National Governments Economic Intervention

Question 1

What did the national government do

Answer 1

Devaluation of the pound to $3.40 from $4.86

Question 2

Why did this help? (Devaluation)

Answer 2

• this was unexpectedly helpful to the economy as they had originally aimed to protect its value
• British exports became cheaper
• the creation of the exchange equalisation fund in 1932 allowed exchange rates to be managed
• this prevented fluctuations that would have impacted British businesses
• the devaluation of the pound helped to encourage exports
• and thus enabled the government to reduce interest rates to 2%, a policy known as cheap money
• main aim was to reduce the charges gov had to pay on debts, but also made it easier for businesses to borrow and invest in modern machinery
• also allowed for some local authorities to finance road building and helped the 1930’s housing boom by making low mortgage repayments possible

Question 3

Examples of financial intervention

Answer 3

Means test for financial intervention
lowered interest rates
Limited government spending
Balancing the budget

Question 4

Detail balancing the budget

Answer 4

• sept 1931
• overall- spending cuts and increased taxes
• initially cut spending in order to deal with economic problems
• sept 1931- 10% cut in unemployment benefits
• pay cuts for gov employees (MPs, teachers, military personnel etc)
• government cut expenditure by £70 million
• raised tax from 22.5% to 25%, which raised £50 million in revenue
• deepened the hardship of the poor and unemployed during an already brutal depression
• but did help restore investor confidence - at the cost of ncreased social unrest and public resentment

Question 5

Problems with balancing the budget

Answer 5

• snowdens budget dealt with the immediate banking crisis by creating confidence and enabling the government to borrow from abroad
• general policy lowered the total demand for goods and services
• while it reassured international markets, it worsened living conditions for millions and led to major political realignment in Britain

Question 6

Describe intervention in trade

Answer 6

• overall- tried to increase trade trade within the empire through the use of tariff reform
• import duties act- tariffs to protect British industries
• Ottawa conference 1932- preference for imports from the empire and those countries had a preference for our exports
• trade treaties

Question 7

What was the start of imperial preference

Answer 7

• abnormal importations act of 1931
• imposed 50% duty on imported pottery, cutlery, woollen and cotton goods

Question 8

What was the policy of tariff reform implemented

Answer 8

• import duties act if 1932
• general tariff of 10% put on all goods except imported food and raw materials
• some duties were increased by a specially appointed commission
• some tariffs were as high as 30% e.g. on steel imports
• policymakers believed that the best way to protect domestically produced goods was to increase taxes on imports to make domestically produced goods more attractive
• tariffs were introduced alongside a strategy to boost trade within the British empire, creating a system of imperial preference.

Question 9

When/where was this policy formalised

Answer 9

• Ottawa conference of 1932
• a preference or imports from the empire and those countries had a preference for out exports
• however, dominions made it clear that they would not allow Britain to have free access to their markets at the expense of their own industries
• Britain made concessions to allow goods from the empire to enter the UK with preferential treatement
• therefore, the great scheme envisaged of an imperial trade area did not come about- failed

Question 10

Positives as a result of imperial preference

Answer 10

• increase in trade with the empire
• imports from the empire went from 25% of the total in 1931 to 38% in 1938
• exports to other countries fell from 56% to 50%

Question 11

Disadvantages of imperial preference

Answer 11

• the trend in increasing imports to countries within the empire and the decrease in exports to countries outside the empire had been seen even before the introduction of the import duties act
• trend for imposing tariffs occurred worldwide and effects were to constrict world trade
• some industries such as shipbuilding and building, were not protected by tariffs but disadvantaged as they needed foreign imports
• triggered retaliatory tariffs from other countries, shrinking international trade

Question 12

Areas in which the government helped regarding industry

Answer 12

• special areas act 1934
• cotton industry act
• British shipping act
• marketing boards
• subsidies
• overall- financial aid and loans given to certain industries to encourage industry to grow to help economy

Question 13

Examples of acts giving direct help

Answer 13

• special areas act 1934
• allocated public money to depressed areas
• this acknowledged a level of state responsibility to help regions whose industries were depressed
• but, funds available in the first year were insufficient- no more than £2 million to cover Tyneside, clydeside,south wales and west Cumberland
• employers starting up new businesses were given tax and rate relief
• sum increased to £5 million a year in 1937
• subsidies given to London transport in 1933, which saw conversion of old trams to trolley bus line and increased electrification
• agriculture was given subsidies
• milk for children subsidised (milk act of 1934) to help dairy industry

Question 14

Managing production

Answer 14

• coal mines were amalgamated and costs were reduced by an at of 1938 which nationalised royalties
• royalties were the ones coal companies paid to those whose land lay over the mines
• coal production increased to 241 million tonnes by 1937
• amalgamation of coal mines intended to increase productivity and reduce costs, as well as restrict output to increase prices, prompting economic recovery
• but, cotton did not see such an effect
• cotton industry reorganisation act of 1936 reduced capacity and shut down outdated factories
• but, output did not rise as it did in other staples and was under half of the 1930 level by 1939.
• little real development of better technology, working practices, management or planning
• subsidies to agriculture did not encourage modernisation there either

Question 15

Why did rearmament help the economy

Answer 15

• air defences should be strengthened, aircraft production increase, and navy should be brought up to strength
• over £1 million was spent on radar stations in 1938-1939
• ended the restraint on aircraft production in 1938, with 17,500 new planes being planned
• additionally, there was the creation of the British Expeditionary Force and conscription in April 1939
• the increasing arrival of government orders meant that firms began taking on new workers
• revitalised iron, steel and coal industries
• however, govt orders were not dependent on high productivity, little incentive to make fundamental changes to working methods or more modern machinery
• design of the spitfire and hurricane that ensured survival in 1940

Question 16

When did the government leave the gold standard

Answer 16

1931- devaluation of the pound, cheap money