The dominance of the Conservative Party between the wars played a role in shaping policy. Although Labour won more eats in 1929, it garnered lesser total votes. The success of the Conservatives during a period of high unemployment is atypical in the short history of democracy and universal franchise. The universal franchise for men was enacted just a decade earlier and women won this right by 1928. This availability of the votes of two historically subordinated communities (un-propertied men and women) should have naturally benefitted the political left. Added to this were mass unemployment and the rise of fascism in Europe. Yet the British electorate delivered a surprising verdict in 1929 in favour of the Conservatives. Perhaps the electorate was nostalgic for a regime of peace that prevailed prior to the war and hence found Conservatism appealing. However, remedying the unemployment situation was not a high priority for the party, and this reflected in the policy lacunae in this area. (Bogdanor, 2013)
To be fair to the National Government, some of its prudent economic measures during its reign unexpectedly backfired. For example, leading up to the 1930s, an important factor having a bearing on unemployment was Britain’s decision to abandon the gold standard after the First World War. This meant that Britain (as well as many other European nations) no longer had strong monetary links that had aided free trade. Free trade usually acts as an insurance mechanism to prevent mass unemployment. Given the isolation of national economies after the abandonment of the gold standard there were no trade-based stimuli to create new jobs. But there is always a divergence between economic theory and ground reality. When in 1925 the government under Conservative leadership re-entered the gold standard, the move backfired. In just four years the unemployment rose by at least 100,000. The Wall Street Crash that precipitated the Great Depression was the final nail in the coffin. This event nearly doubled unemployment in Britain. Hence integration with the global economy through the adoption of gold standard was a double edged sword. It can save or smother the participant nation depending on prevailing conditions. When in 1931 the second Labour government collapsed and Ramsay MacDonald’s conservative government took over as the National Government it was thus very apprehensive about the gold standard. The Great Depression has also pushed Britain’s balance of trade situation into a precarious corner. Despite these misgivings orthodox economic theory did prevail and “Conservative and Labour governments alike stuck faithfully to the gold standard, encouraged by the City bankers.” (Laybourn, 1990, p.18) But where the government showed its lack of imagination is in summarily dismissing alternative programs for job creation, even as it steadfastly held on to policies based on orthodox economics policies.
It should be remembered that Britain was still a dominant imperial power in the 1930s and its central bank still held sway over the global economy. Theories of macroeconomics indicate that by skilful manipulation of the availability of Pound Sterling and its equation to the gold standard, the economic system could be made stable. One explanation for the stability of the gold standard preceding the Second World War is due to adept management by the Bank of England. The Bank is “said to have stabilized the gold standard system by acting as international lender of last resort.” (Eichengreen, 1991) This had a cascade effect and stalled unemployment numbers. Although the Pound Sterling no longer held the same value as it did prior to the First World War, it was still able to provide stability to a weak economy. Moreover, when global credit conditions were quite constrained and a release has to be found somewhere, the requisite adjustment had to be carried out in concert by several central banks. Under such circumstances, “the most prominent central bank, the Bank of England, signalled the need for coordinated action. When it lowered its discount rate, other central banks responded in kind. In effect, the Bank of England provided a focal point for the harmonization of national monetary policies.” (Eichengreen, 1991) Hence the policy lacuna under the National Government was partially offset by the skilful handling of currency and gold by the central bank.