Keywords

JEL Classifications

During the early 1900s, economics in Britain completed its transformation from a science accessible to a literate public to an academic discipline that required specific training; to be a student of economics henceforth implied that one was a college or university student. The literature of economics matched this transition. It moved out of the sphere of public argument into the closed world of an increasingly specialized academic discipline. Although there was never a perfect match between the general development of economic thinking and the pool of thinkers, these thinkers were henceforth overwhelmingly employees of universities, paid to teach and think about modern economics. Consequently, the story of British economics in the 20th century is closely related to the advance of university institutions, and within these institutions, the formation of new departments of economics. Well into the 1960s, universities, colleges and schools remained the principal employers of ‘trained economists’, for there were very few alternative openings for ‘economists’ in business or public administration. In turn, the extension of opportunities for British university economists to develop their interest in the subject was for most of the 20th century conditional upon their ability to recruit undergraduate students; for taught graduate programmes were likewise a feature of the last third of the century.

In the 1990s, with the reclassification of virtually all higher education as university education and the general deterioration of student–staff ratios, the relationship between teaching and research that had prevailed through the greater part of the century broke down. Given the late appearance of graduate programmes, ‘teaching’ had meant lectures and classes to undergraduates, shared between the staff; while from the 1950s to the 1980s a ‘class’ was no more than a dozen students, in Oxford and Cambridge individual supervision being the norm. It was also usual for the more senior members of the department to present the more elementary lectures, but they, like their junior colleagues, pursued research projects alongside their other duties, supplemented by spells of departmental research leave. This arrangement did not survive into the 1990s. Those economists seeking to pursue a research career (and hence retain their reputation as economists) required a succession of external research grants to sustain any ambition of career development; they sometimes no longer taught at undergraduate level at all. The incentive to deploy senior economists in undergraduate teaching, and hence stimulate an interest in the subject among a younger generation, was seriously compromised. Meanwhile, employers specifically interested in economics graduates usually only required a first degree of their recruits. A Master’s qualification was overqualification for anything other than appointment to a technical economic job, while an economics Ph.D. was serious overqualification for anything other than university employment. Given the unattractiveness of university employment to gifted young people, the number of British students studying at this level slumped. This evolutionary development in university institutions coincided with an unrelated transition in the discipline, from a focus on economic problems to an emphasis upon the elaboration of technique. In Britain, as elsewhere, mainstream training in economics had become instruction in a set of mathematical or statistical techniques that might, or might not, illuminate the kind of economic issues with which a wider public outside the university was concerned. Early in the century economics had been propelled into British universities by widespread belief in its public purpose and utility. By the end of the century, the discipline had become dominated by technicians for whom such beliefs were less important. As we shall see, this evolutionary progression was also related to the post-war internationalization of economics, so that by the end of the century the idea of a specifically ‘British’ economics had become an empty one.

Systematic tuition in economic principles originated in Britain. The first three-year university course was the Cambridge tripos, founded in 1903. The London BSc (Econ.), centred on the newly formed London School of Economics, had preceded this in 1901, but was structured in such a way that specialization in economics was only one of a number of social science options; and economics was taught only during the first year, at a very elementary level, in the commerce degree initiated by Ashley in Birmingham in 1902. The Oxford PPE, linking the study of Philosophy, Politics and Economics, and in this particular order because it had first been proposed by philosophers and opposed by economists, was initiated in 1920 (Chester 1986, 34 ff.). Ultimately, the London degree had the greatest influence in advancing the study of modern economics – not simply because of the success of the LSE in attracting both students and funding, but because the external London degree offered students resident outside London, and in the wider Empire, the opportunity of studying economics. The new University Colleges of Leicester, Nottingham, Exeter, Southampton, Reading, Hull and Bristol offered to their students of economics the external London BSc (Econ.); and a succession of London Professors, from Cannan through Benham, Stonier and Hague to Lipsey, wrote popular undergraduate textbooks which remained widely used until late in the century.

Alfred Marshall, arguing for his new Tripos, had appealed to the growing need of business and public administration for young recruits conversant with the new science; a plausible enough argument, but one that in practice took many years to realise (Groenewegen 1995, pp. 556–7). William Ashley, generally unenthused by modern economics, sought a parallel development with his Birmingham commerce degree, intended to place appropriately trained recruits in the middle levels of management. The ambitions of both men were thwarted by a general lack of interest on the part of British business and public administration in ‘new men’. Business remained dominated by small- and medium-size family firms until the interwar years at the very least, and here a professional training in law or accountancy remained a more useful general qualification than a degree in economics or commerce. In the mid-1930s having a first class degree in economics from the University of Cambridge led nowhere in particular: Terence Hutchison, appointed in the 1950s to Birmingham’s chair, worked as a Lektor at the University of Bonn before the war; Alexander Henderson, later Professor of Economic Theory at Manchester, took a year out but then replaced Kenneth Boulding as Assistant Lecturer in Edinburgh. Economics had become a university discipline, but a degree in economics was a qualification that had little cash value outside academia. Only with the general expansion of the university system in the 1950s did it become customary for bright undergraduates to become in turn graduate students and then junior members of staff – the path taken by Clive Granger at Nottingham, for example. This pattern of training and recruitment altered little until the 1970s when demand for trained economists on the part of financial institutions and public administration began to develop.

The Institutions – Cambridge, Oxford, LSE and the Provinces

The Cambridge Tripos was the first honours economics programme in the world because it was a key ambition of Alfred Marshall to establish the subject as a modern independent discipline, and he was in a position to realize this ambition. Appointed to the Cambridge Chair in 1884 in succession to Henry Fawcett, author of the Millian Manual of Political Economy (1863), Marshall published Principles of Economics in 1890, and in 1892 Elements of Economics of Industry, an abridged version of the Principles for use by students which proved extremely popular. Later in 1891, Marshall oversaw the founding of the British Economic Association (from 1902 the Royal Economic Society, RES) as a vehicle for the publication of the Economic Journal (EJ), the first number of which appeared in March 1891 (Tribe 2001). In the United States, the Quarterly Journal of Economics had been founded in 1887 as the house journal of Harvard economists, while the Journal of Political Economy, founded in 1892, would be a house journal for Chicago economists. Marshall believed that the broad reception of new economics in Britain required a publication ‘open to all schools and parties’, and not therefore tied to any one institution. Following the publication of his textbook as a foundation for teaching, the EJ provided a platform for discussion among economic specialists while also keeping them informed of new publications, the current contents of foreign journals, and other relevant developments. The Tripos was the third of Marshall’s stones in the new edifice.

Principles and Elements were a runaway success in the English-speaking world. The EJ in its early years indeed published a wide range of economic opinion – including, for example, the Erfurt Programme of the German Social Democratic Party, Vol. I September, 1891, pp. 531–3. But the Tripos remained merely a pedagogic monument for many years: during the 1930s, as many as 60 per cent of those taking the one-year Part I achieved modest Thirds (Tribe 2000). Nonetheless, there were, during the 1930s, many graduates whose later reputation as economists began in Cambridge. In the 1880s and 1890s, economics had been taught as an option within the History and the Moral Sciences triposes at Cambridge; Marshall had made himself deeply unpopular among his colleagues with his persistence in seeking a separate existence for the teaching of economics, and having granted his wish in 1902 they proceeded to purge all economics from their own curricula. The tripos was certainly a model of a free-standing economics degree, but even in the boom years of the later 1940s the number of annual Firsts and Upper Seconds in Part II (the final examination) more or less matched the number of eminent economists in the faculty. The tripos, for the first 50 years of its existence, proved more successful in supporting the largest concentration of academic economists in Britain than teaching economics to receptive students.

On the other hand, many of Cambridge’s economists turned to writing introductory textbooks under the auspices of the Cambridge Economics Handbooks series. The first of the handbooks was Hubert Henderson’s Supply and Demand, published in 1921, followed by Dennis Robertson on money (1922), Maurice Dobb on wages (1928), and Austin Robinson on the structure of industry (1931) among many others. Maynard Keynes took over the series in the mid-1920s, and drafted a general introduction printed in all editions arguing that economics was a method, not a body of doctrine, ‘an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions’. Keynes was here reiterating his belief in the organon as the core of the Marshallian legacy, ‘a machinery that we build up in our minds, a method, an organon of enquiry that can be turned to particular problems as they arise…’ (Pigou 1925, pp. 86–7); to which Keynes added the republican principle that the purpose of the Handbooks was to expound the elements of economics ‘in a lucid, accurate and illuminating way, so that the number of those who can begin to think for themselves may be increased. It is intended to convey to the ordinary reader and to the uninitiated student some conception of the general principles of thought which economists now apply to economic problems’. Published in the United States and widely circulated in the Empire, some of the handbooks were also translated, emphasising the general absence at this time of similar short works suitable for students of economics, as well as the manner in which Cambridge economics, generally unreceptive to the development of economic thinking elsewhere in Britain and abroad, was nonetheless projected into a wider world.

