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British Rearmament in the Thirties: Politics and Profits

British Rearmament in the Thirties: Politics and Profits

by Robert Paul Shay

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Here is a comprehensive analysis of rearmament under the Baldwin and Chamberlain governments. It reveals the primary determinants of events and provides important new information regarding the principal considerations underlying Chamberlain's policy of appeasement. The author concentrates on a problem that was of central concern to the government. For this reason,


Here is a comprehensive analysis of rearmament under the Baldwin and Chamberlain governments. It reveals the primary determinants of events and provides important new information regarding the principal considerations underlying Chamberlain's policy of appeasement. The author concentrates on a problem that was of central concern to the government. For this reason, and because he draws on the recently opened Cabinet and Treasury papers at the Public Record Office in London, he is able to offer a broader view than that of the existing studies. He describes in detail the interaction of the Cabinet, Treasury, and Armed Services, and the influence of the financial and industrial communities.

Originally published in 1977.

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British Rearmament in the Thirties

Politics and Profits

By Robert Paul Shay Jr.


Copyright © 1977 Princeton University Press
All rights reserved.
ISBN: 978-0-691-05248-9


The Coming of the National Government and the Pressures to Rearm


THE Cabinet's decision to revoke the Ten Year Rule on March 23, 1932, in response to Japan's increasing threat to the Empire in the Far East, marked Britain's first halting step towards rearmament. The study of the process by which that decision was reached reveals many of the lines of division within the Government concerning defence policy, lines of division that were later to be brought into relief when the resurrection of Germany as a military force compelled the Government to make hard choices. Those choices, which determined the direction that British rearmament took, were influenced by many factors, both international and domestic, but none were more basic than the attitudes and predispositions of the men who made them. To gain an insight into those attitudes and predispositions it is useful to consider briefly the course of events that brought those men to power.

The event that had the most profound and pervasive impact on not only British rearmament but the whole course of history in the thirties was the Great Depression that ushered that decade in. An outgrowth of the economic malaise that gripped the capitalist world in the wake of the First World War, the depression was accelerated to the crisis point by the economic disasters that convulsed the American economy in 1929. In Britain it caused the premature demise of Ramsay MacDonald's newly elected Labour Government enabling the Conservatives to regain the reins of power and retain them for the balance of the decade.

When the Labour Government took office in June 1929, five months before the great crash of the American stock market, there were 1,164,000 unemployed insured workers in Britain, about 10 percent of the workforce. By July of the following year, after the economic effects of the crash had begun to take hold, 906,000 more people had joined their ranks, and thousands more were losing their jobs every week. In the face of the economic forces at work there was little that the Government could do except to try to feed the unfortunate. Such efforts, however, combined with the rapid shrinking of revenue that resulted from the contraction of the economy produced a huge budget deficit that the Government had to cover by borrowing. Try as he did, the Chancellor of the Exchequer, Philip Snowden, could not bring the budget into balance as financial orthodoxy, his Treasury advisers, and the financial community told him he must if the nation's economy was to recover. By the spring of 1931 the business community had begun a campaign to move the Government to adopt measures they believed would return the nation to the paths of fiscal respectability, and the economy to prosperity. Arguing that the Government was in effect the nation's largest employer, they contended that it should act, as any responsible business would when faced with a deficit, by reducing costs. They cited unemployment benefits and the dole as two areas where expenses might be reduced, and suggested cuts in the salaries of those in government employ such as teachers, civil servants, and servicemen as another measure by which economies might be affected. In the eyes of the business community the nation would only recover from the depression when industry recovered, and industry could only recover when the Government stopped squandering precious capital on nonproductive pursuits such as maintaining the standard of living of the unemployed, permitting it instead to be used to restore the productivity of the nation. In July a parliamentary committee, the May Committee, dominated by Conservatives, issued a report recommending that the Government take the steps suggested by the business community, and warned that if such action was not taken the budget deficit would reach £120 million by the following April. The Labour Party found the recommendations, which placed the burden for recovery on those who had already paid the highest price, that is the poor and the unemployed, both politically and morally unacceptable, but could agree on no alternative. Meanwhile, by July 1931, unemployment had reached 2,800,000.

