On the recommendation of blog-reader Nigel Mace I acquired a copy of this book recently:
The book was published in 1935 to justify the actions of the then National Government whose policies had in fact delivered the Great Depression and the disaster of both disarmament and appeasement.
There is though, from a current perspective, something deeply significant about the book. This is the author's preface:
Note the reference to the term ‘household'. Its relevance to the argument within the book is elaborated in the first chapter, from which I exert as follows (I can find no evidence that the book is still in copyright now):
The idea is quite specifically proposed that the government is akin to a household and must budget its affairs in a similar fashion. It should balance its books, and not borrow. That is the message.
And to some extent this was right at the time: the choice to be on the gold standard (because from 1925 until 1931 that was the choice made by successive Chancellors from Winston Churchill onwards) did mean that the UK government did have to constrain its spending to that which gold reserves permitted. And those gold reserves could be depleted by deficits.
But what is not said is that the imposition of this constraint was quite explicitly why use of the gold standard was chosen by those who wanted to limit the scope of government intervention in the economy or, alternatively, by those lacking the courage to be rid of it (which was the case with the failed Labour government to which the author refers). The change in the fortunes of the UK after 1931 was partly due to the abandonment of this constraint.
The book does not make this point. Its whole purpose is to reinforce the idea that government is a user of money, just like a household.
This need not have been true in 1931. It is emphatically untrue now. Our government is now the sole creator of sterling, albeit it licences private banks to share in that activity.
Despite this fact (for fact it is), both the Tories and Labour still promote economic policy as if the money supply is a matter over which they have no control. It is their suggestion that they must still run the economy as if it is that of a household when the reality is that it is their job to run the economy as if it is that of a country.
This book was promoted to promulgate what was already a lie at the time it was written - as the wartime economy that followed it so soon afterwards proved.
That lie is still being promulgated now by politicians from both Labour and the Tories who see it as their job when in office to reduce the impact and power of the state to undertake action on behalf of the people who elected them and the country who put them in office so that the people of this country are worse off than they need to be. And that is very depressing.
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It’s quite amazing how instinctively and stubbornly held the view is. Both my father (a former bank exec) and a friend (a high level corporate accountant) both understand there is no gold standard, that it’s all just numbers in a book, and yet on any discussion of national finances and Budgets, they can’t shake the idea off that money is really gold, or has some limit in some way.
I do think it’s because the brain likes to have concrete relations with reality – hence the seemingly eternal appeal of goldbugs. Even though gold’s appeal is essentially mystical! In a similar way folks’ brains struggle with coincidence – the brain just wants to fill the emptiness of blind chance with something more. Invariably that’s “woo”.
This has to be the most urgent task of public economists re national debate on policy – breaking the spell of the household conception of money.
Perhaps it is just me Richard but once you strip from your thinking some of the concepts that we have all been conditioned to believe are economically “normal” I find it astonishing that the owners of certain kinds of private businesses i.e. Banks, are allowed to print as much money as they like, solely in order to enrich themselves, with increasingly fewer legal constraints.
Why aren’t we all allowed to print money?
Perhaps in the past Banks and the Finance sector might have argued that they carried out their money printing activities with great probity, thus ensuring the economic stability necessary to the health and prosperity of their fellow citizens, or that they were only re-lending the savings of customers, but those rationalizations disappeared out of the window following the advent of Reagan and Thatcher,
Since then we have all had imposed on us 40 years of Economic chaos, dishonesty, criminality and utter incompetence,effectively as a result of a tiny number of our fellow citizens being granted the unbelievable privilege of being able to print their own money.
Even worse, when they make horrendous mistakes, like the 2008 Banking collapse and electing Liz Truss, the unprivileged masses of their fellow citizens are then forced to bail them out.
How can this possibly be just or a competent way to run a country?
It isn’t
I recall when being taught History at A level back around 1980 , my history teacher briefly touched on the “Gold Standard”. I remember being perplexed as to what the actual implication of that was as none was particularly forthcoming, other than it was somehow linked to various economic crises.
Later years at University when studying a basic economics course, non of this was even mentioned. All we got was some micro economics and a load of theoretical graphs on supply and demand. It was not till many years later(After the 2008 financial crash) that actually took the time to find out the significance of coming off and then returning to the Gold Standard.
My education was very good relatively speaking, in the top 5% of people in this country, yet I still had no idea about fiat currencies and how they actually work. What we have is a major failure of the education establishment in this country to explain how important this issue is .Every single one of us should be taught this stuff at school. Without understanding it our citizens are very ill prepared to make any meaningful political desi sons, let alone a decent economic one,
Agreed
Hence the plan to make videos
On which subject, may I bring to readers’ attention the imposing figure of Roman Governor-General Gnaeus Julius Agricola. He was the governor general who made the invasion here work, where others before him had failed. He did this not least in part, so Tacitus advises in his “Life of Agricola”, by providing “a liberal education for the sons of the chiefs (perhaps the influencers of their day -BK), and showed such a preference for the natural powers of the Britons over the industry of the Gauls that they who lately disdained the tongue of Rome now coveted its eloquence. Hence, too, a liking sprang up for our style of dress, and the “toga” became fashionable. Step by step they were led to things which dispose to vice, the lounge, the bath, the elegant banquet. All this in their ignorance, they called civilization, when it was but a part of their servitude.”
Under the guise of education, then, the Britons were actually subjected to conditioning designed to make them by and large more agreeable and compliant to constraints on their behaviour by their Roman overlords, apparently to the point where they weren’t seen as constraints at all but rather the adoption of civilised behaviour. This wouldn’t be likely to work on absolutely all of them, there would always be dissenters but so long as you had the majority, you had an overall compliant population.
Readers might like to reconsider their “education” with the above in mind.
We left the standard in Sept 1931 and the following month had an election where the National govt. secured over 50% of the votes-the only occasion in modern times where this has happened. The majority are not always right!
Pathe News reported ( almost giving me the impression it was those foreign chappies who were to blame )
https://www.youtube.com/watch?v=oDJ-IuW2Wds
The Harry Enfield skit has a point beyond feminism. The public gets treated as if there is no alternative theory and we should listen to the wise bankers -who got it wrong in the 1930s, in the light touch regulation era and with the necessity for austerity.
https://www.youtube.com/watch?v=LS37SNYjg8w
Although Britain left the Gold Standard on 19 Sep 1931, it joined the Bretton Woods international monetary agreement in 1944 tying Sterling to the US Dollar. Since the latter was tied to the Gold Standard, Britain was as good as.
On 15 August 1971, Nixon terminated convertibility of the US dollar to gold, effectively ending the Bretton Woods system and rendering the dollar and pound sterling a fiat currencies. It was ratified at the Jamaica Accords 7-8 Jan 1976.
But conveniently, no-one explained to the politicians the implications, so in 1983, in a speech to the Conservative Party Conference, Margaret Thatcher proclaimed:
“the state has no source of money, other than the money people earn themselves. If the state wishes to spend more it can only do so by borrowing your savings or by taxing you more. [..] There is no such thing as public money; there is only taxpayers’ money.”
After which she reinforces the metaphor: “someone has to add up the figures. Every business has to do it, every housewife has to do it, every Government should do it, and this one will.” Ref: https://www.margaretthatcher.org/document/105454
See also: Politicians and Rhetoric: The Persuasive Power of Metaphor by Jonathan Charteris-Black (2011) https://link.springer.com/book/10.1057/9780230319899
Are Policy Analogies Persuasive? The Household Budget Analogy and Public Support for
Austerity by Lucy Barnes and Timothy Hicks (2020) https://osf.io/preprints/socarxiv/7qa2b/
Obviously Thatcher was wrong. Was she merely ignorant or disingenuous?
I’d say yes to both there, making her a useful idiot for the City, hence the grand send-off they gave her.
Excellent points. This needs to be widely discussed to educate people at all levels. Even apparently intelligent and well-informed people do not know the fundamental lie at the heart of current economic policy.
I firmly suspect their ignorance is by design and they are ‘disinformed’ deliberately.
“I firmly suspect their ignorance is by design and they are ‘disinformed’ deliberately.”
Clearly disinformed. Neoliberal/neoclassical policy has deliberately promoted its teachings to such as extent that the organisation “Rethinking Economics” recognised that “Economics in universities can be narrow, uncritical and detached from the real world”, i.e. universities nearly only teach neoclassic economics. https://www.rethinkeconomics.org/about/
Likewise nearly all economics textbooks teach neoclassic economics. See:
The Microeconomics Anti-Textbook, https://www.bloomsbury.com/uk/microeconomics-antitextbook-9781783607297/
The Macroeconomics Anti-Textbook https://www.bloomsbury.com/uk/macroeconomics-antitextbook-9781350323711/
Thanks
Glad to see you got your copy, Richard. As I explained because I could not longer locate my orignal I also acquired a replacement… and, hilariously, the slip soliciting a review, obviously not in this case carried out, was still inside the cover.
Your commentary is exactly on point, as I hope my past history students would recognise – but I must take issue with one, entirely conventional, but factually wrong, judgement which your commentary contains. It is worth correcting, not as a matter of pedantry but because the correct version actually reinforces your correct and telling point that the ‘good housekeeping’ nostrums of the book were proved nonsense by the wartime economy. The National Government’s General Election camaign, which followed hard upon the book’s heels, (May to November 1935) was one in which the National Government carefully made a case – against the then perceived tide of public opinion, for a measure of rearmament. It was the only central plank, outside of trade policy, in their pre-election newsreel coverage, coverage which was under the effective control of the Conservative Party and Neville Chamberlain in particular and which was fronted by Stanley Baldwin, following on from the Defence White paper which most unusually had actually been formally signed by Ramsay Macdonald as the PM at the time of its publication, March 1935 . The very area which was to blow the ‘household budget’ nonsense to bits, Government ‘deficit’ spending for rearmament, was actually being covertly, for fear of public opinion, being prepared at the time of the book’s publication.