Oxford economics followed a different path. It had been the centre of British economics in the 1880s, pursuing the development of extension teaching in many provincial centres and graduating among others Edwin Cannan, W.J. Ashley, L.L. Price and W.A.S. Hewins (Kadish 1982, ch. 2). But Francis Edgeworth, appointed to the Drummond Chair in 1892, entirely lacked Marshall’s institutional ambition, and in any case did not share Marshall’s view that an understanding of economics required three years of systematic tuition. During the early 1900s teaching in Oxford remained broadly Millian (Young and Lee 1993, p. 7), with Marshall being reserved for the more advanced students. The background of those who taught was primarily in history – when Roy Harrod was elected fellow of Christ Church in 1922, it was to a fellowship in history, but he immediately took himself off to Cambridge to study with Keynes, and then on his return arranged for Edgeworth to provide informal graduate supervision. By the later 1920s, with student numbers growing, new appointments were predominantly PPE graduates, among them Henry Phelps-Brown and James Meade in 1930. John Hicks had graduated in 1926 from the PPE, but with a second-class degree and was very fortunate to get taken on at the London School of Economics (LSE), since that institution too was beginning to recruit staff from among the ranks of its own graduates. Oxford lacked the organizational thread that the tripos gave Cambridge economics, and had no central figure to match Keynes, but it was perhaps as a consequence more open to external developments. In 1935 Jacob Marschak, an Oxford lecturer since he had been stripped of his Heidelberg post in 1933, was appointed to a readership in statistics and was made founding Director of the Institute of Statistics. Although, the institute was not the first of such research bodies established in Britain – Manchester’s Research Section under John Jewkes preceded it – its foundation predated any plans for Cambridge’s own Department of Applied Economics which, delayed by the war, eventually began work in 1945. Also significant is that fact that the Institute was funded externally, by the Rockefeller Foundation, together with a number of new posts in the social sciences. Similarly, Lord Nuffield’s benefaction of the later 1930s – he had approached the university with the idea of funding a new engineering college and was persuaded by the then Vice-Chancellor, A.D. Lindsay, of the need for a social science foundation – also provided a focus for collaborative research in economics that Cambridge lacked. In 1941, the Nuffield College Committee established a social reconstruction survey, while the Institute conducted studies on full employment. This complemented work that had been initiated in the mid-1930s by the Oxford Economists’ Research Group, again funded with Rockefeller money, which conducted studies of business decision-making and the role of interest rates, this work being published in the first issue of Oxford Economic Papers in 1938.

By this time, the EJ was being edited from Cambridge by Keynes and Austin Robinson and was widely, and disparagingly, referred to as the Cambridge Economic Journal, while the RES had also become closely associated with Cambridge. The LSE had also founded its own journal, Economica, in 1920, and with the launch of the ‘new series’ in 1933 this became a dedicated economics journal. This coincided with the maturation of a style of work distinct from Cambridge, by the mid-1930s condensed into a general scepticism of the significance of Keynes’s General Theory and what today would be recognized as a strong leaning to neoliberalism. The School had been established in 1895 with a legacy linked to the Fabian Society (Kadish 1993, p. 230), the common denominator being Sidney Webb and his involvement with commercial education in London. Before the First World War its teaching staff had been predominantly part-time – Cannan, its first professor of economics, retained his part-time status until his retirement in 1926 – but teaching was reorganized during the 1920s, adding a commerce degree to the BSc (Econ.) and replacing part-time with permanent staff recruited from among its own students. Lionel Robbins, appointed to the chair of economics in 1929, and Arnold Plant, who became professor of commerce the following year, were both examples of this trend, Plant gaining a First in economics in 1923 having also been awarded a First in commerce the previous year (Plant read for the commerce degree as an external student alongside his full-time study of economics). The arrival of Friedrich von Hayek in 1931 as visiting professor confirmed the neoliberal profile that LSE economics assumed from the 1930s to the 1950s, but also the openness of the institution. Cannan’s successor as professor had been the Harvard economist Allyn Young, and there was widespread dismay when his early death from pneumonia in 1929 terminated a direct connection to American economists that had been expected to endure for many years.

Likewise, LSE was more catholic in its teaching and reading materials than any other British institution of the time – Frank Knight’s Risk, Uncertainty and Profit was used as a central text and re-issued in 1933 as No. 16 in the School’s reprint series. As a first-year undergraduate in 1948, Bernard Corry recalled being first given sections of Samuelson’s Foundations to work through, followed by Erich Schneider on the theory of production, and Pallander on location theory (Corry 1997, pp. 179–80). In a 1937 survey of the School’s work, Plant and Robbins noted that Frank Taussig’s Principles of Economics was a ‘good modern manual’ which, besides specialized sections on public finance, railways and social reorganization, covered much the same ground as the LSE course in economics. Marshall’s Principles headed the list of works on general economics (Plant and Robbins 1937, pp. 67, 69). At least part of the differences between Cambridge and LSE economists during the 1930s can be traced to this contrast between an LSE aggressively open to the international development of economics, and a Cambridge which simply assumed that it was in the van of such development and did not therefore need to take account of work elsewhere. Acknowledging her debts on the opening page of The Economics of Imperfect Competition, Joan Robinson referred exclusively to Cambridge colleagues – Marshall, Pigou, Sraffa, Kahn, Austin Robinson and Gerald Shove. She did note the contributions to competition theory of Erich Schneider and Heinrich von Stackelberg, but considered that ‘their work is marred by the use of unnecessarily complicated mathematical analysis where simple geometrical methods would serve’ (Robinson 1933, p. vii).

By the 1930s, Cambridge was graduating 50–60 students from its Part II every year, and well over 100 students left the LSE annually with a BSc (Econ.) containing an increasingly variable amount of economics. The new universities founded from the turn of the century – Birmingham, Manchester, Liverpool and Sheffield – made little direct headway in finding a constituency of students eager to learn the new economics, but they did find a ready market for teaching in commerce, which contained some economics. In most cases this teaching was quite practical, covering law, banking, economic geography, history and languages; and railway management was often an important component, given the size of the railway companies and the numbers of their employees. For many students approaching economics for the first time, it was taught as part of a vocational course that had the support of significant local employers. This was especially true in Scotland, where the four ancient universities – Glasgow, Edinburgh, St. Andrews and Aberdeen – were closer to the Continental European model, law and medicine being a part of the university. Chartered accountants in Scotland took university courses in elementary economics, highlighting a natural link between the professions and the university absent in England.

