1929 Economic Crisis: Causes, Solutions, and Global Impact
The Economic Crisis of 1929
Crisis Solutions
Economists and governments implemented policies to combat the deflation of 1929. These policies aimed to revalue currency and encourage saving by:
- Raising taxes
- Reducing public expenditure
- Reducing imports and increasing exports
- Increasing customs fees
- Preventing capital leakage
- Lowering wage rates
President Hoover’s approach, despite the deflation and austerity measures, had significant consequences:
- A decrease in purchasing power
- Decreased demand
- Reduced investment
Keynes advocated for deficit spending and reformed capitalism, arguing that the state should intervene in the economy by:
- Financing large enterprises to promote employment
- Subsidizing dynamic businesses
- Regulating production, wages, and working hours
Hoover’s measures proved ineffective, leading to Roosevelt’s victory in 1933. Roosevelt’s “New Deal” focused on state interventionism with the following objectives:
- Boosting consumption to revive production
- Increasing public spending to reduce unemployment
Key New Deal measures included:
- Banking and financial system reform (Banking Act of 1933)
- Agricultural Adjustment Act (AAA 1933)
- National Industrial Recovery Act (NIRA)
While the New Deal improved the situation, it didn’t fully restore pre-1929 levels. The NIRA and AAA were later declared unconstitutional. The Second New Deal brought further economic recovery.
In Europe:
- Great Britain: Recovery began after the foundation of the Commonwealth and the Ottawa Conference agreements.
- France: Initially less affected, but the Popular Front government of 1936 implemented social provisions, currency devaluation, and price liberalization.
- Italy and Germany: Germany adopted an autarkic program due to its economic blockade, while Italy faced problems with natural resources.
Causes of the 1929 Crisis
World War I led to increased agricultural prices and production. The 1920-21 period marked a decline in agricultural income. Farmers increased production to compensate, leading to oversupply and further price drops. Consequences included debt, unemployment, rural exodus, and reduced consumption of manufactured goods.
Imbalances in the industrial sector also contributed:
- Traditional industries were displaced by new sectors.
- Wage increases lagged behind production, reducing purchasing power.
- Corporate profits were diverted to stock market speculation.
Monetary and financial problems were evident, with post-war inflation. European countries borrowed from the US, leading to inflation, particularly in Central Europe. Currencies lost value against gold.
The 1929 New York Stock Market Crash
From 1925, stock prices rose steadily. People bought stocks with low-interest bank loans, expecting to sell them at higher prices. By 1927-1929, valuations exceeded production and company profits. In 1929, after an initial stagnation, stock prices began to fall. On Black Thursday (October 24th), 13 million shares were sold with no demand. Investors sold shares to repay loans, accelerating the decline. This stock market crash triggered the Great Depression.