Читать книгу The Thirties: An Intimate History of Britain - Juliet Gardiner, Juliet Gardiner - Страница 17

I reminded myself firmly that I was no economist … My childlike literary mind always fastens upon concrete details. Thus, when the newspapers tell me there is yet another financial crisis and that gold is being rushed from one country to another and I see photographs of excited City men jostling and scrambling and of bank porters and sailors carrying boxes of bullion, I always feel that some idiotic game is going on and that it is as preposterous that the welfare of millions of real people should hang on the fortunes of this game as it would be if our happiness hung upon the results of the Stock Exchange golfing tournament … I thought … how this City, which is always referred to with tremendous respect, which is treated as if it were the very red beating heart of England, must have got its money from somewhere, but it could not have conjured gold out of Threadneedle Street and that a great deal of this money must have poured into it at one time — a good long time too — from that part of England which is much dearer to me than the City, namely, the industrial North. For generations the blackened North toiled and moiled so that England should be rich and the City of London be a great power in the world. But now this North is half derelict, and its people living on in queer and ugly places, are shabby, bewildered, unhappy. I was prejudiced, of course … perhaps because I like people who make things better than I like people who only deal in money … Perhaps I would not have dragged the City into this meditation at all if I had not always been told, every time the nation made an important move, went on the Gold Standard, or went off it, that the City had so ordered it. The City then, I thought, must accept the responsibility. Either it is bossing us about or it isn’t. If it is, then it must take the blame if there is any blame to be taken. And there seems to me to be a great deal of blame to be taken. What has the City done for its old ally, the industrial North? It seemed to have done what the black-moustached glossy gentleman in the old melodramas always did to the innocent village maiden.

J.B. Priestley, English Journey (1934)

It has increasingly been recognized in recent years that Keynes’ work cannot properly be appreciated if he is regarded narrowly as an ‘economist’ … the avocation of the economist required a combination of gifts: not only as mathematician and historian, but also as a statesman and philosopher.

Peter Clarke, ‘J.M. Keynes 1883–1946: The Best of Both Worlds’ (1994)

Shortly after six o’clock on the morning of Sunday, 5 October 1930, the bedside telephone of Ramsay MacDonald rang in his hotel room. ‘The R101 was wrecked and Thomson was not amongst the living!’ the Prime Minister wrote in his diary. ‘As though by the pressing of a button confusion & gloom & sorrow came upon the world — was the world. So, when I bade him goodbye on Friday & looked down at him descending the stairs at No. 10, that was to be the last glimpse of my friend, gallant, gay & loyal. No one was like him & there will be none … Why did I allow him to go? He was so dead certain there could be no mishap … This is indeed a great national calamity, & today, I distracted in the midst of it, can but grieve.’

Two days later MacDonald, who was in Llandudno for the Labour Party Conference, addressed the assembled delegates. Looking ‘drawn and haggard’ he paid tribute to the man who was probably his closest friend in politics before turning to a passionate defence of his government and its attempts to deal with the crushing problems of unemployment:

We are not on trial, it is the system under which we live which is under trial. It has broken down, not only in this little island, it has broken down in Europe, in Asia, in America; it has broken down everywhere. It was bound to break down. And the cure, the new path, the new idea is organisation — organisation that will protect life not property … I appeal to you, my friends, today, with all that is going on outside — I appeal to you to go back to your Socialist faith. Do not mix that up with pettifogging patching, either of a Poor Law kind or a Relief Work kind. Construction, ideas, architecture, building line upon line, stone upon stone, storey upon storey … I think [it] will be your happiness, as it is mine, to go on convinced that the great foundations are being well laid … and that by skilled craftsmen, confident in each other’s goodwill and sincerity, the temple will rise and rise until at last it is complete, and the genius of humanity will find within it an appropriate resting place.

With tumultuous applause ringing in his ears, MacDonald hurried back to London, anxious to get to Victoria station in time to greet the flag-draped coffins of the victims of the R101 disaster as they arrived back from France, leaving others at the Welsh seaside resort to puzzle over how these stirring sentiments (or ‘MacDonaldite slush and floral phrases. Meaning nothing definite’) could be translated to the matter at hand: unemployment, which had stood at 1.1 million when Labour came to power in May 1929, had risen by the time of MacDonald’s speech in October 1930 to more than double that. How could the task of realising the ‘temple’ of socialism accord with alleviating the immediate sufferings of the present crisis of the capitalist one? Or, put more epigrammatically, how could a new Jerusalem be built during the ‘economic blizzard’, as MacDonald characterised it, that engulfed Britain (and much of the rest of the world) in 1930?

The Labour Party had been founded to give the working classes a voice in Parliament, and it was committed to a parliamentary democratic route to achieving its aims. Now in its second term in office, but still without an outright majority, Labour might — at the outside — have five years in which to effect the transformation from capitalism to socialism, as was outlined in its first detailed programme, Labour and the New Social Order, adopted by the party in 1918. As Sidney Webb, the programme’s main author, had put it, ‘The Labour Party refuses absolutely to believe that the British people will permanently tolerate any reconstruction or perpetuation of the dis-organisation, waste and inefficiency involved in the abandonment of British industry to a jostling around of separate private employers … What the Labour Party looks to is a genuinely scientific re-organisation of the nation’s industry no longer deflected by individual profiteering on the basis of Common Ownership of the Means of Production.’ But the radical changes this transformation required would be quite impossible to achieve within a single Parliament: Labour would need at least one further term in office to complete the process. That would mean tailoring policies to win electoral support, while at the same time advancing from a society where explicit government intervention was exercised with a light touch, towards a socialist state with a great deal of public control. It was to be the unfulfilled task of the 1930s for the Labour Party to articulate a practical strategy for accomplishing this goal by democratic means.

Moreover, Ramsay MacDonald, his Ministers and the majority of the Labour Party were committed to this gradualist approach, believing that socialism would be achieved not as a result of the collapse of capitalism, but rather on the back of its success, since it was this that would generate the money needed for wide-ranging community social services and redistributive taxation.

‘The election of 1929 seemed to us at the time a wonderful, almost miraculous victory,’ wrote the twenty-three-year-old Hugh Gaitskell, at the time a lecturer in political economy at University College, London. ‘We had done so much better than I (perhaps because most of my speaking had been in Marylebone!) had thought possible. We paid little, no doubt far too little, attention to the absence of a clear majority. It was enough for us that Labour was in power again, and for the first time held the largest number of seats. Our hopes for peace could be high, we would clear the slums — and, above all, tackle the unemployment.’ In fact 1929 was a disastrous time for Labour to come to power, especially with a hung Parliament. As the government struggled to drain the pool of structural unemployment that had been filling up throughout the 1920s, it was knocked sideways by the flood of cyclical unemployment caused by the worldwide Depression. No country was able to cope satisfactorily with the ‘economic blizzard’ and find an answer to the rising unemployment that resulted. In fact Britain was less hard hit than many other countries, particularly Germany and the United States. Nevertheless, the fate of the Labour government would be in thrall to an unprecedented degree to the performance of the economy. At a time when capitalism, if not in the throes of its final crisis, was certainly being severely tested, socialists were in no doubt that the government should take charge of the management of the economy, and that under a socialist state poverty and unemployment would fade away. But that was a long-term aim (and one without a blueprint for how it would be achieved), and while MacDonald and his colleagues spoke of themselves as socialists they were also members of the labour movement, committed to the defence of working-class living standards, which were under attack as a result of the economic crisis.

