Economic fluctuations, 1919–38

INTRODUCTION During 1919–38 both the UK and the world economy witnessed economic fluctuations that were, in many ways, distinctly different from those of the past. Although business cycles are a recurrent phenomenon their characteristics evolve over time and reflect inter alia , the nature of specific shocks, changing policy regimes and other evolutionary changes in the structure of the economy. This chapter describes and explains the cyclical process of the interwar era and in doing so also addresses the issue of why the nature of business cycles changed in the interwar period relative to the past. The macroeconomic data that are analysed are the balanced national accounts of Solomou and Weale (1993) which represent an improvement on previous UK macroeconomic data for the interwar period (for a description of the data see appendix 1 to this chapter). DESCRIBING BUSINESS CYCLES Figures 4.1 and 4.2 plot the annual growth rate of GDP and manufacturing output respectively: major depressions can be observed in 1920–1,1925–6,1929–32 and less severe downturns in 1927–38 and 1937–8. Figure 4.3 plots the path of gross domestic product during the period 1870–1938: a further business cycle feature which needs to be emphasised is that, following the cyclical depression of 1921, the economy failed to return to the previous long-run path. The business cycle shocks of 1919–21 generated a persistent adverse output effect, making the analysis of economic growth and business cycles difficult to distinguish.