The Economic Policy of the Second Labour Government, 1929-1931

Abstract

Abstract THE second Labour government was once conventionally seen in terms of its fall. It came to office in 1929 after an election which gave no party a majority, and which left it dependent upon the support of the Liberals. It fell in August 1931 when its members were unable to agree upon a programme of budgetary economies that would satisfy both the Conservative and the Liberal Parties. The prime minister, Ramsay MacDonald, thereupon formed a ‘National’ government with representatives of the former opposition parties and three of his colleagues from the previous Labour ministry; the great bulk of the Labour Party opposed this new government. The ‘desertion’ of MacDonald caused great bitterness and generated a partisan history usually designed to justify the behaviour of one side or the other in the débâcle. The level of strictly economic content was usually not high. But with the release of public and private records on the one hand, and with the general acceptance of a developed Keynesianism on the other, historians have increasingly sought only to explain why the Labour government did not adopt economic policies which might appear to have been obviously the right ones. Why did it not, for example, attempt to reverse economic contraction by a programme of public works financed by budget deficits, or by tax-cuts, or—a policy less untypical of a socialist party—by a redistribution of income that might have raised demand? Why was the government apparently so inflexibly attached to existing monetary policies? Politically, the real contribution of Keynes was to suggest that governments did not have to stand helpless in the face of cyclical movements in a capitalist economy: thus the Labour government did not have to wait for ‘socialism’ — effective counter-cyclical techniques were available to them within the system.