LFabian Tract No. 2 3 7 . . WHAT HAPPENED IN 1931: A RECORD. I:!Y SIDNEY WEBB. ' PuBLISHED AND SoLD BY THE FABIAN SOCIETY. PRICE TWOPENCE LONDON: THE FABIAN SociETY, II, DARTmouTH STREET, WEST!\IINSTER, LoNDON, S.W.r. PuBLISHED MARCH, 1932. Telephone: VICTORIA 1915. WHAT HAPPENED IN 1931: A RECORD. By SIDNEY WEBB. Now that the year is over it may be worth while putting on record a recital of what will rank as the most remarkable happening in British political history. The fall of the Labour Government after two and a quarter years troubled existence; the instant formation overnight of a new National Government under the same Prime Minister purporting to contain within itself all three political Parties; and finally, at the earliest practicable date, a hurried'General Election in which an unprecedented combination of 69 per cent. of the voters elected all but 9 per cent. of the entire House of Commons, thus replacing Parliamentary Government by what is in effect a Party Dictatorship -the whole unfolding within sixty-three days of a single drama, in all its development foreseen in advance, it is safe to say, on!) by the statesman who ·was at once its author, its producer, and its principal actor-finds no parallel in anything in the Parliamentary annals of this or any other country. Why did Mr. Ramsay MacDonald, after thirty years upbuilding of the British Labour Party, decide to do his best to smash it, going over with a couple of his principal colleagues, and a mere handful of his Party to a Coalition of Conservatives and Liberals? How did he manage to create such a Coalition, and to place himself at its head? What caused an electoral landslide of such unexampled magnitude? Lastly, what is the significance in British politicalhistory, and its consequences to the world, of this unique island drama? It is unnecessary to dwell on the continual difficulties that have beset the British, like most other European Governments. since the Peace Treaties of 1919-the constant international complications involved alike in reparations and in armaments, the world-wide industrial depression, the catastrophic collapse of prices, the ever-present misery of chronic unemployment, the universal colossal taxation which failed to avert a recurrence of deficits. The Labour Cabinet of 1929-31 stumbled, valiantlv but as blindly as other Governments, through its share of these general troubles, aggravated in its own case by the special diffi-· culties inherent in never having a majority in the Hou e of Commons. This meant that the Government was every daydependent on the support of one or other of the inveterately hostile Parties for obtaining the Closure (granted only to a majority vote), without which not even the routine business of Parliament can be got through, let alone any Goverment measures embodying party policy. The Labour Party itself grew more and more restive at its own Parliamentary impotence, section after section breaking out in angry rebellion, with practicallyeverybody discontented at the meagre achievements of an overworked Cabinet whose difficulties were very inadequately realised. The Prime Minister was not in the mood to find time or energyfor that friendly social intercourse with the members of his own Party, or even " ·ith his Ministerial colleagues, \Yhich goes so far to avert friction and produce the "team spirit." More and more he tended to spend his scanty leisure in less disagreeable society. Thus the session of 1931 opened with the ParliamentaryLabour Party seriously discontented with itself, the several Ministers out of touch with one another, struggling separatelywith their departmental difficulties, the Cabinet unable to find solutions for problems in the circumstances actually insoluble, and the back benchers at loggerheads with themselves and with the front bench. The Prime Minister-very much aware of the shortcomings of each one of his colleagues, and of the Party to which he belonged, as well as (may it be said?) perhaps incessantly rather too conscious of his own superiority-was not in a condition to withstand the temptation of flattering suggestions that began to be made from more than one quarter. Why not cut the Gordian Knot by getting rid of the perpetual nuisance of Parliamentary Opposition; especially if such a surgical operation involved also the elimination, or at least the reduction to impotence, of those troublesome sections of the Labour Partywhom the Prime Minister had come to loathe with a bitterness that could not be concealed? The first overt suggestion of a "National Government" absorbing into itself "His Majesty's Opposition"-the constant existence of which had hitherto been accepted as an essential part of that mystic entity the British Constitution-was publishedearly in 1931 by Mr. Garvin, the versatile and forceful Editor of The Observer. His object was avowedly to "dish" the existing majority of the House of Commons which obstinately refused to vote for a protective tariff. Twice the issue had been explicitly placed before the British electorate (in 1906, and again in 1923); and