202 The Great Depression, 19291935

govern in 1924. For the first time, Labour won more seats than the Conservatives. But it still
lacked a majority; it was still dependent on Liberal tolerance; and it still had as its leader
Ramsay MacDonald, whom age had made even vaguer and more hesitant than before.
The new government would be judged on how well it handled the crucial issue of
unemployment, and here, almost immediately, it entered upon a desperate struggle with the
financiers. Labour had been in power only four months when the Wall Streecrash occurred. By
the next spring, the effects of American withdrawals on the British economy were all too evident.
Unemployment, which had stood at a million and a half at the beginning of 1930, reached two
million by midsummer, and at the year's end was two and a half million. Obviously a Labour
government could not let these people starve it must support them somehow, and the only
method available seemed to be giving the dole" to larger and larger numbers of the
unemployed.
This was a severe strain on the budget, already weakened by a fall in tax re. ceipts. In
the summer of 1931, the chancellor of the exchequerwhose financial principles were
blamelessly orthodoxbrought in the report of an expert committee of expenditure, which had
concluded that the one way to meet the deficit was to reduce unemployment benefits. The
somber picture it had drawn of Britain's financial position created a mood approaching panic.
From mid-July to mid-August, banks of all sorts experienced heavy withdrawals; at the Bank of
England the gold reserve was sinking t the vanishing point. With Parliament on vacation,
MacDonald was left alone to deal with the crisis, and for such a position he was fit neither by his
temperament nor by his minimal knowledge of economics and finance.
Recalled in haste from his holiday in Scotland, the prime minister summoned his cabinet
on the weekend of August 2223. He explained that the government and the country could find
financial salvation only by accepting the recommendation to reduce unemployment payments.
The alternative was bankruptcy. This was made quite clear by a group of New York financiers
who refused to extend further loans to Britain unless its government carried out important
economies. Half the cabinet refused. With the ministry deadlocked, MacDonald asked for and
received the resignations of his colleagues When the meeting adjourned, the ministers believed
that a Conservative-Liberal coalition would replace them.
This was not MacDonald's plan, however. He had been to see the king, and the latter
had talked to Baldwin. What emerged from these confabulations was a National Government,
with MacDonald still prime minister and Baldwin as his deputy.
The National Government of 1931, like Lloyd George's Coalition from 1916 to 1922, was
a mere faade for Tory rule. No more than three Labour ministers followed MacDonald into it,
and there was only token Liberal representation. The prime minister. like Lloyd George before
him, had become the prisoner of the Conservatives. He was be: guiled into betraying his own
partyby the pressure of financiers both British and Amer. ican, by the patriotic pleas of the
king, and by his own vanity, which could not resist the blandishments of the well born. It was a
crushing blow for Labour. Although the part, expelled MacDonald and the handful of members of
Parliament who followed him, it needed a full decade to recover its strength. For the Liberals
who were entitled to expect a real share in powerit was one more step on the long downward
path. For the country, it was a catastrophe parading as salvation; it meant nine years of fumble
and