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The Liberal Party and Economic Policy 1918 - 1964

Peter Sloman

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Introduction

1This paper will explore how the Liberal Party approached economic policy questions during the period between the general elections of 1918 and 1964, which roughly frame the party’s decline from major-party to third-party status and its revival under Jo Grimond. This is a very large subject, and it would be quite impossible to deal with all aspects of Liberals’ thinking about the economy over almost half a century here. The present paper will attempt two things. Firstly, it will offer an overview of the different economic traditions which existed in the Liberal Party during the early and mid-twentieth century. Secondly, it will explore how these traditions shaped the Liberals’ reception of Keynesian ideas about economic management from the late 1920s onwards.

2Of course, this is not the first attempt to address economic policy debates in the twentieth-century Liberal Party. Both Andrew Gamble, in 1982, and Duncan Brack, in 2009, have written instructive essays on the party’s political economy, whilst the Liberal Summer School of the 1920s has received a thesis-length treatment from Stewart Faulkes and a shorter study by John Campbell, and Stuart White has produced some important work on the party’s approach to property ownership. This paper should be regarded as an attempt to consolidate and build on this existing work rather than to overturn it. However, my own research leads me to offer an account of Liberal economic policy development which is slightly different from the narrative offered in most existing work. In particular, the distinction conventionally drawn between classical liberalism, which leaned rightwards, and social liberalism, which leaned leftwards, is too blunt to capture the complexity of Liberal thinking about the economy, especially during the first half of the twentieth century. Building on the analysis developed by Michael Freeden, I argue that four main traditions can be identified within the party: classical Liberalism, Georgism, left-Liberalism and constructive Liberalism. These four traditions were strands of thought rather than stable factions, since cleavages over economic policy within the party changed over time, and most Liberal politicians drew on multiple strands to inform their economic thinking. It is also suggested that the adoption of an interventionist Liberalism during this period – including support for Keynesian policies and the mixed economy created after the Second World War – was more partial, conditional, and contested than some historians of the Liberal Party have recognized.

Classical Liberalism

  • 2 D.P. O’Brien, The Classical Economists (Oxford, 1975).

3The classical Liberal tradition of the late nineteenth and early twentieth centuries was founded largely on the economic doctrines developed by the classical economists – most notably Adam Smith, David Ricardo, Thomas Malthus, Jean-Baptiste Say, James and John Stuart Mill, and Nassau Senior – in Britain and France a century or so earlier. The classical economists differed among themselves on a range of issues, but it is nonetheless appropriate to regard them, collectively, as the intellectual progenitors of the political economy which nineteenth-century British Liberalism made its own.2 At the centre of this political economy stood free trade, based on the principle of the division of labour, which emphasized the value of specialization and exchange for allowing individuals and nations to maximize their economic well-being. On this view, the proper role of the state in the domestic economy was to balance its budget, maintain the value of the currency, and then get out of the way – allowing private risk-taking, enterprise, and wealth creation to proceed unhindered by interventions which were bound to reflect the self-interested demands of particular social groups.

  • 3 Frank Trentmann, Free Trade Nation: Commerce, Consumption, and Civil Society in Modern Britain (Oxf (...)

4Relatively few nineteenth-century Liberals espoused laissez-faire in its pure form: as twentieth-century Liberals were fond of pointing out, even Gladstone advocated nationalization of the railways. By the time the Campbell-Bannerman and Asquith governments introduced labour exchanges, trade boards, unemployment insurance, and old-age pensions in the aftermath of the landslide election victory of 1906, the idea of state intervention to remove inefficiencies in the workings of the economy or alleviate particular social evils was widely accepted by Liberals. However, the tenets of classical economics continued to serve as the starting point for most Liberals’ economic analysis. At popular level, free trade retained a powerful hold on the imagination of many voters up to the First World War, symbolized by working-class consumers’ attachment to the cheap white loaf, as Frank Trentmann has shown.3 At elite level, free trade enabled the Liberals to retain strong connections with Britain’s financial and mercantile communities. It also strengthened the Liberalism of much of the economics profession: between the wars, economists such as John Maynard Keynes, Sir William Beveridge, Sir Walter Layton, and Roy Harrod inclined towards the Liberal Party not only because they found its commitment to social progress and class harmony congenial, but also because it reflected orthodox economic thinking on the trade issue.

  • 4 Robert Boyce, British Capitalism at the Crossroads, 1919-1932 (Cambridge, 1987), pp. 5-6 and passim

5The institutions of economic internationalism put in place by nineteenth-century Liberals – free trade, the gold standard, free capital movements, and free migration – had served Britain well in the decades before 1914; and after the First World War much Liberal opinion, especially on the Asquithian wing of the party, emphasized the need to restore the pre-war economic order.4 In a sense, this preoccupation with internationalism was progressive and outward-looking, reflecting the party’s support for the League of Nations and its desire to prevent a repeat of the slaughter of 1914-18. However, Liberals’ commitment to the international economic order could also lead them to subordinate domestic social needs to the demands of the financial markets, both before and after Britain returned to the gold standard at the pre-war parity ($4.80) in 1925. During the years of the Lloyd George coalition, opposition Liberals called vociferously for a return to Gladstonian finance, and in 1931 Liberals were firm (if reluctant) supporters of the severe retrenchment undertaken by the National Government in order to balance the budget.

