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Causes and Effects of the Great Depression

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The Depression of the 1930s-Great Britian

There are two opposing historic images of the Depression in 1930s Britain: poverty - lines of broken, unemployed men, rows of shabby housing - and prosperity - new washing machines, automobiles, electricity and cinemas.

Depression summary

Wall Street Crash

In 1929, the Wall Street Crash plunged the USA into economic depression. The Americans were alarmed, so they called in their loans to other countries and put up customs barriers to stop imports of foreign goods. This created a depression across the rest of the world.

Unemployment

Unemployment in Britain rose to 2.5 million (25 per cent of the workforce) in 1933. Worst hit were the areas of heavy industry (eg coal, iron, steel, shipbuilding) in Northern Ireland, Scotland, Wales and the north of England. These industries were already struggling because they had not modernised after the war and had been badly affected by competition from other countries. The Depression meant that now these industries crumbled. For example, when the coal mine, the steel works and Palmer's shipyard closed down in Jarrow in the north-east of England, every single man in the town was made redundant [Redundant: laid off from work because they are no longer needed ] and Jarrow 'died'.

The people of Jarrow organised a march to London - a crusade to seek help from the government, but they were told to go home and work out their own salvation'. In fact, the government did not have a clue how to cope with the Depression, and the policies it did put into action were either useless, or made matters worse.

Key industries closed in Jarrow sparking the Jarrow Crusade.

New industry

In the south-east of England where new light industries such as chemicals, electrical goods and automobiles had been developed, families were affluent. In fact, people with jobs benefited from the Depression because prices fell and they could buy more!

Causes of the Depression

The main trigger of the Depression was the Wall Street Crash, but other factors also helped to create the Depression out of the Crash. To understand them, you need to understand that the root of an economic depression is a reduction in spending, and that the way to end a depression is to get people to buy things:

Import duties - Import duties discouraged trade, which harmed the economy. The reduction in trade particularly hit the shipbuilding and railway industries if there was no trade, there was no need for transport.

Savings - when there is unemployment and uncertainty, people cut back on spending and save 'for a rainy day'. This then makes businesses go bankrupt and causes the unemployment they feared.

Unemployment - unemployed people have no wage and cannot buy things, which causes more businesses to go bankrupt and creates more unemployment.

Outdated practices - British heavy industry was out of date and labour-intensive. When orders dried up, the only way they could cope was to lay off workers.

Some Government actions made the depression worse: - The increase in unemployment meant the government was faced with a vastly increased expenditure on benefits. So in 1931, it raised income tax and cut unemployment pay by 10 per cent and introduced the means test. These measures reduced the amount of money people had to spend and made the Depression worse. - The Import Duties Act (1932) was designed to protect British industry, but this merely reduced trade and made the Depression worse.

How did the government react?

These four actions made things worse:

Raising income tax.

Cutting unemployment pay by 10 per cent.

Introducing the means test.

Adding import duties to goods from abroad.

These four actions helped to end the Depression:

Came off the gold standard [Gold standard: Where the total currency in a country is equal in value to the amount of gold that the country owns. ] - this allowed the government to increase the amount of money in circulation.

Reduced interest rates - this reduced people's debt payments and made more money available to spend, but also encouraged them to take out loans to spend more.

The Special Areas Act (1934) - tried to attract light industries to the 'distressed' areas.

Local councils built 500,000 council houses, which pumped money into the economy.

Benefits of the Depression

Some people (especially in the south of England) become more affluent during the Depression:

Prices fell in the Depression, which meant more money for luxuries.

Hire-purchase allowed people to get luxuries 'on the never-never'.

Family size fell, which meant more money for luxuries.

Improvements at work such as reduction in working hours, holidays with pay.

Holidays (at the seaside).

Three million new houses were built in the 1930s.

There was a 1200 per cent increase in homes with electricity.

Huge increase in car ownership.

Vacuum cleaners and washing machines.

Radios and the first TVs.

Better leisure such as cinema, dance halls, swimming baths and football matches.

A better diet. Free school milk was introduced after 1934

Better health, which meant people were taller, fitter and heavier.

Revision tip and answer preparation

Revision tip

Divide the facts in this topic into two lists - 'good things' and 'bad things' about the 1930s.

Answer preparation

As part of your revision, think about the arguments and facts you would use to explain:

Why there was a depression in the 1930s.

To what extent Britain experienced a depression in the 1930s.

How effectively the government dealt with the economic problems of the 1930s.

Other Key Terms:

Means testing

In order to qualify for dole, a worker had to pass a means test. The Public Assistance Committees (PACs) put the worker's finances through a rigorous investigation before they could qualify for benefit. Officials went into every detail of a family's income and savings. The intrusiveness of the means test and the insensitive manner of officials who carried it out frustrated and offended the workers.

Gold Standard

The government gave up the Gold Standard in 1931. The gold standard was a way of making sure that the pound kept its value and Britain did not suffer from the inflation that had ruined Germany's economy in 1923 and 1924. Unfortunately, it also made it difficult for businesses to borrow money for expansion because interest rates were high. Similarly it made British exports expensive, depressing staple industries further. Removing the gold standard helped, but the millions of unemployed in the traditional industries noticed little improvement in their lives.

Unemployment Act 1934

The 1934 Unemployment Act separated dole and insurance benefits, and the 10 per cent cut in dole was reversed. From 1936 an Unemployment Assistance Board (UEB) looked after workers who had used up their insurance benefits. The UAB took over some of the work of the Labour Exchanges and continued to administer the dole and means test. UAB officials were less severe than officials from the Public Assistance Committees, although reports from the Trades Union Congress (TUC) in the 1930s show that there was still a great deal of discontent with the low levels of benefit. The UAB set up training schemes and provided help to workers who wanted to move to another area to find work. Older unemployed men were sometimes given allotments to grow vegetables or raise poultry and rabbits. Society went some way towards accepting that unemployment was not a failing of the people, dispelling the notion that the poor could work if they really wanted to.



Special Areas Act

In 1934 the government passed the Special Areas Act. The Act identified South Wales, Tyneside, West Cumberland and Scotland as areas with special employment requirements, and invested in projects like the new steelworks in Ebbw Vale. Success of the Act was limited because the level of investment was not high enough and it was not until the late 1930s that the shadow of unemployment lifted from Britain, thanks in part to government investment in rearmament. Despite the failings of government action, few people actually starved to death as a result of unemployment - the dole was intended to keep the unemployed alive and it had done exactly that. Some commentators, such as the novelist George Orwell, believed the limited level of assistance was a key reason why there was no major social unrest in the period, and explained why extremist political parties made little headway in Britain even though they prospered in Germany.



Background

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Do you feel that Great Britian dealt with the Great Depression effectively?


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