The conundrum of whether, in times of crisis, capitalism should be repaired (if made more equitable) or replaced would haunt the left in various degrees throughout the thirties, and contribute to its sense of impotence. ‘The capitalist system is ossified, restrictionist and unjust; but it is expanding and stable,’ wrote the economist and political theorist Evan Durbin in a book published in 1940 that explored the socialist dilemmas of the 1930s. ‘The society based upon the capitalist economy is unequal and restless; but it is democratic, middle class and conservative. What then ought to be done?’ However, the immediate problem was that more and more people were being thrown out of work. How could their distress be alleviated without ‘propping up’ the inefficiencies of the capitalist system any longer than necessary?

Not that there was any lack of ideas about how this should be done. The trouble was that most were contradictory, and several cut across party lines, which is not surprising, since there was no agreed analysis of the causes of the slump among politicians of any of the major parties — although all three had made reducing unemployment the main plank of their election appeal. It was hard to find a solution when what was causing the problem was so perplexing.

The Labour Chancellor of the Exchequer, Philip Snowden, was an exemplar of ‘orthodox economics’ — ‘a High Priest’, thought Winston Churchill: ‘The Treasury mind and the Snowden mind embraced each other with the fervour of two long-separated lizards,’ he wrote. Snowden was adamant that Britain’s recovery would only take place as part of a stable international economy based on the Gold Standard. Thus there was an absolute imperative to maintain international confidence by keeping the economy balanced and avoiding a budget deficit at all costs.

This meant that Snowden was implacably opposed to those who saw the solution in expanding the economy through lower interest rates and a programme of public works projects. The Chancellor had made his views clear during the first Labour government in July 1924, and had not budged since: ‘It is no part of my job as Chancellor of the Exchequer to put before the House of Commons proposals for the expenditure of public money. The function of the Chancellor of the Exchequer, as I understand it, is to resist all demands for expenditure made by his colleagues and, when he can no longer resist, to limit the concession to the barest point of acceptance.’ For Snowden, public works projects had to be strictly evaluated like any other form of investment. Unemployment was a long-term problem that would only be solved if production costs could be brought down — particularly in the export industries. Public works might redistribute unemployment; they would not end it. This was largely the view of the Conservatives too, as well as the City.

As for MacDonald, he had few firm convictions as to what was causing the slump, little confidence in his understanding of the economy (which Labour ‘shall have to put under a gyroscope’, he once wrote) and few ideas about how Britain was going to get out of it. But, as he made clear in his speech to Conference, he recognised that, along with peace, unemployment was the central issue the Labour government had to tackle — and would be judged by. He started the process as soon as Labour took power. ‘Since our return to Whitehall,’ wrote Secretary to the Cabinet Thomas Jones (always known as ‘TJ’), ‘the pace has been furious. The slogan is not “Socialism in our time” but “Socialism before Xmas”. Big bills are being drafted on Unemployment, Roads, Factories, Pension, Coal …’

The ex-railway union leader J.H. (Jimmy) Thomas had been MacDonald’s first choice as Foreign Secretary, but since Arthur Henderson ‘would not return to H.O. [Home Office] but put in plea for F.O.’, instead agreed to accept the post of Lord Privy Seal with responsibility for coordinating government unemployment policies. In the debate on the King’s Speech he reported on his progress less than a month after taking office. Already he had tramped the country talking to industrialists about the supposed panacea of ‘rationalisation’ to cut costs and improve competitiveness, having discussions with railway managers, business leaders and civil servants, and conducting ‘long and delicate negotiations’ with the obdurate Governor of the Bank of England, Montagu Norman. He eventually succeeded in interesting the City in ‘placing industry on a broad and sound basis and ready to support any plans that in its opinion lead to this end’, and by March 1930 what might now be called a Public Private Initiative, the Bankers’ Industrial Development Company, had been set up to finance rationalised industry, with £6 million coming from the Bank of England and over forty merchant banks, clearing banks and other financial institutions.

As Thomas was speaking to the Commons, all sorts of other ambitious plans were being drafted. These included a £37.5-million, five-year road-building programme, improvements on the railways, £1 million for colonial development schemes which included building a bridge across the Zambezi — and plans to attract new industries to those areas of Britain where unemployment was highest. Thomas went to Canada for several weeks to try to stimulate the market for British coal and ships. His success was very limited. One of the three assistants who had been appointed to help him in his gargantuan task when they weren’t busy with their other responsibilities, Tom Johnston, Under-Secretary of State for Scotland (the other two were the wealthy and arrogant Sir Oswald Mosley, once a Conservative MP but now Labour’s Chancellor of the Duchy of Lancaster and fizzing with new schemes, and the veteran politician George Lansbury, whose espousal of ‘Poplarism’ — named after a rate strike in London’s deprived East End in 1921 — had made him a symbol of local defiance of central government in the interest of the poor and needy) pressed for the construction of a road round Loch Lomond (what he got was the reconstruction of the coach road from Aberfoyle to the Trossachs). Lansbury favoured a retirement pension for workers at sixty (‘Better pay the old to do nothing than the young,’ commented Thomas Jones), a colonising scheme in Western Australia and a land reclamation programme at home.

By November 1930 Thomas was able to report to Parliament that £24 million had already been spent on stimulating public works schemes. But for James Maxton, chairman of the Independent Labour Party (ILP), such initiatives were certainly ‘not socialism’, and he taunted Thomas with being ‘caught in a spider web of capitalism’, and prophetically warned that a choice would have to be made between the government and the unemployed — and he knew which side he would be on.

In October 1929 a heavyweight committee was appointed under the chairmanship of a barrister, Lord Macmillan, to examine the workings of the banking and financial systems and to make recommendations ‘calculated … to promote the development of commerce and the employment of labour’. Macmillan, who later confessed that he ‘never learned to move with any ease in the realm of finance’, was surrounded by some expert and authoritative minds. There were employers, including the President of the Federation of British Industries, a professor of banking from the London School of Economics, a director of the Bank of England, a merchant banker and a former Permanent Secretary to the Treasury, working alongside a former ‘Red Clydesider’, J.T. Walton Newbold, while the trade union slot was filled by Ernest Bevin of the Transport and General Workers’ Union. The economist John Maynard Keynes, whose hand had been behind the ‘remedy for unemployment’ set out in the Liberal election manifesto We Can Conquer Unemployment (distilled from the famous ‘Yellow Book’, Britain’s Industrial Future), was also invited to join.

The Committee, which was criticised in some quarters as being ‘packed in favour of finance’, took evidence throughout 1930 and into the following year. Keynes presented his — which was in effect a dry run for his two-volume work A Treatise on Money, published later in the year — ‘like a seminar’, seeking to educate the Committee on the fundamental distinction between saving and investment: the world’s wealth had not been accumulated by thrift, but rather by enterprise. Savings by themselves achieved nothing: they needed to be put to work. From this followed — though Keynes took several cliffhanging days to expound what followed: ‘You are a complete dramatist,’ Macmillan said admiringly — his ‘favourite remedy’: home investment by the government to ‘break the vicious circle’ of underinvestment and mop up unemployment by increasing domestic demand rather than relying on the vagaries of the export market. Along with this went the further rationalisation of industry, protection of the home market by tariff barriers (a new departure for Keynes), and bringing down interest rates — cheap money.

