The Great Depression
The story of the World Wide Great Depression and how it effected the 20th Century
The Twentieth Century In World History
Book: One-Half Century Of Crisis, 1914-1945
Author: Adas, Michael
Date: 1992
The Great Depression
The next step in a mounting spiral of international crisis came with the
onset of a global economic depression, which hit the headlines with the crash
of key Western banks in 1929 but which in fact had begun, sullenly, in many
parts of the world economy even earlier.
The depression resulted from new problems in the industrial economy of
Europe and the United States, combined with the long-term weakness in
economies, like those of Latin America, that depended on sales of cheap
exports in the international market. The result was a worldwide collapse that
spared only a few economies and brought political and economic pressures on
virtually every society.
Causation
The impact of the First World War on the European economy had led to
several rocky years into the early 1920s. War-induced inflation was a
particular problem in Germany, as prices soared daily and ordinary purchases
required huge quantities of currency. Forceful government action finally
resolved this crisis in 1923, but only by a massive devaluation of the mark,
which did nothing to restore lost savings. More generally, a sharp, brief
recession in 1920 and 1921 had reflected other postwar dislocations, though by
1923 production levels had regained or surpassed prewar levels. Great Britain,
an industrial pioneer that was already victim of a loss of dynamism before the
war, recovered more slowly, in part because of its unusually great dependence
on an export market now open to wider competition.
Structural problems affected other areas of Europe besides Britain and
lasted well beyond the predictable readjustments to peacetime. Farmers
throughout much of the Western world including the United States faced almost
chronic overproduction of food and resulting low prices. Food production had
soared in response to wartime needs, and then during postwar inflation many
farmers, both in western Europe and in North America, borrowed heavily to buy
new equipment, overconfident that their good markets would be sustained. But
rising European production combined with large imports from the Americas sent
prices down, which made debts harder to repay. One response was continued
flight from the countryside, as urbanization continued. Remaining farmers were
hard-pressed and unable to sustain high demand for manufactured goods.
Thus, although economies in nations such as France and Germany seemed to
have recovered by 1925, there were continued problems: the fears inflation had
generated, which in turn limited the capacity of governments to respond to
other problems, plus the weaknesses in the buying power of key groups. In this
situation, part of the mid- decade prosperity rested on exceedingly fragile
grounds. Loans from United States banks to various European enterprises helped
sustain demand for goods, but on condition that additional loans pour in to
help pay off the resultant debts.
Furthermore, most of the dependent areas in the world economy, colonies
and noncolonies alike, were suffering badly. Pronounced tendencies toward
overproduction developed in the smaller nations of eastern Europe, which sent
agricultural goods to western Europe, as well as among tropical producers in
Africa and Latin America. Here, continued efforts to win export revenue drove
local estate owners to drive up output in such goods as coffee, sugar, and
rubber. As European governments and businessmen organized their African
colonies for more profitable exploitation, they set up large estates devoted
to goods of this type. Again, production frequently exceeded demand, which
drove prices and earnings down not only in Africa but also in Latin America.
This meant in turn that many colonies and dependent economies were unable to
buy many industrial exports, which weakened demand for Western products
precisely when output tended to rise amid growing United States and Japanese
competition.
Governments of the leading industrial nations provided scant leadership
during the emerging crisis of the 1920s. Knowledge of economics was often
feeble amid a Western leadership group not noteworthy for its quality even in
more conventional areas. Nationalistic selfishness predominated. Western
nations were more concerned about insisting on repayment of any debts owed to
them or about constructing tariff barriers to protect their own industries
than in facilitating balanced world economic growth. Protectionism, in
particular, as practiced even by traditionally free-trade Great Britain and by
the many new nations in eastern Europe, simply reduced market opportunities
and made a bad situation worse. By the later 1920s employment in key export
industrial sectors in the West - coal (also beset by new competition from
imported oil), iron, and textiles - began to decline, the foretaste of more
general collapse.
The Debacle
The formal advent of depression occurred in October 1929, when the New
York stock market crashed. Stock values tumbled, as investors quickly lost
confidence in issues that had been pushed ridiculously high. United States
banks, which had depended heavily on their stock investments, rapidly echoed
the financial crisis, and many institutions failed, dragging their depositors
along with them. Even before this collapse, Americans had begun to call back
earlier loans to Europe. Yet the European credit structure depended
extensively on American loans, which had fueled some industrial expansion but
also less productive investments such as German reparation payments and the
construction of fancy town halls and other amenities. In Europe, as in the
United States, many commercial enterprises existed on the basis not of real
production power but of continued speculation. When one piece of the
speculative spiral was withdrawn, the whole edifice quickly collapsed. Key
bank failures in Austria and Germany followed the American crisis. Throughout
most of the industrial West, investment funds dried up as creditors went
bankrupt or tried to pull in their horns.
With investment receding, industrial production quickly began to fall,
beginning in the industries that produced capital goods and extending quickly
to consumer products fields. Falling production - levels dropped by as much as
one-third by 1932 - meant falling employment and lower wages, which in turn
withdrew still more demand from the economy and led to further hardship. The
existing weakness of some markets, such as the farm sector or the
nonindustrial world, was exacerbated as demand for foods and minerals
plummeted. New and appalling problems developed among workers - now out of
jobs or suffering from reduced hours and reduced pay - as well as the middle
classes. The depression, in sum, fed on itself, growing steadily worse from
1929 to 1933. Even countries initially less hard hit, such as France and
Italy, saw themselves drawn into the vortex by 1931.