  • 5 Donald Wade and Desmond Banks, The Political Insight of Elliott Dodds (Leeds, 1977), p. 30.
  • 6 Jo Grimond, The Liberal Future (1959), pp. 98-112; A.T. Peacock, ‘Welfare in the Liberal State’, in (...)

6Although the doctrines of sound finance and free trade came under sustained pressure from Keynes and other economic radicals from the 1920s onwards, the classical inheritance continued to shape Liberal thinking about the economy into the middle decades of the century and beyond. The critique of central planning developed by liberal economists in the socialist calculation debate of the interwar years, and popularized by Walter Lippmann in The Good Society (1936) and Friedrich Hayek in The Road to Serfdom (1944), gave classical ideas new relevance, and reinforced British Liberalism’s traditional suspicion of state intervention. Whereas Conservative governments in the 1930s promoted rationalization and tolerated cartelization in industry, and Labour consistently advocated public ownership, most Liberals remained committed to the idea of competitive markets, which would minimize concentrations of economic power, protect consumers from exploitation, and allow rapid adjustment to changing patterns of demand and supply. ‘Break monopolies where you can, nationalize them where you can’t’, was the slogan of Elliott Dodds, the Huddersfield journalist and Liberal activist who set in train the Ownership for All movement before the Second World War; and it serves as a fair summary of the Liberal Party’s industrial policy in the post-war period.5 The influence of classical economics was also seen in Liberals’ hostility to price controls, food subsidies, and other forms of redistribution in kind – with the important exceptions of health care and education provision – after 1945. As Jo Grimond and Alan Peacock saw it, both economic efficiency and personal freedom were better served by raising the incomes of the poor and allowing them to choose between goods and services supplied at market prices, than by providing ‘essential’ goods free or below cost price.6

Georgism

  • 7 Roy Douglas, ‘God gave the land to the people’, in A.J.A. Morris (ed.), Edwardian Radicalism, 1900- (...)
  • 8 Ibid., p. 151.
  • 9 Ian Packer, Lloyd George, Liberalism and the Land: The Land Issue and Party Politics in England, 19 (...)
  • 10 F.M.L. Thompson, ‘Epilogue: The Strange Death of the English Land Question’, in Matthew Cragoe and (...)

7A second strand in Liberal economic thinking during the first half of the twentieth century was the Georgist tradition, named for the American land reformer Henry George, who acquired a considerable following in Britain as a result of a much-publicized tour in the 1880s and the popularity of his book Progress and Poverty (1879). The essential Georgist argument was that, as a finite natural resource, land differed from other forms of property: ‘no man had a better right than any other to a piece of land’, and a man who sought exclusive use of a plot of land should compensate the community for this through an annual tax on the plot’s undeveloped value.7 Before 1914, Georgist advocates of a ‘single tax’ on land values – which would replace existing taxes on production and consumption – formed a particular group within a more general Liberal advocacy of land reform, which also included enthusiasts for land nationalization and smallholdings.8 Lloyd George’s inclusion of modest land taxes in his 1909 ‘People’s Budget’ enabled the Liberals to campaign hard on this issue in the 1910 general elections; and, as Ian Packer has shown, Lloyd George intended to use a broadened land campaign as the basis for the Liberal appeal at the election due in 1914 or 1915.9 It was only with the First World War that the land question began to die away, as Labour displaced the Liberals as the main party of the left and owner-occupation in agriculture grew rapidly as a result of the land sales of the 1920s.10

  • 11 On the Georgists’ appropriation of the Cobdenite tradition, see Antony Taylor, ‘Richard Cobden, J.E (...)
  • 12 Parliamentary Archives, David Lloyd George papers, LG/G/85/1, ‘Real Land Reform. The Truth about th (...)
  • 13 Land and Liberty, no. 597 (Feb. 1944), p. 109.

8Most Georgists tended to consider themselves classical Liberals, but not all classical Liberals were Georgists.11 The Georgists departed from mainstream classical Liberalism in their willingness to challenge property rights in land; but they tended to believe that, once the ‘land monopoly’ was broken, the free play of market forces would produce the most efficient and equitable use of resources. This approach led them to oppose most schemes for social amelioration developed by progressives during the inter-war period, especially when – as in the case of Lloyd George’s ‘cultivating tenure’ proposals – these schemes seemed likely to hamper the campaign for land value taxation.12 By the 1930s, land taxation enthusiasts remained influential among Liberals in Scotland and Yorkshire, but were becoming increasingly detached from the mainstream of Liberal thought. This detachment came to a head during the Second World War, when the Liberal Party’s endorsement of the Beveridge Report on Social Insurance and Allied Services and the Uthwatt Committee’s proposals for nationalization of development rights led to the formation of the Liberal Liberty League, committed to fighting the drift to interventionism.13 The radical individualist faction within the party which came to prominence in disputes over free trade during the late 1940s and 1950s initially had a large Georgist element, represented by the likes of Ashley Mitchell, the Liberal Liberty League’s chairman, and T. Atholl Robertson, former MP for Finchley. The Liberty Leaguers might have been dismissed as ‘bow-and-arrow men’ by Beveridge, but they did not view themselves as defenders of the existing economic order in the way that more conservative individualists did; they simply viewed taxation of land values as a necessary and sufficient means of bringing about a just society.