Reginald McKenna, who had been a respected Liberal Chancellor of the Exchequer during the First World War, and subsequently Chairman of the Midland Bank, agreed, and gave an easy-to-follow explanation of how this could work in practice: with more money in circulation more boots would be bought, more men would be taken on to make the boots, their wages would be spent on cotton goods, which would create employment in the cotton industry, and so it would go on. Ernest Bevin was equally enthusiastic, envisaging the prospect for coalminers, whose purchasing power was almost half what it should have been; if it was raised ‘it would lead to a greater demand for boots for children, and clothes and furniture and luxuries and things of that kind’.

But when the ill-prepared and irritable Montagu Norman appeared before the Committee, he rejected Keynes’ view that the financial system was ‘jammed’ and the key to unlock it was obsolete: in Norman’s view it was industry that was jammed, and since he saw the Bank of England’s relation to the nation as similar to that of a high street bank’s to its customers — that is, to ensure that they did not live beyond their means — industry needed rationalisation, not credit, to meet its difficulties. He accepted, however, that rationalisation was hardly a short-term fix, and agreed that unemployment would be ‘apt to increase’ (the word ‘temporarily’ was added in the final report to sweeten the pill). In essence the Bank’s view — more ably put by others subsequently — rejected the notion that the return to the Gold Standard in 1925, much to the disquiet of Keynes, and indeed McKenna, had resulted in inflated interest rates, or that there were any other monetary shortcomings. The basic problem was that British industry was uncompetitive, and until its house was put in order (largely by wage cuts, ‘encouraging’ labour mobility by cutting unemployment pay, reducing taxes on profits and — of course — rationalisation) any other remedies would be merely palliative.

By December, after less than six months in office, the verdict of Hugh Dalton, then Under-Secretary at the Foreign Office (‘The under secretaries are all aristocrats,’ Beatrice Webb had sniffed when the government was formed: Dalton’s father had been Canon of St George’s Chapel, Windsor, and an intimate friend of George V), was that ‘the Labour Government as a whole has been pretty disappointing with bright patches. Thomas and Maggie Bondfield [Margaret Bondfield, Minister of Labour] are two of the most obvious failures. Few have anything good to say about either of them. MacDonald has been messing about again with the idea of the Economic General Staff, and having economists to lunch. But nothing concrete comes of it.’ Thomas Jones was not much more optimistic: ‘Labour is worried by the growing figures of unemployment. JHT [Jimmy Thomas] for some weeks now seemed to lose his nerve entirely. All criticism from all sides, which used to be spread over several Departments, is concentrated on him. There have been various devices for saving his face, the latest is a luncheon party which I have got to give for the PM.’

This was one of several such soundings-out about setting up ‘a new machine which Ramsay could hail as his own creation’. The ‘upshot of all this cogitation’ was the appointment in January 1930, when employment had risen to just under 1.5 million, of an Economic Advisory Council (EAC) which would be ‘the eyes and ears of [the Prime Minister] on economic questions’. MacDonald hoped it would be more than a talking shop: ‘If it meets on a Monday, it must be ready for action to be taken on a Tuesday,’ he insisted. The Council included bankers, industrialists, two scientists, the socialist intellectuals G.D.H. Cole and R.H. Tawney — and J.M. Keynes, plus Ernest Bevin and Walter Citrine as trade union voices.

There was considerable overlap between the personnel and the remits of the Macmillan Committee and the EAC, and since it had no executive authority and a rather vague brief, Citrine was concerned that EAC was likely to become a dumping ground for ‘all the odds and ends that government likes to turn over to us’. Its secretary, the Cambridge economist Hubert Henderson, editor of the Nation until it merged with the New Statesman in 1930, was equally underwhelmed, since according to one of his colleagues, ‘He hated woolly thinking and theorising … and scorned Labour’s economic theories.’ In the event it proved impossible to get a consensus between the businessmen and the economists about the central issue of how to deal with unemployment, and Keynes persuaded MacDonald to set up a smaller group comprising solely economists, with him in the chair as an experiment to test ‘the hypothesis, that [economics] can be treated like any other science, and ask for qualified scientists in the subject to have their say’.

By the summer of 1930 the original EAC was meeting less and less, and Bevin and Citrine had become disillusioned. The breakaway group of economists was equally fissiparous, and it proved wearisome to draft a report that was satisfactory to all — when it was published in October, Professor Lionel Robbins from the London School of Economics disassociated himself from the majority view entirely, and wrote a passionate defence of free trade. Nevertheless, no matter how ineffective the EAC was perceived to be, it was the first time a British Prime Minister had received consistent economic advice independent of the Treasury. Moreover, it was a sobering educative experience for those who sat on it, particularly Bevin and Citrine, who saw at first hand just how complex the problems were, and how irretrievably economic and political considerations were enmeshed.

If Dalton thought that the Cabinet was ‘full of overworked men growing, older, more tired and more timid with each passing week’, the dashing Chancellor of the Duchy of Lancaster was seething with energy and radical solutions. After several frustrating months working with Jimmy Thomas, who was not only ‘growing old and tired’, but also more lachrymose, and was inclined to drink too much, Sir Oswald Mosley produced what he declared was ‘a coherent and comprehensive conception of national policy’, which he sent to Ramsay MacDonald on 23 January 1930. The ‘Mosley Memorandum’ asserted that the government needed to take charge of the economy, with a new department set up under the direct control of the Prime Minister to ‘mobilise national resources on a larger scale than has yet been contemplated’. Britain’s long-term economic problems would be met by systematic planning to create new industries and revitalise existing ones, while the immediate problem of unemployment would be solved by an ambitious three-year £200-million programme of public works which would cut through all the red tape involved in local authority schemes, and make roadbuilding a national responsibility. In addition, the school leaving age should be raised and retirement pensions paid earlier — shrinking the workforce from both ends. It amounted to a ‘British equivalent of the Russian “Gosplan”’, thought Fenner Brockway. It didn’t really, though it was in favour of pretty heavy — if somewhat ambiguous — state intervention. But for Beatrice Webb its proposals were ‘as grandiose as they are vague’.

Nevertheless, the Cabinet debated Mosley’s package at length over the next few months. Snowden was obdurate: investment capital was limited, and if it was spent on ambitious public works schemes it would not be available to make Britain’s export industries competitive. A loan such as Mosley proposed would push up interest rates and destroy overseas confidence. MacDonald was ambivalent: he was depressed by Snowden’s ‘hard dogmatism expressed in words & tones as hard as his ideas’, yet was unconvinced that massive public spending was the answer. By February 1930 the government had already sanctioned £37 million worth of road improvement programmes but only £27 million worth of schemes had been put in hand, and only 1,620 men had been given jobs.

Mosley was coldly furious. Sneering that a Napoleon could spend £200 million in three years if he wanted to, he quoted Keynes against the Treasury orthodoxy, and resigned on 20 May 1930. His resignation speech to the House on 29 May, during the debate on a Conservative vote of censure on the government’s unemployment policy, was a powerful indictment: present government policies were providing jobs for only 80,000 people a year, at a time when unemployment was over 1.75 million and still rising. It was a brilliant performance, and the sharp-tongued diarist and tireless social reformer Beatrice Webb, who recognised that Mosley possessed both ‘a young man’s zeal’ and the ability to ‘use other men’s brains’, wondered, ‘Has MacDonald found his superseder in O.M.?’ MacDonald turned in a lamentable performance, seeming completely out of his depth in answering his critics.

