Global Economic Shifts: From WWI to the Great Depression
The Economic Aftermath of World War I
European exports fell dramatically during the four years of war. Consequently, overseas countries, especially the USA and Japan, developed industries producing substitute goods. The large volume of debt incurred by some of the victorious countries, particularly Britain and France, caused these Western European nations to become debtors. In contrast, the vanquished nations, Germany and Austria, had not incurred significant foreign debts during the war. However, once the war concluded, they had to resort to large loans to finance their reconstruction programs.
Economic Recovery and Expansion (1923-1929)
The “Roaring Twenties” began with a sense of optimism. In 1924, the Dawes Plan was implemented, which significantly reduced the reparations Germany had to pay to the victorious powers, made payments more flexible, and, crucially, facilitated the granting of major political credits. This inaugurated a period of détente, culminating in the 1925 Locarno Agreements, after which Germany was admitted as a full member of the League of Nations.
Loans and U.S. exports to Europe resumed. The 1920s emerged as a period of prosperity, marked by the development of new industries and energy sources, stimulated by the war and the adoption of new production methods. New industrial sectors developed, including:
- Automotive
- Aviation
- Household Appliances
These sectors were linked to new energy sources like electricity and petroleum. Oil production quadrupled. Significant output growth was also due to the generalization of Taylorism, which reduced costs and moderated prices. This, combined with the development of advertising and widespread credit purchases, gave rise to mass consumption, particularly in the United States.
The Great Economic Crisis: Antecedents
The expansion of the 1920s was uneven and characterized by significant imbalances. Although Europe recovered and returned to being a center of world production, it was clearly surpassed by the United States. Several factors contributed to the impending crisis:
- Permanent Agricultural Crisis: The 1920s were characterized by continuous overproduction due to bumper crops in new countries (e.g., Canada, Argentina) and the reconstruction and modernization of European agriculture. This caused farm prices to fall considerably, significantly reducing profits.
- Stagnation of Traditional Industrial Sectors: Sectors such as textiles and even steel were overshadowed by the new industries.
- