The Great Depression: Causes, Development, and Solutions
Causes of the Great Depression
The war favored over-industrialization outside Europe and the USA. Some Americans and colonial countries had established their own textile mills and some of the war’s steel industries. Afterward, France’s growth did not stop, and it thrived in global production. The global economy produced more than it consumed. Speculative capital and a credit policy of cheap money were encouraged by the ease and low interest on loans from the Federal Reserve System. This cheap and abundant credit was tapped by small companies, investment banks, and the stock market. Everything was invested in it to raise prices disproportionately according to their financial and real value. When the New York Stock Exchange sank, it dragged down a large number of small banks that could not repay their liquid assets.
Development of the Crisis in New York
The collapse of the stock market occurred on Thursday, October 24, 1929 (“Black Thursday”). The stock market crash created panic, and the crisis increased with the financial crash. Until 1932, unemployment continued to rise, and economic activity extended to cities, which had less purchasing power, stopping the rural exodus.
Crisis in Europe and South America
Due to the weight of the U.S. economy, the depression extended throughout the world. Europe could not continue its work. There was a chain devaluation of currencies caused by the pound, and the international system of payments crumbled. The dependent economies, faced with falling prices and declining exports, stopped paying all debts. A global free trade economy ceased, and an autarkic economy emerged.
Various National Solutions
United States
President Hoover’s economic policies failed. The Democrat Franklin D. Roosevelt was elected in 1932. Economic policy became pragmatic. Among the advisors were economists who had moved past the traditional New Deal. The economy saw state intervention as a means of reactivating the country. Securing the internal market was the most important objective to achieve increased demand, high production, and eliminate overproduction and unemployment. The agricultural sector was a serious problem, so farmers were paid to reduce their harvests. In industry, the state had a strong social policy: minimum wage, 40-hour work week, insurance, payment, construction of social housing, and freedom of association. Roosevelt was a humble leader and an enemy of the powerful. The economy straightened up, but business pessimism remained until the Second World War.
Germany, Italy, and Japan
Germany’s crisis was very significant. First, American credits failed, and then the industry could not work without British capital. The lack of capital caused a decline in exports and reduced total governance, unemployment, and salaries. Social agitation was severe, reactivation did not come, and Hitler took power.
Britain
Britain’s crisis was not so significant economically. It abandoned economic liberalism as a market benchmark and helped the unemployed. France was the last to be reached by the crisis. Scandals and bankruptcies occurred in French banks, and the bank was nationalized. Politics and society hardened, divided, and created the Popular Front, which succeeded in 1936. It accepted a 40-hour work week, 15 days of vacation, and rising wages. Public works were carried out to reduce unemployment.