At the same time that the May Committee was issuing its report, a second blow was striking the British economy. The international financial crisis that had been ravaging the German and Austrian banking systems spread to England. International confidence in the stability of the pound waned, and by the end of July the Bank of England had begun to lose gold at the rate of £2½ million a day. A £25 million credit on August 1 from the Federal Reserve Bank and the Bank of France did little to stem the tide, and by mid-August Bank officials were asking the French and Americans for an additional £80 million credit. Their response was that additional credits could not be extended until the Government took steps along the lines of those recommended in the May report to eliminate the budget deficit. The alternative to obtaining the credits was to go off the gold standard, a measure that was considered heresy by the financial community, which saw it as an admission of national bankruptcy, totally unacceptable to the Bank of England, unlikely to receive the necessary Liberal support in Parliament, and anathema to Philip Snowden. Snowden did his best to contrive a budget that would be acceptable to both his party and the international bankers, but failed, irreconcilably splitting the Labour Party in the process. He and MacDonald headed a small faction of the Labour Party that believed the national interest dictated that the budget deficit be reduced despite the effect that reduction would have on the working class. They turned to the Liberal and Conservative parties to create a "National Government" to rescue the nation from the economic crisis. Formed on August 24, 1931, this Government, which was led by MacDonald but was wholly dependent on Conservative voting support in Parliament, quickly formulated a budget that met with the approval of the French and Americans who extended the £80 million credit. The sum was quickly consumed, and on September 21 Britain left the gold standard. Although orthodox finance had failed to save the gold standard, it had returned the Conservative Party to power in the guise of the National Government.

Parliament was dissolved on October 7, and an election was called for the 27th. In a short, vicious campaign, during which Snowden characterized his former party's program as "bolshevism run mad," while the Conservatives made dire predictions about the fate of the nation if Labour were returned, MacDonald asked that the National Government be granted a "doctor's mandate" to cure the nation's ills. This they were given as they were returned with 556 seats, 472 of which were held by Conservatives. Labour returned with only 46 members as compared to 287 in 1929. The depression had broken the back of the Labour Party. It was to remain a negligible political force throughout the thirties.


Although MacDonald, as Prime Minister in the new government, was its nominal head, the real power lay with the Conservatives on whose numbers the Government's majority in Commons was based. Their leader was Stanley Baldwin, who had come to leadership of the party in 1923, and had headed two Conservative governments in the twenties. An adept politician, his mastery of the arts of compromise and conciliation has led critics to question his decisiveness and his ability to lead. Justified as those criticisms may be, he held his party together when stronger leaders would only have tom it apart. In the National Government he held the position of Lord President, which allowed him to deal with problems as they arose. Neville Chamberlain, the new Chancellor of the Exchequer, was the number two man in the Conservative Party. A member of one of Britain's most distinguished political families, Chamberlain was Baldwin's opposite in almost every sense. His strengths were Baldwin's weaknesses, and his weaknesses Baldwin's strengths. Where Baldwin was conciliatory and politic, Chamberlain was rigid and abrasive; where Baldwin was sometimes indolent, indecisive, and short-sighted, Chamberlain was industrious, resolute, and insightful. The Treasury was the ideal place for Chamberlain. The department with the final say on all issues relating to finance, which is to say on all issues of substance, it required a man with the capacity to master a great deal of detail on a wide variety of subjects, and the ability to use that mastery as the basis for his decisions. In his five years as Chancellor of the Exchequer, Chamberlain, through the combination of his abilities with the powers of his office, became the most important decision maker in the Cabinet. Where Baldwin was a master politician, Chamberlain was a master administrator. Together they were a formidable pair.

For all the rhetoric of the campaign, the National Government had little in the way of a program to bring about economic recovery. The low interest rates, a result of the nation's having left the gold standard, enabled the Government to refinance the national debt at great savings to itself. Neville Chamberlain oversaw the institution of a system of tariffs, thereby bringing to pass a program advocated and bitterly fought for by his father before the First World War, but as trade was at a virtual standstill, it was of little economic consequence. The budget was balanced in the manner we have discussed above, and prices and wages were stabilized, all of which served to create a climate of confidence in the business community.