each time the policy of fiscal protection had been decisively rejected. Public opinion was, it was thought, now coming round. The agriculturists demanded protection for wheat-growing. The great industry of iron and steel production demanded protection against Belgian and German imports. Many other manufacturers resented \Yhat they called 5 "dumping"-especially by Soviet Russia (meaning usually no more than the competition of cheaper commodities). There was a growing demand for fiscal "preferences" to Dominion pr_oducts, involving the imposition of duties on foodstuffs and raw materials from the United States and Argentina. In despair of any remedyfor the chronic business slump and the long continued unemployment, even the merchants, the bankers and the shipowners, joined occasionally by some of the Trade Unions, began to hanker after what seemed the easy solution of excluding, or at any rate restricting foreign imports of manufactured goods. As many as nine-tenths of the Conservative members of the House of Commons became eager for a protectionist tariff, and they were halfheartedly joined by a few of the Liberals. Yet their leaders were afraid to put the proposal explicitly to the electors, who had decisively rejected it only eight years before. It began to be whispered among ardent protectionists themselves that onlyby the magic spell of a "National Government" evoking the patriotic emotion of the whole people, could the inherited popular distrust of "food taxes" be overcome and a policy of fiscal protection made politically practicable. Already in June 1931 it was said privately that September 1931 would see such a Government. Meanwhile the Government finances were seen to be getting into a bad way. Already in February 1931 the Chancellor of the Exchequer (Philip Snowden) had publicly warned the House of Commons that the decline in revenue combined with the increase in expenditure was creating financial difficulty. Nevertheless, in presenting his Budget three months later, he avoided any considerable increase in taxation, and proposed no substantial reductions of expenditure, filling the gap by the appropriation to revenue of certain cash balances which it had become unnecessary to maintain, and by the continuance of the policyof borrowing for the Unemployment Insurance Fund which had been begun and continued by the preceding Conservative Government. It was, as events subsequently demonstrated, an extremelyfaulty Budget; excusable only by the grave state of health of the Chancellor who, with indomitable courage, had framed it from a sick bed, whilst suffering acutely from an internal disorder. The apprehended deficit very quickly became a certainty. The Hoover Moratorium of inter-governmental debts, cordially accepted by Great Britain, alone cost the Government 11 million pounds on the year's account, whilst the continued increase of unemployment and the short-fall of revenue consequent on the slump in trade greatly widened the gap. What the Prime Minister deemed most serious was, however, not so much the 6 prospective deficit itself as the chronic drain on the national finances involved in the continued maintenance of nearly three million. unemployed workers (and their families) at a cost of some 120 million pounds a year. Yet how could the Labour Party, or indeed any one party, venture to propose suddenly to cut off the pay-roll so large a proportion of the electorate? The idea of a National Government, as a means, not of adopting a policy of fiscal protection, but of cutting out this dangerous ·'overgrowth" from the body politic seems to have been germinating in the Prime Minister's mind for months before the blow was struck. One great obstacle was the Liberal Party. How could that party, itself desperately fearing a General Election in which its absolute extinction was more than probable, be induced to merge itself in a three-party coalition, inevitably leading up to just such a popular judgment? Curiously enough it was the Liberal Party itself that unwittingly brought on the fateful crisis. Regardless of the party's previous requisitions on the Government for enormous expenditure on public works to employ the unemployed, the whole party chose suddenly to demand of the Government the immediate appointment of a non-political Royal Commission of business men, which, in order to lighten the burden that the heavy taxation was declared to be pressing on industry, should summarily suggest drastic reductions in public expenditure. The Conservative Party, eager ~o join in a defeat of the Government on any is ue, promised unanimous support. The Prime Minister and the Chancellor of the Exchequer in order to avert parliamentary defeat, somewhat contemptuously accepted the resolution, and appointed a three-party Commission of six banker , accountants and manufacturers, under Sir George May, who had recently retired from the administration of the colossal Prudential Insurance Company. That Commission, going rapidly to work, produced by the end of July, 1931, a startling report, recommending (by a majority of 5 to 