Ashley returned to Britain from Harvard’s new chair in economic history to found Birmingham’s Faculty of Commerce in 1902, but although this has become the single most well-known example of commerce teaching in Britain, it was atypical in many ways. Ashley had ambitions for commerce analogous to Marshall’s for economics, seeking to educate future management leaders rather than the future line managers and college teachers turned out in Liverpool and Manchester. He established an advisory board with local business in a deliberate effort to recruit the sons of business families. But instead of drawing on the local business community for the teaching of accounts, commercial law and banking as Liverpool or Manchester had done for many years, Ashley made accounting a professorial position and in 1906 followed this with a chair in finance. These posts were not justified by the student numbers that he recruited. There were never more than 36 students registered for the commerce degree before 1914, and total registrations only averaged in the high fifties once the short-lived post-war boom had passed. Birmingham’s later reputation was based not on its early commitment to commerce, but on the coincidence that Frank Hahn, Alan Walters and Terence Gorman all taught there in the mid-1950s. Birmingham, together with Nottingham, was the first British institution to make a significant effort to develop mathematical and statistical analysis in economics.

Manchester was another important centre: it was here that the first university-based research section was established under Jewkes in the early 1930s, and Manchester economists predominated among those recruited to government service during the Second World War. The Faculty of Commerce had been established by Sydney Chapman (a former student of Alfred Marshall) in the late 1903, building upon a solid foundation of teaching in political economy most recently developed by Alfred Flux, but reaching back to Jevons’s classes in the 1870s. Degrees were offered in both commerce and honours economics, Chapman using part-time local professionals for the more specialized parts of the commercial curriculum and appointing young economists to do the non-specialized teaching. This strategy enabled him to develop the teaching of economics, and many of the pre-First World War junior staff went on to chair their own departments: Hugh Meredith taught in Manchester 1905–8, and then was professor at Queen’s Belfast from 1911 to 1945; Robert Forrester taught in the Faculty 1910–13, went to Aberdeen, then the LSE, and was Professor at Aberystwyth from 1931 to 1951; Harold Hallsworth taught in Manchester during 1910, later becoming Professor at Newcastle; Douglas Knoop taught in 1909, became a lecturer in Sheffield in 1910 and was then later Professor from 1920 to 1948; A.N. Shimmin taught 1913–15, and was from 1945 professor of social science at Leeds. Clearly, Manchester became an important staging post in the development of careers which imposed a clear pattern on the development of the teaching of economics in provincial Britain, and hence by extension the propagation of economic understanding to a diverse range of students.

This pattern in the academic life cycle had important consequences for the advancement of economics in 20th-century Britain. Those appointed to junior posts in this initial phase of pre-First World War expansion quickly moved on to more senior posts as new departments were established, but they then stayed in them for many years. This blocked mobility during the later 1920s and 1930s. But many senior members in this first cohort retired together in mid-century, creating an opening for renewal in the organization of academic economics, reinforced by increased demand for the teaching of economics in the late 1940s. During the immediate post-war period departments expanded to meet this demand; new posts were created, and a fresh wave of young candidates filled senior appointments. These in turn dominated university departments during the 1950s and early 1960s, but reached retirement age at about the same time that new universities were being founded and the number of senior positions extended once more. The pace of development of research and teaching in economics that took place in Britain during the 1960s rested to a considerable degree on the fluidity and openness that this academic life cycle created.

But these two successive surges – in the 1940s and the 1960s – of mobility, expansion and disciplinary development faltered with the uncertainties of the 1970s, and then broke on the university cutbacks of the 1980s. The mobility and advancement of younger staff trained in the later 1960s and early 1970s was blocked; this cohort grew old together in the same posts while bright young economists looked elsewhere for employment, and for which in any case they did not require to spend several years on a Ph.D. that an academic career now dictated. The average age of departments increased year by year, hollowing out the institutional hierarchy. By the 1990s, the pool of potential young British economists was severely depleted, given the small number of doctoral and postdoctoral students in the system; and with the slow resumption of recruitment the cycle simply skipped a generation expanded the pool from which it drew. Shortlists came to be dominated by applicants from the EU and beyond, attracted by the openness of the UK labour market and the experience of working in the English language. Graduate programmes likewise became dominated by foreign students. As with recruitment to medical staff in the National Health Service, British universities made good the manifest deficiencies of the British educational structure by turning for graduate students and faculty to those trained elsewhere.

