Theme 1 b 1 - Post war boom crisis & recovery Flashcards
The legacy of WW1
What were the main aspects that contributed to the effect the war had on the economy?
- Loss of trade
- Debt
- Value of the pound falling
- Inflation
- Technological developments
- Deaths
The legacy of WW1- Loss of trade
What had been Britain been cut off from and by who?
How much had been sunk?
Britain- cut off from many of its most valuable export markets by German U-boats.
It sank 40% of British Merchant (supplying trade to foreign countries) shipping.
In 1914, Britains exports accounted for how much of its total wealth?
How did this change in 1918?
1914: One-third of its total wealth.
1918: one- fifth of its total wealth (declined)
Why did Britain industries stop supplying to export markets during the war?
They had to switch to war production instead!
How much did the war cost Britain?
What did the debts get to by 1920?
£3.25 billion.
By 1920- debts at £8 billion, mainly to US banks
War time debts rose to what percentage of income by 1924?
160%
How many people were killed during the war and why was this a major problem?
900,000 men were killed, who made up the British workforce, and were essential to its economic output!
In 1908, what had the standard rate of income tax been?
How did this change by 1924?
Why was this increase necessary?
1908: one shilling in a pound (5%)
1924: 5 shillings, (25%)
Was necessary to repay the nations debts!
Why did the value of the pound fall in 1914?
What did this result in?
Britain- forced to abandon the Gold Standard, in order to print enough money to cover the immense costs of the war!
Resulted in a rise in inflation and a drop in the value of the pound! (£1 was valued at $3.19 in 1919)
When was there a brief post- war boom and why did it occur?
1919-1920
Caused by consumer demand for scarce goods that had been rationed during the conflict!
What were the time frames of the two recessions during the interwar period?
Who did they hit the hardest?
1920-21
1929-34
Hit Britains heavy industries and regions they supported the hardest!
Even during the boom- what levels still remained high?
What did it remain at during 1921-1938?
Britain’s overall level of unemployment remained high!
Remained at 10% of the working population.
(Figure was double the average of unemployment rate of the period 1870-1913)
In the mid 1920s, consumer demand gradually increased and unemployment declined across much of Britian, however where did unemployment still remain high?
In declining industrial areas such as South Wales and Tyneside!
When was the Geddes Act imposed and who by?
1922, by David Lloyd George and Sir Eric Geddes.
£24 million of cuts in spending on education, military budget, health, welfare and housing.
Why did David Lloyd George and Eric Geddes implement the Geddes Act?
High taxes were blamed on high spending, and they hoped tax cuts would stimulate the economy!
What developed between 1934 and 1939 in the South East and Midlands, why was this?
What happened to heavy industry?
- Rearmament (equipping the military forces with a new supply of weapons)
- New light industries ( industries that are less capital-income intensive than heavy industry, typically produces smaller consumer goods.)
This occured as a result of growing consumer demand, but heavy industry continued to decline.
Post war boom.
At the end of 1918, why was there a short lived economic boom in Britain?
What did consumers and businesses do in 1919 and spend their money on?
- Due to wartime restrictions and rationing, individuals and businesses were unable to spend and had accumalated considerable savings in cash and bonds.
- Throughout 1919- consumers and businesses spent their savings- they bought luxury items that had been rationed during the war such as coffe, soap, clothes and cigarettes.
POST WAR BOOM
Why was there a huge speculative boom?
Businesses issued new shares for traders, investors and other businesses to buy - and poured more money into the London Stock Market (than at any other time in British history)
THE POST WAR BOOM
How did the total amount of new shares issued change from 1918- 1920?
Increased from £65 million (1918) to £384 million (1920)
POST WAR BOOM
What were investors keen to buy?
Why was this a poor choice?
Keen to buy:
British shipyards, cotton mills and coal mines.
- Poor investment choices as the monopoly Britain had over these industries had vanished during the war. Britain had new competitors in the USA, Japan and South America.
- These industries had become outdated and received little investment throughout the war years- making them uncompetitive!
POST WAR BOOM
What assumption was made by investors to do with global trade and merchant ships?
What actually happened?
- There was an asumption that global trade would quickly resume to pre-1914 levels and merchant ships would be in demand.
- Not only did this resumption of trade not happen as quickly as desired but by 1919 there was a global surplus of ships.
Why did the boom come to an end?
- British wartime industries still in the process of returning to civilian usage couldn’t keep up with the level of demand.
- Goods in short term supply became excessively expensive and and as a result, demand declined and the boom came to an end!
Recession- 1920-21
What did unemployment levels rapidly increase to?
12% of the working adult population!
By 1921, how many workers were unemployed?
2 million workers!
Recession 1920-21
What happened to areas such as South Wales and Tyneside?
They were deeply depressed as old industries like coal and ship building collapsed!
Recession 1920-21
What happened to the cost of living between 1918-1920?
What happened to wages?
Cost of living increased by 25%.
Wages stagnated (standing still, not increasing)- meaning unions were far more likely to strike to secure higher living standards for their members!
Deflation.
What did the government cut spending by between 1918-1920?
75%
What did the Bank of England do in order to return the value of the pound to its pre-war levels?
What did this result in?
Why did the bank and government take these measures as well as cutting spending?
- Raised interest rates to 7%.
- Meant it became suddenly expensive to borrow money, draining available money for spending from the economy.
- To try to repay Britains wartime debts!
Recession 1920-21
What happened to the GDP?
Debt had risen from 120% of GDP to 160%.
Recession 1920-21
What happened to the global economy due to the war?
- It had been transformed by the war- no longer dominated by Britain!
- There were several new foreign manufacturing and financial competitors who had taken advantage of the disruption to British trade during the war!
