The Great Slump

I. World-Wide Depression


A. Black Thursday--October 24, 1929 the New York Stock Exchange crashed, losing fully one-third of its value. Many rich investors who had put most of their wealth in the stock market lost it; newspapers in New York reported 11 suicides related to the Wall Street crash the next day.

B. Causes of the Great Depression--despite the popular perception that the Great Depression started on Black Thursday, there was not one single cause for the Great Depression--but it was not caused by a “perfect storm” of unconnected factors, either. The reactions by governments around the world, coupled with malfeasance and criminal behavior on the part of the business class, helped increase the severity of the slump, and prevented a quick recovery.


1. Conservative explanation--it has become popular for ideologues on the right to claim that the Great Depression was, in fact, merely another manifestation of the business cycle, and if governments would not have interfered with the market, everything would have righted itself more quickly. This argument hinges upon the 1937 “Roosevelt Recession,” when FDR slashed slashed the federal budget in an attempt to balance the budget.


2. Winston Churchill and the Gold Standard--Churchill served as Chancellor of the Exchequer (equivalent to the Secretary of the Treasury in the US), and was determined to return Great Britain to its pre-war greatness--by returning the country to the gold standard and pegging the value of the British pound to the US dollar.

a) Effects--to raise the cost of British exports, making them more costly for other countries to purchase--which depressed employment. Britain suffered a bit less during the Great Depression because it had colonies to sell to as protected markets, but the missteps of Churchill made the situation much worse than it would have been otherwise.



3. Germany--after the social turmoil of the war and its aftermath, Germany after 1923 was fairly stable--thanks to an infusion of cash from the United States via the Dawes Plan. This spurred investors from the US to also invest in the country, which was responsible for its prosperity. That investment stopped in November 1929 with the stock market crash, and the US insisted that the loans provided under the Dawes Plan be paid back on schedule.

a) National Socialist Party--after the abortive Beer Hall Putsch in Munich in 1923, Adolph Hitler (after serving his eight-month sentence for treason), acted more cautiously, maintaining a more disciplined party of thugs (the Stormtroopers, or SA), but not attempting another coup d’etat until the proper time. The Nazis remained a minor party throughout the 1920s and into the 1930s. At the height of their electoral powers, they only received 37% of the vote--and that percentage declined after they came to power.

b) German politics unravels--the renewed economic crisis brought on a new political crisis in Germany, as well. The president of the Weimar Republic, military hero Paul von Hindenburg, was approaching senility. After several unsuccessful appointments of prime ministers, Hindenburg reluctantly turned to “the corporal” to head up the new government in January 1933.


c) Reichstag Fire (February 1933)--just a month after Hitler came to power, the Reichstag was set on fire. The Nazis blamed the fire on a Communist plot, and rounded up several suspects. Ultimately, a single Communist was convicted for the crime--but four alleged co-conspirators were found not guilty.


4. France--France had a relatively high degree of self-sufficiency, and suffered less than most of the industrialized European countries--although the hardship was severe enough, and unemployment high enough, that workers rioted in June 1934--leading to the rise in power of the socialist Popular Front that year.


a) Much of French industry did not have the level of capitalist investment that was present in other industrialized countries; ownership was mostly individuals or small partnerships, and little investment was placed in stock ownership.

b) Farms in France were also smaller than in many industrialized countries, although a push to “modernize” agriculture in the country during the 1920s had begun to change that.

c) Unemployment stayed fairly low because the population remained depressed as a result of the carnage France had suffered during the First World War.


5. United States--ground zero for the Great Depression. The economic malaise lasted the longest and cut the deepest.

a) Malfescence--while prices remained low (this was, in fact, an extended period of deflation), the crisis in the banking industry made economic conditions much worse--and much of this problem was a result of criminal, or near criminal, behavior on the part of “banksters.” Interlocking directorships (men sitting on the board of directors of banks also served on the boards of other institutions--and many of these institutions obtained loans from these banks with little collateral). Banksters also used their connections to obtain loans for a variety of purposes--and bank mergers also helped to hide the losses banks suffered as loans went bad, hiding the losses until the whole house of cards collapsed.


b) Solutions--Herbert Hoover attempted to stabilize the banking industry by creating the Reconstruction Finance Corporation (RFC) to take over troubled banks, but the US government under Hoover never was vigorous enough to regulate the banking industry and staunch the bleeding. It was not until FDR took office and declared a “bank holiday,” closing all banks in the country until they could prove they were solvent, that the banking industry could begin to recover. Congress then passed legislation to prevent most banks from engaging in speculative ventures like the stock market and created the Federal Deposit Insurance Corporation (the Glass-Steagall of 1933; the Gramm-Leach-Bliley Act of 1999 repealed the provisions preventing banks from engaging in speculative ventures, and is in part responsible for the difficulties the banking industry is in today).


6. Japan--was still in the early stages of industrial capitalization, but was the first industrial nation to embrace what became known as the Keynseian remedy--deficit spending by the national government to encourage production and job growth, and the devaluation of the national currency to make exports cheaper. Japan focused its spending program on the production of armanents; since this coincided with increased militarization of Japanese society, it also encouraged colonial expansion. The military was so enthusiastic about the program in fact that when the finance minister attempted to decrease the deficit spending, the army had him assassinated.


7. Italy--the European country that suffered least from the effects of the Great Depression. Mussolini had already implemented “state capitalism,” control of the economic system by the state, but with profits still going to the private sector.

II. The Revolution Betrayed

A. Struggle for Power After Lenin


1. The NEP (New Economic Policy)--re-introduced the market (in a limited way) to the Russian economy. Begun by Lenin and Trotsky in 1921, it allowed farmers to sell their produce (particularly grain) as long as they paid a tax in kind (that is, in the produce they grew) to the state. Banking and heavy industry remained under the control of the state. The agricultural sector grew much faster than the industrial sector as a result of this. Industry then began to charge higher prices for the goods it produced, forcing farmers to grow more to buy these consumer goods--or to withhold goods from the market to await higher prices. There also emerged speculators, known as “NEP-men” who bought the grain from farmers and held it to await the rise in price.


2. Lenin dies 1924--setting off a power struggle between Stalin and Trotsky

3. Stalin the Bureaucratic Infighter--Stalin proves more adept at the bureaucratic infighting, increasingly marginalizing Trotsky, eventually forcing him into exile.

4. “Socialism in One Country”--Stalin argues, contrary to his previous position (and in contrast to Trotsky’s argument of the Permanent Revolution) that in order to keep socialism alive, the revolution must be protected in the Soviet Union at all costs. This entails enforced orthodoxy from Moscow, and the ending of the NEP.


5. State Socialism--in ending the NEP, Stalin ended the market experiment in the Soviet Union. All peasant farms were collectivized--i.e., the state took control of them. Farmers were forced to live on communes, and the state seized all that was produced. Those who resisted were either executed or exiled to the gulag work camps. In order to compete with the west, the state also exercised more stringent control of the factories in the countries, banning independent labor unions (which had operated in the country previously), while also implementing the most oppressive aspects of capitalist control of workers, and Soviet industry strove to catch up to western capitalist industry.

III. Conclusion--The reaction of counties to the stress induced by the Great Depression led to greater political conflicts by government in Europe, and also to greater conflict between the United States and Japan around the Pacific Rim. By the end of the 1930s, this led to a Second World War, with even greater devastation and carnage than witnessed during the First World War.