2) the instant striking-offof 96 million pounds of expenditure, over two-thirds of it from Unemployment Insurance, and most of the balance by summaryreductions of pay (actually in breach of contracts individually entered into) of the school teachers; the local police forces; the Army, Navy and Air,.. Force; the Health Insurance doctors and pharmacists; the Civil Service; and, finally, the judges and the Minister themselve . In addition, the other expenditure on Public Health, on secondary and university education, on colonial development and on all form of scientific research \Yas to be cut do\Yn to a minimum. On the publication of this report, which experienced administrators felt to be both ignorantly framed and ill-judged in many of its proposal , a great newspaper clamour aro, e. voicing the demand of the taxpayer for some such reduction of his burden; leaders of both the Conservative and Liberal Parties made it known that they would unite to defeat the Government on this popular cry; and the Cabinet at once took the matter seriously into consideration. It happened, however, that this purely domestic and parliamentary crisis, which might have been surmounted by some in~ enuity, as others had been, coincided with a second, and a more serious emergency of a different nature, and one not at once revealed to the public. In July, 1931, the Bank of England suddenly warned the Prime Minister and the Chancellor of the Exchequer of an alarming foreign drain of gold, caused by a steady withdrawal of the current balances and short term depositswhich foreign governments, bankers and merchants had gradually accumulated in London, in the hands, mainly, of a few dozen of financial houses, to an amount of which (as each transaction \\-a kept secret) the magnitude was unknown, either to the Government, or to the Bank of England, or even to any of the financial houses themselves, but which had lately been estimated at some 400 million pounds. In the ordinary course of business a large and equally unknown proportion of this sum had been lent on short terms, at relatively high rates of interest, to manufacturers and bankers in various continental countries, from whom it was proving difficult, and in many cases impossible to recall it without bringing down the whole fabric of German and Austrian credit. The London financial houses were very far from being insolvent, but their only resource in the emergency wa to draw gold from the Bank of England, in exchange for currency. The resulting drain on the gold reserve, held for the quite different purpose of securing the fiduciary note issue, was so serious that the Bank had already borrowed in July from New York and Paris no less than 50 million pounds, which was rapidly disappearing. Early in August the Bank represented that unle~s the British Government itself borrowed, within a few clan . 80 millions more in dollars and francs, to maintain the goid reserve, it would be necessary for the Government to declare a moratorium for the whole City of London, with calamitous results to credit, international as well as national, all the world over. No question was raised as to the possibility of going off the gold standard, a step then apparently regard.ed as unthinkable. The Labour Government sought actordmgly, thmugh the Bank of England, to borrow from New York- Pari<; being in close association-whatever the situation tempo,.. arily needed. The application \\-as met by two requirements tated to be necessary to "restore the confidence" without which, .as it was stated, no such loan could be obtained. First, that the British Government Budget should be honestly balanced without recourse to other than this merely temporary borrowing, with the .support in Parliament of the Opposition leaders; and secondly, that very substantial economies in Government expenditure.should be instantly effected, notably as regards the cost of C nemployment Insurance. That this second stipulation was made has been denied; and the official denial is doubtless accurate in the .sense that the stipulation was not put in the form of an ultimatum, or of any explicit claim to interfere with the British Government's own business. Doubtless the response of the ~ew York bankers was not only courteous but sympathetic and even friendly in tone. But the Prime Minister himself has since said (in answer to a question in the House of Commons, and as a reason why the cut in the rate of Unemployment Benefit could not be cancelled) that this was "a condition of the borrowing," .and must therefore be maintained. At any rate the Labour Cabinet, which had already unanimously determined to balance the Budget by immediately imposing the necessary additional ta.'Cation and by making any prudent economies, refused to accept .any such "condition of the borrowing" as Mr. MacDonald has described, and late on Sunday evening, 23rd August, in order not to render urgent public business impossible, empowered the Prime Minister to tender to the King his own resignation, which automatically includes the termination of office of the whole Ministry. It