The Road Not Taken

by Frank McLynn

  Peace in the coalfields did not last long. In 1921 the mines were handed back to private ownership. The owners at once announced wage cuts, and when the miners refused to accept this they were locked out. It was time for the Triple Alliance to spring into decisive action, but both the miners’ leader, Frank Hodges, and the railwaymen’s general secretary, J. H. Thomas, were moderates (trimmers, their critics said) who had no taste for nationwide confrontation. Hodges was prepared to accept a wages freeze while negotiations to secure a national wages board went on. He argued that the situation was unlike that a year ago, for now the miners had not just the government to deal with but a plethora of owners also. Most miners, however, wanted a fight to the finish and heeded the radical oratory of the rising star in the MFGB, the Yorkshireman Herbert Smith. The miners’ executive rejected Hodges’s proposals by one vote. At this Thomas and the transport workers pulled the rug out from under the miners by abandoning their own strike a few hours before it was due to begin. This was ‘Black Friday’ (15 April 1921) – the end of the Triple Alliance and a dark day for radical trade unionism.58 Hodges and Thomas argued, with some justification, that the year 1921 was no time for a general strike, with unemployment in the country running at over 2 million and exports having declined by a massive 47.9 per cent.59 But it was the abrupt manner of the railwaymen’s ‘betrayal’ that most upset the miners, and it seemed to many of them that Hodges, having been rejected at the front door, had simply gone round to the back door and used his close friendship with Thomas to get his own way. Black Friday was the beginning of acute radicalism in the MFGB. Hodges was out of step with the overall mining culture. He represented a new breed of collaborationist, compromising union leader, concerned only with pay and conditions and not at all with the evils of capitalism or the class struggle. In many ways Black Friday represented the head-on collision of revolutionary and reformist ideologies. The miners stayed out until June then returned to work, beaten as always by hunger and shortage of money. They did not get their national wages board and had to accept the cuts. This was a bitter pill for them, since in 1910–14 and 1917–20 the MFGB had always managed to secure increases in real wages. Increasingly, both sides in the mining industry saw the other as the devil; both capital and labour had their own demonology.60 It is sometimes overlooked that the left-wing unionists had more than the ghost of a case, for the other sides in 1921 also saw the issue in stark terms. Lloyd George called up volunteers for a Special Defence Force in 1921 – he raised 75,000 men – and was generally provocative, as well as secretly inveigling Hodges. ‘There were the makings of civil war’ is the mild comment of one historian.61 Here is just one comment of the time from an upper-middle-class reactionary: ‘We must get the working classes back to their kennels. Back to cheap labour. Back to discipline. Otherwise we’re done.’62

  Herbert Smith and A. J. Cook (see here) have often been criticised for leading the miners into disaster in 1926, but it was Hodges’s failures as a union leader that sowed the seeds. He had had a meteoric rise in the movement and had been the favourite son of his union, pampered and promoted as a young man when he posed as a champion of the Left. Groomed for leadership at Ruskin College, Oxford, he was a full-time official in the MFGB at twenty-five and general secretary at thirty-one. Like Thomas, he requited this indulgence by trying as hard as he could to use his position as a stepping-stone to society’s glittering prizes, and this meant playing the Establishment game.63 Herbert Smith saw his game at an early stage and warned his confidants: ‘You must not trust him. He is always playing about with the coalowners … the men won’t stand that too long. He will burn his fingers badly some time.’64 Like Thomas too, Hodges was fanatically hostile to communism, and fancied himself as something of an intellectual; he wrote books on the problems of the mining industry.65 What impressed most observers were his ‘bourgeois’ aspirations. John Paton of the Independent Labour Party pointed out that, even when general secretary, Hodges always dressed as though an invitation to the aristocratic fleshpots was no pipe dream: he wore ‘an impressively well-cut suit with carefully creased trousers. His wide-winged, glossy-white collar was encircled by a spotted bow-tie, which lay neatly above his buttoned, double-breasted jacket. A silk handkerchief, coloured like the tie, exposed an artistic triangle from his breast pocket.’66 Hodges achieved the first step in his ambitions when he was elected Labour MP for Lichfield in 1923. Under MFGB rules this meant he could not continue as the miners’ general secretary. Hodges initially defied the ruling and for a while the union seemed inclined to let him get away with it. But he was eventually displaced as general secretary by A. J. Cook and ‘kicked upstairs’ to become secretary of the Miners’ International Federation. His ouster rankled with him and, like Thomas in similar circumstances, when things did not go his way he played the ‘red card’ as a kind of reflex action. He dubbed Cook and the left-wing miners ‘communists’ and called them ‘the intellectual slaves of Moscow, unthinking, unheeding, accepting decrees and decisions without criticism or comment, taking orders from the Asiatic mind’.67 Hodges later achieved his ambitions. He received a sinecure on the Central Electricity Generating Board, became a director of several coal, steel and iron companies and left more than £100,000 when he died in 1947. The historian A. J. P. Taylor memorably described him as ‘an interesting example of how THE THING, as Cobbett called the entrenched English system, looks after its own. What discredited Hodges with the miners was his making in other circles.’68

