Politicians and the Slump: The Labour Government of 1929 - 1931 0140211721, 9780140211726

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Politicians and the Slump: The Labour Government of 1929 - 1931
 0140211721, 9780140211726

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POLITICIANS AND THE SLUMP The Labour Governm ent o f


POLITICIANS AND THE SLUMP The Labour Government o f





© Robert Skidelsky 1967 Published by M A C M IL L A N & CO LTD

L ittle Essex Street London W C 2 and also at Bombay Calcutta and M adras M acm illan South A frica (Publishers) P ty L td Johannesburg The M acm illan Company o f A ustralia P ty L td M elbourne The M acm illan Company o f Canada L td Toronto

Printed in G reat B ritain by ROBERT M ACLEHOSE AND CO. LTD

The University Press, Glasgow


CONTENTS L ist o f Illustrations Preface Introduction

pagevüi ix xi

1 T h e Econom ic Background 2 Socialists and Unem ploym ent 3 Labour T akes O ffice 4 T h e C hoice 5 T h e Failure o f Im agination 6 F irst Faltering Steps 7 T h e Im pact o f the Slum p 8 M osley Revolts 9 T h e Prim e M inister T akes Charge 10 T h e Parties and the Slum p 11 T h e Failure o f N erve 12 Point o f N o Return 13 T h e F all o f the Labour G overnm ent 14 Conclusion Appendixes: I . Labour Government, 19 2 9 -3 1 I I . Selected Statistics I I I . Schemes Prepared by the Advisory M inisters, 1929-1930 IV . M osley Memorandum M aterial V . N ational Development and State Borrowing: a note prepared by the Treasury, July 1930 V I. Extracts from T h e Pound and the G old Standard: a note prepared by Henry Clay (August?, 19 3 1) Select Bibliography Index

i 27 51 76 89 116 141 167 190 203 243 281 334 384 396 398 400 404 409 414 416 421

LIST OF ILLUSTRATIONS T h e Labour cabinet, 1929 Labour Party Library Labour election poster, 1929 B a rro tti James Ramsay M acD onald Labour Party Library Philip and E thel Snowden Keystone Stanley Baldwin Radio Times H ulton Picture Library D avid L loyd G eorge Central Press James H enry Thom as Keystone O n the dole F ox Photos T h e Clydeside Revolution London Express C art before the H orse London Express M accapablanca’s Rush H our London Express Sir Oswald M osley Keystone John M aynard K eynes London Express M iss M argaret Bondfield Central Press A t the Political M agicians' D inner London Express T h e L ong and Short o f it London Express T h e Sacrifice London Express T h e N ational Governm ent Central Press

facing page 66 67 82 82 83 83 130 131 146 147 210 211 226 227 338 339 354 355

PREFACE I o w e an enorm ous debt o f gratitude to M r. Philip W illiam s o f N uffield C ollege, O xford, who read each successive draft w ith the sharpest eye for loose arguments, and w ithout whose constant and helpful encourage­ m ent and criticism this book would never have been com pleted; also to M r. K enneth T ite o f M agdalen College, O xford, to whom I am in­ debted not only for numerous com m ents o f substance, bu t also for critical observations on m y punctuation. It is also a pleasure to thank m y stepfather, M r. A lexander Baylin, and m y friends, M r. V ijay Joshi, o f M erton College, O xford, and M r. Vernon Bogdanor, o f Brasenose C ollege, for their m any helpful comments on the portions o f the manu­ script w hich they read, and M rs. K a y W atts, who typed the m any stages o f the ‘final* draft w ith enorm ous efficiency and unfailing good hum our. Finally, it is a pleasure to acknowledge the help o f those politicians, econom ists and civil servants, active in the period covered b y m y book, w ho talked to m e or answered m y enquiries in w riting, especially: M r. J. R . B ellerby, L ord Boothby, the late L ord Chuter-Ede, D r. R. Forgan, L ord Henderson, the late M rs. ‘M olly* H am ilton, Sir R oy H arrod, M r. W . A . L ee, Sir O swald M osley, the H on. Sir H arold N icolson, M r. J. R. A . O ldfield, M rs. Ishbel Peterkin, M r. M organ Philips Price, L ord Sorensen, the late R t. H on. E . J. Strachey, the R t. H on. G . R . Strauss, M r. W ilfred W ellcock, and Sir Horace W ilson. M y acknowledgm ents are due to the follow ing for perm ission to use and quote from various collections o f papers : G eneral Council o f the T .U .C . (G eneral C ouncil Papers) K eynes M em orial Com m ittee (K eynes Papers) Lothian Trustees (Lothian Papers) T h e R t. H on. M alcolm M acD onald (M acD onald Papers) Sir O sw ald M osley (M osley Papers)



N uffield C ollege (H ubert Henderson and M orrison Papers) Passfield T ru st (Passfield Papers) Raym ond Postgate (Lansbury Papers) T h e R t. H on. G . R . Strauss (D iary) In addition I am very grateful to the Librarians o f the L ibrary o f Political and Econom ic Science, L .S .E ., and the M arshall L ibrary, Cam bridge; to the C urator o f H istorical Records, Scottish Record O ffice; to the Secretary o f the Research and Econom ic D epartm ent o f the T .U .C .; and to M r. D avid M arquand, M .P ., for their courtesy and help to m e w hile I was consulting the papers in their custody. A s I w rite, the prom ised relaxation o f the fifty-year rule, designed to give access to the Cabinet and departm ental papers o f this period, remains m erely a prom ise, so that I have not been able to look through the mass o f papers jealously guarded b y the Public Records O ffice. N evertheless, I have been extrem ely fortunate in having had access to a w ide range o f relevant official and private papers w ithout w hich large sections o f this book could not have been w ritten. T h is type o f source m aterial has been invaluable to expose processes o f policy-m aking w ithin governm ent w hich w ould otherwise have rem ained obscure and to give a solid backing o f evidence to w hat w ould otherwise have re­ m ained speculation or assertion. It has not produced any startling ‘revelations’, nor brought to light any ‘secrets’ : on the w hole journalists were rem arkably good in sensing w hat was going on and the reasons for it. From this I assume that the effect o f the release o f these papers w ill largely be to give students better am m unition w ith w hich to defend their own, and blast rival, theories; and debate w ill continue undim inished — as it should.

INTRODUCTION I n t e r e s t in the Labour G overnm ent o f 1929 to 1931 has centred

alm ost exclusively on the events leading to the form ation o f the N ational G overnm ent on 24 A ugust 1931. T h e political happenings o f the previous tw o years have been obscured b y the light that has played on the crisis itself. T h ey are covered in scarcely m ore than a dozen pages or so in the standard general histories, and the com plexity o f issues and choices has never received a study com parable to that on the drama o f the fight for the pound. O ne unfortunate consequence o f this is that it reinforces the tendency to view inter-w ar politics in term s o f a struggle between socialism and capitalism , between the Labour Party and the Rest. T h is was undoubtedly an im portant cleavage, especially o f sentim ent, and as such should not be under-estim ated. H owever, the real cleavage o f opinion occurred not across this divide, bu t another: between the econom ic radicals and the econom ic conservatives. T h is cut right across party lines. T h ere were econom ic radicals to be found in all parties, though it was the Liberali P arty that cam e to stake its life on econom ic radicalism in the election o f 1929. It is w ith this second cleavage, to w hich the political divide o f 1931 is only tangentially and rather fortuitously related, that this book is prim arily concerned. T h e real story o f the dom estic politics o f the inter­ w ar period is the defeat o f the econom ic radicals b y the econom ic conservatives. T h e issue on w hich this debate centred was unem ploym ent. U n­ em ploym ent o f 10 per cent o f the labour force was endem ic in the England o f the nineteen-twenties. It is often argued that before K eynes’s General Theory (1936) governm ents were bound to pursue conservative, orthodox, econom ic policies. Y e t m ost econom ists and m any business­ m en rejected the ‘treasury view ’, and dissent from orthodoxy increased progressively as traditional policies failed to restore prosperity. B y 1929 there existed a substantial body o f econom ic and political support for a




radical unem ploym ent policy em bracing an expansionist m onetary policy and a b ig program m e o f governm ent investm ent. It is sometimes argued that it was the lack o f a parliam entary m ajority that prevented the Labour G overnm ent o f 1929 to 1931 from follow ing a radical unem ploym ent policy. Y e t the Labour Party never had such a policy, and in the election cam paign o f 1929 it attacked the Liberals’ detailed program m e o f public investm ent under the cover o f a vague and w oolly 'socialism*. In office it follow ed the orthodox policies o f its Conservative predecessors w ith only m inor m odifications. Y e t in these two y ears the L iberals, who held the balance o f power, were consistent advocates o f a bolder approach. T h u s 1929 was the m ajor m issed op­ portunity o f the inter-w ar period, the one occasion when the electorate voted unam biguously against 'safety first’ and in favour o f econom ic innovation. W hy did the Labour Party fail to utilise this dissent for the ends o f a radical unem ploym ent policy? I have sought the answer in term s o f the party’s com m itm ent to a U topian socialism w hich incapacitated it from effectively w orking the parliam entary system and prevented it from com ing to term s w ith econom ic reality. It suffered in those days from a split personality: on the one hand it was com m itted to constitutionalism ; on the other it lacked a social dem ocratic or gradualist program m e w ithout w hich tenure o f power was bound to be rather barren o f achievem ent. I t thought in term s o f a total solution to the problem o f poverty, when w hat it was offered was the lim ited opportunity to cure unem ploym ent. It was a parliam entary party w ith a U topian ethic. It was not fit for the kind o f power it was called upon to exercise. F or what was at issue between 1929 and ic m T w ith unem ploym ent rising to nearly three m illion, was not Socialism versus Capitalism . It was interventionist Capitalism versus laissez-faire Capitalism . T h e Labour Party’s com m itm ent to a nebulous Socialism made it regard die w ork o f the 'econom ic radicals’ such as K eynes as m ere 'tinkering’, when in fact it was they who were providing the real choice. It was the failure o f the Labour Party to recognise that this was the choice that doomed it to failure and sterility in this crucial period. In concentrating attention on the Governm ent’s handling o f the un­ em ploym ent problem I am conscious o f the risk o f doing it an injustice. A survey w hich em braced its conduct o f foreign affairs w ould un-


x iii

doubtedly have shown it up in a better light. Unem ploym ent policy was adm ittedly its A chilles heel; and a governm ent m ay fairly claim to be ju dged , b y the historian as w ell as b y the electorate, on its whole record rather than on one issue, however im portant that issue. N evertheless, unem ploym ent was the key issue o f the 1929 election cam paign, and was so regarded b y all the three parties. M oreover, w ith the onset o f the w orld depression, all other problem s cam e to be linked to, or subm erged by, the rising num bers o f the unem ployed. A ll policies cam e to be judged b y the single question: how w ill they affect the unem ploym ent figures? H ence this book, w hich starts w ith a narrowly defined problem — that o f the ‘intractable m illion’ who could not secure perm anent em ploym ent in the Britain o f the nineteen-twenties — gradually comes to em brace virtually the w hole field o f dom estic and international politics; and it ends, as did the Labour G overnm ent itself, on a note o f international drama and crisis. Inevitably m uch o f the study is taken up w ith a com parison o f the L abour G overnm ent's performance w ith other Parties’ promises which, understandably, is to the disadvantage o f the Governm ent, since per­ form ance rarely lives up to expectation. It m ay also plausibly be argued that the British Labour Cabinet fared little worse in its handling o f the unem ploym ent problem than did Governm ents in other countries. N evertheless, if a real choice existed, that fact com pels a harsher judgm ent. In the U nited States and G erm any econom ic crisis follow ed suddenly on years o f prosperity and relatively fu ll em ploym ent. B ut in B ritain the problem o f the ‘intractable m illion’ was nine years old when L abour took office. A form idable body o f dissenting opinion had grown up in opposition to the orthodox T reasury and banking views. Since the pressures o f orthodoxy were less in Britain than elsewhere, a progressive G overnm ent should have enjoyed m ore scope for manœuvre. In addi­ tion m ost countries w hich fared badly during the depression — and few did not — had Governm ents o f the R ight w hich m ight be expected to be unresponsive to ‘progressive’ opinion, or to the electoral pressure o f the poor and the unem ployed. In the Labour Party, willingness to help was there in plentiful measure, bu t the ability to translate m oral fervour into constructive policy was w oefully lacking. Since the nineteen-thirties mass unem ploym ent has, fortunately, becom e a thing o f the past — or so w e suppose. B ut the econom ic



problem , o f w hich it was sim ply the m ost painful and dram atic sym ptom , has still not been solved: it is m erely that the specific sym ptom s o f the m aladjustm ent have changed. T oday, as then, people talk o f the need to renovate an obsolete industrial structure, to cut costs and increase productivity. N ow , as then, they argue that industry is being sacrificed to the C ity o f London, that Britain should attem pt to regroup its w orld­ w ide trading and financial com m itm ents on to a sm aller group o f countries w hich m ight, in effect, becom e one huge dom estic m arket. A s I w rite, Britain is applying, for the second tim e, for m em bership o f the Com m on M arket. T h is book attem pts to show the efforts o f one age to cope w ith problem s that are very far from being solved today.



T h e econom ist Pigou coined the phrase the ‘intractable million* to describe that io per cent o f the working population unable to find regular em ploym ent in the Britain o f the nineteen-twenties. T h ere had, o f course, been unem ploym ent before 1914, bu t it had fluctuated heavily, fallin g to 3 or 4 per cent in good years, and rising to 10 per cent and over in years o f depression. T h e novel feature o f post-war unem ploym ent was th at it continued at a perm anently high level. T h ere was little hint o f this as the im m ediate post-war boom , based on a universal desire to replenish stocks, got under w ay in 1919-20. T h e boom was helped b y the G overnm ent's decision not to restore the gold, standard, suspended during the war. T h is w ould have involved violent deflation,1 and to start the peace w ith a depression seemed an appalling prospect. H owever, the G overnm ent took fright at the rapid inflation w hich on the Continent foreshadowed the collapse o f m ost Central European currencies. T h e Bank Rate was put up to 6 per cent in N ovem ­ ber 1919, and to 7 per cent the follow ing A pril. T h e boom was cut short and deflation started in earnest to prepare for a return to the gold standard. In 1921 unem ploym ent in Britain rose to 19 per cept^Recovery when it cam e was slow and lim ited. T h e 1913 level o f production was not regained till 1927. Unem ploym ent from 1922 to 1929 rem ained about 10 per cent. M ass unem ploym ent was initially explained b y the dislocation o f the 1 Between 1913 and 1918 the British wholesale price level had more than doubled. A . C . Pigou, Aspects o f British Economic History 1918-192$, 1947, p.234.



international trading m onetary system s caused b y the F irst W orld W ar. H ence the aim o f British Governm ents was to restore as sw iftly as possible the pre-w ar trading and m onetary structure. T h is involved currency stabilisation (via a return to the gold standard) and the reduction o f tariffs put up during and im m ediately after the war. H owever, as the decade w ore on it becam e increasingly apparent that B ritain's leading export industries were being hit, not only by post-war dislocations, but also b y long-term changes in demand w hich the war doubtless accelerated. ‘Bade to 1914' w ould not solve the problem s facing the coal, textile, and heavy engineering industries, where the bulk o f the unem ployed were concentrated. M oreover the return to the gold standard in 1925 hindered the developm ent o f new industries and the rationalisation o f old ones b y creating m onetary stringency at a tim e when plentiful credit was needed for adaptation to the new conditions. T hough governm ent intervention in the econom y had to some extent been legitim ised during the war, the clim ate o f opinion in the nineteentwenties favoured a sw ift return to laissez-faire, and this dictated the course o f British econom ic policy. N evertheless an im portant section o f influential opinion had, b y the end o f the decade, com e round to the view that traditional rem edies w ould not m eet the new econom ic facts; thus b y 1929 there had developed a vigorous debate on econom ic questions w hich form ed the staple o f the election cam paign o f that year.


T h e gold standard was a device for keeping the national currencies o f different countries at a fixed relative value, thus generating the confi­ dence required for international trading. Im balances in trading accounts between nations were supposed to lead to gold movem ents w hich autom atically set in m otion corrective forces designed to adjust relative prices and incom es to the required level. A s Sir D ennis Robertson put it, ‘the case for the old gold standard was not sim ply that it was a device for keeping step; it was also that it was a rough and ready d e v ic e . . . for regulating the volum e o f home a ctivity'.1 D eparture from it was supposed to lead to uncontrollable inflation w ith a subsequent collapse o f trade, 1 Quoted in A . J. Youngson, The British Economy 1920-1957, i960, p. 230.



repudiation o f debts and destruction o f savings. T h is supposition ap­ peared vindicated b y the experience o f the European inflation o f 1920 to 1923. Britain as the w orld’s leading trading nation was anxious to take the lead in re-establishing the gold standard system . It was especially anxious to go back to gold at the pre-w ar rate o f parity. T h e pre-w ar rate was a sym bol o f norm ality; it was also a sym bol o f London’s financial strength and it was thought that nothing short o f return to the old parity would restore confidence in London’s ability to resume her form er role.1 B ritain's econom ic strength and London’s financial position had both in fact served to make the pre-w ar gold standard a ’British managed standard’.12 B y 1925, when Britain form ally returned to gold, her position had been gravely im paired. A large portion o f her assets had been sold to pay for the w ar; her exports could no longer produce a surplus sufficient to finance international growth on the pre-w ar scale. H ence after 1925 London was increasingly forced to finance its operations w ith short-term funds attracted b y high interest rates. Y e t these very rates w ere liable to discourage dom estic enterprise. In addition, the ’gold exchange' system w hereby countries w ere perm itted to keep their reserves in sterling rather than in gold im posed a further strain on B ritain's slender gold holdings. T hese factors m ade the restoration o f the gold standard system an extrem ely precarious undertaking, alm ost an act o f faith. T h e position w ould have been greatly eased had the new powerful creditor nations, the U nited States and France, been prepared to play their fu ll part in the maintenance o f international investm ent. B ut N ew Y o rk and Paris had neither the expertise nor the willingness to lend abroad on a scale com mensurate w ith their econom ic strength. It is true that N ew Y o rk did so up till 1928, but in that year Am erican lending began to dry up as funds w ere diverted to a boom on the N ew Y ork exchange w hich the Federal Reserve Board proved initially unw illing and later unable to control. France, w hich becam e a m ajor creditor w ith 1 Reginald McKenna, former Chancellor o f the Exchequer, said ’I cannot imagine that our credit would have survived if we had not [gone back to the pre-war parity].' Quoted Youngson, The British Economy 1920-57, p. 236. 2 David Williams, ’London and the 1931 Financial Crisis’, Ec. H .R ., April 1963, p. 5 *3B



the stabilisation o f the franc at a fraction o f its pre-w ar parity in 1927, adopted a policy o f deliberately adding to its gold reserves and dis­ couraging foreign investm ent by stamp duties and coupon taxes. T h u s after 1928 it was left to Britain to try to make the gold standard work. N ot surprisingly the task ultim ately proved im possible. A lthough the British return to the gold standard has been described as an ‘em ploym ent policy*1 it could not do m uch to help the declining export industries, especially as the pound was over-valued in relation to other currencies.2 M oreover the m onetary stringency, dictated b y the need to build up reserves, sustain the volum e o f foreign lending, and attract short-term funds, depressed the level o f dom estic investm ent and thus slowed down the developm ent o f new industries and the rationalisa­ tio n o f old ones. A lower rate o f parity w ould not o fits e lf have ensured the prosperity o f the dom estic econom y — but it m ight have m ade easier that restructuring o f B ritish industry w hich was urgently required. Free trade was an integral part o f the gold standard system , for it was only under conditions o f free trade that the sanctions o f gold standard m orality could be relied upon to operate. F or clearly the gold standard system in its pure form w ould break down if a country could escape into protection as an alternative to m aking the price readjustm ents required b y a trading im balance. A s the w orld’s leading trader, Britain benefited from a free m arket, both at home and abroad. T o the nineteenth-century 'V ictorian optim ist free trade also had an im portant political function. A n ever-increasing network o f intricate com m ercial connections between nations, each freely exchanging the goods it was best adapted to produce, w ould gradually rem ove political frictions and inaugurate an age o f international co-operation. F or Britain’s com petitors, late starters in the struggle for m arkets, and less dependent upon exports for their pros­ perity, free trade was less attractive; and in the second h alf o f the nine­ teenth century, m anufacturers destined to com pete w ith those o f 1 R. S. Sayers, ‘Return to Gold’, in Studies in the Industrial Revolution, ed. Pressnell, 1958, p. 317. 2 Keynes argued in The Economic Consequences o f M r. Churchill, 1925, pp. 5-6, that the pound was over-valued by 10 per cent in relation to the dollar. This price gap was probably eliminated by 1928 (see Youngson, The British Economy 1920-1957, p. 35), but only by further deflation. However, as France and Belgium stabilised their currencies at a fraction of the pre-war parity, they both enjoyed competitive advantage over Britain.



Britain grew up behind tariff w alls in the U .S .A ., France and G erm any.1 T h e M cK enna duties o f 1915 marked the first serious breach w ith free trade at hom e.13 2 T h ey were designed to save shipping space and foreign exchange rather than to protect industry; but they proved so valuable a source o f revenue that they were not repealed after the war. In 1921 cam e the Safeguarding o f Industries A ct, designed to protect certain key industries and also shelter others against the effect o f currency depreda­ tion abroad and dum ping. Som e o f the highly specialised m anufactures thus protected — precision scientific instrum ents, electrical parts, synthetic organic chem icals — were destined to play a m uch greater role in Britain’s export trade in the future. In 1925,1926 and 1928 the list o f ‘safeguarded’ m aufactures was extended, the notable addition being artificial silk. H owever, although the safeguarded industries expanded throughout the nineteen-twenties the num bers o f people em ployed in them w ere very sm all com pared w ith the m ajor export staples. B y 1929 B ritain's average tariff level had only reached 5 per cent. F or all practical purposes, free trade rem ained intact. T h ere were three main obstacles to any general expansion o f tariffs. F irst, Britain’s prosperity had always depended on international trade. T ariffs disrupted it; therefore Britain regarded the early restoration o f general free trade as a prim e political objective in the nineteen-twenties. A fter the currency collapses and market dislocations o f the early nineteen-twenties, m any im pressive international conferences called for a reduction o f tariffs.3 A lthough resolutions to this effect were solem nly endorsed b y the participating countries, they were never given practical effect. T h ere was no real confidence in the revival o f trade, and rather 1 Average tariff levels o f the U .S.A ., France and Germany in 1913 were 33 per cent, 18 per cent and 12 per cent respectively. W . A . Lewis, Economic Survey, 19 19 -19 3 9 ,1949, p. 48). 2 Customs duties were imposed on motor-cars, motor-cycles, films, clocks and musical instruments. 3 The chief o f these were (i) the Genoa Conference of 1922, (ii) the Geneva Conference of 1927 which reported that ‘Europe remains today with its tariffs higher and more complicated, less stable and more numerous than in 1913’ ; urged that the time had come ‘to put an end to the increase in tariffs and to move in the opposite direction’. Twenty-nine Governments ratified this declaration. League o f Nations, Commercial Policy in the Inter-W ar Period, 1942, pp. 22,37 ff.



than venture forth unarm ed into the international arena m any countries aim ed to secure at least their home base for their existing industries. Britain, w ith apparently the m ost to lose from the extension o f tariffs, could not afford to take a lead in the dism antling o f her nineteenthcentury trading system , and therefore waited vainly for tariffs to com e down. Secondly, tariffs suggested not only econom ic bu t also political nationalism , w hich w ould endanger the V ersailles settlem ent, create new rivalries, and ultim ately lead to a revival o f m ilitarism . T h e London Congress o f the International Cham bers o f Com m erce in 1921 con­ demned them as 'obstacles to peace and the progress o f civilisation*. T o the internationally-m inded British statesm en o f the nineteen-twenties free trade offered one o f the m ain guarantees o f peaceful co-existence between countries. T h ird ly, free trade was the political platform o f two o f the m ajor political parties. T h e rejection o f protection, both in 1906 and 1923, had fortified it as a political force.1 F or the L iberals, turbulently led b y the unpredictable L loyd G eorge, it was a pow erful unifying factor. M any Labour leaders, also, had graduated to socialism via liberalism and had inherited liberalism ’s international outlook. So free trade was an im ­ portant plank in their policy also. T h u s there was little demand for protection in the nineteen-twenties. Beaverbrook’s com m itm ent to em pire free trade rem ained as fervent as ever, but the econom ic situation was unfavourable during the partial recovery between 1922 and 1929. T h e Conservatives under Baldwin’s leadership were content to add to the list o f 'safeguarded industries*. Everyone paid lip-service to the advantages o f an all-round reduction in tariffs. But the protectionist feeling was far from dead. It was bound to make itself im m ediately felt in the event o f econom ic crisis.


Com m entators in the nineteen-twenties distinguished between normal and abnorm al unem ploym ent. N orm al unem ploym ent, based on pre-w ar experience, was reckoned to be about 4 per cent. T h e problem therefore 1 1923 had also showed strong surviving free trade elements in the Con­ servative Party, e.g. Lancashire, Glasgow (areas of exporting industries).



centred on the rem aining 6 per cent — 600,000 m o i and wom en w ho could not be reabsorbed by industry. It was th is problem L loyd G eorge had specially in m ind when he talked in 1929 o f 'reducing unem ploym ent w ithin one year to norm al proportions’ . D espite the relative stagnation o f the British econom y in the nineteentw enties, abnorm al unem ploym ent was confined to certain sections o f the country and associated particularly w ith a few b ig export industries. M ow at describes the 'tw o Britains o f the inter-w ar years: chronic depression in the north and in the C eltic fringe, m oderate prosperity in th e south’ .1 T h is regional concentration o f unem ploym ent, far away from London, helps to explain the relative indifference o f Governm ents to the plight o f the 'special areas’ in the inter-w ar years. T h e north and the C eltic fringe w ere the homes o f the ailing industrial giants, especially coal and cotton w hich together accounted for about 60 per cent o f abnorm al unem ploym ent. O ther industries w ith heavy un­ em ploym ent were the dock and harbour trades, shipping and iron and steel. T extiles and coal were B ritain’s ch ief export industriesVIn 1913 their exports form ed 55 per cent o f the total value o f B ritain's physical exports. T h e single m ost im portant item in the textile industry was cotton. In 1913 cotton alone provided a quarter o f the total value o f B ritain's physical exports. A fter the w ar these two industries were un­ able to re-establish their form er position. In 1913 Britain had exported 73m tons o f coal. B y 1921 this had shrunk to 25m and, although there was a recovery, exports between 1925 and 1929 (excluding 1926) averaged about 50m tons. T h is decline in exports caused a fall in coal production from 287m tons in 1913 to 258m tons in 1929. T h ere was a sim ilar pattern in cotton. In 1912 exports o f cotton piece goods am ounted to about 7,000m sq. yards. B y 1929 they w ere about 3,500m sq. yards. T h e causes o f this decline are varied. In coal the sw itch to new form s o f power — oil, gas, electricity — was im portant, though not decisive. T h e m ain explanation was the increase o f coal exports b y G erm any, the loss o f the Baltic m arkets to Poland, and the virtual elim ination o f the Russian trade follow ing the Bolshevik Revolution. N ot only did Germ an and Polish m iners work at low er wages than their British counterparts, bu t the industries o f both countries established pow erful cartels for 1 C . L . Mowat, Britain Between the Wars, 1955, p. 274.



m arketing and distribution, w hile im provem ents in technical efficiency produced a marked rise in output per m an-shift. Cotton faced a sim ilar problem . Partly as a result o f the w ar, when British exports dried up, m any countries w hich had relied on British cotton began to expand their own production, generally under tariffe. In India, Britain’s m ain market, production trebled between 1913 and 1929, and the British G overnm ent could not refuse the Indians protec­ tion against British m aufacturers. Another m ajor factor in the decline in B ritain's cotton exports was the em ergence o f Japan as a leading com petitor. Starting from virtually nothing in 1913 Japan had b y 1929 captured 19 per cent o f the w orld’s trade. H ere again the cost was decisive: Japanese workers earned less than a fifth o f the British w age, and the new producers installed autom atic loom s, w hile British m ills were still largely equipped w ith hand loom s. T h e wartim e expansion in shipping increased em ploym ent in the d od i areas w hich was not m aintained after the war. T h e decline in exports accentuated what would in any case have been a difficult position. Ship­ building likewise contracted after the war. Iron and steel was parti­ cularly dependent upon the prosperity o f those industries w hich it supplied. D uring the w ar steel capacity had increased b y 50 per cent ow ing to the demand for m unitions. It was estim ated in 1920 at 12m tons ; only tw ice between 1920 and 1929 did output exceed 9m tons. T h e concentration o f unem ploym ent in the m ajor export industries, coupled w ith the fact that the export trade had traditionally provided the dynam ic o f the British econom y, suggested that the w ay back to prosperity was to restore those industries to their form er position. T h ere was very little disposition, especially earlier in the decade, to accept the contrac­ tion o f the export industries as perm anent. E ven in the case o f cotton, m anufacturers argued that a decline o f sales in the cheaper grades o f cloth m ight be offset b y exporting more high-quality fabrics. Owners tended to explain losses in term s o f costs. ‘ I f the other com peting countries have increased their production and captured our m arkets it is because British coal has been too dear’, w rote Sir Adam Nim m o, vicepresident o f the M ining A ssociation.1 T h e two main m ethods o f reducing costs were wage cuts and rational­ isation. Rationalisation was a w ord used loosely in the inter-war period to 1 The Observer, 24 July 1927.



describe tw o distinct processes — the institution o f econom ies o f scale b y concentrating production and m arketing into larger units, and the installation o f m ore up-to-date m achinery. Both were designed to reduce labour costs b y increasing productivity. W age reductions, however, provided they could be enforced, prom ised quicker results. Betw een 1920 and 1926 the coal owners were tw ice able to im pose substantial wage reductions on the m iners, and in 1926 a longer working day also. T h e social, econom ic and political costs, however, w ere enorm ous. In 1926 the industrial struggle was lifted to a new level o f intensity; and though the G eneral Strike failed in its im m ediate purpose, it m ade the G overnm ent and owners in other industries alive to the probable consequences o f any general attem pt to low er wages. (It was about this tim e that the phrase ‘rigidity o f wages* came into general use.} A fter IQ2Ó the wages struggle was tacitly abandoned. M oney wages rem ained stable for three years, despite a further drop in the price level. In other w ords, unem ploym ent cam e to be generally accepted as an alternative to wage reductions. T h is m eant that the unions becam e m ore interested in increasing the rate o f unem ploym ent benefit than in increasing em ploym ent, an unfortunate shift o f attention since it reinforced the belief o f the political w ing o f the Labour m ovem ent that unem ploym ent could not be cured under capitalism .1 R ation alisation , th e other m ethod o f cutting costs, proved sim ilarly unpalatable to both owners and workers. It required capital, manage­ m ent reorganisation and enforced liquidation: the benefits were bound to be long-term . Capital was not easy to find. Industries su ch ^ s Iro n and steel had over-invested im m ediately after the war, expecting boom conditions: now they were expected to find m oney to liquidate their bad debts. Profits were not sufficient to enable them to reorganise out o f reserves. T h e investing public were apprehensive: interest rates w ere high through the need to defend the gold standard. Besides, as we have seen, the depressed industries were not prepared to accept contraction as perm anent. Indeed the Sam uel Report, the m ain rationalising docum ent for the coal industry, was criticised b y the owners for its defeatist outlook.2 Lancashire was not prepared to renounce its great 1 See below, pp. 27-8. * e.g. Sir Adam Nimmo, The Observer, 24 July 1927. ‘There is not a sugges­ tion o f expansion. There is no note of adventure. The industry is not told to



achievem ents,*1 nor were the iron and steel and shipbuilding industries prepared to reduce, till the nineteen-thirties, the surplus capacity which they had inherited from the war. Finally, from the workers’ point o f view rationalisation im plied redundancy at a tim e when alternative jo b s were hard to find. T h u s it is not surprising that rationalisation, though m uch discussed, was hardly ever undertaken b y the heavy industries in the nineteentwenties. Instead they tried to solve their problem s in a num ber o f w ays. C oal m aufacturers tried experim ents, such as the F ive Counties Schem e, whose basic objects w ere to m aintain the dom estic price o f coal b y means o f quotas and output restriction and to prom ote exports by centralised selling agencies and levies on m embers designed to cut the export price.2 T h e textile and shipbuilding industries relied largely on shorttim e working to ease the burden o f unem ploym ent: this was to becom e a m ajor issue in 1930.


Econom ic orthodoxy in the nineteen-twenties was not the creation o f contem porary econom ists; rather it was the product o f traditional view s held b y the m ost pow erful institutions and interests in the econom ic com m unity concerning their own functions and the proper role o f governm ent. T h ey did not all speak w ith the same voice. In particular there developed in the post-war decade a sharp conflict o f interest between industry and the C ity. B ut in general the degree o f consensus was re­ m arkable, and represented a body o f opinion that no governm ent w ould ligh tly challenge. W e shall consider briefly the attitudes o f business m en, bankers and the Treasury. Businessm en were im prisoned conceptually in the w orld o f the firm . From their point o f view the expectation o f profit was the main stim ulus to investm ent and production. T h e m ain variable factors in the expecta­ go and fight it out with competitors, wherever found, in the spirit o f courage and daring. The outstanding note is — cut it down.’ 1 As late as 1926 Sir Charles Macara, a leading textile maufacturer, was confident of regaining ‘our former supreme and prosperous position in the cotton trade of the world’ (The Export World, Special Number, April 1926). * J. H. Jones and others, The Coal-Mining Industry, 1939, pp. 88-107.



tion o f profit were labour costs and taxation. W hen a firm 's profits were declining the correct rem edy was to reduce the labour costs; the restora­ tion o f profit w ould stim ulate production and thus em ploym ent. T h e econom ic health o f the nation could only be m easured b y the aggregate profits o f the business com m unity. W hen aggregate profits were de­ clining the correct rem edy was to reduce the burden o f taxation. In generalising from the experience o f a single firm , businessm en view ed w age earners sim ply as producers, not as consum ers. T axation was regarded as a burden on productive enterprise. It was, o f course, necessary to pay for the upkeep o f governm ent, the service o f th e N ational D ebt and the provision o f various basic services. W hen profits were large, it m ight even be justifiable to use its proceeds for social services. W hen profits were poor, however, every additional item o f taxation w ould reduce not only the capital stock available for invest­ m ent, bu t also the incentive to earn and to save. Throughout the first quarter o f the tw entieth century businessm en grum bled at rising taxation im posed in part to pay for expanding social services — education, pensions, and various types o f insurance to w hich the State contributed.1 W hen a business was threatened w ith insolvency it instituted econo­ m ies: m en were laid off, wages were cut, directors' salaries were reduced and so on. O ften bank loans w ere made conditional on such econom ies, w hich were regarded as indicative o f a firm 's resolve to set its house in order. A governm ent was expected to take sim ilar measures if the nation was threatened w ith insolvency, i.e. was unable to balance its accounts. Businessm en took a jaundiced view o f governm ent interference in the econom y. In part, o f course, this stemmed from classical theory w hich held that laissez-faire was the m ost perfect system o f econom ic manage­ m ent devised b y the genius o f man. B ut it had more practical roots. G overnm ents, especially Labour Governm ents, were thought to be com posed o f m en who, having had no practical experience o f business affairs, could be relied upon to make a mess o f any business enterprise they touched. D irection from W hitehall was supposed to destroy initiative, efficiency and the urge to innovation. M ore fundam entally, 1 In fact the biggest increases in taxation were due to the vast expansion o f the national debt following the war which, being a fixed obligation, made it virtually impossible for Governments to reduce taxation; hence the interest in 'conversion’ which we shall note later.



businessm en realised that governm ent intervention in the econom y was increasingly likely to be directed against them in the interests o f the w orking class. T h ey were not averse to state interference when they felt such interference w ould be to their own advantage. In the big depression o f the last quarter o f the nineteenth century they were the first to demand governm ent protection against foreign com petition. T h e cam paign for tariffs, quite as m uch as the radical reform s o f the A squith adm inistration, marked the real end o f laissez-faire. It was intervention o f the 'social* istic’ kind to w hich they were opposed. T h e decision to return to the gold standard was, o f course, a political one. B ut it was taken at the behest o f financial rather than industrial interests. Industrialists were perfectly w ell aware o f the probable con­ sequences o f a return to the pre-w ar parity in 1925, bu t their warnings were brushed aside.1 T h e m ain protagonists o f an early return were the Bank o f England and the m erchant banks; both, in different ways, w ere bound to benefit from the re-em ergence o f London as the w orld's financial centre and both assumed, if they thought about it at all, that industry w ould benefit in equal m easure. T h e Bank o f England was traditionally responsible for the m onetary management o f the nation. It claim ed the right to ca n y out this task w ithout political interference. D uring the w ar, however, governm ent control had been established in em phatic manner in 1917 w hen Bonar L aw , the Chancellor o f the Exchequer, forced the resignation o f the G overnor o f the Bank, L ord Cunliffe. In the early post-war years, the Bank was in eclipse, as the Governm ent chose inflation rather than deflation in the first flush o f post-war optim ism . T h e financial crises in central Europe caused a change o f policy and when deflation was started in 1920 to prepare for a return to the gold standard the Bank was ready to resum e its traditional role as custodian o f the nation's financial conscience. L ike the business com m unity w hich generalised from the practice o f 1 Written evidence presented to the Committee on Currency and Bank o f England Note Issue by the F.B .I., 30 July 1924, para. 5. In forecasting a gap of 10 per cent, the F.B .I. Memorandum analysed accurately the consequences that would follow from an attempt to close the gap by further deflation. (Quoted in Macmillan Committee, Minutes o f Evidence, voi. i, 1931, pp. 190-1. For the Macmillan Committee see below, p. 117.)



an individual firm , the Bank o f England generalised from the practice o f an individual bank. It saw its relationship w ith the G overnm ent as ‘the ordinary duties o f banker to client*.1 Its task was to ensure that the client did not live beyond his m eans; the task o f the gold standard, m anaged b y the w orld’s central banks, was to ensure that nations did not live beyond their m eans. T h e restoration o f the gold standard, in short, gave the Bank the w hip hand over the Governm ent, as long as the G overnm ent chose to keep Britain on the gold standard. In 1927 it was able to reject a request b y W inston C hurchill, the Chancellor, to post­ pone a rise in the bank rate,* and b y 1930 S ir Ernest H arvey, the deputy governor, was stating in the strongest term s the doctrine o f the Bank’s independence from political control.3 W e have seen that the return to the gold standard involved the sacrifice o f dom estic enterprise. T h e need to attract short-term funds to re­ establish London’s role as a m ajor lender and financial centre, coupled w ith the desire to restrain dom estic prices in order to preserve the re­ stored currency value, entailed a policy o f high bank rates and con­ sequently dear m oney. T h e repercussions on industry were hardly realised. A t one point in his evidence to the M acm illan Com m ittee M ontagu Norm an, the pow erful governor o f the Bank, denied the connection between bank rate movem ents and the volum e o f credit available to industry : K eynes:

I f you had to-day to raise bank rate, say, b y 5 per cent for international reasons, do you think that you could make that bank rate effective w ithout altering the volum e o f credit at all? Norman : I do not say that you could for certain, but you m ight be able to do so. K eynes: W ould the curtailm ent o f credit b y £50,000,000 have no effect o f any im portance on industry? Norman : I do not think it w o u l d . . . .

A ccused b y K eynes o f repudiating orthodox bank rate theory, Norm an adm itted that 1 Macmillan Committee Evidence, 3. 2 P. J. Grigg, Prejudice and Judgment, 1948, p. 193. 3 Macmillan Committee Evidence, 3.



‘the internal situation w ould have been m uch easier over the last few years if the rate had b e e n . . . say 4 per cent instead o f 6 per cent*. Keynes : Y o u mean there w ould have been less unem ploym ent ? Norman: I think there w ould.1 T h e ignorance o f the Bank o f England about the effects o f its m onetary policy was m atched by the unwillingness o f the jo in t stock banks to take any active part in the initiation or m anagement o f enterprise. A s N orm an » p la in ed , T have never been able to see m yself w hy, for the last few years it should have been im possible for industry starting from mithin to have readjusted its position’.12 T h ere was no tradition o f industrial banking in England as there was in the U nited States and G erm any where the banks, being closely associated in the m anagem ent o f the concerns in w hich their m oney was invested, were naturally interested in m axim ising their profits. I f the Bank o f England had a vested interest in m aintaining the inter­ national position, no less did the London financial houses w hich form ed ‘the City*. T h eir prosperity depended on the volum e o f w orld trade and the extent to w hich it could be credited or financed in London. T o the C ity there could be no antithesis between the prosperity o f London and that o f the w hole nation. N ot only did its connections bring England m uch business; the services perform ed by the m erchant banks were an im portant item in Britain’s ‘invisible exports’. A bove all, as in the case o f the big export industries, there was a reluctance to renounce the great achievem ents o f the nineteenth century. T h e m ystique o f the C ity, or as Norm an put it ‘the faith that is in us’ , continued to exercise its pow erful sway on Britishers and foreigners alike. A s W ade noted in 1926, the C ity provided an exam ple o f the most amazing success in the world’s financial organizations. A better case of adaptation to the needs of a great financial and trading nation has never been known. . . a wider study and understanding of its functions and operations will show both employers and employed in our industries how our future industrial success, like that of the past, must be interdependent with this perfect machine which liquefies credit and irrigates trade from day to day.3 1 Macmillan Committee Evidence, 3379,3388,3492,3493. 2 Macmillan Committee Evidence, 3339. 3 A. S. Wade, Modem Finance and Industry, 1926, p. 40.



T h e T reasu ry was the natural ally o f the C ity. Its main function was to regulate fiscal policy and control governm ent expenditure. Its main aim was to balance the Budget and reduce governm ent spending. T h e T reasury, like the banking institutions, had a very restricted view o f its role in the econom y. It did not view itself as a m inistry o f econom ic affairs : indeed, econom ic affairs were not regarded as a unified field. T h e T reasury concerned itself w ith tw o m atters: purely financial questions — loans, conversions, relations w ith the Bank o f England, the presentation o f estim ates to Parliam ent, the control o f exchequer issues and so o n — and control o f the expenditure o f other departm ents. S ir James G rigg, principal private secretary to five successive Chancellors, recalls how as a very ju n io r clerk he was sent on m issions to other governm ent departm ents 'to lay down the law* to officials very senior to him self.1 M onetary policy was in the hands o f the Bank o f England. Industrial policy, such as existed, was in the hands o f the Board o f T rad e and the M inistry o f Labour, both o f jun ior Cabinet status. T h u s the T reasury, w hich was in the best position to gain an overall picture o f the national econom y, was not responsible for anything bu t fiscal m atters; w hile the departm ents directly concerned w ith labour, industry and trade were too specialised and unim portant to acquire an overall view or to exercise any control. T h e principle o f the annual balanced Budget was once again a generalisation from the budgetary m axim s thought to apply to an in­ dividual. Sir James G rigg declared in his autobiography: I distrust utterly those economists who have with great but deplorable ingenuity taught that it is not only possible but praiseworthy for a whole country to live beyond its means on its wits and w h o . . . teach that it is possible to make a community rich by calling a penny twopence, in short who have sought to make economics a vade mecum for political spivs.3 T h e im portance o f the Budget was political rather than econom ic1 — 1 P. J. Grigg, Prqudice andJudgment, p. 36. * Ibid., p. 7. 3 For, of course, the Chancellor’s Budget did not clearly reveal the true economic position of the public finances. What was included and what was left out was largely a matter of custom and arbitrary choice. Further, no distinc­ tion was drawn between the capital and current account. (See U. K . Hicks, The Finance o f British Government, 1920-1936,1938, pp. 279-83.)



never m ore so than during a depression.1 Just as the individual was supposed to reduce his standard o f livin g in response to a reduced , incom e, ju st as a firm was expected to econom ise in a bad period, so was the G overnm ent expected to reduce its spending when faced w ith a fall in receipts from taxation and custom s duties. A n y failure to give the expected lead would underm ine the confidence in the offending G overn­ m ent o f both dom estic and foreign businessm en and bankers and thus confidence in the nation's currency, its creditworthiness, its investm ent possibilities and so on. T h is w ould hit especially hard a b ig trading nation w hich was also a m ajor financial centre. It m ight be necessary to balance a Budget by econom ies in depression; bu t the consistent predilection o f the T reasury for econom y at all tim es stem m ed from the view that governm ent expenditure was basically unproductive. Taxation was necessary to pay for the upkeep o f ad­ m inistration, the service o f the national debt and such basic public services as the arm ed forces but was, all the same, a burden on ‘productive enterprise', i.e. it deprived businessm en o f resources w hich they w ould have used for investm ent. It was these reasons that prom pted G ladstone to try to abolish the incom e tax first instituted b y P itt and w hich made all Governm ents feel gu ilty about increasing expenditure. H owever, classical theory had always recognised as legitim ate governm ent expenditure on certain public utilities w hich w ould not be sufficiently profitable to attract private capital. A s it becam e increasingly im portant for Governm ents in the late nineteenth and early tw entieth centuries to woo working-class voters, this collection o f necessary p ublic u tilities was extended to include social services — education, housing, pensions and various types o f insurance — thus form ing a range o f public enterprise that w ould have am azed Adam Sm ith and his followers.* 1 Thus, for example, Churchill was allowed to use devices of unprecedented ingenuity to balance his Budgets, such as raids on the road fund, use o f capital assets to balance current revenue, anticipation of future receipts by altering instalment dates, etc, without producing any general apprehension, simply because the economy was moderately prosperous. It would have been quite different in a depression. 2 In 1913 national income was estimated at £200001. Public expenditure (both government and local authority) at £32501 accounted for about 16 per cent. In 1924, with national income at £400010, public expenditure amounted to £ 1110m, or nearly 30 per cent. (U. K . Hicks, The Finance o f British Govern­ ment, 1920-1936, p. 25.)