The government survived nevertheless, and MacDonald reshuffled. Thomas was shoved off to the Dominions Office (though he was later allowed to retain responsibility for rationalisation), MacDonald put himself at the head of a panel of Ministers set up to develop the government’s unemployment policies; that barely noticed rising star Major Clement Attlee, who considered that Mosley ‘always speak[s] to us as if he were feudal landlord abusing tenants who are in arrears with their rent’, replaced him at the Duchy of Lancaster.

Mosley, showing his arrogance and fatal lack of political judgement, founded his New Party in February 1931, since in his view the ‘old men’ in the ‘old parties’ had signally failed to deal with the problems of the postwar world, and thus a new party must be formed ‘not to introduce Utopia but to prevent collapse’. His would be a party of neither right nor left, composed of young men with an agenda of parliamentary reform and economic planning, which sought to ‘apply scientific method to public affairs to determine precisely what things must be done’, untrammelled by party loyalty or political dogma, ready to take ideas from ‘anyone so long as they are realist — be they Gladstone, Marx or Joseph Chamberlain’. Its role would be somewhere between a parliamentary ‘ginger group’, an intellectual think tank and a ‘new movement’ designed to ‘sweep away the mockery and pretence of the old game of party politics’. Nevertheless the party formed to save Britain in its hour of crisis attracted only three Labour MPs, one of whom, John Strachey (a former member of the ILP and future Communist supporter who had resigned with Mosley when his memorandum was rejected — he had been Mosley’s best man when he married the daughter of Lord Curzon) soon left. The New Party, which appeared to have ‘no vision beyond the immediate emergency’, largely disintegrated after failing to win any seats in the 1931 election. In October 1932 Mosley, who felt that the Italian dictator Benito Mussolini had the vision and drive the British government lacked, founded the British Union of Fascists.

‘Parliament itself is too big, too clumsy and too inexpert a body even to begin to tackle the complex problems of a modern community,’ John Strachey and C.E.M. Joad (a maverick philosopher, writer and self-styled polygamist who became a household name in the 1940s as a member of the BBC’s ‘Brains Trust’) had written in an article on parliamentary reform for the journal Political Quarterly in 1931. And in the crisis years of the early 1930s setting up committees to root around trying to find ways out of the blizzard was not indeed the prerogative of Parliament alone. As a young economist, Colin Clark, was to observe, ‘The most recent universal remedy is apparently contained in the word “Plan”.’

‘Everyone has a Plan,’ complained the Labour weekly the Clarion, though it considered most to be little more than ‘undergraduate work’, seeking compromises rather than the root-and-branch reconstruction of capitalism it deemed necessary, for which the Soviet Five Year Plan was something of a model. Indeed, there was soon an organisation the rationale of which was planning. On 14 February 1931 a 20,000-word ‘National Plan for Great Britain’ was published as a supplement to the Week-End Review, a magazine started by Gerald Barry and the editorial team who had all resigned from the Saturday Review when Beaverbrook converted to his policy of Empire preference. This plan was much needed because, in the view of Barry and its author, Max Nicholson, the country was in the hands of ‘elderly men with elderly ideas’, working with a ‘Heath Robinson contrivance composed of the clutter of past generations and tied together with rotten bits of string’. The ‘drift’ and ‘stagnation’ must stop, since ‘a great part of the present troubles of this country and the world are due to the failure to adapt erratic and conflicting national policies into a Plan’. The result was wide-ranging and prescient calls for an overhaul of the machinery of government, turning the Post Office and the Ministry of Works into autonomous public utilities — indeed, a measure of devolution from Whitehall and Westminster to industry the creation of a Bureau of Statistics to inform planners, designating national parks, trying to attract tourists, throwing a green belt around London and redeveloping the South Bank of the Thames. And that June, intending to lobby to turn vision into policy, the Political and Economic Planning (PEP) group held its inaugural meeting, and started to issue regular reports and circulate digests of these reports as ‘broadsheets’ entitled — what else — Planning. With a growing number of research groups — fifteen within a year — beavering away on various topics such as town and country planning, fuel policy, housing, the press, consumer protection and government spin, PEP saw its role as being ‘the ginger group of gradualness’, in the words of Israel Sieff, vice-chairman of Marks & Spencer, who took over as chairman in December 1932, aiming to influence opinion-formers of any political hue in ‘a crusade for continuous change’.

Unemployment hit the trade union movement hard, with falling numbers of members and a greater proportion of the wages of those in work going to support their unemployed brothers and sisters. However, until 1931 the movement had few alternatives to propose, and generally felt that the Labour government was doing its best — certainly no other party would do better — and that in general economic decisions were beyond its remit. But Keynes’ attack on the Gold Standard, and the suspicion that Treasury economic orthodoxy was likely to result in a call for wage cuts, led Bevin and Citrine to decide that it was important that the TUC General Council should formulate its position. An Economic Committee was set up, and Bevin and Citrine drew on their experience on government-sponsored committees to call for the nationalisation of the Bank of England (still a private corporation independent of the government, despite its responsibility for the nation’s monetary policy), iron and steel, leaving the Gold Standard and increasing government spending to increase purchasing power — very much what Keynes was also saying. If the TUC as a body was slower to develop an alternative economic strategy than its more unorthodox leaders — though by 1932 the Economic Committee had become its most influential policy body, particularly on the public control of industry and trade — defensive in the face of the growing possibility of wage cuts and calling for ‘as full a development as possible of the economic relations between the constituent parts of the British Commonwealth’, the government was equally unresponsive to trade union pressure.

By August 1930 Bevin was in despair. He considered the situation so serious ‘that it warrants a state of emergency. The best brains in the country should be mobilised for the purpose of really tackling the problem instead of “footling about” in the manner we are at the moment.’ In early 1931 he joined with some of these ‘best brains’ as Chairman of the Society for Socialist Inquiry and Propaganda (SSIP — usually referred to as ‘zip’), with the former Fabian G.D.H. Cole as Vice Chairman, one of two bodies set up in an attempt to ‘ginger up’ thinking and activity in the Labour Party and provide it with the nuts and bolts of socialist policy, as Cole was convinced that the government was mired in a ‘stagnant swamp’ and unable to act.

The other body, the New Fabian Research Bureau (NFRB) (since, according to Cole’s wife Margaret, the old one was becoming ‘moribund’), was tasked with considering all areas of long-term socialist policy, while the SSIP’s role was to diffuse its findings and stimulate discussion in the wider labour movement. G.D.H. Cole’s intention was to ‘rally the young men, among whom there is some excellent stuff’, and indeed both were organisations of all the talents (and not all young or male). Apart from the Coles, participants included Stafford Cripps, a lawyer of great intellectual repute — and earning power — who was wished on a Bristol constituency as its MP in January 1931; George Lansbury; Ellen Wilkinson, the MP for Jarrow; Clement Attlee, who fourteen years later would be Prime Minister in the Labour government that would implement much of what these bodies advocated; the erratically brilliant Harold Laski; the economist Evan Durbin; another economist, the apprentice politician Hugh Gaitskell (‘the cleverest and most self-contained of the young men Dalton advanced’); Arthur Pugh, General Secretary of the Iron and Steel Trades Association (who, together with Bevin, represented over half a million workers); and Leonard Woolf, husband of Virginia, who organised the international section.

Never intended as ‘parties within a party’ (as the ILP was charged with being), these two bodies were rather a collection of ‘loyal grousers’, several of whom would metamorphose into ‘patriotic gadflies’ during the Second World War. They were astonishingly industrious, arranging meetings, discussions and ‘kite-flying’ (today’s ‘out of the box’ or ‘blue skies’ thinking) sessions, educational meetings for students and trade unionists, and summer schools, in addition to producing a large number of influential books, booklets, pamphlets and memoranda, full of sound analysis and helpful advice. But for some time the government was politely but firmly dismissive of their efforts, and their penetration of the Labour machine proved to be almost as gradual as any old Fabian might have anticipated.

