Economic problems of the interwar years and the National Government Flashcards
What were the four main causes of the economic problems in the interwar years?
- Legacy of WW1 and the rise of other nations
- Bad economic management
- Rise of the Trade Unions
- The Great Depression
How many British people died in WW1?
900,000. Many of these men had made up the workforce, meaning productivity became poor.
How much did Britain owe after WW1?
- War cost £3.5bn
- $8 billion, mainly to US banks
- Debt was 160% of the National GDP by 1924 due to interest
When did Britain abandon the Gold Standard the first time and why?
- It allowed them to print more money to fund WW1.
Consequences of leaving the Gold Standard in 1914
- Inflation rose to 25% by 1918, so domestic prices increased, less spending power
- Value of the £ decreased: £1 = $3.19 in 1919
What did the government do to try to decrease inflation and repay war debts?
- Increased taxes and interest rates every year after WW1
- 1919: Tax = £18/capita ; 1922: £24/capita
Rate of unemployment 1920-1921?
12%
Loss of trade due to WW1
- 20% ships that could’ve been used for exports sunk
- Couldn’t trade w/’enemies’ e.g. Ottoman Empire, German Empire
Why did Germany and France modernise more quickly than Britain?
Forced- many of their factories + farming areas had been destroyed during the war, meaning that foreign industries overtook Britain, which hadn’t been as damaged.
Example of how Germany being forced to modernise benefitted them
Despite the weaknesses and instability of Weimar Germany it produced 2x as much steel than Britain in 1918.
How much of the export market did Britain control in mid 1920s?
~75% of its 1913 level.
What did the fall in exports mean for businesses?
- Industries which relied on exports suffered, so they had to cut costs which meant job losses.
- Britain struggled to reclaim its pre-war market dominance
What is the Gold Standard and what is its benefit?
- Gold Standard is tying the value of a currency to that of gold
- Makes currency more stable
What is Protectionism in economics?
Nations implements policies making foreign goods harder to obtain by customers, forcing them to buy domestically/. Theoretically, this leads to a boost in domestic industry.
As part of its protectionist policy, what did Britain do?
Put tariffs on exports.
Did the tariffs help the economy?
- Short term, yes.
- Long-term: lack of incentive to modernise to compete w/foreign markets; industries didn’t introduce policies to be competitive. Failed as foreign markets like US= more dynamic.
Value of exports vs. imports in the interwar years
1919- Exports: £799million; Imports: £1626million
1929- Exports: £729million; Imports: £1221million
How did other countries respond to Britain implementing trade tariffs?
They elected their own ‘tariff walls’, further limiting international trade. This meant that Britain couldn’t benefit as much from emerging world markets.
Why was Britain’s failure to modernise harmful?
- It led to a decline in traditional industry.
- Newer industries neglected e.g. cars, chemicals
Why did Britain increase interest rates and what effect did this have?
Increased interest rates to curb inflation, stunting economic growth as:
- Businesses have to spend more on debt; can’t invest, expand, or modernise.
- Ppl more likely to save due to higher return on savings.
- What was ‘The Geddes Axe’?
2. When was it passed?
- Budget cuts to public industries
2. 1922
- What was the name of the group established by the Tory party that recommended the Geddes Axe?
- Who led them?
- Committee for National Expenditure; created in response to growth of Anti-Waste League party + middle class complaints about rising taxes
- Sir Eric Geddes, appointed by D.L.G
National debt in 1910 vs. National Debt in 1920
1910: £677 million, 1/4 of the GDP
1920: £7.81bn, larger than the GDP!
What public spending cuts did the Geddes Axe involve?
- £24 million in cuts to public services
- Defense budget cut by 42% in 1 year
- 35% of civil service members fired- mostly women hired during WW1.
What was unemployment usually like in Britain before the 1920s?
Never fell below 1 million during wartime- it rose in the 1920s as the economy shifted from a wartime economy to a peacetime one.
What was unemployment like in traditional industries in the 1920s?
- 60% in shipbuilding areas
- 49% in steel
What happened in 1921 regarding wages?
Cut by 8 shillings a week for 6 million workers- a cut of £58 in today’s money. Led to growing anger against the govt.
When did Britain return to the Gold Standard?
1925 under the Tory Govt. of Stanley Baldwin
How was the value of the £ changed by returning to the Gold Standard?
- Had fallen to $3.19 in 1919
- Returned to pre-war value of $4.86, raised price of British exports
- What was the rate of inflation in 1918?
2. Did returning to the Gold Standard fix this?
- 25%. This impacted on prices
2. No- it achieved severe deflation, which reduced prices and wages substantially- prices fell by 30%: 1920-23
How did returning to the Gold Standard impact on businesses?
- High interest rates made high exchange rates
- Disastrous for trad. industries e.g. coal, shipping, steal, and textiles who exported goods suffered
What consequences did returning to the Gold Standard have on the economy in general?
- Severe recession
- Big increase in public debt : GDP ratio due to high interest rates
- Severe deflation led to a permanent increase in unemployment- 11.5% in 1921-1922
Value of the £ compared to the $ after returning to the Gold Standard and the consequences of this
- Rise of US compounded negative effects of G standard- $ = increasingly attractive
- US low interest rates- its markets were more advantageous than Brit ones, damaging Brit exports even more.
What did Keynes famously say about the value of the £ compared to the value of the $ that could explain why the $ was even more attractive?
