Word Count = 7999.

1

Creative Consolidation or

Punctuated Equilibrium?

The Orthodox Paradigm in the UK Economy

James Silverwood

University of Hull

Email: j.silvewood@2004.hull.ac.uk

Twitter: @jamessilverwood

‘Without an understanding of the economic process, and without a passionate, even irrational

commitment to democratic ideals, an agenda for change, in response to a perceived need for

change, can become the instruments of demagogues who play on fears and frustrations and

offer panaceas and empty slogans’ (Minsky, 2008: 10).

Introduction

Within the three major perspectives1 on economic policy-making it has been said that

‘despite their different lineages, all institutional arrangements are ultimately concerned with

two sides of the same problem: how order is maintained and how change is possible’ (Blyth,

1997: 244). These perspectives attempt to provide a guide as to how individuals interact with

their institutional environment and thus explain which dynamics guide economic policy

decision-making. Rational institutionalism focuses on the micro-level dynamics of the

institutional environment, specifically on the individual, whose actions as agents are said to

be motivated by material self-interest and utility-maximisation and thus economic policy is

influenced by interested individuals and groups. Historical institutionalism focuses on macro-

level dynamics, these dynamics being alternatively: (i) the historical nature of institutional

arrangements across jurisdictions and (ii) the national pathways across economies that have

lead to diverse national institutional arrangements, with economic policy thus being a product

of these twin dynamics (Katznelson & Weingast, 2005: 1 – 3). The final perspective is that of

economic constructivism which focuses on a mixture of micro and macro dynamics. Micro

dynamics of economic constructivism relate to how individuals’ behaviour and interests are

governed by ideas, not institutions or interests whilst macro dynamics focuses of the role of

ideas as being the pre-requisite for policy innovation which leads to the institutional

reformation of the state (Blyth, 1997: 246). The aim of this paper is to probe this literature to

see how well these three perspectives help us to understand economic policy-making in the

United Kingdom (UK). The paper will begin by providing an overview of the three different

perspectives, emphasising the use by the three of a punctuated equilibrium model, used to

provide the dynamic upon which innovation in economic policy can occur. The second half

1 Whilst the paper will proceed in this manner, it is worth being aware of the problems associated with

attempting to smooth out differences between different perspectives to assign easily identifiable labels. On this

see (Gofas & Hay, 2010a: pp. 14 – 17).

Word Count = 7999.

2

of the paper will apply this framework of punctuated equilibrium to the study of UK

monetary policy in the Inter-War period, focussing on this period by virtue of the sheer

number shocks and level of uncertainty2 that befell the UK economy in such a short space of

time. The paper will conclude that the punctuated equilibrium model fails to tell us an

accurate story regarding economic policy-making in the UK. Rather than policy innovation

and thus paradigm-succession in times of uncertainty, the direction of UK economic policy is

best encapsulated by the term creative consolidation, describing the process whereby

uncertainty is followed by a period of consolidation as policy coalesces around an observable

orthodox paradigm.

The Tale of Two Institutionalisms

The foundation of rational institutionalism lays in the marginal revolution of political

economy in the 19th

century3, associated with works by Jevons (1871), Walras (1874/1954)

and Menger (1871/1950)4 with the theory that would develop from it forming the basis of

what would become neoclassical economics5. Neoclassical theories are based on Newtonian

concepts of universal gravitations which contributed to the idea of an ordered and rational

universe. Natural phenomena in this concept are reducible to the movements of atoms, they

themselves regulated by laws intrinsic to the state of nature. The world is therefore perceived

as being self-regulatory, with human relationships governed by mechanical laws. By 1879

this new form of theory had become known as economics, rather than political economy,

signalling the very different form of analysis this new theory adopted, in which economic

laws were said to assume the absolute and objective characteristics of natural laws and

economics was likened to the natural sciences. For this to be accomplished social relations

had to removed from the field of economics and a scientific form of enquiry developed with

maths being deemed as the most effective communicator of this rational universe (Screpanti

& Zamagni, 2005: 63 – 65, 166 – 167). This use of mathematics now claimed to be

‘inseparable’ from and ‘interwoven’6 (Weintraub, 1985: 171) in economic discourse.

Furthermore, it is claimed that it was this development that has enabled neoclassical

economics to establish itself as the mainstream and orthodox approach to economics taught in

all major universities around the globe. Dominance illustrated by the suggestion that ‘the

status of non-neoclassical economists in the economics departments in English-speaking

universities is similar to that of flat-earthers in geography departments’ (Weintraub, 2002).

One of the foremost examples of the use of mathematics in the marginal revolution

was the use of simultaneous equations by Walras (1874) to express his general equilibrium

theory, claimed to be ‘the outstanding landmark on the road that economics travels towards

the status of a rigorous or exact science’ (Schumpeter, 1994: 827). The theory sought to show

that a price level exists upon which supply and demand can marry in a way promoting overall

equilibrium in competitive markets7. The contemporary articulation of general equilibrium

8

was provided by Arrow and Debreu (1954) who argued that markets not only had equilibrium

2 Exogenous = First World War, wall street crash, collapse of the gold standard, great depression, onset of the

Second World War.

Endogenous = Two decades of economic instability, decline and unheard of levels of unemployment. 3 On the importance of Jevons, Walras & Menger to the marginal revolution (Schumpeter, 1994: 825-839). 4 To which, among others, we could also add English economist Alfred Marshall (1920) & US economist John

Bates Clark (1889). 5 The term neoclassical was actually coined by institutional economist Thorstein Veblen (1900: 246). 6 For this argument in more detail (Weintraub, 1985: Part 3, Chapter 11). 7 For more on the development of the general equilibrium theory (Schumpeter, 1994: 963 – 971, 998 – 1002). 8 For historical analysis of the contemporary development of general equilibrium theory (Weintraub, 1985: Part 2, Chapter 6).

Word Count = 7999.

3

but were also Pareto efficient (Pareto, 1972; Cirillo, 1978: 13 – 25; Tarascio, 1967: Chapter

6), their work becoming known as the first welfare theorem. Uniting the new approach of

economics however was the adoption of a utilitarian approach to the understanding of human

behaviour, which is reducible to individual rationality and utility-maximisation. Furthermore

these are laws of behaviour which are considered to be universally valid to all individuals

regardless of circumstance, forming the basis upon which calculations of Walras, Arrow &

Debreu’s general equilibrium were founded (Screpanti & Zamagni, 2005: 166 – 167). Thus

modern neoclassical economics holds three basic assumptions regarding the behaviour of

individuals: (i) that people have rational preferences, (ii) Individual maximise utility and

firms maximise profits and (iii) people act independently on the basis of full knowledge and

information, cumulatively claimed to form three ‘fundamental assumptions [that] are not

open to discussion’ (Weintraub, 2002). It was upon these foundations that early literature in

the rational institutionalism field focussed, stressing how institutional arrangements and

economic policy were a product of the pursuit of rational self-interest (North & Thomas,

1973; Williamson, 1985).

Historical institutionalism has its roots in classical political economy and Marxism.

Despite classical economists like Smith and Hume commonly considered as being the

forefathers of the latter development of neoclassical theory (Smith, 1776/1925: Book 1,

Chapter 79 & Book 4, Chapter 2; McGee, 1989; Screpanti & Zamagni, 2005: 63 – 64) both

should actually be considered as providing the foundations of the institutional approach to the

economics (Screpanti & Zamagni, 2005:77 - 82). Both authors based their philosophy of

human behaviour on different precepts to neoclassical theory, illustrating that individual

behaviour can also be motivated by feelings of passion, sympathy and desire (Smith,

1759/1872; Hume, 1739/1986; Dow, 2009). Furthermore Smith argued that the economic

relationships, such as that existing between master and labourer as expressed in the payment

of wages, were governed not by natural laws and individual rationality, but by the existence

of an uneven power relationship in favour of the master (Smith, 1776/1925: Book 1, Chapter

8). Marx meanwhile by seeing capitalism not as a series of markets, but rather as a historical

system based on the legacy of class struggle, can also lay claim to having formed a

foundation of analysis that would influence the direction of historical institutionalism (Marx,

1848/1930: 25 – 30). From within the historical institutionalism approach there have arisen

many critiques of neoclassical theories, charting the many incidences of manias and panics,

rather than equilibrium, which have characterised the historical evolution of domestic and

global markets (Kindleberger, 1978; Galbraith, 2009; Stiglitz, 2003; 2010 Soros, 1998;

2008). As Haring and Douglas (2012; 7 – 8) note, given the demanding conditions of perfect

rationality and information, the conditions needed to achieve equilibrium are not justified by

economic reality.

