Geneva and London
In April 1937, Robertson introduced Meade to Alexander Loveday, Director of the Economic Intelligence Service of the League of Nations, just as Loveday was being frustrated in his search for an experienced and literate economist to succeed J.B. Condliffe as editor of the World Economic Survey. Three months later, Loveday wrote to Meade asking if he would be willing to be considered for the post, having decided (so Loveday later commented) that he would prefer ‘a first- class mind and less experience [to] the obverse’ (Loveday to Meade, 17 August and Loveday to N.F. Hall, 16 October 1937, Loveday Papers, Box P144, League of Nations). Meade began work in Geneva in January 1938; his first Survey appeared in September, his second a year later (1938b, 1939). Loveday told Keynes that he thought Meade ‘has really made a very good job of it’ (Loveday to Keynes, 31 August 1938, in Keynes 1973b: 291).
Richard Kahn reviewed Meade’s first volume very favourably in the Economic Journal (Kahn 1939: 97):
The Survey is far more than a factual account of trends and policies. Mr. Meade believes that economic theory is capable of accounting for observed events and that policies may be judged by the standards of the theoretical economist. But he makes no parade of the theoretical apparatus which underlies his writing (and which accounts very often for the brilliancy of his treatment) ... Theory is none the worse for appearing under the guise (though that is not the correct word) of common sense.
Keynes described it as an ‘authoritative study having international scope’ when he used it in his article on ‘Relative Movements of Real Wages and Output’ in the same issue (Keynes 1939: 42).
The Second World War gave Meade the opportunity for close collaboration with Keynes, who was working in the Treasury from August 1940 until his death in April 1946. It was Austin Robinson who summoned Meade home. Austin had joined the government’s Central Economic Information Service (CEIS) in December 1939. On 20 October he had heard Keynes put forward his proposals on the financing of war to the Marshall Society in Cambridge and in early 1940 he managed to persuade senior civil servants of the need for reliable estimates of national income and expenditure. He asked Meade to come and prepare them and later asked Richard Stone (a recent Cambridge graduate working in the Ministry of Economic Warfare) to assist him. Meade started work in June and by the time Stone arrived at the end of August had already drawn up the framework for the estimates in the form of a complicated system of balancing tables (Meade 1988a: 106-117). Early in the new year, Keynes submitted their first draft to the Treasury’s Budget Committee and persuaded it to use the estimates in formulating the budget for 1941-1942. The first official national income and expenditure estimates were published as a White Paper along with the first Keynesian budget in April 1941 (see also Meade and Stone 1944).
Meade joined the Economic Section of the War Cabinet Offices when the CEIS was split into the Economic Section and the Central Statistical Office (CSO) in January 1941. Stone went to the CSO; at the end of the war he returned to Cambridge to head the new Department of Applied Economics (DAE). (Austin Robinson, meanwhile, moved to the Ministry of Aircraft Production in February 1942.) The Section soon began to consider problems of post-war reconstruction: Meade wrote the first of a long series of memoranda on the subject in February 1941. His proposals for post-war employment policy, which were widely circulated within Whitehall in July 1941 (ibid.: 171-183), included measures for influencing consumption expenditure counter-cyclically along the lines of his Consumers’ Credits and Unemployment. The Beveridge Committee on Social Insurance and Allied Services in 1942 provided Meade with an opportunity to put forward a detailed scheme for variations in the rate of social security contributions as a means of stabilising the demand for labour (ibid.: 184-192). He tried it first on Keynes who was now ‘converted’ despite his usual preference for controlling capital expenditure, before he submitted it to the Committee. Although Meade’s scheme did not appear in the Beveridge Report of December 1942, it was included in an appendix to the White Paper on Employment Policy in May 1944.
Meade wrote the first draft of what led eventually to the White Paper in March 1943 for a ministerial Reconstruction Priorities Committee established in January 1943. Within the Economic Section it went through at least four drafts, with Lionel Robbins, the Director of the Section, redrafting it for the ministerial committee since ‘after all that he has had to put up with [by way of criticism] from us, it would have been a last indignity to ask J.E.M. to do this’ (ibid.: 199). (The last of Meade’s three drafts is in ibid.: 199-232.) It met strong adverse reaction in the Treasury from the permanent secretary, Sir Richard Hopkins, down. Keynes, less pessimistic than Meade about the possibility of post-war depression, was not entirely sympathetic either, but he endeavoured to educate his Treasury colleagues of the necessity of a macroeconomic employment policy. When a small steering committee including Hopkins and Robbins managed to produce an agreed report at the end of 1943, Keynes commented it was ‘indeed an outstanding State Paper which...represents a revolution in official opinion’ (Keynes 1980: 364).
Meade did not take part (neither did Keynes) in the subsequent drafting of the White Paper, which involved almost all every other economist working in Whitehall in 1944 (including Robertson who was in the Treasury). After the White Paper appeared Meade persuaded Hopkins to conduct an enquiry into post-war monetary and debt management policy. The National Debt Enquiry took place in the early months of 1945. Meade found himself defending interest rate flexibility to permit the counter-cyclical use of monetary policy after the war, against Keynes, who favoured low and stable long-term interest rates to encourage investment and keep down the cost of the national debt (Meade 1990a: 48-49, 55-66). Keynes won the day.
