Economic Policy of IWYs (1918-1939) Flashcards
What are three economic principles associated with the term “orthodoxy”
1) Free trade
2) Gold standard
3) Balanced Government budget
What were the political parties and institutions committed to orthodoxy?
Parties = Conservative and Labour
Institutions: Treasury, City of London, Bank of England
What is the “beachhead effect”?
It is when foreign investors (Japan and India) had usurped Britain’s control in markets they used to dominate after ww1
What was the significance of the war debt?
-War debt = £7b and negatively affected public spending:
- it was cut by 75% in 1918-1920 and was helped by the Geddes Committee which cut spending by £52m -25% of public spending
What was the Geddes Axe
-The Geddes Axe cut public spending by £52m after Geddes Committee wanted £86.8m.
-Negatively affected education reform and stopped the schooling age being raised to 14 and therefore stagnated the development of skilled workers and added to the problem of unemployment.
What are reasons for the British economy experiencing a balance of payments deficit?
1) War debt - £7b and 40% of state expenditure went into paying off the debt
2) Requsitioning of British foreign assets: In the build-up to ww1 government made people sell their assets to have money to fund for the war but this led to a 10% decrease in invisible profits
3) British exports were weakened during the war - coal exports weakened - output declined by 40m tons (1913-1937)
What is chronic excessive overcapacity?
-It means there is excessive industrial supply relative to demand ( more factories producing more than needed)
What caused shipbuilding and cotton industries to degrade?
-There was a small boom in staple industries after the war and investors thought trade would return to 1914 levels so they invested in the staples which after the boom were redundant
-This led to lay offs which continued to unemployment
What are 2 reasons for Britain failing to make economic development in the 1920’s?
1) Return to the Gold standard in 1925
2)Inability to adjust to new industries after the decline of the staples
What was the £ to $ exchange rate set to with the return to Gold standard?
£1: $4.86
What effect did the return to gold have in capital investment and British exports?
1) Capital investment was reduced due to high interest rates
2) British exports reduced as the pound became extremely expensive whereas competitors were cheap.
What did the return to gold standard intend to lower?
1) wages
2) prices
What was Britain’s share of the world export trade in manufactured goods in 1911-1913 and 1931-1938?
1911-1913: 27.5%
1931-1938: 18.5%
By what percentage did the export of cotton decline between 1913-1937?
71%
By how much did British exports of shipping decline between 1913 and 1932?
1913: £11m
1932: £3.9m
What was the dollar exchange rate when the pound came off gold in 1931?
£1:$3.40
What were the interest rates when the pound came off the gold standard in 1931?
2%
Why did British exports fail to return to their pre-1914 strength following the abandonment of the gold standard?
There was a decline in demand so people did not need to buy British goods even if they were cheaper
Why and how did the government’s education policy fail to produce large numbers of British citizens trained or otherwise educated for the economic demands of IWYs?
As they were not skilled enough for the new industries as only 16% went to higher education and only 6.4% went to university.
What is meant by “cheap money”?
Low interest rates which meant borrowing money cheap
What percentage of the increase in GNP did house building contribute in 1932-1934?
17%
What were two pieces of legislation which brought protectionism in 1935?
1)Abnormal imports Act 1935
2)Imports Duties Act 1935
Which industry benefitted from protectionism?
Car industry
Did farming benefit from protectionism?
Yes, as Britain was not producing food to compete with foreign markets and protectionism meant they British food was preferred.
By what estimated percentage did tariffs raise British output and reduce unemployment?
British output: +3%
Unemployment: -1.5%
What is meant by cartelisation?
-Combine smaller industries together to form one large one
-experienced by ship=-building, cotton and coal industries
Why did the Bank of England pursue a policy of cartelisation in the 1930s?
As they wanted to stop industries from going bankrupt so that they could get their money back
What are 2 acts of Parliament and one organisation associated with cartelisation?
1)British Coal Mines Act (1930)
2) Cotton Industry (reorganisation) Act (1936)
1) Lancashire Cotton Corporation (1929)
What were practices of cartels that undermined modernisation and competitiveness
- fixed prices, market access, output and marketing as a cartel so there was no longer competitiveness between firms to be favoured
- undermined modernisation as it preserved inefficient firms, incompetent managers and outdated working practices
Was cartelisation a short term or long term solution to the problems of staple industries?
Short term
Why was the bank of England and government generally opposed to developing new economic initiatives or industries in the areas suffering from industrial decline
As it would go against orthodoxy principles of government as it would involve state intervention to either bringing new industries to the unemployed or the unemployed to new industures
What did the conservative government set up in 1928 to encourage labour mobility in GB and was it successful?
-Industrial Transference Boards
-Not very successful as it was expensive as voluntary migration was limited and was quickly abandoned
-it did focus on 42k miners though
-Tried to tackle that only 4% of pop. moved to the south from wales, NE and NW
What was involved in the Special areas act 1934 and was it successful
-passed by National Government
-It identified areas of industrial decline and unemployment and named it depressed/ special areas such as Jarrow
- allocated a regional commissioner to regenerate areas and gave a budget of £2m which was tiny and commissioners were understaffed
-Not very successful but it helped private companies to help such as Nuffield Trust
How much did defence spending rise as a percentage of GDP in 1935-1936 and 1938-1939
1935/36: 2.7%
1938/1939: 7.7%
What effect did rearmament have on unemployment and the regions of GB
-Stimulated output and employment in staples
-500k new jobs in rearmament in 1935 which absorbed 15% of unemployed
-Treasury used borrowing to finance rearmaments and used the placement of contracts to solve regional problems
How did tariffs affect foreign competition, unemployment and the need for British industry to modernise?
-Tariffs affected foreign competition as non-empire food imports had declined by 32% but empire equivalents increase by 42%
How did subsidies affect farming in IWYs?
It paused agricultural decline as it provided subsidies and price guarantees for agricultural products such as milk and sugar
