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9-08-2015, 21:41

THE DEPRESSION, 1929–39

The despair of poverty is hard to imagine for those who have never suffered it. A decade after the conclusion of the Great War the era of the Great Depression began, reducing millions of people in the advanced Western world to the levels of grinding poverty suffered throughout the twentieth century by humanity in Asia, South America and Africa. The peoples living in the empires of the West now fell even below the barest subsistence levels as the price they could obtain for their raw materials dropped precipitously. Their economies were dependent on the demand of the West. Whatever befell the industrialised West, the effects on the poor of what we now call the Third World were even more catastrophic. At the time only one country appeared immune – the Soviet Union, where industrial production increased. It was a persuasive argument to some that communism provided the only solution to the periodic booms and depressions that bedevilled the trade cycle. But in the Soviet Union, Stalin’s state planning actually imposed hardships as great as, and greater than, anything happening in the West. The effect of the depression was aggravated by its occurring before the trauma of the Great War had been overcome. It is the shortness of time that elapsed between one shock and the next that gives the years from 1919 to 1939 their particular characteristic. These years came to be viewed as a ‘continuing world crisis’. The industrial depression that began in 1929 had been preceded by an agricultural depression dating from 1921, not really overcome in the mid-1920s, and then rapidly deepening after 1926. The ‘boom years’ of industrial expansion of the 1920s, thus, were not as uniformly prosperous as often supposed. For all its startling psychological repercussions, the Wall Street Crash on ‘black Tuesday’, 29 October 1929, did not cause the depression. The Western world, despite its attempts to return to the ‘normality’ of the pre-1914 years, was unable to do so after the Great War. But each nation sought to return to pre-war practices, some like Britain to the gold standard, sound money and balanced budgets, with disastrous results. The new problem of Allied war debts and German reparations did necessitate a fresh approach and international discussion and cooperation. During the 1920s, before 1931 when all these payments came practically to a halt, the international settlements followed a circular route of German reparations payments constantly scaled down, making possible the payment of Allied debts to the US also scaled down, while American loans to Germany, exceeding German reparations payments, completed the circle. This was not very sensible financially, but the actual sums involved, though not the principal cause of the breakdown of world trade, contributed to the disruption of international finance by the end of the decade. Study of the economic development of each Western nation reveals how far the depression of the 1930s had causes going back even before the First World War. Britain, for example, continued to rely on textile, coal and shipbuilding industries of the first industrial revolution, and was shifting only slowly, too slowly, to industries of the more advanced technology of the twentieth century. This lack of progress caused continuous and heavy unemployment even during the 1920s, when only in one year did unemployment drop below 10 per cent. The US provided a contrast, with the massive growth of new consumer industries such as the automobile industry and with unemployment at around only 4 per cent. The problem here was that these new industries did not produce necessities and the decision not to buy a new car because of a lack of faith in the future could produce a sudden reversal of fortunes in manufacturing industry. But it was not until 1931 that unemployment became the serious problem that it had been in Britain throughout the 1920s. The French economy was different again, with half the population engaged in agriculture. But post-war reconstruction favoured the rise of new industries and by 1930 France had emerged strengthened, even requiring foreign labour. The effect of the worldwide depression was stagnation throughout the 1930s. In Germany the impact of the world economic crisis was conditioned by the particular experiences of Germans since the lost war. Having once experienced hyperinflation, which made money worthless, the government was determined to preserve sound money regardless of the cost in terms of unemployment. Agricultural prosperity had suffered a serious setback some two years before in 1929, while German industry boomed. The later 1920s saw the affirmation of large industrial cartels and the introduction of new technology. Germany not only financed this modernisation by attracting loans from the US but also paid off reparations from loans. Other American loans financed unproductive municipal projects such as town halls and swimming baths. Much of this loan capital could be recalled at short notice and when this happened in 1929 the economy, already affected by declining international markets, threatened to spin out of control. The largest Western percentage of unemployed was Germany’s in 1932 with 30 per cent out of work. The state of the US economy was the common denominator in the world economic crisis. The American economy had assumed such importance that the other Western economies depended on its good health. There is thus general agreement that the origins of great worldwide depression are to be sought in the US. With the American economy running down, the prices of raw materials slumped; markets all over the world contracted as a result. When the US reduced the flow of capital abroad, and in 1930 created a prohibitive tariff which prevented the European powers from selling their goods in the US, the rest of the world could no longer cope. There were weaknesses in the economic structure of European nations that had already made themselves felt, as in Britain, before 1929. The American recession turned these problems into a severe crisis. The depression proved to be not just a short downturn in the business cycle, as had been expected. The bad year from 1929 to 1930 was followed by an even worse year in 1931. When 1932 brought no relief, hope of an automatic upturn collapsed. World economic conditions did improve from the low point of 1931–2 but only gradually. The world depression continued down to the Second World War, which, like the First, transformed economic activity and absorbed the unemployed to feed the war machine. Such a long and deep depression was a new experience and governments were at a loss as to how best to handle the economic problems of their day. In Germany from 1931 to 1933, they made matters worse. The depression also provided a test for the different forms of government by which the peoples of the world were ruled. They were inevitably judged by ordinary people according to how effective they perceived them to be in finding