The basis of these institutional criticisms of neoclassical theory was provided by

Minsky (2008). For Minsky the domestic institutional environment was most important in

determining economic decision-making. This was because Minsky believed that economic

systems were not based on a set of natural laws. Rather the economy is a social organisation

created either through legislation or the evolutionary process of invention and innovation.

Thus Minsky argued that ‘policy can change both the details and the overall character of the

economy, and the shaping of economic policy involves both a definition of goals and an

awareness that actual economic processes depend on economic and social institutions’

(Minsky, 2008: 7). Therefore ‘any successful program of change must be rooted in an

understanding of how economic processes function within the existing institutions’ (Minsky,

9 Articulates the concept of the invisible hand without referring to the term directly.

Word Count = 7999.

4

2008: 3) meaning that ‘economic policy must be concerned with the design of institutions as

well as operations within a set of institutions’ (Minsky, 2008: 7). For this very reason,

Minsky argued that economic theory was not ordained by nature but was ‘the product of

creative imagination; its concepts and constructs are the result of human thought’ (Minsky,

2008: 3). For Minsky, that neoclassical theory relied on mathematical models, which ignored

processes of human thought, human interaction and issues such as time or uncertainty,

mitigated neoclassical claims to be a value-free scientific body of theory. This form of

critique has been advanced in the contemporary era. It has been argued that poor economic

performance in the US has led to an age of diminished expectations, mirrored by

developments in the global economy which has led to the return of depression economics

(Krugman, 1994; 2003; 2008; 2012). It has been suggested that poor US economic

performance, for instance, has been driven by faulty neoclassical economic theory, itself

supported and enhanced by a permissive US institutional environment which has allowed

economic policy to prioritise the needs of a particular version of finance capitalism as the

means with which to secure economic prosperity (Krugman, 2003: Introduction & Part

Three). Furthermore, in the contemporary economic crisis it is these same elites that are now

hindering the adoption of policies that could arrest the global economic decline through the

promotion of the self-defeating policies of austerity (Krugman, 2012)10

.

Historical Institutionalism is thus focussed on how the institutional framework

governs individuals’ behaviour (Gourevitch, 1986). Institutions are claimed to provide a logic

of appropriateness, as well as logic of consequences, for how individuals conduct themselves

(March & Olsen, 1989). This approach originally came to the fore with the work of Thorstein

Veblen (1889/1953; 1900; 1904/1910), deeply critical of the neoclassical school he believed

that ongoing economics processes within domestic economies were cumulative and path-

dependent, the results of particular historical developments (Screpanti & Zamagni, 2005: 301

– 303). Whilst the emergence of new institutional economics, defined the institutional

approach as viewing the economy as a complex structure containing complicated sets of

interrelationships arguing further that whilst the welfare of human beings may depend on the

flow of goods and services, the cost of exchange in this process is mediated by national

domestic institutions (Coase, 1998)11

. Historical Institutionalism thus focuses on the national

pathways of institutional development (Gershenkron, 1962; Katzenstein, 1985; Collier &

Collier; 1991, Skocpol, 1992, Spruyt, 1994, Ertman, 1997; Huber & Stephens, 2001) and how

these have lead to the emergence of differing varieties of capitalisms across economies

(Johnson, 1982; Albert, 1993; Schmidt, 2002; Part Two, Beeson, 2006; Story, 2006). These

varieties of capitalisms themselves depending on the development and strength of various

groups in labour, finance, industry, the political realm (Katzenstein, 1978) and society

(Mann, 1986; 1986a). The evidence of these divergent domestic institutional arrangements

being the very different ways states often respond to the same crises (Evans et al, 1985: 351

– 352).

Rational and historical institutionalisms were not without criticisms however (Blyth,

1997; 2003: 696-697; Gofas & Hay, 2010a: 13 – 40; Seabrooke, 2010: 79 – 83). Among

10 For similar arguments on weak institutional environments being captured by elites see (Kalecki, 1943; Haring

& Douglas, 2012: Chapter One). For the argument that the weak global institutional environment is hindering successful economic development

by the developing world (Stiglitz, 2002; 2006).

For the argument that strong domestic institutional environments are needed to promote economic development

in the developing world see (Evans, 1995; Rodrik, 2007; 2011). 11 This definition is remarkably similar to the one provided by the ‘old institutional economics school

(Commons, 1934; 1934a).

Word Count = 7999.

5

those criticisms, being the most important in relation to this paper was the static conception

of economic policy that they brought to the table. How did economic decision-making, being

primarily the result of static variables like rational self-interest or historical institutional

legacy correlate with the visible world of innovation in economic policy?12

In response to

these criticisms both institutionalisms began to incorporate other aspects into the dominant

narratives of their frameworks. Thus historical institutionalism began to speak of the

subordinate role of ideas in relation to institutional environments (Gourevitch, 1986, Hall,

1989; 1993) and rational institutionalism began to address the role institutions and ideas may

play in shaping individuals self-interest (North, 1990; Goldstein & Keohane, 1993; Weingast,

1995; Wade, 1996; Knight & North, 1997; North, 2005; Greif, 2006)13

.

Economic Constructivism and Punctuated Equilibrium

The main dynamic introduced to the institutional literature in an attempt to account

for economic policy innovation was the model of punctuated equilibrium. As Seabrooke

(2010: 79 – 85) has shown, the punctuated equilibrium model is common to all three

approaches14

, seen as providing the dynamic necessary for economic policies to undergo a

period of innovation. In the following paragraphs the punctuated equilibrium model will be

examined by recourse to the final approach within the institutional literature, that of

economic constructivism.

Like historical intuitionalism, economic constructivism arose from the influence of

another two great economists, in this instance those being John Maynard Keynes and

Friedrich Hayek. Famously Keynes argued that ‘the ideas of economists and political

philosophers, both when they are right and when they are wrong, are more powerful than is

commonly understood. Indeed the world is ruled by little else. Practical men, who believe

themselves to be quite exempt from any intellectual influences, are usually the slave of some

defunct economist’ (Keynes, 1936/2008: 239). Furthermore Keynes explicitly argued that

when compared to the role of ideas, factors such as vested interests were greatly exaggerated.

Whilst ideas may take a while to gain influence, for Keynes, it was nevertheless ideas ‘not

vested interests which are dangerous for good and evil’ (Keynes, 1936/2008: 239). Similarly

Hayek would argue that ideas were the key determinant in understanding individuals’

behaviour and economic policy. As he argued ‘if in the long run we are the makers of our

own fate, in the short run are the captives of the ideas we have created’ (Hayek, 1944/2001:

2). Unlike Keynes however, Hayek argued from the neoclassical perspective on the role of

market equilibrium and efficiency and as such, adopted neoclassical theories methodological

individualism. Hayek thus argued that the single key idea that should determine economic

and public policy was that of individual freedom, because government intervention leads to

the imposition of tyranny (Hayek, 1944/2001; 1960/2006). Economic constructivism thus

arose from these convictions to place the role of ideas at the very centre of our understanding

12 For this criticism in relation to rational institutionalism see (Rodrik, 2013).

For this criticism in relation to historical institutionalism see (Thelen, 2003: 208 – 211). 13 An interesting aspect of this literature is the rise of accounts which see the dynamics of economic decision-

making not being driven by the rational interest of individuals, but of trans-national corporations (Klein, 2000;

Hertz, 2001). 14 For the use of the punctuated equilibrium model in rational institutionalism literature see (Goldstein & Keohane, 1993: 17; Levi, 1997: 23 – 28) – claims exogenous shock leads to a reinterpretation of interests by

individuals.

For historical institutionalism see (Hall, 1993; Gourevitch, 1986: 9) - claims exogenous shock challenges

existing institutional arrangements spurring conflict.

For economic constructivism see (Parsons, 2003: 8 – 9, McNamara, 1998: 7, 57 – 61, Klein: 2008) - claims

exogenous shock allows elites to restructure individuals’ incentives through the use of economic ideas.

Word Count = 7999.

6

of individual behaviour and economic policy (Woods, 1996; Berman, 1998; Blyth, 2002;

Schmidt, 2002; Campbell, 2004; Beland, 2006; Jabko, 2007; Pemberton, 2009; Rodrik, 2013)

and provides us with a prime opportunity to investigate the model of punctuated equilibrium.

The implications of the punctuated equilibrium model are two-fold: (i) that both

markets and policies have equilibrium positions characterised by stable and certain conditions

and (ii) only significant innovation in policy can occur after exogenous shocks that punctures

equilibrium. One example of the use of a punctuated equilibrium model was by Mark Blyth

(2002: 18, 35 – 37). In its simplest economic constructivist format punctuated equilibrium is

explained as thus: existing institutional and ideational equilibrium is disrupted by exogenous

shock, leading to a period of economic and policy uncertainty, during which elites, or norm

entrepreneurs (Finnemore & Sikkink, 1998; Blyth, 2003: 698), articulate new ideas upon

which a new policy equilibrium should be based. The winners of this battle of ideas are then

able to stabilise policy and create a new institutional and ideational equilibrium, which forms

the basis of political interaction until the next exogenous shock. It is this sequence of events,

correlating periods of uncertainty with paradigm-succession that this paper will question.

Leonard Seabrooke (2007; 2010) provides an interesting counterpoint within the

ideational literature on punctuated equilibrium. Whilst not disagreeing with the notion, he

does argue that policy innovation can also be brought about by endogenous factors relating to

a two-way mechanism between policy elites and the everyday practices of non-elites. This is

driven by the need to garner legitimacy behind proposed ideas, policies and institutional

reform that will form the basis of the next institutional structure. To illustrate his point,

Seabrooke argues that it was in fact a legitimacy gap between elites and non-elites in the

1920s and 1930s which paved the way for institutional experimentation and the fertilisation

of the eventual Keynesian revolution15

. This perspective has been applied to contemporary

policy developments within the UK economy, first to suggest that a sense of moral panic by

the middle classes provided the Brown government with the legitimacy needed to recapitalise

the banks (Watson, 2009) and second, that middle class guilt regarding excessive consumer

indebtedness provides the legitimacy needed for the Coalition government to implement the

policies of austerity (Stanley, 2013).

In terms of this paper however it is the suggestion that innovation can actually arise

from endogenous sources, not merely exogenous shocks, that is important, a concept that has

been articulated across a broad range of literature (Marx, 1848/1930: Part One, 30 – 42;

Schumpeter, 1943: Chapter 7 & 8; Polanyi, 2001; Minsky, 2008). One interesting account of

endogenous shock comes from Reinhart and Rogoff (2009) who use a quantitative

econometric approach familiar to the neoclassical school to chart the history of financial

crises. The authors argue that financial crises are characterised by excessive debt

accumulation by both governments and private sector. The authors argue that the key

determinant in the accumulation of debt is an affliction of the mind called the ‘this time is

different syndrome’. A term used by the authors to encapsulate a process whereby fading

memories during economic booms forget the lessons of previous collapses itself fostering a

belief that the economic fundamentals of the contemporary boom is different than others that

have preceded it and prosperity will this time be maintained indefinitely. Thus debt is

accumulated and the seeds of the next crisis are sown. Furthermore the authors suggest this

15 Whilst Seabrooke has some interesting passages charting economic dissent in the inter-war period, he is

wrong to attribute intervention in the economy in this period as something new, driven by a legitimacy gap

between elites and non-elites. UK micro-economic policy, then as now, is best characterised as a policy of

selected interventionism. Indeed this policy is so pervasive in UK economic history it should be considered as

forming part of the UK orthodoxy.

Word Count = 7999.

7

process is innate to human economic behaviour arguing that whilst ‘countries, institutions

and financial instruments may change across time,... human nature does not’ (Reinhart &

Rogoff, 2009: xxviii) and that ‘no countries, irrespective of its global importance, appears

immune to’ the syndrome (Reinhart & Rogoff, 2009: 287). However, by laying the blame of

financial crises at the door of human decision-making the authors have implicitly accepted a

central core position principally that actors do not operate according to the dictums of

neoclassical theory. If the authors are correct, individuals do not act upon complete

information but rather blind optimism and as such fail to act rationally and are thus rendered

as imperfect entities. In this case the concept of equilibrium, which relies upon humans being

perfect entities and assumptions regarding certain types of economic behaviour, cannot occur

and rather than uncertainty being exogenous, as equilibrium theory assumes, because of

human fallibility, it is in fact endogenous and characterises all types of economic

relationships.

Thus by assuming that shocks are exogenous, and periods of innovation are limited to

those moments, historical institutionalism and economic constructivism are themselves

operating on the terrain of neoclassical theory and its rational individualist methodological

assumptions16

. As neoclassical theories of complete information have progressively been

illustrated as illusory (Greenwald & Stiglitz, 1986), the suggestion that individuals pursue

genuine self-interest must be dismissed and a new concept put in its place, that individuals in

fact pursue perceptions of self-interest. This is because without complete information they

can never truly know what their genuine interests are. As such the ‘inexorable link between

context and conduct opened up by the assumption that behaviour is a logical correlate of

contextualised rationality is shattered’ (Gofas & Hay, 2010a: 24 – 25) and the argument that

uncertainty is endogenous replace our understanding of uncertainty being a product of

exogenous shocks. However if this is the case, then the argument surrounding the relationship

between punctuated equilibrium and policy innovation becomes tenuous. If ideas need the

incubation of uncertainty to become influential, why should the power of ideas be relegated

only to certain periods? In many ways this argument can be illustrated by using the

conclusions of Keynes’ General Theory (1936/2008). The major element of Keynes’ theory

was his rejection of the central tenets of neoclassical theories, specifically the idea that

general equilibrium, in which all resources are used efficiently, is a norm case. Keynes rather,

argued that markets are characterised by uncertainty leading them to operate at sub-

equilibrium positions, characterised by high unemployment, and that equilibrium, rather than

being the norm, was in fact a special case scenario. Like Keynes we should reject

neoclassical assertions of equilibrium and rather, when judging economic policy-making,

accept that uncertainty provides us with the norm environment.

Finally it has been argued that the current economic policies of austerity and deficit

reduction implemented by the Coalition Government are paradigm (or equilibrium)

reinforcing rather than paradigm-threatening, something for which the existing literature,

with its concern to link exogenous shocks to periods of policy innovation, does not

adequately prepare us for, it being argued that ‘whether a crisis proves paradigm-challenging

or paradigm-reinforcing depends on how it is perceived – specifically whether it is seen to

signal an exhaustion of the paradigm or (as here) to emerge from a violation of its core

precepts’ (Hay, 2013: 23 – 24). The rest of this paper will illustrate the historical precedence

for just such a phenomenon and that rather than this being a one off event in reaction to the

latest economic crisis, the UK regularly implements policies that reinforce an identifiable

16 For a similar argument see (Gofas & Hay, 2010a: 25).

Word Count = 7999.

8

paradigm of orthodoxy rather than embark on innovation leading to paradigm-succession.

This process is termed creative consolidation.

Case Study – Monetary Policy in the Interwar Period

Any discussion of monetary policy in the interwar period must begin with an

examination of the gold standard. The classical era of the gold standard is commonly

considered to have existed from the 1870s until 1914, when it was suspended due to the

outbreak of World War. The UK and some of its colonial territories had been operating a

gold standard in the decades preceding 1870; however this year is commonly used as marking

the beginning of the classical period because it was in this year that Germany took steps to

join. This decision, along with the economic and political dominance of the UK and thus the

attraction of securing access to the City of London, gave sufficient impetus to other countries

to join the standard and by 1900 all countries except China and some Central American states

were members. The objective of the gold standard was to create a stable international

payment system within the global economy by fixing the major currencies to gold, with

weaker currencies attached to those in turn. The money supply of each country was thus

linked to gold, as the amount of money in circulation was limited to a multiple of central

banks’ gold reserves as a means to facilitate compliance with a requirement of the gold

standard to convert money into gold on demand. Finally, differences in international balance

of payments accounts were settled in gold (World Gold Council, 2013; 2013a).

