Knowledge Test: economic problems and policies of the inter-war years (‘IWYS’) 1918-1939

Question 1

Identify in chronological order the economic issues and problems experienced by GB between 1918 and 1939.

Answer 1

• Loss of global export market share to foreign competition
• sale of private assets;
• balance of payments deficit
• boom followed by slump and mass unemployment;
• return to gold standard in 1925
• Wall Street Crash in 1929;
• run on the pound 1931;
• abandonment of gold standard in 1931
• cheap money & rearmament.

Question 2

dentify three economic principles associated with the term ‘orthodoxy’

Answer 2

• Free market
• free trade
• the gold standard.

Question 3

Identify three institutions and two political parties in GB committed mostly to orthodoxy in the 1920s.

Answer 3

• Bank of England
• the Treasury
• City of London
• Conservatives and Labour.

Question 4

What is meant by the phrase ‘beachhead effect’?

Answer 4

Foreign competitors had established strong positions in markets hitherto dominated by British manufacturers and from where foreign competition could grow.

Question 5

Give two reasons for the British economy experiencing a balance of payments deficit after the 1WW.

Answer 5

Sale of 10% of British private assets in 1WW decreased invisible trade which visible British exports could and did not replace.

Question 6

What is the word that describes excessive industrial supply relative to demand?

Answer 6

Chronic excessive overcapacity.

Question 7

What caused the cotton and ship-building industries to experience severe problems in the IWYs?

Answer 7

• Loss of markets
• foreign competition
• slump in world trade
• closure of Indian market by tariffs on British cotton exports.

Question 8

What two reasons have been given for GB failing to make economic progress like other nations in the 1920s?

Answer 8

• The effects of the return to the gold standard and over dependence on staple industries
• inability to adapt to new demands.

Question 9

What was the pound to dollar exchange rate set in 1925 by the return to the gold standard?

Answer 9

£1: $4.86.

Question 10

What effect did the return to gold have on (i) capital investment in British industry and on (ii) British exports?

Answer 10

• Interest rates increased inhibiting capital investment to modernise industry
• the price of British exports increased relative to foreign competitors.

Question 11

The return to the gold standard was a deflationary policy. What two things did it intend to lower?

Answer 11

Wages and prices (to American levels – it failed to achieve either).

Question 12

What was Britain’s share of the world export trade in manufactured goods in 1911-13 and in 1931-8?

Answer 12

• 27.5% in 1911-13;
• 18.5% in 1931-8.

Question 13

By what percentage did British exports of cotton decline between 1913 and 1937?

Answer 13

43%

Question 14

By how much did British exports of shipping decline between 1913 and 1932?

Answer 14

£7.1m

Question 15

What was the dollar exchange rate when the pound came off gold in 1931?

Answer 15

$3.40.

Question 16

What was the interest rate when the pound came off gold in 1931?

Answer 16

2%.

Question 17

Why did British exports fail to return to their pre-1914 strength following abandonment of the gold standard?

Answer 17

• Slump in global trade following the Wall Street Crash of 1929
• foreign competition.

Question 18

Why and how did the government’s education policy fail to produce large numbers of British citizens trained or otherwise educated for the economic demands of the IWYs?

Answer 18

• NO SUBSTANTIAL LEGISLATION ON EDUCATION UNTIL 1944;
• Less than a quarter of the British population received a secondary or vocational education
• Germany had superior apprenticeships.

Question 19

What is meant by the policy of ‘cheap money’?

Answer 19

• Interest rates of 2% rather than 6-7% under gold standard encouraged house building, cheap mortgages, building employment grew, demand for building supplies grew and employment in sector grew;
• greater opportunity for capital investment
• Cheaper British export prices.

Question 20

What percentage of the increase in GNP did house building contribute in 1932-4?

Answer 20

17%.

Question 21

Identify two pieces of legislation which brought in protectionism in 1935.

Answer 21

• The Abnormal Imports Act 1935
• the Imports Duties Act 1935.

Question 22

Which industry benefited from protectionism?

Answer 22

Car industry

Question 23

Did farming benefit from protectionism?

Answer 23

Not really as British farming had long ceased to produce import-competing produce.

Question 24

By what estimated percentage did tariffs (i) raise British output and (ii) reduce unemployment?

Answer 24

• Output: 3%;
• Unemployment: 1.5%.

Question 25

What is meant by cartelisation

Answer 25

Combination of enterprises into one large enterprise to encourage cost-savings and to promote greater efficiency and productivity.

Question 26

Why did the Bank of England pursue a policy of cartelisation in the 1930s?

Answer 26

To avoid or minimise bankruptcy of insolvent enterprises who owed huge sums to banks.

Question 27

Name two acts of parliament and one organisation associated with cartelisation.

Answer 27

- The British Coal Mines Act 1930 - the Cotton Industry (Reorganisation) Act 1936 - the Lancashire Cotton Corporation.

Question 28

Identify the practices of cartels that undermined modernisation and competitiveness.

Answer 28

-Price-fixing - collusive market fixing; - tolerance of poor management - low R&D - unproductive working practices - over capacity - poor labour relations and skill training = complacency.

Question 29

Was cartelisation a short-term or long-term solution to the problems of the staple industries?

Answer 29

- Short-term protection (combined with tariffs) intended to create dynamic British manufacturers ready for success when global trade returned. - It did return but with even greater foreign competition and British industry had not modernised sufficiently to meet it.

Question 30

Why was the bank of England and government generally opposed to developing new economic initiatives or industries in the areas suffering from industrial decline?

Answer 30

Opposed to state intervention which was seen as a waste of money, socialism and as harmful to the workings of a free market (orthodoxy).

Question 31

What was the extent of Baldwin’s public works policy and was it successful?

Answer 31

- Unsuccessful - covered only 4% of the unemployed - costs borne by local authorities who lacked funds to implement them (road building).

Question 32

What did the Conservative government set up in 1928 to encourage labour mobility in GB and was it successful?

Answer 32

- Industrial Transference Boards; 42,000 miners, - unsuccessful mostly; - abandoned - no governmental support; - hostility from Bank of England and Treasury.

Question 33

What was involved by the Special Areas Act 1934 and was the act successful?

Answer 33

- Identified areas of industrial decline and high unemployment - e.g Jarrow and regional commissioner responsible for regeneration - but limited staff and funds of only £2m. - private fund, Nuffield Trust, was more successful.

Question 34

How much did defence spending rise as a percentage of GDP in 1935/6 and 1938/39?

Answer 34

- 2.7% in 1935/6 - 7.7% in 1938/39.

Question 35

What effect did rearmament have on unemployment and the regions of GB?

Answer 35

- 500,000 new jobs created in 1935 alone (15% of unemployed) - ship building came back; - By 1938 nearly 1m jobs in steel, coal and engineering; - partial departure from orthodoxy; - placing of government contracts to resolve regional inequalities.

Question 36

How did tariffs affect foreign competition, unemployment and the need for British industry to modernise?

Answer 36

- Short-term protection of declining British industry, low productivity and poor labour relations - inhibited adaptation to competition - strengthened declining industries which lacked long-term future.

Question 37

How did subsidies affect farming in the IWYs?

Answer 37

Extended to remains of British farming e.g sugar and milk but neither output nor income grew.