remedies for the ills of depression, unemployment foremost among them. In people’s minds, the communist, the various fascist and Nazi ‘models’, the conduct of the democratic governments, as well as colonial rule, could in these circumstances be compared. Any government and political system that happened to exist during the early depression years was bound to be blamed for the widespread misery. But those authoritarian governments that were already firmly established by 1929 were in a better position to maintain themselves by brute force and to manipulate the attitudes of the masses through propaganda. Popular discontent could no longer threaten the Soviet system of communist rule. The Western colonial empires were under firm military control. Mussolini stifled protest: strikes were prohibited by law; the Italian state set low rates of interest; and the Institute for Industrial Reconstruction was created in January 1933 to assist Italian banks, which in turn led to the state assuming direct responsibility for a range of industry from shipping to steel. Nevertheless, unemployment in Italy remained stubbornly high in the early 1930s and the standard of living persistently low. Yet there was no open criticism as Mussolini advertised himself, photographed stripped to the waist with spade in hand and working on public works projects. Hitler came to power during the most serious period of depression and he quickly consolidated dictatorial power. Nevertheless, it was his evident success in reducing unemployment in Germany from 6 million in October 1933 to just over 4 million a year later and 2.8 million in 1935 that so increased national popular support for him. Rearmament and army expansion after 1936 virtually eliminated unemployment in Germany. Whatever evils came to be associated with Hitler’s rule in the eyes of the people, they gave Hitler credit for ‘curing’ unemployment. Hitler recognised that he could turn the prevailing despair to his advantage if he could infuse a spirit of action, convey concern for the plight of the unemployed and actually put people to work. His success was not instantaneous; it was achieved, moreover, by forcibly destroying the independence of labour. It was achieved, too, in the face of traditional banking advice. Hitler listened to the Keynesiantype economists in Germany who had met with rejection by Brüning. Hjalmar Schacht, who returned as president of the Reichsbank, created large paper credits. Money was spent on new superhighways – the Autobahnen, which had military value – on expanding rearmament and on support for agriculture. The Nazi economy was tightly controlled by the state in order to achieve self-sufficiency in agriculture – and as far as possible in industry – without replacing the actual private ownership of industry or the land. At the price of liberty, the Nazi economy from 1933 to 1939 was successful in maintaining stable prices, full employment, eventually, and a modest rise in the standard of living of the working man. Rearmament was not allowed to cut standards of living drastically. Hitler was anxious to win and retain German support by providing economic and social benefits, and used violence only against open opponents from the beginning and against the Jews from 1938. The authoritarian models’ apparent good points, which were proclaimed by their own captive press, radio and film, impressed the unemployed in the democracies more than the bad. But the German economy by 1939 was heading for the rocks, which only a successful war could evade. Democratic governments requiring the cooperation of parliament looked less effective and more cumbersome by comparison. Poincaré’s government of national union had restored French finances to health in 1926. The elections of 1928 had given the right a great victory, but his retirement a year later, due to illness and exhaustion, marked the end of an era in which France had attempted to reassert its standing as a great power in Europe, and coincided also with the time when the depression became more serious worldwide. French governments after Poincaré lost their stability once more: between 1929 and 1934 they lasted an average of three or four months. Albert Lebrun, elected president in 1932, remained until the fall of France in 1940, but he was a colourless politician who gave no lead. At first, the strength of France’s financial position seemed to make it immune, alone among the Western nations, from the debacle following the crash in October 1929 in the US. Throughout 1930 unemployment remained low. But in the autumn of 1931 the slump and unemployment finally spread to France. French governments now sought by financial ‘orthodoxy’ to meet the crisis, simultaneously cutting pensions, salaries and public expenditure. The cessation of German reparation payments in 1931, coupled with the Americans’ continuing insistence on repayment of debts, compounded the difficulty. Despite devaluing once in 1928, successive governments until 1936 added to France’s problems by refusing to devalue an overvalued franc which made the task of exporting increasingly hard. During the worst years from 1933 to 1934 the survival of the Republic itself seemed very doubtful. Big business and the extreme right admired the fascist model as an authoritarian solution behind which they could operate profitably. Among politicians of the right, Pierre Laval and André Tardieu as well as Marshal Pétain, the hero of Verdun, inclined towards some sort of authoritarian resolution for the troubles and divisions of the Republic. The unpopular measures of successive French governments in a parliamentary Chamber of predominantly centre and left-wing parties, as well as fear of communism, played into the hands of the right. The Socialists led by Léon Blum would not join any coalition government that included the ‘bourgeois’ Radical-Socialists, whose main support came from the conservative peasantry and the middle classes and whose aims were not in the least socialist. The communists under Maurice Thorez meanwhile followed the Moscow line of the Comintern, which ordered them to regard the Democratic Socialist Party as their greatest enemy. So governments were formed mainly by the Radical parliamentary leaders seeking alignments to the right. The impact of the depression gravely weakened and divided the left, with the communists until 1934 pursuing an apparently insane tactic of undermining the stability of the Republic that might well have helped fascism to power in France as it had done earlier in Germany. The realisation of the folly of the Moscow course dawned on Thorez and in 1934 he became a leading and successful advocate of changing it. The years 1933 and 1934 also saw the growth in France of paramilitary fascist ‘leagues’ whose bands of rowdies brawled in the streets of Paris like Nazi storm troopers. There was the royalist Action Française, the oldest of the leagues founded before the First World War. Another was the Jeunesses Patriotes composed mainly of students. François Coty, the perfume millionaire, financed the