  Since the beginning of George V’s reign in 1910 there had been persistent voices crying that Britain was ‘finished’, and the general despondency of 1910–14 found expression in emigration levels of 300,000 a year before 1914.69 The gloom was particularly acute in the working class in the 1920s, for unemployment consistently remained above one million throughout the decade. Real wages in the mining industry fell sharply in 1921–4. The issue of nationalisation continued to be raised from time to time, but never with energy and vigour. Even the short-lived Labour government of 1924, which might have been thought sympathetic to labour rather than capital, seemed more interested in proving its credentials as an alternative manager of capitalism than in doing much for its own people, even though the enthusiasm of the masses for the first Labour government could not be denied.70 Successive prime ministers – Lloyd George, Bonar Law, Ramsay MacDonald – accepted the anti-nationalisation line of the mine owners. This tended to follow a twin track: everything was at root satisfactory, the industry was merely suffering a blip, and everything would work out successfully if the government simply held aloof; and the alleged incompatibility of managing an industry while being subject to democratic control. The incompetence of both governments and owners in the period 1921–5 was abject. Yet the industry limped along for a few years without severe wages cuts for a number of contingent reasons. All Britain’s chief competitors suffered unexpected jolts of one kind or another. The real halcyon period had been 1918–19, when the devastation of French mines in the war and the immobilisation of German ones gave Britain for a short time a virtual monopoly in European markets. By the time of Black Friday in 1921 the rivals were all back in the saddle and prospects for Britain seemed grim. Poland, though, reconstituted by the Treaty of Versailles, took an unconscionable time getting launched again, with a Bolshevik invasion and the Battle of the Vistula supervening. In 1922 the USA was hit by a six-month coal strike. In 1923 German production ceased when French troops occupied the Ruhr coalfields in retaliation for the non-payment of war reparations. Even trade union membership picked up after the debacle of 1921, with a halt in the declining membership by 1923 and a growing willingness to strike.71

  All these events gave the British mining industry a considerable boost and postponed the inevitable day of reckoning. Yet once Poland, Germany and the USA returned to normal production, the result was clear for everyone to see. Although by 1925 the overall British economy had recovered, with total industrial production 10 per cent higher than in 1913 and more wo
rking people in jobs than ever before, most of this upsurge was in new sectors of the economy. The old industries producing for export – coal, iron and steel, textiles – were by now producing goods for which demand was not expanding; primary producers could not buy them because of the changing terms of trade. Whereas imports were up by 10 per cent in volume from 1913, exports were 25 per cent down.72 Of the more than one million unemployed in 1925, three-quarters were in coalmining, shipbuilding, engineering and textiles. The crisis was particularly acute in the mining industry when the production in the Ruhr coalfields resumed. In 1923–4 the British coalmining industry was making about £1 million a month profit but by 1925–6 this had become a £1 million loss. Coal exports declined from 79.5 million tons in 1923 to 50.8 million tons in 1925. Sixty per cent of all coal mined in Britain was being produced at a loss.73 Unemployment was running at 16 per cent, and by the beginning of 1925 300,000 miners were out of work.74 All this was in a social context where a quarter of the population owned about three-quarters of the capital, and one-tenth of them enjoyed 42 per cent of national income (with just 1.5 per cent taking 20 per cent of it).75 It is not surprising that people on all sides prophesied revolution. As Ernest Bevin, most able of the new breed of pragmatic trade unionists, put it:

  The struggle for economic possession is bound to come. How will it come? Will public opinion welcome an expansion of possession and with it the extension of responsibility among the workers in industry? Or will public opinion, especially among the employing classes, be negative at best, at worst retrogressive and obstinate … Experience has driven me to the conclusion that we shall be drifting in the next five years towards a great upheaval.76