£ overvalued by 10% compared to $
Example of why the effects on trad ind of the return to the pre-war value of the pound due to the G. Standard were significant?
Real earnings showed no growth between 1919-1926.
What effect did the overall decline in trad. ind. have on businesses within trad. ind?
- Employers forced to cut costs- cut wages, increased working hours, redundancies
- Firms could be less agile in harsh economy; compounded w/rise of TUs, there was lower productivity and more redundancies…
In basic terms, what was the North-South imbalance?
North, which had lots of traditional industry, suffered while the South (and Midlands) with newer industries prospered.
How did the South and Midlands remain prosperous in the ’20s?
Consumer industries enjoyed a boom, and many were based in areas like London and the South East.
What are three important things to consider in reference to the Depression and how it worsened Britain’s already dismal economy?
- Fall in exports
- Bad Govt. decisions at first
- Importance of National Govt. breaking from the G. standard once again…
Fall in exports due to the depression
Exports, which were worth 1/3 of the GNP, fell by 50%- especially harmful for traditional industries which relied on exports and were already in decline.
Bad govt. decisions at first (Depression)
- Cut spending
- Maintained high interest rates to maintain value of £ still attached to g. standard
- Unemployment benefit cuts by 10% split Labour
- Social reform that stored economic problems for the future
Did any strikes succeed in changing govt. policies?
Yes, when 12,000 Scottish soldiers mutinied in 1931 against pay cuts
Effects of National Govt. breaking from the G. standard once again (Depression)- General
- £ went down from $4.86–>$3.40, resulting in cheaper exports- prices fell 45%, but sales were up by 28%
- Britain recovered quicker than other nations
- Industrial production increased by 46%
After being removed from the Gold Standard, what happened to unemployment and interest rates between 1932 and 1937?
- Unemployment: 17%–>8.5%
- Interest: 6%–>2% (‘Cheap money’ policy); led to greater borrowing, resulting in housing and mortgage boom
Examples of social reform as part of bad economic management in the 1930s
- 1930 Housing Act
- 1930 Coal Mine Act: allowed mine owners to fix quotas and set min. prices; replaced 8 hour workday enacted in 1926 with 7 1/2 hours
How did the depression affect unemployment figures?
- Unemployment rose 35% of the workforce in 1933; higher in the North, trad. ind.
- Every man in Jarrow, N.E. England made redundant after coal mine, steelworks, and Palmer’s shipyard closed; resulted in Jarrow Crusade
How were traditional industries, particularly in the North, affected by the Depression?
N. England, S. Wales, textiles industries in Yorkshire, shipbuilding in Scotland and Tyne hit hard:
- Demand for products like steel and coal fell- coal use fell from 180 million tonnes in 1929 to 155 million in 1935.
How did the British National Government attempt to reinstate the faith of American bankers into the pound?
- Cut public workers pay by 10%, initially proposed by Labour in 1931
- The Special Areas Act
What was the Special Areas Act?
1934: Identified Tyneside, south Wales, west Cumberland, and Scotland as regions in need of direct govt assistance, but only a trickle of investment came to them.
New steelworks in Ebbw Vale brought jobs to depressed south Wales valleys, but it was too little too late.
What did King Edward VIII state rather belatedly when he visited Dowlais in Wales in 1936?
When he saw the unemployment and poverty he said: “something must be done”
When were the Hunger Marches of the 1920s and 1930s?
1921 onwards
Why was the National Unemployed Workers’ Movement set up?
Desperation of workers & their families in most deprived parts of nation (‘21 onwards) led Commie Party to establish National Unemployed Workers’ Movement.
What was the National Unemployed Workers’ Movement?
Organisation boycotted by Labour for links to Commies. Organised series of marches to protest the means test throughout 30s, which quickly became christened the hunger marches.
Who participated in the hunger marches?
Unemployed men from depressed regions. Would walk to London, encountering support + opposition along the route. Most famous hunger march was the ‘Jarrow Crusade’
What happened to the rate of long term borrowing by the government after the Pound Sterling was removed from the gold standard?
Rate of govt. long-term borrowing cut by 1.5%, slashing cost of debt repayment
What caused the 1920-1921 Recession?
- Loss of export trade
- Long-term nderinvestment in British industries
- Industrial relations
- Effects of Spanish Flu- reduced GDP by almost 3%
How was the British steel industry performing compared to other countries?
- Growing no. of British manufacturers importing US steel- superior quality + price
- By 1937: British steel foundries producing 83k tonnes/year, US foundries- 210k, Germany- 125k
What was the Special Areas Act 1934, which was introduced by the National Government?
Introduced grants for firms to invest in particularly depressed areas of the country. As it happened, this didn’t work in areas of trad industry- low productivity–> unemployment, so businessman moved to more affluent areas
Recovery tended to be in the south-east where newer manufacturing industries were based. These tended to succeed- involved production of light-manufacturing goods that helped service new homes etc.
Evidence that Britain recovered from the Depression in 1934-1939?
- Real incomes rose by 19%
- Industrial production rose by 46%
- Exports increased by 28%
What measures were the National Government able to take because of leaving the Gold Standard?
- Cheap money policy
- Could afford inflation- increased spending and slight price increases
- Devaluation of the £
- Restructured war debts-25% of tax rev au lieu de 40%
One example of the post-war boom, 1918-1920?
Shipping industry flooded w/orders to replace nearly 8M tonnes of merchant stock that had been destroyed in WW1
What was unemployment like during the recession of 1920-1921?
Rose to 12% of working population