I would further point out that, despite the conventional ‘economic’ nonsense of the book’s model, the National Government did by steady and deliberate stages fund a policy of centrally provided and well-targeted rearmament,which proved – just – the vital margin for the survival of the country in the air battles of 1940-41. The current poiticians would presumably have farmed it out to commercial entrpreneurs via a VIP fast track with nil accountability and damn all expertise OR would hope to ‘devolve’ it to south coast local authorities, but under the ‘fiscal discipline’ of existing budgets!
We currently suffer not just from bizarre and inappropriate funding models but from the kind of rank stupidity that would have sunk the country 82 years ago.
Truly we do suffer from “biggest set of fools God ever made”!
Thanks
there has never “really” been money, only credit/debt, exchanged by whatever medium has been acceptable.
There used to be a definition of abject poverty (no money) as ‘not having two sticks to rub together’, the point being I think, that if you had two sticks to rub together you could make a fire and stay warm, so long as you could find, borrow or steal more sticks.
That’s when economics got invented.
That may also refer to tally sticks
It is absolutely true that since the Gold Standard fell by the way side, government sovereign currency issue has taken central stage – or has the potential to.
However, the private sector still prefers to portray money as a private matter and (following on from Mattei) that that is the natural order of things.
Because private money issuance is interest bearing and government issued money is not (at least to the economy, to the end user), the private sector will of course do its utmost to peddle this lie.
And that folks is why we get so much boom and bust – because of the private bank issuance of fiat money in the form of credit. But we don’t seem to want to learn.
The other big lie from markets is this thing about ‘making money’. This phrase is a coded way of saying ‘exploiting money’ – exploitation because the markets deliberately hold back the state’s ability to create money for free and then issue it at cost (interest) having cornered the role of currency issuer. Government is accused of pushing out the private money issuance monopolists and the cost of that is boom and bust.
The other lie about ‘making money’ is that markets just move it around. Capitalists treat income as new money because they are thick and only because it is new to them. But as we know, it is often someone else’s money from someone else’s pocket from transactions .
It’s absurd reductionism when it comes to how money is really made in the private sector yet how often does the media tap them up (like Sir Stewart Rose) for their ‘expertise’?
Bottom line for me? The healthiest form of money issuance is state money issuance – money that is actually made and free to use to the point where it’s policy objectives are met.
And to achieve that, it is best not to issue it through private banking. It s best issued for through government departments and public sector wages in my view. And then it trickles into the private sector too.
[…] The origins of the ‘household analogy’ Tax Research UK […]
The first chapter has an even deeper implication, in treating the state as an analogue of a firm and of the family; hence the family as a firm. There is a recent American self-help book on how to run your family like a business!
Any thoughts on how that liberal model reacts with the old conservative model of the state as a body with the monarch at its head?
Excellent post Richard!!! … It is ironic that the 1914 UK crisis was solved by much more progressive thinking. In fact it was very similar to the Fed in 2008, if not 2020. The Late Professor Roberts wrote a great book about it – Saving the City. This article by him is a great summary
https://www.lbma.org.uk/alchemist/issue-73/the-great-financial-crisis-of-1914
These are a couple of youtube items with him commenting on the era.
https://www.youtube.com/watch?v=SIuNBQBD8CI
https://www.youtube.com/watch?app=desktop&v=93hQTotsQbo
Thanks
Fascinating reading. Is something known about Joanna Wright, the author of the book?
I can find nothing
I couldn’t find anything on Joanna Bright, I’m guessing its a pseudonym.
I think that likely
Small but useful and significant update re “Housewives and Downing Street”. I gave the date of the intro as the date of publication, i.e. May 1935, which I had always used when lecturing. However, the amusing find of the slip inviting a review which I noted above, on closer examination shows that the date of release of the publication was actually August the 1st, making it much more timed to back up the National Government, i.e. really the Conservative government’s forthcoming General Election campaign.
Thank you for digging this out! The emphasis on housewives is a bit reminiscent of the “Mrs. Watanabe” story as well… (https://en.wiktionary.org/wiki/Mrs._Watanabe)
Perhaps also of interest – there is arguably not only a household analogy in fiscal policy but a bank analogy in monetary policy: https://www.tandfonline.com/doi/full/10.1080/13563467.2022.2109610
This post was noted by the FT yesterday
https://www.ft.com/content/18e618da-8274-4587-b1c6-e92ac2e3b255