After bailing funds out of the bottomless war chest, politicians turned to rendering ship shape the economy in peace. The ideal at the time was to aim for a return to the gold standard, meaning fixed rates of value for Sterling (and other national currencies). A number of belligerent countries had come off it, in no small part due to the need for the state to pay for goods (especially armaments) while holding finite stocks of gold reserves. Coming off the gold standard also allowed for currencies to inflate in value, meaning for instance more purchasing power when buying shells from neutrals. But after the war ended the overwhelming mood amongst economists and politicians was that the long-term stability that went with sticking to gold was a political priority.
That was especially the case in Britain, whose currency had previously been the world leader and an issue of national prestige, especially with the US Dollar at its heels. Considerable debate took place over whether the Pound could or should be restored when back on gold to its old rate when compared to the Dollar.
To get back on to gold, debt reduction was needed, which also meant avoiding a deficit. This came largely out of a revolution in the country’s tax system. The old system had relied heavily on indirect taxation on expenditure; now the emphasis was direct taxation on income and capital. More people were caught by it, and the impact was considerably increased when you were caught – for instance, the standard tax rate on earnings in 1915 had pushed up from 5.8% to 30%.
Meanwhile, inflation meant that many more people whose incomes had previously avoided taxation now fell into it. With more people paying more taxes, an international atmosphere of revolution, and a number of political pledges made to bolster support for the war effort, there was a further consequence in that more people expected the state to do more for them, as they were now paying some form of due and expected service.
from "A Fate Worse than Debt" by Lee Rotherham
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