Keynes Versus Churchill: Revaluation and British Unemployment in the 1920s

Susan Wolcott

The Journal of Economic History, 1993, vol. 53, issue 3, 601-628

Abstract: The textbook explanation for Britain's high unemployment in the 1920s is that the return to gold at $4.86 left the currency overvalued. Recent estimates suggest that an 11 percent devaluation would have eliminated roughly half the unemployment in 1925. This article questions the validity of that conclusion. It measures the power of exchange rate devaluations to decrease unemployment in the context of sectorally distinct labor markets. The results suggest that though a devaluation would have been helpful, eliminating half of 1925's unemployment would have required one much greater than 11 percent and would have caused significant price pressures.

Date: 1993
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