Ramsay Mac: 1931 & all that

Both for Labour and many of its followers  at the time the creation of the national government was simply explained: facing a ‘banker’s ramp’ and MacDonald betrayed his party for the sake of keeping power. MacDonald’s treason became axiomatic to Labour history, largely because it enabled them to avoid a genuinely self-critical examination of their failures in 1931 and before. It was not until David Marquand’s 1977 biography that the conviction of treason was effectively appealed. Marquand was, of course, writing at a time when the post-war consensus the next generation of Labour built was failing. Marquand himself left Labour and joined the SPD: thus different Labour and social democratic traditions seemed especially relevant. Once this was done, it opened out questions about the failure of Labour, and of MacDonald as prime minister in 1929-31, and perhaps also of Arthur Henderson. If treason covered up failure, so might the ‘banker’s ramp’ have served a similar use. Not that the Labour politicians of 1931 could even agree on which bankers were doing, as it were, the ramping: for Addison (who coined the phrase) it was the Bank of England; for Lansbury, it was New York. The bank of England and New York may have made erroneous assumptions, and May might have got his figures wrong, but conspiracy might be pushing things a little far. There was, after all, a genuine financial crisis. If there was any political manoeuvring to destroy Labour from without in 1931, it might be thought to be more likely to come from Baldwin. Which begs a final issue. There was no immediate political need to invite MacDonald to form a national government in 1931. The immediate circumstances of the king’s invitation, along with the wider political and economic situation of 1931 might also shed some light. For Marquand, MacDonald was doing his national duty in a time a crisis. For Attlee, if we ignore the charge of treason, MacDonald’s vanity and distance form his own cabinet might explain more. Perhaps both might be true and MacDonald might be yet another, in John Charmley’s words, to have been ‘scalped by Baldwin’.

At the heart of it all was the Great Depression. It is also true that Labour inherited a British economy with serious problems, and with little idea of what to do about it and with little of the bureaucratic, economic or financial machinery to do anything in any case. The brief post-war boom was followed by the severe recession of 1920-21 from which the economy never fully recovered: the hallmarks of the British economy in the 1920s were stagnation (or at best slow growth) and the arrival of structural unemployment in the form of the ‘intractable million’. To make matters worse, the British economy had underlying weaknesses. The great staple industries (cotton, coal, shipbuilding) were all struggling thanks to relative inefficiency, an overall contraction in world trade and an over-valued currency. The panacea for Britain’s ills was, according The Cunliffe Commission, the treasury and Winston was the gold standard. Thus, Britain had gone back on gold in 1925 at the old pre-war rate, $4.86; to paraphrase Keynes, the Economic Consequences of Mr Churchill were grave. To get back onto gold, and keep that rate up, required deflationary policies at home, making unemployment worse: it also sowed the seeds of the 1931 crisis. Then there were the public finances. If one pillar of economic orthodoxy was the gold standard, the other was the balanced budget. This would also prove problematic, especially for Labour. The recession of 1920-21 had seen Lloyd George forced to wield the Geddes Axe, especially upon defence, education and housing. There was little room left for other cuts thereafter. The war had left its mark: at its peak in the middle of the ‘twenties servicing the debt accounted for 28% of government expenditure. The next biggest portion was social expenditure. The Lloyd George government had extended the unemployment insurance scheme. In the face of the intractable million the schemes finances were badly strained. Those not covered, or those no longer covered, proved too much of strain of the old Poor Law (and some, like George Lansbury’s Poplar were, in the government’s eyes, too generous). Thus, Chamberlain abolished them, and introduced so called transitional relief, thus placing the whole burden of unemployment relief on the central government purse. It was that creaking economic, financial and bureaucratic edifice that Labour found itself with when the blizzard came.

