(1929-1939) The Great Depression - World History

In 1929 the world was plunged into the worst slump in modern history. Trade and prices collapsed, millions were thrown out of work. As government took responsibility for economic revival, the old economic order was replaced by state intervention. At the same time, the crisis provoked extreme nationalism, paving the way to dictatorship.

THE GREAT INTER-WAR SLUMP is usually dated from 29 October 1929 when the New York stock market crashed. When in July 1933 the index at last stopped falling, shares stood at 15 per cent of their 1929 value. Thousands of Americans were bankrupt, millions unemployed and impoverished. In the developed world alone over 23 million were out of work by 1932. At its peak, unemployment affected one in four of the American workforce; in Germany almost 9 million were thrown out of work in workforce of 20 million.

The causes of the crisis

The crash of 1929 was a symptom as much as a cause of the worldwide slump that followed. The world economy had been weakened by the First World War and the massive debts it generated. It proved impossible to reintroduce the Gold Standard system fully, or to revive an effective multilateral trading system. Overproduction led to falling prices and declining profits.

Despite the boom in America, business confidence elsewhere had been low and investment sluggish. When the US stock market crashed, it was against the background of an already declining and fragile world economy.

The effects of the slump 

The effects unfolded slowly. Protective tariffs were set up worldwide to save domestic industry. Even laissez-faire Britain adopted Imperial Preference in 1932, a protected trading bloc within the empire. World trade in the 1930s never recovered its 1929 level, and bilateral trade agreements came to replace the liberal system of multilateral trade and exchange. Germany in 1934 adopted a “New Plan” for state-regulated trade, and in 1936 a programme of “autarky”, or self-sufficiency. 

Declining trade encouraged domestic sources of economic revival. In Britain, Sweden, Germany and the USA, experiments in state work-creation projects soaked up some of the millions of unemployed.

In 1933 Roosevelt introduced a package of recovery policies known as the “New Deal”, which extended state regulation of the economy in a country with little tradition of such government activity. In Britain and Germany state regulation by the late 1930s had produced what was called a “managed economy”, a for-runner of the mixed economies of the post-1945s.

The political cost

The severity of the slump produced a political back lash. In more vulnerable economies such as Germany or Japan, radical nationalist group argued for economic empire-building and an end to the old liberal capitalist order. In France and Spain economic crisis stimulated communism or anarchism, sparking prolonged social conflict. Only in Britain, with its large empire markets, did democracy survive and modest prosperity set in during the 1930. In much of Europe and Latin America various forms of dictatorship came to replace parliamentary systems now irrevocably associated with economic disaster.