The Interwar Years

The foregoing is not intended to substitute for a more orthodox ‘history of economic thought’ story. It instead demonstrates how the building of a discipline required a financial and institutional framework as a condition for the development of ‘economic careers’, which careers in turn provided the basis for the elaboration of economic argument as spoken, written and published discourse. The first movers in this latter process are indeed generally to be found in Oxbridge and London; but, for a discipline to flourish, followers are also needed, who in turn have access to a secure institutional structure. Hence, the importance of a national perspective upon the development of economics in Britain.

Cambridge did occupy centre stage in the first half of the century, partly as a consequence of the employment opportunities the new tripos presented: students had to be supervised and courses of lectures delivered, and this all added up to a significant number of college fellows and University lecturers. Marshall was also an important spiritual and pedagogic presence – after retirement in 1908, he continued his practice of open hours at home for students, lending them the books that would later form the core of the Marshall Library. His young protégé Arthur Pigou had marked himself out early on with a number of articles in the EJ notable for their brevity and formal exposition – anticipations of a style that had not then become customary. His Wealth and Welfare broke new ground in seeking to determine what ‘welfare’ might be, and noting that however defined, if the ‘National Dividend’ (as he termed GNP) increased, then welfare also increased. Redistribution of welfare through the population could also be brought about, but given the regressive nature of the contemporary taxation system he thought of this chiefly in terms of access to health and education services. He noted that monopoly tended to distort the distribution of welfare, so that this book also involved an extended treatment of duopoly and imperfect markets. This and the work of Alfred Marshall had a considerable contemporary impact upon American discussion of price and competition, forming a natural background to the later work of Frank Knight and Edward Chamberlin, especially in respect of Pigou’s observations on the level of equilibrium output under monopolistic competition (Pigou 1912, pp. 294, 356). The 1920 revision of this work into Economics of Welfare re-emphasized the social duties of the economist as outlined by Marshall in his inaugural lecture of 1887; and a new emphasis is laid upon the impact of taxation, commensurate with the consequences of the war for the post-war economy. The Marshallian cast of the work is highlighted by the following credo from the Preface:

The complicated analyses which economists endeavour to carry through are not mere gymnastic. They are instruments for the bettering of human life. The misery and squalor that surrounds us, the dying fire of hope in many millions of European homes, the injurious luxury of some wealthy families, the terrible uncertainty overshadowing many families of the poor – these evils are too plain to be ignored. By the knowledge that our science seeks it is possible that they may be restrained. Out of the darkness light! To search for it is the task, to find it, perhaps, the prize, which the ‘dismal science of Political Economy’ offers to those who face its discipline. (Pigou 1920, p. vi)

Keynes certainly shared this credo, as his introductory comments to the Cambridge Handbooks show, but his later characterization of Pigou as a ‘classical’ that is, superseded, economist has subsequently been too easily subsequently accepted at face value. Pigou, being the professor, was debarred from supervising undergraduates, so that his involvement in teaching was limited to lecturing, and this he generally did at an elementary level only. As with many of his generation – D.H. MacGregor in Oxford, Alec Macfie in Glasgow – he had been badly affected by his experiences in the First World War, and played little further part in the shaping of teaching and research in Cambridge. He has consequently, and unjustly, been excluded from ‘Cambridge view’ of the history of economics, which has come to be dominated instead by Sraffa, Kahn and the Robinsons, amongst others (Collard 1981).

The locus classicus of this Cambridge ‘insider story’ is George Shackle’s The Years of High Theory, although curiously Shackle was never a ‘Cambridge man’: he went to school there, but was never connected with the university. The Years of High Theory takes its departure from Sraffa’s 1926 EJ article, and ascribes to contemporary non-Cambridge economists a dogmatic and universal belief in ‘perfect competition’. Hence Sraffa’s theoretical critique of perfect competition is presented as a radical, definitive, if unappreciated, settling of accounts, upon which new work can thereafter build. Here Shackle joins later neo-Ricardians, for whom likewise Sraffa is of decisive importance to the development of economic theory. ‘Perfect competition’ had however only just been systematically adumbrated, in Chapter 6 of Frank Knight’ s Risk, Uncertainty and Profit (1921), and by no means dogmatically; indeed, Shackle imputes to British economists of the 1920s views more common in the America of the later 1940s, and not before.

Dennis Robertson also fails to register in the Cambridge story, despite having Keynes as his Cambridge Director of Studies, and then spending almost his entire working life in Cambridge, retiring in 1957. This neglect can be attributed to his later criticism of Keynes, describing in 1948 the General Theory as ‘a step backwards’ which prematurely embraced ‘stagnationism’ ‘on the strength of one bad depression’ (Robertson 1948, p. xvi). Remarks such as these make his relative neglect all too understandable, but this should not be allowed to obscure the larger significance of his early work. Hitherto studies of economic cycles had focused on the periodicity of price movements (Morgan 1990, chs. 1, 2); the analysis of Industrial Fluctuation went behind price movements to the variations in output and employment that they represented. That bust follows boom was easily accepted; but why a slump should be followed by recovery was not so easy to explain. Robertson identified a number of causes, most important of which was invention and innovation, an emphasis which was new at the time in Britain, and which Robertson had arrived at without having read Joseph Schumpeter (Presley 1981, pp. 178–9).