T hrough ou t the nineteen-twenties Governm ents were prepared to exploit, to a greater or lesser extent, this loophole in the traditional view to am eliorate unem ploym ent, b u t not w ithout opposition from a T reasu ry firm ly wedded to Gladstonian principles and a business com m unity that resented depredations on the ‘stock o f capital*. T h e greatest single budgetary burden in the nineteen-twenties was the interest and sinking fund paym ents on the national debt w hich am ounted to about ,6400m a year. T h is w holly unproductive item o f expenditure w hich constituted a grievous and increasing burden on industry as deflation continued was largely the result o f loans enthusias­ tically subscribed b y a patriotic public to pay for the war. T h ere was considerable support early in the decade for a 'capital levy* to help pay o ff the w ar debt, bu t this cam e to nothing. T h e tw o m ain form s o f war debt w ere the 'floating debt* consisting o f treasury bills, and the long­ term debt. T h e size o f the debt had deflationary consequences because the enorm ous cost o f servicing it entailed a high level o f taxation, w hile the efforts to renew treasury bills pushed up the short-term rate o f interest. H ence it becam e a prim ary aim o f treasury p olicy to reduce the interest charges on the long-term debt b y converting the big war loans (especially the 5 per cent issue o f 1917) to a low er rate o f interest and secondly to reduce drastically the outstanding volum e o f treasury bills. T h e first objective was adm irable; the second, however, m eant that borrow ing for any purpose was likely to be discouraged. Indeed one o f the m elancholy consequences o f the w ar was that borrow ing acquired a hopelessly bad reputation, and the phrase 'p ilin g up burdens for future generations’ was often to be heard on the lips o f politicians during the nineteen-twenties. T h e alm ost unanim ous feeling that the w ar debt ought to be reduced as quickly as possible was also responsible for the provision in the Budget for a high sinking fund o f about ,£6om, w ithout w hich it was not considered to be truly balanced..V


A pow erful im petus to state interference in the econom y was given b y the w ar. N ot only did the G overnm ent exercise a general control over the econom y unknown in peacetim e, bu t it also took over the manage-




m ent o f a num ber o f key industries — notably coal and railways. W ith the post-war cry o f ‘back to normal* the L loyd G eorge coalition once m ore gave free enterprise its head. B ut state responsibility for the econom y had to some extent been legitim ised, and w ith the start o f the depression in 1920 it was considered alm ost natural for the G overnm ent to step in to rem edy the deficiencies o f capitalism . W e have already referred to the M cK enna duties and the gradual extension o f ‘safe­ guarding* during the nineteen-twenties. B ut the G overnm ent w ent further than this. T h e dislocation o f the export trade prom pted it to devise financial incentives for exporters. T h e onset o f mass unem ploy­ m ent brought w ith it governm ent-inspired public works program m es and other m easures designed to increase the level o f em ploym ent; it also forced the state to » te n d and im prove the wartim e structure o f un­ em ploym ent insurance. T hese steps w ere intended to be tem porary — to tide over the abnorm al phase o f post-w ar readjustm ent. But it is doubtful whether they could have been taken b y any peacetim e G overn­ m ent before the w ar.1 A s post-w ar unem ploym ent continued m uch heavier than previously, practice lent them a certain fam iliarity. B ut it w ould be w rong to conclude that they came to be regarded as normal. E xport credits were first started and developed between 1919 and 1921 w ith two Overseas T rade (C redit and Insurance) A cts w hich allowed the Board o f T rade to guarantee bills drawn b y traders for exports up to an am ount outstanding at any tim e o f £2610. B y 1925 the schem e was open to all countries except Russia. In its m ature form exporters w ere able to obtain short-term guarantees under this schem e o f up to 75 per cent o f the price o f the exported goods w ithout enquiry into their financial position; and up to 100 per cent if they were prepared to provide security. Between 1926 and 1929 guarantees were given for up to £ i2 m altogether. W hen it is rem em bered that the total value o f Britain’s physical » p o rts was about £70010 a y ear it can be seen how lim ited was the use o f the schem e. T rad e Facilities cam e into existence in the autum n o f 1921. T h eir object was to overcom e the restrictive effects on investm ent o f the very high interest rates ruling im m ediately after the war. T h e T reasury was em powered to guarantee loans towards capital developm ent w hich were 1 Though the 1911 Insurance Act was regarded as capable of extension even at the time.



designed to relieve unem ploym ent. A pplicants m ight be governm ents, m unicipalities and com panies in Britain, the Em pire or foreign countries. T h e original A ct provided for guarantees not exceeding £2501. Sub­ sequent A cts raised the m axim um to £75111 and in fact £ 74 im w orth o f guarantees w ere given during the lifetim e o f the schem e before it was w ound up in 1927. T h e m ain beneficiaries o f T rad e Facilities were foreign firm s and m unicipalities, bu t this was not considered objectionable as capital developm ent abroad was supposed to prom ote em ploym ent at home. A treasury report o f 1930 noted : In other cases, notably in connection with shipping and industrial enterprises in this country, the A ct had less favourable results and may have involved the Treasury in heavy losses.. . I t w as partly because o f these losses that the schem e cam e to an end in 1927. In D ecem ber 1920 the Unem ploym ent G rants Com m ittee1 was set up under treasury authority 'fo r the purpose o f assisting Local A uthorities in the U nited K ingdom in carrying out approved schem es o f useful w ork other than w ork on roads and on housing schem es'.13 * T h e setting up o f the Com m ittee coincided w ith the onset o f mass unem ploym ent. A t first it was hoped that conditions w ould quickly revert to normal and the Com m ittee could soon be disbanded. G radually as this hope faded it cam e to be accepted as perm anent. T h e Com m ittee was allowed to spend a m aximum o f ,63m a year. T h e favourite form o f finance was to help the local authorities w ith their loan repaym ents, though in some cases there was a direct subsidy o f wages. T h e proportion o f the total capital cost m et b y the Com m ittee grant on all the schem es averaged about 35 per cent. Between 1920 and 1928 the total o f approved schem es cam e to £ io6m . A t an average o f 35 per cent th e exchequer liability was ,633m. Spread over fifteen years (the average 1 Treasury Report on Trade Facilities prepared for the Tw o Party Conference on Unemployment, June 1930; see below, p. 201. Lord Lothian’s Papers, Box 214. 1 Generally known as the Lord St. Davids Committee from the name of its chairman. 3 U .G .C . Final Report, June 1933, Cmd. 4354, p. 3.



period o f a loan) liability cam e to ju st over £210. a year — w ell w ithin the lim its laid down b y the original term s o f reference.1 Between 1925 and 1928 there was a sharp tailing o ff in activity ow ing to stringent conditions im posed in 1925.12 B ut in 1928, follow ing the report o f the Industrial Transference Board» the G overnm ent intro­ duced m ore favourable term s for local authorities w illing to em ploy ‘transferred labour*. I f authorities in the more prosperous areas were w illing to take at least 50 per cent o f the m en required for the works from the depressed areas, the G overnm ent w ould be prepared to increase their grant to 63 per cent o f the total cost and also to drop the five-year acceleration condition. T hese were the ‘premiums* to be paid to these authorities for im porting the unem ployed into their own areas. T h e disadvantage o f this new provision was that prosperous authorities were now able to get higher grants than depressed ones, bu t the G overnm ent considered that the more generous grants were justified because o f the national advantage which would follow from the grants by the absorption in the more prosperous district o f men from depressed areas where industry was in a state o f stagnation.3 T h is new policy did have some effect in stim ulating new applications. Between July 1928 and June 1929, ^6m worth o f schem es w ere approved, as com pared w ith only £ im in d ie previous two years. T h e m ost im portant feature o f the public works program m es o f the nineteen-twenties was that prim ary responsibility for them rested w ith the m unicipalities and other sem i-autonom ous public authorities (such as the Central E lectricity Board). T h e obligation o f the G overnm ent was lim ited to providing financial incentives for the authorities in question to expedite and enlarge the scale o f their own works. E ven in the case o f road building, greatly expanded in 1920 w ith the establishm ent o f the M inistry o f Transport and for w hich governm ent help was provided out o f a special tax levied on car owners w hich w ent into a road fund, 1 U .G .C. Report, Cmd. 4354, p. 22. In fact the public works programme was even less impressive than that. ‘Schemes approved’ and ‘schemes carried out’ were by no means identical. 2 A local authority was only entitled to help if (i) its area had 15 per cent unemployment, (ii) it was prepared to 'accelerate* work by five years, and (iii) its proposed schemes qualified as 'public utilities’. 3 U .G .C . Report, Cmd. 4354, p. 7.



respon sibility for subm itting schem es rested w ith the local authorities. I t w as n ot u n til the L iberal proposals were produced in 1929 that any serious thought was given to a national public works program m e, m ounted and financed directly b y the Governm ent. T h e 19 11 Unem ploym ent Insurance A ct had established the principle o f com pulsory insurance against unem ploym ent. B ut only a sm all m inority o f trades w hich were thought to be the least susceptible to unem ploym ent were included. Benefits were paid out o f an insurance fund com posed o f ‘equal thirds* contributions from the state, em ployers and em ployees. In order to obtain benefit a workm an had to have paid at least ten contributions and established that he was unable to obtain w ork. Attendance at the em ploym ent exchange and readiness to take suitable em ploym ent were accepted as prim a fa cie proof o f a claim ant's capacity and availability for work. D uring the w ar, when it was im portant to m aintain industrial peace and w hen there was little prospect o f unem ploym ent, the insurance schem e was extended to cover the m ajority o f trades, the m ain excep­ tions being agricultural workers and dom estic servants. B y 1920 there w ere 12m insured workers as opposed to 2}m in 19 11. T h e rates o f benefit had also been doubled, w ith a differential rate for wom en who, as a result o f wartim e work, came into the schem e in large num bers. A lthough the 'equal thirds' principle was retained, the w ar had forced upon the G overnm ent a financial com m itm ent never contem plated b y the 1911 A ct. B ut this was not all. In 1919, in a m odest effort to fulfil its prom ise to create a land fit for heroes, the L loyd G eorge Governm ent tacked on to the m ain insurance schem e an 'ou t o f w ork' donation schem e, w ith considerably higher rates o f benefit, for dem obilised soldiers unem ployed pending reabsorption into industry and civilian workers throw n out o f w ork b y change from w ar to peace production. T h is had three new features. It provided benefits w ithout contributions — it was a genuine 'd o le '; it contained dependants' allowances; and finally it introduced as a condition for obtaining benefit the stipulation that a claim ant should be ‘genuinely seeking work*. T h is last provision was to discourage people sw itching over from the m ain schem e to the rather m ore attractive 'd ole' schem e. A s unem ploym ent continued at a high level after 1920, the 'dole schem e', intended to be purely tem porary, was extended to all those



who could no longer keep up contributions because o f prolonged unem ploym ent, and incorporated, w ith its special features, into the m ain schem e. H owever, the inclusion in the schem e o f people paying no contributions, coupled w ith the abnorm al rise in unem ploym ent in 1920-2, m eant that the insurance fund ran heavily into debt. A surplus o f £22111 in 1920 rapidly becam e a deficit o f £ 1 5m in 1921. T h e G overn­ m ent gave the fund borrow ing powers o f up to £2001 to m eet the im m ediate crisis, a sum that was gradually increased to £4010 b y 1929. T h e history o f unem ploym ent insurance between 1925 and 1929 is the attem pt b y the Conservative Governm ent o f Stanley Baldwin to restore the fund to a ‘sound actuarial basis*. N o G overnm ent, except the Labour adm inistration o f 1924, had accepted the ‘dole* or ‘uncovenanted benefit* as perm anent, for that w ould deny the insurance basis o f the schem e, w hich was considered vital. I f a large num ber o f workers continued unable to pay contributions, then a separate schem e w ould have to be worked out for them : they should not burden the insurance schem e proper. T o exam ine these problem s the G overnm ent appointed a com m ittee in 1925 under L ord Blanesburgh. T h e Blanesburgh Com m ittee sought to reduce the debt o f the fund b y reducing benefits. It also hoped that w ithin a year o f its report, w hich came out in 1927, em ploym ent w ould have im proved sufficiently for all insured workers once m ore to be paying contributions. T h e ‘dole* schem e was form ally to end, then, in 1928. T h is hope proved illusory and it was extended b y a further ‘transitional* period to 1929. B ut its early dem ise was still confidently expected. A s w e have seen, the various devices started by Governm ents during and im m ediately after the w ar to relieve or m itigate the hardship o f unem ploym ent w ere intended to be purely tem porary. T h ey survived w ell into the post-w ar period because unem ploym ent continued un­ expectedly heavy. B ut their survival was rather uneasy. T h e Conservative G overnm ent o f 1924-9, in its pursuit o f econom y, cut down the work o f the Unem ploym ent G rants Com m ittee, abolished T rad e Facilities, and attem pted to curtail unem ploym ent insurance. G overnm ent encroach­ m ents into the dom ain o f private industry were never com pletely accepted, even b y the G overnm ents w hich undertook them . M oreover they were likely to becom e especially vulnerable to attack when they



w ere m ost needed, i.e. when unem ploym ent was at its highest. F or it w as then that industry's clam our to be relieved o f taxation burdens w ou ld reach its peak and the pressure on the Budget w hich financed them w ould be at its greatest.1


I t w as w idely accepted that the unem ploym ent problem o f the nineteentw enties was 'perm anent' rather than 'cyclical', that it was independent o f the trade-cycle. It was inevitable that some conflict o f opinion should develop about how to deal w ith it. W e w ill consider the attitude o f the L abour Party in the next chapter. W ithin the confines o f orthodox econom ic opinion, two distinct view s em erged. T h e conservative view m aintained that, as abnorm al unem ploym ent w as concentrated largely in the traditional export industries, the starting point o f any solution to the unem ploym ent problem shouldbe an attem pt “b y the export industries to recapture fa«-™*»* m a r lin — b y rationalisation or b y wage reductions or by a com bination o f both. T h e restoration o f the gold standard and the cam paign for tariff reductions w ere seen as attem pts to create a psychological clim ate beneficial to the general revival o f a w orld trade dislocated by the w ar. ^ h e choice o f the pre-w ar parity was an attem pt to restore the position o f London, whose continued pre-em inence was thought to be indispensable to this process. D eflation was regarded as the tem porary price to pay for the return to norm ality. B y forcing the required reduction in m oney costs it w ould restore the com petitive position o f the big export staples. A gainst this view were those who argued that the declining export 1 Some interesting statistical information about the retreat of the Govern­ ment from intervention in the economy after the war is provided by Abramovitz and Eliasberg in their book The Growth o f Public Employment in Great Britain, Princeton University Press, 1957. The number of civilian personnel employed by the Government in the 'economic regulatory agencies’, such as the Boards o f Trade and Agriculture, the Ministry of Labour, the Depart­ ments for Overseas Trade and for Scientific and Industrial Research, which rose from 11,000 in 1914 to 50,000 in 1918, had declined to 23,000 in 1928, despite a considerable expansion o f the M inistry of Labour to cope with unemployment benefit (pp. 41,46-50).



industries could never be restored to their form er position. N ew industries w ould have to be developed to replace them , both for export and for supplying the home m arket w ith goods previously im ported. T h e working o f the gold standard made it im possible either for the newer industries to obtain the credit to expand or for the older ones to rational* ise. D eflation damaged business confidence b y reducing expectations o f profit and by increasing the burden o f debts fixed in m oney term s. T h is view , especially as expressed b y K eyn es,1 was opposed to the restoration o f the gold standard at the pre-w ar parity. A fter 1925, recognising that a norm al operation o f the gold standard in the new conditions made inevitable a policy o f dear m oney and deflation, it came increasingly to the conclusion that a definite act o f G overnm ent was necessary to raise the level o f investm ent. T h e fundam ental difference between these two view s was one o f priority. T h e 'econom ic establishment* was prepared to pay the price o f unem ploym ent for the sake o f other benefits — a stable international m onetary system , and the restoration o f the position o f London — though it doubtless hoped that these benefits w ould in the end lead to a dim inution o f unem ploym ent.12 T h e opponents o f this policy saw its disadvantages as m ore than tem porary, its com pensations unduly delayed. T h e y were not prepared to go on sacrificing industry and em­ ploym ent indefinitely for the sake o f problem atic benefits w hich m ight accrue at some point in the future. U nderlying the policy and interests o f the 'econom ic establishm ent' was a substratum o f sim plified econom ic theory w hich was known as the 'treasury view*. B riefly this view ignored the existence o f unem ploy* m ent, and m aintained that existing resources o f capital and labour w ere being fu lly utilised. (T h is w ould generally be the case at filli em ploy­ m ent). It follow ed that any attem pt to increase the level o f investm ent w ould be either inflationary or diversionary. I f the G overnm ent created m ore m oney w ithout a prior increase in demand to ju stify it, 1 e.g. in his Tractfor Monetary Reform, 1923. 2 For example, T . E. Gregory argued that 'the question of deflation is not to be disposed of by showing that it will lead to unemployment. For it may be worthwhile to pay this price, not merely to "do justice to the rentier’* but, e.g., to get back to a sound currency.' (Quoted in Keith Hancock, 'Unemploy­ ment and the Economists in the 1920’s’, Economica, xxvii, i960, p. 306.)



m anufacturers would m erely raise their prices. Em ployees w ould demand higher w ages and a w age-price inflationary spiral w ould force Britain o ff the gold standard, disrupt the international currency structure, w ipe o u t savings, and lead to the type o f econom ic collapse that had overtaken European countries after the war. A lternatively, if a G overnm ent raised an investm ent loan it w ould m erely divert funds from normal em ploy­ m ent in productive enterprise. T h u s w hile the G overnm ent w ould be providing em ploym ent on the one hand it w ould be dim inishing it on the other: and b y rather m ore, for it was held that governm entsponsored projects w ere b y definition less profitable than ordinary m anufacture. It can be seen that this theory appealed alike to business­ m en, resentful o f governm ent interference and contem ptuous o f govern­ m ent inefficiency, to the C ity, concerned to defend London’s inter­ national position, and to the T reasury, w ith its traditional predilection fo r econom y and ’sound finance'. W e have called the ’treasury view ' a sim plified one because it com ­ p letely left out the observable and recurring phenomenon o f mass unem ploym ent. Q uite apart from the experience o f the nineteen-twenties there had in the past been prolonged periods o f depression. It was surely im plausible to m aintain that in these periods existing capital was being fu lly em ployed on productive m anufacture, for if this were the case it w ould be difficult to account for depression. N or was this the position o f the econom ists. T h ey assumed that during the downswing o f the trade cycle entrepreneurs deliberately refrained from investm ent in th e expectation o f prices falling even further. A fter the depression had run its course, investm ent w ould start picking up again and boom conditions w ould supervene. It the m eantim e m oney was hoarded or retained in 'id le balances’ . T h ere is no doubt that the 'treasury view ' was rejected b y all the leading econom ists, quite apart from K eynes, who was its principal critic. Pigou subjected it to detailed analysis in 1927 and found it to be fallacious. It was perfectly possible, he claim ed, for the State to raise m oney in a depression w ithout diverting resources from private enter­ prise.1 H enry C lay w rote in 1929: The fundamental objection in principle, then, that public enterprise would 1 Pigou, Industrial Fluctuations, 1927, pp. 289-96.



merely divert without increasing employment, does not appear to be wellfounded.1 H aw trey w rote in 1928 : I f the Government comes forward with an attractive gilt-edged loan, it may raise money, not merely by taking the place of other possible capital issues, but by securing money that would have otherwise remained in idle balances.2 Robertson argued that the desire o f the public to invest could w ell be obstructed b y a banking system tied to international considerations, in w hich case there w ould be idle savings w aiting to be em ployed.3 O ther public figures, prom inent in banking and industrial circles, sim ilarly attacked the ‘treasury view*.4 I t should be noted that few econom ists in the nineteen-twenties actually advocated a governm ent investm ent loan. T h e norm al tradecycle, they held, was self-correcting. T h ere was no necessity for the Governm ent to ‘prim e the pump*. O thers, however, argued that the position in the nineteen-twenties was abnorm al and unprecedented. It displayed m ost o f the characteristics o f a trade-cycle depression except that it appeared to be perm anent. In such circum stances there was a strong case for the State attem pting directly to find use for ‘idle bal­ ances*. It is this view that form ed the basis o f the Liberal unem ploym ent proposals in the 1929 election. 1 Henry Clay, The Post-War Unemployment Problem, 1929, p. 133. He supported the theory of idle balances with statistical information from pre-war depressions (p. 15). 3 R. G . Hawtrey, Trade and Credit, 1928, p. 110. 3 D . H. Robertson, Essays in Monetary Theory, 1946, p. 44; Macmillan Committee Evidence, 4714. 4 e.g. Reginald McKenna, former Liberal Chancellor of the Exchequer and chairman of the Midland Bank (The Economist, 29 January 1927, p. 231); Sir Josiah Stamp (Macmillan Committee Evidence, 3959).


SOCIALISTS AND UNEMPLOYMENT L IN T R O D U C T I O N T o Socialists unem ploym ent was the m ost vivid m anifestation o f perm anent working-class poverty. A n y attem pt to cure unem ploym ent w ith in the capitalist fram ework was bound to fail, for unem ploym ent w as part o f the fundam ental problem o f poverty, and the only solution to poverty was socialism . T h is is w hy the Socialists objected to the ‘reform ist’ capitalism o f L loyd G eorge and ignored the w ork o f ‘advanced’ capitalist econom ists such as K eynes, Henderson and Robertson. B y 1900 all Socialists were equipped w ith some kind o f analysis o f poverty in the m idst o f plenty. In its sim plest form , they attributed it to the fact that a sm all class o f landlords and capitalists was in a position to deprive the w orker o f a fair share o f the value o f his labour. T h ey were able to do this through their ownership o f tw o scarce resources — land and capital. A s they thus controlled the means o f production they could ‘exploit’ the w orker b y paying him ju st enough wages to enable him to live and work. T h e difference between these wages and the product o f the worker’s labour was the ‘profit* o f the capitalist. N ow clearly part o f the profit was invested in new m achinery and in expanding production. B ut part o f it the capitalist spent on him self and his fam ily. T h is was the part, Socialists claim ed, that should go towards increasing the wages o f the workers. T h ere was no econom ic necessity for the capitalist at all: th e State could take over all his functions w ithout loss and thereby release to d ie people that section o f the capitalist’s profits that w ent into his personal consum ption. T h ere w ere m any m ore sophisticated versions o f this analysis. In



particular a num ber o f w riters, such as M arx, saw mass poverty not only as the product o f private ownership bu t as the cause o f the periodic slum ps to w hich the capitalist system was subject. F or low wages, they argued, m eant that the people w ould lack purchasing power to consum e the goods the capitalist placed on the market. Periodically therefore he w ould be unable to sell his goods at prices profitable to him . T h is over-production or under-consum ption analysis brought socialist thought into line w ith that o f ‘capitalist' econom ists who were investigating the causes o f the trade-cycle. B ut whereas the latter attached key im portance to regulating the cycle, Socialists were m ore interested in elim inating poverty. H ence they were not really concerned w ith trade-cycle analysis: they wanted a total solution, not palliatives. Theoretically they were equipped to deal w ith poverty bu t only in term s o f total solution. W ould they ever be in a position to im pose suchj a solution? T h e answer depended on the power they w ould possess ini governm ent. T h e question o f how m uch power was required and how i t could be obtained was endlessly debated between the 'revolutionary' andj 'dem ocratic' Socialists. T h e revolutionary Socialists took their stand on' M arx. T h e w ay in w hich this debate was resolved in England, therefore, depended in large measure on how English Socialists reacted to M arx and M arxism .


T h e novelty o f M arxism for E nglish Socialists consisted not o f those propositions w hich it held in common w ith other criticism s o f capitalism bu t in its unique analysis o f the problem o f power. Briefly, the M arxist argum ent was that the ideas and attitudes o f a class are determ ined b y its self-interest. T h e interest o f the capitalist class was to m axim ise its exploitation o f the working class; hence it could never be brought to accept socialism b y reason, for it defined reason in term s o f its ow n in­ terests; and the only 'reasonable' econom ic organisation was one that upheld its own interests. It follow ed that capitalists w ould never allow them selves to be dispossessed peacefully o f their right to exploit: they had to be dispossessed b y force. It was the task o f a revolutionary


leadership to rid the masses o f their capitalist ideology in preparation for d ie revolutionary struggle. N ow m ost E nglish Socialists found this doctrine extrem ely strange. F o r one thing they were not disposed to accept the theory o f a class struggle that could be resolved successfully for the working class' o n ly b y thé forcible and bloody dispossession o f the owning class^ T o them the doctrine o f bloody revolution was quite alien: a typical im port from the Continent where revolutions were frequent. In England d ie ruling class had ju st conceded som ething approaching universal franchise in the Reform B ills o f 1867 and 1884 and it was natural fôî^ pôîîticalîy m inded Socialists to turn to Parliam ent to achieve their aim s. Being less dogm atic and doctrinaire in argum ent and placing far greater stress on com prom ise than their Continental counterparts, English Socialists could never really believe that ideas were m ainly the product o f class interest. Convinced that socialism was a superior idea, they persuaded them selves that capitalists w ould likew ise becom e convinced; hence m any o f them , especially the Fabians, devoted them selves to preparing docum entary evidence o f the m alfunctioning o f capitalism and per­ m eating the capitalist parties w ith socialist ideas. N or did English socialists take kindly to M arx’s strictures on religion. In England there was no pow erful and reactionary Church, no fierce tradition o f anti­ clericalism to strike a responsive chord. In fact m any prom inent early Socialists w ere active nonconform ists and regarded socialism as the political realisation o f the Christian faith. T h e m ost com m on w ay in w hich M arxist ideas influenced English socialist thought was in com pany w ith other socialist w ritings w hich focused attention on the injustices o f the capitalist system — its inhuman­ ity, its wastefulness and its toll on human happiness. M arxist concepts o f ’class war* and violent struggle were unacceptable to reform ist Socialists. T h e w orking-class was certainly to be m ade conscious o f its oppression. B u t the aim o f a ’socialistic’ party was also to make capitalists conscious o f the possibility o f a superior econom ic organisation. T h e revolution was to be one o f reason and not o f violence. Ram say M acD onald and the other Fabian theorists did not think that in the end the capitalist classes w ould prove unreasonable. B ut their conversion w ould alm ost certainly take a long tim e, and a belief in the ’inevitability o f gradualness* did not offer any clear guidance about what



to do in the interim . For, w ith the acceptance b y the Labour Party o f dem ocratic responsibilities, the possibility arose o f a Socialist G overn­ m ent com ing into office bu t w ithout any mandate to attack the whole problem o f poverty along socialist lines, i.e. b y taking over the owner­ ship o f the industry. Besides, it was not obvious that taking over industry little b y little w ould at any single point produce a notable im provem ent in the livin g conditions o f the mass o f the workers, or indeed m uch alleviation o f the problem o f unem ploym ent. W hat were clearly needed, therefore, were supplem entary policies for the period o f the 'transition', designed to effect im provem ents in the conditions o f the poorest workers and the unem ployed in a situation in w hich the structure o f capitalism remained largely intact. T h e trouble was that such policies m ight be seen as alternatives to socialism rather than as stages in the advance towards" it. In particular, they m ight rem ove the grievances o f the w orking class w hich gave the socialist alternative its political support. M acD onald discusses these problem s rather unhappily w ithout com ing to any conclusion.1 N evertheless, there were two thinkers in Labour politics who attem pted to work out 'transitional' policies w hich would have been particularly useful to a Labour G overnm ent called upon to deal w ith mass unem ploym ent. T h ey were John H obson and Beatrice W ebb.


H obson was a L iberal econom ist and lecturer who had early becom e dissatisfied w ith some aspects o f traditional econom ic teaching. H is 'heresy* dated from the publication o f The Physiology o f Industry, 1889, w ritten in collaboration w ith A . F . M um m ery. T h is book was an early statem ent o f the 'over-saving' theory, though w ithout any analysis o f incom e distribution w hich he was to stress in later works. H is attack on the classical school led to his exclusion from the academ ic establishm ent. 'E ven then’, Hobson later w rote, T hardly realized that in appearing to question the virtue o f unlim ited th rift I had com m itted the unpardon­ able sin.’2 D enied an academ ic sanctuary, he plunged actively into the 1 e.g. in Socialism and Society, 1905, pp. 59,60 n. 2 Hobson, Confessions o f an Economic Heretic, 1937, p. 31.



‘ progressive’ politics o f the period, and thus his ideas becam e known to m any who were active in building up the Labour Party. H obson's analysis o f incom e m aldistribution was not really very different from that o f the socialist under-consum ptionists. L ike M arx he m akes use o f the concept o f 'surplus value’. H is central proposition is that th e U nequal bargaining power between buyers and sellers o f labour provides the buyers (or capitalists) w ith a 'surplus' beyond that w hich is necessary to evoke production. T h e consequence is an unequal dis­ tribution o f the national incom e. A s the sm all group who possess the 'surplus’ cannot possibly spend it all, they save it and thus disrupt the correct saving-spending ratio. T h e capitalists use their excess savings to invest in m ore production facilities turning out m ore goods than the rem aining incom e for consum ption can absorb at prices sufficient to recover the investm ent.1 Periodically there w ill be a glu t o f com m odities, producing the fam iliar depression characteristics o f congestion, con­ traction o f production and unem ploym ent. N ow this was all common ground w ith m uch more generalised socialist thought. T h e difference between Hobson and the Socialists was that H obson did not regard the m aldistribution o f incom e as being the cause o f perm anent poverty, but m erely that o f periodic econom ic breakdowns. H ence his rem edies were directed not towards elim inating poverty bu t towards evening out the trade-cycle. In other words he was first and forem ost a trade-cycle theorist. H ow ever, he was the only trade-cycle theorist whose analysis and rem edies were likely to prove valuable additions to the socialist arm oury. F or H obson advocated the taxation o f the 'surplus' in order to restore the correct saving-spending ratio, the proceeds o f this taxation to be redistributed as purchasing power to the workers, either in the form o f wages or as social benefits.2 H is proposals, therefore, if not socialist, w ere indubitably socialistic. T h ere was, however, one fatal defect in the H obson plan. A s it was 1 Hobson, Economics o f Unemployment, 1923, p. 8: 'there exists at any given time an economically sound ratio between spending and saving.. . . The current distribution of income throughout the industrial world tends normally to evoke a rate of saving and capital creation that is excessive.. . . ’ Hobson regarded ‘saving’ and ‘capital creation’ as synonymous, i.e. the surplus of the rid i ‘accumulates automatically to form an investment fund of capital’. * Ibid.



hardly plausible to suppose that capitalists accum ulate a surplus in this sense during the down-sw ing o f the trade-cycle, the Hobsonian rem edy o f taxation was to be applied on the up-sw ing when, on his argum ent, the ‘surplus’ was being made. Progressive taxation em erges as a weapon to be used in prosperity but not in depression. T h u s, although H obson provided Socialists w ith a valuable short­ term or transitional instrum ent for alleviating poverty, it was one that could only be used in tim e o f relative prosperity. T o use it during a depression w ould not only rob it o f its econom ic significance, but, w ith capitalism still intact, w ould lead to the kind o f showdown w hich no dem ocratic Socialist G overnm ent cared to face. Beatrice W ebb was the eighth o f nine daughters o f the Liberal railw ay and industrial m agnate, Richard Potter. B om in 1858, she led a conven­ tional upper class life until the 1880s when her friendship w ith H erbert Spencer made her aware o f social injustices. Reading the first collection o f Fabian Essays she was attracted b y the approach and style o f Sidney W ebb. T h ey m arried in 1892 and established the fam ous ‘firm o f W ebb’ whose w ritings and activities w ere destined to have such a profound effect on social thinking and on the Labour Party. A t first, however, neither Sidney nor Beatrice thought that their ideas w ould be put into practice b y a new political party: they w ere more interested in per­ m eating existing political parties w ith ‘socialistic’ thinking. T h u s they served assiduously on public com missions and enquiries, amassed a huge body o f evidence on various social problem s and entertained at their house the leaders o f both the Conservative and L iberal Parties. O ne result o f their friendship w ith the Conservative Balfour was that he appointed Beatrice to the Royal Com m ission on the Poor L aw w hich he set up ju st before he left office in 1905. T h e Com m ission was not an enquiry into the causes o f unem ploy­ m ent bu t into its m anifestations, though the m inority report, w hich was largely the w ork o f Beatrice W ebb, expressed the b elief that The investigations that we have made into the manner in which persons become Unemployed, and the results on these persons of such Unemploy­ ment, would necessarily form the starting point for any useful inquiry into more ultimate causes of social and industrial disorganisation.1 1 Report of the Royal Commission on the Poor Law, voi. iii, Minority Report, 1909, p. 57011.



B y this tim e Beatrice W ebb, like m ost other socialists, was convinced that the causes o f 'social and industrial disorganisation' lay in the very structure o f capitalist society and could only be overcom e by the collective ownership o f the means o f production. D espite this, the m inority report did not hesitate to make suggestions for reducing unem ploym ent w ithin the existing fram ework o f society. T h e starting point o f these suggestions was the recognition that 'abnorm al' unem ploym ent was the product of the trade-cycle. Beatrice W ebb recognised that cyclical fluctuations have 'sent up the percentage o f unem ployed workm en to three, four, and even five tim es as m any as in the better years'. W hat she envisaged was a deliberate attem pt b y governm ent departm ents so to place their orders for w ork as to counteract the norm al ebb and flow o f labour. D epartm ents, she thought, should have a ten-year program m e o f constructional w ork. W hen the N ational Labour Exchange reported that the percentage o f unem ployed was rising above 4 per cent, the departm ents w ould begin to accelerate their program m es. T h e A dm iralty w ould order 'a special battleship’, the W ar O ffice 'additional barracks', the Post O ffice m ore post offices and extensions o f telegraph and telephone services, the Stationery O ffice 'w ould get on two or three tim es as fast as usual w ith the printing o f the volum es o f the H istorical M anuscripts Commission* and so on. T h e decisive feature o f these proposals was that the works 'w ou ld be started before unem ploym ent becam e acute*.1 T h ey were to b e in the nature o f prevention rather than cure. It was, in fact, this 'decisive feature* that enabled the m inority report to distinguish the 'counter-cycle* policy from a public-w orks policy. P u blic or relief works were tainted in the eyes o f the Labour m ovem ent b y association w ith Poor L aw navvy work. T h is w ork was based on the 'less eligibility’ principle, both as regards conditions and pay. W hen it cam e to an end there was nowhere to go save back to the Guardians, and as the w ork undertaken had done nothing to prom ote the general prosperity o f the country, it did not, so the argum ent ran, prom ote the creation o f jo b s for the future. T h e 'counter-cycle* policy, on the other hand, was intended as a com m ercial venture. D epartm ents w ould contract for work, and labour w ould be hired in the norm al w ay, for standard wages. T h ere was also a recognition that the construction 1 Ibid. pp. 657-9.



w ork — to w hich the report added some schem es for afforestation and land reclam ation — was useful, not only in the sense that it gave work­ m en engaged in it a feeling o f purpose, but that it also contributed to the general econom ic w elfare o f the country.1 T hese factors distinguished it further from traditional relief work, and to make the point explicit the report was careful to state that 'counter-cycle* schem es w ould have 'absolutely no con n ection . . . w ith whatever provisions were m ade for the men in want or in destitution’ .12 H ow were these counter-cyclical proposals to be financed? T h ere is some am biguity, but basically two m ethods are suggested, depending at w hich point in the trade-cycle it is proposed to start the policy. I f the policy was started during a depression the m oney required w ould be borrow ed.3 H ere w e have an early statem ent o f the theory o f 'id le balances’ w hich was to be used by the Liberals in the nineteen-twenties. T h e report states that it is characteristic o f a depression that 'capital is unem ployed and under-em ployed to at least as great an extent as labour’ . T h is 'unem ployed capital’ could be drawn out at fairly low interest rates.4 T h e 'loan’ w ould be repaid in the good years follow ing the depression — 'th e charge falls . . . largely on the years o f good trade and high profits’ .5 In the second case, where the works w ould be started before the depression, there could be no argum ent against financing them out o f taxation or norm al budget surpluses. H ere the reasoning is based on H obson. T h e m oney w ould accum ulate in a fund to be spent once unem ploym ent had reached a level o f 4 per cent. In both cases the report anticipated an expenditure o f £4010 in ten years for this purpose, the bulk o f the expenditure falling in the tw o or three years o f the de­ pression. T o reconcile these proposals w ith the theory o f the ‘balanced Budget’ the report suggested aim ing for a balanced account over a ten-year period and criticised 'T reasury book-keeping’ for its insistence on an annually balanced account.6 T akin g the short-term unem ploym ent policies o f H obson and W ebb ' in conjunction w e can see clearly their value to Labour Party thinking 1 Ibid. p. 660. 2 Ibid. 3 Ibid. p. 661. 4 The assumption here is that interest rates would be very low during a depression: in the later 1920’s interest rates were kept high through the need to defend sterling. 5 Ibid. p. 662. 6 Ibid. p. 661.



and also the lim its o f their practical utility. H obson's policy could m ost plausibly be applied in 'boom ' conditions; its w hole justification w ould disappear if applied during a depression and it w ould m oreover have the im portant practical consequence o f depressing the business com ­ m unity and arousing intense opposition. T h e W ebb proposals could in theory be applied both in a boom and a depression. In boom conditions th ey resem bled H obson's — the taxation o f the rich, not to be im m ediately disbursed in the form o f w orking class consum ption power or social benefits, but to be held in reserve for the 'bad tim es'. In conditions o f depression they depended upon a theory o f 'id le balances', then rela­ tively novel. It was, in fact, in this latter aspect that the proposals w ould have proved m ost useful to the Labour Party in the nineteentw enties — had they been taken up. Instead it was left to the L iberal Party, guided b y K eynes, M cK enna and others, to draw practical conclusions from the concept o f 'id le balances'. T h e Labour Party's lack o f interest m ay be readily explained. Progressive taxation was at least 'socialistic' in intent and effect. D raw ing out 'id le balances' on the other hand seem ed to be mere capitalist tinkering.

iv . THE LABOUR P A R T Y ’ S U N EM PLO YE D B IL L , 1 9 0 7


Before the m inority report came out the Labour Party had introduced in the H ouse o f Com m ons its own B ill for dealing w ith unem ploym ent. I t was the first m ajor policy statem ent o f the parliam entary Labour Party on this subject and was presented four tim es between 1907 and 19 11, each tim e failing to secure a second reading. It was this B ill that first gave concrete expression to the concept o f 'w ork or m aintenance'. T h e argum ent was that every man had the right to work. I f society could not guarantee this right because o f im ­ p erfect econom ic organisation then it had an obligation to m aintain the unem ployed decently and hum anely. T h e im plications o f this theory w ere far-reaching. It was assumed that capitalist society could not guarantee this 'righ t to w ork’ . N either w ould a Labour G overnm ent be able to do so if called upon tem porarily to 'ru n ' a capitalist society, though it w ould o f course make great efforts to m itigate unem ploym ent. H ence the first task o f a Labour G overnm ent in such circum stances



w ould be to provide hum anely for the unem ployed. Its failure to provide work w ould be excusable: not so its failure to provide maintenance. T h is em phasis on m aintenance rather than w ork as the first obligation o f a Labour G overnm ent played an im portant part, as w e shall see later, in shaping the events o f the years 1929-31. In discussing the 1907 B ill, however, w e shall consider the proposals for providing work, since the detailed application o f the principle o f m aintenance had not yet been worked out. T h e inspiration o f the B ill was humane. T h e right to w ork was pro­ claim ed as the recognised basis. L ocal councils were to replace the Poor L aw Guardians and distress com m ittees as the ‘unem ploym ent authority* for their areas. T h e prim ary function o f the unem ploym ent authority was to obtain a 'census o f unemployed* in its area. O nce the unem ployed had been registered, it was the duty o f the unem ploym ent authority to provide them w ith w ork or m aintenance. F or work, standard rates o f wages were to be offered — this was a recurring proviso in Labour*s unem ploym ent policies and sprang from a fear o f the un­ em ployed being offered to em ployers as blackleg labour. In addition to the local unem ploym ent authorities, a 'central unem ploym ent committee* was to be established for fram ing schem es o f work, advising the local authorities, and co-ordinating their program m es. T h e central com m ittee w ould have ‘special commissioners* to 'keep in personal touch w ith w hat is being done*. T hese com m issioners and the central com m ittee ‘w ill be ears listening to every com plaint from the localities. T h ey w ill fashion a national policy o f education and relief*. It was clear that the central com m ittee w ould w ork m ainly through the local authority schem es ; bu t it was suggested that in tim es o f ‘exceptional distress* — such as when unem ploym ent exceeded 4 per cent — the central com m ittee ‘in conjunction w ith the L ocal G overnm ent Board* should devise schemes o f 'national utility*, such as afforestation and land reclam ation, w hich were to be carried out centrally. Finance for the local schem es was to com e m ainly from rates; bu t the national schem es were to be paid for by parliam entary grant. ‘T h e solution o f the unem ployed problem*, Ram say M acD onald w rote, 'is the beginning o f the Socialist State’ .1 1 The New Unemployed B ill o f the Labour Party, 1907, published by the I.L .P ., with explanatory notes by MacDonald.



I In L abour's first U nem ployed B ill are to be found m any o f the features o f the p olicy o f the 1929 Governm ent. T h ere is the ‘central unem ploym ent com m ittee’ w ithout any real pow ers: executive responsi* b ility for starting national schem es, it is made clear, is to lie w ith the departm ents. T h e initiative for the local schem es is to com e from the lo ad authorities, subject to ‘approval’ and ‘modification* from the Local G overnm ent Board. B ut such approval, w hile it m ay carry w ith it a central grant, does not o f itself confer the statutory authority for local authorities to proceed w ith their schem es. Finally, the question o f finance is left vague. N o definite sum is specified and there is no m ention o f how the m oney is to be raised. Presum ably it was anticipated that it should com e out o f current national incom e.

