ABSTRACT
The Labour government’s failure to ease the burden of unemployment contributed largely, though indirectly, to its eventual collapse. In the summer of 1931, MacDonald and his colleagues were called on to deal with two urgent and related problems. The first was a large prospective budget deficit, the result of rises in public expenditure at a time when the economic slump was causing a fall in the receipts of taxation. The second was a rapid fall in Britain’s reserves of gold and foreign currency, which resulted from the sale of sterling by large numbers of foreign bankers and financiers. The panicky behaviour of these foreign investors resulted partly from events elsewhere in the world, and in particular from the crash on the New York stock market in 1929 and the withdrawal of American financial assistance to Europe which followed upon it. But there was a connection between the two problems faced by the British government. The foreigners who sold their holdings of sterling were increasingly acting out of anxiety about the financial insolvency of the Labour ministry. When the Labour Cabinet sought to overcome its financial difficulties, however, it was unable to reach agreement; and on 23 August 1931 it submitted its resignation.
