The necessities of war boosted Britain’s traditional heavy industries — particularly those linked to the production of munitions and textiles, such as the Scottish jute industry, which was kept at full stretch manufacturing sandbags — and provided a stimulus to accelerate the development of newer ones such as electrical goods, aircraft and motor construction, precision engineering, radio and pharmaceuticals. A post-war boom fuelled by rising prices and the speculative investment of wartime profits lulled people into thinking that the normal rhythms of trade and production would soon be reasserted, and Britain would regain her pre-war markets. Indeed, there was a ‘craze of speculation’ in Lancashire, where old textile mills were bought and sold and new ones constructed in eager anticipation of an export boom, and shipyard owners shared a similar confidence. In 1920 coal still made up 9 per cent of Britain’s exports — only 1 per cent less than in 1913. But the boom was short-lived: by 1921 increases in interest rates and a fall in prices on the world market hit exports, which in turn hit production, and by the winter of 1921–22 more than two million British men and women were unemployed. Cotton textile exports fell to less than half the 1913 figure by 1929, and would never again reach pre-war levels, while coal represented less than 7 per cent of exports: down from 287 million tons in 1913 to forty million by 1922.
It wasn’t only the ‘old staples’ that were in decline: London was losing its pre-war position as the financial capital of the world as the City lost its exclusive authority over monetary policy at home. During the war financial exigencies had forced Britain off the Gold Standard, with the issue of paper £1 and ten-shilling notes that could no longer be converted directly into gold. Financial orthodoxy regarded a return to the Gold Standard as a prerequisite for economic stability: it was essential that the ‘pound should look the dollar in the face’. As far as Lord Bradbury (a former head of the Treasury who chaired a committee appointed in 1924 to advise the newly appointed Conservative Chancellor of the Exchequer, Winston Churchill, on the matter) was concerned, it was not so much a question of whether the pound was overvalued in relation to the dollar, as of removing monetary policy from political influence: in his eyes the Gold Standard was ‘knave-proof’. The Governor of the Bank of England, Montagu Norman, agreed: the Gold Standard was the best ‘Governor’ a fallibly human world could have. It was ominously portentous that the notion of the government ‘meddling’ in economic matters was regarded with suspicion and distaste. On the whole gold occupied the same iconic position for the Labour Party, and it was left to the economist John Maynard Keynes, who in The Economic Consequences of Winston Churchill (a title resonant of his Cassandra-like warnings of the effects of harsh reparation payments imposed on Germany in 1919, The Economic Consequences of the Peace), published in 1925, to put the case against, or rather to point out the consequences if the Gold Standard was re-embraced. These included rising unemployment as the bank rate rose and cheap money was denied for industrial investment. In 1925 Britain went back onto the Gold Standard: the bank rate averaged 5 per cent for the rest of the decade, making the country uncompetitive in the world market, particularly against the United States, which was enjoying boom conditions at the time.
How far and how deep would the pernicious stain of unemployment, which throughout the 1920s had never been less than a million, spread? How could men earn a living when the great staples on which Britain’s industrial might had been built over nearly two centuries — iron, steel, textiles, coal, shipbuilding — were losing out to competition from Europe and the United States?
In coalmining areas such as South Wales, the Lowlands of Scotland and Lancashire, the future was bleak. Men had no work in the pits; women were laid off from the textile mills. British exports were no longer competitive in the world market. Labour costs were high — nearly double what they had been in 1914 — whereas the cost of living had only risen by 75 per cent, and the average working week had been reduced by ten hours. In crude terms, those in work were being paid more for working less. Hence the tensions between employers and their workforces — particularly in the mining industry — when international competition undercut prices and eroded markets.
How would Britain be governed, now that the old duopoly of Conservative and Liberal had been definitively replaced by new sparring partners: Labour and Conservative, alternating in power since neither seemed to have satisfactory answers to the country’s economic and social ills. Would the bitter legacy of the 1926 General Strike be gradually softened, even though its collapse had brought no resolution to the fundamental problems that had caused it?
On 24 October 1929 on the floor of the New York Stock Exchange, ‘12,894,650 shares changed hands, many of them at prices that shattered the dreams and hopes of those who had owned them’, wrote the economist J.K. Galbraith in his book The Great Crash. Prices on the US market went into freefall, and financial companies as well as individual men and women who had speculated on the over-buoyant American economy lost their fortunes, or their modest savings, overnight. On that ‘Black Thursday’ (which would be followed by ‘Black Monday’ and ‘Black Tuesday’) a record 12.9 million shares were traded: the press reported losses of $30 billion over four days, and there were rumours that eleven speculators had already committed suicide. Watching the ‘wild turmoil’ on the floor from the public gallery of the New York Stock Exchange was Winston Churchill, former British Chancellor of the Exchequer, ‘he who in 1925 had returned Britain to the Gold Standard and the overvalued pound. Accordingly he was responsible for the strain that sent Montagu Norman to plead in New York for easier money, which caused credit to be eased at that fatal time, which, in this academy view, in turn caused the boom. Now Churchill, it could be imagined, was viewing his awful handiwork.’ However, there is no record of anyone having reproached him. Economics was never his strong point, so (and wisely) it seems most unlikely that he reproached himself. But, having invested heavily in the market, he himself lost a large percentage of his savings when it crashed, though he waxed philosophical: ‘No one who has gazed on such a scene could doubt that this financial disaster, huge as it is, cruel as it is to thousands, is only a passing episode.’
The US market continued to decline, reaching its lowest point in July 1932, when it had fallen 89 per cent from its peak in 1929. Unemployment went from 1.5 million in 1929 to 12.8 million, or 24.75 per cent of the workforce, by 1933. ‘Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,’ the Secretary of the Treasury, Andrew Mellon, had advised. ‘It will purge the rottenness out of the system … People will work harder, live a more moral life. Values will be adjusted and enterprising people will pick up the wrecks from less competent people.’
The Great Depression bit deeper in America (as it did in Germany) than it did in Britain, and lasted much longer, but although J.M. Keynes couldn’t help ‘heaving a big sigh of relief at what seemed like the removal of an incubus which has been lying heavily on the business life of the whole world outside America’, the effect of the Wall Street Crash on trade worldwide would prove deleterious in the next few years. The US government initially raised tariffs against foreign imports and its overseas investment all but dried up, forcing Europe to pay for imports and pay off debts in gold which was sucked into the vaults of America (and France, which had somehow managed to stand aside from the economic crisis). This had serious long-term consequences for the international circulation of money, and led to a collapse in commodity prices and an economic slowdown. ‘Almost throughout the world, gold has been withdrawn from circulation. It no longer passes from hand to hand, and the touch of metal has been taken from men’s greedy palms’ Keynes noted.
Yet, speaking only a matter of weeks after that cacophony of black days in New York and growing anxiety about their effect on Britain’s already ailing, out-of-joint economy, Gerald Barry thought he saw some scattered green shoots, a few straws in the wind that he might clutch at: the summer of 1929 had witnessed a lockout in the cotton industry which was solved, he said, ‘on the principle of rough justice whereby Solomon cut the baby in half’, meaning that each side agreed to accept 50 per cent of what it wanted. He was optimistic that the rapprochement between capital and labour begun in 1929 by the Melchett-Turner conversations (tentative corporatist interchanges between Lord Melchett — or Sir Alfred Mond, as he had been until 1928 — chairman of the recently amalgamated giant chemical firm ICI, and the trade union leader