Europe in the 1920s: Post-War Recovery and the Great Depression
Europe in the 1920s
At the end of the First World War, democracy was the form of government in countries such as Great Britain, France, Italy, Belgium, the Netherlands, and Germany. However, democracies did not always protect all rights and freedoms equally. For example, workers’ rights, such as the right to strike, were not always respected, and they reacted by voting for left-wing parties (Socialists and Communists). These democracies were weak due to the post-war economic crisis, which led to social problems. Moreover, the upper class was afraid of possible Communist revolutions like the one in Russia. That is why some dictatorships were imposed in countries like Italy (Mussolini), Spain (Miguel Primo de Rivera), Hungary, Poland, Greece, and Yugoslavia.
Regarding the economy, European countries recovered very slowly because of the destruction of war, rising prices, and unemployment. The crisis was very hard in Germany because it had to pay war reparations. However, since 1923, production increased, there was less unemployment, and living conditions improved.
Concerning foreign affairs, there were many problems between France and Germany because the German government could not pay the war compensations to France, so France could not pay its debts. This meant that France occupied the Ruhr region of Germany in 1923, which was a rich area for its coal and iron. People thought this situation could lead to another war between France and Germany. In order to solve this problem, the USA implemented the Dawes Plan, which meant that Germany would receive money from America for its economic recovery. The economy improved, and the relationship between Germany and France improved. So, they both signed the Locarno Treaties in 1925 (a treaty of friendship between them).
The Great Depression
After the First World War, the USA recovered very quickly, since it was not devastated by the war, and it helped European countries by giving loans to them and selling consumer goods. However, the American economy had serious problems which caused a hard economic crisis in October 1929, which lasted until the end of the 1930s.
Causes of the Great Depression
Overproduction
American industry produced goods for Europe after the war. When European countries recovered, the USA kept on making the same amount of goods, more than the American population needed. As a result, many companies went bankrupt because they did not sell anything. Something like this happened in agriculture, since farmers bought many lands by applying to banks for loans. As farmers did not sell their products because Europe was already recovered, they went bankrupt as well, so banks did not receive the money they had lent to agriculture and industry.
Speculation
Speculation is the idea of getting money by investing. In the 1920s, these investments were firstly in the real-estate market and later in the stock market. Many people bought shares of companies and later they sold them at a higher price.
Wall Street Crash on 24 October 1929
The industrial companies did not sell anything, so they did not get any profit for their shareholders. Therefore, shareholders wanted to sell their shares, but nobody wanted them because they were not going to get any profit. On 24 October, all shareholders wanted to sell their shares, but nobody wanted to buy them, so the price of shares came down to nothing, and investors lost all the money they put on the stock market. Then they went to the banks to withdraw the savings they had there, but the banks did not have money because farmers and industrial companies did not pay them. This is why the American economy collapsed in one day. The countries depending on the USA, such as Europe or Japan, collapsed as well because they did not receive funds from North America.
Consequences of the Great Depression
This crisis led to an increase in unemployment, which involved less consumption and the bankruptcy of many companies that had initially overcome the depression. Moreover, the USA and its banks ceased to give loans, which meant the expansion of the crisis within the country and the rest of the world.
Solutions for the Crisis
The right solution to this crisis was developed in the USA by President Franklin D. Roosevelt, who carried out a set of economic measures known as the New Deal. This policy involved State intervention in the Economy in order to invest in public works and agriculture to create jobs. In this way, consumerism increased and the economy was reactivated.