Robertson’s Banking Policy and the Price Level (1926) was likewise an influential work, extending his study of fluctuations to cover monetary phenomena (Laidler 1999, 93 ff.). Robertson’s mannered writing style did not make this book any easier to read, but as Laidler points out, Pigou took over large sections of the argument in his own Industrial Fluctuations (1927), disseminating Robertson’s ideas in more readable English. As with his first book, Robertson took his departure from observable facts – that the British banking system balanced deposit liabilities against short-term loans. The banking system was therefore charged with coordinating the public’s short-term saving with firms requirements for working capital, and although he noted the forced saving involved in this, he also saw its potential as a stabilizing factor, moderate forced saving being therefore the price paid for progress.

Cambridge in the 1930s is however dominated by the figure of Keynes, and not only intellectually. He had resigned his University Lectureship in 1920, after which his formal connection to the university was solely as a college fellow. Nonetheless, he made up for Pigou’s disengagement through his editorial work on the EJ with Austin Robinson, in the Political Economy Club, to which promising students were invited and required to ask questions of visiting speakers, through his work for the college, and through his engagement in the arts. In Cambridge lectures could be offered by any college fellow, and were not confined to faculty members. Keynes developed a practice of lecturing from the proofs of his next book, the experience obviously leading him to substantial revisions (Rymes 1989). He found jobs for some bright graduates – while other bright graduates of whom he was unaware found that their Cambridge First might not necessarily lead anywhere in particular (Tribe 1997, pp. 77, 129).

Keynes’s reputation has long been overlaid with ‘Keynesianisms’ of various kinds. That his memorial service in 1946 was held in Westminster Abbey is indication enough that, whatever the nature of his reputation, it was a very great one. Much of his work in the 1920s took the form of superior economic journalism – from The Economic Consequences of the Peace (1919) that made his public reputation, through ‘The Economic Consequences of Mr. Churchill’ (1925) to ‘Can Lloyd George Do It?’ (1929). His rise to become the single most influential British economist of the century began in the early 1930s. Peter Clarke has provided a lucid account of the early part of this story: the nature of contemporary government policy, Keynes’s evidence to the Macmillan Committee in 1930, its relation to the two volumes of the Treatise on Money published that year, the impact of the abandonment of the gold standard in September 1931 and of free trade over the winter of 1931–32, and the consequent genesis of a new general theory of employment, interest and money – there is little dispute about the main lines of these developments (Clarke 1988).

Argument breaks out however over the substance and intentions of the General Theory, published in February 1936. David Bensusan-Butt captures precisely the sense of confusion a modern reader experiences coming to this work for the first time:

Never did a book fall more quickly and more completely into the hands of summarisers, simplifiers, boilers-down, pedagogues and propagandists. To get at what it seemed like at the time (and perhaps what it really was and is) one has to fight one’s way through a cloud of commentators, and try to see it in a more empty landscape. (Quoted in Skidelsky 1992, p. 537.

Notoriously, Keynes was one of the earliest such commentators, reflecting on his intentions in an article in the QJE in February 1937. Although few would seriously dispute that the General Theory marks the inauguration of an integrated macroeconomics, it was built out of existing elements – and some at least of the disagreements engendered by the book can be related to incompleteness in the integration of these elements. David Laidler has also shown, for example, that one of the most general statements that can be made about the General Theory – that it provides a clear role for government not in substituting for market activity, but by influencing the expectations of investors and businessmen – adopts arguments already made in Lavington’s The English Capital Market (1921) (Laidler 1999, pp. 87–8).

The translation of Keynes’s fluent prose into the diagrams and algebra better suited to an increasingly formalized style of economic argument followed publication very rapidly. Brian Reddaway, reading a review copy of the book on the way to a post at Melbourne University arranged by Keynes, sketched four equations relating savings, income, investment, the rate of interest and the supply of money and published these in the June 1936 issue of Economic Record (Reddaway 1936). On 26 September 1936, at a meeting of the Econometric Society in Oxford, a session was devoted to the General Theory. Here Roy Harrod, James Meade and John Hicks made graphical and algebraic presentations, Hicks writing this up in his article ‘Mr. Keynes and the Classics’ published the following year (1937). Thus was born the classroom IS–LM presentation of Keynes’s ideas (Young 1987).

The transformation of the General Theory into a blueprint for managing the mixed economy was, however, effected along two separate paths. In the United States Lawrence Klein, Alvin Hansen and finally Paul Samuelson systematized Keynes’s insights and rendered them consistent with the new neoclassical economics (Klein 1948; Hansen 1953; Samuelson 1955). In Britain, the outbreak of war in 1939 and the entry of British economists, including Keynes, into government service provided a unique opportunity to deploy Keynes’s insights in managing the wartime economy (Cairncross and Watts 1989, chs. 2–7).