The gold standard was said to create a stable international monetary system because

of its properties of autonomous adjustment. This process of adjustment was based upon the

economic principles of David Hume’s price-specie flow mechanism. According to Hume,

running consistent surpluses failed to produce any permanent benefits because it activates the

process of autonomous adjustment. The inflow of gold to cover the trade surplus would cause

internal prices to rise as the money supply rose, whilst the opposite flow would mean

countries posting a balance of payments deficit would suffer from a gold outflow, lowering

prices as the money supply contracted. This would automatically make the surplus countries

less competitive in international trade and the deficit countries more so, thus correcting the

imbalance in balance of payments and returning the global economy to its stable and

equilibrium position (Screpanti & Zamagni, 2005: 63; World Gold Council, 2013). But this

theory itself was based upon another of Hume’s theories, his dynamic version of the quantity

theory of money. Hume’s theory states that increases in the supply of money, whilst

generating short-term production and employment, were of a temporary nature. This was

because increased money in circulation, transmitted from sector to sector, also worked

simultaneously to raise prices thus creating inflation (Screpanti & Zamagni, 2005: 63). As

this paper will show, this quantity theory of money provides the basis for the policy paradigm

of orthodoxy. As Chancellor of the Exchequer, Winston Churchill would state in 1925 the

reasons for returning to the gold standard was because ‘everyone knows... that the gold

standard renders inflations impossible and that its introduction deprives the exporting power

of a country of the hectic stimulus of a collapsed exchange’ (Churchill, 1925). Churchill was

thus explicitly stating that the twin reasons for returning to the gold standard in 1925 was

because it reintroduced a mechanism in monetary policy that provided the means of

eradicating inflation and thus meeting the ends of macroeconomic orthodoxy: price stability.

In many ways referring to wars as exogenous shocks feels particularly vulgar, a

denigration of the sacrifices across generation paid in blood on land, sea and air. However

wars are used as examples of exogenous shocks that can puncture established equilibriums

and it is certain to say that, in meeting the needs of the First World War, the UK economy

Word Count = 7999.

9

underwent some vast changes between 1914 – 1918, in both the micro and macroeconomic

realms, from the environment which had existed in 1913 (Morgan, 1952: 98, Peacock &

Wiseman, 1961: 36, Sayers, 1967: 48 - 49; Tomlinson, 1990: 50 – 52, 62). However at the

end of the war, rather than seeing these innovations prove a challenge to the existing

paradigm of orthodoxy, very quickly a process of consolidation and paradigm-reinforcement

occurred, in which the stated objectives of policy was engineer price stability via the re-

imposition of the gold standard (Cunliffe Committee, 1918). The question remains therefore,

why did the exogenous shock of the First World War not lead to a new equilibrium in policy-

making as we should expect?

Two interlocking processes appear to be at play in the reintroduction of the Gold

Standard. Firstly, because the desirability of a return to gold was considered to be the

accepted wisdom of “responsible authority” these being experts on committees and members

of political parties (Churchill, 1925). Certainly when it comes to the political parties there

was a weakness in opposition to a return to the standard that covered much of the political

spectrum and major interest groups. Thus the operation of the Cunliffe Committee, which

committed the UK to a return to the gold standard, saw no major dissenting opinions.

Furthermore later debate over the timing of returning to gold and the deflationary conditions

that would accompany such a policy were all conducted within the framework in which the

return to gold was a given (Tomlinson, 1990: 44). Indeed Conservative (1922/2000;

1923/2000a; 1924/2000b; 1925/2000c), Liberal (1918/2000; 1922/2000a; 1923/2000b;

1924/2000c; 1925/2000d) and Labour (1918/2000; 1922/2000a; 1923/2000b; 1924/2000c;

1929/2000d) party manifestos across the five elections between 1918 – 1929 failed to

mention the gold standard once, indicative of the state of economic opinion found above.

Churchill himself prioritised the wisdom he gained from the experts that sat on various

committees over wisdom from other sources. As he himself stated on announcing the return

of the UK to gold in 1925 “surely the experts, to whom this achievement belongs, must be

very high authorities on the subject. Surely they are the people who ought to know most

about it. Surely their opinion counts more than the clever arguments of academic theorists or

the interested attitude of party politicians” (Churchill, 1925a). If this was the case then it is

worth asking who the experts on committees that advocated the UK returning to orthodox

policy where?

The answer to this question is quite helpfully provided by the Cunliffe Committee

themselves stating that ‘the committee, reflecting the consensus opinion of British financial

and commercial sectors, unanimously recommend a return to the gold standard, the reduction

of government debt and borrowing, and the accumulation of sufficient reserves to underpin

the system’ (Cunliffe Committee, 1918: 109). As Sidney Pollard (1970) notes the return to

the gold standard cannot properly be understood until it is realised that the monetary

authorities were dominated by a narrow section of the City of London, the section

predominately concerned with international finance. Both the Cunliffe and Bradbury

Committees, which helped set the return to orthodoxy, were dominated by interests of

financial services. This cross-pollination continued into the central economic policy-making

institutions of the UK. In 1924-1925, the final full year before the return to gold, of 26

members of the Bank of England Court, including the Governor, at least 15 were connected

with the international financial aspects of City of London activity. Even with this narrow

representation of wisdom, why would this direct economic policy back towards orthodoxy

over the implementation of new policies and objectives? This can again be explained by a

further two interrelated processes: (i) the weak institutional environment already alluded to

that allowed policy to be dominated by the concerns of the international position of the City

of London and (ii) the ideational aspect that drove UK policy orthodoxy, namely that the

Word Count = 7999.

10

macroeconomic objectives of price stability achieved by establishing a quantity theory of

money as the basis of macroeconomic policy was the only route available to secure economic

growth and prosperity. Both of which are best explained by examining the final process at

play in the reintroduction of the gold standard, that being the economic prestige associated

with returning to gold at the pre-war parity of $4.86.

By 1924 both the US and Germany had returned to the gold standard. For the UK ,

that two of its direct competitors seemed to be enjoying the benefits of monetary stability,

whilst Sterling continued to fluctuate uncertainly without an anchor, threatened the status of

the City of London as a global financial centre. Both the City, Bank of England and Treasury

stepped up their campaign to get the UK to return to gold citing the threat to the City and UK

commerce not doing so provided (Calvin, 2000: 49 – 50: O’Brien & Williams, 2007: 110).

That these arguments were influential is evident again from the words of Churchill who

would declare in his House of Commons speech announcing the return to gold of the UK

economy that “if we were to repudiate the gold standard, and introduce legislation for the

purpose of prolonging the embargo, an immense injury would be done to the whole structure

of British finance” (Churchill, 1925a). Furthermore it was decided to return to gold at the pre-

war parity of $4.86. For Pollard (1970: 2 - 3) the return to gold at $4.86 had little reference to

economic realities of the time either in trade or international finance instead, the return at the

pre-war parity being an irrational attempt to recapture the power and glory of the pre-war

London gold standard and the prestige and status that such a position had ceded to the City,

Bank and Treasury17

.

The return to gold at $4.86 however was not just a consequence of the permissive

institutional environment in which a particular version of finance capitalism was allowed to

dominate. As Ben Bernanke (2007: 59) has stated, it was thought that a return to gold

standard on anything other than the pre-war parity would mean losing the faith of a class of

bondholders whose prosperity counted upon price stability. Thus, if the institutional

environment was one aspect of the perpetuation of orthodoxy over policy innovation in the

inter-war period, the second relies upon the ideational aspect of orthodoxy, which sees the

only route to economic prosperity as the inculcation of a quantity theory of money into

economic policy thus providing the means to achieve the orthodox macroeconomic objective

of price stability.

After the horrors of the First World War it was believed in UK policy-making circles

that ‘nothing can contribute more to a speedy recovery from the effects of the war, and to the

rehabilitation of the foreign exchanges, than the re-establishment of the currency upon a

sound basis’ (Cunliffe Committee, 1918: 109) and that it was ‘of the upmost importance that

we should return as quickly as possible, to the normal procedure which existed before the

war’ (Conservative Party, 2000: 23). Thus from the ideational perspective of orthodoxy, the

return to gold at $4.86 appears more readily comprehensible, reinstituting as it did the normal

procedure which had existed before the disruption of the First World War, itself thought to be

the necessary condition with which to bring back prosperity via a revival of international

trade (Churchill, 1925). This illustrates another aspect of orthodoxy, the economic conditions

considered necessary to generate prosperity. Ideational orthodox see prosperity arising

17 The decision to return to gold at the pre-war parity of $4.86 was not unanimous however. Keynes (1925/1970)

argued that $4.86 overvalued Sterling by 10% and would do an immense injury to British industry. Furthermore

Keynes argued that Churchill had been misled by his experts and the siren calls of conventional finance. The

Macmillan report would later confirm Keynes’ hypothesis declaring that ‘the sacrifices which a return to gold at

the old parity involved have not been compensated by the advantages of international price stability which were

anticipated’ (Committee on Finance and Industry, 1931: 106).