  • 14 Manchester Guardian, 8 Aug. 1935, p. 12.
  • 15 White, ‘“Revolutionary liberalism?”’, p. 171.
  • 16 Liberal News, no. 208, 26 May 1950, p. 7.

9Outside the Georgist tradition, but in some respects similar to it, was the Ownership for All movement which grew out of the National League of Young Liberals in the 1930s and influenced party policy up to the Grimond era and beyond. The idea of diffusing ownership more widely, through death duties and profit-sharing in industry, was canvassed by Edwardian Liberals and made its way into the 1928 Yellow Book; but it was Elliott Dodds who raised it ‘from the position of a parenthesis in many a Liberal speech to that of a declared and central part in Liberal policy’.14 In 1938, at Dodds’ instigation, the party agreed to graduate death duties according to the size of the bequest and the wealth of the legatee, to strengthen anti-monopoly laws, and to provide incentives for firms to introduce profit-sharing; a decade later, the party committed itself to making profit-sharing compulsory for large firms.15 Although the commitment to compulsion was abandoned in 1956, Jo Grimond was more enthusiastic about co-ownership in industry than any Liberal leader before or since. Georgists such as T. Atholl Robertson were generally hostile to compulsory co-ownership, regarding it – predictably – as a distraction from the campaign to tax land values and as an unwarranted interference with the rights of capital.16 However, the Ownership for All movement shared with the Georgists the belief that, once the asset base was reset and a framework established to prevent undue concentration of property, the capitalist system could generate basically just and acceptable outcomes.

Left-Liberalism

  • 17 Michael Freeden, Liberalism Divided: A Study in British Political Thought, 1914-1939 (Oxford, 1986) (...)

10Classical Liberalism and Georgism were most influential after 1918 on the right of the Liberal Party, among those who had been least sympathetic to the interventionist policies introduced by the Asquith government under the influence of the New Liberalism. Liberals of the centre and left engaged more positively with the New Liberal legacy. However, there was no simple carrying-over of the ideas and momentum of the New Liberalism into the inter-war period. Instead, as Michael Freeden has shown, ‘liberalism experienced a bifurcation into two main streams, left and centrist’: the one more ethical and communitarian, the other more focussed on improving economic efficiency.17 Neither these two strands of thought, nor the division between them, shaped Liberal politics between the wars as much as Freeden’s analysis might lead one to expect; but they did have a discernable influence on Liberals’ thinking about economic matters.

  • 18 Ibid., p. 13.
  • 19 Ibid., pp. 223-93, esp. pp. 246-52, 261-6, and 280.

11The left-Liberal tradition can best be understood, as Freeden suggests, as an attempt to uphold ‘the radical and egalitarian traditions of liberalism’ – and the organicist ideas developed before 1914 by T.H. Green and the New Liberals – in the more difficult political and economic environment which followed the war.18 Political philosophers such as J.A. Hobson and L.T. Hobhouse continued to emphasize the importance of social equality, the value of common ownership of property through the state, and the primacy of positive liberty (the ‘working out of one’s potential’) over negative liberty (freedom from constraint).19 The left-Liberalism of the inter-war years was more a philosophical position than an economic one, but it nevertheless had economic implications. At the most basic level, left-Liberalism inspired a tradition of passionate social concern, which took distributive justice as its starting point, tended to regard state interventions to alleviate distress as self-evidently justified and efficacious, and treated with impatience the notion that Liberals were necessarily committed to private enterprise and free markets. Megan Lloyd George is the outstanding example of this tendency, but it was also evident in Sir Richard Acland’s espousal of common ownership during the Second World War, and in the thinking of many of the members of the Radical Action group in the 1940s and the Radical Reform Group in the 1950s. This tradition made the party more receptive to cooperation with Labour than it might otherwise have been, and forced successive Liberal leaders to justify policies in terms of their impact on the welfare of the poorest.

Constructive Liberalism

  • 20 Ibid., p. 13.

12Freeden contrasts left-liberalism with centrist-liberalism: ‘an older, capitalist, commercial and more individualist tradition’ which ‘used adjacent concepts such as individuality, private property and security to surround its liberal core’.20 In fact, I think Freeden’s centrist-liberalism is a conflation of the classical Liberal tradition with the idea of a ‘constructive’ Liberalism which jostled with left-Liberal ideas in the Edwardian period, came to fruition through the Liberal Summer School in the 1920s, and remained influential thereafter. Moreover, the exponents of this approach hardly ever described themselves as centrist-Liberals, whereas they frequently spoke of the need to be constructive.

  • 21 J.M. Keynes, ‘The End of Laissez Faire’, in The Collected Writings of John Maynard Keynes, ed. D. M (...)

