A lot of words have been written to try and explain why Labour lost in 2015. Margaret Beckett is the latest to chip in, confirming what previous surveys had already found. One of the key reasons we lost last year was that the country did not trust us on the economy.

I wrote a blog a while back arguing that no-one in Labour had yet found an effective response to the credit crunch, that the crisis had shaken our party to the core, that Ed Miliband didn’t know whether to stick or twist and so ended up stuck and twisted about whether to be more or less strident in opposition to cuts.

But, not all of the blame can lie with Ed; he is hardly the first Labour politician to wrestle with this dilemma. In fact, this is the greatest fault line in the party’s history.

Ever since the Great Depression, Labour has been torn apart by the same question time and again. What is the right response to austerity? Three generations of Labour politicians have struggled to find an answer, and in failing to do so, the party has swung to the left every time.

The Great Crash

Ramsay MacDonald was the Labour Prime Minister when the stock market collapsed in 1929. After two years of trying to reconcile balancing the budget with supporting the poor and unemployed, the Cabinet split over whether to implement large-scale reductions in public spending and wage cuts. MacDonald resigned, then announced he was forming a new “National Government” along with Conservatives and Liberals, to manage the crisis, and he was taking his chancellor, Philip Snowden, with him. It tore Labour apart.

Party members cried betrayal, riots broke out, and any Labour members supporting MacDonald’s new “National Labour” party were expelled. Two months later, a general election saw Labour crushed by the National Government, collapsing from 287 seats to 52. The defeat was so severe that even MacDonald’s replacement, Arthur Henderson, lost his seat.

A year later, in 1932, George Lansbury became the new Labour leader. A septuagenarian who never expected to head the party, Lansbury was a committed pacifist who passed resolutions at conference calling for the total disarmament of all nations; somewhat naively, in his later years he travelled to meet Hitler and Mussolini in his quest to bring peace. Economically, he was much closer to the membership than MacDonald, and provided strong opposition to the cuts the government were implementing. The party swerved left, while the country moved to the right.

“Crisis, what crisis?”

Jump to 1976, where the Labour government went to seek a loan from the IMF to help service its debts; in return, the government was required to make significant cuts to public expenditure. Jim Callaghan, the Prime Minister, took the stage at the Labour conference that year and said

“We used to think you could spend your way out of recession and increase employment by boosting government spending. I tell you, in all candour, that that option no longer exists. And in so far as it ever did exist, it only worked on each occasion… by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.”

Imagine how that went down. But, Callaghan might have got away with it. By September 1978, the economy was recovering, inflation and unemployment were coming under control, and polls were favourable. Yet Callaghan decided against calling an election, wanting more time to secure the economic recovery. The winter of discontent followed, and Labour were kicked out of power in 1979.

The party descended into the bitterest of civil wars, with much of the left again crying betrayal for the spending cuts made in government. Following Jim Callaghan’s resignation, Michael Foot was elected leader in 1980. Aged 67 when he took over, he was reportedly unsure whether to stand in the election, but was persuaded by left-wingers who believed he could defeat Denis Healey. Foot led the party into the 1983 general election on a platform of unilateral disarmament, increased taxes, and nationalisations. Firmly in tune with Labour members; defeated in a landslide by the Conservatives.

Credit crunch

And now we can add 2015 to this list. The parallels are inexact, but once again, Labour response to austerity has led to the party shifting to the left. Research carried out on LabourList shows that many members felt that Labour was too hawkish on deficit reduction in the 2015 campaign, and the welfare bill abstention in July was seen as further proof of this. The party was seen to be prioritising fiscal responsibility over supporting the poor. Betrayal, again.

In the face of a party who didn’t, in their opinion, sufficiently oppose austerity (although, it must be noted, voters saw it differently), Labour members turned to Jeremy Corbyn. Here, we see the same themes again. Aged 66, Corbyn surely never saw himself as Labour leader, and had to be persuaded to stand by left-wing colleagues. He is a pacifist who believes in unilateral disarmament, nationalisation, higher taxation…

Lessons

Every time the economy slumps, Labour splits. Initially, the party will try and tread a middle line between balancing budgets and supporting welfare, but the centre cannot hold. Tories will claim that the party are fiscally irresponsible, and the left will throw out accusations of betrayal. The party will turn to in-fighting and the left will gain the upper hand. We’ve seen this story before.

Are there any lessons from history that might help? Attlee’s government came to power in an economy shattered by war and yet managed to be the most transformational government in British history; yet, even then, the party split in 1951 over imposing prescription charges for false teeth and spectacles. Brown and Darling’s handling of the economy following the credit crunch saw growth returning in 2010, with help from various fiscal stimulus measures.

Perhaps the answer is two-fold. First, to acknowledge that a balanced budget is of critical importance, but to contest how the books can best be balanced; where is most effective and equitable to cut spending, and how much can be generated from tax rises. Second, that national debt can be reduced even if the government is running a deficit, providing growth is sufficiently high; so borrow to invest in the economy, ideally in socially beneficial ways.

Whatever the answer, as the global markets currently tiptoe around the edge of a bear pit, Labour moderates need to be thinking about how to disentangle this Gordian knot; how to convince an electorate it can be fiscally responsible, whilst simultaneously protecting public spending.

Because if the past 87 years teaches us anything, it is this: When the economy turns downwards, Labour turns left, and the rest of the country turns right.

Appendix — the data

Here is a graph of real GDP growth by year, since the great crash in 1929.

The negative growth occurs in the following time periods;

1929–1931; the stock market crash, where Ramsay MacDonald split the party

1944–1947; the aftermath of World War II

The second half of the 1970s; Callaghan and Healey were perceived to have betrayed the party, Michael Foot became leader and the party fell into years of civil war

1991; following entry into the ERM, which led to Black Wednesday and the demolishing of Conservative economic credibility

2008–09; the credit crunch, which brings us to where we are now with Jeremy Corbyn as leader and the party at war. Again.