Critically examine the hypothesis that economic recovery in the 1930s was based upon the expansion of new trades and industries

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Critically examine the hypothesis that economic recovery in the 1930s was based upon the expansion of new trades and industries

This essay will argue that economic recovery in Britain was not initially based upon the expansion of new industries, which only brought growth after 1933. It was in fact initiated by the housing boom in 1932. Therefore we shall argue that economic recovery was only based on the expansion of new trades post-1933.

Taking 1929 as a base year with real GDP of 100.00, it was not until 1932 that Britain’s real GDP finally began to increase, having reached a low of 94.4 in 1931. It was only by 1934, however, that Britain reached the level of national output attained in 1918, with a real GDP of 102.8. In the period 1932-1937, the UK experienced real GDP growth of 4% on average. In comparison, the real GDP in the US grew by 8% per annum in 1933-1937; the British recovery appears to have been milder, although the recession itself was also much less severe in the UK. The causes of this recovery can be in part attributed to ‘cheap money’, resulting from Britain’s abandonment of the Gold Standard in 1931, and the depreciation of sterling.

In December 1931, sterling fell from £1=$4.86 to a low of £1=$3.24. By reducing the prices of British goods on international markets, depreciation switched demand towards domestically produced goods. Due to the depreciation, British industrial production stabilised in 1932, despite continuing to fall at a 10% annual rate elsewhere in Europe. This coincided with the stabilisation of the volume of British exports in the same year, despite these continuing to fall on the Continent at an alarming rate. If indexing the trade volume in advanced countries at 100.00 in 1929, we can see it reached an all time low of 76.5 in 1932, and had only reached 97.4 by 1937, according to Crafts’ figures.

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However, the depreciation can only easily explain the tendency for a rise in exports, and hence economic recovery, until 1936. After 1936, British exports continued to rise, despite remaining stagnant on the Continent, even though sterling appreciated sharply in 1933-1934, as a result of the depreciation of the American dollar. In fact, by 1934, the nominal effective sterling rate had risen significantly relative to the exchange rates of Britain’s European competitors.

Some argue that it was not the depreciation of sterling, however, but British trade policy, that was responsible for the trade-driven recovery. In early 1932, Parliament passed ...

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