Britain's economic decline after WWI
World War 1 intensified Britain's old economic difficulties as it created disruption on Britain's economy which was highly dependant on oversea markets and heavy industry. With this, Britain experienced recessional pressures, losing these main industries including the textile and shipping industries to competition overseas. Post World War 1 Britain experienced an economic boom in the early 1920's, mainly attributed to the expansion of the shipping industry due to the surge of demand for the export of coal,steel and manufactured goods. This in turn increased the demand for more ships. As a result this boom was short lived as industry began to slump due to over supply as well as being faced with competition from other nations.

Unemployment After 1919
During the 1920's, Britain suffered high unemployment after 1919 as the economy failed to expand in post war markets. This was caused by Britain losing their markets to the increase in tariff barriers, other economically industrial nations, and development of competition to the textile industry and replacement of coal. By 1921 unemployed receiving benefit payments reached over 2 million. Economic stress relieved through programs including unemployment insurance , old age pensions, and subsidizing housing. Before the Labour Party came to power in 1924 and in 1929, Britain had adopted a welfare state to ensure there was no decline in the standard of living for British Workers.

Shifts In Government
Responses to the social welfare of the state came from the labour unions who struggled to maintain the wage gains received in wartime. Strikes from British unions broke out over welfare policies and government had to implement military personnel to maintain the production of industry. The Labour Party rose as the second of the two great parties of Britain displacing the Liberal Party after the election of 1922 and opposed the conservatives as official opposition. It soon rose in popularity as it was able to consistently and actively deal with labour legislation and take bolder measure to deal with the troubled economic state of Britain. Led by Prime Minister Ramsay MacDonald the labour party decreased Government aid and moderated unemployment relief and inaugurated housing and public works projects. The Labour Party came to power again in 1929 as their representation in the parliament doubled. In the same year the great depression hit and wall street crashed, unemployment tripled, and deficit started to mount up. IN response MacDonald formed a all-party coalition known as the National Government.

The Great Depression
The Wall Street Crash in 1929 pushed Britain into economic depression as the demand for British products collapsed. Stagnation occurred in the shipping industry and in turn affected industries dependant on British Exports. As British Shipping was devastated, the industries relying on shipping including steel, coal, ship building and other heavy industries all experienced difficulties. To counter act this loss, The British Shipping Assistance Act was implemented to help shipping lines recover by scraping old vessels and building new ships through Government subsidies. This plan was ineffective because ships brought from overseas would be scraped and rebuilt while the British merchant fleet remained untouched.

The Introduction of the Gold Standard

During the Great War, most countries converted their currency to a floating exchange rate. In Britain, bank notes were banned from conversion into gold. Thus, their value was variable, and on par with the economic demands of the war. After the war, Britain amassed huge amounts of debt, and saw themselves in an economic recession. In 1926, Winston Churchill, in order to stimulate the economy, returned England to a monetary Gold Standard. However, instead of valuing the pound at current economic levels, Churchill valued it at pre-war parity. Unfortunately, the pound was worth much more during the War than it was after. Because of the return to the Gold Standard, in 1926 the pound was valued 10% higher than it was worth internationally. In order to be competitive in foreign markets, British exporters had to accept a price cut of 10% on all goods. Goods that were sold on par with the pound in relation to the Gold Standard were 10% more expensive than those of foreign competitors, and British exports became the more expensive option. In the late 1920's, profit from domestic products decreased substantially and export levels fell.

The British Coal Industry
During the Great War, domestic coal usage rose in Britain in order to sustain the British war effort. Thus, international exports of coal decreased during the 1910's. In 1925, American economist Dawes introduced the Dawes plan, which allowed Germany to pay a portion of its war reparations to France in coal, rather than money. Due to the presence of "free coal" in the world market, both the demand for, and price of coal fell. Due to these factors, coupled with the return to the Gold Standard in 1926, profits from coal exports plummeted.

