The gold standard
Keynes had always been opposed to the rigid gold standard: beginning with ICF, he favoured managed money. Now, having argued that deflation had even worse consequences than inflation, he could argue against gold even more strongly: a return at pre-war parity would entail the continuation of the deflationary policies already in place, as British wages and prices were still about 10 per cent above American levels at the old exchange rate.
Keynes was in a minority of one among prominent economists, and his view was not considered respectable by most politicians at home or abroad. The gold standard was widely perceived as the key to stability and the return to pre-war parity as honouring one’s debts. Once again, Keynes lost the political argument: Britain returned to gold convertibility at pre-war parity in 1925. He expressed his discontent in a pamphlet, The Economic Consequences of Mr Churchill (Keynes 1925 [1972]), in which he continued his earlier argument that, if sterling was tied to gold, the overvaluation of sterling could only be rectified by further deflation and unemployment.
These analytical conclusions came true. The policy of deflation continued, provoking the General Strike of 1926. But it took a world recession and a collapse of world trade to make the gold standard finally untenable. Britain went off gold in 1931.