Hugh Dalton, appalled at how woefully ignorant he felt the Labour Party was about the workings of high finance, set out to meet ‘as many City blokes as possible’ in an attempt to fill in the blanks. One of these was Nicholas Davenport, who had worked with Keynes in the City and wrote the City column in the New Statesman under the byline ‘Toreador’. Although ‘all the claptrap of Clause 4 socialism’ was not for him, Davenport considered himself to be a radical, and he was certainly an iconoclast when it came to the workings — or failures to work — of the City. He would look back on the 1930s as a time when ‘the City’s Establishment was … in effect an old boys’ racket … It was a sort of Mafia in reverse — a gang based on honest dealing instead of blackmail, on good “hard” money (lots of it) instead of easy loot and on simplicity instead of cunning. The only rules were playing safe, resisting change, opposing new ideas, upholding the Establishment and being willing to dress up and go on pompous dinner parade in the City halls … the millions spent each year on guzzling [at these] junketings would amaze the underprivileged and enrage the poor.’

Davenport was alarmed that ‘Because the Labour Party was so ignorant of the workings of the financial system … it was bound to cause havoc if it tried to put it all under government control.’ He discussed this possibility ‘many times over coffee in City dives’ with Vaughan Berry, a City broker who was ‘an ardent undercover Labour member’, and the two decided to form ‘a private dining club where City men could meet the Labour leaders and instruct them in the mysteries of City finance so that they would not make a hash of it when they came into power’. Dalton was encouraging, and Davenport recruited a number of financial journalists, a banker, a stockbroker, an accountant, a statistician, the director of a gold bullion house, and later two economic policy perennials, Evan Durbin and Hugh Gaitskell, plus Douglas Jay, who would be an influential — and profoundly anti-European — advisor to Attlee’s post-war Labour government, but was then a staff writer on the Economist.

The private dining club, named the XYZ, met fortnightly or monthly in a room above a pub ‘over a City alley deserted by night’, in the private rooms of quiet Soho restaurants, a Charing Cross hotel, or in members’ homes, depending on whose memoirs one reads, but always in great secrecy. Dalton, Herbert Morrison, Stafford Cripps and Attlee, all of whom except Cripps were ‘sublimely ignorant of the City and suspicious of its institutions, especially the Stock Exchange which they regarded as a casino where rich men gambled to make money regardless of the state of the economy’, were wined and dined so that what Dalton rather grandly called ‘my experts’ could attempt to ‘enlighten them and exorcise the ghosts of Puritan bigotry and prejudice which haunted them’. Dalton’s experts wrote papers and produced statistics on such matters as nationalising the Bank of England and the reform of the Stock Exchange, and advocated setting up a National Investment Board and an Industrial Finance Corporation.

‘I like to think we did some good,’ Davenport reflected forty years later, and quoted one of their number, Francis Williams, who had been City editor of the Labour-supporting Daily Herald at the time, and later took over as editor, assuming the role of Attlee’s press spokesman after the war, who reckoned that ‘Over the years, the XYZ Club drew up a blueprint for Labour’s financial policy much of which … was adopted by the first postwar Labour government … [which it did] in the most private manner without attracting attention to itself.’ But useful though that surely was, neither the XYZ Club nor any of the other think tanks, committees and ginger groups managed to find any immediate solution to the problem of conquering (or tackling, as the word had less ambitiously become) unemployment.

‘In the chaos of our political life today, there will be many meteors passing through the firmament,’ wrote Beatrice Webb in her diary, with little enthusiasm at the prospect. ‘Have there ever been so many political personages on the loose?’ Mrs Webb was particularly thinking of Sir Oswald Mosley and Winston Churchill, but there were other unaligned souls out there on the loose with notions of how to conquer, tackle, solve the problem of ever-rising unemployment. The Fabian and best-selling novelist H.G. Wells thought there might be some mileage in a scheme to ‘grow vines and produce white wine on the slopes of the hills in the South Wales mining area — as they do in Grasse in the South of France’, wrote Thomas Jones. ‘He also thought we should have large horticultural farms to produce early vegetables. I quickly discovered that he had no sense of the actual position in the derelict areas.’

The modernist poet Ezra Pound was another economic loose cannon. Long concerned about the plight of the under-remunerated artist, after the First World War he was attracted to the economic ideas of Major Clifford Hugh Douglas. Douglas, a Scot, had noticed when he was Assistant Director of the Royal Aircraft Works at Farnborough during the First World War that there was always plenty of money available to pay for what was needed, whereas before the war he was always being told that there was no money to do something useful. He came to the conclusion that there was a simple explanation for the persistence of unemployment and poverty in a modern world that was producing more and more goods. Basically, people couldn’t afford to buy the things they produced: it was the persistent problem of under-consumption. So there was widespread poverty ‘when physically all could be living in plenty’. If modern technology was leading to increased productivity, then the state would have to step in to increase people’s ability to pay for those goods, and this could be done by effectively extending wartime controls, which to Douglas’s mind had worked well.

The answer, Douglas argued, was contained in his ‘three demands’: a ‘National Credit Office’ to work out how much credit should be circulating in the economy; a ‘just price’ — a mechanism to absorb profits in times of inflation and return them to the people in the form of subsidised prices when the goods on the market exceeded the money available to buy them; and a ‘national dividend’ (a bit like a Co-op divi) to give a guaranteed basic income to all, regardless of whether they had a job or not.

This may have been an attractive economic argument, but it was a fallacious one, as G.D.H. Cole and Hugh Gaitskell (and many others) pointed out. Another of Douglas’s wackier — though again rather appealing — ideas was reducing the working day of all those who worked in government offices to four hours, but doubling their number, the second shift intended to check the work of the first.

Major Douglas’s economics might have been ‘heresy’ rather than unorthodox, a ‘piece of nonsense’, even a ‘farrago of confusion’, and Douglas might indeed be better regarded as ‘a religious rather than a social reformer’, but he was a hit with ‘the political and social crowd that hangs round Speakers’ Corners and joins in any march or demonstration’ in the early 1930s. He also managed to snag the imagination of the ‘fringes of the left and right’, men like Hilaire Belloc, G.K. Chesterton, the poet Edwin Muir, the ex-editor of the New Age, a journal of ideas much concerned with modernism in culture, politics, Nietszchean philosophy and spiritualism which had been very influential among the avant garde before the First World War, A.R. Orage (who also published Pound on the pound) and of course Pound himself, who not only penned economic treatises, but incorporated his economic thinking into some of his poems: ‘and the power to purchase can never/(under the present system) catch up with/prices at large/and the light became so bright and so blindin’/in this layer of paradise/that the mind of man was bewildered’. However, in a time of slavish adherence to the Gold Standard, Pound was prescient in seeing that money was nothing more than a token: ‘Money is not a commodity but a measure’. ‘Real credit is a measure of the reserve of energy belonging to the community,’ he maintained, and he proposed a ‘citizen’s income’ given as of right, much like the vote. And, since ‘far from employment bringing riches to a man, employment takes riches away since a person’s riches should be calculated according to their store of time and energy, and are diminished by any encroachment on these’ (a true creative artist’s economics!), working hours should be cut to ‘possibly three hours a day for adults between 18 and 40 … [which] should supply all men’s necessities’.