V. P O S T -W A R U N E M P L O Y M E N T P O L IC Y

D em ocratic socialism reached the peak o f its confidence in the years im m ediately follow ing d ie F irst W orld W ar. T h e blending o f humane revolt w ith econom ic analysis, apparently successfully accom plished, seem ed to provide an irresistible com bination for the suppression o f capitalism . It was in the confident expectation that history was on its side, that socialism alone had the answer to die problem s o f society, that the Labour Party drew up its constitution in 1918 and challenged the Conservatives and Liberals to a debate on the breakdown o f capitalism in 1923. T h is debate was one o f the parliam entary highlights o f the year and the attention it attracted seem ed to bear out M acD onald’s proud assertion that ‘T h ere are only two Parties in politics to-day. T h ere is the Capitalist Party and the Labour and Socialist Party.’ 1 T h e Labour Party was not the only one that pledged itself to a brave new w orld. B ut the nineteen-twenties were unkind to such claim s and as the decade unfolded L abou r's confidence was eroded by the harsh facts o f post-w ar existence. T h e two ‘socialistic’ policies it had inherited from before the w ar — the taxation o f the 'surplus' and the counter-cycle p olicy — becam e irrelevant: there was little surplus and no cycle. F or its m ajor solution, nationalisation, there was no mandate and besides it w as not clear that taking over one or two declining industries would have 1 166 H .C. Deb. c. 2010.


the slightest effect on unem ploym ent. T h ere is no evidence o f any fresh research in the main body o f the Party w hich was dom inated b y the visionless orthodoxy o f Snowden and Graham , Labour’s two financial ‘experts’ . T h e ‘firm o f W ebb’ provided no new ideas; C ole produced m any books but not one w ith any original insight. T h e only im portant breakthrough was on the fringes — in the Independent Labour Party, now controlled b y the Clydesiders, and in a sm all group o f young men who gathered round L abour's new and glam orous recruit, O swald M osley. L abour's post-war unem ploym ent policy got o ff to a good start w ith a plea for a ju st and generous peace. T h e Versailles T reaty was neither ju st nor generous and 1921 was the first fu ll year o f mass unem ploym ent. T h e Labour Party was not alone in attributing the exceptional un­ em ploym ent to the dislocation o f the international trading structure or in criticising the V ersailles settlem ent for m aking m atters worse. Its pam phlet Unemployment, the Peace and the Indem nity, declared in 1921 that ‘as the result o f the war, the blockade and the peace, the entire continent o f Europe had been im poverished’ . It was the inability o f the ‘im poverished m illions' to bu y our goods that w ent far to explain unem ploym ent at home. ‘T h e decline o f our trade w ith G erm any, Russia and A ustria w ould alone account for m ost o f our present un­ em ploym ent.’ 1 T h e ‘fantastic indem nity’ w hich had been im posed on G erm any, besides opening up the prospect o f ‘unending disturbance and perpetual m ilitarism ’ , m eant that G erm any could only m eet her reparations b ill b y sweating her workers to produce export surpluses. T h e depression o f internal standards o f consum ption m eant that G er­ m any w ould buy alm ost no British goods bu t that at the same tim e Britain w ould have to face intensified com petition from Germ an workers producing at starvation level. A sim ilar situation existed in the defeated countries o f the Austro-H ungarian em pire. T h e Labour proposals envisaged the rapid re-establishm ent o f trade w ith Russia b y the grant­ ing o f long-term credits, the cancellation o f war debts and the rationing o f the w orld’s raw m aterials b y an international authority.2 T h e generous internationalism o f the Labour Party is greatly to its credit, but it did mean that it was com m itted to w hat w e have term ed the ‘conservative case’ , nam ely, that abnorm al unem ploym ent could only 1 Unemployment, the Peace and the Indemnity, p. 5. 2 Ibid. pp. 11-12,



b e rem edied through the revival o f the m ajor export industries. T h is in turn com m itted it to a return to the gold standard at the earliest possible opportunity — an aim w hich Snowden endorsed in em phatic term s1 — and to support o f the ensuing policy o f deflation. T h is internationalist outlook fitted in w ith M acD onald's personal interest in foreign affairs. T h e success o f his efforts to secure a revision o f the peace treaties and o f his conciliatory foreign policy in 1924 confirm ed the leadership in its view that it was through international co-operation that unem ploym ent w ould be m itigated. T h e party's pam phlet, Work fo r the W orkless, com m enting on the 1924 achievem ent rem arked : It is not upon the programme of public-works and relief schemes, useful as these may be in an emergency, that the Labour Government challenges comparison with anything that any previous Government has done in a similar period.. . . So far as these eight months in office are concerned, it is on its Internationalpolicy, that factor which lies at the very root of the present Unemployment problem, that it confidently asks for the continued support o f the nation.2 B ut disillusionm ent was in store. T h e return to the gold standard did not produce the expected recovery and was accom panied b y a further bout o f deflation. T a riff com petition increased, despite the pious resolutions o f international econom ic conferences. M acD onald's interest in foreign affairs rem ained, but b y 1929, although econom ic co-operation had been elevated into a ‘Pillar o f Peace', it looked m uch less plausible as a short-term solution to the unem ploym ent problem . A policy o f international co-operation was undoubtedly ‘socialistic' in intent, presaging the eventual establishm ent o f a socialist world common­ w ealth. A public works program m e was not. It was a m ere palliative m easure w hich did not touch any fundam ental causes and m oreover stood damned in m ost socialist eyes b y association w ith nineteenthcentury ‘relief w ork’ . T h e attraction o f Beatrice W ebb’s counter­ cyclical policy was that it seem ed to avoid such associations. M en were to be em ployed b y governm ent departm ents in the norm al w ay, before they had becom e unem ployed, at standard wages and as far as possible in their norm al occupations. B y 1921, w ith mass unem ploym ent a reality, it was im plausible to call counter-cyclical w hat was bound to 1 On 24 M ay 1925,183 H .C. Deb. c. 629.

2 pp. 12-13.



be in effect a public works p olicy. In advocating such a policy, the Labour Party laid great stress on the need for finding ‘socially productive' w ork and persisted w ith the counter-cyclical term inology. T h e 1921 party pam phlet Unemployment: A Labour Policy advocated governm ent contracts o f the kind proposed in the Poor L aw Com m ission’s m inority report, to be arranged over a ten-year period and accelerated in depression. T h e term inology here is still one o f ‘anticipating' a slum p, o f using the ‘foresight com m only exercised b y an intelligent house­ keeper*. O ther works to be started were road-building, housing, afforesta­ tion and foreshore reclam ation. Railw ay com panies were expected to provide an ‘enorm ous am ount o f w ork' by arranging the building and repair o f locom otive engines, railw ay coaches, trucks and lines. Local authorities were urged to 'undertake a bold policy for the building and equipm ent o f educational institutions and the erection o f new public bu ild in gs'.1 N ine m onths o f office in 1924 convinced the Labour Party ju st how difficult it was to start a public works program m e. Its exertions in this field were so unrewarding that the party pam phlet, Workfo r the W orklesst rem arked: Labour had realised all through, and never more vividly than now, after some experience of administering the Government o f this country, that schemes of work o f the character mentioned can never solve the real unemployment problem, even though they may be of some use as stop-gap aids.2 T h e next policy statem ent on unem ploym ent, O n the D ole or O ff, published in 1926, reflects the m ore pessim istic reappraisals follow ing the 1924 experience. T h e aim, strangely enough, after five years o f mass unem ploym ent, is still that o f 'preventing unem ploym ent. . . [by] d eliberately. . . placing our orders for com m odities and services in such a w ay and at such tim es as w ill keep the wheels o f industry revolving’. T h e vestiges o f this counter-cycle policy are linked for the first tim e to the idea o f a lim ited m arket. 'T h e effect o f this policy w ould be to reduce purchasing power during good years and increase it in bad tim es.’3 T h ere is noticeably less em phasis on public works proposals. It m ight be thought that one o f the ch ief objections to public works — their association in the m inds o f Labour supporters w ith local authority 1 pp. 24-26.

2 p. 10.

3 p p .12-13.



relief works o f the nineteenth-century kind — could have been m et b y th e transfer o f responsibility to the Governm ent. T h is, indeed, was one o f the purposes o f the counter-cyclical policy, w hich envisaged an expansion and contraction in the orders placed b y governm ent depart­ m ents. U nfortunately governm ent departm ents could undertake very little. T h e only ones w ith the authority to provide em ploym ent on any scale were the various service departm ents, the Post O ffice and the M inistry o f Labour, w hich em ployed several thousand officials to look after the unem ployed.1 A n y determ ined counter-cyclical policy, therefore, involved increasing the responsibility o f the central G overn­ m ent at the expense o f the local authorities, at least for em ergency periods. B ut to the Labour Party local governm ent was sacrosanct. Its proposals envisaged no encroachm ent on it. Y e t it was this very absence o f governm ent responsibility that made it so difficult to start unem ploy­ m ent projects on a b ig scale. A s W ork fo r the W orkless noted, the local authorities have by reason of the long depression in trade and the consequent burden on the rates become unable to finance new schemes. . . to the extent to which such schemes are desirable.2 W e look in vain for any proposals to rem edy this in L abour's Prevention o f Unem ploym ent B ill o f 1925. A n im pressive-sounding N ational Em ploym ent and D evelopm ent Board is to be set up under the M inister o f Labour to 'm ake advances out o f the funds at their disposal' to local authorities, governm ent departm ents, colonial and D om inion G overn­ m ents and public utilities for any purpose calculated to increase em­ ploym ent.3 A ll this, o f course, was already being done by the U nem ploy1 In 1928, the various service ministries provided employment for 400,000 men (mainly the armed forces); the Post Office employed 200,000; Inland Revenue and Customs and Excise accounted for 30,000; and the Ministry o f Labour 14,000. Altogether the central Government employed well under a million. By 1950 the number of persons in central government employment had risen to 1,700,000; in addition the nationalised industries employed 2,380,000— some 10 per cent of the labour force. Since 1950, with the ending o f war-time controls and partial transport denationalisation, there has been some contraction. (Abramovitz and Eliasberg, The Growth o f Public Employment in Great Britain, pp. 25,40-3,85.) *p . 9. 3 Reprinted as an Appendix to Onthe Dole or Off,p.Z2, Clause 2(1).



m ent G rants Com m ittee and T rad e Facilities. T h ere is no suggestion for transferring initiative to the G overnm ent itself: responsibility for sub­ m itting schem es is still vested w ith the authorities in question. T h e Party’s 1925 pam phlet, On the D ole or O ff, proposed the ‘scientific m anipulation o f credit*, bu t as the Party had no ideas on this subject it was relegated to further enquiry. Finance, indeed, was the b ig stum bling block to any vigorous unem ploym ent policy. A s w e have seen, the m inority report sought to finance its counter-cyclical proposals b y establishing a fund into w hich the G overnm ent w ould pay m oney out o f revenue surpluses in good years to be used in lean ones. T h is was alm ost orthodox budgeting, except that the T reasury would have wanted to use revenue surpluses for reducing the national debt or taxation. Labour expected to finance its post-war proposals in sim ilar fashion. U nfortun­ ately in 1921 there was no surplus; the aim was to econom ise and the G eddes A xe fell in 1922. T h ere was, however, every hope that prosperity w ould soon return, and so Labour’s 1921 proposals could still anticipate future surpluses as a source o f finance. Clynes used this argum ent in the Com m ons in 1922 : This period o f depression clearly will pass away. . . let us look to the days when we shall be in a more solvent state, for have we no credit to pawn?1 A s real prosperity failed to return, this argum ent becam e progressively less convincing. Labour was indeed in a dilemma. Taxation w ould expose it to the charge o f adding to the burdens o f industry; borrowing, to the charge o f diverting resources already profitably em ployed. In 1921 the Labour Party called for ‘the issue b y the Exchequer during the present year o f a sum w hich w ill not am ount to even a hundredth part o f the cost o f the w ar’ .12 A bout this tim e there was m uch support in the Party and elsewhere for a huge ‘capital levy* to pay o ff the w ar debt and provide some surplus for unem ploym ent projects: Labour speakers liked to conjure up a picture o f m illions o f pounds being spent b y the idle rich in riotous living w hile the poor starved. B y 1925, however, taxation was abandoned as a means o f raising the m oney. It w ould ‘in the m ain only 1 159 H .C. Deb. c. 956. 2 Unemployment: A Labour Policy, 1921, p. 33. It apparently thought this sum would be partially offset by retrenchment on military expenditure, saving on the insurance fund and future revenues from a revived economy.



transfer purchasing power from one body o f people to another'.1 So H obsonianism had been found lacking. T h e 1925 proposals envisaged the raising o f £ io m a year b y 'bank borrow ings'.2 B ut w hy were bank borrowings any less diversionary than taxation? A theory o f 'id le balances' such as the Liberals developed w ould have provided an answer, b u t this theory nowhere appears in any o f L abour's proposals. N either the Labour leaders nor any established party intellectuals showed the slightest interest in K eynes or any other progressive econom ist, al­ though the G eneral C ouncil did devote a pam phlet to the eccentric view s o f M ajor D ouglas, founder .of 'social cred it'.3 Indeed the lack o f any m onetary theory was Labour’s m ost serious weakness. A ll L abour's financial proposals in the nineteen-twenties bear the depressing im print o f Spowden. H e accepted the 'treasury view ' in all its essentials. H e had an_ absolute horror o f inflation, w riting in 1920 'G overnm ent borrow ing in this country has reached a point w hich threatens national bankruptcy’, and advocating drastic deflationary m easures.4 T o Snowden borrow ing was contrary to every dictate o f sound finance. Socialism w ould be paid for out o f taxation, as all unrem unerative projects should be. I f it was not possible to raise taxation, then socialism w ould have to w ait. Speaking in the H ouse o f Com m ons in 1922 he laid it down as a 'principle' for public works that 'n o schem e should cost m ore than it is likely to bring back into the national purse*. N on-rem unerative schem es ought only to be under­ taken in tim es o f prosperity.5 O n the possibility o f expanding credit he w rote to the G eneral Council in 1927: The microbe of inflation is always in the atmosphere.. . . An expansion of the currency issue must respond to a genuine demand arising out of real pur­ chasing power and not be used to create a demand. O n the Bank o f England he noted 'control o f credit is an extrem ely dangerous weapon to place in anybody's hands, and political inter­ ference w ould be fatal’ .6 W riting in the M orning Post early in 1929 Snowden concluded ‘there is a good deal m ore orthodoxy in L abour's financial policy than its critics appear to appreciate’.7 1 On the Dole or O ff, 1925, p. 12. 2 Ibid. p. 13. 3 Labour and Social Credit: A Report on the Proposals of Major Douglas, 1923. 4 Wages and Prices, pp. 112-13 ; 120-3. *159 H .C. Debs. c. 1079. 6 General Council Papers : M ond-Turner Conference. 7 13 February 1929.



Graham , Labour’s other expert, agreed w ith Snowden. Com m enting on a speech by the L iberal M cK enna to the shareholders o f the M idland Bank in 1927, he w rote, 'N o r need w e go so far as M r. M cK enna in criticism o f the existing system ’ 1 — the socialist critique o f capitalism i In 1929 he was advocating raising the sinking fund to £ io om in order to pay o ff the w ar debt quicker and announcing that 'L abour has no desire to increase expenditure, bu t to decrease it’ .2 T hese view s w ould doubtless have com e as a surprise to the mass o f active Labour supporters had they realised their fu ll im plications. T h e Labour leaders thus accepted the C on servative’ rem edy for post­ w ar unem ploym ent on aU ite essentials. T h e traditional export industries were to be revived b y deflation and rationalisation.; the return to the gold standard at the pre-war parity w ould assist the recovery o f w orld trade. O n d ie question o f public works, whereas the Conservatives regarded them as no substitute for capitalism,, the L aT oiif TartyTegarded them as no substitute for socialism . Both were therefore agreed in assigning them a very lim ited role. T h e fact that the leaders o f both Parties supported the 'treasury view ’ m eant that in any case they were not pre­ pared to spend m uch m oney on them . T h u s in the b ig unem ploym ent debate at the end o f the nineteen-twenties Labour Party leaders, insofar as they w ere aware that a debate was in progress at all, cam e down on the traditional side. T h ey rejected a G overnm ent investm ent loan for national projects. T h e re was no discussion o f a possible diversification o f industry, the role o f banking institutions, lo r'the* effects o f the gold standard on c re d it3 O n all these points Snowden led the Labour Party unthinkingly along the paths o f strict orthodoxy. T h e differences between thë^ Conservative and Labour Parties arose not over unem ploym ent, bu t over the unem ployed. Labour laid m uch greater emphasis on decent maintenance than did the other Parties, who 1 General Council Papers. McKenna said: 'W ith a reduced total of money available for spending there is a diminished demand for commodities, prices at once tend downwards, and shopkeepers, merchants, and manufacturers curtail their orders. The result is depression and unemployment.’ (The Economist, 29 January 1927, p. 229.) 2 Morning Post, 15 February 1929. 3 An exception was provided by the M ond-Tum er conversations, which proved highly educative to some members of the General Council, especially Ernest Bevin (see A . Bullock, The L ife and Times o f Ernest Benin, i, i960, pp. 403,426).



believed unem ploym ent was transient, not perm anent, and that private enterprise could norm ally be expected to find work for everyone, and w ho w ere anxious not to burden industry w ith unem ploym ent paym ents so large as to prevent it from fulfillin g its prim ary purpose — keeping m en in work. T h e Conservatives and Liberals were uneasy about the post-w ar extensions to unem ploym ent insurance; in particular they never accepted the ‘dole’, or benefit paid w ithout contributions, as a perm anent feature o f the system . T h e Labour Party on the other hand wanted the State to take com ­ p lete responsibility for all the unem ployed. Benefit w ould be financed b y taxation and be paid o f right. Y e t in the 1911 debates on L loyd G eorge’s Insurance B ill m ost m em bers o f the parliam entary Labour P arty were found to be in favour o f the L loyd G eorge schem e: in particular M acD onald, speaking as leader o f the Labour Party, welcom ed the contributory as opposed to the ’free g ift’ principle.1 T h e m ain protagonists o f state responsibility in the nineteen-twenties w ere the trade unions, who, in effect, w rote out party policy on this point, w ith only lukewarm support from the parliam entary leaders.12 T h e Party pam phlet Unemployment: A Labour Policy, produced in 1921, laid down the principle that every unemployed person ought to have a rig h ilo unem ploym ent benefit, irrespective o f contributions, and Chat paym ent o f benefit should be continued so long as he or she re­ m ained unem ployed. It therefore proposed bringing into the schem e all those workers occluded from it — agricultural workers, railwaym en and dom estic servants — and paying all a standard rate o f benefit, alm ost double the existing one, on uniform conditions. A lthough com ­ p lete state responsibility was declared to be the aim , the tripartite structure was retained for the tim e being, except that the State’s con­ tribution was to be raised out o f all proportion to the others, to pay fo r the increased benefits and easier conditions.3 It was an untidy 1 26H .C. Deb., 29 M ay 1911, c. 725. 2 In fact, though the unions advocated financing benefit by taxation on socialist grounds, there were excellent capitalist grounds for doing so: for taxation would spread the cost o f maintaining the unemployed to the rentier, thus reducing the ‘burdens on enterprise’ (see Hicks, The Finance o f British Government, 1920-1936, pp. 305-6). 3 p. 19.



schem e: once again the question o f finance was left vague, but apparently the additional exchequer charges were to be m et b y the issue o f new m oney. T h e Labour Governm ent o f 1924 raised benefits b y a sm all am ount bu t was not prepared to take any further responsibility for financing unem ploym ent paym ents. H owever, in the quest for standard conditions to apply alike to those who had paid and those who had not paid con­ tributions, the Governm ent extended the ‘not genuinely seeking work* clause, w hich had hitherto applied only to those on the dole, to all claim ants for benefit. T h e effect o f this m uddled piece o f egalitarianism was to increase the num ber o f disallowances, causing the unem ployed great hardship. A few years later Labour speakers were vigorously dem anding the abolition o f the ‘not genuinely seeking work’ clause, having forgotten that it was they who first let the m onster loose. T h e memorandum o f evidence subm itted jo in tly b y the G eneral Council and the national executive o f the Labour Party to the Blanesburgh Com m ittee in 19251 demanded higher benefit rates, to be paid irrespective o f the num ber o f contributions standing to a person’s credit and under the same conditions for everyone.2 T h e ‘not genuinely seeking work* clause should be abolished3 and the w aiting period reduced from six to three days.4 T h e memorandum proposed to continue w ith the tripartite system for the tim e being, but w ith sm aller contributions from em ployers and em ployees and a m uch larger one from the Exchequer up to ‘whatever sum m ay be necessary to m aintain the proposed benefits’. T h e new Labour proposals were identical w ith those o f 1921, except that the scales o f benefit were adjusted to the fall in the cost o f living that had taken place since then. T h e proposals contained the same m ixture o f insurance and dole w hich the Conservative and L iberal Parties found objectionable and w hich the Blanesburgh Com m ittee hoped w ould end o f its own accord w ith the revival o f trade. T h e Blanesburgh Report, w hich rejected the m ost im portant Labour suggestions, was signed b y all the three Labour representatives on the Com m ittee, including M iss M argaret Bondfield, who becam e M inister o f Labour in 1929. 1 See above, p. 22. 3 Ibid. para. 64.

2 Memorandum o f Evidence, para. 7. 4 Ibid. para. 62.




T h e intellectual bankruptcy o f L abour's leaders was evident to all w ho cared to see. T h ey expected to build the tem ple o f socialism on the ' foundations o f a 'correct' financial policy, and were quite unaware that those foundations were being busily underm ined b y the best capitalist econom ists. T h e leadership's hold on the rank and file was secure. M acD onald mesm erised party conferences; Snow den's obvious m astery o f financial m inutiae baffled his critics; w hile H enderson, Clynes and Thom as had no independent opinion on these m atters: like their party leader they accepted Snow den's authority. Som e sections o f the Indepen­ dent Labour Party were not so subservient: though their influence was never very great, their proposals deserve m ention because they offered the only challenge w ithin the Party to Snow den's orthodoxy. M oreover, it was from the ranks o f the I.L .P . that the ch ief rebels against the iQ2Q Labour G overnm ent w ere to spring. From the I.L.P. stables came twn similar policy statem ents b v tw o different groups. T h e first, The L iv ing Wage, was produced in 1926 by one o f C lifford A llen ’s 1 study groups in search o f 'socialism in our tim e', w hich consisted o f Brailsford, Creech Jones, W ise and Hobson him self. T h e second, Revolution by Reason, 1925, was the work o f O swald M osley, then tw enty-iune, and tw o young collaborators, John Strachey, ju st down from O xford, and A llen Y oung, an I.L.P. organiser from Birm ing­ ham . The Living Wage rather than Revolution by Reason was the policy officially adopted b y the I.L.P. N ot only was it produced b y their official study group, it was m uch more 'socialistic' in tone. The Living Wage devoted itself entirely to the task o f increasing purchasing power as the w ay out o f depression, apologising to its predom inantly left-w ing readership for relegating nationalisation to a supporting role. T h e w ay to cure unem ploym ent was through re­ distributing w ealth — the standard Hobsonian analysis — and The Living Wage proposed to inaugurate a b ig schem e o f fam ily allowances 1 Clifford Allen was chairman of the I.L .P. from 1923 to 1925 when he was ousted by a left-wing, proletarian coup which gave control o f the I.L .P . machine to the Clydesiders — Maxton, Wheatley, Kirkwood, Buchanan and Campbell Stephen.


to be financed b y taxation.1 B ut its authors recognised definite lim itations to taxation during a depression» a point often forgotten b y the political exponents o f The Living Wage, and therefore proposed to inject further purchasing power b y im posing statutory w age m inim um s throughout industry to be sustained b y the printing o f new money.* T h is was frankly inflationary as inflation was then defined. B ut the I.L .P . pam phlet was confident that the added purchasing power o f the workers w ould soon absorb surplus industrial capacity leading to a rise in production. A battery o f Socialist controls was proposed to assist the schem e. C redit control was to be secured b y the nationalisation o f the Bank o f England. Industries that refused to raise wages w ould be nationalised. Attem pts b y em ployers to counter higher wages w ith higher prices w ould be m et b y bulk governm ent purchase o f raw m aterials, especially foodstuffs, to enable reserve stocks to be bu ilt u p .3 W hereas m ost Socialists, even the authors o f The Living Wage, laid the greatest stress on fiscal p o lity, M osley focused attention on m onetary policy. H obson’s main concern was to redistribute incom e b y progres­ sive taxation. M osley perceptively challenged this approach : A t present Socialist thought appears to concentrate almost exclusively upon this transfer of present purchasing power by taxation, and neglects the necessity for creating additional demand to evoke our unused capacity which is at present not commanded either by the rich or the poor.4 Industry was in a dilem m a. A lthough a capacity existed for greater production w hich w ould utilise idle plant and m en, m anufacturers w ould not expand production u ntil there had been an increase in effec­ tive demand, w hile ‘correct’ financial policy opposed any increases in effective demand until production had expanded. W hat was the solution? T h e first step in M osley’s rem edy was the nationalisation o f the banks. 1 The Living Wage, 1926, p. 23. 2 The Living Wage, pp. 15-16, 34. The authors seem to have regarded inflation as a temporary measure pending redistribution. e.g. E. F. Wise, 1 April 1929: ‘There was a residue of several hundred million pounds which could be transferred to the working class. W hile this money was being obtained by taxation, the Government would establish a “ minimum wage” . . . . ’ {The Times, 2 April 1929). 3 The Living Wage, pp. 19,38,42-3. 4 Mosley, Revolution by Reason, a pamphlet read to the I.L .P. summer school at Easton Lodge, August 1925, pp. 16-17.



T h e state banks would then give industry a clear lead b y the ‘bold and vigorous expansion o f the national credit’ : W e propose first to expand credit in order to create demand. That new and greater demand must, of course, be met by a new and greater supply of goods, or all the evils of inflation and price rise will result. Here our Socialist plan­ ning must enter in. W e must see that more goods are forthcoming to meet the new demand.1 Socialist planning w ould be carried out b y an Econom ic Council whose am bitious task w ould be to estimate the difference between actual and the potential production in the country and to plan the stages by which that potential production can be evoked through die instrument of working-class demand. The constant care o f the Economic Council must be to ensure that demand does not outstrip supply and thus cause a rise in price.1 A s in The Living Wage proposals, the additional w orking class demand w ould be created through m inim um wages to be financed b y the new m oney, in the form o f governm ent subsidies to industry. I f the ‘great Capitalist m onopolies’ tried to restrict output to force a price rise, they w ould be subject to ‘sum m ary socialisation’ .3 T h e bulk purchase o f raw m aterials was also advocated. Finally, M osley was prepared to abandon the gold standard and let the currency depreciate to its true value, w hich he reckoned to be about 4*40 dollars to the pound.4 In a larger exposition o f the 'Birm ingham proposals’ as they came to be known, Strachey advocated a fluctuating exchange to secure an auto­ m atic adjustm ent to the balance o f paym ents. In circum stances o f mass unem ploym ent, Strachey argued, the stability o f the currency is a ‘gigantic irrelevancy’ .3 M osley’s attem pt to ‘w eld together the socialist case w ith m odem m onetary theory’6 produced a strange m ixture. H e was not prepared sim ply to rely on low er interest rates and a fluctuating exchange to secure credit expansion. L ike all Socialists he suspected, possibly w ith justification, that w icked capitalists w ould sabotage an expansionist 1 Mosley, Revolution by Reason, p. 12. 1 Ibid. pp. 14-15. 3 Ibid. pp. 19-20. 4 Ibid. p. 26. 3 Strachey, Revolution by Reason, pp. 200-1. The book was dedicated to *0 . M . who may some day do the things of which we dream’. 6 Mosley, Revolution by Reason, p. 5.



credit policy initiated by a Socialist Governm ent. In order to ensure that the additional credit was, in fact, utilised, he, like the authors o f The Living Wage, was prepared to erect a w hole scaffolding o f socialist controls — statutory m inimum wages, nationalisation o f the banks and key industries if necessary, bulk purchase o f raw m aterials and so on. K eynes saw the problem rather differently. H e did not doubt at this stage that a cheap m oney policy w ould revive industry. H ow ever, he doubted whether such a policy w ould be possible w ith the existing gold standard parity: hence he advocated a program m e o f autonomous governm ent investm ent in public works to be financed b y drawing out idle balances. T h ere is little doubt that such a program m e was, in those circum stances, a more practical and speedier m ethod o f securing a rapid expansion o f demand than printing new m oney and then trying to translate it into higher industrial wages through socialist controls. The Living Wage was debated at the 1927 Labour Party conference, where it was killed by the sim ple expedient o f referring it to the executive, after M acD onald had condem ned it as a collection o f ‘flashy futilities’ .

3 LABOUR TAKES OFFICE i. TH E 19 2 9 E LE C T IO N U nem ploym ent dom inated the 1929 election; and dom inating the un­ em ploym ent debate was the L loyd G eorge pledge, given on 1 M arch 1929, to reduce unem ploym ent w ithin one year to norm al proportions. I t was a suprem e attem pt b y the L iberal leader to w rest the initiative from his political opponents and never was such an effort sustained b y a m ore im pressive array o f publications and policies — intellectually the m ost distinguished that have ever been placed before a British electorate. It w as the L iberal Party that provided the nation w ith a real choice in 1929: th e choice between a vigorous, ‘new frontier* econom ic policy, and. ‘safety first’ from both the Conservative and Labour Parties. T h e m ajority o f the electorate did not see the situation in this light. T h e y saw the election as a fight between the ‘capitalist’ parties on the one hand and the ‘Labour and Socialist Party’ on the other.1 It was in the interests o f both Conservative and Labour Parties to foster this illusion. T h e Conservatives hoped to capture the L iberal centre b y portraying the issue as dem ocracy versus bolshevism ; the Labour Party hoped to capture it b y proclaim ing that it had taken over the progressive m antle o f liberalism . Both were united in dism issing L iberal interven­ tion as irrelevant; and both attacked each other w ith a vehem ence belied b y the close resem blance o f their program m es. T h e L iberal unem ploym ent policy was the product o f a rem arkable collaboration between politicians and econom ists, inaugurated in the L iberal Industrial E nquiry o f 1925.* T h e fru it o f this was the first xT he words are those of MacDonald in 1923 ; see above, p. 37. * Members were: W . T . Layton, E. D . Simon, Lloyd George, E. H. Gilpin, Hubert Henderson, Philip Kerr, J. M . Keynes, Ramsay Muir, Major H. L . Nathan, B. S. Rowntree, Herbert Samuel, John Simon. B



‘Y ellow Book*, B ritain's Industrial Future, published in February 1928, an exhaustive and penetrating survey o f the British post-w ar econom y, w ith far-reaching proposals for governm ent planning, w ell in advance o f anything in existence at the tim e. O ccupying a central place was a b ig program m e for governm ent investm ent. Subsequently a special com ­ m ittee headed b y L loyd G eorge, L ord Lothian and Seebohm Rowntree, was set up to w ork out in detail various schem es o f national develop­ m ent, and its report, We Can Conquer Unemployment, issued in M arch 1929, was the cornerstone o f the L iberal election cam paign. Its opening expressed both its mood and determ ination: The word written to-day on the hearts of British people, and graven on their minds is Unemployment. For eight years, more than a million British workers, able and eager to work, have been denied the opportunity.. . . What a tragedy o f human suffering; what a waste of fine resources; what a bankruptcy of statesmanship. T h e central assum ption o f the L iberal policy was stated on page 9 : A t the moment, individual enterprise alone cannot restore the situation within a time for which we can wait. The state must therefore lend its aid and, by a deliberate policy of national development, help to set going at full speed the great machine of industry. T h e Liberal 'emergency* program m e was to be concentrated into tw o years X^ride o f place was given to road construction. T h e British road system was seriously out o f date: as M rs. H icks rem arks, the last governm ent that had taken any interest in m otorways was the Roman governm ent. T h ere was a m uch higher accident rate than in the U nited States and there were 50 per cent m ore vehicles per m ile o f road than in that country. Bottlenecks, blind com ers, level crossings, dangerous bridges and narrow streets through m arket towns were reinforced b y such m ore refined obstructions as bad gradients and inadequately banked com ers. T h e Liberals were going to put all that right. T h ere was to be a b ig program m e o f trunk roads, to be bu ilt directly b y the State, costing £4210 and em ploying 100,000 m en.1 A program m e o f ring roads was expected to cost £2om and provide em ploym ent for 50,000 m en.12 Special attention was to be paid to buying sufficient w idth o f land 'to 1 We Can Conquer Unemployment, 1929, pp. 13-16. 2 Ibid. p. 16.



allow for any reasonable future grow th’ . T h ere w ould be adequate footw ays, no restricted bridges, no avoidable level crossings, efficient signposting, visible b y day and night, no dangerous corners and cross­ roads, and sufficient parking space along the roadside.1 D istrict and rural roads were to be reconstructed, old bridges widened and strengthened and new ones built, and level crossings abolished, at an estim ated cost o f ,683m and em ploying 200,000 m en.2A t a cost o f 56145m and b y em ploy­ ing 350,000 m en for tw o years, the Liberals reckoned that Britain w ould be equipped w ith the m ost m odem system o f highway com m unica­ tions in the w orld, w ith inestim able benefit to the econom y and the m otorist. H ousing was given high priority^>Heavy unem ploym ent in the build­ ing industry was attributed to N eville Cham berlain's 1927 cut in the W heatley housing subsidy. Broadly, the Liberals proposed to restore the W heatley subsidy, bu t to concentrate m uch more than before on building low -rent houses. T h ey estim ated that 200,000 houses o f this kind could easily be bu ilt each year, giving em ploym ent to an extra 60,000 m en.3 Finally, there were plans for telephone installation, the extension and standardisation o f electricity, land drainage and the developm ent o f London passenger transport w hich were expected to cost 5680m and provide work for 180,000 men annually.4 A ltogether about 600,000 men a year were to be em ployed for tw o years at a cost o f 56250m. T h e m oney was to be raised b y loan. T h e road fund w ould borrow 56145m on its incom e o f 5625m a year. T h e local authorities w ould borrow m oney in the norm al w ay for house building w ith the backing o f the governm ent subsidy; the various public authorities concerned would borrow m oney for the developm ent o f London transport w ith govern­ m ent contributions to interest and sinking fund paym ents; the G overn­ m ent itself w ould borrow for the residue o f the schem es. W hether these borrowings w ere to be undertaken separately or lum ped together in a b ig national developm ent loan was not made clear in the pam phlet, though if the Liberals had form ed a Governm ent, the b ig w ar loans would have been an obvious precedent, dear to the heart o f L loyd G eorge. 3 Ibid. p. 13. 2 Ibid. pp. 16-21. 3 Ibid. pp. 31-2. 4 Ibid. pp. 34-46,52.



T h e L iberal policy was based on d ie calculation that £ im set 5,000 m en to work, h alf on the actual jo b and half m anufacturing the m aterials required for that jo b .1 B ut the effect o f the expenditure w ould not end there; as L loyd G eorge told the Liberal candidates in M arch 1929: I f instead of an allowance o f one pound or twenty-five shillings a week a man brings home three pounds a week from his job, you double and treble his purchasing power. The mills, the factories, the workshops will derive benefit from it, and the result will be you will start a round of prosperity.123 K eynes and H enderson, in an explanatory pam phlet, Can Lloyd George D o I t ?, developed this them e further: In addition to the indirect employment with which we have been dealing, a policy of development would promote employment in other ways. The fact that many workpeople who are now unemployed would be receiving wages instead of unemployment pay would mean an increase in effective purchasing power which would give a general stimulus to trade. Moreover, the greater trade activity would make for further trade activity ; for the forces of prosperity, like those of trade depression, work with cumulative effect.* [italics mine.] H ere, then, was the theory o f the m ultiplier, though w ithout the precise calculations w hich were later to make it an effective instrum ent o f governm ent policy. T o defend the loan against the charge o f diverting resources w hich w ere already being fu lly utilised, the L iberal pam phlet m ade use o f the theory o f idle balances. It produced figures from M cK enna’s 1929 address to the shareholders o f the M idland Bank showing that between 1919 and 1928 the ratio o f ‘tim e deposits' to 'dem and deposits’ had risen from 28*6 per cent to 44*7 per cent. T im e deposits represented m oney awaiting investm ent for w hich no trading use could be found at the tim e: demand deposits w ere essentially m oney in active business use.4 In a general attack on the ‘treasury view ’ the L iberal pam phlet m ade the obvious point that 1 We C m Conquer Unemployment, p. 12. 2 Reprinted in Liberal Pamphlets and Leaflets: The Liberal Pledge, 1929, p.28. 3 Can Lloyd George Do It?, 1929, p. 25. 4 We C m Conquer Unemployment, p. 55.



T o begin with, it proves too much! I f it were true of the new State enterprises, it would be true of enterprise everywhere, in which case it is difficult to see how trade could ever improve or progress take place.1 K eynes and Henderson follow ed this up in m ore detail. T h e objection to the State borrowing m oney m ust apply equally to M orris or Courtauld’s borrow ing m oney. W e should have to conclude that it was virtually out of the question to absorb our unemployed workpeople by any means whatsoever (other than the un­ thinkable inflation), and that the obstacle which barred the path was no other than an insufficiency of capital. This, if you please, in Great Britain, who has surplus savings which she is accustomed to lend abroad on the scale of more than a hundred millions a year.2 Snowden had it laid down as a ‘principle’ that public works ‘should b e . . . prospectively rem unerative and that the schem e should cost no m ore than it is likely to bring back into the national p urse'.3 T o satisfy this test o f financial soundness the Liberal pam phlet had to prove that th e works undertaken w ould repay the cost o f the loan. It saw no difficulty about this. Savings on the unem ploym ent fund w ould am ount to £3001 a year.4 A s a result o f the restoration o f 600,000 workers to industry, exchequer receipts w ould go up b y between £8m and £ io m a year. Telephone and electrical developm ent could be justified 'over a due p erio d . . . as an ordinary com m ercial proposition’ . M uch o f the road expenditure w ould produce no direct financial return, but to meet the interest and sinking fund on the loan. . . we have a steady increase in receipts from motor vehicle taxation year by year, which increase alone at the present level of taxation, together with receipts from betterment, is likely to be sufficient to meet interest and repay the whole State expenditure within a comparatively short period of years.5 'B etterm ent' was defined as the principle that 'persons whose property has clearly been increased in m arket value b y an im provem ent effected b y the local authorities should specially contribute to the cost o f im ­ provement*. T h is was the old tax on the 'unearned increm ent’ re­ appearing in this new setting to help pay for the road program m e.6 O n these calculations, the Liberal statem ent concluded that 'all this 1 Ibid. p. 54. 2 Cm Lloyd George Do It?, pp. 34-5. 3 See above, p. 43. 4 We C m Conquer Unemployment, pp. 58-9. 5 Ibid. p. 60. 6 Ibid. pp. 24-7.



work, therefore, makes no drain on the exchequer'.1 K eynes and H enderson estim ated that, taking the m ost favourable view o f the eco­ nom ic yield o f the Liberal program m e, the annual budgetary charge w ould be less than £z$m a year.2 We Can Conquer Unemployment created a sensation. T h e L loyd G eorge plans were supported b y the Economist on 18 M ay 1929; a hundred representative businessm en and industrialists produced a m anifesto in favour; K eynes, challenged about earlier quarrels w ith the W izard, replied: 'T h e difference between m e and some other people is that I oppose M r. L loyd G eorge when he is w rong and support him when he is rig h t.'2 T h e G overnm ent o f Stanley Baldw in took the unusual step o f pressing civil servants and treasury officials to issue a reply, in M ay 1929, entitled Memoranda on Certain Proposals Relating to Unemployment. T h ere were six memoranda altogether, five issued by departm ental officials under the signatures o f the responsible M inisters and a sixth 'prepared b y the T reasury on the direction o f the Chancellor o f the E xchequer'. T h e departm ental memoranda dealt w ith the adm inistra­ tive problem s o f carrying out the L iberal schem e, w hile the treasury memorandum considered its financial aspects. T h e Liberal pam phlet had considered road w ork to be 'peculiarly suitable for a tim e o f unem ploym ent’ because a large variety o f labour could be em ployed all over the country and because w ork could be started fairly rapidly — 'w e consider that w ithin three m onths o f a decision to proceed w ith this schem e an effective Government could have m en already working upon those roads’ (italics m ine).4 T h e M inistry o f Transport did not agree. It was quite w rong to em ploy m en, often w ith specialised skills, on what was essentially navvy w ork; besides, the L iberal expectations o f an early start were hopelessly optim istic. Preparation for the road program m e w ould require 'com plete engineer­ ing surveys, consultation w ith valuers in order that the cheapest land m ight be acquired, the com parison o f estim ates for alternative pro­ posals'. Com pulsory purchase w ould probably be required and also legislation to give the G overnm ent the necessary powers. Recruitm ent 1 Ibid. pp. 60-1. 2 Can Hoyd George Do It?, pp. 29-30. 2 See Thomas Jones, Lloyd George, 1951, p. 229. 4 We Can Conquer Unemployment, p. 16.



and accom m odation b y the roadside w ould have to be arranged. T h en there w ere the country lovers to consider: w ould sufficient regard be paid to the preservatimi o f beautiful and interesting buildings, old cottages and natural features of the countryside . . . great assets which natural beauty and historical association afford? T h is section concluded that to com press a road-building program m e o f ‘at least a decade' into two years w ould require dictatorship.1 T h e M inistry o f H ealth com m ented on the difficulty involved in the large-scale building o f uneconom ic houses and concluded ‘it is only b y the ordered progress o f recent years that these obstacles have been over­ com e'.12 T h e Post O ffice stated that there was no reason to suppose that in the follow ing years people w ould want the telephones that L loyd G eorge proposed to bu ild .3 T h e M inistry o f Labour thought that the L iberal estim ates o f the num bers o f unem ployed people who w ould be available for the various projects was w ildly exaggerated. T h e L iberal figure o f 60,000 to be absorbed b y housing was reduced to 20,000. T h e claim that 180,000 altogether could be used for housing, telephones and electricity was ‘fan ta stic. . . 80,000 w ould be an overstatem ent'.4 I t w ould be quite w rong to em ploy juveniles in w ork ‘w hich carries w ith it so little prospect o f advancem ent as road construction, land drainage, e t c . . . . In the interest o f the boys them selves it is better that they should attend the Juvenile Unem ploym ent Centres when u n em ployed.. . .'* T h e M inistry concluded that only 250,000 m en w ould be available for ‘direct em ploym ent in State-aided schemes o f road w ork and land drain­ age and other public works’ .6 It m ade great play w ith conditions o f labour. ‘Regular conditions o f em ploym ent. . . including the right to dism iss for inefficient work and laziness’ w ould have to be waived ;7 there w ould be friction over wages : the miner will not be prepared to drain a farmer’s land at the agricultural wage, but what will the agricultural labourer, a skilled man, say if the miner, who is wholly unskilled at his work, is to obtain higher wages?8 1 Memoranda on Certain Proposals relating to Unemployment, pp. 10,20-3. 2 Ibid.p. 36. 3 Ibid. p. 39. 4 Ibid. p. 9. 5 Ibid. p. 5. 6 Ibid. p. 9. 7 Ibid. pp. i i , 13. 8 Ibid. p. 10.



