Unemployment in Interwar Britain: A Case for Re-learning the Lessons of the 1930s?

Abstract

For many years the established perspective on unemployment in Britain between the wars has been based upon a simple Keynesian analysis of deficient aggregate demand: interwar governments could have cured the unemployment problem simply by injecting sufficient monetary demand into the economy to return it to an equilibrium position at full employment. The assumption has been that after this initial stimulation of the economy the free market would function satisfactorily for the most part, with the occasional judicious nudge of aggregate demand in the form of 'fine tuning'. However, we now know that demand management in practice has been neither so simple nor so successful. Unemployment began a secular upward trend in the midI960s and has risen dramatically since the late I970s. At the same time, inflation has been a persistent problem, despite the widening margin of underutilized resources, something which simple Keynesian theory of the type which has dominated British interwar economic historiography, has great difficulty in accommodating. Thus, the much-proclaimed 'End of the Keynesian Era' has cast doubts on the ability of established theories to explain not only the problems of the contemporary world, but also, by extension, those of the interwar period. 1 The growing disenchantment with Keynesian theory