ECONOMIC ISSUES 1929-1939

ECONOMIC ISSUES 1929-1939

1. THE DEPRESSION

   • Wall Street Crash of 1929 caused a worldwide economic depression
     • Britain was largely affected by the financial crisis
       • USA put up high tariff barriers to protect its own goods
         • British manufacturers could no longer sell their goods to the USA
           • Some were bankrupted as a result
       • Trade with the USA helped to pay off debts from the First World War
         • Loss of trade stopped this income
           • The USA called in all loans made after the war
       • Countries like Italy were also affected
         • Unable to pay back the money Britain gad given during the war
   • Unemployment reached 3 million by 1931
     • Fewer people paying taxes
       • Government paying more due to unemployment benefit costs
   • Crisis came to a head with the May Committee report
     • Recommendations caused further crisis in the confidence in the sterling
       • Run on the Bank of England
         • July 1931, foreign investors withdrew gold at rate of £2.5 million each day
     • Failures to deal with the crisis led to a divide in the Labour party
       • Formation of the National Government

2. CHANGES TO ECONOMIC POLICY

   • September 1931, another run on the Bank of England
     • Depleted the countries gold reserves
       • Decided to come off the Gold Standard
         • Pound fell to $3.40 compared to $4.86
           • 30% devaluation was beneficial to Britain
             • Made British exports cheaper and easier to sell
               • However many other countries came off the Gold Standard too
                 • Other countries also introduced protective tariffs
                   • Made it harder to export goods
                     • Britain sold more exports to the Empire and within the Sterling area
                       • Didn't make up for loss of trade with USA and Germany
   • Reduced interest rates from 6% in 1931 to 2% in 1932
     • Cheap Money
       • Made it easier for industries to borrow money
         • Invest in modern machinery
       • Made it easier for consumers to borrow money
         • Mortgages to buy new houses
         • Resulted in a private house-building boom
           • 2 million houses built in the 1930s
             • Provided work
               • Created demand for furniture and fittings
                 • Revival in the construction industry
           • However these houses were built mainly for the middle class
             • Much less local government house building
               • Only 700,000 council houses built between 1931 and 1940

3. TARIFF REFORM

   • Conservatives now thought tariffs could make a difference in the British economy
   • 1932, Chamberlain introduced the Import Duties Bill
     • Imposed a duty of 10% on goods entering Britain
       • Except the British Empire
     • Ottawa Conference
       • Australia and Canada expressed concern
         • Free trade would mean their own industries would suffer from competition
           • Series of trade agreements made with the individual dominions
             • Dominions gave preference to British exports
               • Didn't abolish tariffs on British goods
                 • Raised tariffs for other countries
     • Return to protectionism caused Liberal 'free-traders' to resign
   • Didn't have a significant impact on Britain's economic recovery

4. INDUSTRY