In itself, the Great Depression was not entirely unprecedented. Previous
periods had seen slumps triggered by bank failures and overspeculation,
yielding several years of falling production, unemployment, and real hardship.
But the intensity of the Great Depression had no precedent in the brief
history of industrial societies. Its duration was also unprecedented; in many
countries full recovery came only after a decade, and only with the forced
production schedules provoked by World War II. The depression was also more
marked than its antecedents because it came on the heels of so much other
distress - the economic hardships of war, for example, and the catastrophic
inflation of the 1920s - and because it caught most governments utterly
unprepared to cope.
The depression was more, of course, than an economic event. It reached
into countless lives, creating hardship and tension that would be recalled
even as the crisis itself eased. Loss of earnings, loss of work, or simply
fears that loss would come could devastate people at all social levels. The
suicides of ruined investors in New York were paralleled by the vagrants'
camps and begging that spread among displaced workers. The statistics were
grim: up to one-third of all blue-collar workers in the West lost their jobs
for prolonged periods. White-collar unemployment, though not quite as severe,
was also unparalleled. In Germany 600,000 of four million white-collar workers
had lost their jobs by 1931. Graduating students could not find work or had to
resort to jobs they regarded as insecure or demeaning. Figures of six million
overall unemployed in Germany and 22 percent of the labor force unemployed in
Britain were statistics of stark misery and despair. Families were disrupted,
as men felt emasculated at their inability to provide and women and children
were disgusted at authority figures whose authority was now hollow. In some
cases wives and mothers found it easier to gain jobs in a low-wage economy
than their husbands did, and although this development had some promise in
terms of new opportunities for women, it could also be confusing for standard
family roles. Again, the agony and personal disruption of the depression
constituted no short shock. For many it was desperately prolonged, with
renewed recession around 1937 and with unemployment still averaging ten
percent or more in many countries by 1939.
Just as World War I had been, the depression was an event that blatantly
contradicted the optimistic assumptions of the later 19th century. To many, it
showed the fragility of any idea of progress, any belief that Western
civilization was becoming more humane. To still more it challenged the notion
that standard Western governments - the parliamentary democracies - were able
to control their own destinies. And because it was a second catastrophic event
within a generation, the depression led to even more extreme results than the
war itself had done - more bizarre experiments, more paralysis in the face of
deepening despair.
Worldwide Impact
Just as the depression had been caused by a combination of specifically
Western problems and wider weaknesses in the world economy, so its effects had
both Western twists and international repercussions.
A few economies were buffered from the depression. The Soviet Union, busy
building an industrial society under communist control, had cut off all but
the most insignificant economic ties with other nations under the heading
"socialism in one country." The result placed great hardships on many Russian
people, called to sustain rapid industrial development without outside
capital, but it did prevent anything like a depression during the 1930s.
Soviet leaders pointed with pride to the lack of serious unemployment and
steadily rising production rates, in a telling contrast with the miseries of
Western capitalism at the time.
For most of the rest of the world, however, the depression worsened an
already bleak economic picture. Western markets could absorb fewer commodity
imports as production fell and incomes dwindled. Hence the nations that
produced foods and raw materials saw prices and earnings drop even more than
before. Unemployment rose rapidly in the export sectors of the Latin American
economy, creating a major political challenge not unlike that faced by the
Western leaders.
Japan, as a new industrial country still heavily dependent on export
earnings for financing its imports of essential fuel and raw materials, was
hit hard too. The Japanese silk industry, an export staple, was already
suffering from the advent of artificial silk-like fibers produced by Western
chemical giants. Now luxury purchases collapsed, leading to severe
unemployment and, again, a crucial political crisis.
Between 1929 and 1931, the value of Japanese exports plummeted by 50
percent. Workers' real income dropped by almost one-third, and there were over
three million unemployed. Depression was compounded by bad harvests in several
regions, leading to rural begging and near-starvation.
The Great Depression, though most familiar in its Western dimensions, was
a truly international collapse, a sign of the tight bonds and serious
imbalances that had developed in world trading patterns. The results of the
collapse, and particularly the varied responses to it, are best traced in
individual cases. For Latin America, the depression marked a pronounced
stimulus to new kinds of effective political action, and particularly greater
state involvement in planning and direction. New government vigor did not cure
the economic effects of the depression, which escaped the control of most
individual states, but it did set an important new phase in the civilization's
political evolution. For Japan, the depression increased suspicions of the
West and helped promote new expansionism designed among other things to win
more assured markets in Asia. In the West the depression led to new welfare
programs that stimulated demand and helped restore confidence, but it also led
to radical social and political experiments such as German Nazism. What was
common in this welter of reactions was the intractable global quality of the
depression itself, which made it impossible for any purely national policy to
restore full prosperity. Even Nazi Germany, which boasted of regaining full
employment, continued to suffer from low wages and other dislocations aside
from its obvious and growing dependence on military production.
The reactions to the depression, including a sense of weakness and
confusion in many quarters inside and outside policy circles, finally helped
to bring the final great crisis of the first half of the 20th century: a
second, and more fully international, world war.