13The Liberal Summer School of the 1920s, and the Yellow Book of 1928, may be taken as representative of the constructive approach. The Summer School emerged from the conviction of Liberals in Manchester, led by Ramsay Muir and Ernest Simon, that it was essential for the party to develop a realistic policy for dealing with the problems of industry and raising working-class living standards. Several Cambridge economists, including Keynes, Layton, and Hubert Henderson, subsequently became prominent Summer School members. It was during the mid-1920s that Keynes famously pronounced ‘the end of laissez-faire’, and argued that Liberals had to recognize and seek to manage – not resist – ‘[t]he transition from economic anarchy to a régime which deliberately aims at controlling and directing economic forces in the interests of social justice and social stability’.21

  • 22 Duncan Tanner, Political Change and the Labour Party, 1900-1918 (Cambridge, 1990), pp. 46-50, 63-6; (...)
  • 23 Freeden, Liberalism Divided, p. 118.

14Lloyd George consistently conceived of Liberalism as an interventionist force: as Chancellor of the Exchequer under Asquith he had pressed for a national minimum wage, and as Prime Minister he had brought the mines and railways under temporary state control and presided over the establishment of ‘Whitley Councils’ in which workers and employers could discuss wages and working conditions.22 When he returned to the Liberal fold, Lloyd George enlisted the Summer School in the industrial inquiry which he established to develop new policies for the party. The resulting Yellow Book advocated state intervention in industry on largely pragmatic grounds: to raise efficiency and facilitate the elimination of surplus capacity through industrial reorganization, to promote industrial peace through the creation of works councils, and to raise the volume and productivity of domestic investment through a supervisory National Investment Board. As Freeden has noted, ‘the result of the Yellow Book was to incorporate state interventionism decisively within liberal ideology as no document had ever done before’.23

  • 24 Faulkes, ‘Strange Death’, pp. 144-7.
  • 25 National Liberal Federation, The Liberal Way (1934); Bodleian Library, Oxford, Honor Balfour papers (...)

15Even in the Liberal Summer School, constructive Liberalism was by no means a homogeneous school of thought: whereas the Manchester Liberals focussed on industrial organization, Keynes and his Cambridge colleagues tended to emphasize the importance of macroeconomic management through state control of currency and credit; and as economic crisis hit after 1929 members of both groups took diverse positions over the value of public works and the viability of free trade.24 The elasticity of the constructive idea became even clearer in later years. A minimalist constructive programme, such as that outlined in the 1934 policy statement The Liberal Way, which Muir drafted, could involve little more than social reform, public works, and public control of such monopolies as could not be broken up; a maximalist one could extend to public ownership of the basic industries, import and export controls, and central planning of most of the economy, as in the case of the ‘Radical Economic Policy for Progressive Liberalism’ developed by Clement Davies and Tom Horabin in 1942-3.25 In the former case, state intervention was intended to supplement the operation of the laws of supply and demand; in the latter case, it seemed likely to replace the market system altogether.

Liberal Economics and the Keynesian Revolution

16The complex way in which different economic traditions have interacted within the Liberal Party may be illustrated by examining how Keynesian ideas were received by the party. Although only a brief analysis is possible here, the adoption of Keynesian insights by the Liberals can be seen to have been a negotiated process, shaped by the party’s economic traditions, its electoral needs, and its broader political objectives: namely the elimination of unemployment, the promotion of peace and international cooperation through trade and commerce, the maintenance of private ownership and consumer choice, and (of course) the maintenance of British parliamentary democracy.

  • 26 José Harris, Unemployment and Politics: A Study in English Social Policy, 1886-1914 (Oxford, 1972), (...)
  • 27 Robert Skidelsky, John Maynard Keynes: The Economist as Saviour, 1920-1937 (1992), p. 223.

17The idea of using public works to reduce unemployment, which Keynes floated in The Nation in 1924 and subsequently pressed on the Liberals, was not an entirely new one: the Asquith government’s 1909 Development Act had provided for the use of public funds to create work when trade was slack.26 However, as Robert Skidelsky has noted, it was Keynes who ‘added macroeconomic stabilization to the pre-war Liberal agenda and gave it priority’ in the difficult economic circumstances of the 1920s.27 The plan which Keynes and Lloyd George put at the heart of the Liberal election campaign in 1929, for reducing unemployment to ‘normal proportions’ by means of a £250,000,000 programme of loan-financed public works, was on an altogether different scale to pre-war national development proposals, and relied much more heavily on borrowing.

  • 28 The Times, 28 March 1929, p. 16.
  • 29 The Scotsman, 4 Sept. 1928, p. 8; The Times, 28 May 1929, p. 9.
  • 30 Huddersfield Daily Examiner, 1 May 1929, p. 3.

