a road round Loch Lomond (what he got was the reconstruction of the coach road from Aberfoyle to the Trossachs). Lansbury favoured a retirement pension for workers at sixty (‘Better pay the old to do nothing than the young,’ commented Thomas Jones), a colonising scheme in Western Australia and a land reclamation programme at home.

      By November 1930 Thomas was able to report to Parliament that £24 million had already been spent on stimulating public works schemes. But for James Maxton, chairman of the Independent Labour Party (ILP), such initiatives were certainly ‘not socialism’, and he taunted Thomas with being ‘caught in a spider web of capitalism’, and prophetically warned that a choice would have to be made between the government and the unemployed — and he knew which side he would be on.

      In October 1929 a heavyweight committee was appointed under the chairmanship of a barrister, Lord Macmillan, to examine the workings of the banking and financial systems and to make recommendations ‘calculated … to promote the development of commerce and the employment of labour’. Macmillan, who later confessed that he ‘never learned to move with any ease in the realm of finance’, was surrounded by some expert and authoritative minds. There were employers, including the President of the Federation of British Industries, a professor of banking from the London School of Economics, a director of the Bank of England, a merchant banker and a former Permanent Secretary to the Treasury, working alongside a former ‘Red Clydesider’, J.T. Walton Newbold, while the trade union slot was filled by Ernest Bevin of the Transport and General Workers’ Union. The economist John Maynard Keynes, whose hand had been behind the ‘remedy for unemployment’ set out in the Liberal election manifesto We Can Conquer Unemployment (distilled from the famous ‘Yellow Book’, Britain’s Industrial Future), was also invited to join.

      The Committee, which was criticised in some quarters as being ‘packed in favour of finance’, took evidence throughout 1930 and into the following year. Keynes presented his — which was in effect a dry run for his two-volume work A Treatise on Money, published later in the year — ‘like a seminar’, seeking to educate the Committee on the fundamental distinction between saving and investment: the world’s wealth had not been accumulated by thrift, but rather by enterprise. Savings by themselves achieved nothing: they needed to be put to work. From this followed — though Keynes took several cliffhanging days to expound what followed: ‘You are a complete dramatist,’ Macmillan said admiringly — his ‘favourite remedy’: home investment by the government to ‘break the vicious circle’ of underinvestment and mop up unemployment by increasing domestic demand rather than relying on the vagaries of the export market. Along with this went the further rationalisation of industry, protection of the home market by tariff barriers (a new departure for Keynes), and bringing down interest rates — cheap money.

      Reginald McKenna, who had been a respected Liberal Chancellor of the Exchequer during the First World War, and subsequently Chairman of the Midland Bank, agreed, and gave an easy-to-follow explanation of how this could work in practice: with more money in circulation more boots would be bought, more men would be taken on to make the boots, their wages would be spent on cotton goods, which would create employment in the cotton industry, and so it would go on. Ernest Bevin was equally enthusiastic, envisaging the prospect for coalminers, whose purchasing power was almost half what it should have been; if it was raised ‘it would lead to a greater demand for boots for children, and clothes and furniture and luxuries and things of that kind’.

      But when the ill-prepared and irritable Montagu Norman appeared before the Committee, he rejected Keynes’ view that the financial system was ‘jammed’ and the key to unlock it was obsolete: in Norman’s view it was industry that was jammed, and since he saw the Bank of England’s relation to the nation as similar to that of a high street bank’s to its customers — that is, to ensure that they did not live beyond their means — industry needed rationalisation, not credit, to meet its difficulties. He accepted, however, that rationalisation was hardly a short-term fix, and agreed that unemployment would be ‘apt to increase’ (the word ‘temporarily’ was added in the final report to sweeten the pill). In essence the Bank’s view — more ably put by others subsequently — rejected the notion that the return to the Gold Standard in 1925, much to the disquiet of Keynes, and indeed McKenna, had resulted in inflated interest rates, or that there were any other monetary shortcomings. The basic problem was that British industry was uncompetitive, and until its house was put in order (largely by wage cuts, ‘encouraging’ labour mobility by cutting unemployment pay, reducing taxes on profits and — of course — rationalisation) any other remedies would be merely palliative.

      By December, after less than six months in office, the verdict of Hugh Dalton, then Under-Secretary at the Foreign Office (‘The under secretaries are all aristocrats,’ Beatrice Webb had sniffed when the government was formed: Dalton’s father had been Canon of St George’s Chapel, Windsor, and an intimate friend of George V), was that ‘the Labour Government as a whole has been pretty disappointing with bright patches. Thomas and Maggie Bondfield [Margaret Bondfield, Minister of Labour] are two of the most obvious failures. Few have anything good to say about either of them. MacDonald has been messing about again with the idea of the Economic General Staff, and having economists to lunch. But nothing concrete comes of it.’ Thomas Jones was not much more optimistic: ‘Labour is worried by the growing figures of unemployment. JHT [Jimmy Thomas] for some weeks now seemed to lose his nerve entirely. All criticism from all sides, which used to be spread over several Departments, is concentrated on him. There have been various devices for saving his face, the latest is a luncheon party which I have got to give for the PM.’

      This was one of several such soundings-out about setting up ‘a new machine which Ramsay could hail as his own creation’. The ‘upshot of all this cogitation’ was the appointment in January 1930, when employment had risen to just under 1.5 million, of an Economic Advisory Council (EAC) which would be ‘the eyes and ears of [the Prime Minister] on economic questions’. MacDonald hoped it would be more than a talking shop: ‘If it meets on a Monday, it must be ready for action to be taken on a Tuesday,’ he insisted. The Council included bankers, industrialists, two scientists, the socialist intellectuals G.D.H. Cole and R.H. Tawney — and J.M. Keynes, plus Ernest Bevin and Walter Citrine as trade union voices.

      There was considerable overlap between the personnel and the remits of the Macmillan Committee and the EAC, and since it had no executive authority and a rather vague brief, Citrine was concerned that EAC was likely to become a dumping ground for ‘all the odds and ends that government likes to turn over to us’. Its secretary, the Cambridge economist Hubert Henderson, editor of the Nation until it merged with the New Statesman in 1930, was equally underwhelmed, since according to one of his colleagues, ‘He hated woolly thinking and theorising … and scorned Labour’s economic theories.’ In the event it proved impossible to get a consensus

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