was taken for granted that the King would immediately send for Mr. Baldwin, the leader of the Conservative Party, and entrust him with the formation of a new Government. It is significant that Mr. N eville Chamberlain, who as Mr. Bald- win's principal colleague had been with him almost hourly in -consultation with the Prime Minister, stated publicly in a speech a few days later that he had himself gone to bed that Sundaynight with exactly that assumption. The Prime Minister had in mind a different development of the drama that he himself had staged. What happened at Buckingham Palace on Monday morning, 24th August, can be known only to the actual participators. What is said is that the King, with whom the Prime Minister had been in constant communication but who never went outside his constitutional position, made a strong appeal to him to stand by the nation in this financial crisis, and to seek the support of leading member~ of the Conservative and Liberal Parties in forming, in conjunction with such members of his own Party as would come in, a ·united ational Government. The King is believed to have made 9 a correspondingly strong appeal to the Liberal and Conservative leaders. What is known is that Mr. MacDonald came at noon to the final Labour meeting, and at once informed his astonished colleagues that, whilst they were all out of office owing to his resignation, he had actually "kissed hands" as Prime Minister of a ational Government, which would confine itself to what was required to meet the actual financial crisis and would then promptly proceed to a General Election, at which the leaders of the three political parties, without anything in the nature of a coalition or a "coupon," would severally appeal to their respectivefollowers. The new Government thus formed proved to consist, in the Cabinet, of four Labour Ministers (Philip Snowden, J. H . Thomas and Lord Sankey, following the Prime Minister), four Conservatives and two Liberals. Meetings of the Conservative and Liberal Parties promptly endorsed the action of their respective leaders, and half-a-dozen Liberals and a dozen Conservatives accepted minor ministerial office. A meeting of the Parliamen · tary Labour Party, which Mr. MacDonald did not even attend. much less appeal to, refused unanimously to condone what it regarded as a _gross Detrayal, aggravated by a long course of 'xc uswn of his collea ue .rom his counsel and golicy. Onlythree of the Labour Ministers outside the Cabinet (together with the Prime Minister's son) accepted minor ministerial office in the new Government; whilst all but about 5 per cent. of the Labour members, and all but about 4 per cent. of the chosen Labour candidates, steadfastly adhered to Mr. Henderson, who was elected leader of the Party. • There was a note of irony in the immediate result. Withdrawals of balances from London, and the drain of gold from the Bank of England, continued unabated, and presently became a heavy spate-thus demonstrating that they were caused, not by any lack of confidence in Britain's Government, but by apprehensions of a run on the banks in nearly every other country! Within four weeks of the formation of the National Government, it found itself compelled summarily to prohibit the issue and the export of any more gold. On September 21st, London was "off the Gold Standard!" Far from this "terrible calamity" proving instantly ruinous to British credit or British trade, ·as Mr. MacDonald had so recently threatened, the Press welcomed it; and Manchester reported an immediate fillip in the exportsof textile goods, a fillip presently felt in other export markets. Meanwhile there was proceeding a short and excited session of Parliament, in which the new Ministry had found its claim to be, in any accustomed sense, a National Government, definitely rebutted by the presence, only slightly diminished in numbers, IO of His Majesty's Opposition under Mr. Henderson. But by reason of the close alliance of the whole Conservative and Liberal Parties, with the 15 deserters from the Labour Party, the Government carried every vote by a majority of about 60. It rapidly put through the new Budget, showing taxation increased and expenditure reduced in a way to secure a surplus both for 1931-2 and 1932-3. It put through equally rapidly an "Economies Bill" on the lines of the May Report which, by a momentous and unprecedented change of constitutional p,ractice, did not specify the economies to be made, but empowered the several l-Iinisters to effect them in their own Departments, with such arbitrary "modifications" of existing contracts as were required, merely by ministerial fiat (for this, indeed, is what an order of His Majesty in Council has long meant). Such a device, adopted to avoid parliamentary debate, or even specific submission to the House of Commons of the proposed changes, may, one day, be made use of for a much greater revolution "in due course of law." The very day the Bill was passed Parliament was dissolved and writs were issued for a General Election within three weeks. The election campaign