Faculty of education department of english language and literature

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1.6 The overview of chapter 1

The interwar period was a period of changes – be that the extension of the right to vote or the rise of Labour Party, as second strongest party. But the period was also very difficult - on the domestic front the politicians had to battle the consequences of the Great War and later enormous unemployment. Some discussable political acts led towards the alienation of government from British people and gained minor parties some popularity. Oswald Mosley proved himself a good and popular politician as well as an excellent economist. However his secession from Labour party after the rejection of Mosley's Memorandum and forming the BUF was wrongly timed and wrongly calculated move. Fascism had never gained needed support from the masses because the government itself found ways to overcome the crises. On the international front we have witnessed the enormous effort to maintain the world peace. However, all these efforts were fruitless and 20 years after the Great War Britain was heading to yet another war.

Chapter 2: Interwar economy

The Great War had weakened Great Britain’s position in the world. In order to cover her war expenses Britain was forced to abandon the free market policy and establish state control over production, to sell many of her assets and to increase taxes or to impose additional ones. Still it was not enough. Britain had cashed in her investments in the USA and used a considerable amount of her gold reserves. Public and private loans had been restricted because of increasing indebtedness. By the end of the war Britain had borrowed $3.7 billion – about two-thirds of Europe’s debt to America. The economy of interwar years resembles a rollercoaster ride, where a boom is followed by a slump followed by depreciation and yet again replaced by a subsequent downturn. It is a period of modernisation, in the form of new technologies and equipment, and structural changes. However, it is also a period of high unemployment, dole queues and strikes.

2.1 1918-1921

In 1918 the government control over the economy and industry stopped and there was an effort to return to the free trade policy. We can speak of a boom, which started in 1919, because many firms invested their wartime profits because they all shared a high confidence in Britain’s economic future. Banks released up to £550 million as credits for industrial purposes and the unemployment rate was lower than 2 per cent (Clarke, 106). There was also a great expectation of demand increase. This proved to be true as the consumption increased by 46 per cent and the industrial output was on about 80-90 per cent of its pre-war level. Also the exports went up due to overseas firms eager to spend their money on new machinery and plants; "the exports were at 80 per cent of their pre-war level." (Floud and McCloskey, 89)

However, this enhanced demand was not met by sufficient supply. Quite the contrary. The output fell because the firms were not able to reorganize fast enough to meet the demand, and therefore the prices rose. It can be said that the boom of 1919 concerned rather the prices than the production. For many industries this represented a missed opportunity, mainly for the cotton, steel, textile and shipbuilding industries, as they hoped to re-establish their pre-war position on the world markets, which were now dominated by the USA and Japan.

The slump which came in 1920 was inevitable. The slump following the boom of 1919 created a gap between the potential and actual industrial production which lasted until 1937. This slump was mostly felt in the area of export, which Britain’s economy had been dependent on since the loss of foreign earnings and which was very vulnerable to any downturns in the world markets. It also caused a lot of uneasiness in staple industries. Moreover, public spending slowed down because individuals and households satisfied their long restrained material needs in the time of boom, when it was convenient for them. The interest rates went up and the promised "social reforms" suddenly "became a luxury which the government could not afford" (Robbins, 222). The housing programme, the centrepiece of reconstruction plans made in 1918, suffered most.

Unemployment rose to 8 per cent in 1920, mainly because of the demobilisation of more than 3.5 million soldiers. Its further increase was due to the negotiated reduction of working hours, from fifty-four to forty-seven. There was, however, not a reduction in the nominal weekly wage. Labour cost increased by 10 per cent between 1919 and 1921 and unsurprisingly the employers responded by reducing their staff, who had become too expensive. This resulted in dole queues. In 1921 prices fell by 10 per cent and unemployment moved up to 20 per cent (Constantine, 3).

2.2 1921-1929

The period between the years 1921-1925 saw a slow economic recovery. Unemployment fell from its highest point of 23 per cent in 1921 to less than 10 per cent in 1924 (Constantine, 3). There was also an extensive development of new industries, such as the electric and the motor industry, which were concentrated in southern and central England, while the staple industries were concentrated in specific areas of Britain such as the north of England, south Wales and central Scotland. However, products from the new industries were not able to compete against foreign competitors, who had better equipped factories with up-to-date machinery. According to Robbins:

Newer industries, such as motor vehicles and electrical engineering, might not yet have effected a sufficient structural transformation of the economy to benefit of the country as a whole, it is maintained, but they came by the 1930s to exert an increasingly important influence upon productive potential, demonstrating an impressive range of technical achievement, scale economies, and productivity growth. (179)

Therefore the British products rather supplied the domestic market. The exports showed some recovery and the output gap narrowed slightly.

