Another unusual aspect of the Great Depression was deflation. Prices fell 25%, 30%, 30%, and 40% in the UK, Germany, the US, and France respectively from 1929 to 1933. These were the four largest economies in the world at that time.
To put the severity of the depression in modern perspective, consider the following. Real US GDP went down 4.4% in the five years that it declined since 1959, all added together! Unemployment has never exceeded 9.7% and we have not had one year of deflation. Maybe you're thinking, "what's wrong with a little price deflation?" Depending on how much and how unexpected, deflation can be a devastating economic event. Imagine wages falling by 30% and the value of debts simultaneously increasing by that much.
In the great depression it would have been nice if the suffering had been so evenly distributed. Instead the deflation caused bankruptcies, which in turn led to, more bankruptcies! Millions of people and companies were wiped out completely. The lack of adequate social programs left people of all social strata depending on relatives and friends for charity. Spending became paralyzed with fear as the downturn was so unexpected, so severe, and the bad news just kept coming for years.
Many did not realize how severe the downturn was until 1932 or 1933 when the economy had technically hit bottom and even begun to chug forward. People's resources were depleted by then and so were many of their friends'. So the human misery caused by the Depression really started in the mid-1930s.
The political backlash to the miserable economic situation is often blamed for toppling democracies, bringing fascist governments to power in Germany, Italy, and Japan, and ultimately provoking the Second World War. "Hitler's rise to power can be directly linked to the profound economic crisis in Germany at that time". The German economic crisis was compounded by the huge war reparations imposed upon the Germans following World War I (an interesting comment on the efficacy of economic sanctions!).
- Baldwin + abdication crisis
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National Government, Abdication Crisis and Rearmament
National Government - Baldwin (seated, second left) at MacDonald's right hand
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Part of the National Government
- By 1931, the Labour government was in a financial crisis and the party was split over benefit cuts. Prime Minister Ramsay MacDonald resigned and formed a National Government with Baldwin as Lord President of the Council.
- This office suited him well apparently, as Baldwin was not a man for great detail. He was also happy with his secondary role. A friend, Thomas Jones, said at the time: "Being second and not first suits him perfectly and frees him from the final version and therefore the worry."
- At the general election of 1931, the nation overwhelmingly endorsed the National Government under MacDonald, but Baldwin's Conservatives provided the vast majority of its MPs.
- Some commentators see this period as a Conservative government in all but name, but Baldwin was careful to avoid this charge. He told the 1932 party conference: "Our aims must be national and not party; our ideals must be national and not party."
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Abdication Crisis and "abdication of responsibility"
- Such sentiments, however, could not be maintained in the face of MacDonald's deteriorating health in 1935. Baldwin took over in May and received his own mandate in November for his last term as Prime Minister.
- It was a term dominated by affairs in Europe and by the abdication crisis. The latter saw Baldwin at his peak, the former was to dash his reputation after he had left office.
- King Edward VIII came to the throne in January 1936. Baldwin did not approve wholeheartedly of the new monarch for reasons as diverse as his taste for light-coloured suits and his liking for certain aspects of Nazi Germany.
- The King was involved with an American divorcee, Wallis Simpson, and informed Baldwin he wished to marry her.
- Baldwin told him that this was unacceptable: "I think I know our people. They will tolerate a lot in private life, but they will not stand for this sort of thing in a public personage."
- Edward was forced to back down and abdicate. In December 1936, Baldwin held sway in the Commons as he outlined the situation in a speech described as one of the greatest of the age.
- Harold Nicolson MP reported in his diary: "We file out broken in body and soul, conscious that we have heard the best speech we will ever hear in our lives. No man has dominated the House as he dominated it today and he knows it."
- Baldwin retired a few months later in 1937 - in the words of historian Robert Blake: "no Prime Minister has ever chosen a better moment to bow out." But his reputation did not last long as he took some of the blame for not standing up to Hitler and Mussolini early enough and strongly enough.
- When Mussolini had invaded Abyssinia (Ethiopia) in 1935, the British Foreign Secretary Samuel Hoare and his French counterpart, Pierre Laval, negotiated a secret deal.
- This involved allowing the Italian dictator to keep most of Abyssinia in return for peace. There was an outcry when this got out and Baldwin was forced to dump Hoare.
- Baldwin's reputation also suffered over the question of rearmament in the face of Hitler's increasing aggression.
- He was primarily interested in domestic politics in any case and was sensitive to the moods of the electorate.
- In one famous speech in 1936 Baldwin said he had been worried about events in Europe in 1933 but that the mood of the nation had been overwhelmingly pacifist. He recalled a by-election in autumn 1933 which had been won by a candidate on that single issue.
- Baldwin remarked that fighting a general election on that issue would have been disaster for the Conservatives. Churchill later interpreted that comment scathingly as a confession that Baldwin had "put party before country".
- That charge is unfair as Baldwin was speaking theoretically and the international situation was not as clear-cut as it appeared with hindsight, but the general point that he - and others such as Chamberlain - failed to do enough to confront the dictators will always tarnish his reputation.