One of the reasons Ezra Pound found Douglas’s economic theory so appealing was that it was an implicit attack on banks and financiers, since inflation and deflation were controlled in ‘a dark room back of a bank, hung with deep purple curtains’. So, ‘Who my brother controlleth the bank?’ For the virulently anti-Semitic Pound, the answer was obvious: a conspiracy of Jewish financiers.

Another maverick thinker frustrated with orthodox economic theories was the British-domiciled Canadian newspaper magnate, owner of the Daily Express, Lord Beaverbrook. Like Mosley, Beaverbrook, frustrated with the political party he had tried to influence with his radical ideas, set up a new movement. In Beaverbrook’s case it was the Conservative Party that he had lost patience with. And his ‘new wine’ was Imperial Preference (which had been championed by Joseph Chamberlain in 1903), a tariff-protected internal market between Britain and her dominions intended to bind the Empire together and insulate Britain from the buffetings of the world economy.

In the eighteenth century Adam Smith, the principal theorist of Free Trade, had argued that the removal of trade restrictions between nations would encourage the exploitation of natural advantages, producing an efficient international division of labour and world peace. It was a doctrine perfectly attuned to the industrial hegemony that Britain had enjoyed as ‘workshop of the world’, buying raw materials in the cheapest markets and selling its manufactured goods in the most costly. But as foreign competition increased in the nineteenth century and the workshop began to look rickety, there were calls for trade barriers to protect British manufacturing industry and the wages of the workers, which free trade imports could undercut.

By 1930 the pressure to protect the home market was beginning to come from some unexpected quarters. It was a highly sensitive political matter, since Labour relied on the support of the Liberals in government, and for the Liberal Party, political and ideological heirs to Cobden and Bright, free trade flowed through their very veins. Snowden, too, was implacably opposed to the erection of any form of tariff barriers. Yet while the Labour government remained firm in its commitment to free trade, a protectionist movement under the leadership of Sir John Simon was stirring deep in the heart of the Liberal Party. And Stanley Baldwin, leader of a Conservative Party that was no more united in its policies to deal with the economic crisis than Labour or the Liberals, felt the breeze too, noting in April 1930 that ‘The age of free trade is passing … because no new free traders are being born today.’ He grew more confident about reviving old Conservative policies of tariff protection, talking cautiously about safeguarding industry and holding a referendum on what had previously been a vote-loser: food taxes. This however was not enough for those in the party who wanted MacDonald to commit to the pursuit of Empire Free Trade.

In early 1930 Beaverbrook jumped the gun and announced the start of an Empire Crusade, since ‘The old Parties, slaves of tradition — impervious to new ideas — have let us down too, and … out of these old bottles it is no use looking for any new wine.’ Beaverbrook’s plan was to create a single economic unit from the variety of territories within the British Empire: the Empire would provide Britain with its food, while British industry would provide the Empire with the manufactured goods it needed, all behind a protective tariff barrier.

The Crusade, publicised in Beaverbrook’s Daily Express, and Lord Rothermere’s United Empire Party, supported by his Daily Mail (between them these two papers had a circulation of nearly four million), formed an uneasy alliance ‘to save the country … if necessary at the expense of wrecking every political party’ by putting up candidates in every constituency represented by a free trade Conservative (though in fact Rothermere was less concerned about Empire trade than about the loss of British influence in India). In March 1931 the Empire Crusade and the United Empire Party joined together to support an independent, anti-Baldwin Conservative in a by-election in the St George’s division of Westminster, the safest (and without doubt the richest) Conservative seat in the country, where the official Conservative candidate was Duff Cooper. Baldwin, who was being attacked from ‘under the piecrust’ in his own party, was so anxious about the result that he almost considered standing himself. Cooper was a former diplomat and MP, a skilful gentleman-who-lunched, and both the husband of one of the notable beauties of the age, Lady Diana Cooper, and a close friend of the Prince of Wales. In the event, in a campaign in which ‘the gloves were off’ and there had been ‘no baby or butcher-kissing’, the socialite Tory ‘slayed the dragons’, winning a resounding victory despite the ‘power without responsibility’, as Baldwin accused it, of the popular press.

What Mosley and Beaverbrook advocated in extremis — and tainted with their advocacy — also figured in John Maynard Keynes’ thinking, found instinctive support from the trade unions, and drew praise from radical young Tories like Robert Boothby and Harold Macmillan, whose Stockton-on-Tees constituency suffered deeply in the Depression, and who was exasperated by ‘a shadow Cabinet … worn to a shadow by its exertions’, a party with too many ‘open questions and too many closed minds’ — a criticism that could have been levelled at all three parties. Indeed Macmillan, who would in a little more than two more decades preside over Britain’s return to affluence, had been tempted to work with Mosley’s New Party himself, but had decided that ‘Men do better to stick to their own parties and try to influence their policies and their characters from within.’ Keynes too recognised much that he advocated in Mosley’s proposals. He found the memorandum ‘a very able document and illuminating’. And whereas before Mosley’s resignation the dispute had been over the efficacy of public works, afterwards the focus of the argument was increasingly about tariffs. Protectionist policies began to find support not just from industrialists, but also from the City of London, economists — including Keynes — and trade unionists. But not from Snowden. The Chancellor remained as intransigent as ever, opposed both to increasing government expenditure to create jobs and also to any form of tariff barriers. Irritated by sniping from his own backbenchers, Snowden decided to give them a cold douche of reality as he saw it. In February 1931, in response to Conservative charges that unemployment costs were too high, the government accepted a Liberal amendment and set up a committee to report on the matter.

Sir George May of the Prudential Assurance Company assumed the role of picky auditor of the government’s books, and his committee’s report was published on 31 July 1931, the day before the House rose for the summer recess. The deliberations of the men whom Beatrice Webb described as ‘five clever hard-faced representatives of capitalism and two dull trade unionists’ were ‘sensational’ (or ‘devilish’, as the Bank of England feared). The May Committee forecast a budget deficit of £120 million, and to avoid this it recommended total spending cuts of £96 million, two-thirds to come from unemployment benefit, plus cuts in public works projects and the pay of teachers, the police and the armed forces. ‘Luxury hotels and luxury flats, Bond Street shopping, racing and high living in all its forms is to go unchecked; but the babies are not to have milk and the very poor are not to have homes. The private luxury of the rich is apparently not wasteful expenditure,’ expostulated Beatrice Webb. The Cassandra-like May report, which was considerably exaggerated but not questioned at the time, could not have come at a worse moment. On 11 May the Credit-Ansalt, the most important bank in Austria, had failed, threatening the collapse of the German banking system. France started to withdraw gold in large quantities from London, and by the end of July MacDonald noted ‘Run on the Bank of England … £5,000,000 exported’ as foreign holders of sterling unable to withdraw their money from Germany withdrew it from London instead, in what Treasury officials warned was ‘an unprecedented exodus’. What had been a liquidity crisis was turning into one of confidence.