It might also be felt that the Labour government were not wholly up to the job. That is not to say it lacked experience. It had been in government for ten months in 1924; Henderson had served in Lloyd George’s war cabinet. It is perhaps fair to say that the men at its centre were not equal to the crisis they faced. At the heart of the problem was MacDonald. MacDonald was hardly a minor figure, and his achievements were considerable. More than any other individuals, MacDonald and Henderson were responsible for the transformation of Labour from a regional party of 40 seats to the largest party in the Commons, polling almost 38% of the popular vote as they had in 1929. His arrival at King’s Cross after that victory saw him greeted by large, enthusiastic crowds. MacDonald was, in Manny Shinwell’s words, ‘a prince among men’. The problem was he knew it and, perhaps as a consequence, had (as Attlee later wrote) a low opinion of his colleagues. This is perhaps best seen in his treatment of Arthur Henderson, which would bear bitter fruit in the crisis of 1931. In his first government, MacDonald had been his own foreign secretary; his greatest interest was in foreign affairs, and in 1929 he wanted to do the same. Unfortunately, Henderson wanted the post (he had a similar attachment and, indeed, would go on to win a Nobel Peace Prize). Henderson won the job, but did not forget. MacDonald knew little of economics, a fact he recognised: hence his appointment of the ‘wise men’ to advise him.

Most of all though, he relied on Snowden and the problem with that was that Snowden was every inch the treasury’s man, and wedded to fiscal orthodoxy. The other key economic appointment was no more successful. Even had his hands not been tied by the treasury, it would still be true to say that JH Thomas would not have been up to the job of finding ways to tackle Britain’s unemployment problem. Whether anyone would have been is a moot point. The only alternative policy was coming from Oswald Mosley, who was neither trusted, nor trustworthy. It probably didn’t help that the recommendations of the Mosley Memorandum, higher spending on public works, were essentially an echo of Lloyd George’s We Can Conquer Unemployment. Which brings us to the root of Labour’s problem: they were a minority government. Thus, even if they had been minded to adopt socialist remedies for unemployment, they would have needed Liberal support. By the time the crisis had deepened, the Liberals had split, the Simonites becoming de facto Conservatives. Thus in the absence of socialism, they made do with an absence of policy. In that absence, and in the absence of a majority, MacDonald looked for cross-party solutions. As early as 1929, the Macmillan Commission had been appointed to look into the underlying problems of the British economy as manifest in a projected balance of payments deficit of £112m. In 1931, at the suggestion of the Liberal Sir Donald Maclean, the May Committee was appointed to investigate the public finances, given a projected budget deficit of £82m. The idea of cross party cooperation was not invented in the summer of 1931; by then, it was simply more urgent and in the face of Labour’s failure to grasp the crisis, it began to seem like a way out.

The problem that the recommendations of both May and Macmillan would come as a sterling crisis had erupted and constrained the government’s room for manoeuvre and, thus, helped bring down the Labour government. The sterling crisis began in Austria, with the collapse of Credit Anstalt in May, and then with the subsequent collapse of the German bank Darmstader on 13th July: as a consequence, £70m of British funds were frozen. The result was a crisis in British markets: between 13th July and 1st August, the Bank of England lost £33m in gold and £21m in foreign exchange. The Macmillan Report had already strongly recommended staying on Gold at the existing rate. Then, in the teeth of that Sterling crisis, on 31st July the May Report forecast a budget deficit of £120m and called for cuts of £96m (£66m in unemployment insurance, from a 20% cut and an increase in contributions). The sterling crisis and the budget deficit had become conflated and, worst of all, international markets and the banks came to see the government’s willingness to cut as the litmus test of its financial orthodoxy just when Britain needed emergency loans to prop up sterling. The Cabinet set up an Economy Committee, but by the cabinet could not agree on the £79m cuts & £89m tax increase recommended. To cope with the run on the pound, the government had negotiated £50m of foreign credits from Paris and New York. However, the failure of the government to agree on enough cuts to satisfy the markets meant that, between 7th and 19th August, £28m of the £50m had been used up. The government tried to arrange further credits of £25m; to get these, the Bank of England, its New York financiers (JP Morgan) & Snowden were convinced that at least £70m cuts were needed. In short, the government were over a financial barrel. That fact, in the end, broke them.

