The Irish Free State in the First Half of the Inter-War Period Policy and Economic Reality

"The decadent international but individualistic capitalism, in the hands of which we found ourselves after the war, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous--and it doesn't deliver the goods. In short, we dislike it, and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed." --John Maynard Keynes (1933)Introduction

This is the story of the newly formed Irish Free State and its early economic policies. It will be argued that the new realities of the Post-World War I economic world exacerbated a steadily declining British economic influence. In an effort to retain world economic domination, Britain showed its' economic hubris, (a time-honored British trait) by returning to an inflated gold standard in 1925. In relegating much of its' economic policy to Britain's lead, the new Irish Free State in tying its economy to that of Britain, shared in its fate.

During the 1920's the world economy witnessed a variety of exchange rate policies: America remained on the gold standard throughout 1919-33; some countries (such as Britain, Denmark, Norway and Sweden) left gold during the war or the immediate post-war period, returning to the pre-1913 parity sometime in the mid-1920's; Belgium, France and Italy returned to gold in the 1920's but at a significantly depreciated exchange rate relative to the pre-1913 gold standard rate; others, such as Spain, allowed their currencies to float, never returning to a gold standard in the 1920's.[i]

The pre-1913 Gold Standard was viewed by the major world economic powers as a successful institution for Britain and the world economy in general. This was an important underlying factor in Britain's desire to return to gold at the pre-war parity price of $4.86. Many economic historians have viewed the return to gold at this parity price as costly blunder that contributed to the relatively slow economic growth of the UK economy in the "roaring" '20's.