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There was a wide measure of agreement that unemployment in Britain during the 1920s was aggravated by lack of international competitiveness. This was the basic issue underlying the debate over the return to the gold standard. The experience of the restored gold standard did much to confirm the arguments of those like Keynes who had claimed that sterling was overvalued at $4.86. This view of the problems of adjustment to an overvalued exchange rate has been endorsed by both Johnson (1975) andFriedman andSchwartz (1963). A major element in competitiveness was the level of real wages. Britain's difficulties in the inter-war period were made more acute by the increase in the cost of labour between 1913 and 1924. This reflected the sharp rise in wages in the First World War and the post-war boom of 1919-20, which was only partly corrected in the recession of 1921-2. The reduction in working hours in 1919, when normal weekly hours were reduced from 53 hours to 47, also raised the cost of employing labour. As a result hourly real wages in 1924 were 28 per cent higher than in 1913 and real wages measured in terms of own product were increased by 20 per cent, while output per head had risen by only 5 per cent over the same period. The increased cost of employing labour was particularly noted and emphasised by Clay (1929).The rise in real and own product real wages occurred when changes were taking place in the international economy which were adverse to Britain's traditional export industries. The fall in demand for traditional exports, such as coal, cotton, iron and steel and ships came at a time when Britain was suffering from increased labour costs for domestic reasons.A reduction in real wages in the 1920s would have assisted the competitivenes of Britain's ailing staple industries as well as encouraging the growth of employment in more labour-intensive sectors of the economy, such as distribution and services. In view of the high degree of stability of money wages after 1923, a reduction in real wages would have been much easier to achieve by a downward adjustment of the exchange rate rather than by cuts in money wages. A reduction in real wages was implied by Keynes's arguments for returning to gold at a lower parity. It was also implied by the recommendation of the Macmillan Committee (1931) for the exchange rate to be maintained and imports to be subject to a uniform tariff, the proceeds from which were to be used to subsidise exports.There was, however, a difference of emphasis between those like Keynes who considered that the problem of the stickiness of money wages could be overcome by a suitable adjustment of the exchange rate or tax/subsidy scheme for foreign trade and those like Pigou (1931) who were less convinced of the benefits of exchange rate adjustment. Pigou questioned whether wage earners would accept constant money wages if prices were to rise as a result of devaluation. The period in which workers could be tricked into accepting a reduction in real wages through an unexpected rise in prices relativ...