Britain Leaves Gold and the Tariff War

Britain leaves, the world stops trading

Seven steps, about ten minutes, a question at each. You need no economics and no preparation, only a willingness to guess before you are told.

Module 4 of 7
10 min
7 steps
6 questions
1 decision

Step 1 of 7

The question

The most famous economic mistake of the century raised the average import tax by about two and a half in every hundred.

Britain stopped exchanging pounds for gold in September 1931, and the British recovery began in early 1932. It was an early recovery and not a full one: unemployment among insured workers started at 21.9 per cent and was still in double figures six years later.

Why it matters and what it covers

The world stopped trading as well. America raised its import taxes in June 1930, Britain ended a century of free trade in February 1932, and world trade fell by about a third. The American tariff itself was far smaller than its reputation.

Seven steps cover Britain's head start, what it was worth, the tariffs, the trade collapse, and how much of the blame the tariff can carry.

What this module covers

Britain out first, in September 1931
The recovery that started about four months later
21.9 per cent out of work, and still in double figures in 1937
The American import taxes of June 1930
The end of a century of British free trade
World trade down about a third
How much of the collapse the tariff really explains

Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.

Step 1 · September 1931

Britain goes first

A pound note used to be a promise: bring it to the Bank and take gold for it. One September the promise stopped.

Britain stopped exchanging pounds for gold in September 1931, and it was the first large economy to do it.

Sixteen countries left the or cut the value of their money during 1931.

The pound then fell by around 20 per cent.

Britain no longer had to hold the pound at the gold price, and that changed what the government was free to do.

gold standard: A promise by a government to exchange its money for gold at a fixed price, and to let gold move freely in and out of the country. A country losing gold had to raise interest rates and cut spending to hold the promise.

Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.

Britain left the gold standard in September 1931. What could the government then do that it could not do before?

For scaleSixteen countries left gold or cut the value of their money during 1931.

Step 2 · 1931 to 1932

The recovery starts

Britain's recovery began in early 1932, a few months after the suspension.

British goods cost less abroad once the pound was cheaper, and no wage had to be cut for that to happen, so foreign buyers bought more of them.

The fall in the pound allowed exports to rise, and the rise in exports then lifted production and employment.

Britain left gold before any other large economy and recovered before them, and the same pattern held in every country that left early.

The pound is worth less against other currencies, and a British machine still carries the same price in pounds. What does a German buyer find when he goes to buy it?

For scaleThe pound fell by around 20 per cent after Britain left gold.

Step 3 · 1931 to 1937

Early is not the same as full

British among insured workers stood at 21.9 per cent in 1931.

Britain counted insured workers, meaning the people covered by the state unemployment scheme, rather than every person who wanted a job.

The share of all British adults in work fell to 61 per cent in 1932, the lowest in the whole record. That is a different measure: it counts adults in work, not insured workers out of work.

Britain got an earlier recovery and not a full one, and the figure was still in double digits six years later.

unemployment: The number of people who want paid work and cannot find it, usually given as a share of all those working or looking for work. People who are not looking are not counted, so the figure understates how many are out of work.

British unemployment was 21.9 per cent in 1931. Where was it by 1937, six years into the recovery?

Give it in per cent. Guess: close scores almost as well as exact.

For scaleThe share of British adults in work hit its lowest recorded level, 61 per cent, in 1932.

Step 4 of 7

What happened next Next module Next: Unemployment and Hardship in the Depression1929 to 1945. Pay and hours fell as well as jobs, the damage lasted a decade, and nothing measured any of it at the time.

Module 4 of 7 in The Great Depression