by Professor Richard Roberts of King’s College London
The referendum, as a political technique, has traditionally been frowned upon in Britain. The only nationwide precedents for the June 23 ballot are the 1975 EEC poll and the 2011 voting system poll.
In both cases, the electorate endorsed the status quo — encouraging precedents for Remain.
Fundamental economic regime shifts, such as potentially posed by the UK leaving the EU, are rare events. For Britain, this has mainly meant changes in exchange rate systems, most tumultuously in the political and financial crises of 1931.
In summer 1931 sterling came under selling pressure because of lack of confidence on the part of international holders in the British government’s resolve to fix its budget and trade deficits.
The pound was on the gold standard and official holders could demand conversion of notes into gold, putting pressure on the reserves and endangering Britain’s adherence to convertibility.
The prime minister, Ramsay MacDonald, and chancellor of the exchequer, Philip Snowden, of the incumbent Labour administration proposed cuts to public expenditure including wages and benefits to balance the books and restore confidence in the currency.
But the majority of the cabinet refused to support the cuts. The administration disintegrated and the leadership formed a National Government with the Conservatives and Liberals to save the pound.
Asked what would happen if Britain left the gold standard Snowden replied, Biblically: “The Deluge.”
Britain’s great and good lined up in support of the chancellor, warning of the dangers of leaving the gold standard.
The Times, the voice of the establishment, cautioned that it would be a “disaster” and a “dangerous intoxicant”; the results would be inflation, recession and “a cruel and unnecessary diminution of the standard of living of the poorer classes of the community”.
In mid-September as the crisis intensified, Francis Williams, the editor of the liberal-minded Manchester Guardian, attended a briefing at the Treasury on measures being taken to protect the pound.
Williams, as he recalled in his memoirs, “being young and iconoclastic” questioned whether Britain could or should remain on gold. His words “produced an effect of frozen horror… Sir Warren Fisher, permanent secretary to the treasury and head of the civil service, was particularly shaken. He found it impossible to remain seated. ‘To suggest we should leave the gold standard,’ he declared rising magisterially to his feet and pacing heavily backward and forwards across the room, ‘is an affront not only to the national honour but to the personal honour of every man and woman in the country.’”
Jackson E Reynolds, the president of First National Bank of New York, likened England going off gold to “the end of the world”. Lawrence Jones, a City investment banker, did his bit by actively campaigning on public platforms warning that the country would starve if it left the gold standard.
But then came the so-called Invergordon Mutiny, a protest against wage cuts by Royal Navy sailors that panicked holders of sterling and the reserves began to run out.
“The country promptly went off gold, did not starve, and has remained off gold ever since,” Jones wrote in his memoirs. “The sole monetary principle for which, as a result of all my studies, I had been ready to speak out publicly and with utter conviction, was now shown to be a delusion.”
The floating pound immediately devalued by about a third, which did indeed raise the price of imported foodstuffs, though it helped exports. Freed of the necessity of defending the overvalued pound, the government was able to adopt a new set of economic policies that contributed to growth of nearly 4% a year during the 1930s and reduced unemployment; the cuts were restored.
Reviewing the departure from the gold standard and its outcome, Sidney Webb, a former Labour minister in the late government, lamented: “Nobody told us we could do that.”
The world did not come to an end in September 1931 and the predictions of economic Armageddon are probably as overblown today as they were then.
Most likely the forecasts will not be put to the test, though the historical precedent even provides some comfort to anxious Remainers should things turn out otherwise.
But the international economic crisis, of which sterling’s convulsion was an element, contributed to rising nationalism, notably Hitler’s coming to power, and disarray among the democracies. And eight years later, in September 1939 as German tanks rolled into Poland, the end of the world seemed to many to have indeed arrived.
