Keynes on Foreign Investments and the Return to the Gold Standard

Keynes’s aversion to the gold standard stemmed not only from the impracticality of an automatic system rigidly tied to gold but also from the pre-war parity system, which was perceived as misaligned with the altered conditions of international trade that Great Britain faced at the dawn of the 20th century. From the challenges posed by these new conditions, Keynes drew varying implications. His analysis of the role of foreign investments led him to conclude that departing from laissez-faire principles was essential to reduce the relative significance of foreign trade in the nation’s economic life. On the other hand, his idea regarding the impact of deflation on cyclical fluctuations implied that setting a parity below the pre-war level would be a sensible way to ease the imbalance between internal and external prices. The paper contends that, with the seemingly progressive normalisation of the wartime scenario, this second, narrower outlook increasingly overshadowed his initial, more comprehensive position