Meade was particularly concerned to create an improved international economic order after the war. Early in the war, before he left Geneva, Meade had written a short book, The Economic Basis of a Durable Peace (Meade 1940), in which, believing that a satisfactory peace settlement would require the existence of an international organisation, he considered the economic role that such an organisation would need to play in the post-war world. It should be able to include countries with competitive free markets and with planned economies. An international currency system like the gold standard would be ‘appropriate for a group of liberal economies which practise an internal policy of laissez- faire’ (ibid.: 56) but was not appropriate for a mixture of liberal and planned economies: exchange rate arrangements had to be more flexible. He favoured an international bank with the power to issue an international currency against which individual countries would peg their exchange rates, but these pegs had to be adjustable when a country pursuing a high employment policy was persistently losing reserves. Countries adhering to these international arrangements would have to commit themselves to multilateral free trade and abandon bilateral exchange control and payments arrangements. Hence, when Keynes produced his ‘clearing union’ plan for the post-war international currency system, which he sent to Meade before the rest of the Economic Section in October 1941, Meade welcomed it enthusiastically; he also persuaded Keynes to agree that countries in the union should apply controls only to international transactions on capital account not to those on current account. A few months later he put forward a proposal for a complementary ‘international commercial union’ to restore multilateral trade and remove trade restrictions after the war (Meade 1988c: 27-35). The Keynes and the Meade plans formed the basis of the British contributions to the wartime Anglo-American discussions on the post-war international economic order. Meade joined Keynes and Robbins on the mission to conduct talks with the Americans in Washington in September-October 1943.
Further discussions led to the Anglo-American Proposals for consideration by an International Conference on Trade and Employment published in December 1945. Meade served as a British representative on the Preparatory Commission for the conference, which met in London in 1946 and in Geneva in 1947 to produce a draft charter for an international trade organisation (ITO). The ITO Charter adopted at the Havana Conference in March 1948 was not ratified but its main principles were incorporated in the General Agreement on Tariffs and Trade (GATT) negotiated in Geneva in 1947.
In November 1944, Meade agreed to succeed Robbins as Director of the Economic Section at the end of the war; he officially took over in January
- 1946. He had high hopes of what government economists could achieve on both the domestic and international economic policy fronts; he also thought he might be able to pursue his academic ambitions by writing a new edition of his Economic Analysis and Policy (Meade 1990a: 1). But the Chancellor of the Exchequer of the first majority Labour government, Hugh Dalton, was not inclined to heed Meade’s advice. Meade’s macroeconomic conception of ‘economic planning’—essentially the use of financial policy to influence aggregate demand—was adopted by Dalton’s successor Stafford Cripps in November
- 1947, by which time Meade had resigned in frustration and ill health. As two of his colleagues noted, Meade ‘was advising the wrong minister at the wrong time ... Meade, more than any man—more than Keynes—was the prophet of demand management when the world was not yet ready for demand management’ (Cairncross and Watts 1989: 130; see also Meade 1948).
By the time Meade took up a chair at LSE in September 1947, he had made his research plans: the production of a multivolume ‘Treatise on Economic Policy’ which would cover much the same ground as his pre-war textbook but reflect his experience in government. He envisaged six volumes, one an introductory volume and five to correspond to the five parts of his Economic Analysis and Policy; he thought he would probably start by writing Part I or Part V (‘Scheme for a “Treatise on Economic Policy”’, June 1947, Meade Papers 17/9). But ‘as I was appointed at the LSE to teach international eco?nomics, I started on The Theory of International Economic Policy. It grew into my two books The Balance of Payments [1951] and Trade and Welfare [1955a] ... These books took up practically the whole of my ten years at the LSE’ (Meade 1988a: 3).
Meade did not follow the conventional order of writing on trade before finance: as Jagdish Bhagwati commented, ‘Good microeconomics presupposes good macroeconomics. It was not for nothing that Nobel Laureate James Meade’s classic work on the theory of international economic policy had two volumes, one on balance-of-payments management and a second (in the proper sequence) on the theory of commercial policy’ (Bhagwati 1988: 129). For the first volume Meade constructed a Keynesian general- equilibrium comparative static model for an economy open to trade and capital flows, synthesising Keynes’s theory and Hicksian general equilibrium and extending it in several directions so as to be able to use it to analyse the effects of policy instruments and other variables on internal and external balance. Since his ‘method of work...[was] to make a simple mathematical model of most of the problems before writing about them’, the book and its successor came with separate mathematical supplements containing the models, which also appeared in journal articles (Meade 1951b, 1952, 1955a, 1988c: 95-147). The first systematic exploration of the relationship between domestic and international equilibrium, Meade’s model has become ‘part of the baggage of every economist’ (Corden and Atkinson 1979: 529), the most important single influence behind the development of open economy macroeconomics in the next four decades.
The second volume was equally path-breaking. It made at least three major and lasting contributions to economics: a fundamental reformulation of the theory of economic welfare to make it both operational and more widely applicable; the use of this new theory to analyse controls on factor movements as well as trade controls; and the extension of the analysis from two-country models to a many- country world, including its application to the theory of customs unions (see Meade 1953, 1955b). Meade originally drafted much of the book on the basis of the ‘new welfare economics’ of the late 1930s, but he rewrote it to develop the method of his former wartime colleague Marcus Fleming’s ‘On Making the Best of Balance of Payments Restrictions on Imports’ (Fleming 1951):
It was a brilliant feat of imagination.. .to realize.. .[Flemings method] was capable of large-scale generalization into a powerful tool for welfare analysis of practical policy problems, and an act of great intellectual honesty and courage for him to scrap his existing draft and rework the whole problem on the new approach (Johnson 1978: 73).
Harry Johnson had notoriously criticised the first volume for its ‘taxonomic’ approach. Johnson also criticised, quite unfairly, Meade for his ‘British’ approach to economics, ‘the single scholar working away in his study’ (ibid.: 65) who then presents his major findings in books rather than articles or conference papers. But from his year with the Cambridge Circus to the end of his life Meade was the happiest and most productive with colleagues, especially contemporaries and younger economists, from whom he could learn and on whom he could try out new ideas.