18As we have already noted, Keynes could be stridently dismissive of some of the tenets of classical economics. This trait placed him firmly in the constructive Liberal tradition in the 1920s, and it was from the left that the strongest support for Lloyd George’s unemployment pledge came. However, centre and right-leaning Liberals also backed public works in more conditional terms. Sir Donald Maclean, long regarded as a champion of Gladstonian orthodoxy, drew a distinction between Lloyd George’s pledge, which he was unconvinced was achievable, and the policy of public works on which it was based, which he believed was sound.28 Other Asquithians echoed Maclean’s distinction, and even Sir John Simon – who had previously warned that offering a ‘patent cure’ for unemployment made Liberals look ‘like a cheap-jack at the fair’ – publicly endorsed the policy.29 Leading Georgists also backed the plan, with Ashley Mitchell, standing at Penistone in Yorkshire, making it ‘the leading plank in his platform’ after a thorough investigation of the proposals.30

  • 31 Peter Clarke, The Keynesian Revolution in the Making, 1924-1936 (Oxford, 1988), pp. 95, 99.
  • 32 For instance, in Sir Herbert Samuel’s contribution to the Commons debate on unemployment on 16 Feb. (...)

19At this point, Keynes was still working his way towards the fully-fledged model of economic management which he would outline in his 1936 General Theory. Keynes argued that the mass unemployment which had persisted throughout the 1920s resulted largely from a deficiency of investment, and that deficit spending by the government would reduce unemployment by bringing investment into line with savings. Implicit in this analysis was the multiplier concept, whereby an initial government investment would itself generate new resources for consumption and investment through successive rounds of spending.31 However, Liberals also advocated public works on more orthodox grounds. Lloyd George and his colleagues frequently described their plans in terms of ‘national development’, emphasizing that the loans would be used to create resources which would increase Britain’s productive capacity in the future. At times, the Liberals suggested that investment could be funded partly from cuts in current government spending, including the savings on unemployment benefit which would result from the job creation programme; national development was thus a true economy. These justifications would recur in Liberal arguments for public works during the 1930s.32 Partly, they reflected the fact that, though the policy prescriptions Keynes offered during the 1920s were similar to those he would advocate in the General Theory, the theoretical underpinnings of Keynesianism were still evolving. But Liberals’ reliance on these arguments was also indicative of the continued attachment many Liberals felt to the Gladstonian principles of sound finance and strict control of expenditure.

  • 33 For suggestions that the Liberals’ support for public works was insincere and short-lived, see Dunc (...)
  • 34 National Archives of Scotland, Lothian papers, GD40/17/140/456-8, ‘The Views of Mr. J.M. Keynes’, m (...)
  • 35 Robert Skidelsky, Politicians and the Slump: The Labour Government of 1929-1931 (1967), pp. 220-7.

20Notwithstanding some historians’ claims, Liberals did not drop public works after the 1929 election.33 What happened was that, as economic conditions deteriorated, Liberals began to doubt whether public works would achieve the desired objective. For one thing, it was much harder to return unemployment to normal proportions when there were almost 2.4 million unemployed (the average figure for 1930) than when there were 1.5 million (the 1929 average). For another, the case for a public works programme was premised on the assumption that it would create an atmosphere of expansion, encouraging businessmen to invest and expand production in anticipation of future profits. In conditions of slump, however, loan-financed public works risked damaging business confidence and discouraging investment. Keynes himself apparently believed that the national development plans would have much less impact on unemployment in the summer of 1930 than they would have done a year earlier.34 The Liberal policy document How to Tackle Unemployment, published in October 1930, showed that Lloyd George and his colleagues were moving towards a more orthodox strategy for recovery, combining a smaller programme of national development with cuts in government spending and tax reductions for industry to encourage private investment.35

  • 36 Parliamentary Archives, Samuel papers, A/77/12, Lloyd George to Samuel, 25 Aug. 1931; Lothian paper (...)
  • 37 Skidelsky, John Maynard Keynes: The Economist as Saviour, pp. 393-6.

21The Liberals’ participation in the National Government, formed by Ramsay MacDonald in August 1931 to balance the budget through a mixture of tax rises and spending cuts, including cuts in unemployment benefit, demonstrated the conditionality of the party’s Keynesianism. Liberals remained committed to reducing unemployment and attracted by the idea of public works; indeed, Liberals tended to be highly critical of the cuts which the National Government introduced in capital investment.36 However, given the crisis of financial confidence which had spread across Europe during the summer of 1931, failing to balance the budget seemed far more likely to lead to an ignominious departure from the gold standard than to inspire a virtuous cycle of spending and investing which would lead to economic recovery. Keynes suggested that sterling could be kept on the gold standard through the introduction of a revenue tariff, import controls, and restrictions on the export of capital; but these policies offended against Liberals’ commitment to economic internationalism and their sense of fiscal rectitude just as much as leaving the gold standard did.37 The Liberals’ acquiescence in an orthodox policy in 1931 demonstrated that the party’s economic thinking continued to be shaped by classical assumptions: the level of state intervention, and disengagement from the international economy, which a Keynesian policy would have required at that point was simply too great for Liberals to accept.

  • 38 Sir William Beveridge, Why I am a Liberal (1945), p. 32.
  • 39 Sir William Beveridge, Full Employment in a Free Society (1944), pp. 135-6, 238-41.
  • 40 Ibid., p. 30.
  • 41 For contrasting views on whether Beveridge’s approach was socialist, see Jim Tomlinson, Employment (...)