Word Count = 7999.

11

primarily from economic conditions outside of the UK economy, principally a stable and

open global trade and financial environment, which economic conditions inside the UK

economy should be structured to take advantage of. This is rather than a vice versa situation,

where creating a supportive and nurturing internal economic environment for UK business

takes precedence over the international environment in which they operate. This orthodox

position flowed from the belief that employment and living standard were dependent on

imports, this necessitating a vibrant export sector, in itself dictating policies of free-trade, a

domestic environment which kept costs low and open global capital markets so overseas

investment from the City of London could generate orders for UK business (Middleton, 1996:

217). Thus the principle macroeconomic objective of the orthodoxy, to secure prosperity and

employment, need only be price stability which would create stable domestic economic

conditions to take advantage of international conditions through securing foreign confidence

and access to foreign markets. In this situation ‘not only did the restoration of the gold

standard close many avenues to policy-makers, but also the adoption of the view meant that

the authorities saw no need for any policies other than sound finance needed to achieve that

aim’ (Howson, 1975: 141).

Within a few short years of the return to gold the UK economy was subjected to

further series of shocks in the Wall Street crash, the great depression and in September 1931

the collapse of the gold standard (Snowden, 1931). The rest of this paper will examine the

UK reaction to these series of shocks by way of the work of Eichengreen and Temin (1992;

2000; 2010). Similarly to the UK, the authors argue that policy decisions globally around

1930 were made according to the view that the primary prerequisite for prosperity was the

maintenance of the gold standard. The gold standard dictated stable policy reactions to

external events and policy-makers when looking for alternatives did so only from a range of

option permissible with membership of the gold standard. Possible policy innovation from

outside the regime were not taken seriously and considered as aberrations, the result of

which was the implementation of contractionary economic policies at the very time when

expansionary ones where needed, themselves contributing directly to the economic crises

which was then unfolding. For the authors this was why abandoning the gold standard

became the essential pre-condition for economic recovery as the shock of the collapse of the

standard opened up a policy vacuum in which new policy options could be considered for

implementation. As they state ‘it was not so much devaluation in and of itself that mattered...

but the expansionary policies whose unilateral adoption was facilitated by the abandonment

of the gold standard’ (Eichengreen, 1992: 393 -394). As such the collapse of the gold

standard opened up the avenues for policy innovations like that found in Sweden (Calvin,

2000: 142) where fiscal budgets began to be balanced over economic cycles rather than

annually, and in the US with major schemes of public works under the New Deal

programmes (Bernstein, 1987: 184). As we shall see however UK policy, rather than innovate

like the Swedes and Americans, in response to shock once again retreated to within its

orthodox paradigm of policy.

As the UK left gold in September 1931 the Treasury assumed responsibility for the

conduct of monetary policy. Over the winter of 1931-1932 monetary policies of cheap money

were introduced, both as a means to manage Sterling and as a counter-cyclical policy to

combat the economic slump, as interest-rates were lowered from 6 per cent to 2 per cent.

Despite the reduction of interest-rates as a means to stimulate investment, this policy cannot

be considered as a radical departure from what came before. (Howson, 1975: 142). First,

central banks had commonly manipulated interest-rates during the operation of the gold

standard even in its classical period (Middleton, 1996: 218; World Gold Council, 2013a).

Word Count = 7999.

12

Second the justification for cheap money presented by Treasury Official Ralph Hawtrey18

was practically indistinguishable from the theoretical justifications made on behalf of

orthodoxy in the 1920s. Hawtrey applied a dynamic quantity theory of money to argue that it

was the supply of money which determined prices and productivity and thrift which

determined income and employment. For Hawtrey the trade cycle was a monetary

phenomenon to be treated by monetary policies, providing a more reliable boost to recovery.

Alternative policy innovations like increased public expenditure and public works were

dismissed because of the inflationary pressures they would induce, thus threatening overall

price stability (Hawtrey, 1933; Peden, 1984: 168). Thus during the interwar period the fiscal

orthodoxy of balanced budgets and national debt reduction formed an integral part of

achieving the orthodox objective of price stability (Hawtrey, 1933). In fact the fiscal

orthodoxy of balanced budgets and debt reduction has existed since before the interwar

period, forming part of the orthodoxy during the classical gold standard period, and indeed

has its genesis much earlier in the 18th century. Observation of public expenditure as a

percentage of GNP notes that in 1790 the ratio stood at 12per cent, which despite

fluctuations, it still stood at in 1913 (Buchanan et al, 1978: 31 - 45; Peacock & Wiseman,

1961: 35).

Further illustrations of the orthodox nature of cheap money policies come from their

operation after implementation. As Peden (1984: 178) notes in practice the Treasury found it

difficult to manage newly floating Sterling as they wished as it faced speculative pressure

from international finance. This situation lead to the primary purpose of the interest-rate

being, not to stimulate investment, but to influence the international capital position so as to

strengthen and protect gold reserves and thus achieve the orthodox objective of price stability

(Middleton, 1996: 218). A situation illustrated by the excessive intervention by UK

monetary authorities in foreign exchange markets during the period (Dimsdale, 1981: 322).

Furthermore the creation of the Sterling Area after the collapse of the gold standard served to

reinforce fiscal conservatism. The willingness of members to hold Sterling believed to be

predicated upon confidence felt in London, this confidence founded upon the applying the

orthodox means of a quantity theory of money and fiscal rectitude to achieve the orthodox

macroeconomic objective of price stability (Tomlinson, 1990: 103). As Peden (1984: 179)

notes therefore, possible repercussions of foreign financial opinion, in ways that might

negatively impact upon the exchange-rate, reinforced the belief in UK policy-makers of the

need to achieve the orthodox macroeconomic objective of price stability. As such the

orthodox paradigm continued to constrain the possibility of policy innovation as it had done

throughout the interwar period by consolidating policy around its core policies and ideational

perspective.

Conclusion

The main emphasis of this paper has been to illustrate that the model of punctuated

equilibrium, when applied to the UK economy, does not provide an accurate picture of

economic policy-making in the UK. According to the model, exogenous shocks disturb

established policy paradigms by introducing periods of uncertainty. This uncertainty creates a

vacuum from which a new paradigm, established around new interests, new ideas and the

creation of a new institutional environment, is created. This paper has questioned this model

from two different approaches. Firstly, by questioning whether we should accept the

neoclassical premise of the punctuated equilibrium model, principally that uncertainty is the

18 Ralph Hawtrey is an interesting figure. His reputation as an economist far outweighed his administrative

position in the Treasury, where he never rose above the position of Administrative Secretary (Gaukroger, 2008).

Word Count = 7999.

13

product of exogenous occurrences outside of markets. As explored earlier, accepting this

position allows us to fall into the trap of the neoclassical theorists highlighted by Minsky, that

in relying on models to explain human behaviour we ignore important issues such as the

suggestion that uncertainty, rather than being exogenous, is in fact endogenous to all

economic behaviour.

This argument however is far from saying the entire institutionalism literature is

incorrect19

. It is just to claim that the use of a punctuated equilibrium model is misguided, at

least in the case of attempting to understand policy innovation in the UK. As the quote at the

beginning of the introduction argued, institutional literature is focussed upon explaining how

order is maintained and how change occurs. In terms of attempting to prioritise which

approach provides a superior explanation of the influences on economic decision-making, it

is wise to follow the advice provided by scholars (Gofas & Hay, 2010; Katznelson &

Weingast, 2005) and avoid ontological duality, accepting that economic decision-making is

driven by a complex combination of factors (Walsh, 2000). This correlates with work on the

economic policy-making process which suggests that rather than viewing the process through

the orderly lens of formulation, implementation and evaluation, we should in fact, see the

messy and unpredictable world of multiple centres and sources of authority and influence on

the policy environment which actually exists (Cairney, 2012: 1 – 2).