The Labour government was ill-placed to know how to restore it. In line with its election pledges benefit payments had been increased and access to benefits widened in January 1930, but the rapid escalation of unemployment and a shrinking tax base meant that the insurance fund was soon in deficit — by £75 million in 1930, and expected to rise. Unemployment benefits generally had soared as a cost to the Exchequer, from £12 million in 1928 to around £125 million in 1931. To its critics, unemployment insurance had become symbolic of the Labour government’s financial ‘unsoundness’ and ‘profligacy’. The Holman Gregory Commission on Unemployment Insurance, set up in December 1930, issued its interim report at the end of June 1931, calling for reductions in unemployment benefits and increases in unemployment insurance contributions. And when Lord Macmillan’s Committee finally issued its report in early July, ‘it was not exactly a document of limpid clarity and gave little practical assistance to a distracted administration’ (rather it gave the reverse, exposing the extent of London’s short-term foreign indebtedness to the government’s putative overseas lenders), while the minority report signed by Keynes and others saw the big picture and the long term, but was equally ‘of no immediate help’.

Indeed, even after the publication of the May Committee report (on which his views were not fit for publication), Keynes still thought that MacDonald should consult ‘a Commee. consisting of all ex Chancellors of the Exchequer’ about the issue. Beatrice Webb, writing her diary at 4 a.m. in the middle of the crisis, considered that ‘The only excuse for the Labour Cabinet is that no other group of men, whether politicians, businessmen or academic economists, whether Tory, Liberal or Labour, seem to understand the problem. No one knows either what the situation is … or the way out of it to sound finance. Even the fundamental facts of the situation are unknown.’

MacDonald set up a Cabinet Committee consisting of himself, Snowden, Henderson (who despite his position as Foreign Secretary discussing US loans considered that finance was a matter for the Treasury), J.H. Thomas and William Graham, President of the Board of Trade, to consider ways of reassuring foreign investors and easing the strain on sterling. ‘Will the country pull through?’ the Governor of the Bank of England Montagu Norman was asked on 15 August 1931. ‘Yes,’ he replied, ‘if we can get them [i.e. the government] frightened enough.’ Undoubtedly the government was frightened. It was also divided.

On hearing that more than £6 million in gold reserves had leached away during the past month, Snowden wrote to MacDonald on 7 August 1931 stressing the ‘terrible gravity of [the whole situation]. Three millions of unemployed is certain in the near future and four millions is not out of the question. We are getting very near exhausting our borrowing powers for unemployment … we cannot allow matters to drift into utter chaos, and we are perilously near that.’ It was reported in the City that MacDonald was hopeful that a loan to help prop up sterling ‘could be placed in New York if satisfactory promises of good behaviour are made here’. But whatever Snowden and MacDonald thought about the imperative of balancing the budget — and by mid-August Snowden was predicting that the deficit would be £170 million, rather than the £120 million the May Committee had forecast — what the City regarded as ‘good behaviour’ went against the very raison d’être of the Labour Party: to represent the interests of working people. Now a Labour government that had proved unable to tackle, let along conquer, unemployment was being expected to penalise those very people who were already suffering most from this failure. ‘It certainly is a tragically comic situation that the financiers who have landed the British people in this gigantic muddle should decide who should bear the burden,’ again expostulated Beatrice Webb.

The Bank of England’s agent in New York, J.P. Morgan & Co., reported that Wall Street needed to have confidence in the financial competence of the British government, and that no further loans would be forthcoming unless an economy package could be put together which satisfied the opposition parties. But this proved impossible. The Conservative Party insisted that taxation must not rise, and Neville Chamberlain, the shadow Chancellor, insisted that the economy package the government was proposing must be increased by around £30 million, while the Liberal leader Herbert Samuel insisted that there had to be ‘drastic action’ on unemployment insurance.

There was another option to swingeing cuts, one that Keynes had come round to favouring, and even Bevin had ventured was not unthinkable, and that was coming off the Gold Standard, and allowing the pound to settle at a lower value than its parity with gold. But no other member of the government or opposition even contemplated such apostasy: the Gold Standard was a sine qua non of the financial stability necessary for a permanent revival of trade, industry and employment, and all other economic decisions had to be taken in light of this given. Anything else would, in the words of the usually cautious economist Hubert Henderson, who was no Treasury man, let loose ‘a real déringolade [meltdown] which would lead to the complete collapse of the currency which in turn would lead to far harsher cuts than any so far contemplated’. In what is probably an apocryphal story, Sidney Webb is supposed to have gasped, ‘I didn’t know we could do that,’ when Britain did abandon the Gold Standard a couple of months later.

Meanwhile, the Cabinet accepted that the budget had to be balanced to restore confidence in sterling, and no one said anything about coming off the Gold Standard (rather Snowden warned the Cabinet on 8 August that the effect of departing from the Gold Standard would be a 50 per cent fall in the standard of living of working men). Hour after hour that humid August the Cabinet wrangled, cutting, trimming. By the twenty-first, agreement had been reached that rather than making economies of £78 million and cutting unemployment benefit payments by £48 million, economies would be reduced to £56 million, unemployment benefits cut by £22 million. But the City dismissed the new targets as inadequate — and warned that gold reserves would probably only last for four more days. Chamberlain for the Conservatives and Sir John Simon for the Liberals said the same; the two opposition parties would ‘turn them [the Labour government] out immediately the House met’ (being August, Parliament was in recess), insisting that it was MacDonald’s duty to avoid the crash. The Conservatives would give him ‘any support in our power for that purpose, either with his present, or in a reconstructed government’, and Samuel committed the Liberals to that line too — stressing the immense urgency of the situation.

The General Council of the TUC, seeing no ‘equality’ in the sacrifice they were being asked to make, and convinced that the situation was not quite so desperate as was being alleged, refused to agree to any cuts in benefits or in the pay of teachers or policemen (‘Pigs,’ spluttered Sidney Webb, meaning the TUC) — though it was prepared to condone those for judges and ministers. ‘Practically a declaration of war,’ MacDonald noted in his diary; he must have felt he was staring at a brick wall. The bankers insisted on cuts; the trade unions insisted on no cuts. As for support within Cabinet, according to his son Malcolm, MacDonald was ‘disgusted with the behaviour of many of his colleagues; they lack grasp of the situation and the guts to face it … He will carry on if he can, but it is more likely that the situation will be such that he has no alternative but to resign.’ At 10.30 a.m. on Sunday, 23 August 1931, MacDonald set out for the Palace apparently intending to resign ‘with the whole Cabinet’, but the King made it clear that should the Labour government resign, his view was that MacDonald should attempt to ‘carry the country through’ with Conservative and Liberal support.

That evening nine of the eleven members of the Labour Cabinet (including the key player, the Foreign Secretary Arthur Henderson) made it clear that they would not agree to a 10 per cent cut in unemployment benefit, by far the most important part of the package. Clearly the government could not continue. MacDonald was confronted with some unpalatable choices: the Labour government could resign, hand over to the Conservatives and Liberals and oppose the cuts in unemployment benefit from the opposition benches, when in fact MacDonald considered them to be necessary; he could resign the Labour leadership and support the cuts; or agree, in his daughter Sheila’s words, to be ‘P.M. of coalition govt. (this is what King wants) Wld. have to face whole antagonism of Labour movt. Seeming desertion of principle & playing for office. Lose hold of party.’ MacDonald havered: on 24 August he returned to the Palace.

The King again tried to persuade him that resignation would be a dereliction of duty: MacDonald must put country before party and head a National Government. The Prime Minister agreed that in the circumstances he would be prepared to remain as head of a government in which the Conservative and Liberal leaders Baldwin and Samuel would also serve ‘until an emergency bill or bills had been passed by Parliament, which would restore once more British credit and the confidence of foreigners’, after which time Parliament would be dissolved and a general election would be fought along party lines. ‘Certain individuals, as individuals, [would be invited] to take on their shoulders the burden of government’ in the new configuration. ‘MacDonald has been crawling along the hedgerows in search of Labour ministers these last few days,’ wrote Hugh Dalton, who was not trawled. In the event, Snowden, Thomas and Lord Sankey, the Lord Chancellor, were the only three Labour Ministers who agreed to serve in the National Government.

