policies was defeated at the party conference in
October and further efforts to change the party’s
policies proved fruitless. His authoritarian incli-
nations have obscured the question whether his
economic judgements were sound. Once consid-
ered a potential leader of the Labour Party, he
came to lead instead the British Union of Fascists
and left the mainstream of British politics.
Labour’s meagre legislative record, with unem-
ployment rising to 2.8 million by the summer of
1931, had severely weakened MacDonald’s stand-
ing in both the country and in the Labour Party
when the financial crisis hit London. The Labour
government had sought to follow financial policies
acceptable to the orthodox bankers and adopted a
course above parties – thus diminishing its inde-
pendence of action. Policy recommendations were
left to commissions and committees of experts.
These orthodox financiers now recommended
that government expenditure be cut by lowering
wages of government employees, by reducing
unemployment benefits and by raising new taxa-
tion. MacDonald’s colleagues baulked, but even-
tually agreed to most of these measures. They
went much against the grain even of the Labour
moderates. When MacDonald insisted, on the
advice of the bankers, on the full cuts, a minority
of the Cabinet, backed by the General Council of
the Trades Union Congress, which opposed all
cuts, would not accept further economies. The
realisation was growing that the government, in
simply giving in to the financiers, would separate
itself from the bulk of the Labour movement. If
the policy were necessary, would it not be better
to have left it to the Opposition?
At the suggestion of the bankers, who urged
MacDonald that the prime need was to restore
international confidence in the government – a
loan from the US was said to be conditional on suf-
ficiently stringent government economies –
MacDonald and Snowden had already conferred
with the leaders of the Opposition. At the height
of the crisis King George V played a leading role in
persuading MacDonald, Baldwin and the Liberals
to join in a new ‘national government’. Lloyd
George, who might have blocked a coalition led by
MacDonald, was in hospital. On 24 August 1931
the king’s personal appeal was ‘loyally’ acceded to,
such was still the inherent influence of the Crown.
The next day, MacDonald headed a new national
government with Baldwin serving under him. Only
three Labour Cabinet ministers, including Snow-
den, followed MacDonald. The Labour Party for-
mally rejected the national government and voted
for a new leader. At the general election which fol-
lowed in October 1931 the Labour Party suffered
a devastating defeat. They could hold only fifty-
two seats. The Conservatives won a corresponding
victory of 471 seats and so an absolute majority.
The Liberals were soon as badly split as Labour;
after supporting the national government for a
time about half the sixty-eight MPs, in 1932,
turned against it. MacDonald’s National Labour
following was reduced to thirteen. In all but name,
Britain was ruled by the Conservatives until 1940.
MacDonald had genuinely believed in a financial
crisis and had been panicked into action that the
Labour Party regarded as a betrayal.
What was the domestic record of the Conservative-
National administrations, MacDonald’s (1931–5),
Baldwin’s (1935–7) and Neville Chamberlain’s
(1937–40), in meeting the social and industrial ills
of Britain? There can be no doubt that these gov-
ernments followed policies that they believed
would most effectively alleviate the distress of
unemployment and would cure the sickness from
which the British economy suffered. They did care.
But their political philosophy and economic think-
ing precluded them from following the communist
or fascist totalitarian remedies. They also rejected
the notion that government could initiate public
spending sufficiently large to mop up unemploy-
ment regardless of other harmful effects on the
economy such spending would have had. The fact
that the national government with its tiny Liberal
and Labour components in Parliament but backed
by the overall Conservative majority could act
decisively without fear of parliamentary defeat, in
itself, helped to restore confidence. MacDonald,
followed by Baldwin in 1935, presided over their
cabinets as prime minister, but the rising star was
Neville Chamberlain, who became chancellor of
the exchequer in the depth of the depression in
November 1931. Winston Churchill might have
become the real force in these governments of the
1
THE DEPRESSION, 1929–39 161
