The Great Depression: Causes, Impact, and Responses
The 1929 Crisis: In October 1929, the decline in stock prices in New York triggered a global economic crisis. The stock market crash was followed by a financial crisis that impacted industry and agriculture. It was the most significant crisis in the history of capitalism since 1925. Stock prices had been rising steadily worldwide, fueled by speculation and easy credit. However, the market reached an unsustainable point.
Despite the apparent prosperity, there were indicators that things were not going well. Raw material prices were declining, Great Britain faced economic difficulties, German production stagnated, and international trade slowed. In 1929, efforts to avoid problems led to a large sell-off of stocks in New York. This selling pressure further accelerated the fall in stock prices, triggering the 1929 crisis. The crisis spread to all sectors of the global economy and affected countries worldwide. In Europe, the impact was felt most strongly in 1930-31, particularly in Germany, as U.S. capital was repatriated, leading to increased unemployment. The USSR, with its socialist economic system, was seen as a potential alternative model.
Implications of the Crisis
The crisis led to a decline in world trade, soaring unemployment, the abandonment of the gold standard, and a collapse in industrial production. Countries sought solutions through protectionism and economic nationalism, implementing measures such as:
- Deflationary Policies (1931-1933):
- Reduction of public expenditure
- Strict budget control for credit allocation
These measures failed to halt the economic downturn.
Interventionist Policies of the State (1933-1939)
- Budget Deficit Policy: Aimed at reducing unemployment and supporting struggling companies through subsidies.
- Public Works Programs: Funded by the state to create employment.
- Regulation and Intervention: Increased state involvement in economic sectors, including nationalization.
Two notable examples of these policies include:
Autarkic Policies of Nazi Germany
Results:
- Elimination of unemployment
- Economic recovery
- Pursuit of economic self-sufficiency
- Rapid development of the armaments industry
This policy was driven by a political ideology focused on military rearmament following the Treaty of Versailles.
The New Deal
The New Deal was a policy response to the crisis implemented by the U.S. under President Franklin D. Roosevelt. It aimed to revive production and demand by challenging aspects of classical capitalism. These measures included:
- Banking Reform
- Employment Programs: Hiring unemployed workers for public administration and work projects in exchange for wages.
- Collective Bargaining
- Price Guarantees: Minimum wages and reduced working hours.
- Public Investment: Large-scale public works projects to substitute for private investment.
- Trade Supervision
- Production Quotas: Imposed on agriculture and industry.
- Federal Insurance: Unemployment and pension systems.
The New Deal helped the U.S. recover from the crisis, although it did not fully resolve it. The increased demand generated by World War II ultimately brought the crisis to an end. While the crisis began to ease in 1932, the 1930s remained a period of global economic hardship, and WWII is often seen as the catalyst for its final resolution.