Solidarité Française and a fascist journal, L’Ami du peuple. The most important of these leagues was the Croix de Feu, made up of war veterans led by Colonel de la Rocque, whose main aim was the negative one of overthrowing the parliamentary Republic. Royalism, extreme Catholicism, anti-Semitism, other movements inspired by Mussolini’s and Hitler’s examples, all had little in common except a determination to undermine the Republic. With this aim the politically opposite Communist Party at first also agreed, and the communists were even ready to work in parallel with fascists to achieve this object. The leagues were supported by numerous vicious Parisian newspapers which were constantly stirring up popular hatred against the legislators. At the worst possible moment, with the government discredited by its instability and inept handling of the depression, with financial hardship deepening and polarising class antagonism, the politicians were smeared with the taint of corruption by what became known as the Stavisky scandal. Stavisky was a swindler who had through the years floated a number of bonds and shares that defrauded the investors. Although arrested, he had enjoyed a strange immunity from trial, in the meantime making more money from shady deals. In January 1934 he shot himself, and the police, who could have saved his life, allowed him to die. It was rumoured that his death had shielded highly placed politicians and the police from the revelation of their involvement in his crimes and in these allegations there was undoubtedly some truth. All the anti-parliamentary forces seized on the scandal to make a concerted effort to overthrow not only the government but the Republic. The members of the various leagues were summoned in their thousands onto the streets of Paris to oust the politicians. The climax was reached during the night of 6 February 1934 when street battles raged in Paris; the police and Garde Mobile narrowly gaining the upper hand. Hundreds of demonstrators were wounded, some seriously, and it is surprising that the death toll – some eighteen people – was relatively small. The supposedly strong government under the Radical prime minister Édouard Daladier turned out to be weak after all and promptly resigned. The Republic was saved by a few of its resolute defenders among the Paris police by luck and, above all, by the total disunity of the leaders of the right. There was no Hitler or even Mussolini among them. Weak French governments, which could find no solution to the political, social and economic problems, succeeded each other during the next two years. The elections of May 1936, however, seemed to herald a turning point: the parties of the left – the Socialists and Communists – together with the Radicals had by then formed an electoral alliance, the Popular Front. This extraordinary change had been made possible by the volte-face of the French Communist Party. In June 1934 the Communists and Socialists had overcome their mutual suspicions to join in a United Front to fight fascism. The reasons for the change have fascinated historians, for the Communists had regarded the Democratic Socialists, or ‘social fascists’ as they called them, as their worst enemies. They accused them of leading the proletariat away from the true goal of communist revolution under the guise of representing the working people’s class interests. The fascists, on the other hand, could be recognised as the enemy of the proletariat and were but a passing phenomenon associated with the later stages of capitalism before its inevitable demise. Outside the Soviet Union, some of the communist parties that subscribed to the Sovietcontrolled Comintern began to question these doctrinaire views. How could all Social Democrats be regarded as enemies when they were fighting the same foe as in Austria, where the Social Democrats forcibly resisted the authoritarian clerical Dollfuss government and were, in 1934, bombarded into submission in Vienna? In Germany Hitler’s Nazis looked like consolidating their power. Communists languished in concentration camps, their party organisation smashed. There was a serious danger that fascism would win power in other European countries. The French communist leader, Maurice Thorez, became especially fearful of a fascist triumph in France. The French Communist Party took the lead in creating a new United Front with the Socialists. They could not have openly disobeyed the Comintern in Moscow. But the Soviet leadership was divided and persuaded by the brilliant Bulgarian communist leader, George Dimitrov, the hero of the Reichstag fire trial, to allow some latitude and experimentation of tactics. From the summer of 1934 onwards Thorez pushed on, the Soviet leaders acquiescing. The socialist and communist trade unions merged. Not satisfied with a socialist alliance alone, Thorez extended the alignment even further to include the ‘bourgeois’ Radicals, and so turned the United Front into the much broader Popular Front. The electoral pact of the three parties – Socialist, Communist and Radical – gave the Popular Front electoral victory over the right in the spring of 1936 and brought Léon Blum to power as prime minister. Though the Radicals did least well, the Communists gained greatly and the three parties together won 378 seats against the right’s 220. The electoral arrangements, rather than a large shift in the voting, had achieved this result. But French society remained more divided than ever. This polarisation was as important as the election results. Léon Blum had taken no part in the elections. He had been nearly beaten to death in the street when fanatics of the Action Française had set upon him. Fortunately, he was rescued by building workers who happened to be nearby. That was the other side of French politics. The right now assailed Blum, who headed the Popular Front government, not only for serving as a cover for the communists, but also as an alien, as a Jew. In few countries outside Nazi Germany was anti-Semitism as crude and virulent as in some sections of French society. Blum was sensitive to these attacks; he followed in the socialist traditions of pacifism and humane consideration for the poor. He could never quite rise above the viciousness of the onslaught on him and too selfconsciously sought to prove himself a patriot and conciliator. In his Cabinet when facing opposition he was prone to indecision and weakness, as became very clear when the Popular Front government in Madrid appealed to France for help at the outset of the Spanish Civil War. There was every reason why the French Popular Front government should help republican Spain with arms, not only on ideological grounds but also because a fascist victory threatened to encircle France. This, too, was Blum’s view. But the outcry of the right and the weakness of his Radical and Socialist ministerial colleagues changed Blum’s mind and he reversed his earlier decision to respond to Madrid’s appeal. In domestic affairs, Blum’s government scored one spectacular success. At the time that he took