Britain enters the Depression

This edited article about the Thirties originally appeared in Look and Learn issue number 674 published on 14 December 1974.

More than one in four were workless and the successive governments had no remedy to offer. It was hardly surprising, for none of them could balance their books

No one had ever known anything like it before. It was an event unique in British history. Whichever way it did its sums, the British government could not balance its Budget.

It happened to the Labour Government in the Summer of 1931, the bleakest year for money in all the decade of the Thirties.

The government, led by Prime Minister James Ramsay MacDonald, had been in office for two years, in which time unemployment had risen from an uncomfortable million to a staggering two and three-quarter millions.

With a work force of 20 millions out of a population of 45 millions, this meant that more than one in every four workers were jobless. And the government, it was suddenly revealed, was overspending at a rate of nearly £125 million a year.

The money crisis had been triggered off two years earlier by the Depression, when world trade began to slump, and the crash on the share market in Wall Street, New York.

The Depression itself had been started by several adverse factors. It had begun in America because that country was producing far more goods than the world could afford to buy. And the world could not afford them because America owned too much of the world’s gold.

Up to this point America had been subsidising her customers by making loans to them, but after the Wall Street crash, the loans had to stop. Thus, when America had to cut back on her overproduction, factories slowed, men were thrown out of work, and the vibrations all this caused were soon picked up by other industrial countries, like Britain.

When the Americans stopped lending money to Germany, the resultant money crisis in that country caused a run on gold from the Bank of England.

Anxiously, the British bankers asked their colleagues in New York for a loan. It was a case of, ‘Buddy, can you spare a dime?’ as the words of a popular song put it.

‘If you don’t lend us some cash, foreign countries will have no confidence in sterling,’ the Bank pleaded. ‘We might not then be able to repay our creditors. Then we shall have to go off the Gold Standard.’

The Gold Standard was simply the international money system by which gold was used to make international payments. A country on the Gold Standard printed only enough paper money that could be supported by its gold reserves.

Even today gold continues to serve as an international means of settlement between the major central banks. The exchange values of most currencies are fixed in terms of gold, which implies, of course, that they are normally held within very narrow limits of fluctuation.

‘And if we have to come off the Gold Standard,’ the British bankers went on gloomily,’ the pound sterling will fall far below the value of all other currencies, to the point where it will probably be worthless.’

But the Americans were not very easily moved. ‘Your government is overspending,’ they replied. ‘We can’t give you anything until you balance your Budget.’

How could the government cut its spending? The answer given by Prime Minister Ramsay MacDonald and his Chancellor of the Exchequer, Philip Snowden, in that perilous summer of 1931, was staggering.

The pay of all soldiers, sailors, airmen, civil servants and school-teachers was to be cut immediately. And the ‘dole’ – the money paid out to the nearly three million unemployed, who were already on the breadline, was to be cut by 10 per cent.

When they heard these proposals, MacDonald’s Labour Cabinet held up their hands in horror. Half of them said that whatever else happened, they would not accept a cut in the ‘dole’. Then, unable to agree, the government resigned on August 24.

Events now moved swiftly, for almost at once MacDonald was back at 10 Downing Street again as Prime Minister, but this time heading a National Government, which was really a coalition of the Parties in Parliament. Serving as Ministers in it, for example, were Stanley Baldwin, a former Tory Prime Minister, and Neville Chamberlain, later to become a Tory Prime Minister.

The National Government was really a national emergency government, and the fact that it stayed in office for another four years indicates just how bad were the times for Britain. But like the disposed Labour Government, it still had to balance its Budget, and almost its first act in office was to institute the sweeping pay cuts that MacDonald and Snowden had suggested.

The cuts were taken particularly badly by the sailors of the Home Fleet, who mutinied. Overseas investors in Britain panicked and began a run on gold from the Bank of England that could not be withstood. A week later the new National Government took Britain off the Gold Standard.

The world now held its breath. Would the pound sterling collapse, as everyone said it would do? In fact, it began to drop but when it had fallen by 25 per cent, it stopped. So ‘coming off gold’ was not nearly as bad a thing as the financial pundits had thought.

Britain’s pioneer move was the beginning of the end for the Gold Standard. Two years later the United States allowed the dollar to depreciate against other currencies, just as Britain had allowed the pound sterling to depreciate.