  With an undercapitalised industry losing on all fronts against its competitors, British coal prices unable to compete with those from Germany, Poland and the USA, and with general demand anyway drying up as nations switched to oil or hydroelectricity (even the Royal Navy powered its ships on oil), there wanted only one further straw to break this particular dromedary’s back. This duly arrived when the incoming Conservative government under Stanley Baldwin elected to return to the gold standard. This was a classic instance (of which there have been many more in British history) of finance capitalism trumping the industrial and commercial varieties, of bankers dictating the terms on which the economy should be run and determining the living standards of ordinary people. The City, the Treasury and the Bank of England in effect colluded to force down the wages of workers in pursuit of a will-o’-the-wisp – giving the City of London the same clout as Wall Street. Those pushing hardest for a return to gold, which meant sterling parity with the dollar at $4.86, were Montagu Norman, governor of the Bank of England, Sir Otto Niemeyer and Lord Bradbury at the Treasury. Since the great economist John Maynard Keynes opposed the return, while this egregious trio proselytised for it, it is worth underlining their credentials. Montagu Norman (1871– 1950), who liked to dress and pose as an artist, in raffish clothes and long beard, was a classic neurotic who had consulted the famous Swiss psychologist C. G. Jung about his problems. In the 1930s he was extremely close to the Nazis, had an almost sibling-like relationship with the president of the German Central Bank, Hjalmar Schacht, and, after Hitler’s liquidation of Czechoslovakia in 1938, notoriously returned £6 million of Czech gold to the Führer, in effect depositing Czech money in the coffers of the Third Reich.77 Sir Otto Niemeyer (1883–1971), his intimate collaborator, was financial controller at the Treasury and a director of the Bank of England. He too became notorious in the 1930s. Asked by the Australian premier to compile a report on his country’s economy, Niemeyer stated in all seriousness that Australia’s only function was to supply Britain with goods at preferential rates.78 John, Lord Bradbury (1872–1950), though taken seriously in high finance circles in the 1920s and 1930s, was a nonentity as an economist. Yet it was these men that the lethargic and intellectually undistinguished prime minister Stanley Baldwin heeded.79 Winston Churchill, then chancellor of the exchequer, accepted the ‘necessity’ to return to gold reluctantly; Keynes did not blame him personally, as he felt he had been misled by his advisers.80 The arguments Keynes marshalled against the new gold standard parity were as devastating as those he had unleashed on Lloyd George six years earlier in The Economic Consequences of the Peace and, in his mind, were linked with them. Referring to the Treaty of Versailles, he said: ‘the rulers of Europe had destroyed a delicate social and economic equilibrium in their pursuit of “victory at any price”. Now they expected the workers to bear the costs of trying to restore it.’81 Moreover, British rulers were once again trailing on the coat tails of US policy, for the essence of the Montagu Norman project was to make the City the handmaiden of Wall Street: ‘The whole object is to link rigidly the City and Wall Street.’ The correct value of the pound in 1925, Keynes argued, was $4.40 not $4.86, since the discrepancy between US and UK prices was of the order of 4.5 per cent, not then the 10 per cent alleged by the pro-gold lobby. The return to gold was an unnecessary gamble on a rise in US prices and it took no account of prices in other countries, yet a moment’s consideration would have revealed that the coal industry’s problems were a direct result of the high exchange rate of the pound in relation to the German mark; the dollar was a sideshow.

  Keynes initially developed his arguments in three articles in the Evening Standard on 22, 23, 24 July 1925 and, a week later, published them in pamphlet form as The Economic Consequences of Mr Churchill – an obvious reference to his earlier attack on the Versailles Treaty.82 He attacked the return to the gold standard on three different levels. First, the obvious economic one: that sterling was overvalued by 10 per cent did not guarantee that the cost of producing a tonne of UK goods would fall by 10 per cent, but Montagu Norman and his ilk assumed an automatic adjustment. Secondly, the more sophisticated macroeconomic argument – that to use bank rate to maintain the restored parity would lead to large-scale borrowing rather than exporting and would thus inevitably push up the rate of unemployment. Thirdly there was the political economy argument: that assuming domestic costs could automatically adjust to the new rate of exchange was to live in an unreal world of economics textbooks, whereas people actually lived in a political world, where trade unions were a major factor.83 If the aim of the bankers was to restore the City of London to its position as the world’s leading banker and sterling as the leading currency, the return to gold should have been carried out when British prices were actually competitive internationally at a parity of $4.86, not before. In other words, the international value of sterling should have been adjusted to domestic costs of production, not vice versa. The determination to press on regardless was, Keynes thought, ample evidence of ‘a sadistic desire by bankers to inflict pain on the working class’.84 Britain in 1925 could be seen, Keynes said, as poised between two economic conceptions: wages fixed by what was fair and reasonable; and wages fixed by the ‘economic juggernaut’ aka the world of Gradgrind and ‘hard facts’. The return to gold marked a triumph for the latter persuasion, whereas Keynes favoured the former, which meant he was on the side of the workers. Later studies show that in 1925 the exchange rate of $4.30 would have been about right, and this would have produced higher exports, lower imports and lower interest rates.85 At $4.86, exports would plummet, and this would mean a choice between maintaining parity or endangering the balance of payments. The bankers’ way to cut the Gordian knot was to force wages down. This put the miners firmly in the firing line, since it was widely known that their wages made up two-thirds of the costs of coal production. It was therefore obvious that restoring parity would mean wage cuts and much greater unemployment. Keynes’s target in his attack was always the bankers, not Churchill, whom he regarded as, in economic terms, an innocent abroad. Keynes even dealt gently with Churchill’s more egregious absurdities, as when he declared that the return to gold had no more connection with the problems of the coal industry than had the Gulf Stream. After showing incontrovertibly that there was a direct causal relation
ship, Keynes asked rhetorically: what were the miners supposed to do? Change trades? To traditional industries that were also declining? And why did the miners have to suffer more than any other group? Although his pamphlet did not sell well, the overwhelming consensus of economists has been that Keynes won this debate, and history’s verdict is that sterling was severely overvalued between 1925 and 1931.86