The basic framework had been laid down by Keynes in his ‘How to Pay for the War’, reversing the assumptions upon which the General Theory had been built. The basic task now was to run an economy at its maximum potential output for war production without generating inflationary pressures. Such diverse characters as Lionel Robbins, Ronald Coase, Brian Reddaway, John Jewkes, Ely Devons and James Meade were recruited into government service to facilitate the wartime management of the UK economy. Whereas financing the First World War had been primarily a matter of managing international money markets – a task in which Keynes had played a part – ‘paying for the war’ now meant management of the domestic economy. Inflation was to be avoided as a means of suppressing private consumption in favour of war production. Excess purchasing power was instead to be absorbed through additional taxation, which implied estimation of the actual level of excess. A thorough system of rationing was devised, and financial planning increasingly gave way to manpower planning. Allowance had to be made for the subsidies necessary to stabilize the cost of living, and, on the assumption that this stabilized gross incomes, total volume of money demand needed to be established. By subtracting the amount of goods and services coming on the market an ‘inflationary gap’ could be identified, representing the amount of excess demand that had to be siphoned off. As early as the winter of 1940 government treated pressures in the economy in terms of an ‘output gap’ separating the level of demand from the capacity of factors of production to meet these demands (Sayers 1983, p. 106). The 1941 Budget broke new ground, presented in a national accounting framework that would enable such estimations to be made (Kaldor 1941, p. 181). Moreover, this approach implied that the primary economic aim of governments should be the stability and growth of national income, rather than the more narrowly financial considerations traditionally associated with reviews of government income and expenditure. This was underlined by the formulation of post-war plans such as William Beveridge’s Social Insurance and Allied Services (1942), followed by the Employment Policy White Paper of June 1944, the month of the Normandy landings (Coats 1993a, p. 558). It was this framework that wartime economists bequeathed to the peacetime civil servants who succeeded them, and which enabled them to manage the economy in terms of Keynesian aggregates. The Economic Section, the central body of economic advisors that had been led by Robbins for most of the war, survived the transition to peacetime, but with a much reduced role. Coats notes that fewer than 20 professional economists were employed by the government on matters relating to macroeconomic policy during the first two post-war decades (Coats 1993b, p. 523).

There have been many versions of Keynesianism since (Backhouse 2006), but the most misleading variant is that which links Keynes to the centralized management of peacetime mixed economies. Some sort of Keynesian consensus did prevail in the British academic establishment from the later 1940s until the early 1970s, but the overriding concern, which had brought its senior members into the discipline, was a belief that the depression of the 1930s should not be allowed to recur. ‘Keynesianism’ offered a route to a policy synthesis that could realize this, but this was not translated directly into the pursuit of ‘Keynesian’ economic policies on the part of post-war Labour and Conservative governments. The Economic Section was not ineffective in its advice, but it was very small; while academics outside Whitehall lacked direct influence on the formation and execution of policy, chiefly confined in their expression of opinion to the letters’ column of The Times. Hugh Gaitskell had been an economics lecturer at University College London and published on capital theory in the Zeitschrift für Nationalökonomie, but the Labour Party was never in power during his period of leadership. Harold Wilson likewise came from an Oxford economics background; his incoming Labour Government of 1964 did establish a Department of Economic Affairs, but its chief task was the drafting of a National Plan on the French model. The drafting and execution of legislation right up to the early 1980s was conducted by generalist civil servants with no special background in economics, directed for the most part by Ministers likewise lacking in formal economic training. The ‘Keynesian’ nature of their approach to government and the economy derived not from any particular theoretical beliefs, but chiefly from a generalized public expectation that it was the job of government to counter downturns, stabilize employment and promote growth. Until 1979, any party that denied its capacity to fulfil such electoral expectations stood no chance of gaining office. Harold Wilson observed acutely that ‘Whichever party is in office, the Treasury is in power’, but there is now an extensive literature which documents the essentially pragmatic, rather than dogmatic, nature of Treasury decision-making during the 1950s and 1960s, supposedly the heyday of Keynesianism (Peden 1988).

The Post-war Legacy

During the 1930s a number of British economists made theoretical innovations of lasting significance. This was indeed the ‘decade of high theory’, to borrow from George Shackle, but it was certainly not, as he suggests in his book, an exclusively Cambridge preserve. Ronald Coase, who graduated with a commerce degree from LSE in 1932, went that same year to his first appointment in Dundee, where he drafted his essay identifying a firm as a replacement for market transactions, eventually published in 1937. John Hicks, having published in 1934 an article in which consumer preferences displaced utility, went on in Value and Capital (1939) to create a neoclassical microeconomic synthesis. James Meade published in 1936 his Introduction to Economic Analysis and Policy, the first of many seminal works. All later gained the Swedish Riksbank Prize in Economic Sciences (in 1991, 1972 and 1977, respectively) for these and other works. But what is most notable about these annual awards, made since 1969 and beginning with Ragnar Frisch and Jan Tinbergen, is that they are dominated by American economists who began their careers in the 1940s and 1950s. For in this period American economics became international economics.

