64 MRC:MSS.200/F/4/32/2. ‘Industry in Parliament’ (BCU); ‘Reconstruction after the war’ (FBI), 6/12/17;
MRC:MSS.200/F/4/24/1-12. FBI Bulletins (1918-1919 issues); PRO:T185/2. FBI memo to the Cunliffe Committee 10/7/18; MRC:MSS.200/B/3/2/C299 & C300. ‘The Control of Industry’ (NCEO), 30/7/19; PRO:CAB24/74. ‘Governmental Assistance to British Industries’ (FBI), 1919; Carter (1917); Johnson
Among these competing perspectives on the postwar state form, the government themselves as yet had no solid view on the subject and the Armistice was accompanied by acute panic as to the course of action that should now be taken.65 The central dilemma
confronting the government in the immediate postwar period was to reconcile the need for increased economic competitiveness, efficiency, and output, with the need to avoid an intensification of labour unrest. With the postwar situation expected to be volatile, Ministers were once again concerned that labour disquiet had the potential to develop into an explosive revolutionary situation, and were desperate to avoid a recession during the transition to peacetime lest this should light the fuse. To this end a key aim of Ministers was to abolish the state’s directly visible control over the economy and to return control over economic conditions to the market. This it was believed, would not only help stimulate an economic recovery, a revival of exports, and raise output and efficiency, but would also enable state officials to relinquish their overt responsibility for the economy, and would help reduce the expectations of capital and labour regarding postwar conditions, thereby easing political pressures.66 As Austen Chamberlain, the Chancellor in the postwar
coalition government (which now excluded the Labour Party) from January 1919 explained, the increasing reliance of capital and labour on the state was not only prolonging industrial unrest, since with the government expected to step in at any moment ‘neither side would say the last word as to what they were prepared to concede’, but was also exacerbating Britain’s political and economic difficulties.67 With reference to the wool
industry for example, Chamberlain stated that:
65 Johnson (1968); Wrigley (1990), p.91.
66 Middlemas (1979), pp.120-46; Wrigley (1990), pp.7-8; Aris (1998), pp.155ff. 67 PRO:CAB23/9. Cabinet Meeting 28/1/19.
“The moment you began control you were inevitably driven to complete control which, if prolonged, led to nationalisation, which was therefore, only a question of time. Control eliminated all the usual motives which induced economic production. The whole burden of making things move was thrown upon the Controller, and all the moral machinery interested in increasing production became moribund.”68
A major problem for the government however lay with the high extent of the state’s directly visible involvement with the economy, and with the heightened expectations of capital and labour this had engendered. With labour now pressing for the retention of key controls and for the restoration of restrictive practices, and with industry maintaining that the government’s priority should be protection and increased productivity, it was clear that any attempts to either retain wartime productive practices or to engage in a rapid dismantling of state control risked provoking large-scale unrest. As such, the majority of the Cabinet were now of the view that while the more contentious areas of state control needed to be relaxed, a complete withdrawal from the economy would take some time to achieve.69
Despite this, the government’s fears of social turmoil were nonetheless soon realised. The slow pace of social reform and the emergence of a mild recession after the Armistice triggered a new series of severe disturbances across the country (especially acute in the transport, coal, engineering, and shipbuilding industries) on a scale which surpassed even that of the prewar period. The number of new strikes during 1919 was more than twice the annual average for the previous decade, and the number of working days lost was more than twice the annual average during the Great Unrest.70 Moreover, the character of
the unrest was also disconcerting. Though still largely directed at the state rather than
68 PRO:CAB23/15. ‘Draft Minutes of a Meeting…’, 5/8/19.
69 Johnson (1968), passim; Middlemas (1979), p.142; Wrigley (1990), ps.80ff, 135-41; Kirby and Rose
employers, many strikes were now also officially sanctioned, and were believed by Ministers to be driven by Bolshevist ideas. Indeed, with unrest now even spreading to sections of the police and the armed forces, officials were increasingly anxious about the security of the state itself. Compounding this fear, the Triple Alliance had now resumed their activities following a wartime interlude, and domestic turmoil also seemed to be part of a wider international convulsion, with revolution in Hungary and with the threat of revolution in Austria, Germany, and parts of the British Empire.71
Such trouble however was not unexpected. As one official report remarked in January 1919, the wonder was ‘not that it had come so soon, but that it has been delayed so long.’72 Nevertheless, despite such warnings the government had made no real preparations
for dealing with the postwar situation and once more sought to address the difficulties with short-term, ad hoc measures designed to consolidate moderate opinion against labour radicalism. As Bonar Law (the leader of the Conservative Party) explained, responsible trade unionism was now ‘the only thing between us and anarchy’.73 As such, many of the
social reforms promised during the war were now introduced. Trade union practices were quickly restored, the majority of working hours were reduced, wages were temporarily frozen at their inflated wartime levels, and unemployment benefits were both extended and increased.74 The government also successfully managed to head off unrest in the coal
mines, a potential trigger for Triple Alliance action, by establishing a Royal Commission to examine conditions in the industry, and further sought to address the unrest by setting up another National Industrial Council with the apparent aim of helping to restructure
