Re: Keynes and the balance of payments (1946)

["Esteban Perez" <eperez@xxxxxxxxxxxx>]

You wrote:

Here we have an early version of Keynes's understanding of the threat
that "internal, as well as ... external, economic life" might "become
paralysed by the Midas touch."
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Actually the quote may be considered a very early statement of the ¨rules of the game¨ introduced by Kindersley (1929).
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You wrote:

In the Indian case, this was expressed both as attachment to the gold,
as opposed to the gold-exchange, standard, an attachment which wasted
resources "on holdings of actual gold," and as "national customs in
currency which it may be unwise to disturb" which had to do with the
widespread prevalence of "the Midas touch" among Indians. See, for
example, the passages on pp. 69-71 and 116-7.
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I think one should look at Vol.1 as a whole. Keynes wrote Vol 1: ¨..the Indian system is an exceedingly coherent one. Every part of the system fits into some other part...the complexity and coherence of the system require the constant attention of anyone who would criticize the parts...I urge that in her gold-exchange standard....India is in the forefront of monetary progress¨.
Reagrding national custom read Vol. Xi CW, p. 33 or Marshall´s testimony to the Indian Currency Committee (1926). What Vol. I reveals is the importance of institutional factors for Cambridge economists.
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You wrote:

This idea of "India's love for the precious metals" is also pointed to
in the General Theory (in the changed theoretical context produced by
the development of the liquidity preference theory of interest).

"The history of India at all times has provided an example of a country
impoverished by a preference for liquidity amounting to so strong a
passion that even an enormous and chronic influx of the precious metals
has been insufficient to bring down the rate of interest to a level
which was compatible with the growth of real wealth." (VII, p. 337)
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In vol 1 Keynes wrote p.246: ¨the available evidence does not suggest that the average rate in India is at all unduly high for a country in India´s stage of economic and financial development¨. Keynes points to specific factors (seasonal stringency) that keep interest rates high.
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You wrote:
How do these passages contradict my interpretation of "the classical
medicine" which identifies it with the role played in automatic
adjustment by "deep undercurrents" and confirm what I take to be your's
that "classical medicine" means the classical "dichotomy" and the
associated idea that domestic wage and price deflation can be brought
about with no effect on real values? Specifically, the quote from "The
Balance of Payments of the US" is found in a context where Keynes is
expressing optimism that the US will not attempt to interfere via
"import tariffs and export subsidies" to prevent the "classical
medicine," i.e. the "deep undercurrents" that are making the US into a
"high-living, high-cost country," from working to help bring about
equilbrium in the US balance of payments.
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Keynes reference of the US ¨on its way to becoming a high cost country¨ Vol XXVII  is directly related in his last piece to wages (p.485) which he had indicated before are ¨already two and a half times the British level¨. His solution are import controls, exchange rate