Global Economic Collapse between 1929 and 1933
The first thing that was happening between 1929 and 1932/33 was a slow-down of movement between nations of people, imports and exports, and money. The main cause for the stoppage of the movement of peoples was the decision by the United States to severely limit the number of immigrants allowed to enter per year, as we said earlier. Imports and exports waned as general consumption waned. The international flow of money fell between 1927 and 1933 by an incredible 90 percent. When people, goods, and money stop moving, the global economy grinds to a halt. The results of such a halt are devastating, all the more so because most nations had become dependent on international movement of goods (think of the chapters on Africa and South America here) and money in order to survive.
Let’s take a step back to the years right after WWI, the early 1920s. Keep in mind that besides the United States, by far economies in the world were European: the Britain, Germany, France, Austria, and Russia. The war destroyed all of these economies, most thoroughly the German and Russia economies, but also the French and British. The French looked to the postwar negotiations to rebuild their national economy on the backs of the Germans and demanded that Germany assume France’s total war debt. The German economy could not handle this massive amount of debt and started to print money to meet its domestic demands and international obligations. The result was hyperinflation that ended up pushing the German currency’s value down to nearly zero. By 1923, if you were a middle class German, you would have seen your entire savings vanish; you might have lost your job; you would be struggling to earn a decent wage; and all the while the nation would have been unable to meet its debt obligations to the victors in the war, France and England. The only thing left to do was for Germany to borrow money from the United States, which it did, to pay England and France. The French and English, deeply in debt to the United States for the war, then paid the U.S. What this produced, by the late-1920s, was a German nation wholly dependent on foreign loans to prop up its economy, When American loans suddenly stopped in 1929, Germany was once again thrown back into the economic abyss. German unemployment shot up over 40%.
Germany, the largest economy in Europe, the biggest exporter on goods, the European nation with the largest population, was by 1922 basically economically impotent. So, too, was the newly created Soviet Union - which had endured first crushing military defeat against the Germans in WWI, two revolutions in 1917, and then a long civil war. By 1920, the Russian economy was ruined. The mid-1920s, then, were boom years in Europe only if compared to the years during and directly following the war. Unemployment rates remained high, between 10-12% in Britain and Germany during the best years of the 1920s (1924-1929). The only things propping up the European economy were continued industrial output (though on a lower level than before) and infusions of money from the United States.
The global economy was weak throughout 1929, but the sudden collapse of the New York Stock Exchange threatened to destroy it. Loss of wealth quickly spread throughout the economies of all industrialized countries - unemployment rose, foreclosures rose, consuming sank dramatically, banks were shuttered, industry faced widespread overproduction as markets continued to shrink. Every place in the world linked into the global exchange of goods felt the shock wave. Agricultural economies were hit especially hard, as prices for commodities like tea and wheat fell by nearly 70% by 1931. Falling commodities prices hit Argentina, Australia, the Balkans, Bolivia, Brazil, Canada, Chile, Colombia, Cuba, Egypt, Ecuador, Finland, Hungary, India, Mexico, Indonesia, New Zealand, Paraguay, Peru, Uruguay, and Venezuela - among others. Brazil is an especially dire case as its national economy had been reoriented entirely around the production and sale of coffee, as we discussed in a previous chapter. By 1929, Brazil supplied around two-thirds of the entire world’s coffee. When coffee prices fell by 75%, Brazil’s economy was ruined. Farmers were thrust back into subsistence farming. Coffee prices fell so low that people started to burn coffee for heat. Countries dependent on one or two major products were extremely vulnerable. Japan, for example, saw its lucrative silk industry decimated as the American market, which consumed 90% of Japanese silks, went dry. Likewise, the British Gold Coast (today’s Ghana) turned back to subsistence farming when the cocoa market collapsed. Other countries like Burma, French controlled Indochina, and Siam (today’s Thailand) saw the price of rice hold out better against the price of wheat, though rice prices still plummeted. The result was that nations of rice-eaters were forced to sell rice and buy wheat in a desperate struggle against starvation. It is ironic that in this period of agricultural abundance famine loomed not as a result of poor harvests but as a consequence of harvesting too much. Such was the twisted logic of the new global economy.
By 1932-1933, unemployment in the major industrial economies had spiked. It stood at 23% in Belgium, 24% in Sweden, 27% in the United States, 29% in Austria, 31% in Norway, 32% in Denmark, and 44% in Germany. World trade, the engine of all economic advance, fell by 60%. In the dustbin were all previous theories about how the capitalist market economy functioned. Governments reacted in predictable, but mostly counterproductive ways. The United States stopped lending, further decreasing economic activity. Most every industrialized country imposed trade barriers in the form of higher tariffs, which again squeezed out international trade and lessened overall global economic activity. In 1931 and 1932 many countries, including the United States, abandoned the gold standard - which had given fixed value to paper currency and was thought to provide confidence in economic exchange. This allowed nations increased freedom in controlling currency, though it also had the potential of destabilizing the currency market. By the mid-1930s the ideals of pure market capitalism were in shambles. Governments came to be seen as having important social dimensions, like keeping the elderly and children from starving. The era of social welfare and governmental management of the economy had begun. The rapid growth of the state was an inevitable consequence.