‘It was a banker’s ramp’, charged the Minister of Agriculture and Fisheries, Christopher Addison, on the day of his resignation. The TUC also suspected as much, and the Daily Herald made the accusation public on 25 August. Bankers, it was claimed, had used the economic crisis to dictate government policy. But no one in government had doubted the bankers’ insistence that the budget had to be balanced: it was how it was to be balanced that was at issue. The American banks made a loan dependent on a balanced budget, but insisted that the way in which that was achieved was ‘quite outside our province’. But in the end, since the other two political parties were insisting on cuts in unemployment benefit payments as a condition of their support, while the TUC and an important and sizeable minority of MacDonald’s own Cabinet would not agree the 10 per cut, the Cabinet resigned.

‘Well — we have what is called a “National Government” — Conservatives, Liberals, and Mr Ramsay MacDonald and a few friends,’ wrote the Conservative MP for Barnard Castle, County Durham, Cuthbert Headlam, sceptically. ‘I cannot see how such a combination … is going to do any good … except on paper this is not a coalition. It is a collection of people collected together to save the situation … their task, if carried out properly will make them very unpopular — they cannot go on for long without quarrelling among themselves for their policies are widely divergent.’

MacDonald, Snowden and Thomas were expelled from the Labour Party, and Arthur Henderson assumed the leadership. In September Snowden’s budget (attacked by Keynes as being ‘replete with folly and injustice’) raised taxes, proposed a range of cuts in public workers’ salaries and cut 10 per cent (though not the 20 per cent recommended by the May Committee) off unemployment pay. On 21 September, with a renewed run on the pound (partly as a result of the Invergordon Mutiny, when naval ratings refused to muster when faced with disproportionate pay cuts), the Bank of England abandoned the Gold Standard, a situation that the National Government had been brought into being to avoid. Within a year this allowed interest rates to fall to as low as 2 per cent and brought about the ‘cheap money’ that would help build Britain’s industrial recovery.

The election that was called for October 1931 was essentially a fight between Labour and the rest: and the rest won. In 1929, 287 Labour MPs had been elected; in 1931 this was cut to fifty-two, and that included Scottish ILP Members (who eventually disaffiliated from the rest of the ILP under their leader James Maxton in July 1932, believing they could answer the need the ILP perceived among the working classes for a more radical socialist party). Labour was all but annihilated everywhere except in coalmining areas. Arthur Henderson lost his seat, as did Hugh Dalton and Herbert Morrison. Only one former Labour Cabinet Minister, George Lansbury, was returned, though two Junior Ministers, the men of tomorrow, Clement Attlee and Stafford Cripps, just managed to hang on. The so-called National Government, which was composed mainly of Conservatives and members of a terminally divided Liberal Party, swept the board with 554 seats.

Thomas Jones felt like ‘the Scotch minister who had prayed earnestly for rain, and then had the whole contents of a drainpipe emptied over him’ when he heard of the rout. ‘The election results are astounding,’ wrote Samuel Rich, a teacher at the Jews’ Free School in London, who considered that ‘teachers are the worst hit in the land, except the poor unemployed’ when he received his first reduced monthly salary of £29.7s instead of the former £32.6s on 23 October 1931. ‘There will be no opposition … “Socialism in our Time” is off,’ he wrote in his diary, underlining ‘off’ heavily, twice.

Indeed, it seemed to many that Labour would never again come to power democratically. Hugh Dalton talked darkly about bringing the Durham Light Infantry to London to replace the Brigade of Guards. When Hugh Gaitskell was adopted as Labour candidate for Chatham for the 1935 general election he was rueful: ‘The Labour Party … tried to get better conditions out of capitalism … leaving the economic power in the hands of the same people as before … The only way in which Socialism could be got was shortly and fairly sharply … [T]hey should get the power, proceed with measures of Socialisation, and smash the economic power of the upper class.’ Cripps, for his part, would hint at ‘adopting some exceptional means such as the prolongation of the life of Parliament for a further term without an election’, and ‘overcoming opposition from Buckingham Palace’, though when taxed that this sounded a bit like treason, he affected surprise that ‘anybody should have thought I was referring to the Crown’.

‘The one thing that is not inevitable now is gradualness,’ Cripps insisted. The Webbs agreed, and in September 1932 the Fabian-inspired SSIP was merged with the minority wing of the ILP that had stayed in the Labour Party to form what became the Socialist League, another intellectual pressure group, this time with a clear, if broad, Marxist agenda, with Harold Laski and H.N. Brailsford among its members, and soon Sir Stafford Cripps as its chairman. The Socialist League became the main organisation of the left until it too was dissolved by the leadership in 1937, while the NFRB merged with a revived Fabian Society a year later.

MacDonald — and his ‘ism’ — were, as his daughter had predicted, faced with antagonism from most (but not all) of the Labour Party, though this had as much to do with his disdainful treatment of his parliamentary colleagues and TU supporters as with his initial ‘betrayal’. Samuel Rich was amused to receive a ‘jeu d’esprit’ about MacDonald that a friend wrote and slipped in a Christmas card:

If Ramsay MacDonald, you still have brains that work

Not solely to commands from high finance …

How it must chill your socialistic bones

Seated upon your unsubstantial throne —

A transient triumph — then the long alone —

Sans friends, sans party, salary or loans …

History’s verdict has been kinder, more prepared to absolve MacDonald from conspiracy and self-aggrandisement, accepting to some extent his reading of the national interest, seeing little culpable substance in his faiblesse for eating cucumber sandwiches with and getting sentimental about aristocratic ladies, and finding the explanation for his actions in confusion, being out of touch, having an imperfect understanding (but who did not?) of economic forces, and few mechanisms at his disposal to influence those forces, and thus of clinging to outworn verities, of believing in socialism but having no plan for achieving it. In sum, being blinded by the blizzard that swept the world in which, to strain a metaphor, the windscreen wipers seemed to have frozen.

Could things have been different? Would a ‘Keynesian Revolution’, an idea which gained favour in the 1960s and ’70s, have saved the day? Such an ambitious ‘New Deal’ public works programme might at least have provided Britain with a creditable infrastructure of roads and bridges. But would it have solved the unemployment problem? Possibly back in 1929 when unemployment was around a million it could have been cut by 600,000, as Lloyd George pledged, the most astute historian of that proposed ‘revolution’ judges, but by 1931 the Labour government’s own two-year public works schemes had become operational, and unemployment remained obdurate in the face of the world slump. The theoretical basis of the ‘multiplier effect’ (whereby creating primary employment opportunities generates secondary or subsequent ones as a result of increased spending power) of such schemes on employment was imperfectly understood until the mid-1930s. At the time public works projects were advocated as being cheaper and more controllable than the dole, rather than because of ‘the beneficial repercussions that will result from the expenditure of the newly-employed men’s wages’ (though evidence to the Macmillan Committee had suggested something similar, as Bevin and McKenna’s enthusiasm showed). And, of course, those in the Labour Party who still imagined they were tramping along the long road to socialism noted that Keynes’ solutions were intended to make capitalism work more efficiently and humanely, not bring about its demise.

The month before Labour went down to an electoral ignominy from which it would not recover until 1945, the number of those out of work was the highest ever: 2,811,615.