office, France was hit by a huge wave of strikes and factory sit-ins. Discontent with low wages and poor working conditions in industry and on the land had finally led to this confrontation which served notice to the politicians that as in other Western countries – except, of course, in fascist Italy and Nazi Germany – organised labour demanded basic rights and higher wages. The employers and propertied were thoroughly frightened. Blum brought the employers and the trade unionists – the Confédération Générale du Travail – together at his official residence, the Hôtel Matignon on Sunday, 7 June. After a night’s discussion there emerged a package: a substantial wage increase, two weeks’ paid holiday, a fortyhour week and, most important of all, the employers’ acceptance of the trade unions’ bargaining rights; in return the unions would persuade the workers to end their sit-ins and the strikes. Believing themselves on the verge of social revolution, parliament rushed this constructive legislation through in a few days – an uncharacteristic show of good sense and urgency. Industrial peace was restored for a time. But the impact of the Blum government on the health of the economy was small, despite the belated devaluation of the franc in October 1936. Blum was determined to work pacifically, by seeking the cooperation of big business and high finance, which loathed all his government stood for. There was to be no enforced socialism. After a year, the stagnating economy and price rises had wiped out much of the advantage the workers had gained by wage rises. Soon after coming to office, Blum banned the ‘leagues’. This proved as ineffectual as in Germany in 1932. The leagues assumed a new ‘legitimate’ political garb – but the street brawling continued as before. A particularly violent clash between the communists and the right in March 1937 ended in bloodshed; it horrified Blum and damaged the reputation of the Popular Front. Blum was ready to resign immediately but, in the end, carried on. He resigned three months later, in June 1937, disillusioned and frustrated in his domestic and foreign policies, when a hostile Senate, dominated by the Radicals, refused to give him the powers he had asked for so that his government could deal with the financial crisis. For a further year a hollowed-out Popular Front continued. The disunity of the left, its weakness, the bitterness of class war, which even took the form of making it fashionable on the right to mouth ‘better Hitler than Blum’, allowed government to fall into the hands of a coalition of the disunited Radicals and the right. Édouard Daladier in April 1938 emerged as another supposedly ‘strong’ man whose actual performance belied his reputation. His finance minister, Paul Reynaud, tried to restore the economy by increased taxation and a longer working week. The employers, recovered from the early days of the Popular Front, were able to redress the balance again in their favour but at the expense of social bitterness. The repercussions for world peace of France’s feebleness were immense. It was a misfortune that all this occurred when across France’s eastern frontier a determined and ruthless dictator was taking full advantage of the French political and social crisis. Political division at the centre of government in the years between the wars did not lie at the root of Britain’s social and economic difficulties. Indeed, it is difficult to think of any two decades of British history where there was such unanimity. The Liberal Party never recovered sufficiently to provide an alternative government. The role was taken over by the Labour Party. Labour had briefly formed a minority government in 1924, and then again from 1929 to 1931. Just three years after the conclusion of the General Strike, Baldwin in May 1929 went to the country confident of electoral victory. The total Labour vote (8.4 million) was slightly lower than the Conservative (8.7 million), but the constituency electoral system gave Labour more seats, 289 against the Conservatives’ 260, while lack of proportional representation penalised the Liberals who, despite their 5.3 million votes, gained only 59 seats. There was less practical difference between Ramsay MacDonald’s brand of Labour policies and the policies of the Conservatives than between the policies of either party and those of the Liberals. It was the Liberals who put forward a radically different economic strategy masterminded by the most famous economic thinker of the age, John Maynard Keynes. He and others produced the pre-election plan Britain’s Industrial Future, which advocated government spending as the spearhead to industrial revival. ‘We Can Conquer Unemployment’ was Lloyd George’s more popular election version of this plan. Lloyd George, with his own ‘brains trust’ behind him, was ready to provide the British people with their ‘New Deal’. But there was to be no political comeback for Lloyd George. Labour became the alternative to the Conservatives. Its leadership was anxious not to present the party as too socialist, let alone as revolutionary, as the communists had no electoral appeal. The left wing of the Labour movement found itself isolated, shunned both by the communists who were following the Comintern line of fighting the ‘social fascists’ and by the bulk of the trade unions and the moderate Labour right. Despite Ramsay MacDonald’s commitment to a Labour Party whose theoretical aim was to transform capitalism into socialism, as leader of the party he saw this as some very distant objective, certainly not practical politics in 1929. The predominant majority of the Labour Party has stood behind leaders who warned that to embrace farreaching socialist measures, such as bringing the greater part of industry under state control, would alienate the electorate and condemn the party to permanent opposition. The move to the left needed to be gradual and pragmatic. The Labour minority government which Mac- Donald formed in June 1929 largely excluded the Labour left. The electoral programme had softpedalled socialism and the whole issue of public ownership, except for the coal industry (and even the Conservatives were to move eventually towards some form of state supervision over the coal industry); Labour owed its electoral success to this stance of ‘respectability’. Philip Snowden, chancellor of the exchequer, was as orthodox, as sternly opposed to unbalanced budgets and as fearful of inflation as any Conservative chancellor. The most serious problem facing Britain at home throughout the 1920s was unemployment, which persisted at over 1 million, more than 10 per cent of the labour force. This average for the whole country does not reveal its full seriousness, since unemployment was far more severe in Clydeside in Scotland and Tyneside in north-east England where shipbuilding was in the doldrums, in the coal-mining valleys of south Wales, in Ulster and in the textile region of south Lancashire. Whole regions were blighted, sunk in poverty with unemployment persisting year after year. The famous