The war itself had turned out to be the apotheosis of British economics. US foreign policy sought to block any prospect that post-war Britain would resume its former world role, and assumed Britain’s former international stance as model democracy and proponent of free trade and economic liberty. Teaching of economics in American universities expanded, and during the 1950s graduate programmes were developed on this foundation. There was a parallel expansion in demand for courses in undergraduate economics in Britain, but neither the will nor the money to develop graduate education. Increasingly, bright students and young economists looked to American connections to develop their careers. Coase was already there; Alexander Henderson went from Manchester to Carnegie Mellon in 1950, and became joint author of the first textbook on linear programming; Clive Granger had by the early 1970s gravitated to California. In turn, the teaching of economics in Britain became increasingly modelled upon American programmes, increasingly making use of American books and articles (Backhouse 1996, 2000).

As already noted, with the end of the war the majority of economists had quickly left government employment and moved back into the university. Economics was widely regarded as a ‘modern’ subject in school and university (Coats 1993c); educational opportunity was widely understood as the path to social mobility, a belief underwritten by Lionel Robbins’s report to the government which argued that extension of university access would not compromise entry standards or teaching (Committee on Higher Education 1963). This finding coincided with the opening of a number of new universities in which social sciences played a significant role. In 1964, Richard Lipsey moved from the chair at LSE to the founding chair at Essex, primarily because he saw the opportunity to develop the graduate economics programmes there that his colleagues at LSE had declined (Tribe 1997, 217 ff.). Once established, this model rapidly spread, but then ran into the uncertainties of the 1970s. As economics became more technical, the capacity to train students in the new techniques remained very restricted. Generational succession, as outlined above, also played a role as a new generation, born into the certainties of the 1950s and 1960s, found themselves in an uncertain world.

As Roger Middleton has argued, financial pressure on universities in the later 1970s and 1980s was coupled with a collapse in the public authority of universities (Middleton 1998, p. 312). Moreover, throughout the 1980s academic economists were, with a few notable exceptions, generally hostile to government policy. Notoriously, this was expressed in a letter to The Times in March 1981 where 364 economists signed up to the argument that government policy would deepen the current depression and slow recovery. This polarized politicians and economists, to the lasting cost of the latter (Backhouse 2000, p. 31). University economists were consequently shut out of government decision-making while at the same time a broader public found the increasingly technical preoccupations of economists of little relevance to an understanding of economic problems. The broad consensus that had in the 1950s and 1960s made economics the ‘modern’ discipline broke upon widespread popular disillusion with both modern economics and the universities within which it was practised.

The evolutionary development of the discipline was exacerbated by the process of research audit that began in the mid-1980s, ranking departments and their staff on the basis of research publications (the Research Assessment Exercise, RAE). Although this provides for a system of peer review and is not imposed by a separate educational bureaucracy, the resultant ranking was increasingly employed to determine the allocation of resources between and within universities. Furthermore, peer review has tended to sharpen the ‘ scientization’ and public isolation of British economics, since ‘professional’ prestige and a high ranking comes only from publication in a very restricted number of international journals, not from an interest either in undergraduate education or in public issues (Middleton 1998, 221 ff.). Each subject area draws up its own schedule of approved publication media, and in the case of economics this list has always been weighted towards ‘rigour’, which was what economists had come to pride themselves on as compared to the other social sciences. Since these other social sciences were less ‘rigorous’ in their judgement of what counted as worthwhile research outputs, median economics departments assessed in the 2001 RAE fared very badly within social science faculties, losing funding and strengthening the polarizing tendencies which concentrated ‘celebrity’ staff and resources in a handful of institutions.

The trend to internationalization in economics teaching and research was a general phenomenon during the last quarter of the century. The diversity, both between and within nations, with which the discipline had begun the century had, by the early post-war period, increasingly given way to homogenization of style and substance. This process accelerated in the 1980s as the personal computer offered every economist access to data and means for its processing without leaving the office. By contrast, most of Bill Phillips’s work on inflation and unemployment in the 1950s had been done late at night on the National Physical Laboratory’s computer in Teddington. Likewise, Richard Stone had during the 1940s done most of his own statistical work on a hand-cranked machine. The speed with which data could now be processed did away with the enforced lengthy periods during which one pondered the meaning of previous results and devised new strategies. But it also meant that such thinking was at a discount, given the range of data and software. The discipline of economics succumbed to a basic ‘law’ of markets: the larger the size, the less the diversity.

Nonetheless, public interest in economics survived, and economic careers developed that did not depend upon university status. This new trend originated in the 1980s. Nigel Lawson, Margaret Thatcher’s Treasury minister, had a background in economic journalism, symbolizing the rise of a new source of authority independent of any academic institution. Many of the new breed of ‘City economist’ had no formal academic background in economics at all, but drew upon other technical skills. Independent ‘think tanks’ began making themselves heard, foremost among them the Institute for Fiscal Studies (IFS), which by the end of the century had grown into the leading non-government authority on domestic fiscal affairs. The rise of the IFS was accompanied by a number of similar organizations addressing the social, political and economic issues that university economics had for the most part left far behind. And finally, a new, non-academic popular literature of economics emerged, seeking to demonstrate the public utility of economic principles to an increasingly receptive readership.

See Also