In April 1925 the Conservative Chancellor of the Exchequer, Winston Churchill, decided for the return to the Gold Standard at its pre-war exchange rate of 4.86 US dollars. According to Clarke "the object of the exercise was to restore confidence, to get back to the happy days of 1914, it was thought essential that the pound should, ..., 'look the dollar in the face'." (131) Such a high rate can be understood as his attempt to make the pound as valuable as the dollar. The overvaluation of the pound was approximately 10 per cent. This decision was viewed by many economists as very unwise, e.g. by John Maynard Keynes, because it made British exports more expensive on the world markets and therefore undercut their competitiveness. Moreover, it led to the halt of the recovery from the 1921 slump. All these arguments proved to be justified.

The high prices and costs of domestic products made the British market defenceless against the competitors from foreign countries. The export industries, after they had enjoyed a slight upturn since 1921, suddenly came to a halt in 1925. In their effort to cut the costs the firms started to lower the worker’s wages. Coalmine owners were first to cut wages. These cuts led to a great social unrest, and subsequently to the General Strike of 1926. The strike was organized by the General Council of the Trades Unions Congress in an attempt to stop the wage cuts, and also to react to the worsening conditions of coal miners. The government decided to intervene by means of promising to provide a nine month subsidy in order to maintain the wages. However, this promise was short-lived, because the Samuel Commission, which was established for the purpose to examine the problems of mining industry, reported that the government should pull back the subsidy and the miners’ wages should be reduced too in order to save the profitability of the industry. The exact recommendations were as cited by Laybourn:

The need to amalgamate existing mines, to nationalise mining royalties, to increase research into coal production and to improve industrial relations. ... It acknowledged that such changes would take years and in the immediate future the way forward was not to extend hours or to continue the subsidy, ..., but to reduce the minimum wages of the miners. (36-37)

However, all these recommendations have offended, aggrieved and were unacceptable either by the Government, miners or mine owners.

Immediately after the finalization of the Samuel Commission’s report coalmine owners came up with new terms of employment. The biggest changes concerned the extension of working hours, reduction in wages and also the fact that wages would not be the same in all districts. Workers who had not accepted these new terms would be shut out of the slacks. Miners demands stayed the very opposite, as reported by Laybourn the miners wanted "national wage agreement, the seven hours day, and no wage reduction" their demands were well put in the motto of the strike: "Not a penny off the pay, not a second of a day." (37)

The strike broke out in May 1926 and lasted 10 days – from 3 to 12 May. The Trade Union Congress decided to call for help in other key industries, such as railwaymen, transport workers, printers, workers from docks and steel and iron workers. Workers’ reaction to the strike was immediate and overwhelming. As many as 4 million workers participated in the strike. It was up to the armed forces and volunteers to take care of basic services. The Trade Unions Congress was not, however, in full control of the strike – probably because of such a high number of participants. The TUC decided to call off the strike on the 12 May under the conditions that no worker would be victimised because of his participation in the strike, and that the Samuel Commission’s proposals would be carried out. However, the government declared that they could not guarantee such things and the strike came to an end without any agreement.

The General Strike proved to be more devastating for the economic performance than the return to the Gold Standard. Because of the General Strike unemployment climbed up to 14 per cent, as many men resisted going back to work under such conditions until November 1926. (Constantine, 63) Many front leaders were victimised and could not find employment for many years.

The British Fascists took an active part in negotiating during the strike and supporting the miners. After the Great Strike the number of the Fascists members reached their highest peak. British people were disillusioned by the Government's inability to lower the unemployment and victimisation of the strike members, so they sought different political ideologies and ways that would help them find work. British Fascists did not offer many economical solutions to the crises, however that was on its way to change and later Oswald Mosley had proved that Fascism in Britain could be economically centred offering the needed help and reorganisation of the state.

The strike had an impact on the whole economy of the country, but mostly on the traditional industries. The exports fell sharply in 1925 – 1926, and the recovery was very slow. It could be said that those industries spent the rest of the decade in recession, receiving little investment or modernisation. The unemployment in those industries stayed at the level of one million throughout the period. Furthermore, because of the General Strike the social differences between the south and north were intensified, which was mostly seen in the living conditions.

It could be said that the re-adoption of the Gold Standard was responsible for many economical problems of this period. Due to the high exchange rate of the pound the interest rates were very high and therefore prevented private as well as public investments. It also caused a lot of social unrest – most noticeable the General Strike. The Gold Standard also led to the lessening of job opportunities, because the work force had become too expensive to keep.

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