The Economic Crisis of the 1930s
Indicators of Crisis
A crisis is a short-duration disturbance of long-term and short-term economic activities, impacting productive human and social aspects. Symptoms include a fall in production, an increase in unemployment, a slowdown in international exchanges of goods and capital. Crises can be sectoral (affecting specific sectors) or global (affecting the whole economy).
The Kondratiev Wave
Economist Nikolai Kondratiev proposed the existence of long-term economic movements, placing crisis points in the years 1814, 1873, and 1920. These movements involve oscillations related to short-term trade cycles.
The Economy of the 1920s
Economic imbalances and crises marked the 1920s, with a strong expansion period known as prosperity.
Return to Normalcy (1920-1924)
From 1921, a crisis characterized by falling prices, slowing commercial development, and unemployment emerged. The U.S. emerged from this crisis in 1922, beginning to overcome the war’s effects. By 1922, stocks were reabsorbed, but the global population lacked the means to access the excessive production.
Post-war economic disturbances resulted from monetary anarchy. During the war, many countries (except the USA) suspended the convertibility of their currencies into gold, leading to inflation and speculation. Countries with weak currencies sold them for stronger ones. Germany experienced great speculation, with the mark losing almost all value.
The Genoa Conference of 1922 and the Dawes Plan of 1924 allowed for the return of a certain international monetary order. Inflation impoverished the middle class and caused significant psychological chaos.
Prosperity (1925-1929)
Between 1920 and 1929, industrial production and productivity grew by around 40%, driven by post-war reconstruction, new power sources, new industries, improved communications, and standardized manufacturing. Mergers, trusts, and cartels emerged (e.g., the “Seven Sisters” oil companies).
Imbalances in Growth
The economic growth of the 1920s presented imbalances: it was unequal, overly reliant on American capital, and affected by fluctuating demand and productivity growth. By 1929, around three-quarters of the industry was concentrated in the USA, Germany, France, and Great Britain.
During the war, agricultural product prices rose, encouraging farmers to invest. Post-war, prices fell, especially in the USA. Many farmers were unable to repay loans, leading to a serious agricultural crisis. Unemployment rose among farm workers.
From 1925, much capital was devoted to the stock exchange, seeking quick profits through speculation.
The Crash and Depression of 1929 and the 1930s
The imbalances of the past decade contributed to the crisis. The trigger was the crash of 1929.
The Stock Market and its Functioning
Nominal value: The fixed emission value used for dividend distribution calculation.
Real value: Fluctuates according to supply and demand.
Speculation involves betting on rising values, often using bank loans to buy stocks and selling them after a price increase. Before 1929, these credits were called Call Loans.
The Stock Market Crash of 1929
From 1925 to 1929, the total value of shares listed on the NY stock exchange rose from $27 billion to $89 billion. From September 3, 1929, the stock market experienced further increases. On October 24 (Black Thursday), over 12 million shares were sold without demand, causing values to plummet. On October 28 and 29, millions more shares were sold, leading to a brutal fall in stock prices that continued until 1933.
Causes of the Crash
The main cause was credit abuse. From 1925, U.S. growth slowed in terms of production and prices. Capital investments shifted to short-term stock speculation, stimulated by Call Loans. The 1929 crash seems to have been the direct cause of subsequent crises. The agricultural crisis had been ongoing for a decade.
From Crisis to Depression
The stock market collapse affected banks, which struggled to recover loans. Surviving banks limited credit, impacting companies reliant on liquidity. The crisis of overproduction led to falling prices and decreased demand. Factories reduced production, and farmers sold land to repay debts. Food was destroyed despite widespread hunger.
Banking bankruptcies, business failures, and the agricultural crisis led to increased unemployment and restrictions on immigration.
The Spread of the Crisis
U.S. banks repatriated investments, impacting European economic recovery. The North American market’s buying capacity decreased, affecting global trade. Raw material prices fell, impacting underdeveloped countries dependent on these products.
The 1931 sterling crisis led to a 30% devaluation to stimulate exports. The depression of the 1930s was not solely due to the U.S. economic situation. U.S. capital withdrawal and market contraction affected Europe.
Social Consequences of the Depression
The working class was the main victim. Low salaries, reduced working hours, lack of social security, and unemployment plunged millions into poverty. Those who retained jobs benefited slightly from low prices.
Farmers were punished by falling prices. Many migrated to cities, contributing to the growth of degraded suburbs.
The middle class was shaken. Annuitants’ savings collapsed due to currency devaluation. Small entrepreneurs and businesses suffered bankruptcies and decreased sales. The psychological consequences led to a decline in traditional values and increased feelings of instability and despair. Some believed capitalism had reached its end, seeing Stalin’s socialism as an alternative.
The New Deal
The main measures of the New Deal were:
- Financial reform
- Intervention in agriculture and industry
- Combating unemployment
- Instituting social measures
Autarky
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