22After the free-trade Liberals resigned from the National Government in 1932 in protest at the Ottawa Agreements, proposals for public works were cautiously revived, and featured in Liberal policy statements throughout the 1930s. However, the issues which the 1931 crisis raised – of how far the Liberals were willing to run deficits and restrict imports in support of a full-employment policy – were not really resolved until the Second World War. Influenced by the wartime vogue for planning, the party accepted the relatively interventionist Keynesianism of Beveridge’s 1944 report on Full Employment in a Free Society, which was reflected in the Liberal manifesto at the 1945 election. As Liberal MP for Berwick-upon-Tweed in 1944-5, Beveridge espoused a constructive Liberalism par excellence, declaring that Liberalism was ‘a faith, not a formula’ and that its economic content must change to reflect the economic context.38 For Beveridge, not only was the old doctrine of balanced annual budgets entirely redundant, but even free trade should be pursued only in so far as it was consistent with full employment at home.39 Beveridge believed that an effective policy for full employment required ‘a long-term programme of planned outlay directed by social priorities’ which comprised both public investment (on public services and nationalized industries) and private investment, regulated by a National Investment Board.40 Beveridge’s approach to full employment may or may not have been socialist; it certainly marked the high-water mark of interventionism in the twentieth-century Liberal Party.41

  • 42 Wade and Banks, Political Insight, pp. 33-5.
  • 43 Ibid., p. 38; Gamble, ‘Liberals and the Economy’, pp. 197-201.

23During the Second World War, an important fissure appeared in the Liberal right. Georgists such as Ashley Mitchell, who had cautiously backed Lloyd George’s unemployment pledge in 1929, were alarmed by the level of state intervention implied by a full-blown Keynesian policy, and became outspoken critics of demand management. By contrast, more moderate opponents of central planning, such as Elliott Dodds, embraced Keynesian techniques as an alternative to socialist proposals for achieving full employment, and – albeit with reservations – threw their weight behind Beveridge’s full employment policy.42 Increasingly, Dodds and establishment figures such as Herbert Samuel found themselves working with the Liberal left to defend the party’s support for Keynesian economic management, state social welfare provision, and guaranteed prices for farmers against criticism from hard-line Georgists and free traders. Opposition to Keynesianism confirmed the marginalization of the traditionalist Liberal right, and hampered its efforts to return free trade and land value taxation to the forefront of the party’s appeal during the late 1940s and early 1950s.43

  • 44 J.E. Meade, Planning and the Price Mechanism: The Liberal-Socialist Solution (1948); Roy Harrod, Ar (...)
  • 45 See, for instance, Grimond, Liberal Future, pp. 54-78.
  • 46 Bodleian Library, Oxford, Honor Balfour papers, 30/4, typescript reports by Honor Balfour on by-ele (...)
  • 47 Gamble, ‘Liberals and the Economy’, pp. 201-5.

24After the Second World War, the Liberals moved away from the interventionist Keynesianism of Beveridge’s Full Employment in a Free Society towards a simpler form of demand management, which relied more heavily on fiscal and monetary techniques for achieving full employment and gave more scope for the price mechanism to operate. Liberals eagerly echoed calls from liberal Keynesian economists such as James Meade and Roy Harrod for the Labour government to abandon its use of price controls and materials allocations to suppress inflation, and instead to tighten fiscal policy in order to remove excess demand from the economy and facilitate the abolition of controls, rationing and food subsidies.44 By the late 1940s a liberal Keynesian synthesis was emerging, which combined a commitment to demand management with an affirmation of the price mechanism and the profit motive and – in the field of social policy – a renewed emphasis on promoting equality of opportunity and ownership, rather than of incomes. This was a synthesis which Jo Grimond found congenial, and it continued to inform the Liberals’ approach to economic policy after he became as party leader in 1956.45 Indeed, the first stages of the Liberal revival under Grimond seem to have been fuelled by anti-inflationary sentiment, which Grimond’s insistence that inflation could be curbed by fiscal and monetary tightening and the introduction of co-ownership enabled the party to exploit.46 Later, after the 1959 election, Grimond shifted the focus of Liberal policy onto economic growth, urging the government to use indicative planning to raise output and efficiency.47 The Liberals remained broadly supportive of a Keynesian approach to economic management throughout the post-war period, but the details of this Keynesianism could be (and were) recalibrated over time to reflect changes in economic circumstances and in the party’s perceived electoral needs.

Conclusion

  • 48 Duncan Tanner and Michael Freeden have offered alternative typologies of Liberal ideological distin (...)