T h e treasury objections involved the fam iliar restatem ent o f the 'treasury view*. T h ere were no idle balances. M oney on tim e deposit was not idle. It was regarded b y industry as an essential liquid reserve w hich w ould not be available in any case for long-term investm ent, and, in addition, it m ight be used for 'com m ercial advances or credits and in taking up bills or acceptances for traders as w ell as in loans to the short­ term m oney m arket’ .1 Insofar as the loan was raised b y diverting m oney from foreign investm ent it w ould have unfavourable effects on foreign trade w hich had largely depended on the volum e o f foreign investm ent.2 E ven if the loan could be raised it w ould require a very high rate o f interest to com pete w ith foreign issues.3 Com m enting on the treasury section o f the memoranda, K eynes said : M r Baldwin had invented the formidable argument against the scheme that you must not do anything because it will mean that you will not be able to do anything else. H e added: 'T h ere is not a single econom ist in the country who w ill com e forward to support the W hite Paper’s argum ents.’4 W hat was the Conservative alternative to the Liberal programme? Baldw in’s election address took pride in Conservative achievem ents. Safeguarding had increased em ploym ent in every one o f the safeguarded industries and had put to w ork ‘directly and indirectly’ thousands o f m en. T h e D e-R ating A ct o f 1929 had relieved productive industry o f three-quarters o f its rates, thus adding £27111 to its resources; the reduc­ tion o f railw ay freight rates had been specially beneficial to d ie basic industries; there had been a steady expansion o f electricity developm ent through the E lectricity Supply A ct, w hich had led to the setting up o f the Central E lectricity Board; road developm ent had been pursued and w ould continue, though a Conservative Governm ent, if elected, w ould eschew 'hasty and ill-considered schem es w hich could only lead to w asteful and unfruitful expenditure*. In the sphere o f social reform the 1925 Pensions A ct for widows, orphans and old people had already 1 Ibid. p. 49. Henry Clay, The Post-War Unemployment Problem, p. 133, rejected the 'treasury view’ that a large proportion of time deposits would not be available for public loans because they were cash reserves of firms by arguing that they would be equally liquid in government securities. 2 Memoranda on Certain Proposals relating to Unemployment, p. 51. 3 Ibid. p. 50. 4 The Times, 29 M ay 1929.



benefited 175,000 people; 930,000 houses had been bu ilt since 1925; slum clearance was continuing; the network o f ante-natal clinics had been greatly extended and infant m ortality had been reduced from 75 to 65 per ijOOO.1 F or the future, the Conservatives proposed to continue this policy. A n editorial in The Times on 1 M arch 1929 summ arised the T o ry attitude to state intervention. T h e Conservative rem edies for unem ploy­ m ent w ere ‘the absorption o f the unem ployed into productive industry* and ‘their transference from areas o f distress*. T h e im plication was that public funds should be used only very sparingly on schem es outside the expansion o f norm al productive industry — hence the curtailm ent o f the w ork o f the Unem ploym ent G rants Com m ittee and the ending o f T rad e Facilities — and that taxation and the total national burdens should be reduced to a m inim um , leaving industry to w ork out its own salvation. Exam ining the relationship between public relief expenditure and work provided, The Times concluded that ‘relief schem es demand a colossal financial effort and produce com paratively sm all result*. O n the contentious issue of protection, Baldwin was forced to steer a m iddle course between those who wanted m erely an extension o f safeguarding and those who_wanted full-blooded protection, stating at the 1928 party conference that ‘no industry w ill be b a rred fro m ta k in g its case before the appropriate tribunal*.* Cautious su p p o rt w as g iv en to Im perial preference.13 * W e m ust now turn to Labour reactions to the L loyd G eorge pro­ gram m e. T h e party leaders were in a quandary. O n the one hand the L iberal policy looked like the policy they had been advocating for a long tim e; on the other hand they had no w ish to carry out such a policy. T h e y w ere therefore forced into the unfortunate position o f claim ing both that the Liberals had stolen their own plans and that those plans w ere unworkable. A t the Free T rad e H all, M anchester, L loyd G eorge m ade the m ost o f this dilem m a: T he Labour Party could not make up its mind whether to treat the Liberal plan as a freak or to daim its paternity. (Laughter) M r. Thomas said it was an 1 The Times, 13 M ay 1929. * E. A . Rowe, ‘The British General Election of 1929*, unpublished B .Litt. thesis, Bodleian Library, p. 100. 3 The Times, 13 May 1929.



absurd abortion, but M r. Henderson said it was the child of the Labour Party. (Laughter) M r. MacDonald, as usual, tried to have it both ways. He said — often in the same speech — 'This is a stunted thing’. Then looking at it fondly, he said, 'This is my child’. (Laughter).1 In reply to We Can Conquer Unemployment, the Labour Party produced a counter-blast o f its ow n: How to Conquer Unemployment: Labour’s Reply to L loyd George, w ritten b y G . D . H . Cole, w ith a fore­ w ord b y M acD onald. It was a slovenly docum ent, totally devoid o f the insights that lent distinction to the L iberal pam phlet. T h e L loyd G eorge proposals are attacked on two counts. F irst, it is argued that he 'has not a single proposal in his pam phlet that w ill bring about the reconstruction o f industry on a sound and perm anent basis’. It is adm itted that his m easures ‘m ight, for a couple o f years, greatly reduce the num ber o f the unem ployed. B ut w hat is to h a p p e n . . . when those years are over?’ 2 1 Road-building in particular is criticised. It is 'less productive o f further em ploym ent. . . than the m ore diversified plans’ o f the Labour Party.2 T h e second objection to the L iberal plan is summed up under the head­ ing 'm adcap finance’, probably a Snowden inspiration. L loyd G eorge is up to his old games o f borrow ing recklessly as he did during the war and piling up huge debts that w ill burden industry in the future. N o attem pt is m ade to m eet the L iberal argum ent that the loan w ill be self-liquidating.4 Labour apparently proposes to finance its own pro­ posals b y taxation, though once again the section on finance is left vague.3 O n paper, Labour’s 'diversified schem es’ look im pressive. Everything was included — housing, electricity, roads, drainage, land reclam ation, afforestation, agricultural im provem ent, 'com prehensive schem es for restoring prosperity to the cotton and iron and steel trade’, coal national­ isation, a national em ploym ent and developm ent board, a national econom ic council, industrial training and so on. M acD onald’s vision was equally sweeping : Roads will be built as a system, bridges broken and reconstructed, railways reconditioned, drainage carried on, afforestation advanced, coasts protected, 1 The Times, 13 April 1929. 2 How to Conquer Unemployment: Labour’s Reply to Lloyd George, 1929, pp. 5-6. 3 Ibid. p. 12. 5 Ibid. p. 18. 4 Ibid. pp. 9-10.



houses built, emigration dealt with, colonial economic expansion planned and carried o u t.. . . A Labour G overnm ent w ould set up a ‘brain for thinking and acting for an industrial State*, on the lines o f the Com m ittee o f Im perial D efence. A t the present moment the Home Office is an independent Department; the Board of Trade is the same. Your spending Departments spend practically independently o f each other. I say the time has come for us to co-ordinate these by a Committee over which the Prime Minister himself must preside. . . [with] eyes and ears of its own. It will be really the centre of seeing, thinking, and investigation, gathering together information about unemployment and employment.1 E verything was there, but the only definite prom ise was to set up a com m ittee. It was a policy w ithout a tim e-lim it. T h e Liberal M agazine o f A p ril 1929 said: T he mere mention in abstract and general terms o f one or more forms of work . . . does not constitute a policy. A ll these works had not only been thought of but regularly carried out, long before the publication of the various Labour programmes.. . . But what distinguishes the Liberal policy from all previous statements is that it lays down the definite details of the schemes to be under­ taken, with estimates of the cost and the amount o f employment to be provided by them. Im pressive though the L iberal program m e was, it could not restore the fortunes o f the Liberal Party. T h e general election o f 30 M ay 1929 returned to W estm inster 287 L ab ou r M .P .s, 260 Conservatives and 59 L iberals. T h e Conservatives w ith 8,656,000 votes (38 per cent) polled m ost in the country; but the com bined Labour and L iberal percentage im plied a clear repudiation o f the Conservative Governm ent and the policies it had pursued. A fter some hesitation Stanley Baldwin decided not to face the new H ouse o f Com m ons as he had done in 1924, b u t to resign im m ediately. O n 3 June the K in g sent for James Ramsay M acD onald and asked him to form his second adm inistration.


B om in the fishing village o f Lossiem outh in M orayshire, M acD onald w as sixty-tw o years old when he becam e Prim e M inister for a second 1 MacDonald at the Albert Hall (The Times, 29 April 1929).



tim e. O f all m en who have held that office this century, M acD onald is the m ost difficult to understand. T h ere are tw o com m on, contrasting stereotypes o f him : a fraud, whose hollowness was for years obscured b y a glittering façade o f voice, presence and m anner; and a sincere, if not always lucid, Socialist o f great ability and courage, whose integrity was finally underm ined b y the ‘aristocratic embrace*. C ertainly the clue to M acD onald’s im pact on his generation, and on the Labour m ovem ent in particular, lay in w hat m ight be called his ‘star quality*, som ething im possible to analyse, but irresistibly felt. Beatrice W ebb called him the ‘greatest artist o f British politics*; M ary A gnes H am ilton discerned in him a quality ‘distinct from , additional to, achievem ent’, and rem arked that ‘the w hole is m ore than the sum o f its parts*.1 H e struck m any rather as does a great singer or actor, whose voice is im perfect or whose technique is flawed, bu t whose perform ances go on electrifying audiences. E ven those who knew him best debated for years whether this quality was the genuine expression o f personality, or whether it was external and accidental. Beatrice W ebb, in a m alicious phrase, called him 'a m agnificent substitute for a leader*. L ord Francis-W illiam s w rote: ‘T h e m ore one knows o f M acD onald the less one knows him.*2 T h u s M acD onald’s attraction for m any existed independently o f anything he m ight do or say. T h is m ade him , throughout his life, an extrem ely controversial figure, for there was never sufficient tangible evidence for an agreed judgm ent. E ven the great political com m itm ents o f his life were curiously equivocal. D uring the F irst W orld W ar and for three or four years after, when he was execrated for his anti-war stand, he was sustained b y the Independent Labour Party and in return carried them w ith him to the forefront o f national politics in 1922. Y e t neither his anti-war stand nor his relationship w ith the I.L .P . was quite w hat it 1 M . A . Hamilton, J . Ramsay MacDonald (including The Man o f Tomorrow, 1923), 1929, pp. 97,160. Mrs. Hamilton went through three stages in her — often dose— relationship with MacDonald: hero worship, critical admiration and disillusionment, the final one coming after the break of 1931. Her writings, on which I have drawn heavily, offer by far the most perceptive analysis of MacDonald’s character and appeal. The most important are: J . Ramsay MacDonald, 1929; 'J. Ramsay MacDonald: An Atlantic Portrait’, The Atlantic Monthly, February 1938; Remembering M y Good Friends, 1944, pp. 120-30; and U p-H ill A ll the Way, 1954, pp. 56-9. 2 Francis Williams, A Pattern o f Rulers, 1965, p. 97.



appeared on the surface, and though the Clydesiders supported him in his bid for the Labour leadership in 1922 and m any o f them rem ained attached to him personally till his death, long after he had severed his connection w ith the Labour m ovem ent, they always sensed that he m ight betray them .1 Sim ilarly his com m itm ent to constitutionalism , to parliam entary procedure, was offset b y a rom antic utopianism , far rem oved from the unim aginative pragm atism o f those who, for m ost o f his career, w ere his political allies, and contributed, far more than m ost people realise, to the g u lf that was eventually to open up between them . I t was the rom antic strain in M acD onald that m ade him the greatest and m ost inspiring orator in the Labour m ovem ent, that gave to his m eetings that ‘odd special note o f passion* w hich observers noted. H e w as, o f course, helped b y a m agnificent physical presence, and a ‘baritone voice o f rare beauty w ith notes in it as m oving as those o f a violoncello*.12 Y e t he thrilled less b y his affirmations than b y his presence. 'O n the platform his personality, his face, his voice, suggest the heroic aspect o f politics, even when he hesitates to strike that note.*2 W ith all the p u blic equipm ent o f an authoritarian leader, he consistently harnessed dem agogism to the ends o f parliam entary dem ocracy. H is socialism , as one critic unkindly described it, is that far-off Never-Never-Land bom o f vague aspirations and described by him in picturesque generalities. It is a Turner landscape of beautiful colours and glorious indefiniteness. He saw it, not with a telescope, but with a kaleido­ scope.* T h ere is little doubt that in 1929 M acD onald was a Socialisti_butJie was also a conservative. H is socialism was rom antic, a vision o f a better 1 MacDonald’s love-hate relationship with the I.L .P . is one of the most curious episodes in modem British politics. A ll the Clydesiders started off as MacDonald’s men, and in 1923 MacDonald could write, apropos of a Maxton outburst: 'A recent speech by Maxton in Glasgow is really terrible.. . . It is fearful nonsense. And Maxton is such a good fellow.* (Quoted in R. K . Middlemas, The Clydesiders, p. 131). Paradoxically, MacDonald was far more tolerant of I.L .P . dissent than Arthur Henderson, the party manager, who would have brought things to a head much sooner. It is not entirely a coincidence that MacDonald’s own departure from the Labour Party was followed within a year by the departure of the I.L .P . 2 Hamilton, J . Ramsay MacDonald, 1929, p. 102. 3 Ibid. p. 144. * L . Macneill Weir, The Tragedy o f Ramsay MacDonald, 1939, p. xi.



life expressed in term s that inspired his follow ers; but he had too real a sense o f history, too great a respect for convention and constitutional form s, to believe that U topia was w ithin easy reach. W hile his oratorical manner suggested the dram atic, rather than the gradual, arrival o f socialism , in his w ritings it was described as an evolutionary process. T h e spirit o f socialism was a constant adaptation to new conditions, ‘producing new organs when new functions have to be perform ed, substituting new vitalities for spent o n es'.1 It is hardly surprising that his discourse on socialism produced contradictory im pressions. It made the m ilitants and the under-privileged eager for the great day; on the other hand it reassured the anti-socialists that the great day w ould be long postponed, at any rate so long as M acD onald rem ained at the helm . W e can appreciate how M acD onald was able to turn the warring elem ents in his own character — wayward and responsible, rom antic and pragm atic — to telling political advantage and in fact to make them the central paradox o f the Labour Party itself. H e was ‘a peg b u ilt to hang m yths on’.12 H e em bodied both its U topian appeal and the guarantee that it w ould play the parliam entary game. H is ability to hold the ring, b y the appeal o f his own com plex personality, between its revolutionary and constitutional im pulses was probably the biggest factor in preventing the em ergence, in the nineteen-twenties, o f a breakaway revolutionary party on the continental m odel. U ltim ately, o f course, he was on the side o f constitutionalism , but his great achievem ent was to keep the extrem e left inside the Labour Party until it had spent itself as a m ajor political force. W hen the I.L .P . finally disaffiliated in 1932 it was no longer a serious contender for working-class allegiance. A s a man, M acD onald was shy and reserved to a fault. T h e extro­ verted side o f his nature was killed b y the death o f his w ife in 1911. A s he him self w rote, in a rare mom ent o f self-revelation, to M rs. Bruce G lasier in 1914: I feel the mind of the solitary stag growing upon me. M y fireside is desolate. I have no close friend in the world to share either the satisfaction o f success or the disturbance of defeat. So I get driven in upon myself more and more, and I certainly do not improve.3 1 MacDonald, Socialism Critical and Constructive, 1921, p. 1. 2 Williams, A Pattern o f Rulers, p. 68. 3 Quoted in Lord Elton, Life o fJames Ramsay MacDonald, 1939, pp. 238-9.



It was only in public that he could still unburden him self — ‘the plat­ form is his confessional, the crowd his priest*. H is private relationships deteriorated, he becam e secretive, suspicious, aloof. Egon W ertheim er, a Germ an political correspondent, w rote in 1929 that although he was the outstanding figure o f international socialism , in the higher circles o f the Labour Party ‘his personal unpopularity is alm ost unexampled*, the chief com plaints being his inaccessibility, his deliberate isolation from his colleagues, his hyper-sensitivity and his van ity.1 J. H . Thom as, the railwaym en’s leader, alone o f the ‘big five* possessed the g ift o f intim acy necessary to break through his reserve: the rest o f his colleagues M acD onald found rather pedestrian and unsym pathetic, and his rela­ tions w ith them rem ained form al and correct. T h e m ost common exam ples cited o f his vanity were his determ ination not to appear ignorant o f any topic under discussion, w hich m eant that experts who came to b rief him m ore often than not w ent away w ith the sound o f his own diffuse discourse ringing in their ears, and his tendency to disparage achievem ents o f others w hich threatened to dim inish his own pre­ em inence. W hether these traits are properly described as vanity is doubtful: rather they reflect a certain lack o f self-assurance, the tortured suspicions o f a withdrawn m ind. V anity is often the expression o f in­ security and in M acD onald’s case the reasons are not, perhaps, difficult to find. In the opinion o f one com m entator surely in an excellent posi­ tion to ju d ge12 his illegitim acy was the central influence on his life. H is career m ay be regarded as a trium phant struggle to escape from this stigm a; but the price he had to pay was a certain lack o f self-honesty w hich was to prove a great political handicap. H is aloofness from his senior colleagues was particularly resented in view o f the fact that he seem ed to enjoy d ie com pany o f the w ell-bom , both inside and outside the P arty.3 Beatrice W ebb noted in 1930 that the Prim e M inister’s itinerary included visits to the K in g, the M arquess and the M archioness o f Londonderry and the D uke and D uchess o f Sutherland.

1 Wertheimer, Portrait o f the Labour Party, pp. 174-5. 2 His daughter, Mrs. Peterkin, better known as Ishbel MacDonald. 3 Inside the Labour Party among his closest associates were General Thomson and the de la W arn; the Mosleys, too, were frequent companions.



Alas! Alas! Balmoral is inevitable; but why the castles of the wealthiest, most aristocratic, most reactionary and by no means the most intellectual of the Conservative Party?. . . He ought not to be more at home in the castles of the great than in the homes of his followers. It argues a perverted taste and a vanishing faith.1 O ne o f the reasons M acD onald welcom ed the ‘aristocratic embrace* was because it offered him affectionate personal relationships in a w orld whose conventions autom atically excluded both private and political exposure. F or despite his pre-em inence in the politics o f the Labour m ovem ent, M acD onald was not an obsessive politician. Indeed W ert­ heim er found it easier to im agine him in 1929 ‘sitting and dream ing b y his fireside or wandering w ith a knapsack on the moors . . . *.2 N ot only did he love being in the countryside, bu t he was also a patron o f the arts, though it is characteristic o f people’s reaction to him that they always doubted whether his culture was genuine or put on for show. T h u s he enjoyed relaxing w ith those whose background and education had given their lives a non-political dim ension. T h is was, and doubtless is, some­ thing w hich the obsessive politician, who lives and breathes politics the w hole w aking day, finds it difficult to understand or even forgive. L ike m any m en who are forever conscious o f the passage o f tim e, M acD onald was incapable o f organising his own tim e properly. H e found it difficult to delegate responsibility, fearing blunders on every side, w hich was not altogether unjustifiable considering the calibre o f some o f his colleagues and their inexperience o f parliam entary or adm inistrative procedure. T h is is one o f the reasons w hy he doubled the offices o f Prim e M inister and Foreign Secretary in 1924 and w hy he kept ‘A nglo-Am erican relations’ under his own control in 1929. Such com m itm ents overtaxed his energy; in his exhaustion he was liable to serious errors o f judgm ent — as in 1924— and exhaustion undoubtedly contributed cum ulatively to the breakdown o f his health and capacity after 1931. H is favourite form o f escape, w hich becam e a ritual, was to 1 Beatrice Webb Diaries, 5 September 1930. The quotations throughout are taken from the manuscript in the Passfield Papers at the L .S.E . * Wertheimer, Portrait o f the Labour Party, p. 175. Herbert Morrison considered his 'great hindrance was an inability to revel in the atmosphere of Westminster. He once. . . shocked me by saying savagely, “ Herbert, I hate this place!’* ’ (An Autobiography, p. 103.)

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spend the w eek-end w ith his fam ily at his birth-place: the 4.15 from K in g ’s Cross on Friday afternoon carried him overnight to Lossiem outh, w here the peace o f m ind and rest that eluded him in London beckoned and where in the long dark nights o f t h e . . . late autumn and winter. . . [he] would go out silently to the shore or the moors in quest of something which haunts life like a dim vision of a strange beauty or a confused echo of a far-away melody.1 W hat that 'som ething’ was M acD onald never revealed. T h ere was little reason to suppose, in i q 2 q , that the policy and course o f his second administration w ould be vastly different from that o f his first. A s Prim e M inister, his own m ajor preoccupation would continue to be foreign affairs and he w ould be likely to treat every problem as far as possible w ithin an international fram ework. G radualism w ould mark the G overnm ent’s approach, and priorities and achievem ents, as in 1924, w ould be dictated less b y an overall design than b y the initiative, ability and drive shown b y individual M inisters. A rthur H enderson, the Foreign Secretary, and b y 1929 generally regarded as M acD onald's second in command, was the Labour equivalent o f Stanley Baldwin. H e was three years older than M acD onald and like him a Scotsm an, though his fam ily had m oved to N ew castle upon T yn e when he was ten. H e had com e T oKnnr Party, from the trade union side, though he early abandoned union for parliam entaty p olitics, entering the H ouse o f Com m ons in 1903. M acD onald worked closely w ith him for th irty years, yet consistently under-rated him , m istaking his stolidness for stupidity. A rthur Henderson in turn cam e to despise M acD onald as a person, though recognising until the end that he was indispensable as national leader. Henderson had the genius for political relationships w hich M acD onald lacked. H e was in his elem ent w ith the party worker, w hether it be at the N ational Labour C lu b, w here he could often be seen at lunch sitting between the shorthand-typists and burly officials from Transport H ouse, or at the party conferences, where 1 MacDonald, Margaret Ethel MacDonald: A Memoir, 1924, p. 113 . 1 have substituted 'he* for 'she’, for in many passages about his dead wife, MacDonald describes himself as he liked to see himself, e.g. (on the death o f their son) 'Outwardly she was wonderfully calm. But here again, that terrible inability to let the floodgates o f grief loose and throw oneself on die neck of a friend was evident’ (p. 125).



he did m uch to sm ooth M acD onald’s passage and make it possible fo i him to retain the leadership after the fiasco o f 1924. L ike Baldwin, Henderson devoted enormous tim e and attention to taking the pulse o f his Party, so that he always knew w hat it was thinking and how it would react: and this in turn determ ined his own outlook. H is constructive ideas were lim ited to a vague gradualism , his speech-m aking was m ediocre, he w rote nothing. H e was dull, practical, teetotal and deeply religious, w ith all the sterling qualities and lim itations o f his type. A bove all, he was utterly devoted to the Labour m ovem ent, w hich he came to regard as an end in itself. H e was, as his biographer has w ritten, ’the incarnation o f the Party as a P a rty'.1 It is hardly surprising that when the Labour Party recovered from the traum a o f M acD onald’s ’betrayal’ it should com e to venerate a man who was, in m ost ways, his com plete antithesis; and this partly explains the fact that A rthur H enderson’s reputation today stands higher than that o f his m ore brilliant leader. D om inating econom ic policy w a s P h ilip Snowden, Chancellor o f the Exchequer for a second tim e. H e was a product o f working-class Yorkshire w ith the “special brand o f hum our, the special kind o f gritty strength, and the easy equalitarianism proper to the children o f that cou n ty'.12 H e solved the problem o f his early poverty ’by the sim ple process o f reducing his own wants to so rigorous a compass that upon thirty shillings a w e e k . . . he was able t o . . . lead a life o f proud independence’ .3 Borrowing he always regarded as evil. A cycling accident, leading to the inflam m ation o f the spinal cord, crippled him for life in 1891. Thereafter, his thin-lipped, suffering face, his crippled gait and his vituperative invective, w hich barely hid a kind and tender heart, made him , in W ertheim er’s phrase, ’m ore eloquent o f tragedy than any other politician o f the British L e ft’ .4 H is earliest hero was G ladstone; from the L iberal tradition he inherited a hatred o f drink and gam bling; and free trade was in his blood. H is political view s brought him close to M acD onald, bu t he always distrusted his leader's subtle personality and habit o f vague exposition, and tried to replace M acD onald 1 Hamilton, Arthur Henderson, 1938, p. 266. 2 Hamilton, Remembering M y Good Friends, p. 109. 3 W . S. Churchill, Great Contemporaries, 1939, p. 297. 4 Wertheimer, Portrait o f the Labour Party, p. 178.



b y H enderson in .the afterm ath o f 1924. A s he him self lacked any aesthetic taste or real intellectual curiosity, there was little basis for personal contacts between the tw o men. H is biggest handicap in the Labour Party was his w ife E thel, who epitom ised the social clim bing o f Labour ladies. She is reported to have said that she needed no friends in the Party, as she was so intim ate w ith the Royal F am ily.1 S nowden never forgave the I.L .P . for its attacks on her, and after 1922 virtually severed his connection w ith the party o f w hich he had been chairm an, although form ally rem aining a mem ber till 1927. H is narrow, lucid intellect could not abide the w oolly em otional­ ism o f the trade union leaders, so he never worked sym pathetically w ith them either. T h u s b y 1929 he not only lacked a secure power base in the Labour Party but, unlike M acD onald, had no great hold on its affection either. T h e trem endous anger o f the disinherited spoke through him when he was young and m ade him one o f the m ost passionate orators o f the early I.L .P ., bu t later his scorn was m ore often than not turned against w hat he regarded as the facile optim ism o f the left. H is socialism was gradualist: he dismissed M arxism and w rote that ‘extrem ism on Olid side inevitably begets extrem ism on the other . . . if progress is to be perm anent m oral developm ent m ust proceed parallel w ith econom ic change'.2 B ut his strongest political feelings were radical rather than socialist. ‘G ood at figures’ at school, he had early established a reputation as the party’s financial expert, bu t his view s on public finance were G ladstonian in their severity. W hen he becam e Chancellor for the first tim e, as C hurchill rem arks, ‘T h e T reasury m ind and the Snowden m ind em braced each other w ith the fervour o f two long-separated kindred lizards’ .3 H is g ift for clear and orderly exposition, however, hid from the Labour Party the uncreative nature o f his econom ic thought. 'T o every outworn shibboleth o f nineteenth century econom ics'. Boothby- has w ritten, 'he clung w ith fanatic tenacity. Econom y. F ree T rade, G o ld — these were the keynotes o f his political philosophy; and deflation d ie path he trod w ith alm ost ghoulish enthusiasm '.4 1 B. W ebb Diaries, 19 M ay 1930. 2 An Autobiography, ii, 1934, p. 541. 3 Churchill, Great Contemporaries, p. 293. 4 R. Boothby, 1 Fight to Live, 1947, p. 90.



W ith Snowden at the T reasury, the prospect o f a vigorous unem ploy­ m ent policy began to look rather rem ote. Before the election, M acD onald had proposed if Labour won to set up a ‘brain* to deal w ith unem ploy­ m ent, w hich in structure and function w ould resem ble the Com m ittee o f Im perial D efence. H e even seems to have envisaged a M inistry o f Em ploy­ m ent headed b y him self, ju st as C hurchill was later to take on the D efence M inistry. T h e new m inistry failed to m aterialise. Instead J. H . Thom as was appointed L ord P rivy Seal w ith special responsibilities for unem ploy­ m ent, w ith Lansbury, M osley and Johnston to help him . Four M inisters o f greater contrast could scarcely be im agined. 'Jimmy* Thom as was the m ost picturesque figure in the Labour m ovem ent. 'T h is painful bu t disarm ing personality*, as W ertheim er called him , was every capitalist’s reassurance that the Labour Party did not take its socialism too seriously. H e him self was w ont to pay glow ing tributes to a 'constitution that enables an engine-driver o f yesterday to be a M inister o f to-day*. 'H e has created round him*, W ertheim er continues, 'an atm osphere o f vulgar cordiality and a hail-fellow -w ell-m et manner w hich appears to have taken in the w hole o f the B ritish Em pire w ith the exception o f about a dozen Com m unists*.1 N ot w ithout con­ siderable courage — he had stood loyally b y M acD onald during the w ar at the height o f the latter’s unpopularity, though he him self supported the w ar — he had gained a reputation as a skilful and flexible union negotiator. T o ta lly devoid o f constructive ideas, intim ate w ith the C ity and b ig business, the boon com panion o f h alf the H ouse o f Com m ons, the jingoistic upholder o f im perial and national unity, his appointm ent gladdened the conservatives and dism ayed the radicals.12 T h e Cabinet appointm ent o f G eorge Lansbury was M acD onald’s gesture to the left. A s F irst Com m issioner o f W orks, w ith special responsibility for ancient monum ents, he was expected to have plenty o f tim e left over to assist on unem ploym ent. A lready seventy, he had 1 Wertheimer, Portrait o f the Labour Party, pp. 178-9. 2 Lord Birkenhead, speaking at Liverpool on 24 M ay 1929, had remarked: 'There is not a man in the present Labour party, with the possible exception o f M r. J. H. Thomas, whom I would entrust to let out push bicycles.* Beatrice Webb makes the same point another way: ‘If frequently on the booze, he is sound on the sanctity of property and the free initiative o f capitalist enterprise.’ (B. Webb Diaries, 31 M ay 1930.)



always been an inspirational, rather than a practical, Socialist, though he was interested in land settlem ent and in rehabilitating crim inals. Rather strangely, the M orning Post o f 8 June 1929 saw him as 'perhaps the m ost resolute revolutionary in the whole o f the Socialist Party*. A m ore daring appointm ent, to the Chancellorship o f the D u chy o f L ancaster, was that o f the thirty-tw o-year-old M osley. Intelligent, handsom e, hard­ w orking and arrogant, already a hjiiliant public speaker, he had joined the Labour Party in the expectation that it w ould build a land fit for heroes, and he had equipped him self to prom ote that objective by reading K eynes. T h u s he em erged as an opponent o f the gold standard and deflation. T h e hero him self o f a sm all group o f adherents who looked to him to 'do the things o f w hich w e dream*, he was already being talked about as a future party leader. Thom as Johnston, U nder-Secretary o f State for Scotland, was one o f the C lydeside I.L .P . M .P .s, though b y now m oving towards the centre. H e had been a brilliant editor o f the G lasgow newspaper, Forward, the m ost influential left-w ing journal in the country, and had it not been for a blunder in 1923, he w ould have gained office d ie follow ing year.1 H e, like M osley, was regarded as one o f the com ing m en. H erbert M orrison, a M acD onald man, w ent to the M inistry o f T rans­ port. B om in 1888, son o f a Brixton policem an, he becam e an errand boy at fourteen, thereafter rising through local politics to becom e m ayor o f H ackney in 1920 and in the process creating the pow erful London Labour m achine w hich dom inated the L .C .C . for over th irty years. 'Is there not a great future in the Party for the self-sacrificing, sim ple, honest and retiring devotion o f H erbert M orrison?’ asked W ertheim er in 1929.2 Certainly, the handling o f the road construction program m e w ould be an enorm ous test o f the new M inister’s adm inistrative and intellectual capacity. M iss M argaret Bondfield. M inister o f Labour and the first woman ever to obtain Cabinet rank, started w ork as a salesgirl in a ladies* underwear departm ent at Brighton. T yp ical o f a certain class o f spinsters who thronged the w orld o f philanthropy, she records that from 1900 she 'just lived for the T rad e U nion M ovement* w ith a concentration 1 He had refused to withdraw a charge against Asquith when requested to do so by MacDonald (see Middlemas, The Clydesideri, p. 127). 2 Wertheimer, Portrait o f the Labour Party, p. 188.



‘undisturbed by love affairs’.1 H er trade union connection brought her into contact with the W omen’s Industrial Council, and her investiga­ tions on their behalf into the wages and conditions o f women textile operatives converted her to socialism .12*A humourless and somewhat priggish person, with long black skirts and a voice that emitted a harsh cascade o f sound, M iss Bondfield was not a particularly sprightly example o f the emancipated woman. A s M inister o f Labour she would have the management o f the problem o f unemployment insurance, which aroused especially strong emotions in the Labour movement. M uch would depend upon her success in handling the trade unions, a task for which she was deemed to be particularly fitted by virtue o f her membership o f the General Council for much o f the preceding decade. J . R . Clynes. whom M acDonald had replaced as leader in 1922, became Home Secretary. Starting work as a ‘little piecer* at the age of ten, he too had entered politics from the union side. A n elegant speaker and a likeable personality, he remained, in W ertheimer’s words, one o f Labour’s ‘gilt-edged securities’,2 but his value had dropped somewhat and his place in the inner circle was challenged b y W illie Graham, another o f Labour’s Scotsmen, who went to the Board o f Trade, and was w idely regarded as the successor o f Snowden, whom he idolised.45 Like Snowden ‘he possessed an extraordinary gift o f lucid exposition’, and though he spoke at length, it was always without notes. H e was greatly liked, but was not a forceful personality. Arthur Greenwood, the M inister o f Health, had form erly lectured in economics at Leeds U niversity, but made no contribution on this subject to Labour Party thinking, though he wrote a vigorous pamphlet urging the socialisation o f the liquor trade. ^Sidney W ebb, the Colonial and Dom inions Secretary who went to the Lords as Lord Passfield,2 had founded and inspired the Fabian .Society and was one o f the Party’s leading thinkers, but at seventy his 1 Margaret Bondfield, A Life's Work, 1948, p. 36. 2Ibid. p. 45. 2 Wertheimer, Portrait o f the Labour Party, p. 183. Morrison described him as ‘a Trade Union official pure and simple’ (An Autobiography, i960, p. 98). 4 ‘Philip Snowden was Willie’s political ideal. . . [who] commanded from [him] a respect amounting almost to awe’. (Thomas Graham, Willie Graham, p. 199.) Graham’s economic orthodoxy matched Snowden’s ; see above, p. 44. 5 His wife refused to be known as anything but Mrs. Webb.



creative period was over and he looked forward to an early retirem ent. Equally aged was W illie Adamson, twenty-seven years a miner, who went to the Scottish O ffice; while A . V . Alexander began his apprentice­ ship for what was to prove a long career at the Adm iralty. Tom Shaw, a pacifist, went to the W ar Office. M ost o f these men justified Beatrice W ebb's strictures on the quality o f leading party personnel. M ore able, but lacking any firm base in the Labour Party, were the recruits from other parties: Lord Parmoor, almost eighty, who became Lord President; Lord Sankey, the Lord Chancellor; N oel Buxton, M inister o f Agriculture; Lord Thom son, M inister for Air; Sir Charles Trevelyan, M inister o f Education; and W . W edgwood Benn, Secretary o f State for India. N one o f them were to have anything to do w ith unemployment. T h e second Labour Governem ent did not compare unfavourably, in terms o f all-round competence, with many other Governments o f this century. On the other hand it lacked any M inisters o f real intellectual flair, such as Joseph Chamberlain, Lloyd George or Churchill. It was, in short, a Governm ent likely to acquit itself reasonably w ell in normal times, but fail before the sternest challenges. N or were the M inistry's somewhat scanty intellectual resources supplemented by the insights o f Labour and Socialist academics thinking hard about con­ temporary problems. Few parties in any age can boast a K eynes: b u f Ramsay M acDonald did not even have Professor Kaldor or D r. Balogh to advise him. T h e lack o f distinction in the leadership reflected the nature o f the ^ Labour Party at that time. T h e Party had originated as a 'grand allian ce'J between trade unionists and socialists, but the trade union element j always predominated and this is reflected in the composition o f the parliamentary Party in 1929. O f the 287 Labour M .P.s, 40 per cent were sponsored by the unions, 44 per cent by the divisional Labour parties, 13 per cent b y the I.L .P . and 3 per cent by the Co-operative Party.1 O f the 1 14 trade-union-sponsored M .P.s, fifty were miners, by far the largest 1 G . D . H. Cole, A History of the Labour Party from 1914, p. 223. A com­ parison with the 1923 results shows a drop both in union-sponsored Members (from 51 per cent) and in I.L.P.-sponsored Members (from 24 per cent), which reflects the growth of the Party at the expense of its federal parts (ibid. p. 171).



group.1 Y et these figures mask the true extent o f trade union influence, since many o f the divisional parties sponsored manual workers, while hardly any unions sponsored what Beatrice W ebb was wont to call ‘brainworkers’. Against this solid phalanx o f union strength, the opposi­ tion Parties mustered about a hundred lawyers and ninety-six company directors.3 T h e high union percentage was reflected in the low level o f education. J. F . S. Ross has calculated that 72 per cent o f all Labour M embers between 1918 and 1935 had only elementary education, contrasted w ith 4 per cent o f Conservatives and 14 per cent o f Liberals; while only 11 per cent had been to university, contrasted with 69 per cent o f Conserva­ tives and 21 per cent o f Liberals.3 Finally, the preponderance o f trade union officials made both the average age o f entry to the Commons and the average age o f the M .P. considerably higher in the Labour Party than in the other two Parties, and Ross wondered how far ‘the relative elderliness o f the Labour Party in the House is reflected in its policy and its vigour (or lack o f vigour)’ .4 T h e two most distinct sections o f the parliamentary Labour Party were the trade unionists and the I.L .P . M embers. T h e former met regularly as the Trade Union Group to discuss industrial questions. T h eir leading member was Arthur Hayday, M .P. for Nottingham W est, who had been a trimmer and stoker in the merchant service and who in 1930 was to become president o f the T .U .C . W ith one or two exceptions, the parliamentary trade unionists were the second-rankers, the powerful general secretaries, such as Ernest Bevin, preferring to remain outside. Although in theory the I.L .P . group comprised the 142 M .P.s who were members o f the I.L .P . (including M acDonald), in practice the only I.L .P . M .P.S who worked closely together were the dozen or so who accepted the intellectual leadership o f John W heatley and James M axton. These were the Clydesidere, plus one or two others, such as Fenner Brockway, who had captured control o f the I.L .P . machine in the m id-twenties and who advanced the distinctive policy o f Socialism in Our Time. W heatley had been a successful M inister o f Health in the 1924 Government, but his personal reputation was ruined by a lawsuit in 1927 which probably caused his exclusion from the 1929 Government, 1 J. F. S. Ross, Parliamentary Representation, 2nd ed., 1948, p. 61. 2 Ibid. p. 76. 3 Ibid. pp. 45,54. 4 Ibid. p. 27.



while the extraordinary-looking M axton w ith his long black hair and his cadaverous features was the conscience o f the left, highly emotional, unbalanced, but universally loved. Owing to its political extremism the I.L .P . had steadily lost ground within the Labour Party in the nineteentwenties, and the only question in 1929 was whether it would leave the Party altogether. T h e Clydeside caucus was likely to prove an embarrass­ ment to any Labour Government. Education in the ‘school o f life* rather than the universities had many advantages, but also made for great weaknesses. T h e parliamentary debating skill o f the trade unionists was hardly likely to be a match for that o f die lawyers, though it m ight prove more than equal to that o f the company directors, while the formidable talents o f the I.L .P . were as likely as not to be deployed against the Governm ent. T h is meant that the parliamentary oppositions, w ith the skill o f a Lloyd George, Churchill, or Simon at their behest, were likely to trium ph in debate, which would be cum ulatively damaging to ministerial and parliamentary morale. A lack o f administrative experience, mental training and social poise meant that many Labour M inisters were likely to prove less competent and assured in running their departments and establishing their authority over their civil servants than their political opposite numbers, though this m ight to some extent be counteracted by greater reforming zeal.1 1 In 1924 MacDonald had gone quite unashamedly outside the Party to fill important government posts, especially legal ones, for which special qualifica­ tions were required, and although this need did not arise to the same extent in 1929, there were still many ex-Liberals and non-party figures in the 1929 Government. The most spectacular capture was that of Sir William Jowitt who had been elected for Preston as a Liberal in May 1929, accepted the office of Attorney-General in June and got returned that month by the same constituency as Labour Member. The Morning Post commiserated with the Liberals in verse: Oh, Jowitt; I am lost in grief That Ramsay should be gainer — How could you take his proffered brief Who held my own retainer?


I W h e n Labour took office the economic omens seemed favourable. ' Exports for the first five months o f 1929 were up by £Sm on the com­ parable period for 1928; employment which had taken an exceptionally bad turn at the end o f 1928 had recovered in the spring o f 1929 and unemployment figures for M ay and June were lower than in the same months the previous year. There was some prospect that the steady rise in exports from 1926 onwards would be maintained and that pari passu employment would improve. There was as yet little hint o f the sharp fall in the prices o f prim ary products that was to begin in the late autumn. T h e one disturbing factor was the stock-piling o f gold by France and Am erica. But there were signs that France was about to remove some o f her restrictions on foreign lending; while the Federal Reserve Bank m ight be persuaded to call a halt to the speculative boom on the N ew York Exchange. In these circumstances there was a good case for not interfering with the economy, for not taking any action that m ight prejudice the quite hopeful prospects for a trade revival. T h is course was urged on the Governm ent by the leaders o f industry. In their view the two prevailing characteristics o f the British economy were excessive costs and lack o f confidence. Both could be traced back to government interference. T h e Governm ent had raised costs o f produc­ tion by constantly increasing taxation, largely to pay for such social services as unemployment insurance, pensions etc. W hat industry required from the Governm ent was ‘a definite pronouncement that enterprise w ill not be subjected to new anxieties and handicaps by additional legislative enactments'. In particular this meant ‘a holiday from social legislation*.



B ut the Governm ent were not alone to blame. T h e trade unions had increased costs by their closed shop policy and resistance to wage reductions. Business would look to a Labour Governm ent ‘to obtain from the T .U .C . an announcement that their contribution to the new effort would be a declaration o f greater flexibility in labour practice*. In return employers m ight be able to offer ‘a truce in wage rate reductions for the next eighteen months*. A s part o f the stabilisation o f trade unionem ployer relations the Governm ent should make no attempt to change the 1927 Trade Disputes A ct. Finally, manufacturers wanted an assurance that there would be no tam pering w ith the existing Safeguarding D uties.1 T h e C ity, as we have seen, was curiously insensitive to the problems o f industry, being m ainly concerned w ith the international position. But its conclusions were the same. Financial rectitude was essential to maintain confidence in the pound, upon which the C ity’s own prosperity largely depended. In this task the Governm ent’s own attitude was o f the greatest importance. A n y tendency to toy w ith unsound expedients such as raising a huge loan for development purposes would seriously under­ mine international confidence. T h is was especially true, it was held, if the offending Governm ent were a Labour one. W e have already seen w hy the Labour Party was in no position to offer a serious challenge to these views. Socialist analysis provided no short term alternative; but adherence to socialism precluded the con­ sideration o f radical non-socialist analysis o f the Liberal Yellow Book type. Snowden’s personal ascendancy in matters o f finance was also o f paramount importance. T o him socialism was a luxury that had to be financed out o f revenue — like roads and other public utilities. I f the revenue were not available there could be no socialism. T h is was the case for minimum interference. But there was a strong case to be made in die opposite direction. B y 1929 there was litde prospect that the basic industries would recapture their form er markets. T h e rationalisa­ tion o f old, and the development o f new, industries required capital and confidence. But money was dear and confidence was low after the years o f bad trade. A gap had developed between the rate o f interest at which 1 Memorandum to the Prime Minister by the Council of the Federation of British Industries, Autumn 1929 (MacDonald Papers, Unemployment File 8).


people were prepared to lend and the rate o f interest at which in­ dustry was prepared to borrow. There was at least a case for arguing that the Governm ent should bridge that gap by raising a development loan. There was a further point. T h e free market o f the classical economist no longer existed. There was no wage flexibility, no free trade; taxation was increasing to support a welfare state. T h e retreat from laissez-faire m ight be regretted, but it could not be reversed. T h e important point was to recognise that with its disappearance many o f the objections to govern­ ment interference disappeared likewise. T h e other two Parties to some extent accepted this. T h e Liberals realised that the classical precepts no longer applied to the home market but they insisted on their application to the international market. T h e Conservatives realised that they no longer applied to the international market but insisted on applying them to the home market. Here political pressures and traditions pulled the Parties in opposing directions. Industry wanted protection against foreign competition but non­ interference at home: the Conservative Party was prevented only by electoral considerations from adopting this doctrine in all its rigour. Free trade, on the other hand, was almost the only thing that held the Liberal Party together: it was politically impossible even for the flexible Lloyd George to renounce it. T hus Labour m ight get Liberal support in pursuing an ambitious policy o f home development, but not if that meant interfering with foreign trade. It m ight get Conservative support for an extension o f safeguarding or an all-round tariff, but not if this were for the purpose o f starting an active policy o f home development. Faced with a number o f choices, all o f them involving some risk, a m inority Labour Governm ent compromised. In retrospect, it can be seen that it decided to follow Conservative policy w ith two main modifications. Conservative unemployment policy had been based on non-interference at home plus international action to revive the export trades, im plied by the return to the gold standard and lukewarm efforts to secure tariff reductions. T h is internationalism was common to all Parties and stemmed from the belief that the difficulties o f the export industries were caused by the war. On the domestic front, the Labour Governm ent decided, without challenging the basic Conservative view that industry must work out its own salvation, to step up the volume o f



public works, out o f deference to Liberal pressure and its own desire to ‘do something* for the unemployed. It determined to give the ‘inter­ national’ approach more coherent form by reversing those ‘nationalistic’ aspects o f Conservative policy which appeared to threaten it — safe­ guarding, gunboat diplomacy and antagonism to the League o f Nations. jThis meant more vigorous efforts to secure tariff reductions, pacifica­ tion, and universal disarmament; for it was the great nineteenthcentury Liberal premise that political tranquillity and trade went to­ gether. However, it would be quite wrong to suggest that this policy was ‘worked out beforehand’ or even that any real effort was made to estimate its chances o f success. T h e Governm ent merely stepped into the groove vacated by its predecessor and made the minimum adjustments com­ patible with its own traditions, the interests o f its leaders and the political position. N or was it apparent for quite a long time, even to M inisters, what the Governm ent's intentions were, for such declarations o f intent as were handed down were coloured by the need to allay the apprehen­ sions or satisfy the expectations o f different groups. T hus to business representatives the non-interventionist aspect o f the policy would be stressed; while Labour supporters and Liberals were given to under­ stand that small beginnings presaged more impressive developments in the future. Underlying everything was muddle and confusion.


