1929 Economic Crisis and the Great Depression
The 1929 Economic Crisis and the Great Depression
The Economic Crisis of 1929 and the Great Depression
The main cause of the crash of the New York Stock Exchange was speculation, fueled by the desire to get rich, the economic boom of the 1920s, and the lax regulations of Wall Street. This situation was exacerbated by monetary inflation, a banking structure dependent on rising stock prices, the existence of portfolio companies focused on increasing contributions, and mass psychology.
This system began to break down on October 19th, leading to a demand for action. It culminated on Monday, October 28th, when the Times Index fell 49 points. This widespread bankruptcy triggered a series of failures that constituted the Great Depression. These included:
- Bankruptcy due to dependence on the Stock Exchange.
- Bankruptcy of businesses and industries due to credit restrictions, declining investment rates, and a decrease in national income.
- Increased unemployment, leading to a drop in consumption and an accumulation of stocks.
- Price reductions due to the accumulation of stocks.
The Great Depression was a crisis of demand caused by under-consumption. This led to the accumulation of goods and the subsequent closure of factories due to lack of work, which contributed to increased unemployment and declining purchasing power. This crisis was worsened by two factors: the weak U.S. banking system and the significant weight of the agricultural sector in the economy, as well as excess global production.
The crisis extended into 1931 due to the repatriation of capital, lower prices in the U.S. compared to Europe, and protectionist policies that contracted demand. Colonies were particularly affected. Countries such as Germany and Italy adopted deflation and protectionism. The social consequences included increased unemployment, social inequality, and a decline in population.
The New Economic Policy (NEP)
The New Economic Policy (NEP)
Peasant disaffection in 1921, combined with the insurrection of shipyard workers’ soviets, led to a change in objectives: the priority became increasing production over ideological aspects.
In 1921, the Soviet economy entered a second phase, establishing a mixed economy:
- The market economy was empowered in agriculture, industries, and consumer goods in internal trade.
- Key economic sectors such as mining, heavy industry, transport, and foreign trade remained under state control.
Thus, in-kind payments and compulsory labor were abolished, wage differentials widened, and the money economy was restored. Two currencies were used: gold rubles for foreign trade and paper rubles for internal circulation.
In agriculture, the free disposal of land was promoted, requisitions were prohibited, and state-fixed prices were changed. Farmers had to pay taxes. However, the disparity between agricultural and industrial prices persisted, along with low industrial productivity, leading to the scissors crisis in 1923.
The NEP was a success: industrial production, GDP, and income distribution increased, becoming much less unequal than before the revolution.
However, it also had limitations: it favored agriculture over industry, spurred more consumption than saving, and allowed private ownership of the means of production and the existence of entrepreneurs, which promoted social inequalities.