hunger marches to London in the 1930s helped to draw the ‘forgotten’ regions to the attention of the more prosperous Midlands and southern England. It brought home to the man in the street the desperate and seemingly hopeless plight of the unemployed. The coming to power of the Labour government was followed within a few weeks by the Wall Street Crash. The effects of the American depression soon spread to Britain. Unemployment rapidly rose. The government attempted nothing that might have stemmed this rise. Within the government Oswald Mosley, taking his cue from Keynes, recommended radical measures to deal with unemployment. He resigned from the government in May 1930 having failed to persuade his colleagues, and eventually left the party after his motion against government unemployment policies was defeated at the party conference in October and further efforts to change the party’s policies proved fruitless. His authoritarian inclinations have obscured the question whether his economic judgements were sound. Once considered a potential leader of the Labour Party, he came to lead instead the British Union of Fascists and left the mainstream of British politics. Labour’s meagre legislative record, with unemployment rising to 2.8 million by the summer of 1931, had severely weakened MacDonald’s standing in both the country and in the Labour Party when the financial crisis hit London. The Labour government had sought to follow financial policies acceptable to the orthodox bankers and adopted a course above parties – thus diminishing its independence of action. Policy recommendations were left to commissions and committees of experts. These orthodox financiers now recommended that government expenditure be cut by lowering wages of government employees, by reducing unemployment benefits and by raising new taxation. MacDonald’s colleagues baulked, but eventually agreed to most of these measures. They went much against the grain even of the Labour moderates. When MacDonald insisted, on the advice of the bankers, on the full cuts, a minority of the Cabinet, backed by the General Council of the Trades Union Congress, which opposed all cuts, would not accept further economies. The realisation was growing that the government, in simply giving in to the financiers, would separate itself from the bulk of the Labour movement. If the policy were necessary, would it not be better to have left it to the Opposition? At the suggestion of the bankers, who urged MacDonald that the prime need was to restore international confidence in the government – a loan from the US was said to be conditional on sufficiently stringent government economies – MacDonald and Snowden had already conferred with the leaders of the Opposition. At the height of the crisis King George V played a leading role in persuading MacDonald, Baldwin and the Liberals to join in a new ‘national government’. Lloyd George, who might have blocked a coalition led by MacDonald, was in hospital. On 24 August 1931 the king’s personal appeal was ‘loyally’ acceded to, such was still the inherent influence of the Crown. The next day, MacDonald headed a new national government with Baldwin serving under him. Only three Labour Cabinet ministers, including Snowden, followed MacDonald. The Labour Party formally rejected the national government and voted for a new leader. At the general election which followed in October 1931 the Labour Party suffered a devastating defeat. They could hold only fiftytwo seats. The Conservatives won a corresponding victory of 471 seats and so an absolute majority. The Liberals were soon as badly split as Labour; after supporting the national government for a time about half the sixty-eight MPs, in 1932, turned against it. MacDonald’s National Labour following was reduced to thirteen. In all but name, Britain was ruled by the Conservatives until 1940. MacDonald had genuinely believed in a financial crisis and had been panicked into action that the Labour Party regarded as a betrayal. What was the domestic record of the Conservative- National administrations, MacDonald’s (1931–5), Baldwin’s (1935–7) and Neville Chamberlain’s (1937–40), in meeting the social and industrial ills of Britain? There can be no doubt that these governments followed policies that they believed would most effectively alleviate the distress of unemployment and would cure the sickness from which the British economy suffered. They did care. But their political philosophy and economic thinking precluded them from following the communist or fascist totalitarian remedies. They also rejected the notion that government could initiate public spending sufficiently large to mop up unemployment regardless of other harmful effects on the economy such spending would have had. The fact that the national government with its tiny Liberal and Labour components in Parliament but backed by the overall Conservative majority could act decisively without fear of parliamentary defeat, in itself, helped to restore confidence. MacDonald, followed by Baldwin in 1935, presided over their cabinets as prime minister, but the rising star was Neville Chamberlain, who became chancellor of the exchequer in the depth of the depression in November 1931. Winston Churchill might have become the real force in these governments of the 1930s had he not quarrelled with Baldwin and the Conservative majority when the Conservatives were still in opposition over how to deal with the problem of Indian nationalism. The Labour government supported by Baldwin wished to make concessions; Churchill thundered against appeasing Indian nationalism and resigned from the Conservative shadow Cabinet. It was a tragic misjudgement not only as regards India but possibly in its effect on world history. Churchill was politically isolated in the 1930s and when he warned against appeasing Hitler, most of the Conservatives did not listen. The later 1930s belonged to Chamberlain not Churchill. Chamberlain tackled the economic problem with the characteristic vigour he had already displayed as minister of health in the 1920s. Nevertheless, government policies were pretty cautious. They were less spectacular, but arguably more effective, than Roosevelt’s in America. Chamberlain sought to create conditions that would allow British industry to revive. Recovery was not, however, all a matter of government economic planning. Equally important was the behaviour of the British people – those in employment – who by their spending gradually helped to lift Britain out of the slump. Already in September 1931 Britain had gone off the gold standard and devalued its currency by a quarter so as to make British exports more competitive. It followed the US in adopting a protective tariff to discourage competitive imports from abroad; a limited degree of imperial preference was agreed by the Imperial Economic Conference at Ottawa of July/August 1932, which lowered mutual tariffs in the Commonwealth, stimulating empire trade. Currency control was introduced and not eased until 1979 (it was abolished soon after). Cheap credit