T h e K in g’s Speech o f 3 July 1929 promised schemes ‘for the improve­ ment o f the means o f transport, for the stimulation o f the depressed export trades, for the economic development o f M y Overseas Depen­ dencies, for the improvement o f the condition o f agriculture, for the encouragement o f the fishing industry, and for the improvement o f the facilities for the marketing o f farm and fishery products'. Increased emigration was ‘being considered’ . Commissions o f Enquiry were to look into the cotton and the iron and steel industries. T h e reorganisation o f the coal industry was ‘under consideration’. Unemployment insurance was to be the subject o f ‘a general survey*.1 T h e general design was clear enough. Everything was to be surveyed, 1 229 H.C. Deb. c. 48-9.



w ith the aim o f making every branch o f industry, especially those connected with exports, a little more efficient: how, it was not made dear. M eanwhile, the Governm ent would maintain the unemployed as decently as possible. T h is was the general framework. W ithin the framework was a small area o f specific unemployment policy, barely mentioned in the speech (‘improvement o f the means o f transport*), which was to be a direct government responsibility under the supervision o f J. H . Thom as, Lord Privy Seal. Thom as outlined his attitude in the debate o f the Address (3 July 1929): 'I never hesitated to point out*, he declared, ‘that, in my judgment, the real and ultimate solution of the [unemployment] problem could never be separated

from the trade, commerce and industry of the country.*1 Nevertheless, there was something the Governm ent could do : I said to myself, first of all: ‘There is to be no consideration of schemes that merely mean spending money without regard either to consequences or benefit to the community.* Anyone can spend money. There is a large number of people who construe work as filling a barrow and then emptying it. I do not forget, and I do not intend to forget, that there is no bottomless pit from which money can be drawn. I will not forget that fact. But, on the other side, anyone who knows the feeling in the country and who knows the démoralisa* tion. . . of our people will realise that to do nothing on that side is equally dangerous. M y difficulty as between these two extremes is to look at schemes . . . that will not only give work to the unemployed, but will also stimulate trade at home and abroad and add, in the end, to the economic equipment of the country.2 Here then we have the justification, in Thomas*s characteristic language, for the ‘enclave* o f government-assisted schemes that had become an accepted part o f government policy. H is speech marked an advance on the rather negative policy o f the Conservative Governm ent, but it fell disappointingly short o f Liberal aspirations. In one respect in particular its approach was identical with that o f the Conservatives. T h e Governm ent would undertake no work directly, but lim it itself to offering terms, leaving it to the authorities concerned to take up the offer or not as they chose. 1 229 H.C. Deb. c. 91.

2 229 H.C. Deb. c. 93.



T h is principle underlined the three definite promises that Thom as made. First, he announced that the Governm ent had sanctioned in principle a five-year programme o f trunk and classified roads up to ^ 37l m* Secondly, he promised to ask Parliament for power to guarantee, up to 3625m, loans raised by public utilities; or alternatively for power to pay interest charges on such loans. T hirdly, he announced that in the Budget each year there would be set aside £ im to be used to pay interest charges for a lim ited period on loans raised for colonial developm ent.1 T h e remainder o f Thom as’s speech produced a crop o f small ideas thrown out for consideration, some o f which were followed up, others not. Perhaps railway carriages and wagons and telegraph poles m ight be built o f British steel instead o f imported tim ber; Charing Cross and W aterloo bridges m ight be widened and rebuilt; Liverpool Street m ight be electrified, traffic congestion in London m ight be m et by getting goods carried round the periphery in special tube goods trains; there m ight be a tube extension from Finsbury Park; it m ight be possible to encourage industries to move into the depressed areas. T h e Govern­ m ent would try to introduce more elasticity into the Unemployment Grants Com mittee. Finally Thom as undertook to appoint a committee to consider ‘the hundred and one factors’ connected with the problem o f removing juveniles and the aged from the labour market.12 T h is was Thom as’s potpourri : the framework in which his department would work and from which it would not depart. A ctive government ‘unemployment policy’ in the next nine or ten months consisted o f exploring, accepting or rejecting, and carrying out the ideas and pro­ posals advanced in this speech. There was nothing else — except the Lord Privy Seal’s trip to Canada.3 1 The last two promises were given legislative effect in the ‘Home Develop­ ment’ and Colonial Development Acts, both introduced on 15 July 1929 and passed before Parliament broke up for the summer. The essential feature of the first was that it made it easier for the railway and electricity companies to borrow money; a treasury advisory committee known as the Duckham Committee was set up to vet schemes. The second was intended to make it easier for colonial governments to start schemes, such as the Zambezi Bridge scheme, which, in a roundabout way, were expected to stimulate employment at home. 2 For the speech as a whole see 229 H.C. Deb. c. 91-110. 3 See below, p. 101.



N or in that period did the Governm ent's overall view change in the least. In July Thom as told the House that the only ultim ate solution to unemployment lay in more trade. In Novem ber he was pinning his hopes on the 'developm ent o f our export trade’.1 In M arch 1930 he was writing that, valuable though the work o f his department m ight be, 'it is to the increased provision o f ordinary industrial employment through the revival o f our trade and industry that the Governm ent attach primary im portance'.12 There was no hint that the work o f his depart­ ment m ight contribute to that happy outcome. / T h e Labour Party had promised the unemployed higher rates o f * benefit obtainable on easier conditions. T h e K in g’s Speech, however, I had promised m erely 'a general survey’ . It is perhaps hardly surprising that the Governm ent's first proposal on unemployment insurance — the first o f many — fulfilled no pledges. M iss Bondfield, introducing it on 11 July 1929, described it as a 'stop-gap motion to enable us to tide over the present emergency in regard to the financial position o f the fund'.2 T h e fund had, by June 1929, borrowed £36^01 o f the ,£40111 it was allowed, and there was clearly a risk that its borrowing powers would be exhausted during the summer. Either its borrowing powers or its income could be increased. T h e Governm ent chose to do the latter, but rather than increase contributions from employers and employees, it sim ply increased the Treasury’s contribution by £3^10, thus raising the fund’s income from £43111 to £46^01 and at the same tim e destroying the 'equal thirds' principle upon which the fund had rested. T h e I.L .P . was extrem ely critical. There was not a word o f hope in the . B ill for the unemployed, said Cam pbell Stephen. It was sim ply a matter o f book-keeping. W hat about the 'not genuinely seeking work' clause and the increased benefits?4 M iss Bondfield appointed, on 25 July, a small committee under Sir Harold M orris, K .C ., to consider the form er; she would make no promises at all about the latter. T h e first debate on unemployment insurance set a pattern which was to recur through­ out the Governm ent's lifetim e — M inisters worried about the finances o f the fund ; backbenchers worried about the finances o f the un­ employed. 1 231 H.C. Deb. c. 670. 2 229 H.C. Deb. c. 1127.

2 Cmd. 3519. 4 Ibid. c. 1123-6.

Stanley Baldwin 'M r. Baldwin has invented the formidable argument that you must not do anything because it w ill mean that you w ill not be able to do anything (J . M . Keynes)

David Lloyd George 'If only Ll.G . had preserved himself as a N ational man o f emergency *(J. L. Garvin)






»3 THE





M acDonald’s opening statement in the debate on the K in g’s Speech was to give rise later to many conflicting interpretations o f his motives. Baldwin, for the Opposition, had taunted the new Governm ent with the charge that the Speech could be summed up in the sentence ‘M y M inisters are going to think’ . T h e Prim e M inister accepted this without embarrassment and appealed for help in the thinking process from all sections o f the House in words that have often been quoted: I wonder how far it is possible, without in any way abandoning any of our party positions, without in any way surrendering any item of our party principles, to consider ourselves more as a Council of State and less as arrayed regiments facing each other in battle. . . so that by putting our ideas into a common pool we can bring out from that common pool legislation and ad­ ministration that will be of substantial benefit for the nation as a whole.1 Bassett has effectively dealt with the charge that M acDonald was already plotting a National Governm ent.2 But in disposing o f this sinister interpretation he falls into an opposite error. He writes: ‘M acD onald’s plea in 1929 was sim ply one that the more serious problems o f the day should not be discussed in a partisan spirit’, and elsewhere: ‘ a m inority governm ent. . . dependent upon the support o f another party or other parties for its necessary m ajority in the House o f Commons, is bound, if it is to endure, to enter into some form o f collaboration, som e kind o f informal coalition’ . T h is is undoubtedly true. Nevertheless, if M acDonald’s words were not sinister, they were certainly weak. It is true that the Governm ent had to establish some minimum form o f collaboration with one o f the other Parties: but there was no need to offer to do so with both at the same time, especially as a Labour Govern­ m ent’s natural ally in these circumstances would seemingly be the Liberals rather than the Conservatives. Further, to expect a coherent policy on unemployment — or anything else — to emerge from a ‘ pooling* o f Labour, Liberal and Conservative ideas was naive to say the least. By offering to pay as much attention to Conservative as to Liberal 1 229 H.C. Deb. c. 64-5. * R. Bassett, 1931: Political Crisit, 1958, pp. 40 and 417.



views on unemployment, M acDonald was deliberately spurning the opportunity created by a ‘progressive’ m ajority. It should be noticed that it was the Labour Governm ent that rejected the support o f the Liberals, not the Liberals who refused to support the Government. Lloyd George had made his position clear in a speech to the National Liberal Club on 13 June: If the [Government] tackle the [unemployment] problem prompdy, boldly, energetically and wisely they will have no more hearty and steady supporters than the Liberal Party. We shall be prepared to afford them every support in securing the necessary power to avoid delay and to overcome refractory and selfish interests.1 Here was an unequivocal offer o f support for a bold unemployment policy. W hy did the Govprni^riFnfit talceiFnpT First, there is little doubt that important members o f the Governm ent thought the Liberal policy far too radical. Snowden had attackecTits ‘madcap finance*. It proposed toTaise a large sum by borrowing. T o Snowden all government borrowing was evil: improvements had to come out o f revenue. Taxation to raise £ ioom was out o f the question. T h at was the end o f the Liberal plan as far as he was concerned. Even if these overwhelming grounds for rejection were not considered sufficient, had not the civil servants pronounced the whole scheme impracticable? T hus the Liberal plan itself offered no satisfactory basis for co-opera­ tion between the two Parties. N or was any other basis easy to find. T h e Liberals were sure to demand their price for keeping the Governm ent in power — electoral reform. T h e bulk o f the Labour Party were opposed 1 Daily Telegraph, 14 June 1929. Lloyd George was, of course, aware of the dangers of this stand. In a letter to C. P. Scott, editor of the Manchester Guardian, written on 30 April, before the election, he declared: An agreed programme would not save the situation if the Socialists make a mess of the jo b .. . . The consequence would be that the discredit would fall more hardly on the Liberals than the Socialists. They would always have a solid trade union vote to fall back o n .. . . On the other hand, if you can convince me of the possibilities of the Socialists doing the job well, the young men of our Party would leave us and join the Party which was carrying through a Liberal programme successfully. Either way the Liberal Party would be done for. (Quoted in Frank Owen, TempestuousJourney, 1954, p. 710.)



to proportional representation and extrem ely dubious about the alter­ native vote. M acD onald's views appeared to vary with the results o f particular general elections; but after 1929 there appeared to be no com pelling reason for upsetting the existing electoral system. T hus the Governm ent were not prepared to promise electoral reform, though they were prepared to set up a com m ittee.1 In the Labour Party there was a massive m istrust o f Lloyd George. Labour supporters recalled the string o f broken promises that marked his premiership, o f which the one that rankled most was his treatment o f the Sankey Report on coal mines. Labour M em bers felt that his unemployment programme was ju st a 'stunt' in a desperate effort to regain power. H e was regarded as tricky, unprincipled and unreliable— the last person upon whom one wanted to depend. Finally, there was always the nagging question: could Lloyd George deliver the Liberal vote? A number o f prominent Liberals, in and out o f Parliament, were by no means committed to his leadership, though they had campaigned under him for party unity. T h ey would look for the earliest opportunity to break away. Others, though prepared to accept him as leader, disliked his programme and were anxious once the election was over to tone it down.12 T h e old divisions between Asquithians and Lloyd Georgians, conservatives and radicals, continued to threaten Liberal unity. In the last analysis, though, had the Governm ent really wished to carry out a bold unemployment policy it would have turned to the Liberals despite Lloyd George. I f the Liberals refused to support it in carrying out their own policy, M acDonald could have appealed to the country at any time in the first six months o f Labour Governm ent w ith good prospects o f winning an absolute m ajority. But it would scarcely have come to that, for the Liberals could not afford another early elec­ tion, especially on such an unfavourable issue. It was lack o f belief, not lack o f a majority, that determined the initial unemployment decisions taken by the Labour Government. 1 Known as the Ullswater Committee; promised on 10 July 1929, finally set up in December. See D . E. Butler, The Electoral System in Britain, 1918I 951 * *953»PP* 2 Thus, by 15 July, the pledge ‘we can conquer unemployment’ had, in the eyes of Sir Herbert Samuel, become a 'tentative suggestion’ (230 H.C. Deb. c. 485).



One o f the paradoxes o f the position was that the left wing supported M acDonald in his refusal to enter into any combination or informal understanding with the Liberals. T o them such collaboration would have meant a betrayal o f socialism ; whereas in fact it offered them the best chance o f getting the kind o f unemployment policy they wanted. In being resolute for socialism the left were unwittingly condoning the M acDonald-Snowden retreat from the spirit o f Labour’s policy. Thom as's speech, to which we have referred, bore more resemblance to the speeches o f the previous Conservative M inister o f Labour, Sir Arthur Steel-M aitland, than to the Liberal Yellow Book. It was hardly surprising that it received a warm welcome from the C onservative! Churchill, replying for the Opposition, said that he~?ound Thom as’s proposals so sensible, attractive and moderate that he could not see any serious differences about them arising between the Governm ent and the Conservative Party. T h e real difference, as Churchill rightly pointed out, was between the Governm ent's proposals and the ‘very expensive and audacious plans’ o f Lloyd George which he commended Thom as for rejecting.1 Other Conservatives spoke in similar vein. T h e Conservative Press joined in the chorus o f approbation. In particular the D aily Telegraph noted that Thom as happily combined the 'instincts o f the capitalist’ with the 'sedulously cultivated idiom o f one o f the proletariat’ and made great play with the disappointment o f the left — ‘jam yesterday and jam tomorrow, but never jam today’ . T h e D aily Express, always optim istic, thought that Thom as's plans 'constitute a great trium ph for the policy advocated by the D aily Express*.2 T h e Liberals were not so pleased. L loyd George said he was dis­ appointed with Thom as, especially since his speech seemed to meet 'w ith the wholehearted approval o f the late Chancellor o f the Exchequer*. He hoped it would not be the Governm ent's last word on unemploy­ ment policy. Labour comment was far from enthusiastic, but there was a general willingness to accept Thom as’s programme as a first instalment ; James Sexton, for instance, said he would accept it as a beginning 'w hile, O liver Tw ist-like, demanding more’. T h is interpretation was fostered by M inisters. M acDonald, speaking at Durham on 7 July, admitted that there had been things left out o f the K in g's Speech but went on: 1 229H.C. Deb. c. 112. 2 3 July 1929.



I did not ask you to give me power for three weeks. I said give me power for five years.. . . You turned out the old Government but you have no idea of the old furniture and rotting wall-paper. . . that they have left behind.1 T h e D aily H erald made a reference to the lack o f a parliamentary majority.* T h e I.L .P . was more critical. M axton said ‘frankly, I should be dishonest. . . if I did not express very plainly m y complete dissatisfac­ tion with the K in g’s Speech, and the speech o f the Right Hon. G entle­ man the Lord Privy Seal*;3 but a more telling attack on the polity o f ‘instalments* came from the one first-class mind on the left, John W heatley. This is the day of the Government's power. To-day the Government could do anything. To-day the Government are not showing the courage that their supporters on these benches expect. If they displayed that courage and went on with their own policy, the parties opposite would not dare to wound them, however willing they might be to strike; but, after the Government have disappointed their friends, by 12 months of this halting, half-way legislation, as one of my friends described it, and have been discredited in the country, then, 12 months from now, there will be no party in this House poor enough to do them honour.4 T h e New Leader on 12 July summarised the I.L .P . position on unem­ ployment: This scheme here and that credit facility there will improve things, but some­ how this one simple truth has got to be borne in mind (and stated) — that unemployment is a by-product of capitalism and you can't solve it, or even appreciably lessen it, within that system. So far we have been discussing what m ight be termed orthodox party reactions to the Governm ent’s policy. But there were hints in this early period o f a new approach to unemployment which cut right across party and established doctrine, whether o f the right or the left. T h is approach emphasised that unemployment was basically caused by the lack o f demand. Boothby, a young Conservative M .P. for East Aberdeenshire, 1 Manchester Guardian, 8 July 1929. * 5 July 1929. 3 229 H .C. Deb. c. 164. 4 230 H.C. Deb. c. 98. Wheatley was protesting against the Government’s decision not to restore in full the housing subsidy of 1924, cut by Neville Chamberlain in 1927.



argued that deflation prevented any possibility o f a trade revival. W . J. Brown, secretary o f the C ivil Service Clerical Association, and Labour M .P . for W est W olverhampton, launched a strong attack on the ‘treasury view* and advocated an embargo on foreign lending to make available more money for home investment. Both proclaimed irrelevant the old controversy between free trade and protection; the ideas o f both bore the strong im print o f Keynes. Boothby was a close friend o f M osley, with whom he had spent a summer in Venice when the latter was working on Revolution by Reason, a book sim ilarly influenced by Keynesian thinking.


the House o f Commons has ceased to meet*, said the Prime M inister in July 1929, ‘then we have got a free field for work and I want that free field.* T h e ‘work* M acDonald had in mind was work to further his grand design for reducing political tension in the world and even­ tually stim ulating employment at home. He him self spent the summer immersed in foreign affairs. A t Lossiem outh he conferred with General Dawes on naval disarmament; early in Septem ber he was addressing the Assem bly o f the League o f Nations at Geneva; on 12 September it was announced that he would visit Am erica for a month to discuss naval disarmament w ith President H oover; he left for Am erica on 28 Sep­ tember. Unfortunately this programme o f pacification was rudely upset by his own Chancellor's heavy touch in dealing w ith the French. Snowden considered the French were doing too well out o f reparation payments, at the British expense. So he went over to the Hague to claim an increase in the British share, sat there im placably for a month refusing to compromise, almost wrecked the conference by his rudeness, earned the plaudits o f the British press, and received a hero's welcome on his return to London.1 M eanwhile, Henderson preached disarmament at Geneva, while Graham expounded there his plan for tariff reductions,* ‘W


1 The Hague conference met to consider the Young Report which had scaled down the annual German reparation payments from ,6125m to £ioom. It had also scaled down Britain's share by £2,400,000 — from £22,800,000 to £20,400,000 — and had limited her share of the ‘unconditional* annual pay­ ments to £im , France benefiting in both cases. Snowden insisted on restoring the cut of £2400,000 and also wanted £6m a year instead of £im . * See below, p. 150.



and Thom as spent nearly six weeks in Canada. It is hardly surprising that at the Liberal Party Conference in October, Sir Charles Hobhouse described the Governm ent as a subsidiary o f Cook’s T ourist A gency.1 In the specific area o f unemployment policy assigned to Thom as’s organisation, the Retirement Pensions Committee worked steadily throughout the summer : but that was all the thinking or planning which took place. T h e remainder o f Thom as’s programme called for non­ government initiatives. T h e Governm ent had announced conditions and terms for loans and grants; there was nothing to do except encourage applications and wait for them to come in. T h e M orris Committee, appointed by M iss Bondfield, M inister o f Labour, investigated changes in the administration o f unemployment insurance, and on the wider front o f domestic policy, Graham’s Cabinet committee on coal mines negotiated w ith the miners and owners for a Coal B ill. Reactions to the Governm ent’s unemployment policy over the summer recess followed the lines established in July. T h e I.L .P . was critical and became increasingly so. A t its summer school at D igsw ell Park, M axton asked: 'H as any human being benefited by the fact that there has been a Labour Governm ent in office in the last two months? I can think o f nobody except two murderers who were reprieved.’12 I.L .P . comment J urged the Governm ent to concentrate on increasing mass purchasing power rather than exports. T h e Liberal Party was also critical. A t the Party Conference in October, Samuel said that Thom as had not risen to the level o f his great task. Nathan argued that after four months the Governm ent had not produced a single new idea. Thom as had joined the Governm ent with an inflated reputation as an astute negotiator; he J seemed likely to leave it as a pricked balloon.3 T h e Conservatives continued to express approval, though in language that must have jarred on Labour supporters. Baldwin noted w ith satisfaction on 27 September that the Governm ent had found it impossible to introduce any schemes that had not been devised by previous Governm ents.4 In the Labour Party there was a general reluctance to pass censure and 1 The National Liberal Federation, Report on the 46th Annual Meeting, 2-4 October 1929, p. 5. 2 Morning Post, 5 August 1929. 3 Liberal Conference Report, 1929, pp. 10,26-7. 4 Gleanings and Memoranda, June-December 1929, p. 408.



instead an urge to take pride in the Governm ent’s positive achievements, especially in foreign affairs. A t the T .U .C . Conference in Belfast general enthusiasm was expressed for Snowden’s stand at the Hague and there was little discussion o f unemployment, though fears were expressed about rationalisation.1 A t Labour's annual conference at Brighton, Thom as added Canada to his House o f Commons m ixture o f July, but the m ixture remained unimpressive. Even so, there was no criticism , except from W heatley, a few questions only from Bevin and others.1 O n the whole, the Labour Party was prepared to suspend judgem ent and wait for the further official statement o f government policy scheduled for the House o f Commons in November.


T h e Unemployment Com mittee, consisting o f Thom as, Lansbury, M osley and Johnston, got off to an uncertain start, typifying the lack o f preparation and unsureness o f aim that characterised the Governm ent’s domestic unemployment policy. N o one appeared to know whether or not Johnston was a member o f the Committee, least o f all Johnston himself. A s late as October he was w riting to Lansbury: I'm not sure whether I have any right upon that committee [Thomas’s Committee], or whether I only form part of an interested audience. Adamson [Secretary of State for Scotland] pleads with me to attend, or I should have gone long ago.3 T h e four M inisters formed what was known as ’Thom as’s Com mittee’ . But it was hardly a committee in the proper sense. It had no precise function or terms o f reference. Thom as, as Lord Privy Seal, had a personal function — to co-ordinate unemployment policy — and his office was given an extra complement o f civil servants to help him to do this. But the three other M inisters were not an integral part o f this organisation. Rather they were thought o f as being available to assist Thom as on specific problems — working out a particular p olity, 1 T.U .C . Annual Report, 1929, p. 424. 1 Labour Party Annual Report, October 1929, pp. 176-87. 3 Lansbury Papers, 19^.193.



receiving deputations, or speaking for the Governm ent on unemploy­ ment questions in the House o f Commons. W inston Churchill described M osley as 'a sort o f ginger assistant to the Lord Privy Seal and more ginger than assistant, I have no doubt’. Thom as him self was given no executive authority: his department could not set a single man to work. His task was to co-ordinate the existing instruments o f executive authority. H e was supposed to ‘ginger up’ the departments — to press them to subm it schemes with an em ploy­ m ent content in them to the Cabinet. Likew ise his department was responsible for what non-departmental unemployment policy there was. For example, it was he who piloted the 'Hom e Development* A ct, granting assistance to public utilities, through the Commons in July. Local authorities came to him to inquire about the conditions under which they m ight receive grants from the Unemployment Grants Committee. Y e t even in these fields responsibility remained divided. Thom as’s department m ight have inspired the Home Developm ent A ct, but the Treasury administered it. T h e U .G .C . was placed under the direction o f the M inistry o f Labour. Finally, road building did not come directly under Thom as’s purview, being administered by the M inistry o f Trans­ port. T hus Thom as’s task was to know what was happening everywhere and to try to fashion some semblance o f order amid conflicting and often competing departmental activities. T o help him in this undertaking he was able to make use o f two sets o f civil servants. First he took over from the M inistry o f Labour a group o f civil servants who had been concerned there with the work o f the Unemployment Grants Committee. These civil servants formed the Lord Privy Seal’s secretariat and were there to cope with the expanded work o f his department. T h ey were headed by Sir Horace W ilson, who became Thom as’s chief o f staff. T h ey were not, however, automatically at the disposal o f the three advisory M inisters. Secondly, Thom as formed an inter-departmental committee on unemployment, consisting o f the permanent heads o f the various departments meeting once a month under his chairmanship. T h e main purpose o f this body was to spread information about unemployment activities in each department and to co-ordinate and order work. It was never designed to have any policy-m aking or executive capacity, as the



political chiefs were absent from its meetings. T h e advisory M inisters were not members. In addition, there were a number o f ad hoc committees which operated at various stages in the lifetim e o f Thom as’s organisation. T h e Com mittee on Retirement Pensions was one; for it, Thom as made use o f the three advisory M inisters and it was served by his own staff. A Com mittee on National Schemes was set up in Novem ber. T h is was the form al structure. T h e practice, o f course, was much more informal. Thom as m et whom he liked and when he liked. T h e composition o f meetings and consultations varied with the needs o f the moment. T h e only person who made him self indispensable was Sir Horace W ilson: he was always present whatever the occasion. For the rest Thom as m et local authority and trade union deputations, consulted groups o f businessmen and financiers, sometimes with M osley, more often without him. His personal activities ranged far and wide. H e appropriated with relish the task o f cheering up people, especially the business community, and he stumped the country making optim istic speeches. H is trip to Canada was a personal venture and had no real relation to the work o f his organisation, though he thought it m ight have some relation to unemployment. W hy did the organisation set up fall so far short o f M acDonald’s J A lbert H all conception? T h e main reason was that government unem-1 ployment policy created no need for a new economic organisation. For a long time it pinned its hopes on a revival o f ordinary business activity. Hence there was no need for an ’economic general staff’ or any other institutional innovations. Nevertheless, it became obvious in the autumn that the unem ploy- V ment machinery was not working well. Considerable friction began to develop between Thom as and his advisory M inisters. Part o f the trouble was institutional: the M inisters were not properly integrated into the unemployment organisation, and within the organisation itself there was not sufficient provision for co-ordinating the various aspects o f policy. Part o f it stemmed from policy differences. Part o f it was temperamental. Human ingenuity can often find a way o f overcoming formal defects in structure: but between Thom as and the advisory M inisters there soon developed such a ladt o f rapport as to bring to an end effective co­ operation.



A s early as 28 July Beatrice W ebb was receiving complaints from L ord Arnold, the Paym aster-General, who is in a great state of discontent with J. H. Thomas's incapacity as organiser of Employment. Oswald Mosley and Lansbuiy, his lieutenants, report that Thomas does not see them; but he is in the hands of that arch reactionary, Horace W ilson. . . whom he calls ‘Orace’ and obeys implicitly. That he refuses to sit down and study the plans proposed and therefore cannot champ­ ion them in the House. That he gets 'rattled' and when not under the influence of drink or flattery, is in an abject state of panic about his job. Arnold suggests a Governorship in Australia.1 Thom as's trip to Canada in the summer12 did not improve matters. T h e advisory M inisters regarded it as a joy-ride which would accomplish nothing, an impression which was confirmed on his return. N or was Thom as impressive as an executive. Committees which had been set up went for months without meeting, and when they did meet the results were often farcical.2 Thom as gave no help or encouragement to the Retirement Pensions Com m ittee; he rarely saw the advisory M inisters; memoranda went unread or unacknowledged. By 25 October Lansbury was complaining to M osley : I am really in despair about the whole business of unemployment. We all seem to be working in such an unco-ordinated way, and although the Privy Seal is looked upon as the co-ordinating authority, I really do not see it operating.4 O n 2 Novem ber M osley had luncheon w ith Beatrice W ebb. N ot surprisingly she found him ‘contemptuous o f Thom as's incapacity’. She herself noted perceptively that ‘there is nothing wrong with the poor man except that there is nothing in him’. Thom as's failure to produce any ‘second instalment' o f unemploy­ ment policy in the autumn exposed him to a severe attack from his own Party and the Liberals; he could not have been unaware o f the opinions o f his advisory M inisters. These pressures threatened to produce com­ plete physical and mental collapse. Arthur Henderson, the Foreign Secretary, told Beatrice W ebb that 1 B. Webb Diaries, 28 July 1929. 2 See below, p. 101. 2 See T . Johnston, Memories, 1952, pp. 105 ff. 4 Lansbury Papers, 19.ri.177.



he is most concerned about Thomas, who is completely rattled and in such a state of panic, that he is bordering on lunacy.. . . The P.M. fears suicidal mania. The joy-ride to Canada has brought no result — except discredit. . . [He] is too neurotic to take counsel. . . regards all suggestions as accusations of failure. Henderson at this stage was suggesting that the Prim e M inister him self should take the matter in hand; should set up a committee o f home defence against unemployment ; should bring in Cole with a proper research department ; should send Thom as away for a long rest and install Oswald M osley under the committee to carry out agreed plans.1


One way Labour proposed to ease unemployment was b y . . . cutting off supplies to the labour market at both ends by raising the school leaving age and providing maintenance allowances and by giving more ample old-age pensions to men and women of sixty-five and if necessary sixty.3 On 29 June 1929 Thom as appointed a sub-committee to enquire into (a) retirement pensions for industrial workers and (b) the raising o f the school-leaving age in relation to unemployment. T h e ‘O ld and Young Committee*, as M osley immediately dubbed it, was to consist o f Lansbury (Chairman), M osley and Johnston as its ministerial members, and one representative each from the Treasury, the M inistries o f Health and Labour, the Board o f Education, and the Scottish Office, plus the Governm ent A ctuary.3 T h e Com mittee did not remain ‘O ld and Young' for long. On 17 July it was decided by the Cabinet ‘that the question o f raising the school leaving age should be dealt with entirely as an educational m atter'. Hence there was no need for the sub-committee to give consideration to the ‘Young’. Thom as, taking the cheerful view, concluded that this would give the Com mittee more tim e to spend on pensions.4 In fact, the M inistry o f Labour had already subm itted evidence claim ing that although 400,000 fourteen-year-olds would be withdrawn from the labour market if the school-leaving age were raised, 1 B. Webb Diaries, 2 December 1929 2 Women and the General Election (Election pamphlet), p. 51. See also Labour and the Nation, pp. 19,27,38. 3 Lansbury Papers, i9.d.io. 4 Ibid. 19^.54.



the number o f vacancies created for the adult unemployed would only number 85,00g .1 T h e earliest discussions took place on procedure. T h e permanent officials prepared for the Com mittee a comprehensive questionnaire to be sent to two thousand firms and public authorities already known to have pension schemes in operation. M osley opposed this on the grounds o f ‘too great a dissipation o f departmental energy without any profitable results to ju stify it*. He prosposed instead ‘questions addressed to a few big concerns, such as railways, enquiring the age and conditions o f retirem ent and whether they possess any information o f subsequent work undertaken by those retired*. T h e questionnaire should be short and sim ple.12 M osley’s suggestion was accepted. M eanwhile evidence had been received from the M inistry o f Health on the difficulties o f removing the aged from industry. I f the pension were to be claimed by workers who had reached a certain age by a certain date, the ‘sudden shrinkage o f work* would cause grave disloca­ tion. I f the pension were paid as a flat rate, it would be too low to attract the highly paid and too high for the low-paid workers. It would lead to an agitation to raise the unemployment insurance benefits to the level o f the new pensions. There would be countless administrative difficulties.3 T h is was discouraging: but more helpful was the support received from the General Council and other Labour organisations. T h e Labour Party had long been committed, in a rather nebulous way, to a scheme o f retirement pensions. A t the fourteenth joint committee meeting o f the M ond-T um er group in July, Bevin came out strongly in favour o f a retirement pensions plan.4 T h e Com mittee decided to ask C . R. V . Coutts, 'an eminent actuary’, to prepare a report on Bevin’s proposals. Coutts calculated that to increase old age pensions all round from ior. (the ousting level under the Contributory Pensions A ct o f 1925) to 30s. a week would cost the Exchequer £60111 a year — a prohibitive amount. 1 Ministry of Labour, The Effect o f Raising the School Leaving Age to 15 on Unemployment, Lansbury Papers, 19.0.37. 2 Ibid. 19^.32. 3 Notes by Allan Young on Ministry of Health Memorandum, Ibid. 19^.48. 4 He had been urging the proposal since the previous November. (See Bullock, The Life and Times o f Ernest Bevin. voi. i, pp. 402-3.)



If, on the other hand, the increased pension o f thirty shillings a week were to be restricted to those over sixty-five still in employment, about 350,000, the problem would be more manageable. A s there were roughly 350,000 unemployed under thirty-five years old, the success o f the plan as a solution to unemployment clearly depended ‘on how far the employed workers over sixty-five and the unemployed workers under thirty-five are distributed over the industrial field in the same proportions’.1 Coutts undertook to examine the distribution o f the two groups (hereafter Groups A and B). H is conclusions were depressing. Group A consisted largely o f agricultural workers. Group B consisted largely o f industrial workers. M oreover o f the 350,000 in this category who were listed as unemployed a large proportion were 'casual* labourers — in other words they were in regular but not continuous employment, so that they would figure in the unemployment totals for the purposes o f insurance, but would not be available for different types o f work. Coutts* conclusion was that 'if the whole o f Group A workers were to be retired from industry that would obviously create a demand for labour, but not in the industries nor in the areas where there are younger workers now wanting a jo b '.2 From Coutts' memorandum it followed that sixty-five was too late as a starting age. Also it became clear that any proposal for an all-round pensions increase to cover retrospectively all those already receiving pensions and to encompass all those who subsequently reached pension­ able age (whatever that m ight be) would be too expensive. A lim ited scheme was clearly required; but a lim ited scheme gave rise to baffling problems o f equity. Throughout August and September Lansbury's committee battled with the problem. Lansbury has recalled the scene in his memoirs: The committee. . . m et. . . in a sort of semi-dungeon high up in the Treasury offices. We were surrounded by the reputed elite of the Civil Service.. . . For the most part these expert gentlemen were dumb.. . . The Ministers did most of the talking. There was, however, always present one faithful watchdog who represented the Treasury.3 T h e composition o f the Retirement Pensions Committee was indeed a curious one. It consisted o f m inisterial and non-ministerial members, 1 Lansbury Papers, 19^.71-3. * Ibid. 19^.75-8. 3 Lansbury, M y England, 1934, pp. 142-3.



who were not required to make positive recommendations, but m erely to examine the possibilities. But as the summer wore on, a clear difference o f opinion developed between the M inisters and the civil servants. T h e M inisters wanted retirement pensions and were convinced that they had found a feasible scheme. W hat the civil servants wanted is not clear: but they did not like the scheme the M inisters had hit on. T h ey would not sign a report advocating its adoption. Norm ally such a situation would never have arisen: the names o f the M inisters alone would have appeared on the report and it would have been their sole responsibility; then the civil servants could have drafted anything that the M inisters required o f them. But in the circumstances o f shared responsibility the civil servants did not feel they could go beyond the terms o f reference which were sim ply to enquire into the m atter. T h e Committee decided to present two reports. T h e official report would be drawn up by the non-ministerial members o f the committee, giving details o f the four schemes considered, facts concerning cost and so on, plus a concluding section o f ‘general remarks* which would attem pt to evaluate the merits o f the various proposals. T h e M inisters would present a separate report, urging the acceptance o f one o f the four alternative schemes listed in the ‘official report*. T h is plan was decided upon in the latter part o f Septem ber; Lansbury then wrote to Thom as explaining what had been agreed and urging him to support the Ministers* chosen scheme in the Cabinet.1 T h e official report was ready b y 2 i O ctober; the Ministers* report, drafted by M osley, was ready by the twenty-second ; once more Lansbury urged Thom as to champion it in the Cabinet. T h e two reports themselves were before the Cabinet by the end o f October and were sent to the Treasury for detailed examination.2 T h e ministerial report recommended to the Cabinet scheme *C* o f the official report as 'an emergency plan to deal rapidly w ith the unemploy­ ment problem*. T h is scheme provided a pension o f £1 a week for a man and ten shillings for his w ife for all workers subject to unemployment insurance, plus railwaymen, if they had reached the age o f sixty on an appointed day and were w illing within a specified period (six months) to retire from industry. Assum ing that 390,000 persons out o f a possible 677,000 would take the pension, the cost would work out at £21,600,000 1 Lansbury Papers, I9«d. 180-2. 2 Ibid. 20.d.2i8 ff.



in the first year, falling to j£iom in the course o f five years.1 Against this expenditure there would be a saving to the unemployment insurance fund o f about £9111 a year, leaving a net exchequer burden in the first year o f about £i2$m .s T h e ministerial report conceded that ‘the figures are adm ittedly susceptible to a certain margin o f error*, but pointed out a ‘happy feature* o f the scheme that arose in consequence: 'T h e more who accept the pensions the more vacancies we create: the fewer who accept the pensions the smaller the cost.* T h e estimate as to the number o f vacancies that would be created by the retirem ent o f 390,000 men varied as between the M inisters and civil servants. Lansbury in a letter to Thom as described the variation as 'ranging from 220,000, the lowest, up to 310,000 which is the highest*.3 M osley’s estimate was 280,ooo.4T h e official estimate was 230,000. Both the m inisterial and official reports pointed to the cheapness o f the scheme as a means o f providing employment. For public works it was thought that £ im provided employment, direct and indirect, for 4,000 men. T h is meant that it cost £250 to em ploy a man for a year. Assum ing that 280,000 men would be employed by the pensions scheme, the average net cost per person placed in employment would work out at £43; assuming 230,000 men, £60. Either way, it was less than a quarter o f the cost o f providing employment by public works. T h e m inisterial report claimed, w ith some justification, that ‘t h e . . . scheme here suggested is, in fact, b y far the cheapest means yet devised o f setting the unemployed to work*.5 A further point in favour o f the scheme, brought out in both the official and m inisterial reports, was that it would provide employment for men 'not in temporary artificial occupations outside their own trades (as in relief work), but in permanent occupation w ith normal industry*.6 These were the advantages: the main objections concerned the equity o f the proposals. 1 Official Report, General Remarks, Lansbury Papers, 20.d.250. * Ibid. 20.d.256-7. 3 Lansbury to Thomas, 23 October 1929, Lansbury Papers, 20^.233-4. 4 Resignation speech, 239 H.C. Deb. c. 1361-2. 5 Lansbury Papers, 20.d.223. 6 Ministerial Report, Lansbury Papers, 20.d.223; also General Remarks,

20.d.257. H



Before considering them, it is worth noting an important point brought .out by the official report, namely how far a scheme which cut down the numbers o f the unemployed, not by creating new jobs, but by increasing the numbers o f state pensioners, could be regarded as a solution to unemployment. T o this the M inisters m erely argued that if some workers had to be maintained in idleness, better it should be the old than the young.1 T h is was reasonable as far as it went, but it was difficult to avoid the impression o f a mere juggling with figures. M ore serious were the objections concerning the fairness o f the scheme. Agricultural and domestic workers were to be excluded; so were the small shopkeepers and self-em ployed workers who were outside the scope o f the Contributory Pensions A ct. T heir exclusion from the A ct had been justified on the grounds that they had paid no contributions : but the new scheme was to be non-contributory. T o these points, the M inisters made no effective reply. A n even more serious objection concerned the differentials between the old class o f pensioner under the 1925 A ct and the new class. In 1928 some 80,000 workers over sixty-five had retired on the pension o f ten shillings a week offered by the Contributory Pensions A ct. ‘A re these persons to see their neighbours who remained a little longer in industry now pensioned off w ith thirty shillings a week?’ A nd what o f the claims o f men and women who reached the age o f sixty after the appointed day? T h e only answer could be that this was a strictly lim ited scheme designed to achieve a strictly lim ited objective, but ‘such an answer may not be regarded as conclusive b y the man who sees his fellow workman who is ju st over sixty pensioned off with thirty shillings a week for life while he being ju st under sixty can only look forward to ten shillings at sixty-five w ith a further ten shillings when his w ife reaches that a g e .. . D espite these objections, the official report did not end on a critical note. 'T h e real value o f the proposal*, it concluded, is to be found in the moral and economic advantage of replacing old people in industry, who have passed most of their life in hard work and would now welcome a rest, by young men and women who have been striving for years to find a proper outlet for their energies.2 1 1 Lansbury Papers, 2o.d.22Ó. 2 Ibid. General Remarks, 20.d.255.



These positive merits were not sufficient to recommend the hard work o f the Retirement Pensions Com mittee to the Cabinet. W ithout Thom as's support and in face o f an adverse treasury report, the pro­ posals were doomed. T h e Cabinet finally rejected them in Decem ber.


In his opening statement in the Commons, Thom as announced his intention o f visiting Canada shortly after the end o f the parliamentary session. T h e purpose o f the trip would be to discuss em igration.1 T h e Canadian Governm ent, in welcom ing the visit, hoped that it would lead to an extension o f the ‘three thousand fam ily scheme*, a project launched in 1924 w ith the object o f settling British unemployed fam ilies on the land in Canada.3 Speaking at the end o f July, Thom as confirmed that he was going to Canada to ‘discuss questions o f migration on the spot’ .3 It is hard to see w hy Thom as so soon after his appointment as ‘M inister o f Employment* should have been keen to go to Canada to discuss what was, after all, a very marginal problem . Even if migration, as he said, was something that ‘has to be negotiated on the spot*,4 a junior M inister or departmental official could easily have been sent. In any case, Australia offered m uch better prospects for emigration than Canada: not only were more people going there, but emigration was also expanding at a faster rate. M oreover, the ‘three thousand fam ily / scheme* had not been particularly successful; within a few years, 25 per cent o f the fam ilies had withdrawn from the scheme, either to drift to the towns or to return to England. However, it was soon clear that there was more to the trip than ju st J emigration. W hether fresh objectives developed after the original decision had been taken, or whether Thom as was ju st keeping quiet about them, is unclear. Just before he left he said he was going to *im- J prove the trade relations between G reat Britain and Canada and to investigate the subject o f emigration*. It would be a mission, he an­ nounced, which would ‘benefit the Em pire as a whole*.3 1 229 H .C. Deb. c. 109. 3 The Times, 5 July 1929. 3 Ibid. 29 July. 4 229 H.C. Deb. c. 109. 3 The Times, 10 August 1929.



