The Great Depression
The Great Depression was a period in the history of the 20th century when a global economic crisis prevailed.
Its study is of great importance because it was a lasting economic depression and deeply affected society.
It is considered to begin on October 29, 1929, on Black Tuesday. A day when the New York stock market fell sharply and investors panicked.
The stock market crisis spread to other sectors and from there to society. The economic recovery was slow and painful.
In some countries, this economic crisis led politically to the rise of totalitarianism, which was a decisive factor in the advent of the Second World War.
The Origins of the Great Depression
After the Belle Époque came the Great War, that is to say, the First World War, a war that caused numerous deaths and destruction, since industrialization had fully reached the armament industry.
After the end of this war, the difficulties of restoring the monetary system were considerable. But returning to the gold standard that existed before the First World War had the problem of making an appropriate parity change.
The 1922 Genoa Conference enshrined the gold standard, but in practice parity with the pound was used because of its convertibility with gold.
This resolution, which was aimed at curbing inflation and relaunching the economy, led to a danger of international transmission of a crisis more rapidly and dangerously. This was what would happen during the Great Depression.
The measure taken to return to monetary normality and restore the gold standard, in addition to stabilization policies, brought an end to inflation and economic recovery.
The Dawes Plan
On the other hand, the Dawes Plan was implemented, which consisted of maintaining the total amount of war debts, but extending the payment period.
This should have positive effects, but the economic problems had not been fully resolved. Especially in the former countries of the Austro-Hungarian Empire due to economic, legislative and political fragmentation.
Meanwhile, in Russia, the stabilization of inflation did not come until 1925 with the introduction of a new rouble.
The return to the gold standard caused several problems. According to Keynes’ predictions, the adoption of pre-war parity in England led to a deficit in the balance of payments and social tensions.
In countries that devalued the currency, the balance of payments was positive and could accumulate gold.
From Gold to the Pound
But at the beginning of the Great Depression, in September 1931, England decided to suspend the pound’s convertibility to gold.
This decision, caused by the deficit in the balance of payments, the lack of competitiveness, the increase in the price of credit and the economic crisis, was of great importance.
The abandonment of the gold standard by England brought with it that of most of the Commonwealth countries and later the United States.
Progressively, most of the other countries abandoned the gold standard. The gold standard itself was not the cause of the Great Depression, but it increased its virulence worldwide and did not help to alleviate the effects of the economic crisis.
The Great Depression of the 1930s
Initiated in the USA, the Great Depression was the end of an excessively growing economic process.
The New York Stock Exchange collapsed and the contagion subsequently affected the banks and hence the economy in general. Prices fell, inventories rose, many businesses closed and unemployment rose.
According to Gabriel Tortella’s book The Origins of the 21st Century, the two great leaders of the Great Depression in the United States were the gold standard and wage rigidity, rather than the relevant role of speculation, which only contributed to accentuating the crisis, but was not its cause.
Another factor for Tortella was the U.S. banking system, where small local banks of different legislation proliferated.
The Great Depression in the United States lasted until 1940. World War II helped the economy recover.
From the US it moved to Europe due to Europe’s dependence on US loans and the international return to the gold standard.
The crisis was transmitted through three channels: financial, real and psychological. The European crisis started in Austria due to a large amount of public debt and the weakness of its currency.
The Austrian crisis moved to Germany, which had similar problems, aggravated by a mixed banking system, a large external debt and heavy dependence on foreign loans.
The situation in Germany was one of panic, with rising unemployment, mass withdrawals, and rising unemployment.
From there he went to Great Britain, which had to resort to abandoning the gold standard. The economic crisis had passed to Europe, where its effects were damaging.
The fight against economic depression
In the fight against depression, the British economist Keynes and his General Theory of Occupation, interest, and money were of vital importance.
For Keynes, there is not one economic logic, but two: microeconomics and macroeconomics. From there, Keynes developed an economic model in which the economic depression would be fought with budget deficits.
In turn, in times of prosperity, surpluses would be achieved in order not to increase production and speculation. These”neo-commercialist” ideas were circulating at the time and Keynes gave them coherence and technical rigour.
Japan was among the first countries where Keynes’ measures were implemented and led to economic growth, but also thanks to its nationalist and expansionist policy at the expense of neighbouring countries.
In Germany, military spending and public works played a strategic role in bringing the country out of the depression.
These expenditures were made possible by Hitler’s growing authoritarianism after coming to power, which created a militarized, repressive and controlled state in all areas of the state.
This increase in state interventionism, although without the totalitarian character of Germany, also occurred in democratic countries.
The Agricultural Adjustment Act
In the United States, Franklin D. Roosevelt based his economic policy on the Agricultural Adjustment Act and the Industrial Recovery Act.
In these policies, framed within the New Deal, the government intended to raise wages and reactivate the economy, although this did not mean that workers lost rights as Roosevelt wanted to provide job stability in this time of crisis.
In Sweden, on the other hand, a Keynesian counter-cyclical policy was implemented, opting for currency depreciation, public deficit, and income redistribution, while introducing unemployment insurance.
In England, counter-cyclical policy was less successful and the economy recovered almost entirely due to domestic factors.
Other affected countries in Europe were quite affected by the crisis and their recovery was slow.
The Great Depression: The American Struggle
In short, the Great Depression was a great social catastrophe caused by the simultaneous implementation of incompatible economic and social paradigms.
Similarly, the remedies for depression were applied inappropriately and belatedly, and it took almost a decade for the Keynesian message to be assimilated by politicians.
Keynes’ economic policy was fundamental and influenced much of the 20th century.
In this section of The Crisis of History, the problem has only been explored in a superficial way.
It was a complex period with different points of view and analysis. In the future, this interesting period will continue to be analyzed and may have parallels with the economic crisis that began in 2008.