ABSTRACT
John Maynard Keynes made four main points about the serious problems that infected deflationary disequilibrium dynamics in British economy. First, the mobility of labor across industries and regions had diminished substantially since the nineteenth century. Second, the institutional changes would have significantly raised the adjustment costs involved in the return to gold at par, even if the economy was growing rapidly. Third, the necessary process of deflation would distribute reductions in nominal and real incomes in a manner that violated norms of social justice that required that the distribution of income among the classes reflect their relative contributions to economic output. Fourth, the disequilibrium processes inherent in defense of the pound at par will involve economic and social costs so high they might trigger economic and political class warfare. Keynes is insisting that any policy involving significant deflation must, in the name of social justice, be accompanied by the implementation of what he elsewhere called a “Great National Treaty.”