It was natural, in view o f its analysis, that the export trade should be uppermost in the Governm ent’s mind. It was also natural that Thom as should have the Em pire in his. H is party included three W elsh coal manufacturers, a shipowner from Cardiff and the deputy manager o f the G reat W estern Railway.1 He went to try to improve Britain's exports to Canada o f coal, steel and motor cars. Y et Britain’s trade with Canada as a whole was negligible. Her exports to the Dom inion amounted to less than 5 per cent o f her total exports. It is true that they had risen by almost I per cent between 1926 and 1929, but this was largely due to increased sales in alcohol consequent upon Am erican prohibition. Perhaps it was the negligible quantity involved that impressed Thom as with the possibility o f expansion. But the reason w hy Canada did not buy goods from England was sim ple: Am erica was m uch nearer and it cost much less to get goods from Am erica than from England. Rarely was there a less promising outlook for a mission. Thom as reached Quebec on 16 August. On arrival he said, T am going to see everybody who is worth seeing and talking to’. H is passage had been pleasant — ‘on board ship they tell o f the w itty speeches he made during the crossing'.2 A rriving at Ottawa next day he revealed for the first tim e ‘an ambitious scheme for expanding the market for British coal in Canada'.2 In Ottawa Thom as met Forke, M inister o f Immigration. T h e outlook was unpromising. Union leaders objected to increased immigration. However, Thom as did arrange for 3,000 single men to go to Canada to work on the land the following spring, after suitable training in England. T h is was the sum o f his achievements in the field o f emigration. A fter a further morning o f conferences with the Finance and Trade M inisters, he left for M ontreal. B y this tim e he had abandoned emigration as ‘an unfruitful field for discussion'.4 Instead he concentrated on trade. In M ontreal he had conferences w ith bankers, railwaymen and businessmen. H e pointed out that whereas Britain bought half o f Canada's wheat exports, Canada bought three times as many raw materials and manufactured products from the U nited States as from the mother country. T h is was unfair. 1 Manchester Guardian, 21 September 1929. 2 Toronto Globe, 17 August 1929. 2 The Times, 19 August 1929. 4 The Times, 22 August 1929.



‘T h e problem o f our unemployed at home can be helped very m aterially by larger purchases being made in the O ld Country.' H ere was an opportunity for Canadians to show ‘the old pioneer spirit o f Imperialism that made the Empire great'.1 On to Toronto and more dinners and more speeches: Canada should buy from Britain ‘as good business, not charity'. I f the Empire was not worth doing a little to support there was no use waving the flag.2 John Bull was very far from being down and out, he told the Canadian directors; and Snowden at the Hague had shown that ‘patriotism is not the monopoly o f a class'.3 Early in September Thom as set out west. In W innipeg he conferred with Sir Henry Thornton, president o f the Canadian National Railways, and also with officials o f the W heat Pool. He thought there was a chance o f reducing freight charges by guaranteeing two-way cargoes for ships — coal to Canada and wheat to Britain. He arranged for officials o f the W heat Pool to meet him on his return to London. In W innipeg, Elmer D avis, vice-president o f the Canadian M anufacturers Association, struck a chillier note. He wanted to tell the O ld Country manufacturers: ‘You have got to supply the goods wanted in the form w an ted. . . the goods sent out here are not what we require.' H e also pointed out realistically that the development o f new trade and markets would take a long tim e.4 Thom as was not discouraged. A fter his heavy travelling he took a few days' holiday with Thornton at M inaki, touring the famous Jasper Park in the traditional cowboy costum e.3 Refreshed, he returned to W innipeg where he succeeded in getting his first conditional promise, from Beatty, president o f the Canadian Pacific Railways, to ‘consider the purchase of W elsh coal for use in Canada if its cost compared favourably with that o f the U nited States, but it would not be used to supplant Canadian coal’ .6 Before sailing home on the Duchess o f A tholl, Thom as addressed a luncheon o f the Ottawa Canadian Club. His parting Im perial appeal was marked by a slight touch o f asperity, induced perhaps by its failure to 1 Toronto Globe, 21 August 1929. 2 The Times, 2 September 1929. 3 Toronto Globe, 2 September 1929. 4 Toronto Globe, 3 September 1929. 3 Fuller, The Life Story of the R t. H on.J. H . Thomas, 1933, p. 221. 6 The Times, 10 September 1929.



evoke a practical response. ‘Britain’ , he declared, ‘had poured money into Canada when no one would touch her and the opportunity had now come, when the M other Country was faced by an economic problem . . . for the Canadians to show their gratitude by diverting business to her.*1 T hus ended the Canadian visit of, in Thom as’s words, ‘the first British Cabinet M inister to have transformed him self into a commercial traveller’ .* Thom as had been absent from Britain for nearly six weeks, at a tim e when the Governm ent m ight have been expected to exert its maximum effort to find workfortheunem ployed. W hatexactly hadheaccom plished? T o the press on his return he announced that he was 'com pletely satisfied’ with the results o f his trip. 'D efinite negotiations on prices, both for steel and coal’ had taken place ‘with those directly concerned*. T rial cargoes had been ordered. Questioned about steel Thom as replied waggishly, T have got a lot o f things up my sleeve’ .3A few days after his return he was more explicit: I am happy in the knowledge that some of [the unemployed] will earn their Christmas dinner this year. That will be my best reward. 1 have created a n atmosphere for the Old Country in Canada.4 Asked for definite information he replied that nothing could be revealed publicly before he had reported to Parliament. In the meantime he received deputations o f coal, steel and motor-car manufacturers, anxious to know what the Lord Privy Seal had accomplished on their behalf. T h ey came and went in conditions o f ‘highest secrecy’ . T hen they went and came no more.3.V


T h e Governm ent’s public works programme rested upon the initiative o f the local authorities: it was their responsibility to initiate and to 1 The Times, 11 September 1929. * On his return he was asked to become an Honorary Associate Member of the National Union of Commercial Travellers. 3 The Times, Manchester Guardian, 19 September 1929. 4 The Times, 24 September 1929. 5 Manchester Guardian, 24,27 September and 23 October 1929.



execute schemes. T h e Governm ent m erely provided a proportion o f the cost.1 T w o government agencies were m ainly responsible for the ad­ ministration o f this assistance: the Unemployment Grants Com mittee and the M inistry o f T ransport T h e latter dealt w ith roads; the form er covered everything else. T h e scale o f the works, and hence the employ­ ment they would provide, depended upon the rate o f grant, and the conditions on which the grant was made available. T h e speed with which they could be started depended upon how long it took the U .G .C . and the M inistry o f Transport to ‘dear’ the schemes presented and the local authorities to obtain the necessary legislative powers to start them. T h e Labour Party, as we have seen, believed that the local authorities should retain some share o f responsibility for public works in the interests o f local democracy. T h e U .G .C . was almost moribund when the Labour Governm ent took office. Between 1926 and 1929 it had sanctioned only £6m worth o f schemes, compared to over £ ioom in the previous six years. T h e starting o f ‘transfer’ grants in 1928 had produced a small revival, but far short o f what the Labour Governm ent hoped to achieve. Nevertheless, the Governm ent scarcely improved the rate o f subsidy. Between 1920 and 1928 the treasury contribution, m ainly in the form o f contributions towards loan repayment, had averaged 35 per cent o f the total cost. Between June 1929 and July 1930 it averaged 38 per cent.3 T h is set a firm lim it to any expansion o f the public works programme. On 1 July 1929, Snowden had sanctioned a road programme o f £37&m to be spread over five years. ^ 9 im was for trunk roads and £2810 for all other roads, locks, bridges, canals, etc. In addition there was a small ‘annual’ programme o f miscellaneous road works. T h e government contribution 1 The Government also assisted public utilities through the Duckham Committee; here the initiative was to come from the public utility in question. * The details of the treasury contribution to U .G .C. schemes was as follows:


Non-Revenue Schemes: transfer 63 non-transfer 44


Revenue Schemes: transfer 33 non-transfer 26 others 40

Non-revenue schemes were defined as those producing a negligible return on investment (e.g. cemeteries, wash-houses, sewers); hence local authorities were given more generous help with their loan repayments.



was m et from the road fund which accrued from motor vehicle licences. It was more generous than for U .G .C . works, amounting to about 50 per cent o f the total cost: for trunk roads, the proportion was as high as 75 per cent. T h e main change from previous practice was that the Governm ent was committed for five years instead o f for one; but the actual amount it was prepared to make available in any one year differed little from the annual sums being spent on roads under the previous Conservative Government, and again there was a sharp lim it on any expansion o f the road programme. W hat the Governm ent did do was to ease the conditions for receipt o f grants: this applied equally to U .G .C . and road schemes. From 1925 grants which did not involve im porting labour — 'non-transfer* grants — could be made only to those areas where unemployment averaged 15 per cent in any one year. T h is requirement was now reduced to 10 per cent. T h e requirement o f 50 per cent imported labour for 'transfer* grants was also dropped in favour o f a more flexible approach, though a certain proportion o f imported labour was still insisted on. B y these means the Governm ent hoped to stimulate applications. But a large number of authorities where unemployment did not come to 10 per cent, but which could not contemplate im porting 'transferred* labour, still remained ineligible for grant. N or did the Governm ent do m uch to speed up the start o f the schemes. T h e existing procedure was that the local authority first o f all had to subm it its plans to the U .G .C ., or the M inistry o f Transport, or occasion­ ally the M inistry o f Health, who would consider them in the light o f the conditions on which grants were made and from the point o f view o f their social and economic utility. A scheme which had passed this hurdle would then be considered from the constructional and engineer­ ing point o f view. Plans m ight require modification: and a lengthy correspondence m ight hold up matters for weeks or months. Even final sanction did not lead to immediate commencement. For many o f the larger schemes, the local authority did not have the statutory power to employ additional men or requisition land. In order to secure this power it had to promote a parliamentary private Bill. T h e only time it could do this was in Decem ber. T hus between June and Decem ber 1929 the U .G .C . sanctioned about £i2£m worth o f schemes; but practically no additional work could be provided for the winter. B y 30 Novem ber



£25111 o f the £37^01 promised for the road programme had been sanc­ tioned, £910 for trunk roads and £ is im for the remainder. Y et by February 1930 less than four thousand men altogether were employed on road schemes, and most o f these were on schemes taken over from the Conservatives. T h e Governm ent made little effort to im­ prove this: the most Thom as would do was to speed up a little the private B ill procedure. T h e activists in the M inistry chafed at these obstacles. Sir Oswald M osley first o f all tried exhortation. Throughout the summer he was busy seeing deputations from local authorities, explaining to them the new terms and conditions, urging them to present schemes. H e was appalled by the ignorance and lethargy o f the local officials. In Septem ber he set off on a speaking tour to 'ginger up* the localities. Speaking at Newport on 8 September he urged electors to enquire what the local authorities were doing. 'E very citizen', he urged, 'should enrol him self in the great national army that is fighting unemploy­ ment.’ H e asked local councils to ‘formulate and expedite their plans for the consideration o f the Com m ittee'.1 W ith an eye to the forthcom ing municipal elections o f 1 Novem ber, he advised electors to 'return councillors who are energetic and prepared to support large local plans for dealing w ith unemployment’ . H e was, however, compelled to admit that local authority apathy was J merely one, and possibly the least important, reason for delay. It was very difficult for local authorities to borrow money, even w ith the Governm ent promising to help with repayment. In the depressed areas where unemployment was highest, their credit had already been ex­ hausted. T h e only solution to their problems was for the Governm ent to increase the rate o f subsidy. For example, the Governm ent m ight have stepped up the standard rate o f grant to the maximum — 63 per cent for non-revenue 'transfer' schemes. But this was prevented by the need to offer an additional inducement to local authorities to accept 'transferred' labour into their areas. T h is dictated the maintenance o f a differential between 'transfer' and 'non-transfer' grants. A s it was, the local authorities, even in relatively prosperous areas, were very reluctant to import unemployed men from the depressed areas. Lansbury complained to Thom as on 7 Novem ber that the London authorities 'absolutely refuse to consider 1 Labour Press Service Bulletin, 19 September 1929.



transfer to London in any circum stances'. But Thom as was adamant: in that case they would not get the grant.1 A possible solution m ight have been to increase the 'transfer' grant to, say, 80 per cent, thus enabling the 'non-transfer' grant to be upped to 60 per cent. But this, it was felt, would be encroaching too far on local authority responsibility for 'local works'. It became increasingly plain that there could be no solution to this dilemma within the structure o f a local authority public works pro­ gramme. T h e omnibus solution favoured by M osley was to take a bloc o f the public works policy — road construction — right out o f local authority competence and make it a state responsibility. M osley, like L loyd George, was impressed by the employment possibilities offered by a big road programme. T h e Governm ent would assume complete financial responsibility which would increase the scale o f the programme. A s each local authority would no longer have to acquire special powers in order to construct its own few miles o f road, there would be much less delay in getting the schemes started. Transferred labour would be employed directly on the national road plans, thus removing local authority fears o f having to support additional unemployment in their own areas. A t the same time, because there would be no need to pay the wealthier authorities a 'transfer premium' the level o f grant to the depressed areas could be raised as high as was necessary to evoke an expansion o f the remainder o f the public works programme. A s early as 24 September M osley was writing to M acDonald: the present non-transfer terms. . . entail a big burden on the rates which depressed areas cannot support and have led to a virtual cessation of schemes in South Wales. In a memorandum o f 17 October written jointly with Johnston he stated that 'on the basis o f present policy no substantial improvement leading to a further acceleration o f work plans [can] be achieved’. T h e only solution was to employ transferred men on national schemes.2 Three objections were advanced to national road schemes. First, government responsibility m ight cut out some o f the delay, but not all that much. T h is point was to be put forcibly by Sir H enry M aybury, chief engineering consultant to the M inistry o f Transport, and others 1 Lansbury Papers, 20.0.267-72.

2 Ibid. 20.d.2i2-4.



throughout the life o f the Governm ent. It echoed the objections to Lloyd G eorge's trunk road programme.1 Second, if the Governm ent started and financed national schemes, would the local authorities be prepared to proceed w ith their own works and continue to find a share o f the cost? Third, national road schemes would destroy the delicate division o f responsibility between the Governm ent and local authorities. Herbert M orrison, the M inister o f Transport, who was him self pressing for an expansion o f the road programme within the existing local authority framework, was already worried by the large government contribution to the local authority road schemes: pushing the burden entirely on to the Exchequer, he argued, would be bad for 'good government*.2 Sir Horace W ilson suggested that this third objection m ight be met by constructing roads nationally and then handing them over to the local authorities for maintenance. T h is was the argument adopted b y M osley but with little effect.3 M osley's demands irritated M orrison, who wrote a little later to Thom as o f the interesting but radier wearisome debates and cross-examinations on the Committee on National Schemes. Clearly Mosley suffers somewhat from L .G .’s complaint: the road complex. A road is a means of transport: road work can assist, but it cannot possibly be a principal cure of immediate un­ employment. Road transport must be considered in relation to other forms of transport. There should be and there is no bias in the department.4


T h e K in g's Speech assigned priority to the need to reorganise the coal, 4 iron and steel, and cotton industries in order to 'im prove their position in the markets o f the w orld'.3 T his followed from Labour's analysis that the solution o f the unemployment problem lay in the revival o f the basic export industries, and that rationalisation was the only way to secure this revival. Y e t rationalisation as a solution for unemployment was bound to 1 See below, pp. 218,222-3. 2 231 H.C. Deb. c. 720-1. 3 Mosley to Thomas, 3 September 1929. Lansbury Papers, 19^.132-4. 4 2 February 1930. Thomas as a railwayman was equally opposed to the Mosley 'complaint*. 3 229 H.C. Deb. c. 48-9.

n o


be long-term ; its short-term result was likely to be more unemployment. Hence it was regarded w ith great suspicion b y the trade unions who tended to attribute unemployment itself to the inexorable replacement o f men by machinery. T h e trade unions were not opposed to rationalisa­ tion provided it was coupled w ith nationalisationt or with government provision for displaced labour.1 Nationalisation was ruled out by the political position; while the provision o f alternative jobs was not some­ thing the Governm ent was prepared to contemplate. T h e coal industry provides an interesting case study o f the difficulties in imposing government 'reorganisation' as part o f an unemployment policy. Coal and cotton were the mainstays o f the export trade before the First W orld W ar. Both had suffered heavily in the post-war struggle for markets. T h e loss o f coal markets produced the most bitter industrial clashes o f the nineteen-twenties. T h e owners were determined to recover their position by cutting wages. Despite the failure o f the General Strike the miners resisted with surprising success: although wages came down, it was not by much. In the late nineteen-twenties neither side was pre­ pared to face a repetition o f the struggle, and there was a tacit acceptance o f a wages status quo. One consequence o f the General Strike, however, the miners were not prepared to accept as permanent. T h is was the addition o f one hour to the working day. Labour came to office in 1929 pledged to restore the working day to seven hours. It was thus bound to become involved in the affairs o f the coal industry. Y et it was clear that cutting the working day would only add to the difficulties o f the industry. T h e K in g's Speech recognised this. T h e relevant paragraph promised to consider 'the question o f the reorganisa­ tion o f the coal industry, including hours and other factors, and o f the ownership o f m inerals'. In other words reorganisation would be the offset to the shortening o f hours. T h e question was, what type o f reorganisation? There were two possible models. On the one hand, the Governm ent could follow the advice o f the Samuel Report to concentrate production into larger units, eliminate the inefficient pits and rationalise transport arrangements. T h is would have gained the support o f the Liberals, but not o f the coal owners, a number o f whom would certainly suffer in consequence. T h e alternative was to give statutory recognition to regional experiments 1 See T .U .C . Annual Report, 1929, pp. 424 ff.



o f groups o f owners started in 1928, o f which the Five Counties Scheme was the most extensive. These relied mainly on quota systems to avoid overproduction at home and maintain internal prices, and on a levy to subsidise export prices, the levy being in effect a tax on the domestic user o f coal. O f the two alternatives, only the first really represented 'rationalisation*. Y et its difficulties were apparent. T h e miners did not want pits to dose, thus throwing more people out o f work; the owners resented the idea o f com pulsory amalgamations which m ight eventually improve the efficiency o f the industry but would do nothing immediately to help exports and profits. A Cabinet Com mittee was set up under Graham, President o f the Board o f Trade, to prepare the necessary legislation. M embers induded Thom as, M iss Bondfield and Ben Turner, Secretary for M ines. T h e Prime M inister also attended from time to tim e. T h e Committee negotiated w ith two sets o f people — the M iners Federation, led by Herbert Sm ith and A . J. Cook, and the employers* M ining Association represented by Evan W illiam s, Adam Nimmo and W . A . Lee. T h e two groups, w ith bitter memories o f industrial strife behind them, refused to meet the Cabinet Committee together or even to see each other, which did not help matters. In addition, Herbert Sm ith was notoriously inflexible in discussion — a characteristic also shared by the employers* representatives. O nly A . J. Cook proved unexpectedly pliable.' A t the first meeting o f the coal committee with the M iners Federation M acDonald bluntly explained the situation. T h e employers had told him that the cost o f restoring the working day to seven hours would mean 2s. on each ton o f coal, which would force them to ask for 20 per cent wage reductions. A n y attempt to restore the pre-1926 working day would probably bring down the Governm ent. 'W ould that help us or you?' the Prime M inister asked.3 T h e intractable nature o f the problem confronting the Cabinet Com mittee emerged only too clearly. T h e M iners Federation were holding out for a seven-hour day and a guarantee against wage reductions in the form o f national agreements and a National W ages Board. T h e 1 For an account of the discussions see MacDonald’s statement in the House, 233 H .C. Deb. c. 1772; for Cook's attitude, the Annual Conference Report of the Miners Federation, 1929, pp. 67-70,101. 3 Miners Federation Annual Conference Report, pp. 67-8.



owners would accept at most a half hour reduction in the working day; and that only at the price o f national quota systems, an export levy and freedom to reduce wages if necessary. T h ey would have preferred no government legislation at all. T h e Liberals, on the other hand, were pressing rationalisation o f the Samuel Report type.1 T h e summer and autumn passed by in long and tedious negotiations, as repeated efforts were made to frame a measure to please everyone. W hatever his other virtues, Graham was not a forceful personality, and there was almost no progress. From tim e to tim e Thom as assisted, but he proved to be a broken reed. T h e only person who could have resolved the deadlock was M acDonald ; but he was otherwise occupied during the summer, and at the end o f September he left for a month’s journey to Am erica and Canada in search o f naval disarmament. T h e original intention had been to introduce a Coal B ill in m idNovem ber and take it through all the committee stages before the Christmas recess; but by the end o f October agreement was no nearer. T h e main difficulty between the miners and owners was the wages problem. T h e miners wanted national agreements ; the owners’ repre­ sentatives argued that the M ining Association 'existed m erely to arrange certain legal matters connected w ith the industry’ and had no power to negotiate a national agreement.2 On 29 October the Governm ent circulated a draft B ill to both sides for comment. It proposed (1) the reduction o f hours to seven and a half from 6 A pril as a first instalment o f a gradual reduction to seven hours, (2) national and district quota schemes, (3) a national levy to subsidise exports. There were also pro­ posals for the nationalisation o f minerals and the gradual acquisition o f royalties, which would form a separate Bill. It omitted all reference to the points at issue between the miners and owners: there was no safe­ guard for miners’ wages, and no promise o f national agreements. A s envisaged in the government draft the B ill was to be a deal between the miners and the owners: the miners got their reduction, and in return the owners’ marketing schemes were to be put on a statutory basis. There was no mention o f rationalisation or com pulsory amalgamations ; yet presumably Liberal support would be needed to get the B ill through the Commons, as the Conservatives were bound to oppose those sections shortening hours. 1 Manchester Guardian, 25 July 1929.

2 Morning Post, 27 August 1929.



T h e draft proposals were considered inadequate by both sides. T h e owners were against the reduction in hours, but were determined to reduce wages if it came into force. T h e miners wanted protection for wages and a reduction in working tim e (some o f them , led by H erbert Sm ith, would settle for nothing less than seven hours). There seemed little hope o f agreem ent T h e Manchester Guardian confessed to 'serious disappointment that the Cabinet should take such a lim ited view o f its opportunity and the uses to which a progressive m ajority in the House o f Commons can be turned*. It realised that the quota schemes were directly opposite in tendency to the Samuel Report's plea for concentrat­ ing production in larger units; rather they would preserve the life o f the inefficient p it.1


T h e 'not genuinely seeking work' clause was proving ju st as intractable as miners’ hours. In 1924, as we have seen, the Labour Governm ent had m isguidedly applied it as a test to all claimants for unemployment benefit, not ju st those on the 'dole' scheme. In the next few years its • administration had been so tightened up that the number o f disallow­ ances had risen from 27,000 in 1927 to 251,000 in 1929: hence Labour clamour for its abolition.12 T h e new stringency had been dictated by the Governm ent's economy drive in 1926-7 and had been made possible by the administrative changes recommended in the Blanesburgh Report, introduced in 1928. T h e effect o f these was to transfer the adjudication o f doubtful claims from the local committees to the C hief Insurance Officer’s department at K ew : thus no considerations o f local sentiment or compassion were to upset the application o f the stricter policy. From 1928 onwards, the applicant had to set out on his claim form the 'steps he had taken to find work’ so that the officer could judge the 'genuine­ ness' o f his claim to be seeking work. These steps had to include going the rounds o f the factories and firms applying for jobs, even when the unemployed worker knew that there were no jobs available. For in the 1 Manchester Guardian, 14 November 1929. 2 Ministry of Labour, Annual Reports, 1927-9, pp. 113,113-15,124-6.



nineteen-twenties, only a m inority o f employers were in the habit of notifying job vacancies at the local Labour exchanges. M iss Bondfield had appointed the M orris Committee to consider what legislative changes were necessary to give effect to the Govern­ m ent's promise to abolish the ‘not genuinely seeking work’ clause. In the meantime she tried to soften its administration by reverting as far as possible to the procedure before 1928. O n 9 September 1929, she reintroduced a local assessors' board to consider doubtful claims, on the discretion o f the local insurance officer. In her autobiography M iss Bondfield noted : 'I had greatly softened the impact o f a cruel and trouble­ some m ethod.'1 Further than this she could not go. In a letter to her constituents at W allsend she wrote: ‘I soon discovered that there was practically nothing I could do without breaking the law.’12 T h e M orris Committee, appointed on 25 July, had two Labour representatives: Arthur Hayday, M .P. for Nottingham W est and soon to be president o f the T .U .C ., and M rs. A . Adams, a Labour councillor. It held six sittings and presented its report on 24 October. In its evidence, the General Council o f the T .U .C . made it clear that it was entirely opposed to the ‘not genuinely seeking work' provision. It rejected the principle that an applicant ‘having established unemploy­ ment and availability for work, should also be called upon to prove that he is not a m alingerer'. A n investigation into the ‘state o f the applicant’s m ind' was a a task for a psychologist, not the C hief Insurance Officer. T h e sole ground for disqualification should be the exchange’s proof that a claimant was ‘definitely offered suitable employment and had refused it’. T h is came to be known as the Hayday Formula. T h e em ployers' organisations, on the other hand, argued that the N .G .S .W . clause was an essential part o f the unemployment insurance system, preserving it from the abuse o f the work-shy. T h e M orris Committee inclined to the General Council's view but was reluctant to accept the Hayday Formula as the sole test, for it did 1 A Life’s Work, p. 281. 2 Manchester Guardian, 21 October 1929. Miss Bondfield also set up retraining schemes. Her efforts to train the unemployed to be hairdressers, waiters and domestic servants were the subject of a biting and amusing attack by John Scanlon, in The Decline and Fall of the Labour Party, 1932, pp. 145-6.


“ 5

not cover the possibility that the claimant m ight know o f the existence of suitable work even if he had not been offered it. So in addition to the H ayday Formula it recommended that a claimant should be disqualified if there was ‘evidence that suitable work was available and [the claimant] fails to prove that he had made reasonable efforts to obtain such work’.1 Industrial News, the organ o f the General Council, observed that the new formula was ‘very indefinite and m ight lead to all sorts o f difficulties’ . T h e New Leader o f i Novem ber was more explicit. T h e report’s recommendation on the fourth statutory condition was ‘o f such a character as to make it inevitable that the worst features o f the present system w ill continue’. 1 Morris Report, para. 43. The two Labour members signed a minority report.

6 FIRST FALTERING STEPS 1. IN TRO D UCTIO N B y the autumn o f 1929 there were signs that all was not w ell with the international economy. American lending which had largely financed Germ an recovery and w hidtflargely enabled debtors all over the world to maintain a precarious stability, was greatly reduced in 1920 as more and more funds were diverted to the N ew York stock exchange boom .1 T h e reparations tangle at T h e H ague demonstrated to the world die extent to which France was prepared to use its powerful creditor position to pursue political aims. A French-engineered ‘flight from the j mark* in the spring and summer o f 1929, clearly designed to secure German compliance w ith French demands, threatened the structure o f German finance; and French withdrawals from London between July and October may perhaps be partly explained as a reaction to Snowden’s anti-French stand at the Hague, though there were perfectly legitim ate seasonal causes. T h e exodus o f gold to N ew York and Paris underlied the weakness o f London’s exchange position and nearly forced Britain off the gold standard.2 On 20 Septem ber, following the H atry scandal,3 Bank Rate was raised to 6£ per cent and there were 1 Exports of capital from the U.S.A. declined from $1099 million in 1928 to $206 million in 1929; France which had exported $503 million in 1927 and $237 million in 1928 became a net importer in 1929. (League of Nations, World Economic Survey, 1931-2, p. 39.) 2 Montagu Norman told the Committee of the Treasury on 5 August that unless there was a change, especially in France and the U.S.A., part of Europe, including the U .K ., might be forced off the gold standard. (Clay, Lord Norman, p. 252). 3 Clarence Hatry was a London financier who controlled a number of investment trusts and had interests in slot machines and cameras. The




rumours that American credits were to be obtained to defend sterling. T h e N ew York stock exchange crash o f 23 October 1929 ended the monetary crisis by bringing back to Europe the funds that had sought large killings across the Atlantic, though it inaugurated the far more serious world economic crisis that was to dominate men’s thoughts and lives for the next five years.*1 However, although Bank Rate was able to come down to 3 per cent in gradual stages, the obvious vulnerability o f sterling, even to moderate capital movements, increased the difficulties o f attempting to combine a bold domestic unemployment policy w ith the maintenance o f the gold standard; while the short, sharp crisis itself was a dress rehearsal for the larger one o f 1931. Nevertheless, the fright caused by these financial happenings did prom pt Snowden to expedite that authoritative enquiry into monetary practice which had been urged from the tim e o f the M ond-Tum er conferences in 1928. On 4 Novem ber he announced the setting up o f the M acm illan Committee on Finance and Industry to enquire into banking, finance and credit, paying regard to the factors both internal and international which govern their operation, and to make re­ immediate cause of his collapse was his decision to buy United Steel and use it as the basis of a financial merger of the British steel industry. Unable to raise the whole of the £8m needed to complete the purchase, Hatry resorted to issuing scrip certificates in excess of the registered shares of his companies and used these as collaterals to obtain loans. This fraud failed to secure the solvency of his group, and shares finally collapsed on 20 September. Investiga­ tions revealed the extent of the fraud — over ^2m was involved — and Hatry and his leading associates received heavy prison sentences. 1 The Stock Exchange collapse was both effect and cause. Indices of American industrial and factory production had begun a steady decline from June 1929, following the end of the building boom. This recession was bound to have an effect on the stock market, the prosperity of which was itself an exaggerated symptom of the industrial boom of 1927-9. The fairly orderly reduction of share prices which took place throughout September and early October was probably sufficient to destroy the almost invincible confidence in ever rising share prices upon which the market boom had been based. However, the crash also accelerated and deepened the depression by frightening investors, and bankrupting financial institutions as debtors defaulted. A wave of bank failures increased hoarding, slowed down the rate of transactions and thus reinforced the other factors dragging down the economy. For the best account of the events of October 1929, see J. K . Galbraith, The Great Crash, 1955.




commendations calculated to enable these agencies to promote the develop­ ment of commerce and the employment of labour. Although the composition o f the Com mittee was such as to ensure a fairly authoritative report, its terms o f reference suggested that it would be long in coming out: and so it proved.1



Parliament reassembled at the beginning o f Novem ber and on 4 Novem ber Thom as gave the House an account o f his stewardship. T h e U .G .C . had approved schemes totalling £ u m ; the Duckham Committee (advising on the Home Developm ent A ct), ,67m; o f the £37£m allowed for the road programme, £ 2 im had been sanctioned; finally there had been a grant o f £301 for building a bridge across the Zam bezi; making in all a total o f ,642m. T his, Thom as calculated, would provide 1,400,000 man-months o f employment. Thom as then referred to Canada. 'A s a result o f the visit', he declared, 'a contract for five 7,000 ton ships to deal with the coal next year alone is being negotiated’.12 There was no mention o f trial cargoes or definite orders for coal ; ju st one or two vague remarks such as I say without fear of contradiction that, whatever may be said to the contrary, the difficulty about hard coal next year will not, so far as Canada is concerned, be to get customers, but will be to supply the demand. Negotiation for five 7,000-ton ships was thus the sum o f Thom as's achievements. In time even they came to be mentioned less and less. A s W heatley finally put it they were 'the ships that pass in the night'.2 T o be fair to Thom as, he could hardly have accomplished anything 1 Lord Macmillan was a judge; there were two professional economists, Keynes and T . E. Gregory; four bankers, R. H. Brand, Reginald McKenna, C. Lubbock and A. A. G . Tulloch; three industrialists, L . B. Lee, Sir W. Rume and J. Frater Taylor; two Labour representatives, Ernest Bevin and Sir Thomas Allen; Lord Bradbury, ex-Treasury, and J. Walton Newbold, ex-Communist. 2 231 H.C. Deb. c. 675.



more, especially since he did not carry imperial preference, the one thing that would have interested the Canadians, in his traveller's bag. H e was not criticised for what he accomplished or failed to accomplish, but for going on such a small errand in the first place. A s Lloyd George put it on 4 Novem ber, he was: like a commander-in-chief at the beginning of a campaign leaving his head­ quarters and the campaign to be thought out and directed by subordinates on the staff, whilst he goes off to some remote comer in order to attend to some minor operation.. . .l Thom as had claimed that the £42m worth o f unemployment schemes would provide 1,400,000 'man months’ o f work. W hat he meant was that if the £42111 were spent in one month 1,400,000 men would be employed. However, no one intended that it should be spent in one month or even one year; rather it would be spread over three to five years, possibly even more. In other words, taking four years as an average, the employment provided, on the Governm ent’s own estimate, would be ju st under 30,000 men a year out o f an unemployed population o f 1,200,000.* W hen Thom as made his announcement none o f the schemes had actually been started, nor would most o f them be for months to come. T h is tim e Thom as’s proposals failed to win the assent o f either o f the opposition Parties. Broadly, while the Conservatives accused him o f spending too much money, the Liberals said it was not enough — a discrepancy which was to furnish the Governm ent with an easy debating point, but little parliamentary comfort. W e have seen that the Governm ent had taken advantage o f the loophole in the 'treasury view* that justified expenditure on public projects. Sir Lam ing W orthington-Evans for the Conservatives now attempted to plug it. T h e Governm ent, he argued, were committed to the view that public expenditure m ust be productive; otherwise it would be money down the drain. T h e test then was whether Thom as’s schemes were productive (i.e., would yield an economic return). It was perfectly true that the building o f roads was in some sense productive as it facilitated traffic and reduced costs. But it was nothing like as produc­ tive as the manufacture o f goods. T h is applied to Thom as’s other2 1 231 H.C. Deb. c. 693.

2 See The Economist, 9 November 1929.



schemes. Thom as had considerably over-estimated the amount o f pro­ ductive work that could be financed by public money; it followed that he was pouring away money which m anufacturing industry would be only too happy to use. T h is was the orthodox ‘treasury view* which the Governm ent had never challenged.1 Other Conservatives attacked the Governm ent on different lines. Sir George Penny argued that the decline in the export trade was due to high costs caused in part by the burden o f unemployment insurance and union restrictive practices. T h e Governm ent should be dealing with these problems and also making every effort to expedite rationalisation.12Other Conservatives argued from the position that costs were too high relative to Britain's competitors to the remedy o f protection to safeguard wages and profits from sweated labour and dumping. Am ong those who adopted this position was W . E. D . Allen, later to join M osley’s N ew Party.3 For the Liberals Lloyd George was at his brilliant and provocative best. Thom as had taunted him because he had said that the proposals were not sufficiently bold. ‘Bold! T h ey are tim id, pusillanimous and unintelligent.*4 T h e Manchester Guardian was to reinforce him on his charge o f unintelligence. Unemployment was ‘an intellectual problem first and an administrative one only second*.3 A month later, with the publication o f the government W hite Paper on unemployment, the Manchester Guardian elaborated this theme. Thom as ‘did not speak like a man who has any grasp o f the problems involved*. N o one was asking for miracles but a plan, but ‘his survey is mist and his future plans even more nebulous than his immediate ones’ . ‘W hen a M inister does not him self understand a problem he is helpless in the hands o f very loyal, but it may be uncreative, officials.’6 Both in public and private Liberals were saying that Thom as ought to be replaced. There is little doubt that Thom as’s statement was a disappointment, not only to the Liberals, but to government supporters likewise. A s was to be expected the most bitter criticism came from the I.L .P . In the Commons on 4 Novem ber M axton said : 1 231 H.C. Deb. c. 678-87. 2 Ibid. c. 697-700. 3 Ibid. c. 728,740,748-50. 4 Ibid. c. 691. 3 Manchester Guardian, 5 November 1929. 6 Manchester Guardian, 11 December 1929.



Ope of my enthusiastic colleagues on these benches said that Labour was in

for twenty years. Well, I hope so. God knows that at the rate ofprogress indicated in the Lord Frivyl Seal's speech they will need every minute^oT fä i “ T h e New Leader o f 8 Novem ber stated that ‘it is no use concealing any longer the fact that M r. Thom as is coming to grief over his handling o f unemployment*. T h e Glasgow Forward o f 9 Novem ber noted: ‘Could there have been anything more fiddling or footling than M r. Thom as's expedition to Canada and the boasting o f it as a great adventure to find the solution o f the unemployment problem?* J. C . W elsh, M .P. for Paisley, Renfrew, summed up moderate Labour reactions: It is admittedly a difficult problem. But why all the timidity when the country is expecting that something bold and big can ease the situation. . . I do feel there will be disappointment in the country over this statement by the Lord Privy Seal.* T h e disappointment is easy to understand, the surprise less so. T h e Governm ent, true to their analysis that unemployment could only be solved through the revival o f the basic export industries, were pursuing the policy they had announced in the summer. T h at policy did not embrace a big government investment programme. ‘Anybody can spend money*, Thom as was fond o f saying, ‘but spending money is no cure for unemployment*. Thus there would be no attempt to provide employ­ m ent ‘artificially*. W hat the Governm ent would do was to encourage the basic industries to make themselves more efficient: the Governm ent’s Coal B ill was due shortly and Thom as had plans to encourage rationalisa­ tion. T h e Governm ent would also try to provide decently for the victim s o f capitalism : the Unemployment Insurance B ill was about to be pub­ lished. For the mass o f Labour M .P.s who saw no possible solution to ! unemployment except ‘socialism’, this was a far more legitim ate concern for a Labour Governm ent than the provision o f ‘artificial’ work. It was jby providing decently for the unemployed that Labour’s leaders would show their practical commitment to socialism ; for more constructive socialist legislation was clearly ruled out by the m inority position. W ith this simple and simpliste analysis most Labour M .P.s were satisfied.2 1 233 H.C. Deb. cc. 701-3.

2 The Miner, 9 November 1929.






W ith the M orris Report ready, M iss Bondfield started to prepare her Unemployment Insurance (No. 2) Bill. There were two motives behind it. Firstly, there was the desire to give effect to the Labour pledge to improve the rates and conditions o f benefit for the unemployed. Secondly, there was the need to put the unemployment fund on a more secure financial basis. T hat these two motives were ultim ately to prove contradictory was not as yet apparent. T h e proposed legislation was o f great concern to the General Council o f the T .U .C ., and on 7 Novem ber a joint deputation from the General Council and the national executive committee o f the Labour Party called on the M inister of Labour to hear her views and to put forward views o f their own. T h ey wanted the standard rate o f benefit increased from seventeen to twenty shillings and the various dependants' allowances increased also; they asked for the inclusion within the scheme o f agri­ cultural workers and domestic servants, a reduction o f the waiting period from six days to three, and — o f course — the repeal o f the obnoxious clause four (the N .G .S.W . clause). In addition, they wanted an investiga­ tion into 'the problems associated with casual, seasonal and part-tim e employment’.1 Had the Governm ent agreed to do this, it would have protected itself in advance from what was later to prove the most vulner­ able point of attack on the structure o f unemployment insurance. M iss Bondfield replied that on financial grounds a B ill was im­ mediately necessary and the financial situation lim ited what she could do. It was unthinkable to raise the contributions o f employers and employees in the existing circumstances and the question therefore was: how much could she get out o f the Treasury? T h e B ill was bound to be lim ited in scope, but the unions should not regard it as the last word o f the Govern­ ment. Larger questions concerning the structure o f unemployment insurance would be the subject o f a more comprehensive B ill later on. Hayday then requested that the General Council be allowed to take part in the drafting o f the Bill. T h is request was rejected by M iss Bondfield, who said that the responsibility for preparing legislation rested 1 General Council Papers, File 157.83 d.



with the Governm ent alone, and also that joint drafting would merely delay matters. T h e General Council’s claim to partnership in the formation o f industrial policy gives some ground for the opposition contention that any Labour Government would be subject to dictation from the trade union movement. M iss Bondfield was plainly embarrassed by Hayday’s request, but in reality the General Council were not seeking such sweeping powers. T h ey felt that the Labour movement was a partnership between the industrial and political wings and that such a partnership should continue when the political wing formed a Govern­ ment. A fter rejecting the General Council’s request, M iss Bondfield relented to the extent o f agreeing to the formation o f a joint consultative committee to meet with her from time to time to discuss the progress o f the B ill through the Commons.1 T h e text o f the Unemployment Insurance (No. 2) B ill was published on 15 Novem ber. Like the Coal B ill which was to follow, it was a feat o f balancing between conflicting claims and pressures. T o satisfy in part Labour pledges, rates o f benefit for certain categories were increased, though the standard rate o f benefit for adults over twenty-one — the chief element in the unemployed worker’s pay packet — was left unchanged: Snowden sim ply refused to produce the money.13 * The increases were expected to cost ^2m.3 T h e new B ill followed the M orris report on the ‘not genuinely seeking work* condition, embodying its two tests in the first section o f the revised clause four: 1 General Council Papers, File 157.34. 3 The new Bill increased the rates of benefit to men and women aged nineteen to twenty from twelve shillings and ten shillings to fourteen shillings and twelve shillings per week; for those aged eighteen to nineteen from ten shillings and eight shillings to fourteen shillings and twelve shillings ; for those aged seventeen to eighteen from six shillings and five shillings to nine shillings and seven shillings and sixpence. For those aged sixteen to seventeen the rates remained at six shillings and five shillings. For those coming into insurance when the school-leaving age was raised to fifteen, the rate was fixed at six shillings and five shillings. Adult dependants’ allowances went up from seven shillings to nine shillings. The children’s allowance remained at two shillings. 3 232 H.C. Deb. c. 750-1.



I f on a daim for benefit it is shown that the daimant, knowing that a spedfic situation in any employment, being employment which is suitable in his case, was or was about to become vacant, refused or neglected to apply for the situation or refused to accept it when offered to him, he shall be disqualified for benefit. T h e Hayday Formula section o f this clause was straightforward: a claimant would be denied benefit if he refused an offer o f suitable work. But what test was to be applied to establish that a claimant 'knowing that a specific situation in any em ploym ent. . . was or was about to become vacant, refused or neglected to apply for the situation’ ? Section two o f the new clause attempted to supply the answer : I f . . . it is shown that employment in the usual occupation of the claimant and of a kind suitable in his case was available. . . and that the claimant could reasonably have been expected to know that such employment was so available, the claimant shall, unless he shows that he has taken all such steps as (having regard to the means usually taken for sudi a purpose and to the extent to which such employment was available) he could reasonably be expected to take for the purpose of obtaining such employment, be disqualified from receiving benefit.1 T h is looked suspiciously like the old clause four in a new disguise. For the phrase 'means usually taken for such a purpose’ could only be a reference to the type o f test demanded as a proof o f genuinely seeking work under the old clause: the number o f calls made on firms in a given period, the names and addresses o f such firms and other similar details. Nevertheless, M iss Bondfield undoubtedly believed that a considerable concession had been made; and the Government Actuary estimated that it would cost £3,250,000 per annum.2 T h e great concession had, in fact, been made not by the wording o f the new clause, which was little improvement over the old one, but by the administrative changes in the method o f adjudicating claims which came into force on 9 Septem ber.3 T h e new B ill strengthened these changes, making it mandatory for the exchange officer to refer all dis­ puted claims to the local court o f referees (as the board o f assessors was now called), whose decision would be binding. Having thus largely removed the grievances occasioned by the fourth statutory condition, w hy did M iss Bondfield prove so obdurate about the wording o f the new 1 A Bill to Amend the Unemployment Insurance Acts, 1920 to 1929. Ordered by the House of Commons to be printed 12 November 1929 (Bill 63). 2 Cmd. 3437, para. 8. 3 See above, p. 114.



clause itself? T h e M inistry o f Labour was probably anxious to retain some test other than the Hayday Formula as a kind o f residual power that could be evoked, by tighter administration, if it became obvious that people were claim ing benefit as a soft option to seeking work. It was to prevent this that the unions were so anxious to fortify the administra­ tive changes with legislative enactments. T h e increases in benefit and changes in the method o f judging claims were expected to cost £5^111. T h is was the additional money that would find its way into the pockets o f the unemployed from national fun ds.' It was, in fact, an additional charge upon the unemployment fund. T o enable it to meet that charge and also to give it an extra margin o f security, the fund was relieved o f its obligation to pay benefit to those who had fallen out o f benefit, i.e. who no longer contributed to its income. A s we have seen, it was this obligation that was the main cause o f the fund’s growing indebtedness. Under the new Bill, payment o f ‘transitional* benefit was transferred from the fund to the Exchequer. T h is was expected to save the fund and cost the Exchequer £8£m in the full financial year 1930-31.* T h e A ct o f July 1929 had raised the income o f the fund to £4610. T h is remained its income under the new Bill. T h e relief from £8£m o f its obligations was partly offset by the £5$m o f new obligations. Thus the fund’s position was improved by £310 which, it was hoped, would enable it to balance w ith a live register o f 1,200,000 unemployed as opposed to a live register o f 1,000,000 under the previous system .3 T h e total exchequer charge for a full year was increased by £i2$m made up o f £8£m for transitional payments, £3^111 under the July A ct and a further £500,000 for administrative costs. A s the Treasury was already paying £ i2m to the unemployment fund, the total cost to the Exchequer o f unemployment benefit in 1930-31 was estimated to be £24$m.4 1 The qualification is important, for those who had previously been dis­ qualified under the fourth statutory condition would have received part of the money from local funds (Poor Law). 2 Cmd. 3437, para. 11. 3 Cmd. 3437. para. 12. 4 Ibid. para. 13. The finances are somewhat complicated. The important point of the new arrangements was that Miss Bondfield was budgeting, by means of an increased treasury contribution, both for new expenses and for expenses that had previously been met by borrowing. The new Bill was worth £5£m to the unemployed out of national funds. All the rest was book-keeping.