1926 General Strike and Red Friday
As coal exports fell, mine owners attempted to normalize profits by implementing wage reductions on their employees. Due to the already weakened economy, outcry from the miners abounded. In what became known as Red Friday, the government promised to subsidize any wage reductions that emerged. (This day was called Red Friday due to its socialist nature, and was seen as a victory for the working class.) However, due to economic and political pressures, these subsidies were soon revoked. Because of this, the miners began to strike, in what became known as the General Strike of 1926. During the first week of the General Strike, over 1.5 million men refused to work. The TUC union attempted to negotiate, however, 13 days later, the TUC called off the strike. Although without union support, the miners continued to strike until November 1926, when financial pressures forced them back to work for longer hours and less pay.

The National Government
Due to the return to the Gold Standard and problems with domestic industry, Britain felt recessionary pressures in both the 1920's and 1930's. The Labour Party, led by Prime Minister Macdonald, was unable to balance the budget accordingly. In a government commission entitled the May Report, the Labour Party was urged to cut public spending. The Conservative opposition also pressured the government to reduce public works. However, many Labour Party ministers threatened to resign if such cuts were brought to life. Thus, due to conflicting national and party interests, King George V asked MacDonald's government to reign. In 1931, they did so, and the National Government was formed. The National Government was a coalition party consisting of the Labour Party, the Conservatives and the Liberals. It was hoped that the National government could balance the budget and bring about economic stability. In order to increase profits, the National Government introduced the General Tariff of 1932, which put a tax of 10% on all imports. As well, in 1931 the National Government abandoned the Gold Standard, devaluing the pound and helping Britain move towards economic recovery.

Unemployment Reforms of the 1930's
Due to the ideological shift in Britain during the Interwar Years, the government of the 1930's went about reforming unemployment benefits, in order to reach a greater number of British citizens. Previously, citizens had to pay into Unemployment Insurance, and could only draw funds from insurance relative to the amount they had contributed. If a citizen could not afford to pay, they were forced to go to traditional institutions (church, etc.) for financial aid, as per the New Poor Law. The unemployment reforms of the 1930's allowed for all citizens, regardless of contribution, to draw funds from unemployment insurance, and put social welfare into the hands of the state. Additionally, the minimum age of a claimant was lowered to 14. In Britain, unemployment reforms were a dramatic shift to the left, and welfare capitalist ideals.

Emergence of John Maynard Keynes
Immediately following the Great War, John Maynard Keynes produced the Economic Consequences of the Peace. In his book, he predicted that high inflation rates and government price controls would dampen production. In a short essay entitled The Economic Consequences of Mr. Churchill, Keynes criticized the return to the Gold Standard, and predicted that it would result in a European depression. Keynes proposed that the economy be reinflated through public works. Due to his economic theories and predictions during the Interwar Years, Keynes emerged as a leading economist after the Second World War. During the Interwar Years, his theory of demand side economics gained credibility and validity. The emergence of Keynes was a key indication of Britain’s ideological shift towards leftist policies during the Interwar Years.

Economic Recovery
Late into the 1930's Britain began to see economic recovery and growth. The General Tariff of 1932 saw government revenue increase, and the movement away from the Gold Standard allowed for economic revitalization. New industries, such as chemicals and auto manufacturing allowed for economic expansion, unlike the shipping and coal industries of the earlier interwar years. As well, due to the rise of Nazi Germany, British military spending began in 1937. This spending helped to increase economic growth until Britain officially entered the war in 1939. From 1939 on, Britain had a wartime economy, and economic expansion continued to increase.


Sources:
J.M.Keynes. The Economic Consequences of the Peace (New Edition). Little Books Of Wisdom: Book Jungle, 2007. Print.
Jenkins, Roy. Churchill: A Biography. 1st ed ed. New York: Farrar, Straus and Giroux, 2001. Print.
Keynes, John Maynard. Essays in Persuasion. New York: W. W. Norton & Company, 1963. Print.
"Unemployment-Regulated Benefits System in the United Kingdom." Legco. N.p., n.d. Web. 21 Feb. 2010. <www.legco.gov.hk/yr99-00/english/sec/library/e15.pdf>.
“The Cabinet Papers Interwar period.” The National Archives, N.p., n.d. Web. 23 Feb.2010.<http://www.nationalarchives.gov.uk./cabinetpapers/themes/interwar-period.html