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The International Financial Crisis In 1929

1232 words - 5 pages

The International Financial Crisis in 1929

Throughout the 1920's in Britain there were
economic problems. Unemployment was increasing; therefore there was
low domestic demand and large amounts of poverty. Markets were also
being lost abroad, leading to a decrease in trade. However in 1929-31
these problems reached crisis point, when in 1929 The Wall Street
Crash called for an end of American Loans to Britain, and the re-call
of all Britain's debt. This had impact worldwide, as prices for goods
slumped due to lack of demand and business confidence disappeared. In
Britain it became clear that the 'Laissez-faire' policy was not going
to work, but there was a divide in thoughts over which policy to adopt
to deal with the crisis. Pressure built in 1930 as government spending
rose to an all time high due to high unemployment, and defeat at the
next general election looked likely. In 1931 the crisis in Britain
reached its peak with the 'run on the pound' causing major change and
unrest within the labour government to try to solve the crisis.

(b) Explain the reactions of the Labour Government to the proposals of
the May Committee. (7) In July 1931 the May Committee reported a
deficit of £120 million . It recommended a 20% cut in government
spending in order to balance the budget. This proposal caused an 11-9
split within the labour government that made continuation as a
government impossible. Although the Labour government was essentially
a socialist party, Macdonald had always argued that since they were a
government without a majority, they must act in a way that would
reflect this, hence his and several other Labour MP's wish to act in
traditional fiscal policy by balancing the budget in 'national
interest'. The May Committee's suggestion showed clearly this divide
within the party, which forced Macdonald to offer the party's
resignation. He was, however convinced by King George V to remain as
Prime Minister but as leader of a national coalition government. In
order to prove that Labour was a national, responsible party,
Macdonald was prepared to do this, as was Philip Snowden, Chancellor
of the Exchequor. Snowden believed that the budget should remain
balanced and Britain should remain on the gold standard. He therefore
supported the May Committee's proposal despite Labour's working class
stance. However Arthur Henderson the foreign secretary did not agree.
Henderson was heavily influenced by the Trade Unions, and felt
strongly that Labour should represent the working class, therefore he
felt that if the budget had to be balanced by cutting unemployment pay
and raising taxes it was better for Labour to leave office and leave
such policies to the Conservatives or Liberals. This difference in
opinion within the party led to its break up and the formation of a
national government due...

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