The second approach was to apply the punctuated equilibrium model to the case study

of UK monetary policy in the interwar period. As the literature indicates it is quite possible

that the orthodox paradigm documented during the interwar period would not have been

over-turned, and policy innovation would not have subsequently emerged, had it not been for

the exogenous shock of the Second World War, which created the uncertainty within which a

Keynesian inspired paradigm could appear (Moggridge, 1976: 12; Pemberton, 2009: 49). In

this vein it has been noted that, economic policy in 1939, was still far from accepting the

position it had reached by 1944, when the objective of macro-economic policy became the

management of demand and employment (Winch, 1969: 218; Peden, 1988; Middleton, 1985:

Chapter 6 & Conclusion). Viewing the Second World War as an exogenous shock however,

leading to the implementation of a new policy paradigm misses the broader picture of UK

economic history. The innovation in economic policy that occurred during and after the

Second World War should not be viewed purely as a product of that singular exogenous

shock, but rather, as the end product of three decades of unprecedented uncertainty. A period

that encapsulates the First World War, the Bolshevik revolution, the Wall Street Crash, the

collapse of the gold standard, the great depression, the collapse of global trade, a general

strike, economic decline, hunger marches, unprecedented levels of unemployment, the rise of

fascism and the Second World War. The real story of UK economic policy in the interwar

period is not the slow evolution of the ideas and policies of Keynes, a process that was

eventually cemented by the Second World War, but rather the remarkable resilience of the

orthodox paradigm maintained by the process of creative consolidation.

19 I am however explicitly saying that methodological individualism of rational institutionalism is incorrect. If people cannot gain access to complete information they cannot act rationally. If they cannot act rationally then

can never know behave in accordance with genuine conception of self-interest, but rather can only act upon a

perception of their self-interest. This is not to deny that individuals may act upon a perception of their self-

interest, but this in itself is a radically different proposition from the one put forward in neoclassical theory.

Accepting that people may only act upon a perception is to accept that people are indeed fallible and may not act

in ways such as to maximise their own utility.

Word Count = 7999.

14

References

Albert, Michel (1993) Capitalism Against Capitalism (London: Whurr).

Arrow, Kenneth & Debreu, Gerard (1954) ‘Existence of an Equilibrium for a Competitive

Economy’, Econometrica, Vol. 22, No. 3 (July) 265-290.

Beeson, Mark (2006) ‘Politics and Markets in East Asia’ in Geoffrey Underhill & Richard

Stubbs, eds. Political Economy and the Changing Global Order (Oxford: Oxford

University Press) pp. 443 – 453.

Beland, Daniel (2006) ‘The Politics of Social Learning: Finance, Institutions and Pension

Reform in the United States and Candad’, Governance, Vol. 19, No. 4 (October) 559

– 583.

Berman, Sheri (1998) The Social Democratic Movement (Cambridge: Harvard University

Press).

Bernanke, Ben (2007) ‘Interview with Ben Bernanke’ in Randall Parker, ed. The Economics

of the Great Depression (Cheltenham: Edward Elgar) pp. 52 – 67.

Bernstein, Michael (1987) The Great Depression (Cambridge: Cambridge University Press).

Blyth, Mark (1997) ‘Any More Bright Ideas’, Comparative Politics, Vol. 29, No. 2 (January)

229 – 250.

Blyth, Mark (2002) Great Transformations (New York: Cambridge University Press).

Blyth, Mark (2003) ‘Structures do not Come with an Instruction Sheet’, Perspectives on

Politics, Vol. 1, No. 4 (December) 695 – 703.

Buchanan, J, Wagner, R & Burton, J (1978) The Consequences of Mr Keynes (London:

Institute of Economic Affairs).

Cairney, Paul (2012) ‘How Can Policy Theory Inform Policy Making (and vice versa?) A

Focus on Scotland’, Political Studies Association Annual Conference, Panel:

Devolved Government and Constitutional Change, Belfast.

http://www.psa.ac.uk/journals/pdf/5/2012/148_112.pdf [Accessed on 17th February

2013].

Calvin, Patricia (2000) The Great Depression in Europe,1929-1939 (Basingstoke:

Macmillan).

Campbell, John (2004) Institutional Change and Globalization (Princeton: Princeton

University Press).

Churchill, Winston (1925) ‘Return to Gold Standard’, House of Commons Debate, Hansard,

Vol. 183 (April) cc 52-58.

Churchill, Winston (1925a) ‘The Gold Standard Bill’, House of Commons Debate, Hansard,

Vol. 183 (May) cc 668 – 681.

Cirillo, Renato (1978) The Economics of Vilfredo Pareto (London: Cass).

Word Count = 7999.

15

Clark, John Bates (1899) The Distribution of Wealth (London: Macmillan).

Coase, Ronald (1998) ‘The New Institutional Economics’, The American Economic Review,

Vol. 88, No. 2 (May) 72 – 74.

Collier, Ruth & Collier, David (1991) Shaping the Political Arena (Princeton: Princeton

University Press).

Committee on Finance and Industry (1931) Report (London: HMSO).

Commons, John R (1934/1961) Institutional Economics, Vol. 1 (Madison: University of

Wisconsin Press).

Commons, John R (1934/1961a) Institutional Economics, Vol. 2 (Madison: University of

Wisconsin Press).

Conservative Party (1922/2000) ‘General Election Manifesto 1922 in Iain Dale, ed.

Conservative Party General Election Manifestos, 1900-1997 (London: Routledge) pp.

23 – 25.

Conservative Party (1923/2000a) ‘General Election Manifesto 1923’ in Iain Dale, ed.

Conservative Party General Election Manifestos, 1900-1997 (London: Routledge) pp.

26-29.

Conservative Party (1924/2000b) ‘General Election Manifesto 1924’ in Iain Dale, ed.

Conservative Party General Election Manifestos, 1900-1997 (London: Routledge) pp.

30-36.

Conservative Party (2000c) ‘General Election Manifesto 1929’ in Iain Dale, ed. Conservative

Party General Election Manifestos, 1900-1997 (London: Routledge) pp. 37-49.

Cuncliffe Committee (1918) The Interim Report of the Cuncliffe Committee, World Gold

Council Website.

http://www.gold.org/government_affairs/gold_as_a_monetary_asset/historical_recor

ds_back_to_the_17th_century/the_heyday_of_the_gold_standard/ [Accessed 5th

December 2011].

Dimsdale, N.H. (1981) ‘British Monetary Policy and the Exchange Rate 1920 – 1938’,

Oxford Economic Papers, New Series, Vol. 33, Supplement: The Money Supply and

the Exchange Rate, (July) 306 – 349.

.

Dow, Shelia (2009) ‘David Hume and Modern Economics’, Capitalism and Society, Vol. 4,

No. 1 (January) 1 – 29.

Eichengreen, Barry (1992) Golden Fetters: The Gold Standard and the Great Depression,

1919 – 1939 (New York: Oxford University Press).

Eichengreen, Barry & Temin, Peter (2000) ‘The Gold Standard and the Great Depression’,

Contemporary European History, Vol. 9, No. 2 (July) 183 – 207.

Eichengrenn, Barry & Temin, Peter (2010) ‘Fetters of Gold and Paper’, National Bureau of

Economic Research, Working Paper 16202 (July) 1 – 30.

Word Count = 7999.

16

Ertman, Thomas (1997) Birth of the Leviathan (New York: Cambridge University Press).

Evans, Peter, Rueschmeyer, Dietrich & Skocpol, Theda (1985) ‘On the Road toward a More

Adequate Understanding of the State’ in Peter Evans, Dietrich Rueschemeyer &

Theda Skocpol, eds. Bringing the State Back In (Cambridge: Cambridge University

Press).

Evans, Peter (1995) Embedded Autonomy (Princeton: Princeton University Press).

Finnemore, Martha & Sikkink, Kathryn (1998) ‘International Norm Dynamics and Political

Change’, International Organisation, Vol. 52, No. 4 (Autumn) 887 – 917.

Galbraith, John Kenneth (2009) The Great Crash 1929, 3rd

Edition (London: Penguin Books).