I 2Ó


T h e new financial arrangements were designed to satisfy two con­ flicting interests. Labour supporters would be pleased by the increased money handed to the unemployed and b y the increased exchequer contribution. Opposition M embers would be pleased by the attempts to restore the fund itself to a ‘sound actuarial’ position. Both sides could read what they wished into the promise o f further comprehensive legislation. T h e publication o f the Unemployment Insurance B ill provoked sharp criticism from within the Labour Party. T h e I.L .P . were the most vocal in their denunciations. Cam pbell Stephen announced the same day, 15 Novem ber, that the I.L .P . would fight it ‘tooth and nail* for 'w e feel that it does not in any way improve the situation o f the unemployed’. He also gave notice o f a ‘reasoned amendment’ on the second reading.1 Perhaps more disturbing to the Governm ent was the reaction o f the General Council. In an editorial dealing with clause four the D aily Herald o f 16 Novem ber wrote: It is sincerely to be hoped that there will be no ambiguity on this point when the Bill passes into law; and the Trade Union Movement, at any rate, will certainly endorse the view its representatives expressed in their reservation to the recent Morris Report, that the only disqualification under this head should be the definite refusal of an offer of suitable employment. W ith evidence o f disappointment and anger coming in, it was widely expected that there would be revolt o f Labour M .P.s at the P .L .P . meeting on 19 November, but this failed to materialise. M acDonald, putting in a rare appearance, made a strong plea for acceptance ‘not as something they desired, but as the best they could get under the cir­ cumstances’. He argued that the pledges made were part o f a programme to be carried out in the lifetim e o f a normal Parliament, not to be redeemed within a few months. T h e Labour Party should therefore regard the B ill as an instalment only. T h e Premier also warned I.L .P . M embers that the national executive would appeal over their heads to their constituency parties if they voted against the Bill. M acDonald’s syrup as usual sweetened what m ight have been an ugly situation and party support was secured. Even so, thirteen M .P.s voted against presenting the B ill for a second reading, and the P .L .P .’s official statement supported it ‘subject to any amendments on points o f detail which the M inister o f 1 Daily News, 16 November 1929.



Labour may find herself able to accept'.1 M axton immediately announced that he would not consider him self bound by this decision. N or apparently did he feel bound by a decision taken by the I.L .P . M embers who by forty-one to fourteen decided to support the Bill. These fourteen rebels who consisted o f the Clydeside and extreme I.L .P . M embers were soon to drive out o f their party all those moderates who disagreed with them .12 T h e B ill had its second reading in the House on 21 Novem ber. M iss Bondfield gave moderate Labour opinion its cue when she remarked: 'I am not ashamed o f having done too much. I only regret that, called upon to administer a bankrupt estate, I have only been able to do so little.'3 T h e official party view was that the B ill was the best that could be managed in the circumstances and was to be regarded as an instal­ ment o f a larger measure to follow later — a familiar theme o f all the Governm ent’s legislation, and cum ulatively damaging to morale. However, it did enable moderate Labour speakers to support particular improvements w ithin the general framework o f disappointment.4* T h e Conservatives had no wish as yet for a general election, and so front-bench comment was restrained. T o ry backbenchers were more forthright. Viscount Lym ington accused the Bill, rather obscurely, o f 'over-throwing the whole contributory principle* and condemned it as an 'attack on the independence and the moral fibre o f the people’ which would 'eat into the stubborn endurance o f our English character'.3 W . S. M orrison thought it better to equip the young w ith 'spiritual armour' than material sustenance.6 Lieutenant-Colonel M oore argued that the B ill would ‘turn this country into a community o f subsidised paupers and pauperised em ployers'.7 Earl W interton deplored the de­ 1 Manchester Guardian, The Times, 20 November 1929. 2 Manchester Guardian, The Times, 20 November 1929. For an account of this ‘defeat’ of the I.L.P. dissidents see Robert E. Dowse, ‘The Left Wing Opposition During the First Two Labour Governments’, Parliamentary Affairs, Spring 1961, pp. 234-5. However, the date of this meeting should be 19 November not 21 October. 3 232 H.C. Deb. c. 752. 4 e.g. the Rev. Gordon Lang, who welcomed the increased rates for single girls of eighteen on the grounds that it would make them less likely ‘to supplement that meagre income in the most deplorable and most regrettable way’ (232 H.C. Deb. c. 1040). 3 232 H.C. Deb. c. 789-90. 6 Ibid. c. 1049. 7 Ibid. c. 1168.



struction o f the spirit o f adventure in the young.1 T h e one point o f substance made by Conservative speakers, later to be echoed in nonConservative circles, was the effect o f the measure in obstructing the m obility o f labour, by making it more attractive for the unemployed to stay in the depressed regions.* T h e Liberals, on the whole, welcomed the Bill, including the pro­ posals to abolish the 'not genuinely seeking work* clause, but, following Lloyd George, argued that it placed the emphasis in the wrong place: far better to provide money for putting men to work than for keeping them in idleness.3 T h e main threat to the Unemployment Insurance B ill came not from the Opposition Parties but from Labour's own supporters. T w o strong lobbies in the Party were determined to press amendments on the Govern­ ment. T h e more powerful was the trade union group who followed the lead o f the General Council. T h ey accepted, w ith reluctance, the Chancellor's veto on higher scales o f benefit, but were determined to make sure that the new fourth statutory condition really did involve the end o f the ‘not genuinely seeking work’ clause. Outside Parliament, the joint consultative committee sought to press an acceptable formula on M iss Bondfield. In the Commons, Arthur Hayday emerged as the lobby's chief spokesman. T h e trade unionists relied on influencing the Govern­ ment behind the scenes rather than through* frontal attack in the House which m ight cause a Governm ent defeat. N o such inhibition restrained the M axtonite group. T h ey mounted an attack on a broad front, de­ manding the full Blanesburgh scales, abolition o f the 'not genuinely seeking work' condition, and reduction o f the waiting period from six days to three, and making it clear that they were determined to press amendments on these matters in committee. T heir very intransigence alienated the bulk o f the Party who sympathised with their general aims, but disapproved o f the embarrassment and risk o f defeat to which they were exposing the Government. M iss Bondfield’s resistance to the Hayday Formula, which the unions were determined to have, made the position very difficult. T h e General Council and the parliamentary trade union group were anxious not to be associated with I.L .P . attacks on the Government, but it would be im­ possible to maintain the front o f loyalty unless M iss Bondfield were 1 232 H.C. Deb. c. 2028-9. 2 Ibid. c. 786. 3 Ibid. c. 768,775.


I 2Ç

prepared to give way. It was decided to appeal to the Prime M inister, and on 3 Decem ber he received the following letter : An Energetic Plea Dear Prime Minister, All members of the Trade Union Group in the House of Commons numbering about 100, the Chairman of which is Col. Watts Morgan, M .P., Mardy Jones, M.P. (Secretary) and James Sexton, M.P. (Treasurer), are very mudi concerned because the Cabinet up to the present time do not feel in­ clined to allow the Minister of Labour to accept what is known as the ‘Hayday Formula* to Clause 4 in respect to 'Genuinely Seeking Work*. Also, why they are [rie] not prepared to reduce the waiting period from six days to three. For the sake of approximatdy £4,000,000 per annum, the Cabinet is making it most difficult for us, and I am firmly convinced that even now at the eleventh hour if the Cabinet could see its way dear to accept these two propositions, we should be able to kill the opposition that has been going on for some days in the House by John Wheatley, Kirkwood and Co. What toe have seen and heard pains us ail I am sure. We, at any rate, are anxious to support the Government in every way, but on the foregoing two points we feel strongly, [italics mine.] W ill Thome (signed)1 Apart from the evidence afforded o f strong trade union feeling about clause four and o f a desire, verging on the subservient, to remain loyal to the Governm ent, this letter is interesting for the light it sheds on M iss Bondfield’s negotiations with the joint committee. Apparently she told the committee that the chief obstade to her conceding the Hayday Formula was the opposition o f the Cabinet. T h is may possibly be true, but in that case we have to ask how far the opposition o f the Cabinet was based on the opposition o f the M inister herself? T h e General Council formed a very strong impression that the M inister was 'tenaciously resisting* the abolition o f the fourth statutory condition. In view o f this her advocacy for its abolition before the Cabinet must have been less than com pelling. M oreover, one would have ex­ pected to find in the Cabinet at this stage a comfortable m ajority for the Hayday Formula. Perhaps, then, it was the opposition o f Snowden, on financial grounds, that was the delaying factor? It is doubtful whether Snowden’s opposition would be more decisive than the opposition o f the M inister herself. Had she been keen on the abolition o f clause four, Snowden would not have been able to resist popular cabinet clamour. 1 MacDonald Papers, File 6, Unemployment Insurance.

I 3O


It appears that the appeal to the Premier had some effect, for M iss Bondfìeld announced on 5 Decem ber, after a very confused Commons y debate, that the Governm ent would accept the Hayday Formula as the sole test o f disqualification. She conceded with bad grace; but the Attorney-General, Sir W illiam Jowitt, was even more put out, remarking : *A re we to legislate on the lines that these people should think that they need do nothing themselves; that they should wait at home, sit down, smoke their pipes and wait until an offer comes to them?’ 1 T h e next day, Snowden told a meeting o f the P .L .P . that the lim it o f concessions had now been reached and no amendments involving additional expenditure could be considered. T h e trade unions accepted: having won what they considered to be the major point on clause four, they were now prepared to retire gracefully from the struggle. N ot so the M axtonites. T h ey had put down a reasoned amendment for the second reading which obtained thirty-four signatures, although twelve later withdrew, having signed by mistake. M axton declared rhetorically: Two shillings for a child 1 The price of a pint of milk is 3d. Give the baby a pint of milk each day for a week — is. çd. gone; — 3d. left for all that the wee tot needs. Would you demoralise that baby if you gave its mother 5s.?’2 In committee the M axtonites moved four amendments, despite the decision o f the P .L .P . meeting o f 6 Decem ber to facilitate the passage o f the B ill with all speed. Altogether forty Labour M .P.s voted against the Governm ent on one amendment or other, indicating considerable resentment from outside the M axtonite group itself.3 M acDonald was furious. T f every one or two’, he declared at a dinner o f the London Scots Labour Club, ‘set themselves up to be wiser, to be more honest, to be more energetic and to be more determined than everybody else, every movement in which we are engaged w ill dissolve in the end into anarchistic fragments.’4 >23a H.C. Deb. c. 2686. 2 232 H.C. Deb. c. 777. 3 Brockway proposed that the Act become operative on 1 February, not 13 March 1930; McKinlay tried to increase adult dependants’ allowances from nine to ten shillings; Jennie Lee, to increase children’s benefit from two to five shillings. Finally Maxton tried to get the waiting period reduced from six days to three. 4 Manchester Guardian, 7 December 1929.

James Henry Thomas ‘ There is nota man in the present Labour Party, with the possible exception of M r. J . H . Thomas, whom 1 would entrust to let out push bicycles' {Lord Birkenhead)

On the dole 1 A re we to legislate on the lines that people should sit smoke their pipes and wait until an offer comes to them?’ ( William Jow itt, Labour AttorneyGeneral)


I 31

T h e Governm ent Actuary in a memorandum issued on 10 Decem ber 1929 estimated that at least another 150,000 people would come on to the register as a result o f the abolition o f clause four. T h is estimate was derived from a simple comparison between the periods 1925-7 and I928-9.1 However, other increases were likely which could not be definitely calculated. T h ey would come from people ‘not really in the market as competitors for employment, but [who] may hold themselves out as such if they are thereby enabled to qualify for benefit*. H e had particularly in mind married women who had not worked since marriage and seasonal workers during the off-season.3 H is inability to provide any estimate o f the numbers o f such new claimants made his statement all the more disquieting. N either the Actuary nor the M inistry o f Labour liked the new arrangements; both were determined, by pointing out their disadvantages, to get them reversed as quickly as possible. T h e frequency w ith which the A ctuary’s unsupported assertions were used b y the Opposition in the days ahead to weaken public confidence in the new Insurance A ct provides an example o f the way in which hostile officials can undermine government policy.


T w o days after the Actuary’s bombshell, the Coal Bill, having been through twelve drafts, was finally published. Its main points were a reduction in miners’ hours to seven and a half per day in eight-hour areas ; a National Industrial Board to protect wages ; provision for national and district marketing and output schemes ; national and district levies for exports ; and a National Committee o f Investigation to protect consumer interests. T h e B ill was a patchwork o f compromises to placate the divergent interests involved. T h e miners got a small reduction in hours, plus an Industrial Board to protect wages w ith powers so lim ited as to make it ineffective. T h e owners received statutory protection for output restriction, price maintenance, and export subsidies. T h e con­ sumers got an Investigating Council with powers o f recommendation. There was no mention o f amalgamations. N or was there any reference to the nationalisation o f royalties. 2 Cmd. 3453, paras. 8-9. 1 See above, p. 113.

I3 2


T h e Conservative position was plain: the owners having rejected the reductions in hours, the Conservatives would oppose the Bill. T h is placed the onus squarely on the Liberals. T h ey were totally opposed to the quasi-protectionist output restrictions and export bounties: they were disappointed that there was no mention o f amalgamations. T h e B ill was not a rationalising measure at all. Consistency and honour demanded opposition. O n the other hand the combined votes o f the Liberals and Conservatives could bring down the Government. T h is was not a pros­ pect the Liberal Party relished. T h e Governm ent was still popular and had gained much prestige in international affairs. It would be in a posi­ tion to mount a highly effective attack on the Liberals for obstructing its first major item o f legislation, the product not o f rash socialist promises but o f months o f careful preparation. Its position could hardly be much worse as a result o f a general election. T h e Liberals, on the other hand, m ight well suffer a crippling reverse, as in 1924. T h e obvious tactics for the Liberals were to try to amend the B ill in such a way as to meet their requirements. In practical terms this involved adding to it 'rationalising* clauses giving government power to institute amalgamations, and deleting from it the levy and output restriction provisions. T h e only question was — should they press for a promise from the Governm ent to amend the B ill before the vote on the second reading or after ? I f the Governm ent promised before the vote to accept committee amendments they would be able to abstain w ith a clear conscience: on the other hand they would be less free to oppose subsequently in com­ mittee. I f the Governm ent refused to make such a promise the Liberals would be obliged to vote against the Governm ent. T h is would then leave them a free hand in committee, but only if the Governm ent won the vote. T h e best tactics o f all m ight be a Liberal vote against the Govern­ ment on the second reading, sufficiently finely calculated to enable the Governm ent to survive, but sufficiently close to frighten th a n into making big concessions in committee. Before the second reading three prominent Liberals, Runciman, M aclean and E. D . Simon, announced that they would not vote against the Governm ent. Other abstentions were rumoured. Speaking for the Liberals in the debate, Sir H erbert Samuel said that the message o f the B ill ought to have been


I 33

concentrate your industry, work the pits full-time, adopt modem methods of coal getting, eliminate waste in transport and the great waste in the cost of retail distribution.1 W ould the Governm ent promise to insert clauses providing for com­ pulsory amalgamation, Samuel asked? T h e Governm ent would not, and the m ajority o f the Liberals went into the lobby against them on 19 Decem ber. T h e Governm ent had a m ajority o f eight, 281 to 273. T h e figures were deceptively close. Neither o f the Opposition Parties wished to bring down the Government. Although Labour were only nine short o f their full complement, nearly thirty Conservatives were missing. Sim ilarly, only forty-four Liberals voted against the Bill. T w o voted for it and six abstained. Thus both Conservatives and Liberals could make their gesture o f opposition without much fear o f a government defeat. L loyd George’s tactics on this occasion were closely analysed in a letter from Jules M enken to Lord Lothian: . . . On the second reading of the Coal Bill the division which so nearly resulted in a defeat for the Government was, of course, the direct consequence of Lloyd George’s speech, and that was, I think, unquestionably designed, by goading the Government with personal taunts, to prevent the announcement of concessions during the second reading debate, which might have induced the Liberal Party to vote for the Bill or abstain, and which would certainly have given the Government a stronger position, and a less conciliatory attitude, in the subsequent Committee stage. This extremely clever manœuvre succeeded remarkably well. Incidentally it has irritated the P.M . almost beyond endurance, and a recent message of his to one of the Scottish papers expressed a petulance which is in direct ratio to the extent of the strategical defeat which the Government suffered.12 It may be questioned whether Lloyd George’s ’extrem ely clever manœuvre* was really as clever as all that. Although its effect was doubtless to make the Governm ent more anxious to compromise on the Coal B ill, by reviving all the old distrust o f Lloyd George in the Govern­ ment ranks it actively hindered the prospect o f alliance between the two progressive parties on the basis o f a ’bolder’ unemployment policy, which was the declared aim o f the Liberal leader. Lloyd George’s 1 233 H .C. Deb. c. 1309. 2 A reference to MacDonald’s article in the Glasgow Forward, 4 January 1930, see below, p. 162. The letter (dated 14 January) is from the Lothian Papers, Box 191.



tactics in fact gave the Governm ent a wonderful excuse for inaction. T o all accusations o f failure it could reply that it lacked a parliamentary m ajority ; to all suggestions for a ‘progressive alliance', it could point to the Coal B ill and argue that Lloyd George would dish Labour whenever it suited his purpose. T h e real stupidity o f the Liberal tactics was not in wanting to change the B ill — for it was a bad B ill which needed im­ provement — but in trying to squeeze an extra tactical advantage out of a difficult situation. T h e Party thereby lightly surrendered the very strong moral position which it had built up in the previous six months and which up to that time constituted the strongest single argument for a 'progressive alliance'.1


T h e m alfunctioning o f Thom as's committee led to a number of suggestions for improvement, the most important o f which was con­ tained in a memorandum by the M inistry o f Labour official, H . B. Butler, British representative on the International Labour Organisation, which was passed on to M acDonald in November. Butler had argued that there had been no systematic effort under government guidance to reorientate and rebuild British industry and commerce to meet the difficulties o f post-war conditions. T h e efforts o f Thom as might be good in themselves but they were 'unsystematic and unco-ordinated'. A great deal o f valuable information never came before a single body charged specifically with unemployment functions. T h e M inistry o f Labour had much specialised and detailed knowledge; in the Home Office were lodged reports o f factory inspection staff dealing 1 The Bill eventually became law in August 1930, six months behind schedule. It was much mutilated. The one provision that might have had an immediate effect on exports — the levy — was deleted in committee. The Lords' amendments on the hours question held up the Bill for two months; eventually the Government agreed to a ‘spreadover* of the reduction over a fortnight. The Liberals inserted amalgamation clauses to promote rationalisa­ tion: they were so weak that they were never used. The quota schemes on the other hand ensured that little was done in the nineteen-thirties to make the industry more efficient.


I 35

with rationalisation and factory management; the Board o f Trade had much information on production, salesmanship, commercial possibilities abroad; the Balfour Committee had accumulated a mine o f information on industry; there were inquiries on foot relating to coal, steel, cotton and credit policy. There was no machinery for bringing all this together and viewing it as a whole, collating and focusing it so that it m ight serve as a basis for action. Butler proposed three new pieces o f machinery. First, an economic general staff, with the Prim e M inister as chairman, consisting o f all the M inisters connected with unemployment, which would take all the im­ portant decisions on policy. Under its auspices, standing committees would be set up to advise on each o f the main branches o f economic policy; they would all be interlocking through some degree o f common membership and would include representatives o f departments and experts and academics brought in from outside. Each one would be presided over by a member o f the economic general staff and each would become part o f the permanent machinery o f government. Finally, Butler proposed a secretariat consisting o f twelve higher civil servants o f firstrate ability, who would hold the machine together. It would prepare the work o f the economic staff and standing committees b y collecting all the information available in the various departments on each subject for discussion and presenting it in lucid, manageable form. It would handle all the secretarial work o f the committees; finally it would keep itself informed o f the executive actions by the departments to carry out decisions, so that at any moment a complete record o f what was being done in any field would be immediately available.1 Am ong other things Butler’s memorandum urged the Governm ent to make more use o f expert advice from outside the civil service. M acDonald, who saw Parliament as a laboratory, was all in favour o f proliferating experiments provided they produced no definite results; and on 1 Decem ber he lunched w ith a group o f economists at 10 Downing Street. Those present included Clay, Cole, Keynes, Layton and Tawney. T h e Manchester Guardian commented that he was ‘in the process o f developing an idea he has long had o f associating expert advisers with the machinery o f government*. T h is and subsequent conversations were crystallised in the Prime M inister’s announcement in the Commons on 1 MacDonald Papers, File 17 b, Unemployment.



22 January that the Governm ent intended to set up an Economic Advisory Council under his chairmanship. T h e membership and staff were announced on 12 February. There were fifteen full members, including Bevin, Citrine, Cole, Keynes, Stamp and Taw ney; five per­ manent officials consisting o f Thom as Jones, A . F . Hemming, H ubert Henderson, H . V . Hodson and Colin Clark (statistics) ; finally, the Prime M inister announced that 'w e have a list o f distinguished industrial­ ists and economists to assist on specific points'; all o f which prompted Hore-Belisha to ask M acDonald whether he was satisfied he had left out no one o f note.1 Hore-Belisha's comment was shrewd. T h e list o f names m ight sound impressive, but the Council need be little more than a ceremonial body — at best a discussion group. Past experience tended to support this. A Committee o f C ivil Research had been in existence for a number o f years. It had dealt with miscellaneous topics o f marginal importance which no department was prepared to consider, such as locust control and the ravages o f the tsetse fly. T h is Com mittee in fact formed the nucleus o f the new E .A .C . Unfortunately the legacy o f the Committee o f C ivil Research hung over the early meetings o f the E .A .C . and agendas were full o f the same topics o f marginal importance that had exercised the earlier committee. M oreover, the exact status o f the Council was not clearly defined. It was to be presided over by the Prime M inister, often accompanied by two or three leading Cabinet colleagues, including the Chancellor. But the advisory M inisters were not members. There was no direct liaison with the departments; it was not integrated into the general machinery o f unemployment in the way Butler had suggested. Also, at first, there was little for it to do. T h e Governm ent was still pursuing the policy announced the previous summer: the search for alternatives had not yet begun. In its first shadowy period o f existence it threatened to become as M osley put it, 'a discussion group revolving ideas in a void'. It was only the break-up o f Thom as's committee, the worsening economic position that forced on the Governm ent a reappraisal o f its unemploy­ ment policy, and the release o f the Prime M inister from his foreign preoccupations, that enabled it for a few months in the summer o f 1930 to move into the centre o f affairs. 1 235 H.C. Deb. c. 409-10.




In its first six months o f office the Labour Governm ent undoubtedly ^ made a good impression in the country. A t any tim e up to the end o f 1929 it could have faced the electorate with every prospect o f winning an absolute majority. Labour candidates did w ell in die municipal elections >/ o f I Novem ber, making a net gain o f a hundred seats in eighty o f the huger boroughs, contrasted with a net loss o f fifty seats by the Conserva­ tives and fifteen by the Liberals.1 In the four by-elections between August and Decem ber 1929 — at South-East Leeds, Twickenham , Kilm arnock and Tam worth — the average swing to Labour was 1*4 per cent.3 Q uite apart from the ‘honeymoon* effect there were solid reasons for the Governm ent’s success. M acDonald had once more made a very good * initial impression as Prim e M inister, especially in foreign affairs. He received an extrem ely flattering press in the opening months o f his premiership and opinions were confirmed by the outstanding success of his American visit in October. Snowden had earned admiration for the obstinate and aggressive way in which he had defended Britain's financial interests at the Hague; Arthur Henderson, too, made a good start as Foreign Secretary and was applauded in the 'liberal' press for getting rid o f that troublesome proconsul, Lord Lloyd, High Com ­ missioner o f Egypt.3 On the home front there were fewer successes, but both the W idows', Orphans' and O ld-A ge Contributory Pensions B ill and the Unemployment Insurance (No. 2) Bill, taken in the autumn session, promised to benefit considerable numbers o f people. T h e high point in the acceptance o f the second Labour Governm ent by the nation came on 20 Decem ber 1929 when M acDonald and Snowden received the freedom o f the C ity o f London at a luncheon at the Mansion House. Beatrice W ebb who was present has given us her impressions: 1 Manchester Guardian, 2 November 1929. 31 am indebted to Mr. Michael Steed for this calculation. 3 Lord Lloyd had resigned on 23 July 1929 after receiving a telegram from Arthur Henderson 'of such a character that I think most people would have accepted it as an invitation to terminate their position* (230 H.C. Deb. c. 1301). The resignation was due to policy differences over the question of non­ interference in Egypt’s domestic affairs.

* 38 .


J.R.M. is the greatest political artist (as distinguished from orator or states­ man) in British political history.. . . His handsome features literally glowed with an emotional acceptance of this just recognition. . . a glow which en­ hanced his beauty — just as a young girl's beauty glows under the ardent eyes of her lover.. . . His yam about his old Scottish schoolmaster might be con­ sidered a wee bit shoddy to cynical listeners, but his delightful voice redeems the tale. Thom as made a ‘pitiful contrast. . . his ugly and rather mean face and figure made meaner and uglier by an altogether exaggerated sense o f personal failure'. He was almost ‘hysterical in his outbursts o f selfpity’ ; everyone was against him, his ‘damns flowed on indiscriminately’ . He takes no counsel with Mosley and Lansbury re staff appointments or remedial measures. Terribly vain — he panics when flattery turns to abuse. For years he imagined himself as a future P.M .; today the question is whether he will drink himself into helpless disablement. Beatrice W ebb concluded: 'Jimmy is a boozer, his language is foul, he is a Stock Exchange gambler, he is also a social clim ber. He is, in fact, our Birkenhead.’ 1 Unemployment was, in fact, the Achilles heel o f the Labour Govern­ m ent; and Thom as slumped over the M ansion House table was the symptom o f its failure to grapple with it. He could hardly have succeeded, since the whole analysis o f the Governm ent was that unemployment would only diminish through a revival of normal trade and industry. A t the end o f 1929 it was still too early to come to a definite judgm ent on that point: employment was no worse and no better than it had been in the previous year. T h e Governm ent’s uninspiring policy, however, made Thom as peculiarly vulnerable. T h e Conservatives though largely agreeing with him taunted him on the contrast between his performance and the expectations held out by the Labour Party before the election; the Liberals, who wanted a bolder unemployment policy, accused him o f running away. His most important function — that o f creating confidence in the Labour Governm ent among businessmen and financiers — was hardly calculated to make him a hero in his own Party; his Unemployment Committee was disaffected, with the three advisory M inisters in almost open revolt. T h is contrast between the public and private performance o f the 1 B. Webb Diaries, 21 December 1929.



Labour Governm ent extended to other spheres. T h e preparation o f the Unemployment Insurance B ill had threatened to produce a rift between the political and industrial wings o f the Labour movement, owing to M iss Bondfield’s monumental tactlessness. T h e negotiations between Graham — 'able and assiduous, but timorous and unim aginative'1 — and the miners and owners, had again exposed the Governm ent’s failure / o f nerve at crucial moments. Even with the expectation o f Liberal support for a strong rationalising Bill, the Governm ent continued to flounder hopelessly in a vain attempt to square competing interests. T h e Governm ent resolutely turned its face away from the Liberals. J Even before the shocks o f 19 Decem ber it had rejected a Liberal offer o f an 'inform al understanding*. T h is had originated, strangely enough, in a suggestion made by that inveterate political busybody, M rs. Ethel Snowden, w ife o f die Chancellor. On 12 Novem ber she urged Thom as to admit that no individual Party could settle the unemploy­ ment problem and to invite all Parties to get together and deal with it as a non-political issue. T h is was not quite what the Liberals wanted, but it provided a convenient starting point. On 15 Novem ber the D aily News published the following statement made to its representative by Lloyd George: Certainly I agree with Mrs. Snowden that unemployment is a matter above party and above considerations of purely party advantage. I am sure that I can speak for the Liberal Parliamentary Party when I say that it would most willingly take part in such an all-party conference with the object of contribut­ ing to the solution of this great human tragedy.. . . In the Commons six days later Lloyd George renewed his pledge o f J support for any strong unemployment policy in the following words : You have here people who are prepared to assist the Government in any great projects they put forward for handling this topic; you have an assurance from myself and my friends that we will support the Government in any well considered enterprise. . . but you really cannot go on much longer unless you do something more to deal with the unemployed than the proposals of the Lord Privy Seal.. . . You cannot expect the House of Commons to tolerate it, and I cannot understand why hon. Members opposite tolerate it.2 In the meantime two Liberal M .P.S asked the Prime M inister whether 1 B. Webb Diaries, 9 November 1929. 2 232 H.C. Deb. c. 776-7.



he was prepared to set up an all party conference to discuss unemploy­ ment. M acDonald was non-committal, but despite the fact that it was his w ife who made the suggestion, the stum bling block to an all-party conference was the Chancellor himself. T h e Conservatives would come w ith safeguarding which was anathema to him ; the Liberals would produce their Yellow Book which was also anathema to him. In the event nothing came o f the tentative Novem ber probings. Lloyd George commented: I have done all I can. I have told the Prime Minister in my speech in the House of Commons that the Liberal Party is prepared to co-operate with him in solving unemployment to the full limit of its power. I cannot do more than this. The next step must come from him.1 1 Daily News, 25 November 1929.


I n A pril 1930 M acDonald coined a new phrase — 'the economic blizzard* — to describe the world depression which had developed at the end o f 1929. H e blamed this 'blizzard* for the rapid rise in British un­ employment figures and suggested that fresh thinking was needed to work out new policies. 's T h e G reat Depression, as it has been called, was the most important event o f the inter-war years. It killed the bright hopes o f the nineteentwenties^ It brought ruin and poverty to millions and wreaked havoc with their political faiths. Countries emerged from it at last, embittered and suspicious, sometimes w ith new and frightening regimes, as men renounced leaders who had failed them. Centuries o f progress seemed to have been swept away as the world, a prey to new fancies and terrors, drifted steadily towards war. How and w hy did it happen? There is no easy answer. It is generally agreed that itw a s die American recession in the sunupcr-of 1929 that started the downswing ^also that itjcould scarcely have gone so far_had the world monetary system, fashioned in the nineteenth century, been functioning better. W . A . Brown, in his monumental study, The International (Sold Standard Reinterpreted, explains why it was not function­ ing, citing as reasons the decline o f London, the failure o f the new 'nucleus* o f London, N ew Y o rk Mid Paris to co-operate effectively, and thè post-war debt problem. A third influence was the over-production o f agricultu ral and pnm ary products, leading to a constant downward pressure on prices which became irresistible etnee Jthe foreign lending which apppnrtcd the varions valnriaatinn achcmca dried u p in 1929. In

combination, these factors produced a collapse in world commodity



prices at the end o f iQ2Q. T h e price o f wheat fell by 19 per cent; cotton By 27 per cent; wool by 42 per cent; silk by 30 per cent; tin by 29 per cent; rubber by 42 per cent; sugar b y 20 per cent; coffee by 43 per cent; copper by 26 per cent. T h e serious reduction in purchasing power entailed by collapses o f this magnitude diminished the export markets o f the industrialisations. From tKe start o f icno unemployment rose rapidly in England and Germ any and to a lesser extent throughout western Europe. Undoubtedly this depression was a severe set-back to the Govern­ ment’s plans. It had staked everything on a trade revival ; it had spurned the bolder measures o f Lloyd George and M osley in the conviction that better times would come o f their own accord. T h e failure o f the gamble on returning prosperity provided the Governm ent both with an excuse and an opportunity. It could blame its failures on the blizzard and it could start again. But which direction would it take? For an understanding o f the worsening economic position it turned to the newly formed Economic Advisory Council. A t its first meeting in February a committee was set up under Kevnes to indicate the 'principal heads o f investigation* to be undertaken in order to arrive at a proper 'diagnosis’ o f the 'underlying economic situation’ . T h e other members were Sir A rthur Balfour, Sir John Cadman, W alter Citrine and G . D . H . C ole.1 For the information o f the committee and also o f the Prime M inister, Hubert Henderson, the E .A .C .’s secretary, wrote regular progress reports on the world situation. T h ey afford interesting evidence o f how the crisis was 'presented’ to the Government by its advisers. W ritten in A pril 1930, the following is typical o f four or five such reports: Until last autumn, [Henderson wrote] the centre of the British economic problem was the decline in the volume of our export trade, both absolutely and relatively to the foreign trade of the outside world. Several of our old-estab­ lished exporting industries had lost an important fraction of their export business, and there were no export developments in newer trades of a compar­ able order of magnitude. This loss of export trade gave rise directly to the problem of 'surplus labour’ attaching to old-established industries like coal and cotton, and, indirectly, to various maladjustments which impeded the development of internal trade. 1 C itrin e la te r b ecam e ill an d w as rep la ced b y B e v in .



Meanwhile, general business activity, both in Great Britain and throughout the world, was prejudiced by a steady deflationary trend resulting from some­ thing in the nature of a world scramble for gold following on the general return to gold standards. The fall in gold prices between 1924 and 1929 was heavy, the rate of fall exceeding that of the long deflationary period from the late ’seventies to the middle ’nineties. This necessarily acted as a brake upon the expansion of business, and in the case of Great Britain, increased the difficulty of absorbing the ‘surplus labour’ of the distressed exporting industries in other expanding occupations. For some time, however, the buoyant condition of the American and European stock markets gave rise to reper­ cussions immediately favourable to business activity, and no serious world depression made itself felt until the Wall Street collapse last autumn. Since then a severe world-wide trade depression has been superimposed on our special national difficulties, and this constitutes the dominating fact in the immediate situation. Stimulated by the sense of impoverishment resulting from Stock Exchange losses, the ‘vicious circle’ of reactions which charac­ terises the typical trade depression is now in full play. With commodity prices moving downwards, purchasers have become increasingly reluctant to buy, until they feel sure that the bottom has been reached. Thus the volume of business is further restricted, and this in turn accentuates the fall of prices. This condition in one market communicates itself to others, until practically every trade in practically every country is affected in some degree.. . . Although Henderson thought that unemployment would get worse before it got better, he was not pessimistic about the long-term pros­ pects. He thought that the depression would o f itself ‘set forces in motion which ultim ately effect a cure, notably cheap money*. In Henderson’s analysis, ju st as dear money was the main cause o f the depression, so cheap money would generate a recovery. On the other hand, such ‘hope­ ful possibilities’ as existed ‘are very far from being certainties, and depend for their realisation on the monetary policies pursued throughout the world’ . There is an inconsistency about Henderson’s analysis which well illustrates the dilemma o f the classical economist in this period. On classical assumptions the depression itself generates forces making for recovery, such as low interest rates. But Henderson also realised that cheap money depends on the ‘monetary policies pursued throughout the world’ — which far from being automatic depend on conscious decisions by Governments. In other words, the ‘real world’ no longer necessarily corresponded to the classical model. Under the heading o f ‘ Remedial M easures’ Henderson discussed four



possible methods o f increasing employment. It m ight be possible to expand the export trade, but he did not consider that this offered any hope for the immediate future. He discussed a number o f protectionist or pseudo-protectionist devices for diverting home consumption from imports, without pronouncing any opinion. In mentioning the 'stimula­ tion o f total consumption* he drew attention to 'the possibility o f develop­ ing the system o f instalment buying which had done so m udi in recent years to maintain a high volume o f consumption in the United States* and also wondered whether it would be possible to bring down retail prices by the 'rationalisation o f distribution*. Finally, he considered the 'devdopm ent o f capital assets at home*, pointing out that this would entail a large programme o f government investment in housing, transport and public utilities. W hether such a programme would unbalance the budget or retard the fall in interest rates, thus curtailing ordinary industrial expansion, were matters for enquiry.1 M eanwhile, the E .A .C . committee under Keynes was running into difficulties. T h e 'intellectuals*, Keynes and Cole, were soon at loggerheads with the 'practical men*, Balfour and Cadman. Balfour, a stedmaster from Sheffield, who had previously headed the Committee o f Enquiry into Trade and Industry, and Cadman, a mining engineer and Chairman o f the Anglo-Persian O il Company, held definite views about the consequences o f state intervention. Having seen the draft report that Keynes laid before them, they determined to produce one o f their own. Although the committee's task was lim ited to preparing heads o f discussion, both Keynes and Cole on the one hand and Balfour and Cad­ man on the other made their own position perfectly plain. Keynes and Cole took Henderson's view that there was no hope o f absorbing the unemployed in the foreseeable future by increasing exports. T h ey calculated that it would need an increase in exports o f £ ioom to provide work for merely 300,000 m en— yet there were a m illion and a half unemployed on the register. T h e only alternatives Keynes and Cole could see were a combination o f tariffs, import controls and home investment or 'a policy o f inactivity in the hope o f something favourable turning up*. Balfour and Cadman disagreed. T h ey declared that the 'fundamental object o f our enquiry is to discover the reasons for G reat Britain’s failure to secure her share o f such improvements in world trade as are 1 E.A.C. (Economic Outlook 4), April 1930, Henderson Papers, Box 1.



taking place*. T h ey had little doubt that the explanation was to be found in a combination o f high taxation, excessive wages, the cost o f the social services, trade union restrictive practices, the decline in emigration, and the advent o f a Labour Government. A ll these matters, with the acception o f the last, should be the subject o f careful enquiry. In the meantime the Government should avoid embarking on any expenditure which would further damage confidence. Balfour and Cadman made it dear that the unemployment problem could only be solved by the revival o f the export trade and hinted that tariffs were probably indispensable.1 Predictably enough, Snowden found the businessmen’s analysis more 'weighty’ than that o f the economists, though he could hardly have relished the hints o f protection in either. However, he was not at all pleased that the E .A .C . should be discussing these matters at all. He regarded the Council as a fanciful whim o f M acDonald’s which, if not carefully watched, would encroach on his own responsibility for financial policy. He now sternly warned it to have no further discussion on these ques­ tions. T h e reason he gave was that they were already being considered by the Macmillan Committee (whose report would clearly be a long time in coming out) and that any separate investigations would prejudice the work o f that Committee. He also rejected the ‘pessimism’ o f Keynes and Henderson about the export trade. T heir view ‘was not shared by many o f the people acquainted with the practical problems o f industry** (italics mine).


A s the world depression deepened, unemployment in Britain rose. Some seasonal increase was o f course to be expected during the winter months. W hat was com pletely unforeseen was that the figures would continue to rise in the spring. Whereas in M arch 1929 1,204,000 men and women had been registered as unemployed, in M arch 1930 the number was 1,700,000. T h e unexpected rise almost immediately upset the financial calcula­ tions o f the unemployment insurance fund and forced M iss Bondfield to increase the borrowing powers o f the fund — to 3650m in M arch 1930 1 Ibid. 1 ,2 May 1930.

2 Ibid. 12 May 1930.



and to j£6om in July. She m ight have increased contributions and/or decreased benefits; she m ight have increased the exchequer contribu­ tion as she had done in her previous A cts. However, there was a natural reluctance to upset the arrangements just completed: far better, if the crisis were temporary only, to take temporary measures to meet it. T h e problem o f paying bade the borrowing could be postponed till matters improved. T h e Government’s decision to embark on a career o f borrow­ ing, rather than reorganise the fund on sound ‘actuarial principles’, was eventually destined to destroy it. T h e coincidence between the passing o f the new Unemployment Insurance A ct and the rise in unemployment figures presented the O p­ position with its first target. It was immediately claimed that the relaxa­ tion o f conditions had been the chief cause in swelling the numbers o f the unemployed. Churchill delivered a characteristic onslaught on 28 M arch: An avalanche of new claims is pouring in. The numbers mount continually; the expenses rise by leaps and bounds; heavy further increases. . . are in prospect.. . . They are coming upon us simply owing to the relaxation of official safeguards.. . . T h e Governm ent Actuary had suggested that a ‘considerable group o f new claimants’ not in the labour market at all would claim benefit when the conditions were relaxed. It was the married women and the part-time workers, the Opposition claimed, who were swelling the numbers. M iss Bondfield, on the other hand, stressed that the world depression was the major cause. One o f her greatest embarrassments was the failure o f Thom as to relieve the pressure on the unemployment fund as he was expected to. T h e numbers o f unemployed rose steadily throughout the year, forcing her repeatedly to seek fresh borrowing powers. She was unable to offset the bad impression this caused by promising better things in the future. Had she possessed Thom as’s ability to see a silver lining in every cloud she m ight have contrived to make her grisly tale more palatable. A s it was she conscientiously produced the facts and figures supplied by her department and warned the House that she would soon be back for more. She did feel keenly, though, that she was being let down by the ‘con­ structive’ side and later noted in her autobiography:

T he Clydeside Revolution

Cart before the Horse



. . . the persistent attempts of the Opposition to talk irrelevandes on the general subject of my strictly limited bills were due to the fact that Thomas was not satisfying the House. There can be no doubt that this was one of the strategic points in the Government’s position which let in the Opposition.1 T h e criticism , then, o f Opposition spokesmen was not that any parti­ cular measure produced by M iss Bondfield was unnecessary but that the psychologically depressing effect o f repeated borrowing was not being countered by a constructive policy, either to provide work, or radically to reorganise unemployment insurance, or both. T h e Liberals were strong protagonists o f providing work. W hy was J it immoral, they asked, to borrow money to put men to work, and per- \ fectly moral to borrow to keep men in idleness? There was no difference | in principle, the Treasury would have replied. T h e sole criterion was whether there was any prospect o f the loan being repaid. But in practice a Chancellor m ight w ell prefer borrowing for the unemployment fund to borrowing for public works. First, pending major legislation, borrow­ ing was the only way o f ensuring that unemployment payments would continue to be made. Second, it was cheaper to give a certain number o f men unemployment pay than to set them to work; besides it took far less tim e. For these reasons the analogy o f borrowing for the unemployment fund was unlikely to impress any Chancellor as temperamentally averse to borrowing for any purpose as was Snowden. T h e Conservatives, on the other hand, laid the chief stress on re­ organising the finances o f the fund. Financial orthodoxy demanded that when there was no hope o f repaying loans expenditure should be met out o f current revenue. Throughout the nineteen-twenties the theory that the unemployment fund would one day be able to repay its borrow­ ing appeared ju st credible. By 1930 it seemed less so. It is interesting that in the first two Unemployment Insurance A cts passed by the Labour Governm ent — in August 1929 and M arch 1930 — borrowing was rejected as a means o f restoring the fund to balance. Indeed M iss Bondfield repudiated it in the most emphatic terms, stigmatising it as a 'dishonest course, because it would be contracting a debt that you saw no possible way o f paying off’.2 W hen subsequently she asked the House to increase the fund’s debt to £50111, then £6om, 1 Bondfield, A Life's Work, p. 297. 2 232 H.C. Deb. c. 1103.



and later on by even more, it was easy for Opposition speakers to point out that she stood condemned out o f her own mouth. W hen M iss Bondfield first asked for more money, the Conservatives held their fire, as Baldwin's Government had itself borrowed for the unemployment fund. But when she came to the House again in July, with unemployment standing at two million, they went over to the attack. A s W alter Elliot, leading for the Conservatives, put it on 23 July: If we are to accept the right hon. Lady’s figures as normal. . . raising the contribution or lowering the benefit will become a n . . . urgent necessity.1 T h e only way o f escaping Elliot’s dilemma was to opt for a completely non-contributory scheme, to be financed entirely out o f taxation. T h is was Labour’s own policy. However, in view o f the tremendous pressure mounted during the year for a reduction in taxation, it is clear that a proposed increase o f £]om to j£8om a year would have brought down the Government. T h e politically easiest course was to go on borrowing in the hope that something would turn up. T h is was precisely what M iss Bondfield seemed to be doing. N ever­ theless we must not suppose her policy to be as completely negative as she made out in the House o f Commons. Early in M arch 1930 she tried to get Cabinet acceptance for a scheme to bring agricultural workers within the ambit o f unemployment insurance. Such a move would satisfy a long-standing Labour demand. It would also be cheap, for there was comparatively little agricultural unemployment. T h e fund m ight even be able to make a small profit.12 There was some support in the Cabinet, but Snowden warned its members not to overlook the psycho­ logical effect on industry o f a proposal that would undoubtedly be represented as another ’dole’ and his objection proved decisive. B y M ay M iss Bondfield was proposing more comprehensive legislation designed to ’bring to an end the continuous procession o f Bills to provide finance’. She suggested raising the contribution o f employers and employees by 2d. each, with the Exchequer providing an additional sum equal to the increase in contributions, thus raising the income o f the fund from £4601 to {fizm . In addition, M iss Bondfield wanted the 1 241 H.C. Deb. c. 2197. 2 MacDonald Papers, File 6, Unemployment Insurance. Memorandum from Miss Bondfield to the Cabinet, 6 March 1930.



borrowing power raised by an extra £aom to £ jom . Her suggestion was discussed in Cabinet, but once more the decision went against her. Snowden argued that to add to the burdens o f the employers would be psychologically disastrous; for this reason he also opposed raising the borrowing power by £2om and bid M iss Bondfield be content with j£iom .1 Snowden’s decision cut both ways: the shock to industry may have been minimised, but the Opposition were given an extra opportunity to undermine the Government’s position by the opportunity afforded for further debates in the autumn and early new year; and the decision increased the Governm ent’s dependence on Opposition goodwill to make available the further sums required.


