The British Economy in 1918

Hello, I'm Dr Christopher Price.

I'm a senior lecturer in history at York ST John University.

Today, I'll be talking about the British economy in the interwar period

from 1918 to 1939.

This is a controversial topic because historians

since the Second World War have looked

back on the inter war period as a bad time the 19 thirties,

particularly as the Devil's Decade.

A time a cautionary tale. But they have different messages.

Before the 19 seventies,

Keynesian economists who follow the great economist John Maynard Keynes looked

at the period as an example of why government should intervene more

and thought the government did intervene enough in the interwar period

to manage the economy to prosperity after the 19 seventies.

Historians, generally speaking on the right,

thought this period had too much government intervention in the economy,

and it was a cautionary tale because there was insufficient entrepreneurship,

too much complacency and that Britain was backward.

Um, just decline ist analysis as it became known.

So it's useful to look at the inter war period in its own terms.

So in the first part,

I'll be looking at the situation at the end of the first World war in 1918.

Now, to understand what Britain was in this period,

you have to go back a little bit further

and look at the situation. Just before the start of the first World War in 1914

at this point, Britain was by far the wealthiest nation in the world,

also the greatest imperial power, with roughly a quarter of the world's population

and land surface under direct rule from London.

So Britain was a very considerable power, the only truly global power at this stage.

Britain was also the centre of world finance,

Britain around huge surpluses on its trade with the rest of the world

and recycled visas loans to the rest of the world.

So an annual surplus on international trade of about 10% of national income,

which was huge. So Britain was in towering status at this time

at the end of the first World war,

the situation was much changed, although not entirely.

Britain was victorious remained a very considerable power,

but there were considerable changes

in the first place. Britain now had a huge debt. Britain had a debt of £7.5 billion.

As a result, of the first World War, which had to be serviced in the coming decades.

This was more than the size of the economy at the time by a factor of

1.3, so it was something of a crushing burden to the economy going forward.

Britain also had to share

international status as top nation, as it were with the United States,

which had been coming force in the pre first

World War period but as a result of the wealthy

had gained from supplying the allies in the first

world War was now a financial arrival to Britain.

So the world had two financial centres which are now in London

and New York. So Britain was no longer dominant, no longer Hagemann

but still one of the top two powers in the world.

Britain and the United States are broadly comparable

as financial powers.

The American economy was very much larger than Britain's,

but Britain had the global network of its empire and the

trading links that came with that which balanced that status,

so Britain had a huge deficit had to service. International trade was fractured

in this period,

so problem Britain would have was that trade was not as easy it had been before.

The first World War, which were trading nations, which is Britain,

was a considerable problem.

Also, in the 19 twenties,

the condition of the people had to be taken more

seriously in economic sense before the First World War.

Seems like a third of the British popular population lived

in poverty of one type or another 30% or so in

secondary poverty, at least,

which meant that if they spent everything they had very wisely and nothing else,

they might subsist.

An attempt of the population, the so called submerged 10th in primary poverty,

which meant that was, however they manage their income,

they would not be able to subsist.

So these problems,

we're very conscious

in the minds of the government. Before the First World War

and after the first war, everybody now had the vote

women over 30 or men over 21 which was

a radical departure from the first World War situation.

So governments have to concern ourselves a little

more with the welfare of the population.

In the whole of the interwar period,

there was no year in which the government spent less than twice

as much as it did before the war on welfare measures.

So in terms of actual British people,

the wartime post war world was a different situation to the people world,

although by modern standards there was nothing in the

nature of what you would call a welfare states.

Um so Britain's debt was a huge problems, I mentioned.

Another aspect to this was that a billion

pounds was so directly to the United States,

which had been a debtor of Britain's.

Before the war, the Americans were out to exploit this position

of power

relative to the United Kingdom. They demanded payments every six months in gold.

And although Britain was a negative creditor from the war,

this situation vis a vis the United States would also be a continuing

issue. Britain at the time

was also a free trading nation. This was very important to policymakers in London.

That meant that when Britain was dominant before the first World War,

uh, it did not impose tariffs or taxes on imports to the United Kingdom.

Nor did the British government attempt to

subsidise the exports of British companies abroad,

so it was completely free trading nation that felt

that goods and social should flow freely between borders.

Other countries did not share this policy.

And all Britain's major trading rivals France, the United States,

Germany practise what was known as protectionism.

So they sheltered their domestic markets with high taxes on British

exports must also subsidising their exports in the British market.

This was considered unfair by British producers,

but the government British governments felt that

this was more damaging to the foreigners

themselves and it was to the British because they would ultimately be inefficient.

They also felt that the consumer was king

and therefore they should serve the interests of consumers who

should have the cheapest possible goods and not producers.

This was controversial before the first World War

became more so during and after it.

So although Britain was still a free trading nation after the first World War,

it did actually impose some tariffs on foreign produce,

largely those of military significance and safeguarding Act of 1921

produced tariffs on X on imported goods to the UK

Um, that has strategic significance,

and they said these are products to which ordinary economic rules do not apply.

So Britain had taken a slight nudge in the

direction of being a protectionist power to defend its

industries,

although in principle it was still free trading

and the British tariff level was much,

much lower than those of other major trading nations.

So this is Britain going into the 19 twenties,

much damaged by the war but still a major financial and economic power,

and taking an optimistic view of the future.

One thing that should be mentioned is that before the first World War,

Britain was on something known as the gold standard,

which meant that the pound was fixed against the dollar and other currencies

and the dollar exchange was $4.

86 to the pound, something like four times the current exchange rate.

So it just gives an impression of how much more

powerful Britain was in 1914 that it is now,

um, this would be seen as something of a total.

Britain was forced off the gold standard at the end

of the first World War because of turbulence and economic conditions

and inflation in the United Kingdom relative to America.

And so an aspiration came to be to return to the gold

standard as quickly as possible because it would feel this would restore

international prosperity,

ensure transparency in international trade and restore British prestige.

So throughout the 19 twenties as well, see,

returning to the gold standard became the totem

for British party makers of all types.