Democracy, the Great Depression, and the Rise of Keynesian Economics
The 1920s: The Advance of Democracy
Most states born after the First World War were, at least temporarily, democratic republics. However, this period also saw a rise in the problem of minorities. In Eastern and Southern Europe, authoritarian regimes, inspired by Mussolini’s Italy, began to take hold.
The German Weimar Republic experienced several ups and downs.
From Versailles to Locarno
The intransigence of the victors in demanding payments from the defeated led to the occupation of the Ruhr. However, Franco-German understanding eventually culminated in the Locarno Agreements, fostering peace and relaxation.
The U.S. in the 1920s
After the war, the United States returned to a policy of isolationism. Domestically, conservatism was dominant, as reflected by Prohibition and the rise of the Ku Klux Klan. Despite this, the economy experienced significant growth.
The Technology Push
The spread of electricity allowed for the introduction of the first home appliances. The mass production of Ford automobiles also became widespread.
Other inventions, such as film, radio, and the gramophone, contributed to the development of a mass culture.
The Crisis of 1929 and the Great Depression
A Precarious Prosperity
The crash of the New York Stock Exchange in 1929 triggered the greatest economic crisis in capitalist history. The causes were multifaceted:
- The war had ruined Europe, leaving many countries deeply in debt, which reduced consumption.
- The capitalist system is prone to cyclical crises, but the crisis of 1929 surpassed anything previously known.
- Although the U.S. economy had been growing, it suffered from overproduction, particularly in agriculture.
- The immediate trigger of the crisis was a financial bubble.
The Great Depression
The crisis quickly spread to the banking sector, leading to corporate bankruptcies. The state initially did not intervene, believing the market would self-correct, but this inaction aggravated the crisis.
Because U.S. banks were major creditors, the crisis dragged down the European economic system. Germany and Austria were the first affected. Other countries responded by adopting protectionist measures. The Depression manifested itself through two primary phenomena:
- Deflation, or a fall in prices and wages.
- Unemployment, which reached spectacular figures, significantly impacting social and political life.
Policies Against the Crisis
All the traditional economic approaches failed, marking the end of classical liberalism and unwavering faith in the market. In the U.S., Franklin D. Roosevelt won the 1933 election with his “New Deal” program, which included measures to combat poverty through public works projects (roads, public buildings, factories, etc.).
Amid the economic wreckage, the Soviet Union appeared immune, experiencing remarkable economic growth.
Fascism also proved effective in Germany. From 1933 to 1939, as Hitler prepared for war, unemployment dropped from 6 million to 300,000.
The Ideas of Keynes
John Maynard Keynes, arguably the most influential economist of the century, proposed solutions to the crisis.
He realized that impoverishing the losers would also harm the victors, a lesson that helped prevent the same mistake in 1945. Furthermore, he believed the state should intervene to correct economic imbalances and stimulate economic activity.
In contrast to classical liberalism, Keynes advocated for government support of businesses through subsidies and assistance to workers.