Britain In The International Economy Notes

Lecture 4 - Britain in the International Economy: 1919-39 Trade, finance and the Gold Standard Decline of internationalism GB economy les s integrated with the rest of world by 1939. Between wars less integration, before there is more. * 1913 international trade and services 30% GDP (doesn't exceed this until after WWII), up to 15% by 1938 Causes of trade decline Reflective of slow growth in world trade (1930s mainly), although world output did grow faster than world trade between the wars. Reflective of a loss in market share; most significant in manufactured good making up the bulk of GB exports. * Share in manufacturing world trade. (GB) 1913 - 29.9% to 22.4% in 1937. (USA) 1913 - 12.6% to 19.6% in 1937. Main period of fall is 1920s Invisible Trade Income from such trade becomes less important, as shipping income declines as world trade reduces. Overseas investment * Declines with new overseas loans in 1920s before practically stopping in the 1930s. Diminishing B of P surplus reduces funds available for overseas investment. o Before 1914 net GB capital exports of c.PS200m per year, down to c.PS100m in 1920. * GB no more a major capital exporter. Gold Standard The change in the GB economy was unexpected in 1918, assumption that prosperity depends on international trade and finance. The situation before 1914 was seen as the norm BUT this requires free trade and the Gold Standard which had 2 requirements: * Currency freely convertible into gold. * Convertible at a fixed rate 1870-1914 all major currencies were on the gold system -fixed currency system (PS1 always $4.86). GB on GS pretty much always except from Napoleonic wars. 1914-19 * War badly disrupts gold standard - it basically stops. o Currencies didn't really fluctuate but the war meant hostility so gold couldn't be moved between countries. * Inflation precludes maintaining gold parity 1919 o PS allowed to float, quickly falls to a low of $3.20 * Most other countries come off gold, (not USA), but there is a commitment to restoring the gold standard. Return to gold 1920-25 * Bank of England want to return to full $4.86 asap, EU post-war disruption means process takes longer than expected. * Sterling's value increased by tight monetary & fiscal policies before the return to Gold 1925, announcement made by Churchill (current chancellor of the exchequer). Other countries follow (Ger 1924, Fr 1926) Why return? 

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