Gaukroger, Alan (2008) The Director of Financial Enquiries: A Study of the Treasury Career

of R.G. Hawtrey, 1919-1939, Unpublished Doctoral Thesis, University of

Huddersfield. http://eprints.hud.ac.uk/2980/1/agaukrogerfinalthesis.pdf [Accessed on

18th February 2013].

Gershenkron, Alexander (1962) Economic Backwardness in Historical Perspective

(Cambridge: Harvard University Press).

Gofas, Andreas & Hay, Colin (2010) ‘The Ideational Turn and the Persistence of Perennial

Dualisms’ in Andreas Gofas & Colin Hay, eds. The Role of Ideas in Political Analysis

(London: Routledge) 3 – 10.

Gofas, Andrea & Hay, Colin (2010a) ‘Varieties of Ideational Explanation’ in Andreas Gofas

& Colin Hay, eds. The Role of Ideas in Political Analysis (London: Routledge) 11 –

55.

Goldstein, Judith & Keohane, Robert O (1993) ‘Ideas and Foreign Policy: An Analytical

Framework’ in Judith Goldstein & Robert O. Keohane, eds. Ideas and Foreign

Policy: Beliefs, Institutions and Political Change (Ithaca, NY: Cornell University).

Gourevitch, Peter (1986) Politics in Hard Times (Ithaca, NY: Cornell University Press).

Greenwald, Bruce & Stiglitz, Joseph (1986) ‘Externalities in Economies with Imperfect

Information and Incomplete Markets’, The Quarterly Journal of Economics, Vol. 101,

No. 2 (May) 229 – 264.

Greif, Avner (2006) Institutions and the Path to the Modern Economy (Cambridge)

Cambridge University Press).

Hall, Peter (1989) The Political Power of Economic Ideas (Princeton: Princeton University

Press).

Hall, Peter (1993) ‘Policy Paradigms, Social Learning, and the State: The Case of Economic

Policymaking in Britain’, Comparative Politics, Vol. 25, No. 3 (April) 275 – 296.

Haring Norbert & Douglas, Niall (2012) Economists and the Powerful (London: Anthem

Press).

Word Count = 7999.

17

Hawtrey, R.G. (1933) ‘Public Expenditure and the Trade Depression’, Journal of the Royal

Statistical Society, Vol. 96, No. 3 (Autumn) 438 – 458.

Hay, Colin (2013) ‘Treating the Symptom not the Condition: Crisis Definition, Deficit

Reduction and the Search for a New British Growth Model’, The British Journal of

Politics and International Relations, Vol. 15, No. 1 (February) 23 – 37.

Hayek, Friedrich Von (1944/2001) The Road to Serfdom (London: Routledge Classics).

Hayek, Friedrich Von (1960/2006) The Constitution of Liberty (London: Routledge Classics).

Hertz, Noreena (2001) The Silent Takeover (London: William Heineman).

Howson, Susan (1975) Domestic Monetary Management in Britain, 1919 – 1938

(Cambridge: Cambridge University Press).

Huber, Evelyne & Stephens, John (2001) Development and Crisis of the Welfare State

(Chicago: University of Chicago Press).

Hume, David (1739/1986) A Treatise of Human Nature (London: Penguin Books).

Jabko, Nicolas (2007) Playing the Market – Political Strategy for Uniting Europe (Cornell:

Cornell University Press).

Jevons, William Stanley (1871/1965) The Theory of Political Economy, 5th Edition (New

York: Kelley, 1965).

Johnson, Chalmers (1982) MITI and the Japanese Miracle (Stanford: Stanford University

Press).

Kalecki, Michal (1943) ‘Political Aspects of Full Employment’, The Political Quarterly, Vol.

14, No. 4 (October) 322 – 330.

Katzenstein, Peter (1978) ‘Introduction: Domestic and International Forces and Strategies of

Foreign Economic Policy’ in Peter Katzenstein, ed. Between Power and Plenty

(Madison: University of Wisconsin Press) 3 – 22.

Katznelson, Ira & Weingast, Barry (2005) ‘Intersections Between Historical and Rational

Choice Institutionalism’ in Ira Katznelson & Barry Weingast, eds. Preferences and

Situations (New York: Russell Sage) 1 – 24.

Keynes, John Maynard (1925/1970) ‘The Economic Consequences of Mr. Churchill’ in

Sidney Pollard, ed., The Gold Standard and Employment Policies between the Wars

(London: Methuen, 1970) pp. 27 – 43.

Keynes, John Maynard (1936/2008) The General Theory of Employment, Interest and Money

(San Diego: BN Publishing).

Kindleberger, Charles (1978) Manias, Panics and Crashes (London: Macmillan).

Klein, Naomi (2000) No Logo (London: Flamingo).

Klein, Naomi (2008) The Shock Doctrine (London: Penguin).

Word Count = 7999.

18

Knight, Jack & North, Douglas (1997) 'Explaining Economic Change: The Interplay between

Cognition and Institutions', Legal Theory, Vol. 3, No. ? (September) 211 - 226.

Krugman, Paul (1994) The Age of Diminished Expectations (Cambridge: MIT Press).

Krugman, Paul (2003) The Great Unravelling (London: Allen Lane).

Krugman, Paul (2008) The Return of Depression Economics and the Crisis of 2008 (London:

Penguin).

Krugman, Paul (2012) End This Depression Now! (New York; London: W.W. Norton).

Labour Party (1918/2000) ‘General Election Manifesto 1918’ in Iain Dale, ed. Labour Party

General Election Manifestos, 1900-1997 (London: Routledge) pp. 16-18.

Labour Party (1922/2000a) ‘General Election Manifesto 1922’ in Iain Dale, ed. Labour Party

General Election Manifestos, 1900-1997 (London: Routledge) pp.19-22.

Labour Party (1923/2000b) ‘General Election Manifesto 1923’ in Iain Dale, ed. Labour Party

General Election Manifestos, 1900-1997 (London: Routledge) pp.23-26.

Labour Party (1924/2000c) ‘General Election Manifesto 1924’ in Iain Dale, ed. Labour Party

General Election Manifestos, 1900-1997 (London: Routledge) pp. 27-31.

Labour Party (1929/2000d) ‘General Election Manifesto 1929’ in Iain Dale, ed. Labour

Party General Election Manifestos, 1900-1997 (London: Routledge) pp. 32-38.

Levi, Margaret (1997) 'A model, a method and a map: Rational choice in comparative

politics' in Mark Lichbach & Alun Zuckerman, eds. Comparative Politics:

Rationality, Culture and Structure (Cambridge: Cambridge University Press) 19 - 41.

Liberal Party (1918/2000) ‘General Election Manifesto 1918’ in Iain Dale, ed. Liberal Party

General Election Manifestos, 1900-1997 (London: Routledge) pp. 34-35.

Liberal Party (1922/2000a) ‘General Election Manifesto 1922’ in Iain Dale, ed. Liberal Party

General Election Manifestos, 1900-1997 (London: Routledge) pp. 36-38.

Liberal Party (1923/2000b) ‘General Election Manifesto 1923’ in Iain Dale, ed. Liberal Party

General Election Manifestos, 1900-1997 (London: Routledge) pp. 39-43.

Liberal Party (1924/2000c) ‘General Election Manifesto 1924’ in Iain Dale, ed. Liberal Party

General Election Manifestos, 1900-1997 (London: Routledge) pp. 44-48.

Liberal Party (1929/2000d) ‘General Election Manifesto 1929’ in Iain Dale, ed. Liberal Party

General Election Manifestos, 1900-1997 (London: Routledge) pp. 49-52.

Mann, Michael (1986) The Sources of Social Power, Vol. 1 (Cambridge: Cambridge

University Press).

Mann, Michael (1986a) The Sources of Social Power, Vol. 2 (Cambridge: Cambridge

University Press).

Word Count = 7999.

19

March, James & Olsen, Johan (1989) Rediscovering Institutions (New York: Free Press).

Marshall, Alfred (1920) Principles of Economics, 8th

Edition (London: Macmillan).

Marx, Karl (1848/1930) The Communist Manifesto (London: Martin Lawrence).

McGee, Robert (1989) ‘The Economic Thought of David Hume’, Hume Studies, Vol. 15, No.

1 (January) 184 – 204.

McNamara, Kathleen (1998) The Currency of Ideas (Ithaca, NY: Cornell University Press).

Menger, Carl (1871/1950) Principles of Economics (Glencoe: Free Press).

