Depression war and recovery

• When analysing markets, a range of assumptions are made about the rationality of economic agents involved in the transactions
• The Wealth of Nations was written

  1776
• Rational


  (in classical economic theory) economic agents are able to consider the outcome of their choices and recognise the net benefits of each one
• Rational agents


  • Consumers
  • Producers
  • Workers
  • Governments
• Consumers act rationally by


  Maximising their utility
• Producers act rationally by


  Selling goods/services in a way that maximises their profits
• Workers act rationally by


  Balancing welfare at work with consideration of both pay and benefits
• Governments act rationally by


  Placing the interests of the people they serve first in order to maximise their welfare
• Groups assumed to act rationally


  • Consumers
  • Producers
  • Workers
  • Governments
• Rationality in classical economic theory is a flawed assumption as people usually don't act rationally
• A firm increases advertising

  Demand curve shifts right
• Demand curve shifting right

  Increases the equilibrium price and quantity
• Marginal utility


  The additional utility (satisfaction) gained from the consumption of an additional product
• If you add up marginal utility for each unit you get total utility
• The Great Depression
• Factors contributing to Britain's economic decline

  • Competition from abroad
  • Obsolete methods
  • The Wall Street Crash
• Britain's industries


  • Slow to move to new, quicker and more efficient methods of production
  • Did not switch quickly to new industries such as chemicals, rayon and automobiles
• How the Wall Street Crash happened

  1. October 1929

  2. Collapse of US stock market

  3. Banks collapsed because loans were not repaid

  4. Businesses went bust because of high unemployment
• Impact of the Wall Street Crash on Britain

  • International trade declined
  • Exports from Britain fell by half between 1929 and 1931
  • Britain imported more than exported
  • Unemployment reached 2 million by 1930, then to 3 million by 1932
• Impact on industries


  • Coal industry: Cheaper to produce abroad, British coal was more expensive and difficult to mine
  • Iron and steel: Declined because of less demand for ships and weapons, USA and Japan regularly undercut British prices and their steel-making plants were generally larger, more efficient and modern than those in Britain
  • Shipbuilding: Declined more rapidly than other industries due to fall in world trade and international disarmament
  • Textiles: Wool and cotton declined as manufactured fibres like rayon was more popular, cheaper and easier to wash, Britain faced competition from Japan and USA during the 1920s
• Life during the depression was characterised by high unemployment, the dole, and hunger marches
• Means test


  Introduced in 1931 by the National Government to reduce the amount of dole that was paid, causing a dramatic fall in living standards for unemployed families
• The dole


  • Provided 39 weeks of benefit, some believed it would become too expensive as unemployment increased
• Hunger Marches


  • Columns of unemployed men marching across the country to bring attention to their plight
  • Most famous was the Jarrow March in 1936
  • Rhondda March in 1936 with 2500 marchers
• Impact on women and children

  • Women in work were generally the first to be laid off, many women sacrificed themselves to feed their children
  • Poor diet led to high childhood mortality and poorer health for children in deprived areas
• Self-help measures


  • Female-operated credit systems for paying rent, buying food, clothing, etc.
  • Neighbours rationed in times of crisis
  • Communities came down harshly on those who broke unwritten rules
• Emigration: 1931-1938, 440,000 people left Britain to find a better life elsewhere
• Entertainment during the depression

  • Cinema: Just as popular in the 30s as the 20s, cinemas became more luxurious places
  • Radio: Distraction from the Depression, 9 million registered in British houses by 1939
• Growing light industry: 1938, houses with electricity reached a million, government tried to encourage these new industries with grants and industrial estates
• Differences between old and new industrial regions

  • North-East England and South-West England had different experience than the Midlands and South-East
  • Investment changed some areas, while other areas were still in poverty
• The Special Areas Act


  • Offered grants of £2 million to encourage 44,000 workers to move to towns with more jobs, 30,000 unemployed men were put on retraining courses
• The Treaty of Versailles was the harsh peace agreement that formally ended World War I
• Legacy of World War I

  • 20 million dead
  • Defeat of Germany
  • Destruction of large sections of France and Belgium
  • Creation of new countries (Poland, Czechoslovakia)
  • End of Austrian-Hungarian and Ottoman empires
• Timeline of events leading to World War II

  1. 1933: Hitler appointed Chancellor, Germany withdrew from Disarmament Conference

  2. 1934: Hitler signed Non-Aggression Pact with Poland

  3. 1935: Anglo-German Naval Agreement, Germany started rearmament programme

  4. 1936: Germany remilitarised the Rhineland

  5. 1937-40: Britain's Appeasement Policy

  6. 1938: Germany annexed Austria, tensions over Sudetenland

  7. 1939: Germany invaded Poland, start of World War II
• Britain's Appeasement Policy was giving in to Germany's demands to try to keep the peace
• Arguments for and against appeasement

  • For: Germany felt listened to, better than relying on the League of Nations, communism was seen as worse than Hitler
  • Against: Made Britain look weak, allowed Hitler to become stronger, undermined Britain's role in the League of Nations
• Appeasement allowed Hitler to become stronger politically, economically and territorially
• Austria


  12 March 1938. Battalions of German army entered Austria. Opponents eliminated or put in concentration camps. Hitler gained control of government and the Anschuss was proclaimed. Britain and France protested, but did nothing to stop it.
• Sudetenland / Czechoslovakia


  Tension between Britain and Germany began to dangerous levels. Hitler wanted Czech government to give independence to the Sudetenland, Great defences against a possible German attack. March 1939, the rest of Czech had been carved by Poland, Hungary and Germany. The Czech leader Hocha, forced to hand over control.
• Appeasement seemed to confirm that it had failed