of these three weeks was a political whirh\-ind without parallel in British annals. The Liberal and Conservative organisations in nearly every constituency promptly united, and resolutely closed their ranks against every candidate who did not run in suppo:t of the National Government. A regular plan of acting on the "fear complex" to which nearlyeveryone is subject, seems to have been determined upon. Practically the whole newspaper press of the country, with the outstanding exceptions of the lvfanchester Guardian and the DailyHerald, kept up the same appeal to the 30 million electors to help the National Government to save the State from vaguelysuggested perils of the most awful nature. The broadcasting ervice, a piece of Governmental machinery, was, without anynice regard to fairness between the combatants, used day after day to immense effect, the air becoming thick with all manner of insinuations aimed at producing panic among the undiscriminating electors. Yet the crisis had been surmounted. The desired "economies" had been effected, and the Budget austerely balanced bY additional taxation. There was thus no immediate financial 1~enace. A new cause for panic was, however, promptly found in the "adverse balance" of the nation's trade, which no sound economist believes that any Government action could immediatelyaffect, and which would anyhow be in due course automaticall:: adjusted as one of the results of going off the Gold Standard. ~evertheless the "adverse balance of trade" was declared to be a I I menace to the value of sterling at home. The currency was in danger of becoming valueless. The pound might sink to be 'NOrth no more than ten shillings, than one shilling, than a penny. No man's wages were safe from depreciation. The Labour Government, if it had not been turned out, would not have had money after November to pay the Unemployment Insurance Benefit. The climax was reached in statements repeated far and wide of something that the Labour Government had done or would do to the three hundred millions deposited by ten millions of people in the Post Office Savings Bank, which might be used to pay the unemployed. Nothing new had, in fact, been done or had ever been contemplated in connection with these s'avings, and this was well known to those who spread the alarming rumours. Yet the rumour actually p!"oduced a slight run on the Post Office Savings Bank. In the last hours before polling daymillions of poor folk, the safety of whose little hoards seemed to be at stake, became scared though of what they knew not, and rushed to the polling stations which many of these had never troubled to visit before. When the ballot boxes were opened it was found that these subterranean streams of fear had undermined the electoral foundations of nearly every candidate, whatever his particular shade of politics, who was not a professed supporter of the so-called ational Government. Such a landslide of votes no country had ever seen. Some 69 per cent. of all the voters, representing an unprecedented combination of all parts of the Kingdom, all political parties, all religious denominations. all vocations, all social grades and especially both sexes, simply annihilated the various "New Parties" and swept a·way four-fifths of His Majesty's Opposition, electing no less than 91 per cent. of the whole House of Commons in support of Mr. 1\IacDonald's new Ministry. \Vhat manner of Ministry is it, to which the destiny of Britain has thus hysterically been entrusted? It i , at any rate for the moment, not a Party Government because, even after its reconstitution, it includes prominent representatives of different Parties, although the regular Conservative Party now counts -+70 members out of 615, and claims to furnish 94 per cent. of the Government's supporters in the House of Commons. A mixed contingent of Liberals hold office, but have only 50-odd follo>Yers in Parliament, split into two warring sections. The seceders from the Labour Party (who have been formall~' excluded from that PartY) include the Prime Minister and half-a-dozen other )\[ini ters~ ·,Yho are nearly equalled in numbers by the tiny handful of their Party supporters in the House of Commons. A Government so constituted and supported can hardly fail to be. J 2 in substance, a Government of the Conservative Party. It \Yas at the outset a Government without a policy, pledged only to do what it found to be the best for the nation. Within three weeks it was putting through measures (including fiscal protection and a gradual starvation of the social services) substantially in accord with the policy of the Conservative Party. The Government \Yill, in fact, before the expiry of the term of the new Parliament, inevitably become Conservative through and through, either through gradual extrusion of the alien elements or by their complete assimilation. What is the significance of this whole drama, with its finale of sucli. an extraordinary election, in British political history? The first thing to notice is that the Labour Party, more than ever definitely Socialist in