Middleton, Roger (1985) Towards the Managed Economy (London: Methuen).

Middleton, Roger (1996) Government versus the Market (Cheltenham: Edward Elgar).

Minsky, Hyman (2008) Stabilizing an Unstable Economy, 2nd

Edition (New York: McGraw-

Hill).

Moggridge, Donald (1976) Keynes (London: Macmillan).

Morgan, Edward (1952) Studies in British Financial Policy, 1914 – 1925 (London:

Macmillan).

North, Douglas & Thomas, Robert Paul (1973) The Rise of the Western World (Cambridge:

Cambridge University Press).

North, Douglas (1990) Institutions, Institutional Change and Economic Performance (New

York: Cambridge University Press).

North, Douglas (2005) Understanding the Process of Economic Change (Princeton:

Princeton University Press).

O’Brien, Robert & Williams, Marc (2007) Global Political Economy, 2nd

Edition

(Basingstoke: Palgrave Macmillan).

Pareto, Vilfredo (1972) Manual of Political Economy (London: Macmillan).

Parsons, Craig (2003) A Certain Idea of Europe (Ithaca, NY: Cornell University Press).

Peacock, Alan & Wiseman, Jack (1961) The Growth of Public Expenditure (Princeton:

Princeton University Press).

Peden, George (1984) ‘The Treasury View on Public Works and Employment in the Interwar

Period’, The Economic History Review, New Series, Vol. 37, No. 2 (May) pp. 167-

181.

Peden, George (1988) Keynes, The Treasury and British Economic Policy (Basingstoke:

Macmillan, 1988).

Pemberton, Hugh (2009) ‘Macro-Economic Crisis and Policy Revolution’, Renewal, Vol. 17,

No. 4 (December) 46 – 56.

Word Count = 7999.

20

Polanyi, Karl (2001) The Great Transformation, 2nd

Edition (Boston: Beacon Press).

Pollard, Sidney (1970) ‘Editor’s Introduction’ in Sidney Pollard, ed., The Gold Standard and

Employment Policies between the Wars (London: Methuen) pp. 1 – 26.

Reinhart, Carmen & Rogoff, Kenneth (2009) This Time is Different (Princeton: Princeton

University Press).

Rodrik, Dani (2007) Once Economics, Many Recipes (Princeton: Princeton University Press).

Rodrik, Dani (2011) The Globalization Paradox (Oxford; New York: Oxford University

Press).

Rodrik, Dani (2013) ‘The Tyranny of Political Economy’, Project Syndicate

http://www.project-syndicate.org/commentary/how-economists-killed-policy-analysis-

by-dani-rodrik (Accessed on 8th February 2013).

Sayers, Richard (1967) A History of Economic Change in England, 1880 – 1939 (London:

Oxford University Press).

Schmidt, Vivien (2002) The Futures of European Capitalism (Oxford: Oxford University

Press).

Schumpeter, Joseph (1943) Capitalism, Socialism and Democracy (London: Allen & Unwin).

Schumpeter, Joseph (1994) A History of Economic Analysis (London: Routledge).

Screpanti, Ernesto & Zamagni, Stefano (2005) An Outline of the History of Economic

Thought, 2nd

Edition (Oxford; New York: Oxford University Press).

Seabrooke, Leonard (2007) ‘The Everyday Social Sources of Economic Crises’, International

Studies Quarterly, Vol. 51, No. 4 (December) 795 – 810.

Seabrooke, Leonard (2010) Everyday Legitimacy and Institutional Change in Andreas Gofas

& Colin Hay, eds. The Role of Ideas in Political Analysis (London: Routledge) 78 –

94.

Skocpol, Theda (1992) Protecting Soldiers and Mothers (Cambridge, MA: Belknap).

Soros, George (1998) The Crisis of Global Capitalism (London: Little Brown).

Soros, George (2008) The New Paradigm for Financial Markets (London: Public Affairs).

Smith, Adam (1759/1872) The Theory of Moral Sentiments, 6th Edition (London: Alex

Murray & Co).

Smith, Adam (1776/1925) An Inquiry into the Nature and Causes of the Wealth of Nations

(London: Metheun).

Snowden, Phillip (1931) ‘Gold Standard (Amendment) Bill’, Speech at the House of

Commons, Hansard, Vol. 256 (September) CCL 1289-357.

Spruyt, Hendrik (1994) The Sovereign State and its Competitors (Princeton: Princeton

University Press).

Word Count = 7999.

21

Stanley, Liam (2013) We’re Reaping what we Sowed: Everyday Crisis Narratives and

Acquiscece to the Age of Austerity, University of Birmingham, unpublished paper,

exchanged through private correspondence, cited with permission.

Stiglitz, Joseph (2002) Globalisation and its Discontents (London: Allen Lane).

Stiglitz, Joseph (2003) The Roaring Nineties (London: Allen Lane).

Stiglitz, Joseph (2006) Making Globalisation Work (New York: Norton).

Stiglitz, Joseph (2010) Freefall (London: Allen Lane).

Jonathon Story (2006) ‘The Emerging World Financial Order and Different Forms of

Capitalism’ in Richard Stubbs & Geoffrey Underhill, eds. Political Economy and the

Changing Global Order (Oxford: Oxford University Press) pp. 145 – 157.

Tarascio, Vincent (1967) Pareto’s Methodological Approach to Economics (Chapel Hill:

North Carolina University Press).

Thelen, Kathleen (2003) ‘Comparative Historical Anlaysis in the Social Sciences’ in James

Mahoney & Dietrich Rueschemeyer, eds. Comparative Historical Analysis in the

Social Sciences (Cambridge: Cambridge University Press) 208 – 240.

Tomlinson, Jim (1990) Public Policy and the Economy Since 1900 (Oxford: Clarendon

Press).

Veblen, Thorstein (1889/1953) The Theory of the Leisure Class (New York: New American

Library).

Veblen, Thorstein (1900) ‘The Preconceptions of Economic Science’, The Quarterly Journal

of Economics, Vol. 14, No. 2 (February) 240-269.

Veblen, Thorstein (1904/1910) The Theory of Business Enterprise (New York: Scribner).

Veblen, Thorstein (1924) The Vested Interests and the Common Man (London: Allen &

Unwin).

Wade, Robert (1996) ‘Japan, the World Bank, and the Art of Paradigm Maintenance: The

East Asian Miracle in Political Perspective’, New Left Review, Issue 217 (May-June)

3 – 36.

Walras, Leon (1874/1954) Elements of Pure Economics (London: Allen & Unwin).

Walsh, James (2000) ‘When Do Ideas Matter?’, Comparative Political Studies, Vol. 33, No.

4 (May) 483 – 516.

Watson, Matthew (2009) ‘Headlong into the Polanyian Dilemma’, The British Journal of

Politics and International Relations, Vol. 11, No. 3 (September) 422 – 437.

Weingast, Barry (1995) 'A Rational Choice Perspective on the Role of Ideas: Shared Belief

System, State Sovereignty and International Cooperation', Politics and Society, Vol.

23, No. 4 (December) 449 - 464.

Word Count = 7999.

22

Wientraub, Roy (1985) General Equilibrium Analysis (Cambridge: Cambridge University

Press).

Weintraub, Roy (2002) ‘Neoclassical Economics’, The Concise Encyclopaedia of Economics,

1st Edition. www.econlib.org/library/Enc1/NeoclassicalEconomics.html [Accessed 8

th

January 2013].

Williamson, Oliver (1985) The Economic Institutions of Capitalism (New York: Free Press).

Winch, Donald (1969) Economics and Policy: A Historical Study (London: Hodder &

Stoughton).

Woods, Ngaire (1996) ‘Economic Ideas and International Relations: Beyond Rational

Neglect’, International Studies Quarterly, Vol. 39, No. 2 (June) 161 – 180.

World Gold Council (2013) ‘The Classical Gold Standard’, World Gold Council Website,

http://www.gold.org/government_affairs/gold_as_a_monetary_asset/role_in_internati

onal_monetary_system/the_classical_gold_standard/ [Accessed on 18th February

2013].

World Gold Council (2013a) ‘How the Gold Standard Worked’, World Gold Council Website

http://www.gold.org/government_affairs/gold_as_a_monetary_asset/role_in_internati

onal_monetary_system/how_the_gold_standard_worked/ [Accessed on 18th February

2013].