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British monetary and fiscal policy in the 1930s

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  • Roger Middleton

Abstract

Current economic turbulence has revived interest in interwar macroeconomic instability and policy. This paper provides a guide to the current state of knowledge on British macroeconomic policy between 1929 and the eve of the Second World War for today's economists and policy-makers. Mindful that some will seek 'lessons' from this earlier age, it makes clear the very particular economic and policy context of the time, including the marked difference between British and American economic performance and policies and the challenge posed by the massive rise in debt brought about by the First World War. Knowledge transfer is possible here for policy learning, but what transpires is that lessons are typically stronger as negatives than as positives: namely what should not be done in general, as against what might be done, this largely situation specific. The focus is the role and effectiveness of the monetary and fiscal policies pursued together with an assessment of the principal policy not adopted, namely the Keynesian solution of significant loan-financed public works to remedy mass unemployment. The analysis is comparative with respect to US macroeconomic economic performance and policy; it explores the different macroeconomic shocks of the 'contraction' phase (the term 'Great Depression' is not really appropriate to the British experience) in the two countries; comparative policy regimes; and then, in turn, analyses the policy mix and policy effectiveness of monetary and fiscal policy, including for Britain the counterfactual Keynesian solution. A business-cycle periodization is adopted, with the key role for the abandonment of the gold standard in terms of regaining freedom of choice in macroeconomic policy, itself experiencing significant developments after 1931. The traditional role of the cheap-money-induced housing boom in Britain's post-1932 economic recovery is reaffirmed; the impact of the fiscal policies actually pursued are then discussed, as are assessments of the likely effectiveness of the Keynesian solution had the 1929 Liberal Party's 'We can conquer unemployment' spending package been implemented. Copyright 2010, Oxford University Press.

Suggested Citation

  • Roger Middleton, 2010. "British monetary and fiscal policy in the 1930s," Oxford Review of Economic Policy, Oxford University Press, vol. 26(3), pages 414-441, Autumn.
  • Handle: RePEc:oup:oxford:v:26:y:2010:i:3:p:414-441
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    File URL: http://hdl.handle.net/10.1093/oxrep/grq024
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    Citations

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    Cited by:

    1. Crafts, Nicholas & Mills, Terence C., 2013. "Rearmament to the Rescue? New Estimates of the Impact of “Keynesian” Policies in 1930s' Britain," The Journal of Economic History, Cambridge University Press, vol. 73(04), pages 1077-1104, December.
    2. Nicholas Crafts, 2016. "Reducing High Public Debt Ratios: Lessons from UK Experience," Fiscal Studies, Institute for Fiscal Studies, vol. 37, pages 201-223, June.
    3. Nicholas Dimsdale & Nicholas Horsewood, 2009. "The dynamics of consumption and investment in the late Victorian economy," Working Papers 9007, Economic History Society.
    4. Crafts, Nicholas & Mills, Terence C, 2012. "Fiscal Policy in a Depressed Economy: Was There a ‘Free Lunch’ in 1930s’ Britain?," CAGE Online Working Paper Series 106, Competitive Advantage in the Global Economy (CAGE).
    5. Nicholas Crafts, 2014. "What Does the 1930s' Experience Tell Us about the Future of the Eurozone?," Journal of Common Market Studies, Wiley Blackwell, vol. 52(4), pages 713-727, July.
    6. Nicholas Crafts, 2013. "Returning to Growth: Policy Lessons from History," Fiscal Studies, Institute for Fiscal Studies, vol. 34(2), pages 255-282, June.
    7. Nicholas Crafts & Peter Fearon, 2010. "Lessons from the 1930s Great Depression," Oxford Review of Economic Policy, Oxford University Press, vol. 26(3), pages 285-317, Autumn.
    8. Barry Eichengreen, 2016. "The Great Depression in a Modern Mirror," De Economist, Springer, vol. 164(1), pages 1-17, March.
    9. Nicholas Dimsdale & Nicholas Horsewood, 2012. "The impact of the Great Depression of the 1930s on the British economy," Working Papers 12028, Economic History Society.
    10. Kent Matthews, 2013. "No Plan B: But is There a ‘Third Way'?," Economic Affairs, Wiley Blackwell, vol. 33(2), pages 220-231, June.
    11. Matthias Morys, 2014. "Gold Standard Lessons for the Eurozone," Journal of Common Market Studies, Wiley Blackwell, vol. 52(4), pages 728-741, July.
    12. Nicholas Crafts, 2013. "Returning to growth: lessons from the 1930s," Working Papers 13010, Economic History Society.

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