By 1936 only a small group of countries led by France was struggling to maintain convertibility of their currencies to gold at the old fixed price. This block collapsed because its exports were then at a disadvantage in world markets, and by the next year there wasn’t a country left on the Gold Standard.

In October, 1931, only a few weeks after it was formed, the National Government called a General Election. The Opposition to it at the polls was formed by the Labour Party, most of whose members were angry and disappointed to find that although their government had resigned in the financial crisis, their Prime Minister hadn’t. They felt that Ramsay MacDonald had cheated Labour by agreeing to lead the National Government and he and his three Labour colleagues who had joined him in the National Cabinet were expelled from the Party.

At the polls the National Government pleaded for unity, loyalty and patriotism to help it tackle Britain’s difficulties, and the election result broke all records. Out of the 615 seats in Parliament, the National Government won 554. The Labour Party was reduced to a mere 52 members and the Liberals were annihilated.

None of this, however, solved the plight of the unemployed, whose situation was becoming desperate. At the start of the new 1931 soccer season gates slumped at Sheffield United’s ground because hardly anyone could afford the one shilling entrance fee. More than half the city was on social relief and two-fifths of Sheffield’s workers were poverty-striken. Half of that number – one in every 10 of the city’s workers – were living below the subsistence level.

If ‘coming off the Gold Standard’ was the most overworked phrase of the middle class, the working class was now to have a phrase of its own to conjure with – a two word phrase which has entered the language as something totally despicable and which, when it was first coined, was calculated to drive honest men into blind fury.

The Means Test had arrived.

The term was used for those among the unemployed whose period of statutory benefit under the National Insurance Acts had come to an end.

Besides reducing unemployment pay in its Budget balancing operation, the National Government restored the limit of 26 weeks dole benefit allowable in a year. After that time, an unemployed person could apply for a transitional benefit.

But to receive this transitional benefit he must first pass, before a public assistance authority, a test of need applied not to the personal but to the family income.

No rules guided the authorities making these Means Test, with the result that the administration varied widely. Some authorities insisted, for instance, that all savings must be spent, and all property sold, before the unemployed applicant could be given benefit.

Few things could have sounded more heartless to the unemployed than the thud of the Means Test form as it fell through the letter box on to the hall floor – bringing with it the knowledge that there would be no more dole until the victim had sold everything, or almost everything, he owned. Not surprisingly, the Means Test provoked riots and protest marches, and gave Britain’s workers a scar which, 40 years on, still aches at the mention of any ‘wage-related’ benefit.

The landslide success of the National Government in the 1931 General Election was seen as the British voters’ answer to any kind of political extremism – Right or Left. Nonetheless, political extremism continued to be the playground of Thirties intellectuals right up to the Second World War, with Communists and Fascists fighting each other in the streets of London’s East End.

It was in February, 1931, that Labour M.P. Sir Oswald Mosley, having vainly attempted to persuade Labour to change their tactics on unemployment, broke away with six other M.P.s to form the ‘New Party’. Mosley wrote about it:

“We must create a movement which aims not merely at the capture of political power: a movement which grips and transforms every phase and aspect of national life to post-war purposes; a movement of order, of discipline, of loyalty . . . a movement of iron decision . . . ”

But in the General Election in October New Party candidates failed to win a seat. A few weeks later it was transformed into the British Union of Fascists, bringing to Britain the extreme Right wing force that was already being powerfully felt in Germany and Italy and, at the same time, providing a counter-weight to the Communism of the intellectuals.

The intellectuals of the Thirties prided themselves on their deep political consciousness. But they were sometimes highly flexible. John Strachey, a co-founder of the New Party hastily resigned and embraced Communism; much later he became a Labour minister.

The poets of the intellectuals were W. H. Auden, Cecil Day Lewis and T. S. Eliot. Auden and Christopher Isherwood combined to mirror the times in plays, George Orwell attacked almost everything in books and essays, while George Bernard Shaw turned his back on revolutionary fervour and wrote plays purely for entertainment.

The middle class read Somerset Maugham and went to see the plays of Noel Coward, such as ‘Cavalcade’. And for the working class, indeed, all classes, there was always the ubiquitous cinema.

For the out-of-work, there was nothing. Politicians and intellectuals failed to give them even hope, the dole queues lengthened remorselessly and the unemployment statistics became grotesque. And the Thirties were only just getting into their stride.