25This has necessarily been a rather cursory overview of Liberal thinking about economic policy during the period between the Lloyd George coalition and the Grimond revival; and it would not really be appropriate to attempt to draw sweeping conclusions from it. However, I think enough has been said to show that the notion that the first half of the twentieth century saw a supplanting of classical liberalism by a ‘social liberalism’, introduced by the New Liberals and consolidated by Keynes, Beveridge, and Grimond, is an overly simplistic one – as, of course, some previous historians have recognized.48 Liberals did come to support a much larger role for the state in the economy – including a much heavier tax burden and a much more flexible attitude to budgetary finance and to trade policy – than could have been expected before the First World War. By the early 1960s, Georgists, anti-Keynesians, and advocates of unilateral free trade occupied a relatively marginal position in Liberal economic debates. However, the Liberals’ embrace of Keynesianism – and of the mixed economy and welfare state established by the Attlee government – was conditioned by the classical tradition in important ways. As the 1931 experience showed, Liberal support for Keynesian deficit-spending was conditional, both on the belief that it would work in practice, and on its compatibility with the party’s commitment to the institutions of economic internationalism. Although Liberals indicated in later years that they were prepared to use trade restrictions to help make a full employment policy effective, they could not go as far as the Labour left in advocating a siege economy, and remained determined that private ownership of most productive resources should be preserved as a buttress for individual freedom. The influence of classical economics was also seen in the Liberals’ industrial policy after the war – marked by an insistence on promoting competition – and in their preference for a social policy based on cash transfers from rich to poor, and the redistribution of wealth through death duties and profit-sharing schemes, over the Attlee government’s system of rationing, subsidies, and redistribution in kind.

  • 49 Richard Grayson, ‘Social liberalism’, in Hickson, Political Thought, pp. 48-64, esp. p. 48.

26Since the Grimond revival, Liberals and latterly Liberal Democrats have tended to regard their party as an essentially social liberal one, committed to extending positive freedoms as well as defending negative ones.49 This is almost certainly a fair judgment. However, it is important to recognize that this social liberalism has been founded on a synthesis of Liberalism’s diverse economic traditions, rather than on a simple triumph of New Liberalism over old. Only if this point is recognized can the recurring tensions in Liberals’ economic attitudes during the post-war period, including the Liberal Democrats’ support for accelerated deficit reduction in the present coalition government, really be adequately understood.

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Notes

1 Andrew Gamble, ‘Liberals and the Economy’, in Vernon Bogdanor (ed.), Liberal Party Politics (Oxford, 1983), pp. 191-216; Duncan Brack, ‘Political economy’, in Kevin Hickson (ed.), The Political Thought of the Liberals and Liberal Democrats since 1945 (Manchester, 2009), pp. 102-19; Stewart Faulkes, ‘The Strange Death of British Liberalism: The Liberal Summer School Movement and the Making of the Yellow Book in the 1920s’ (unpublished University of London D.Phil thesis, 2000); John Campbell, ‘The Renewal of Liberalism: Liberalism without Liberals’, in Gillian Peele and Chris Cook (eds.), The Politics of Reappraisal, 1918-1939 (1975), pp. 88-113; Stuart White, ‘“Revolutionary liberalism?” The philosophy and politics of ownership in the post-war Liberal party’, British Politics, 4 (2009), pp. 164-87.

2 D.P. O’Brien, The Classical Economists (Oxford, 1975).

3 Frank Trentmann, Free Trade Nation: Commerce, Consumption, and Civil Society in Modern Britain (Oxford, 2008).

4 Robert Boyce, British Capitalism at the Crossroads, 1919-1932 (Cambridge, 1987), pp. 5-6 and passim.

5 Donald Wade and Desmond Banks, The Political Insight of Elliott Dodds (Leeds, 1977), p. 30.

6 Jo Grimond, The Liberal Future (1959), pp. 98-112; A.T. Peacock, ‘Welfare in the Liberal State’, in George Watson (ed.), The Unservile State: Essays in Liberty and Welfare (1957), pp. 113-30.

7 Roy Douglas, ‘God gave the land to the people’, in A.J.A. Morris (ed.), Edwardian Radicalism, 1900-1914 (1974), pp. 148-61, at p. 149.

8 Ibid., p. 151.

9 Ian Packer, Lloyd George, Liberalism and the Land: The Land Issue and Party Politics in England, 1906-1914 (Woodbridge, 2001).

10 F.M.L. Thompson, ‘Epilogue: The Strange Death of the English Land Question’, in Matthew Cragoe and Paul Readman (eds.), The Land Question in Britain, 1750-1950 (Basingstoke, 2010), pp. 257-70.

11 On the Georgists’ appropriation of the Cobdenite tradition, see Antony Taylor, ‘Richard Cobden, J.E. Thorold Rogers and Henry George’, in Cragoe and Readman, Land Question, pp. 146-66.

12 Parliamentary Archives, David Lloyd George papers, LG/G/85/1, ‘Real Land Reform. The Truth about the Proposals of the Land Enquiry Committee.’

13 Land and Liberty, no. 597 (Feb. 1944), p. 109.

14 Manchester Guardian, 8 Aug. 1935, p. 12.

15 White, ‘“Revolutionary liberalism?”’, p. 171.

16 Liberal News, no. 208, 26 May 1950, p. 7.

17 Michael Freeden, Liberalism Divided: A Study in British Political Thought, 1914-1939 (Oxford, 1986), p. 12 and passim.

18 Ibid., p. 13.

19 Ibid., pp. 223-93, esp. pp. 246-52, 261-6, and 280.

20 Ibid., p. 13.

21 J.M. Keynes, ‘The End of Laissez Faire’, in The Collected Writings of John Maynard Keynes, ed. D. Moggridge and E. Johnson (30 vols., 1971-89), IX, pp. 272-94, and ‘Am I a Liberal?’, in ibid., pp. 295-306, at p. 305.