Although the National Government did nothing in strictly economic terms that should have spurred the nation to recovery from the depression — the balancing of the budget should in fact have had just the opposite effect — the nation did recover. By 1935 the economy was beginning to prosper. However, because the new prosperity, based on and stimulated by domestic consumption rather than trade, was of a different nature from the traditional British prosperity, the economic specialists of the time were slow in realizing in its early stages that recovery was occurring. The traditional indices by which prosperity was measured, trade and employment, never approached the pre-Great War levels. Trade remained stagnant because the rest of the world was not so fortunate as Britain in its economic efforts to shake off the depression, and unemployment never dropped below 10 percent throughout the thirties as great numbers of men who had earned their livelihoods in the once great export industries such as textiles and coal never again found work. The recovery was led by new consumer industries like those involved in building automobiles, electrical goods, and homes. Based close to their markets in the South and Southeast, they gave rise to a new, highly skilled workforce. The result was that the new prosperity was very regional in character, centered in the urban areas of the South and scattered through parts of the Midlands, while in other parts of the Midlands, Wales, and through much of the North, pockets of great poverty remained. There were towns in which as much as 80 percent of the population was unemployed throughout the thirties. Although these "depressed areas" were of concern to the Government, they were so removed both economically and physically from the centers of recovery that they tended to be forgotten as the nation moved on with its new business. Recovery was well under way in the eyes of business because the economy once again offered ample scope for remunerative returns on investment.

The importance of the way the National Government came to power and the way it administered that power from the outset lies in what it reveals about the relationship between the business community and the Conservative Party, which was the dominant force within that Government. Central to this relationship was the fact that the business community was the core of the party's political constituency. They shared the understanding that in an economy such as Britain's, the business of the nation was business, that the prosperity of the nation flowed from the prosperity of business, and therefore that a government that ruled in the interest of business ruled in the interest of the nation as well. The Labour Government fell because, while it refused to recognize the validity of the identity of interests set forth above, it lacked the power as well as, one suspects, the will to change the economic context so that that identity would no longer hold true. The Labour Party rightfully refused to sacrifice the interests of its constituency, the working class, to those of the business community. In the economic context of the time, however, it had little choice but to step down because the short-term interests of its constituency did not coincide with the interests of the nation. It was to be fourteen years before it had another opportunity to alter that situation.

In the intervening period the relationship between business and the governing Conservative Party was to influence the preparation of the nation for war, as well as its eventual conduct of that war. It was a relationship that was to be subject to considerable stress as the interests of business and those of the nation came to diverge under war's threat, yet it was a relationship that persisted because both parties feared the consequences of the alternative.


When the National Government took office in November after their overwhelming victory at the polls, it was clear that the depression had already begun to affect the international tranquility that had prevailed in the aftermath of the Great War. On September 18, 1931, Japan had invaded Manchuria in a quest to augment her limited supplies of natural resources and to create a new market for her manufactured goods. The preceding January Germany had set forth her demands that the Versailles limitations on the size of her armed forces be eliminated, and that she be allowed to create a force that would enable her to defend herself from her enemies. This demand too proceeded as much from the imperatives of economics as from those of nationalism.

The International Disarmament Conference scheduled to begin in Geneva in February 1932 offered the primary basis for hope that the thirties and the decades to follow would see a world at peace. Enthusiasm for a successful result was great, especially in Britain, where a great many people had come to the conclusion that disarmament offered the only sane assurance of world peace. For them the thirties were to be a confusing and bitterly disappointing time. In actuality the conference foundered on the irreconcilability of France's desire for eternal security from the threat of German attack and on Germany's desire to return as an equal to the world of nations, which of course meant to rearm to the level that other nations were armed. Germany left the conference in September 1932, only to return. In January 1933 Hitler was appointed Chancellor, and used the conference for his own purposes while he consolidated his internal political position before withdrawing for good in October of that year. The British worked hard to make the conference a success, although they too balked at proposals that would have affected their special concerns. They were the nation with the most to lose from the failure of the conference, for they were the nation with the most extensive international commitments and the least adequate military establishment to support them. The fate of the conference, however, lay in other hands, and was subject to other concerns.


Britain's rather palsied military stance was the result of thirteen years of untroubled international security, and the imperatives of budget balancing to maintain economic stability. In August 1919, when Britain was experiencing the economic instability that accompanied the massive and rapid demobilization that followed the First World War, the Cabinet formulated an assumption that was to serve as a guideline for the military services in their planning and budget making. The assumption was simply that there would be no major war for ten years from that date. This assumption, the Ten Year Rule, as it came to be known, lingered through the twenties, being reaffirmed at various times. In July 1928, Winston Churchill, then Chancellor of the Exchequer, suggested that the rule be altered so that the ten years in question would be moved forward each day the assumption was not altered, rather than counted from the last date the assumption was reaffirmed. Although the chiefs of staff were not happy about the proposal, it was confirmed by the Cabinet.


Excerpted from British Rearmament in the Thirties by Robert Paul Shay Jr.. Copyright © 1977 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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