Labour 1929-31 + Econ crisis


Initial effects of the Oct 1929 Wall Street Crash

-World wide economic problems and depression

-Any government would've struggle to survive under this pressure. First ever financial crash of it's time, in comparison to Italy and Germany, affect was minor.

-Exports dropped 50% from 1929-1931

-Unemployment benefit costs went up from £12m in 1928 to £125m by 1932

-Unemployment rose from 1m in 1929 to 2.5 million in 1930

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Lab Gov initial response

-Overall can be characterised as uncertain and divided. Oswald Mosley (of later fascist fame) had memorandum in May 1930 -> tariffs (reduce imports), government loans for public works, raising of pensions to encourage early retirement (borrowed ideas from Cons and Maynard Keynes)

-Snowden (Chancellor) orthodox economist, cutting spending to BALANCE THE BUDGET (retrenchment or deflation)

-By 1931 crisis so bad RMD sets up 15 man think tank, includes Keynes, asks for Massive Gov spending to kick start econ - "Reflation". 

-RMD does neither and hopes for the best (appoints 2 commissons which both recommended cuts in spending of up to 20% of budget) (Lab MPs obs not keen)

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Developments by July 1931

-Decision needed to be made-> Banks in europe (Geneva) collapsed required being bailed out by British banks, investors worried so looked like british banking sector might collapse

-"Run on the Pound" -> by July 1/3rd GB Gold Reserves had been used paying off foreign investors who had withdrawn their money from british banks 

-By August 1st 1931 British gold reserves fell to £133m, needed foreign loans to prop up banking system

-Committee reports came out in - eg May Committee said 20% cut in benefits, JMK called it "the most foolish document I have ever read"

-Snowden managed to secure agreement for a huge loan from NewYork banks to keep britain on the gold standard- but with the condition of a 10% cut on spending. Only other option was to take britain 'off gold' and 'float' the pound, but RMD and Snowden opposed.

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Fall of Labour Gov Aug 1931

-RMD agreed on cuts of £78m-> but Cabinet split on issue 11-9. RMD still trying to government moderately

-Henderson (foreign secretary), key member opposed, saw it as a betrayal of Labour values

-RMD resigned as PM... Gov ended

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Overall Judgement of 2nd Lab Gov

-Minority Government at time of an unparalleled depression, needed majority to take any real action.

-Main criticism: no attempt to solve / ease effects of depressions. didnt consider tariffs (cons) or radical spending ideas (Maynard Keynes).

-Party had once again shown that it was fit to govern + moderately

-Foreign policy was a moderate success

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Did RMD betray the labour party?

-Aug 1931, agrees to become PM of all-party coalition therefore betrays party and working class?

-Corrupted by the establishmeent and fallen victim to the aristocratic embrace

-RMD and Snowden described their colleagues ideas as "Bolshevism run mad."

-RMD DID NOT consult his colleagues before choosing to become PM Coalition


-RMD urged by King George V to stay on

-Coalitions necessary in times of emergency

-RMD felt that Labour cabinet members who voted against cuts were betraying nation

-Accepting role of coalition PM = Lab a national party not TU focused

-NG was supposed to be temporary

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