22 Duncan Tanner, Political Change and the Labour Party, 1900-1918 (Cambridge, 1990), pp. 46-50, 63-6; Kenneth O. Morgan, Consensus and Disunity: The Lloyd George Coalition Government, 1918-1922 (Oxford, 1979), pp. 17, 75.

23 Freeden, Liberalism Divided, p. 118.

24 Faulkes, ‘Strange Death’, pp. 144-7.

25 National Liberal Federation, The Liberal Way (1934); Bodleian Library, Oxford, Honor Balfour papers, 65/1, ‘A Radical Economic Policy for Progressive Liberalism’, n.d. [1943].

26 José Harris, Unemployment and Politics: A Study in English Social Policy, 1886-1914 (Oxford, 1972), pp. 334-46.

27 Robert Skidelsky, John Maynard Keynes: The Economist as Saviour, 1920-1937 (1992), p. 223.

28 The Times, 28 March 1929, p. 16.

29 The Scotsman, 4 Sept. 1928, p. 8; The Times, 28 May 1929, p. 9.

30 Huddersfield Daily Examiner, 1 May 1929, p. 3.

31 Peter Clarke, The Keynesian Revolution in the Making, 1924-1936 (Oxford, 1988), pp. 95, 99.

32 For instance, in Sir Herbert Samuel’s contribution to the Commons debate on unemployment on 16 Feb. 1933: Hansard, H.C. Deb., 16 Feb. 1933, vol. 274, column 1243.

33 For suggestions that the Liberals’ support for public works was insincere and short-lived, see Duncan Tanner, ‘The strange death of Liberal England’, Historical Journal, 37 (1994), pp. 971-9, and Ross McKibbin, Parties and People: England 1914-1951 (Oxford, 2010), p. 67.

34 National Archives of Scotland, Lothian papers, GD40/17/140/456-8, ‘The Views of Mr. J.M. Keynes’, memorandum by G.C. Allen, n.d. [summer 1930].

35 Robert Skidelsky, Politicians and the Slump: The Labour Government of 1929-1931 (1967), pp. 220-7.

36 Parliamentary Archives, Samuel papers, A/77/12, Lloyd George to Samuel, 25 Aug. 1931; Lothian papers, GD40/17/143/26-28, Lothian to Samuel (copy), 31 Aug. 1931.

37 Skidelsky, John Maynard Keynes: The Economist as Saviour, pp. 393-6.

38 Sir William Beveridge, Why I am a Liberal (1945), p. 32.

39 Sir William Beveridge, Full Employment in a Free Society (1944), pp. 135-6, 238-41.

40 Ibid., p. 30.

41 For contrasting views on whether Beveridge’s approach was socialist, see Jim Tomlinson, Employment Policy: The Crucial Years, 1939-1955 (Oxford, 1987), p. 76, and José Harris, William Beveridge: A Biography (Oxford, 1977), p. 434.

42 Wade and Banks, Political Insight, pp. 33-5.

43 Ibid., p. 38; Gamble, ‘Liberals and the Economy’, pp. 197-201.

44 J.E. Meade, Planning and the Price Mechanism: The Liberal-Socialist Solution (1948); Roy Harrod, Are These Hardships Necessary? (1947); Clement Davies speech in the Commons debate on the economic situation, H.C. Deb., fifth series, 434, 11 March 1947, 1164-76; Liberal Party policy statement, Action Now, reported in The Times, 1 Aug. 1947, p. 4.

45 See, for instance, Grimond, Liberal Future, pp. 54-78.

46 Bodleian Library, Oxford, Honor Balfour papers, 30/4, typescript reports by Honor Balfour on by-elections at Rochdale, 14 Feb. 1958, and Torrington, 27 and 28 March 1958;

47 Gamble, ‘Liberals and the Economy’, pp. 201-5.

48 Duncan Tanner and Michael Freeden have offered alternative typologies of Liberal ideological distinctions for the Edwardian and inter-war periods respectively. Most scholars, including Gamble, Brack, and W.H. Greenleaf (in his The British Political Tradition, Volume II: The Ideological Heritage (1983)), seem to have recognized the complexities and cross-currents in Liberal policy but have nonetheless structured their analysis around the binary distinction between classical and social traditions.

49 Richard Grayson, ‘Social liberalism’, in Hickson, Political Thought, pp. 48-64, esp. p. 48.

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Peter Sloman, « The Liberal Party and Economic Policy 1918 - 1964 », Les Cahiers du MIMMOC [En ligne], 7 | 2011, mis en ligne le 01 septembre 2011, consulté le 29 avril 2017. URL : http://mimmoc.revues.org/695 ; DOI : 10.4000/mimmoc.695

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Peter Sloman

Sloman, P., University of Oxford, has published "Rethinking a progressive moment: the Liberal and Labour parties in the 1945 general election." Historical Research, no. doi: 10.1111/j.1468-2281.2010.00560.x, October 2010.

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