stimulated the domestic economy, especially in the house-building trade. Schemes of direct government subsidies and marketing boards also greatly aided the British farmer. The government sought to rationalise and produce a more uniform system of unemployment benefits. The intentions were good, but the resulting family ‘means tests’, which investigated whether a whole family had sufficient for its needs even if one of its members was out of work, came to symbolise the heartless bureaucracy of what was intended as a sensible policy. The echoes of the resulting bitterness made themselves felt for decades. Class distinction was more acceptable to the man in the street in good times, or in the war when common hardships and dangers were being shared by the upper and lower classes in the trenches. In the 1930s the increasing division between rich and poor, employed and unemployed, left bitter memories of Conservative rule that not even Winston Churchill’s personal popularity could overcome in 1945. The Prince of Wales, by his well-publicised concern for the misery of the unemployed, did something to bridge the gap. The abdication crisis of November and December 1936, which forced Edward VIII to renounce the throne unless he gave up his proposed marriage to the divorced Mrs Simpson, was seen by some embittered working men as a manoeuvre to get rid of a king who sympathised with them. Unemployment, nevertheless, in the mid- 1930s was slowly declining. It never reached the proportions of German and American unemployment at their peak in 1932–3, and fell steadily from 1933 to 1937 from just under 3 million to 1.7 million. Even with rearmament getting under way thereafter, it did not fall below 1 million and since it was heavily concentrated in the depressed areas it actually varied from 26 per cent in Northern Ireland and 24 per cent in Wales to 6 per cent in the Midlands. Such gestures as subsidising the completion of the liner Queen Mary on the Clyde and other limited public schemes could not touch the hard-core unemployment problems of these regions. This, rather than the fact that total production in 1934 exceeded the level of 1929, was what made the deepest impact on the public mind in the 1930s. One serious consequence of the depression was that the democracies became preoccupied with problems at home. Chamberlain saw rearmament as a waste of national resources. Gradually recovery was proceeding. For those in work living standards were rising rather than falling. War threatened the better way of life governments were seeking to achieve for their peoples. But it was the war effort alone that ‘cured’ unemployment in Britain and the US. The social consequences of the depression, the despair of the unemployed, the failure to provide adequately for the poor and the sick, the undernourishment of millions of children, unhealthy slum housing and many other ills in the early years of the 1930s turned the mass of people on the continent of Europe towards a search for new solutions. Since Stalin’s Russia appeared to have found the answer to banishing the capitalist trade cycle, communism attracted millions. Their support was given not only for materialistic but also for idealistic reasons. Communists fought fascism and in claiming to provide a better and healthier life for the poor acted in a way that seemed ethical and good. The realities of Stalin’s tyrannical regime were unknown to many, overlooked or explained away. Mussolini and Hitler were seen by millions as the saviours who would restore a sense of national unity, orderly government and employment to their people. They had many admirers outside Italy and Germany, even some in Britain. The deep divisions and the turmoil in France discredited parliamentary government in this part of Europe too. In Britain, the Labour government had ignominiously fallen, though parliament itself survived the crisis. Humane and democratic socialism was everywhere the main victim. Such desperate conditions, millions of people felt, demanded not compromise but radical remedies. The left battled the right politically, in Spain even on the battlefield. But there was at least one country in Europe where humanity, democracy and social progress were safe and which did not follow the pattern of most of the rest of the continent. Sweden had not bypassed the depression, but the economic slump led to the establishment of a democratic form of government which determined the social and economic policies of the country for almost six decades. It was ceasing to be a predominantly agricultural country: its steel, ball-bearings and other advanced industrial products like telephones were in worldwide demand, in addition to its older exports such as wood-pulp and matches. Nonetheless, in this large, underpopulated northern region of Europe, farming continued to play an important role in the 1930s. The impact of the depression, at its height in 1932 and 1933, was devastating. One in three of the workforce was unemployed; many farmers could no longer meet their mortgages and were forced to sell. But Sweden recovered relatively quickly from the crash compared to the rest of Europe and it was politically strong and stable. The credit for this must go largely to the coalition administration of the Farmers’ Party and the Social Democrats, led by the Social Democrat Per Albin Hansson. In the first three years of the administration, bills to promote active state intervention were passed, regulating the working hours of agricultural labourers, statutory holidays and unemployment insurance. The simple slogan was to make Sweden ‘a home for all its people’ and so to create social harmony. By 1939 Sweden’s unemployment problem had been solved and the plans for a welfare state had been worked out. The Social Democrats, since their election victory in 1936, had become the dominant political force in the country. The war postponed the extension of social welfare, but from 1946 to 1950 the reforms were enacted, including comprehensive old-age pensions, child allowances, health insurance and educational reforms. The Swedish people were to be safeguarded from ‘cradle to grave’, in sickness and in health. The socialist element of the government policies was to tax the better-off heavily to pay for the welfare state and to redistribute income, rather than to try to nationalise private industry. For once a utopian vision seemed to correspond to reality. Sweden and its people prospered. Swedish research, technology and design were second to none. The Social Democratic dominance for all but six years since 1932 came to an end only in 1992. Sweden exemplified a distinctive and much admired social, political and cultural way of life. The emphasis on closeness to nature and on individual choice and liberty extended to the sphere of sexual permissiveness long before it did so in the rest of Europe. In many areas of social reform Sweden was the pioneer. The Swedes enjoyed one of the highest standards of living in Europe, along with the Swiss, the Norwegians, the Finns, the Germans and the people of Luxembourg. Swedish society was egalitarian and unshakeably democratic, although it had to make readjustments in the early 1990s. The hopes of those who continued to pin their faith on liberalism and democracy in the 1930s as providing a better answer to the world’s ills than totalitarian leadership, came to rest on Franklin Delano Roosevelt. Roosevelt’s New Deal was to be the answer to those who, in the crisis, despaired of reconciling freedom with the measures necessary to bring about economic recovery. Keynes wrote in December 1933 that Roosevelt had made himself ‘the trustee for those in every country who seek to mend the evils of our condition. If you [Roosevelt] fail, rational change will be gravely prejudiced throughout the world, leaving orthodoxy or revolution to fight it out.’ The shortcomings of the New Deal are very evident to historians today. Unemployment remained obstinately high. It fell from some 13 million in 1933 to under 8 million in 1937 but it rose again to 9.5 million in 1939. In fact, Roosevelt’s administrations failed to ‘cure’ the blight and waste of human resources until the US geared industry to war. But the attitude of the president and administration, brilliantly publicised, gave renewed hope to the nation and provided leadership without the destruction of democracy. There is thus a stark contrast between the general psychological impact of the New Deal and the real success of the many different laws, special agencies and programmes which constituted it. The depression provided Roosevelt with the opportunity of attaining and retaining political power for more than a decade until his death in 1945. But its onset destroyed the political power of his predecessor at the White House, Herbert Hoover. Hoover in 1929 had begun his term at the moment of highest confidence. The failure of his economic policies to halt the steep rise in unemployment shattered his reputation. He had a clear concept of the role of the state. He wished to limit federal powers, which he warned would throttle individual initiative. He was by conviction a conservative, though he was willing to adopt new ways to stimulate business. His inability, nevertheless, to halt the steep slide into depression did more than discredit him personally, it also discredited the whole philosophy of minimal state intervention. But Hoover did act to contain the effects of the onset of the depression. He appealed to businessmen not to contract their activities and to maintain their workforce. He appealed to the banks to extend credit. Besides such exhortations, federal policies were limited – though in the right direction. The nation should help itself by enlightened voluntary cooperation between the different interest groups. Prosperity ‘lay just around the corner’. When the voluntary approach did not work, Hoover took more energetic steps to influence the economy. He persuaded the bankers to establish a National Credit Corporation in October 1931; the strong banks were to assist the weak and failing ones. But banks, in their thousands, continued to close their doors. Business confidence was not restored. In 1931 Hoover belatedly halted international financial chaos for a time by calling for a year’s moratorium of Allied debts to the US; German reparations also ceased in practice. Hoover broke with his traditions by establishing the Reconstruction Finance Corporation in 1932, empowered to make loans to banks and financial institutions. That summer he accepted a congressional bill to advance federal loans to individual states to provide unemployment relief and public works. The federal budget, despite his misgivings, allowed for more state expenditure than income. But the funds thus pumped into the economy were overshadowed by the stringent credit policies followed by the banks, paradoxically because they were better supervised and receiving financial support. The net result was that from 1929 to 1934 the American money supply contracted by nearly a third, inevitably deepening the depression and increasing unemployment. Roosevelt had no basic understanding of the overall management of the economy and, in the election campaign of 1932, attacked President Hoover for his unbalanced budgets, promising as one of his remedies for the depression to cut federal spending by a quarter! Roosevelt’s electrifying inaugural address of 4 March 1933 reveals the other, psychological side of his mixture of ideas together making up the promised New Deal. He cautioned against unnecessary fear, attacked the ‘unscrupulous money changers’ and vigorously promised action: ‘our greatest primary task is to put people to work’. He was now determined to put into practice what a year earlier he had called ‘bold persistent experimentation’. If something fails, he declared, admit it frankly and try something else, but ‘above all try something. The millions who are in want will not stand by silently forever while the things to satisfy their needs are within easy reach.’ Roosevelt spoke to the ordinary people and they were at last convinced that the new president was not prepared to capitulate to seemingly uncontrollable economic forces, to the inexorable workings of the business cycle. Roosevelt exuded confidence, charm and sincerity. There was something else about him. Crippled by polio in 1921, he had lost the use of his legs. Now, as president, he personified the fact that adversity could be triumphantly overcome. Quite possibly one consequence of his serious disability was that he developed a new homely touch in politics, a charisma in the eyes of the mass of the people that became an invaluable asset to him. The pampered child of wealthy Americans, privately educated at the best schools and at Harvard, Roosevelt bore a famous family name. He modelled himself on his famous relative Theodore. His early political career advanced by easy progression from the Senate of the state of New York, to a junior place in the Navy Department in Wilson’s administration. Then to the governorship of New York State when already stricken with polio. The Republicans seemed firmly in power in the 1920s, but the depression gave the Democrats their chance and Roosevelt secured the nomination in 1932. Roosevelt was happiest when active. During the first Hundred Days of his own administration he initiated measure after measure, backed by a bevy of academics and politicians who served as his think-tank, or brains trust as it was then called. One associate who knew him well described Roosevelt’s mind as ‘flypaper’. There was a tremendous array of New Deal policies, Washington became the centre and source of new federal powers hitherto undreamt of, and a vast sprawling bureaucracy administered the programmes. The public’s thirst for action was satisfied. This thirst was also slaked by the twenty-first amendment in February 1933, ratified by the States in December. It was the end of Prohibition. ‘Happy Days are here again.’ An emergency banking act restored confidence in the banks and in June 1933 deposits were insured by the Federal Deposit Insurance. In May 1933 the Agricultural Adjustment Act (AAA) tried to raise farm prices by paying federal subsidies to farmers for reducing production; marketing agreements were supervised by the federal authorities. In June 1933 the National Industrial Recovery Act (NIRA) created corporate committees representing the public, management and labour to establish codes on production, prices and competition. Labour was aided by the laying down of maximum hours and minimum wages and by being conceded the right to join a trade union, which at last gave a great impetus to the unionisation of the less skilled workers. Underlying NIRA was a belief in national planning. But the biggest businesses dominated the codes, as government supervision was small. Among the most celebrated early measures was the creation of the Tennessee Valley Authority (TVA) in May 1933, which established government authority over a vast impoverished region containing a hydroelectric dam and fertiliser factories. The Authority promoted scientific agriculture, prevented flooding and engaged in a variety of social programmes to aid the poor. Another part of the NIRA established the Public Works Administration with a fund of $3.3 billion. Under the secretary of the interior, Harold Ickes, it was set up to promote construction that was in the public interest, and employed during its first year 1 million men. But Ickes was cautious in his approach; not so ex-social worker Harry Hopkins. Hopkins worked for speedy aid to restore the morale of the unemployed. The Civilian Works Administration run by the indefatigable Hopkins employed 4 million people on public works schemes and cost $2,000 million in 1933 to 1934. Roosevelt thought this was too much and abolished it in the spring of 1934. His own programme in 1933 was the Civilian Conservation Corps, which offered American unemployed young men from the cities work in army-style camps in the countryside. Over a thousand camps accommodated 300,000 men planting trees and working in rural areas. Other New Deal measures sought to supervise and regulate Stock Exchange dealings and financiers. The work of many minds, the New Deal measures were not intended to introduce ‘socialism’. Roosevelt attempted to make capitalism work better, to use the power of representative democratic government to secure social justice for all the people. Despite the measures comprising the New Deal, the US’s unemployment figures disappointingly showed only gradual improvement. The reason for this is not now difficult to find. Congress and the president in 1933 and in 1934 were not prepared to tolerate large deficit budgets. Funds spent on the programmes of the New Deal were balanced by savings secured by reducing veterans’ allowances, curtailing unemployment reliefs and discharging government employees. What one hand gave, the other took away, and federal deficits increased only gently in 1933 and 1934. The federal government had played a larger role and Roosevelt was genuinely responsive to the needs of the poor; but in the end practical achievements, when seen against the vastness of the problem, proved insufficient to ‘cure’ unemployment. The New Deal policies ran into trouble in 1935. While the congressional elections of 1934 had strengthened the reformers, the Supreme Court took a conservative view of constitutional rights. In May 1935 the Court invalidated the NIRA as an unconstitutional delegation of power and regulation of business. Roosevelt’s administration was already moving towards changes in the New Deal and so did not attempt to reenact any parts of the NIRA. The attempt to cooperate with business had not led to the expected beneficial results. The New Deal legislation of 1935 to 1936 sought to reform business practices and to destroy concentrations of business power. Another important decision was to create many more jobs – ‘work relief’ – by setting up the Works Progress Administration under Harry Hopkins and providing it with large funds; $1.47 billion on average in a full year (1936–40). Besides public works, Hopkins created projects for out-of-work artists and writers. The latter collected information and wrote guide books. Many suddenly discovered a new vocation for writing. Nearly 1.5 million projects were set up which, at different periods of time, employed a total of more than 8.5 million people during its years of operation. Even so, all these programmes absorbed only one-third of the unemployed. One of the most significant reforms of the New Deal era was the introduction – belated in comparison to other Western nations – of basic welfare policies such as old-age pensions. The passage of the Social Security Act in August 1935, inspired by the efforts of Frances Perkins, provided – besides federal old-age pensions – unemployment insurance and help to the less privileged. Many of the poorest sections of American society were still excluded, but the Act marked a beginning on which later expansion could be built. The growth of labour unions and recognition of their rights by the National Labor Relations Act (Wagner Act) further limited business power. All in all, the New Deal had redistributed power in the community and greatly increased that of the federal government. In November 1936 Roosevelt was re-elected to a second term by a bigger victory than in 1932, gaining 61 per cent of the popular vote. He represented the non-revolutionary change the majority of voters wished to see. His biggest personal political setback occurred soon after the election, when he attempted to change the composition of the Supreme Court, which threatened his New Deal legislation. He requested Congress to legislate that the Supreme Court could be enlarged by the president appointing an additional supplementary justice for every existing justice over the age of seventy who did not wish to retire. But Congress refused to tamper with the Court in this way. Nevertheless, Roosevelt’s complaints of the Court’s unresponsiveness to social needs seems to have produced a change of attitude; the Court ceased to be the conservative obstacle to New Deal legislation after 1936. In any case, gradually Roosevelt’s nominees came to predominate as the older judges retired. That the New Deal was not even larger in scope was not so much due to the attacks of its opponents as to the policies of the administration itself. Roosevelt never could abandon his belief in a ‘sound money’ policy. He favoured keeping spending within well-controlled limits. A recession in 1937 was followed by a slow recovery but, even in 1940, 15 per cent of the workforce remained jobless. Yet, America in 1940 was very different from when Roosevelt first entered the White House. He had sought reform and change, but not a revolution of the capitalist system. His bold approach, his faith in democracy and his desire to help the ordinary people, the disadvantaged and the poor, not only brought hope where there had been despair but also significantly changed American society and attitudes.

 

 

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