Unit 3 - Causes of and government Response to Depression

Question 1

What was the 1929 Wall Street Crash?

Answer 1

On 29th October 1929, the American stock exchange collapsed - it was the crash that followed a huge boom period after World War One. During the 1920s, credit was far too easy to get, people borrowed huge amounts and bought a lot - so stock values rose artificially. When a panic set in - people started selling shares quickly, so their value fell. People stopped buying, so businesses went bust. Unemployment shot up. People could not repay loans - so banks went bankrupt.

Question 2

Why did the Wall Street Crash affect Britain and other countries?

Answer 2

The crash meant that, because of the unemployment in America due to the Great Depression, the USA could no longer afford to lend money to European countries and recalled some of its earlier loans. Therefore, economic depression soon hit Britain and the rest of Europe because of their over-dependence on the USA.

Question 3

How did the effects of the Wall Street Crash affect Britain specifically?

Answer 3

The main effect was that people all over the world stopped spending money - when they did spend, they looked for cheaper goods from countries other than Britain. Demand for British goods declined, unemployment rose and by 1932, there were 3 million unemployed in Britain.

Question 4

Which industries were worst hit in Britain?

Answer 4

The ‘old’ industries: Coal, Iron & Steel, Textiles and Shipbuilding. These industries depended on exports to other countries but they became unable to compete due to government policies and cheaper alternatives coming from places like Scandinavia and Japan.

Question 5

Were all industries hit by depression?

Answer 5

No, the ‘new’ industries like cars, aeroplanes, electrical goods and chemicals actually grew due to increased demand.

Question 6

Who was Ramsay MacDonald?

Answer 6

Ramsay MacDonald was the elected Prime Minister of a Labour government. He soon realised he needed the support of the other political parties to deal with the huge problems caused by the depression so he formed a coalition government in 1931.

Question 7

What was the National Government?

Answer 7

This was the coalition government set up and led by MacDonald from 1931, consisting of the three main parties: Conservative, Liberal and Labour.

Question 8

Why was the National Government set up?

Answer 8

It was set up to reduce unemployment.

Question 9

What were the short-term measures introduced by the National Government?

Answer 9

1. Public spending cuts (anyone who worked for the government such as teachers, civil servants, the army and police) had their pay cut by 10%;
2. The National Government decided to come off the Gold Standard - this meant that the pound lowered in value, British exports became cheaper and foreign imports more expensive - encouraging Britain to buy British goods;
3. The Means Test was introduced;
4. Income tax was raised.

Question 10

What were the longer-term measures the National Government introduced?

Answer 10

1. The Import Duties Act - put a 10-20% duty on all imports to make foreign goods more expensive;
2. The Ottowa Agreements were signed - allowing Commonwealth countries to trade on preferential terms;
3. The Exchange Equalisation Account was set up. This kept reserves of gold and foreign currency in Britain so that the country would always be able to buy things from abroad if needed.

Question 11

How effective were the longer-term measures introduced by the government?

Answer 11

They were partially successful, but increasig import duties just meant that other countries increased taxes on goods coming into their countries from Britain - so it didn’t really work.

The Exchange Equalisation Account was very effective and lasted until the 1980s.

Question 12

How did the National Government try to help the ‘older’ industries?

Answer 12

Through the policy of rationalisation: smaller and less profitable companies were forced to join together and some were shut down. The idea was for the remaining companies to be more competitive with foreign rivals.

Question 13

Did rationalisation work?

Answer 13

To a very limited extent. Many workers were sacked as a result so it actually increased unemployment.

Question 14

Which areas of Britain were worst hit?

Answer 14

The north-east and north-west of England, Clydeside, South Wales and Northern Ireland.

Question 15

What were the worst-hit areas of Britain known as?

Answer 15

The Special Areas.

Question 16

What was the Special Areas Act?

Answer 16

This offered grants of £2 million to companies that would relocate to the Special Areas.

Question 17

What were the positive results of the Special Areas Act?

Answer 17

Some new industrial estates were set up, the first of which was the Team Valley Trading Estate in Gateshead in 1938.

Question 18

How effective was the Special Areas Act overall?

Answer 18

Limited. These new industrial estates could not replace the huge, older industries as employers. By 1938, about £8.4 million had been spent, but only 121 new firms had been set up, creating just 15,000 jobs.

Also, many companies in the ‘newer’ industries were reluctant to relocate to the Special Areas.

Question 19

What was the Means Test?

Answer 19

Introduced in 1931 - it was an attempt to control the high cost of unemployment benefit. After 6 months on unemployment benefit, people went onto the ‘dole’ - BUT - before they could get the dole, they had to go through an inspection of their houses, possessions and savings - a means test - to make sure they really needed it.

Question 20

Who conducted the Means Tests?

Answer 20

The Public Assistance Committees (PACs), which had been set up in 1930.

Question 21

What impacts could it have on people claiming the dole?

Answer 21

Families could be forced to sell furniture.
If a family had any other sources of income - such as a part-time job or the pension of an elderly relative - it could be deducted from the dole payments.

Question 22

How much was the dole?

Answer 22

The amount paid was based on the income of the whole family - but the maximum payment varied from area to area. In 1936, the maximum amount was £180 - well below the average wage of £3.00.

Question 23

Why was the Means Test unpopular?

Answer 23

Many claimed it was more about saving the government money rather than helping the unemployed;
The PACs were resented for inspecting people’s private belongings and making them sell some of them;
People had to make some relatives live elsewhere if they wanted to qualify for the maximum available amount;
Some local authorities were very harsh. Others, like County Durham, refused to carry out the Means Test at all.

Question 24

How did people protest against the Means Test?

Answer 24

There were many protests, the most important were known as hunger marches. By the end of 1931, there had been more than 30 hunger marches across Britain.

Question 25

Were protests all peaceful?

Answer 25

No - in 1932, there were clashes with police in Belfast and Rochdale and 2 demonstrators were killed.

Question 26

What was the NUWM?

Answer 26

The National Unemployed Workers’ Movement was set up to put pressure on the government. It organised a march on London in October 1932 to present a petition to government but they were stopped by police.