71 Johnson (1968), pp.301-2; Wrigley (1990); Fulcher (1991), pp.122-9.
72 PRO:CAB24/74. ‘Fortnightly Report on Revolutionary Organisations in the U.K…’, 28/1/19.
73 Ibid., 29/1/19, 12/2/19; PRO:CAB24/90; PRO:CAB27/59; PRO:CAB27/60. Cabinet Meetings; Johnson
(1968), passim; Middlemas (1979), pp.139-45; Wrigley (1990); Aris (1998), pp.138ff.
relations between the state, capital, and labour. Like its 1911 predecessor though, the Council was again in reality designed to provide the authorities with shelter from their immediate difficulties.75
Alongside these measures, Ministers also sought to develop and implement a longer-term strategy for dealing with the situation. In February a fast-track inquiry was established to examine means of bringing about a rapid economic revival, with its Chairman, Sir Auckland Geddes arguing that the main problem facing the government was its commitment to pursue the ‘inconsistent policies’ of social reform and a return to the gold standard.76 Although a quick return to gold at the prewar par would he claimed, be a
sound policy, given the size of the government’s debt, its pledges of social reform, and the volatile social situation, such a move was deemed to be impossible at the present time. As he explained, there would be ‘enormous political and social difficulties’ in implementing the necessary deflation. As such, Geddes thought that a return to gold should therefore be postponed, and instead maintained that it was ‘absolutely essential’ to allow the continuance of wartime inflation in order to stimulate the economy and avoid even greater industrial unrest. This view was also held by Bonar Law, and by the Prime Minister, Lloyd George, now primarily concerned with the threat of revolution and of the opinion that the essential aim was to ensure ‘a certain contentment in the labour world’. Despite strong opposition from Chamberlain, who claimed that continued inflation would penalise exporters and place ever greater pressure on sterling, the inquiry therefore concluded in contrast to the Cunliffe committee, that the introduction of deflation to bring about a return to gold at $4.86 should be delayed, and that in the meantime inflation should be sustained
in order to encourage domestic economic activity.77 That there would now be no quick
return to an operational gold standard was made fully certain in late March when Britain formally departed from the regime. With the cost of maintaining the exchange rate becoming ever more prohibitive in the face of high inflation and a growing trade deficit, and with the government in no position to bear the social consequences of deflation, sterling’s convertibility into gold was officially terminated, and from the beginning of April the pound became a floating currency.78
As spring progressed the economic situation also changed markedly. Driven by an international economic boom, by pent up domestic demand for consumer goods, by industrial restocking, and by the government’s loose economic policy stance, Britain embarked on one of the fiercest periods of expansion in the twentieth century. This however, had both positive and negative effects for the state authorities. On the one hand, the economic boom eased the transition to peacetime, and despite the risks allowed officials to ease the majority of state controls. Restrictions on industrial materials and foreign trade were mostly removed by mid-1919 and by the end of the year the only significant regulations remaining were the continued control of the mines and railways and some import restrictions.79 On the negative side however the boom also continued to
destabilise the domestic circuit of capital and undermine Britain’s competitiveness. Speculation developed into frenzied proportions, the trade balance continued to decline with a surfeit of imports, sterling continued to deteriorate, and inflation rose sharply. Average retail prices in 1919 for example were now more than twice their prewar levels, wholesale prices were more than two-and-a-half times higher, while rising demands for
77 PRO:CAB24/75. ‘Rehabilitation of Trade and Provision of Employment’ 17/2/19, 21/2/19; ‘Notes of a
Conference of Ministers’ 25/2/19; 26/2/19; Johnson (1968), pp.391ff.
78 Various in PRO:T170/140 and PRO:T176/16; Morgan (1952), pp.197-8; Clay (1957), pp.116-17. 79 Morgan (1952), pp.61-6.
wages (which rose by nearly 50% during the course of the boom) continued to exacerbate class unrest. Moreover, with profits now relatively easy to come by, the boom also served to insulate the economy from the need for competitive improvements, encouraging many industrialists to reconstruct along old and safe, rather than newer lines, and stimulating many sectors (especially the staple trades) to overexpand in relation to the ‘real’, as opposed to the ‘artificial’ boom level of international demand.80