Economic Hardship and the 1929 Stock Market Crash
Post-WWI Economic Hardship and Monetary Stability
Production: Two stages can be distinguished:
Reconstruction
Lasted until 1925. In the case of Europe, it was very slow, taking ten years. Compared to World War II, recovery was much harder. There were four phases:
- Socio-political problems: New political governments were very weak because they did not achieve an absolute majority to govern and, therefore, lasted a short time. It was a difficult time, with numerous labor strikes. Territorial disputes were also a factor.
- Financial problems: Instability and lack of financial resources made recovery slow.
- Regional differences: Most Western countries recovered within three or four years, while countries in Eastern Europe did not fully recover until 1929, only to experience another crisis. This might be because the U.S., with reconstruction aid, helped Western countries recover quickly, while others received the “crumbs.”
Atypical Growth
During this period, growth and development rates of European countries increased again and caught up with others. Differences emerged between countries exporting raw materials and those exporting food. Exporters of raw materials continued to expand rapidly, but food exporters began to decrease or stagnate due to food surpluses. It is considered atypical growth since, at this time, there was high unemployment and a lack of manpower. This is unusual because when such a phenomenon occurs, a country typically sinks due to the exploitation of factors.
Monetary System
European economies were totally mismatched, their currencies devalued, and their balance of payments in deficit. After the war, European countries had to change their currency to avoid a catastrophe. Britain was the only country that more or less kept the value of its currency aligned with the gold standard that was used before the war.
A devaluation has two effects: increased production and lower prices, but it also increases imports. Britain tried to keep its currency on the gold standard. At this time, Europe had no gold and, therefore, had to abandon the gold standard since 80% of the world’s gold reserves were in the U.S. From this point, the dollar standard began to be used instead of gold, and Americans became the greatest creditor in the world, particularly in Europe, overtaking Britain’s position.
The Crash of 1929
1929 is a crucial year because it saw the collapse of the New York Stock Exchange. Due to U.S. economic supremacy, many investors were devoted to buying stocks. However, in October, negative trends emerged, and the growth of firms decreased, leading to losses. Consequently, everyone started selling their shares, creating panic among people because they had no time to think. It was the beginning of the economic crisis of the 1930s, although there were other contributing factors.
Causes of the Crash
- Real Factors: Oversupply led to a fall in prices. Primary goods suffered the same consequences. Besides having a large stock, countries stopped producing, thereby generating lower returns.
- Monetary Factors: There was a decrease in consumption. The U.S. attempted to provide consumer credit from banks, but due to unemployment and low wages, this program could not be carried out successfully, further increasing the problems. Poor income distribution also worsened the situation.