I f M iss Bondfield’s policy at least offered a hope o f solving the problems o f the unemployment fund, Thom as’s offered none o f reducing the numbers o f unemployed. In public he was as confident as ever. On 12 February he declared: T think the bottom has been reached.’ A t D erby on 12 M arch he thought that ‘things could only improve’. By 20 M arch he announced with something o f his old confidence that ‘the worst is past’ . T w o months later the prospect o f recovery was as unpromising as ever, but Thom as was still able to take comfort in the thought that ‘there is less suffering in our country than in any previous period in our history'. M ore significant was the lack o f any new ideas. Instead o f thinking he fell back increasingly on traditional wisdom. Speaking at M anchester on 10 January he said: ‘A ll that Governm ent can do, when all is said and done, is infinitesimal compared with what business can do for itself.’ A t Birmingham on 24 February he said: ‘T h e problem boiled down to how the Government can help the export trad e.. . . I am con­ vinced that the spending o f m illions o f pounds instead o f solving the problem w ill aggravate it.' On 1 M arch he was saying that ‘quick remedies are quack remedies'. By 18 M arch he was advising his audience ‘not to make the mistake o f looking for short c u ts . . . in the history o f the world short cuts had proved disastrous'. Reviewing his performance on 20 M ay, the Manchester Guardian wrote : ‘M r. Thom as’s 1 MacDonald Papers, File 6, Unemployment Insurance.



principal charm was once his vivacity and unexpectedness. He is getting sadly stereotyped. H e has become a man o f single speech, and not a very good speech at that.' A s we have seen, the Governm ent believed that only a trade revival would mop up unemployment. Its policy, both international and domestic, was designed to promote this end. T h e political highlights o f the international policy were M acDonald’s visit to the United States, recognition o f the Soviet U nion,1 signature o f the Optional Clause,12 the N aval Disarmament Conference in London from January to M arch 1930, and vigorous support o f the League o f Nations. On the economic side W illie Graham, the President o f the Board o f Trade, proposed at Geneva on 9 September 1929 that all nations should agree to a tariff truce for two years, while they planned phased reductions in tariff levels. T h e Assem bly made warm noises o f approval, as it had on the occasion o f every previous suggestion o f this kind, and referred the matter to a special conference. T h is conference which met on 17 February 1930, under the grandiose title o f Preliminary Conference with a V iew to Concerted Economic Action, was attended by twenty-seven nations. Discussions were started in an atmosphere o f the utmost gloom. People were just starting to register the world depression. None o f the British dominions turned up : they were planning to increase, not reduce, their tariffs. Nevertheless eleven countries signed a conven­ 1 Although a Labour Government was expected immediately to resume diplomatic relations with the Soviet Union, the issue once more threatened to become immersed in the dreary and sterile wrangling over the payment of Tsarist debts. Henderson’s initial note of 17 July 1929 invited the Russians to send a representative to discuss ’outstanding questions’ prior to any exchange of ambassadors. The Russians refused to negotiate about debts or anything else until Ambassadors had been exchanged. Notes passed to and fro until, under pressure from his own left wing and the Liberals (see Manchester Guardian, 2 August 1929), Henderson backed down and relations were formally resumed in November. However, the debt question still prevented the granting of long-term credits to Russian importers which would have helped Britain’s exports. The Government’s suspicion of communism went to the length of forbidding Trotsky to visit England (11 July 1929). 2 On 19 September 1929, the Government signed the Optional Clause of the Statute of the Permanent Court of Justice at the Hague, whereby it agreed, subject to certain safeguards and exceptions, to refer all disputes with other countries to arbitration.



tion and a protocol. In the convention they agreed not to increase their tariffs until A pril 1931 ; in the protocol they agreed that tariff reductions were indeed desirable.1 T h e convention was to be ratified by the Governments concerned by 1 Novem ber 1930: it would thus be a six-month, not a two-year, truce. T h e British dominions prom ptly denounced it and proceeded to increase their tariffs.12 B y Novem ber most o f the big names had dropped out. Britain ratified on 14 September, but when the final count was made it was found that she had been joined only by Belgium, Denmark, Finland, Latvia, Norway, Sweden and Switzerland. B y that tim e the deepened depression had effectively prevented the spread o f Graham 's scarcely infectious optimism; Am erica had put up the H awley-Sm oot tariff in July and most countries were anxiously seeking to strengthen further their defences against the economic blizzard. Nevertheless throughout 1930 the tariff truce negotiations were given as the primary reason why Britain could not put up tariffs o f her own. So much for the international policy. On the domestic front the Governm ent's chief aim was to secure rationalisation o f the major export industries. T h e chief obstacles to rationalisation lay in the structure o f the basic industries and their relationship with the banks. Nineteenthcentury industry had grown up on very individualistic lines, w ith innumerable small units o f production which combined only occasion­ ally and for specific objectives — e.g. to force wage reductions. Hence it was virtually impossible to get these industries to formulate any policy for their future, let alone a rationalisation policy which was exception­ ally complicated and involved numerous individual reappraisals. T h e banks who m ight have been able to provide the initiative did not regard it as their function to urge policy on their clients, even when those clients were heavily in debt to them. T h e K in g’s Speech had promised enquiries into the iron and steel and cotton industries w ith a view to discovering means 'to improve their position in the markets o f the world'. T h e appropriate committees were 1 The details of both convention and protocol are to be found in the Board of Trade Journal, v j March 1930. 2 The new Australian tariff which came into force on 4 April 1930 added 50 per cent to the duty on numerous classes of goods; India had raised its tariff on cotton piece goods from 11 to 15 per cent in February.



duly set up under the auspices o f the Committee for C ivil Research.1 In the meantime Thom as, with his wide industrial and financial connec­ tions, tried to bring industry and the C ity together in an attempt to provide finance for rationalisation projects. His discussions with the representatives o f industry had convinced him o f the widespread feeling in industry that the C ity was not interested in its problems. Thom as put this matter to M ontagu Norman, who assured him that ‘no sound scheme had been held up for lack o f finance’.* T h is was probably true as far as Norman was concerned, but, o f course, all hinged on the definition o f ‘soundness*. N o one opposed 'sound* government expenditure; unfortunately most o f it was considered unsound by definition. Arm ed with the Governor’s assurance, Thom as told M anchester businessmen on 10 January that the C ity was ready to give ‘financial advice and back­ ing to sound schemes o f financial reconstruction’ .13 2 Thom as’s announcement quickened interest in rationalisation and both he and Norman felt it would be advantageous to form a new institution to promote it further. Accordingly they announced, on 15 A pril 1930, the formation o f the Bankers* Industrial Developm ent Com pany, under Norman’s chairmanship, 'to receive and consider schemes submitted by the basic industries o f this country for the purpose o f their rationalisation'. T h e new company was to be supported by many o f the most influential banking and financial institutions in the country. It was not, however, to finance anything itself; as Norman put it, ‘arrangements w ill be made for the provision. . . through existing agencies o f such moneys as may seem to be essential’ (italics mine). Equally, it was made plain that no government money was involved. In other words, the C ity houses were determined to get their commission. T h e B .I.D .C . was to be nothing more than a vetting and guaranteeing body — 1 Two committees, on cotton and iron and steel, headed respectively by Clynes, the Home Secretary, and Graham, President of the Board of Trade, were set up at the end of July 1929, with identical terms of reference: 'to consider and report upon the present condition and prospects of th e. . . in­ dustry and to make recommendations as to any action which may appear desirable and practicable in order to improve the position of this industry in the markets of the world’. 2 Board of Trade memorandum presented to the two-party conference on unemployment, June 1930. Lothian Papers, Box 214. 3 Manchester Guardian, 11 January 1930.



it would vet applications and guarantee the financial institutions against loss. A s the money o f its own subscribers was involved in this second function, it was bound to make sure that none but the very ‘soundest* schemes received its imprimatur. T h e essentials o f the traditional industrial/banking relationship were preserved.1 W ith these terms o f reference, it is not surprising that the B .I.D .C . achieved almost nothing. A fter almost a year only one small scheme had actually been submitted and approved,13 2 and S. Hammersley, Conserva­ tive M .P. for Stockport, who was closely connected w ith the cotton industry, wrote in August 1930: I feel that the intervention of the Bankers’ Industrial Development Company, under its present auspices and with its present directing heads, is not only of no use to Lancashire — it is a positive hindrance.1 B y this time the two committees o f enquiry into the cotton and iron and steel industries had reported. Lancashire, the first one stated, had to choose between losing her trade by continuing as before or reorganis­ ing w ith modem methods to reduce costs and improve marketing: the organisation o f the industry was still the same as in the nineteenth century.4 T h e report on the iron and steel industry was considered ‘too dam aging. . . to publish in this country’.5 Both reports stressed the urgent need for amalgamations, financial reorganisation, and more m odem machinery; but the Government, considering that coercion would raise too many problems, preferred to leave these industries to work out their own salvation with the doubtful assistance o f the B .I.D .C . ; though it did give one o f its officials, Sir Horace W ilson, the status o f C hief Industrial Adviser, as a sign o f its continuing interest in the pro­ blem. I f the rationalisation policy failed to make much headway, the public J works programme fared little better. M orrison, the M inister o f Trans­ port, was fighting hard to get more money out o f Snowden, but with very lim ited success. T h e Government had authorised a five-year road pro1 The above details of the B.I.D .C. are taken from the statement made by Norman, published in the Financial Times, 16 April 1930. 2 Macmillan Committee Evidence, 9038. 1 Quoted in the Liberal Magazine, September 1930, p. 426. 4 Manchester Guardian, 3 July 1930. s Lansbury Memorandum, Lansbury Papers, voi. 25, n. 1017, para. 8.



gramme o f j£37$m. Early in Decem ber M orrison proposed an increase of in the trunk road programme, bringing it up to ,£17111, and an increase o f £çm in the ordinary programme, bringing it up to ,£3710 ; thus increasing the road programme altogether from t0 ^54m * T h e three months' negotiations between the Treasury and M inistry o f Transport revealed in the correspondence between Snowden and M orrison1 shed considerable light on the formation o f government unemployment policy. T h e Treasury appears in its familiar role as the watchdog of the national finances, reluctant to sanction any expenditure that m ight create budget difficulties ; the M inistry o f Transport was eager to press ahead w ith a more ambitious programme. Snowden vetoed the M inistry’s suggestion on 19 Decem ber, but M orrison renewed his proposals, on 16 January 1930, in modified form, asking now only for an increase in the trunk road programme. Once more Snowden remained obdurate and M orrison, in an effort to break the Treasury bottleneck, compromised by proposing an increase o f only ^4m in the trunk road programme, to be m et by a deduction from the rest o f the five-year programme. T h e question o f restoring the £4111 cut would be held over for the time being. T h e effect o f this change would be not to increase the road fund liability, but to concentrate more money on trunk roads, at a rate o f grant designed to attract local authorities. Snowden finally accepted this solution on 27 M arch. T h e debate between Snowden and M orrison revolved round the question o f the economic value o f road-building and how this value was to be assessed. Snowden argued that the test o f the economic utility o f further road construction must be 'the help it w ill afford to productive industry in the near future'.12 He was not satisfied that M orrison's new proposals satisfied this 'test' : Britain’s roads were already the best in the world. M orrison interpreted 'economic u tility’ in a looser sense: I do not see [he wrote] how you can expect to get specific proof of immediate help to productive industry in respect of particular lengths of road improve­ ment and construction. Must not the argument rest on the enormous growth of traffic, including commercial and industrial traffic, which uses roads and will continue to increase, and on the fact that a highway system designed for quite other conditions cannot without radical reconstruction and realignment give that growing traffic the facilities to which it is entitled?2 1 MacDonald Papers. 2 Snowden to Morrison, 19 December 1929. 2 Morrison to Snowden, 13 March 1930.



T h is issue was, in fact, central to the whole public works debate. T h e Liberals had admittedly argued that public works should be under­ taken, irrespective o f economic return, because they increased demand — an anticipation o f the developed Keynesian theory. Nevertheless, they staunchly maintained that their proposals would ‘pay for themselves*. W hen Snowden and the Treasury applied narrow business accounting techniques to this claim they found, not surprisingly, that it could not be sustained. But it was not the claim itself that was wrong: sim ply the methods used to test it. M odem cost-benefit analysis has developed a much wider concept o f economic utility, embracing, in the case o f public services, an idea o f 'social utility*. T his development is foreshadowed in M orrison’s argument: it is entirely absent in Snowden’s. T h e terms o f the agreement bore little relation to the arguments deployed on both sides. Because Snowden was chancellor he got the best o f the bargain; but the fact that he was forced to compromise is a tribute to M orrison’s pertinacity. In sum, the Government’s response to the first six months o f the world depression was the borrowing o f £20111 for the unemployment insurance fund, W illie Graham’s speeches at Geneva, the Bankers Industrial Developm ent Company, and an extra £41x1 for a five year trunk road programme. It is hardly surprising that its stock in the country began rapidly to decline and that internal disaffection reached the point o f open revolt.


W e have already referred to the businessman’s attitude to government expenditure: the F .B .I. memorandum handed to the Government in the autumn o f 1929 had urged it to 'take a holiday from social legislation’.1 One o f the problems facing a Labour Government was that it had to prove itself more virtuous than a T o ry Government in order to generate an equivalent degree o f confidence; for it was bound to be widely suspected o f having evil designs on industry and profits. Early in 1930, F . A . M acquisten, Conservative M .P. for Argyllshire, argued in the Commons that a Conservative Governm ent could embark on much 1 See above, p. 76.

IS 6


‘socialistic legislation* without creating a crisis o f confidence, for the holders o f capital realised that the Governm ent was basically on their side; but when Labour undertook the same legislation to the accompani­ ment o f displays of temper and indignation whenever the question of anyone making profits is mentioned. . . then, of course, you get capital slipping away, and there is no enterprise.1 It is, therefore, hardly surprising that Labour’s Unemployment Insurance (No. 2) Bill, so bitterly attacked by its own supporters for being too tim id, should have aroused widespread alarm in business circles. R. H . Brand, a leading banker, expressed these fears in general terms, in a letter to Lord Lothian, a leading Liberal, dated 5 December 1929: I regard the frame of mind of the ordinary Labour Socialist as hopelessly wrong. The more he puts his ideas and principles into practice the more we shall have unemployment and every other kind of trouble. The difficulty is that he can then turn round to an ignorant electorate and point out how badly private enterprise is working when, in fact, the troubles are largely produced by his own interference with it. It is quite possible, therefore, that we may have to go a good deal further along the downward path. I confess I look with alarm on the spirit that the Labour Party is inculcating into the rising popula­ tion that they need not rely on their own efforts, but can always rely on the State assisting them. The burden of all this kind of legislation will ultimately, I think, be too great for active industry to bear.2 In the light o f such misgivings it is unfortunate that the Government should have given the impression o f having capitulated to its own leftwing and trade union elements over the ‘not genuinely seeking work* clause. It would have been far better had it introduced the final clause itself right at the outset. A s it was, some credibility was given to the view that M acDonald and Snowden, moderates though they were, would be unable to resist the pressure o f their own left wing. D uring the first few months o f 1930 Conservative pressure was aimed particularly at influencing the forthcoming Budget. In London on 5 February Baldwin said:. 'T h e first thing to w h ich . . should devote. m yself if I wer«» fe economy and the stoppage o f fresh expendi­ ture o f any kind until employment is better*.3 A t Belfast on 14 February 1 237 H.C. Deb. c. 846. 2 Lothian Papers, Box 191. 3 The Tunes, 6 February 1930.


15 7

he went on: 'I t is the dread o f increased taxation. . . that is destroying J confidence.'1 Conservative business pressure groups took up the same J refrain. A special report o f the Federation o f British Industries argued that British industry was 'handicapped by a load o f taxation which not only far exceeds that o f any other important commercial country, but, so far fro m . . . decreasing, has actually grown cum ulatively more burdensome' and went on to advocate a reduction in 'unproductive* expenditure.2 Businessmen all over the country called for reduced taxa­ tion and spoke or wrote o f the 'crippling burdens' on industry. Even the Archbishop o f Canterbury thought that the cost o f the social services was becoming ‘a severe strain upon the industries o f the country’ and wondered whether they m ight not be 'undermining the very sources o f wealth as well as the independence and individual responsibility o f our citizens'.3 Am id these gloom y pronouncements Snowden had to find an extra £4701 to balance the Budget. T h e increase in anticipated expenditure was due mainly to four items. Firstly, the Conservatives had made insufficient provision to pay for the cost o f the De-Rating A ct and Snowden was obliged to find an extra £15111 under this head. Secondly, there was an additional £1401 for unemployment insurance; thirdly, the Governm ent’s W idows', Orphans’ and O ld A ge Pensions A ct which received the Royal Assent in Decem ber 1929 would cost £ sm ; and fourthly, Snowden felt obliged to set aside £510 for part repayment o f the deficit o f £14^01 on the accounts o f the previous year. It was this last provision that drew from the Manchester Guardian o f 15 A pril the comment that the Budget displayed 'a puritanical rigour such as has not been seen since the days o f Gladstone’. Snowden proposed to find the additional revenue largely by taxation. T h e income tax went up by 6d., there was an increase in surtax and death duties, and finally an increased tax on beer in the best traditions o f temperance legislation. B y these devices Snowden announced proudly he would leave his successor 'no bills to pay'. It w ill be seen that o f the additional estimated expenditure only £ 1 im was devoted to increasing the social services, although the I.L .P . 1 Ibid. 15 February 1930. 3 Ibid. 29 January 1930.

2 Ibid. 17 February 1930.



clamoured for 36200m.1 N or did Thom as’s schemes cost very much. T h e total exchequer grants under the Home Developm ent A ct passed the previous July totalled £1,185,000.* Liberal reactions to the Budget were friendly: they were pleased by Snowden’s promise to value land preparatory to a land tax which would secure ‘to the community a share in the constantly growing value o f land';13 * and also by his decision not to renew many o f the safeguarding duties due to expire shortly, though he regretted that he could not afford as yet to renounce the revenues o f the M cKenna and silk duties.4 T h e Liberals voted solidly with the Government. Conservatives on the other hand denounced the increases in taxation on the grounds that they depleted the stock o f capital, weakened the w ill to save and ‘killed off the goose that lays the golden egg’ . T h e I.L .P . accused Snowden o f ‘follow­ ing with admirable consistency principles o f finance which must bring disaster to our social purposes'.3


On 23 Decem ber a leading article in The Times reviewed the Govern­ ment’s position. It reported that whereas as recently as October Labour had stood well in the country, by Decem ber its position was ‘weak and shaken'. It attributed this deterioration largely to the Governm ent’s own fum blings, especially its handling o f the Coal M ines Bill. T h e Coal M ines B ill was certainly a factor. It was universally regarded as a bad Bill, and it brought the Liberals for the first time out in the open against the Government, significantly enough because they regarded it as insufficiently radical. This, however, was not its only consequence. It took up an inordinate amount of parliamentary time and thus threw the whole o f the Government’s legislative programme out o f gear. On 25 June 1930, M acDonald announced that the Governm ent would be forced to postpone the Education (School Leaving Age), Consumers’ 1 O f the £1401 for the unemployment insurance fund, £8m was a book­ keeping transaction. * 237 H.C. Deb. c. 2667. 3 Ibid. c. 2680. This Bill was postponed till the next session. 4 Ibid. c. 2671-2. 3 New Leader, 18 April 1930.



Council, Land Valuation and Industrial Hours B ilk , all o f which had passed their second reading in the Commons, till the following session. It had not been possible even to introduce a B ill to repeal the 1927 Trade D kputes A ct. M eanwhile unemployment rose dramatically. T h e Government’s modest programme had unluckily been overtaken by the deepening world crisis, but as M osley was to remark later this should have been a spur to doing more, not an excuse for doing less. Thom as's incapacity and obvious bewilderment brought a general lowering o f morale and increasing dissension. On 31 January 1930 Henry Snell, chairman o f the consultative committee, wrote to M acDonald: The spirit of the party is quite good and they are happy on most things, but full of anxiety about die present position of the unemployment question and there may be some danger of the more restive spirits making their feelings public. O f course there are always complaints of this kind but they appear to me to be more than usually numerous and keen at the present time. D uring the spring Conservatives and Liberak took advantage o f the »/ Governm ent’s decline to intensity their critickm s. W heatley’s prophecy o f the previous July that ‘after twelve months o f halting, half-way legkktion ’ no Party in the House would be poor enough to do it honour was being rapidly fulfilled, though he him self did not live long enough to see its final vindication. In these circumstances Passfield wrote to his w ife: T have a feeling that there w ill be a general election within the next three months. But who can tell? Threatened governments, like threat­ ened men, are apt to survive beyond expectations.’ 1 W ithin the Party, the I.L .P . had long been dissatisfied with Thom as’s / policy. In the autumn session their main energies had been concentrated on the Government’s Unemployment Insurance B ill; now they turned their attention to the k c k o f an unemployment policy. Their opportunity for attack was provided by rumours o f the M osley memorandum that began to circulate early in February.2T h e I.L .P .'s position on unemploy- j ment remained true to the proposak o f the 'L ivin g W age’ enunciated in 1926. T h e New Leader o f 27 Decem ber said in an editorial: The fact k that Mr. Thomas cannot, or will not, see that the development of the home market, the increase of purchasing power among the masses, the 1 6 March 1930; Passfield Papers, II.3.1.

2 See below, p. 171

i6 o


undertaking of huge development schemes, and investment therein of a huge amount of national money are the only hopes. T h e ‘huge development schemes' were to be paid for by taxing the rich. Thus M axton said on 7 February that 'a Socialist Chancellor o f the Exchequer should have no compunction in taking the greater part o f the money on which supertax was paid and using it for national services’.1 Brockway a few days later urged Snowden to raise ^20om by taxation for the purpose o f raising mass purchasing power.2 In its desire ; to finance socialism out o f taxation the I.L .P . position was the same as I that o f Snowden. T h e only difference was that he thought the moment ■ was inopportune. In a broadcast address in A pril he acknowledged that ‘the happiness o f the people can be vastly improved by great schemes o f social reform and national reconstruction’ but believed that these vital improvements are only possible out of revived and prosperous industry from which our national revenue is derived. In the present circum­ stances the first concern must be to restore and maintain a spirit of confidence and enterprise among those responsible for the conduct of our trade and industry.3 N either the I.L .P . nor Snowden saw borrowing as a short-term alterna­ tive. However, the dissatisfaction o f the I.L .P . was real enough, and in the first few months o f 1930 steps were taken which were eventually to lead it outside the Labour Party. On 20 A pril at the I.L .P . annual conference, the London central branch moved a resolution instructing the National Adm inistrative Council ‘to reconstruct the I.L .P . Parliamentary Group on the basis o f acceptance o f the policy o f the I.L .P . as laid down by decisions o f annual conference, and as interpreted by the N .A .C ., and to lim it endorsements o f future I.L .P . candidates to nominees who accept this basis’. T h is motion was accepted. Its purpose was to enable the I.L .P . to function as a more coherent group in Parliament and in the country; its effect was to lim it membership to those who supported M axton’s leadership. O f the 140 M .P.s who belonged to the I.L .P . only 4 eighteen accepted the M axton 'w hip', and between this smaller group and the rest o f the Labour Party relations became increasingly strained.4 1 The Times, 8 February 1930. 3 The Times, 24 February 1930. 3 Manchester Guardian, 16 April 1930. 4 See Mowat, Britain Between the Wars, p. 363.


l6 l

T h e formation o f an organised ‘enclave* within the Party was a direct challenge to the leadership which for some months had been inveighing vigorously against disloyalty. Faced, as they saw themselves, by a menacing Conservative-Liberal majority, Labour leaders tried hard to secure unity within their own ranks. M acDonald him self took the offensive when he criticised ‘those who prefer propaganda to building and criticism to responsibility and who see no difference between a friendly Governm ent battling with circumstances and a hostile one battling with right*.1 On 17 February he made his displeasure plainer stiff by resigning from the I.L .P ., o f which he had been a member since 1894. He was quoted as saying: ‘In view o f what is going on it was impossible for me to keep up my association. T h e I.L .P . has lost both its grip on socialism and its sense o f the meaning o f ‘comrade*. I f the salt has lost its flavour, it is henceforth good for nothing.*3 Snowden had resigned his membership in 1927. M acDonald's action, though he had been only a nominal member for many years, sym bolically affirmed the capture o f the I.L .P . by the Clydesiders from its old respectable, pacifist leadership o f the First W orld W ar. W ithin the Labour Party, M acDonald, with the loyal support o f Arthur Henderson, managed to isolate the I.L .P . rebels from the bulk o f the Party and prevent the spread o f disaffection. Henderson was indispensable during this period. W hen M acDonald shirked the task o f bringing the parliamentary Party to heel, Henderson was always there to do it for him. And, unencumbered by sentimental attachments, he had even less sympathy for the rebels than the Prime M inister. A t the party meeting on 19 M arch he asked bluntly: ‘do the I.L .P . mean to accept the decisions o f the Party and behave as a loyal element o f it, or go outside it?’3 A s yet the I.L .P . leaders did not know the answer. T o its own supporters, the Labour Party’s failure to stem the rise in ;unemployment and its generally poor showing on the home front proved a grievous disappointment, especially after the high hopes o f 1929. A scapegoat had to be found; and the Liberals were ready to hand. Labour speakers at this tim e made much o f the im possibility o f passing 'socialist* legislation from a m inority position and accused the Liberals o f plotting 1 Glasgow Forward, 4 January 1930. 3 Daily Herald, 18 February 1930. 3 Daily Telegraph, 20 March 1930. He once said: ‘The plural of conscience is conspiracy.’

16 2


to destroy the Government at the earliest possible opportunity. Thus M acDonald argued that ‘M r. Lloyd George and M r. W inston Churchill seem to have decided that at all and any cost they are to defeat us’, and went on to accuse Lloyd George o f having made an ‘outrageous personal attack* on Graham in the course o f the coal debate which ‘was plainly designed to prevent any co-operation in the lobby between Liberals and the Governm ent'.1 Herbert M orrison took up this line with gusto. O n 4 January he warned the Liberals that they must decide whether they wanted to facilitate ‘constructive legislation’ or whether they wanted to destroy the Governm ent.2 Speaking at M iddlesbrough on 19 January he claimed that the parliamentary situation made it impossible for the Government to follow ‘those clear and definite socialist paths which were dear to the hearts o f all o f them '.3 R. C . M orrison, the Prime M inister's parliamentary private secretary, speaking at Keswick on 1 February, said: ‘I f Lloyd George remains leader of the Liberal Party there is going to be a general election this year'.4 In blam ing the Liberals the party leaders and the I.L .P . were at one. T h e leadership needed a scapegoat; the I.L .P . ' could not credit the party leaders with the conservatism they displayed i and concluded that this could only be due to a 'capitalist' conspiracy in the House o f Commons.* In fact the I.L .P . remained firm against any ‘understanding’ with the Liberals on the grounds that this would finally mark the abandonment o f any ‘socialist* programme. One explanation o f the Governm ent’s negative attitude towards the\ . Liberal Party was the simple fact that the Liberals were advocating a > more radical policy than the Governm ent's. Labour leaders undoubtedlyfelt guilty about this, which put them on the defensive. M oreover, as ; they were unwilling to explain to their followers why, in their opinion, it » § .•§

1 s| fi *s - I g ü fJä s |1 « " 5 5

June 1930

5 l| ,| S 8


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Oct. 1930

§ J -2 J ^


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. h § 8 2 M b *« -g -'S 61, 91-3, 134-6; Mosley’s proposals, 172-4, 280 n., 191-3; Cabinet pro­ cedure, 264, 319, 390 f., 405-6. See also Cabinet, Civil Service, Local authorities McKenna, Reginald, 3 n., 2611., n 8 n ., 229 n.; duties, 5,158 Maclean, Sir Donald, 132, 277» 3*°» 350,366,377 Macmillan, Capt. Harold, 184, 235, 276 Macmillan, Lord, 118 n. M acm illan Committee on Finance and Industry, set up, 117; membership of, x i n .; evidence to, 12, 13-14» 153* * » *85* 348, 388 n. ; Report, *95-6; reveals London’s short-term debts, 340,369 M acpherson, I., 261 n.

8 77

Macquisten, F. A ., 155-6 McShane, J. J., 272,280 n. Married Women Problem, 131, 232*33,305,3**.3*8-19 Marxism, 28-9 Maxton, James, 47 m, 74-5, 87, 90, 120-1, 127, 130, 160, 271-2, 321, 3 *4 ,389 May, Sir George, 302 n., 356 May Committee, set up and member­ ship of, 302 n.; motives for, 298, 343 ; as cause of financial crisis, 339340; Report, 344-6; economies proposed, 345; effect of, 343; reactions to, 346, 349 f., 351, 353, 357,360,37* Maybury, Sir Henry, 108, 182, 195, 218-19,222-3,391 Means test, demands for, 234-5 » Royal Commission proposes, 314315 ; May Committee proposes, 345 ; Labour Government and, 360, 363 Menken, Jules, 133 Mills, J. E., 321 Milne-Bailey, R., 373 Miners’ Federation, 111



Mining Association, i n Mitchell, Sir James, 401-2 Mond, Henry, 277 Mond-Turner Conference, 43 n., 4 4 n., 96,369 Moore, Lt.-Col. T ., 127 Moore-Brabazon, Col. J. T . G ., 330 Moret, C., 285,355 Morgan, J. P. & Co., 378-80; tele­ gram, 381 (n.) Morris, E. T ., 258 n. Morris, Sir William, 229 n., 235-6 Morris Committee, appointment, 82, I 14-15 Morrison, Herbert, 71,109; arguments with Snowden, 153-5, 194-5, 162, 184, 191, 222, 306; promoted to Cabinet, 325 ; and London Passenger Transport Bill, 325 (n.); comments on Greenwood memorandum, 363 (*».), 37 6 , 377 . 383. 3 9 4 ; criticism of Mosley Memorandum, App. iv, 405^7 Morrison, R. C., 162 Morrison, W. S., 127 Mosley, Lady Cynthia, 183, 186, 280 n., 323 n. Mosley, Sir Oswald, 38; and Revolu­ tion by Reason, 47, 48-50; 71, 88, 91. 94, 95-6, 98, 107-8, 136, 159, 167-189; resignation of, 184, 231, 249-50, 270 n.; at Llandudno Con­ ference, 271 n., 276 f., 302, 320, 323 n. ; similarities with Bevin, 370 (n.), 386, 388, 389, 390, App. hi, 403, App. rv; Mosley Memorandum, 404-8 Mosley Group, 245,271,273-4,276-7; Manifesto, 280; leaves Labour Party, 323 n.; and Anomalies Bill, 320 Mowat, C. L ., Britain Between the Wars, 365,366 (n.) Muggeridge, H. T ., 280 n. Muir, Ramsay, 51 n., 166 Multiplier, Liberals and, 54, 305-6; Keynes and, 54,211 Mummery, A. F., 30

Mussolini, 256,282 Nathan, Major H. L ., 51 n., 90,244 National Government, formation of, 382 ; suggestions for (autumn 1930), 277-80, 301, 353, 354, 356^7; Opposition against, 354, 357,358-9, 380 f. ; helps to restore confidence, 385; and 1931 election, 385 National Insurance Act (1911), 21,45 Nationalisation, economic justifica­ tion of, 27-8,47,48,49; Land, 253, 257-8 ; irrelevance of, for unemploy­ ment, 37-8,389 N a tio n a l S c h e m e s, C o m m itte e o n , 9 3 ,

400-1,406 Naval Disarmament Conference, 150, 322 (n.) Necessitous Areas Act (1930), 198 New Party, 323 n., 386 Newbold, J. Walton, 118 n. Newspapers, Opposition, 232, 238, 350-1, 355-6, 364-5; Labour, 115, 126,251 (n.), 356,364,368; French, 338 , 342 , 34 3 .351-2 ,3 5 4 Nicolson, Harold, 324 n. Nimmo, Sir Adam, 8,9 n., 11 Nordwolle, collapse of, 339 Norman, Montagu, 13-14,116 n., 152, anti-French bias, 283, 285; Plan, 285-6, 296, 335, 339; collapse of, 354 n. Not Genuinely Seeking Work Clause, introduced, 21; and Labour Party, 46 ,113 f., 123-30,311 Opposition, and May Report, 354, 356-7, 366, 377-8. See also Con­ servative Party, Liberal Party Optional clause, 150 Oxford and Asquith, Lady, 166 Panel of Ministers, established, 191, 196 Parliament Act, 323 Parmoor, Lord, 73, 323,326,328,363, 382 Passfield, Lord, see Webb, Sydney Passmore, Lord, 401


Patan, John, 324 Peacock, E. R., 356 n. Penny, Sir George, 120 Petter, Sir Ernest, 330 Pigou, A. C., 1 ,25,205,207 f. Plender, Lord, 302 n. Press, tee Newspapers Price, Morgan Phillips, 280 n. Protection, 5, 227-8; spread of pro­ tection feeling, 228-9. See also Beaverbrook, Conservative Party, Empire free trade, Imperial prefer­ ence, Safeguarding duties, Tariffs Public Works, 19-21,80; criticisms of, 119,155,216,305-7; local authority responsibility for, 20-1, 104-5; Labour Party and, 39-41; Public Works Facilities Bill, 197-8. See also Labour Government, Road construction programme, Treasury Pugh, Alan, 302 n., 373 Pybus, P. J., 261 n. Rackham, Mrs. C. D., 314 Rationalisation, 9-10,109-10,151-3 Reading, Lord, 279,359 Rentier, possible taxation of, 358; ad­ ministratively impracticable, 359 Reparations, The Hague Conference on, 8 9 ,116,137, 282-3, 336 n., 337, 34 * Retirement Pensions, Committee on, 95-roi, 178, r8i Retrenchment, clamour for, 156-7, 225,227,235-6,287,297 Road construction programme, 56-7, 81,92,105-6,108,118,153-4,194195,218-19,222-4, *40.390»406-^7; Liberal programme, 52-3 Robbins, Lionel, 205,206,209-10,293 Roberts, F. O., 323 Robertson, D. H., 26,205 n. Robson, W. A., 271 Rose, Archibald, 248-9 Rosebery, Earl of, leaves Liberal Party, 332 Rothermere, Lord, 165,274, 276,278, *7 9


Rowntree, B. Seebohm, 51 n., 52,221, 222-3,*62 Royden, Sir Thomas, 302 n. Rueff, Jacques, 289-92 Rume, Sir W., 118 n. Runciman, Walter, 132,277,297 Russell, Earl, death of, 323,326 Safeguarding duties, 5, 58, 157, 229230 Salter, Sir Arthur, 184,221-2,249 Samuel, Sir Herbert, 51 n., 85 n., 90, 132-3; followers of, 229, 277, 385, 302, 328, 356, 358, 366, 377-8; advice on National Government, 381, 382, 385; Report on Coal Mines, 9, n o Sankey, Lord, 73, 326, 382; moves vote of thanks, 383 Schacht, Dr. H., 336 n. School-leaving age, Bill to raise, 95; postponement of, 158, 243; Scurr Amendment, 322-3 Scotland, unemployment proposals for, 303,402-3 Scurr, J., 317; Scurr Amendment, 322-3 Sexton, J., 86 Shaw, G. B., 279 Shaw, Tom, 73,171,317,382 Shinwell, E., 247 Short-time work, 10, 131, 233, 236, 311 ; and Royal Commission, 315; legislation on, 318-19. See alto Un­ employment insurance Siegfried, A ., 284 Simmons, C. J., 280 n. Simon, E. D., 229 (n.) Simon, Sir John, 51 n., 75, 229, 261, *77, 297, 332; Lloyd George attack on, 332 n.; followers of *77 (n.), 33 *. 350 » 385; Report on India, 219 n. Sinclair, Sir Archibald, 261, 264, 277, 328 Sinking fund, Budget's, 17, 344, 357, 364» 374 *• Small-holdings, 255 f., Acts, 252



Smith,Herbert, i n , 113 Tariff Truce Conference, 150-1, 247, 282,287 Smyth, J. L., 373 Snell, Lord, 159; on MacDonald, Tawney, R. H., 135,136 Taylor, J. Frater, 118 n. 39 * n. Snowden, Ethel, 69, 139, 160, 165, Taylor, Vice-Admiral, E., 276 Thomas, James Henry, 47, 65; 183,191,294-5 character of, 70, 80-2, 91-5; in­ Snowden, PhUip, 38-9, 43, 47, 55; capacity of, 94, 98, 120-1; in character of, 68-9, 116 f., 123, 130, Canada, 101-4, 107-8, i n f., 118, 137, 140, 145 f., 153-5. 17*; critic­ ism of Mosley Memorandum, 178138, 149-50, 15a. 159. »69, 181—2, 183-4; demand for dismissal, 188— 179. 183. i94-5> *02; attitude to 189; Dominions Secretary, 189, E.A.C., 145, 204, 206; and freetrade views, 229, 231, 237 f*. 258 f., * 4 7 . 3 **. 3 *6 , 3 *8 , 344 . 363. 366, 264, 267; rumours of dismissal, 375 . 38a, 383 n., 385, 394- See also Unemployment Committee 270n .; anti-French bias, 283; as Chancellor, 287-9 (*»•). 393. illness Thompson, Sir Ernest, 247-8 of, 294-5, 3 *3 . 3 *6 - 7 ; *9 6 , *98, Thomson, Lord, 73,403 300-a, 306 f., 319; and Lords, Thome, W., 129 3*6 f., 33 5 , 34 * U 353 . 355 f-l gives Thornton, Sir Henry, 103 details of taxation, 362; opposed to Thurtle, Ernest, amendment, 185-6 tariff, 363, 365-6, 366 f., 371 f-5 Toynbee, A. J., 344,381 attitude to T .U .C . leaders, 371, Trade facilities, 18 377-8, 382, 383»., 384; created Trades Disputes Act (1927), Bill to viacount, 385,394 amend, 159,243,323,329 Socialism, see Labour Party Trades Union Congress, Conferences South Africa, 247 of, 91, n o , 231, 357; attitude to unemployment, 9, 395; to unem­ South America, 247-8; revolutions in, ployment insurance, 45-6; to 281,286 Spain, 281 rationalisation, 109-10; General Council of, and Protection, 230-1, Spender, J. A., 230 287; relations with Government, Stamp, Sir Josiah, 26 n., 136, 205 f., 122-3, 128-9, 263-70, 318, 371-5; 209-10,289,382 and unemployment insurance, ask Stanley, Oliver, 247,276,320-1 for enquiry into 'abuses', 122; Steel-Maitland, Sir Arthur, 86, 234, Anomalies Bill, 318, N.G.S.W . 302,313-14 clause, 114, 122-3, 128-9; oppose Stephen, Rev. Campbell, 47m, 126,324 lowering of wages and benefits, 372Strachey, E. J., 47, 171, 272, 280 n., 373; and Royal Commission on 3*3 nUnemployment Insurance, 263 f., Strauss, George, account of Mosley 265-8; evidence to, 312-13; reac­ meeting, 185-6 tion to Report of, 317; Parlia­ mentary Group of, 74, 128-9, 318; Tariffs, spread of, 281; Keynes's Economic Committee of, 230-1, proposal for, 292-5 ; Snowden’s criticism of, 306; rejected by 369 Government, 327 ; Cabinet Economy Transfer condition, 20, 106, 107-8, Committee and, 360; Cabinet and, 178,195-7; abolition of, 196 363-4; General Council and, 372-3, Transport, Ministry of, see Road construction programme 376 ,384.388


Treasury, function of, 15-17,283,390; evidence to Royal Commission on Unemployment Insurance, 288; criticises government policy, 288 n., 308, 310, 357 f., 362, 378, 388, 391 “Treasury view’, 16-17, 24-5; Liberal attack on, 54 f., 92,97,98,147» I54Î Mosley’s attack on, 180, 217-18, 305-6, A pp.v, 409-13 Trevelyan, Sir Charles, 73; resigna­ tion of, 322 Tulloch, A. A. G ., 118 n. Turner, Ben, i n , 245 Ullswater Committee, see Electoral reform Unemployment, 1, 4, 76, 145, 148, 243, 281, 385-6; debate on, 1-2, 4, 6-7, 8, 9-10, 23-6; Socialism and, 27-8; under-consumption theory, *8, 31. 47 - 8 ; Mosley on, 48, 54-5, 58 ,76 -8 ,119 ,14 4 -5 ,154-5» *07-8, 210—i i , 289-92,305-6 Unemployment Committee, 91-5; Butler’s criticisms of, 134 f.; Mosley on, 172, 183; wound up, 189. See also Thomas, J. H. Unemployment Grants Committee, 19-20,92,105-6,118,194,304-5 Unemployment insurance, 21-3 ; Con­ servative, Labour and Liberal attitudes, 44-6,113-15,148; reform urged by economists, 214; and civil servants, 216; Oppositions, 234-5; and E.A.C., 236-7; Three-Party Conference on, 238-9; comparisons with other countries, 282; as cause of unemployment, 291 ; summary of benefits, 3x5; proposal for National Treaty, 317; (1911 Act), 21; (1929 No. I Act), 82; (1929 No. 2 Act), 122-31; Abuses and anomalies, 131, 146, 231 f., 263, 310-11; admitted by unions, 313; legislation on, 318-19, 324; Royal Commission


on, promised 243, 262; government motives for, 263-4; T .U . reactions to, 262 f. ; consultations over, 265-8 ; terms of reference, 267; Treasury evidence to, 288; proceedingsof, 30915; Report, 314-15; reactions to, 315-16; and May Report, proposals to reduce benefits, 345,357,360 U.S.S.R., recognition of, 150; and dumping, 230,254 n. United States, 3,76 ,8 9 ,116 ,117,13 7, 150 ,15». *81, 286, 322, 337-8, 342, 378,387 Wales, Prince of, 248 Walkden, A. G ., 373 Walters, Sir Tudor, 303,390 Warwick, Countess of, 271 Waterhouse, Capt. C., 320 Webb, Beatrice, 32 f., 38, 94, 137-8, 183, 188, 270, 272, 328; and counter-cycle policy, 33-4; Poor Law Commission, 32-5 Webb, Sydney (Lord Passfield), 32,38, 72,159; loses Dominions Office, 189, 308,326 f. ; letter from MacDonald, 3*8,363,376,383,393 - 4 »395 Welsh, J. C., 121 Wheatley, John, 47 n., 74, 87, 118, 325 ; housing subsidy, 53 Whyte, Sir Frederick, 248 f. Widows, Orphans, and Old Age Pensions Act (1929), 137,158 Williams, Evan, 111 Wilson, Sir Horace, 92, 93, 109, 153, 216 n., 391,401 Winterton, Earl, 127-8 Wise, E. F., 47,48 n., 308,351 Wood, Sir Kingsley, 198 n. Worthington-Evans, Sir Laming, 119, *9 9

Young, Allen, 47 Young, Owen, 335 Young Plan, see Reparations Zambezi River, bridge over, 81 n., 118