Through most of the interwar period, UK unemployment was high: it was high
after the recession of 1921, and higher again during and after the Great
Depression of 1929-32. I argued previously [ch. 3.1] that if the economy becomes
underemployed it tends to stay underemployed. If that is so, the question is not
why unemployment stayed high after 1921 or remained higher after 1929, but
what caused the breaks at these two dates, checked output and pushed
unemployment higher then, and after 1932 brought unemployment down.

Section 6.1 below gives an overview of the whole interwar period. Section 6.2
looks at the 1921 recession and the following years. Since (it is argued) the
depression of 1929-32 was dominated by events in the United States, section 6.3
is a digression on the US Great Depression. Section 6.4 then looks at the inter-
national transmission of that Depression and its manifestation in the United
Kingdom; and section 6.5 at the UK recovery after 1932. Conclusions of
theoretical interest are stated in section 6.6.

Three appendices discuss Friedman and Schwartz ( 1963) Monetary History
of the United States, Eichengreen ( 1992) Golden Fetters, and the international
transmission of the US Depression. There is also a statistical appendix.

UK developments from 1920 until the outbreak of World War II can be divided
into six phases [ fig. 6.1 ]. After the boom of the immediate postwar years came
the sharp recession of 1921. Then came partial recovery, followed by six years
of what Pigou called the doldrums--moderate growth but not fast enough to
make any decisive inroad into unemployment. The Great Depression of 1929-32
then took unemployment to over 15 per cent. From there it declined only slowly
and gradually to 11 per cent by 1935 (recovery I), and under rather different
impulses to just under 6 per cent by 1939 (recovery II). The continuous
high level of unemployment makes the interwar period very different from
nineteenth-century fluctuations.

The United States had a considerably different experience from the UK, but
with broadly the same timing [ fig. 6.2 ]. It experienced much more expansion
and lower unemployment through most of the 1920s; a much deeper depression
in 1929-33; then, despite renewed growth, unemployment significantly higher
than in the UK throughout the 1930s.

Some other countries underwent the same recessionary phases; others suffered
less or escaped wholly [ fig. 6.3 ]. In 1921 output fell in the United States, France,

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