The problem McDonald had was also political. In the first place, he was slow to react. Literally, he was slow to come back from his summer holiday in Scotland. Upon the publication of the May Report he had established a cabinet economy committee to draw up a package of cuts. Initially, it seemed that he and Snowden believed they would succeed in getting the cuts required. However, by the 18th August, it was clear that the full package of cuts could not be agreed, primarily because Arthur Henderson had changed his mind and now flatly refused to accept even a 10% cut in unemployment benefit: perhaps MacDonald’s cavalier treatement of his old comrade was coming home to roost. By the 21st, they were overtaken by events: even the original package was no longer enough, and the smaller revised one was regarded as unacceptable by the Morgans. This was the banker’s ramp, the moment when JP Morgan and the Bank of England decided to bring a government down. Philip Williamson has shown that such an accusation fundamentally misunderstands the situation. JP Morgan thought they had a deal with the Bank of England, the Bank of England thought they had a deal with the government. Rather than seeking to bring down a government, they realised that yet another emergency loan in the absence of the cuts that would reassure markets would bring sterling down and the government with it. It is also true that the Bank of England made contact with the other parties. This was, however, to try and ensure they would not oppose an adequate government package and understood the gravity of sterling’s position. The real crisis was, instead, political and when the cabinet was split down the middle over the issue they all MacDonald would have to resign. 1931 was a crisis of Labour, and a failure of leadership on MacDonald’s apart as his neglect of his cabinet gave him insufficient strength to drag his colleagues with him. It might also, though, be an unwillingness to face facts in a crisis on the part of the likes of Henderson. Whichever, it was a Labour failure.

That political failure made the creation of a national government possible. When MacDonald went to the palace it was to resign. Both he and Baldwin, it seems, foresaw the creation a Conservative minority government. The origins of the national government might, in part, be attributed to the honourable intentions of Baldwin, MacDonald, Herbert Samuel and the king: this was a national emergency, and a national government stood the best chance of taking those difficult decisions. The idea was put by Samuel, but it seems that over a meeting with Baldwin and two with MacDonald, George V used his good offices to persuade both. In truth, all three had their political and personal reasons too. For Samuel, this offered a way back into government for a Liberal party seeming intent on self-destruction. For Baldwin, a national government had considerable political advantages. Unpopular and unpleasant cuts needed to be made, if they were made by a national government under MacDonald rather than a Tory one led by Baldwin, less political blame would accrue. For those who supported cuts, he would get credit. Baldwin had just seen off his own right, in the form of the Empire Crusade: if he had failed in this, he may well have fallen, or might still have been embroiled in the battle for hos own leadership; now, coalition would help keep the right wing dissidents in their box. Most of all though, if we assume Baldwin intended to force an election on MacDonald, then a national government would deliver moderate and liberal votes and a landslide for the brand of Conservatism Baldwin wanted. For Baldwin, the price of leaving MacDonald in number ten was worth that gain, and maybe fairly convivial in the first place. As ever in a time of crisis, Baldwin took his time to react, but when he did it was with the same sure-footedness he had shown in 1926 and 1930, and would again in 1936. For MacDonald, we should assume a sense of duty and honour, though he cannot wholly escape the charge of vanity, which the king played upon very effectively. He kept power, or at least its trappings. He was unlikely to have foreseen his permanent separation from his party. In truth, for all three honourable motives and political advantage intertwined, no more so than for Baldwin: the result was a national government and a general election for the ‘doctor’s mandate’ and thus, a national government for the long run.

The creation of the national government represented a political and economic failure of the most grievous kind for Labour. MacDonald was no traitor, but he had failed to bring his cabinet and party with him. In part, that showed a lack of realism on their part, but it still amounts to a failure of leadership. None of the key figures of that Labour government comes out of 1931 with much credit. True, they were faced with an economic blizzard that swept them away, and that had some of its roots in the problems that the Conservatives had bequeathed them. Nonetheless, they were not up to the task. In contrast, Baldwin, at his best in the teeth of a blizzard, used all his political gifts to their maximum effect, and with some help from Samuel and George V. Nonetheless, above all else, Baldwin made the national government happen. In 1931 Lucy Baldwin’s ‘Tiger’ had one of his finest hours.