Let’s take a step back to the years right after WWI, the early 1920s. Keep in mind that besides the United States, by far economies in the world were European: the Britain, Germany, France, Austria, and Russia. The war destroyed all of these economies, most thoroughly the German and Russia economies, but also the French and British. The French looked to the postwar negotiations to rebuild their national economy on the backs of the Germans and demanded that Germany assume France’s total war debt. The German economy could not handle this massive amount of debt and started to print money to meet its domestic demands and international obligations. The result was hyperinflation that ended up pushing the German currency’s value down to nearly zero. By 1923, if you were a middle class German, you would have seen your entire savings vanish; you might have lost your job; you would be struggling to earn a decent wage; and all the while the nation would have been unable to meet its debt obligations to the victors in the war, France and England. The only thing left to do was for Germany to borrow money from the United States, which it did, to pay England and France. The French and English, deeply in debt to the United States for the war, then paid the U.S. What this produced, by the late-1920s, was a German nation wholly dependent on foreign loans to prop up its economy, When American loans suddenly stopped in 1929, Germany was once again thrown back into the economic abyss. German unemployment shot up over 40%.
Germany, the largest economy in Europe, the biggest exporter on goods, the European nation with the largest population, was by 1922 basically economically impotent. So, too, was the newly created Soviet Union - which had endured first crushing military defeat against the Germans in WWI, two revolutions in 1917, and then a long civil war. By 1920, the Russian economy was ruined. The mid-1920s, then, were boom years in Europe only if compared to the years during and directly following the war. Unemployment rates remained high, between 10-12% in Britain and Germany during the best years of the 1920s (1924-1929). The only things propping up the European economy were continued industrial output (though on a lower level than before) and infusions of money from the United States.
The global economy was weak throughout 1929, but the sudden collapse of the New York Stock Exchange threatened to destroy it. Loss of wealth quickly spread throughout the economies of all industrialized countries - unemployment rose, foreclosures rose, consuming sank dramatically, banks were shuttered, industry faced widespread overproduction as markets continued to shrink. Every place in the world linked into the global exchange of goods felt the shock wave. Agricultural economies were hit especially hard, as prices for commodities like tea and wheat fell by nearly 70% by 1931. Falling commodities prices hit Argentina, Australia, the Balkans, Bolivia, Brazil, Canada, Chile, Colombia, Cuba, Egypt, Ecuador, Finland, Hungary, India, Mexico, Indonesia, New Zealand, Paraguay, Peru, Uruguay, and Venezuela - among others. Brazil is an especially dire case as its national economy had been reoriented entirely around the production and sale of coffee, as we discussed in a previous chapter. By 1929, Brazil supplied around two-thirds of the entire world’s coffee. When coffee prices fell by 75%, Brazil’s economy was ruined. Farmers were thrust back into subsistence farming. Coffee prices fell so low that people started to burn coffee for heat. Countries dependent on one or two major products were extremely vulnerable. Japan, for example, saw its lucrative silk industry decimated as the American market, which consumed 90% of Japanese silks, went dry. Likewise, the British Gold Coast (today’s Ghana) turned back to subsistence farming when the cocoa market collapsed. Other countries like Burma, French controlled Indochina, and Siam (today’s Thailand) saw the price of rice hold out better against the price of wheat, though rice prices still plummeted. The result was that nations of rice-eaters were forced to sell rice and buy wheat in a desperate struggle against starvation. It is ironic that in this period of agricultural abundance famine loomed not as a result of poor harvests but as a consequence of harvesting too much. Such was the twisted logic of the new global economy.
By 1932-1933, unemployment in the major industrial economies had spiked. It stood at 23% in Belgium, 24% in Sweden, 27% in the United States, 29% in Austria, 31% in Norway, 32% in Denmark, and 44% in Germany. World trade, the engine of all economic advance, fell by 60%. In the dustbin were all previous theories about how the capitalist market economy functioned. Governments reacted in predictable, but mostly counterproductive ways. The United States stopped lending, further decreasing economic activity. Most every industrialized country imposed trade barriers in the form of higher tariffs, which again squeezed out international trade and lessened overall global economic activity. In 1931 and 1932 many countries, including the United States, abandoned the gold standard - which had given fixed value to paper currency and was thought to provide confidence in economic exchange. This allowed nations increased freedom in controlling currency, though it also had the potential of destabilizing the currency market. By the mid-1930s the ideals of pure market capitalism were in shambles. Governments came to be seen as having important social dimensions, like keeping the elderly and children from starving. The era of social welfare and governmental management of the economy had begun. The rapid growth of the state was an inevitable consequence.
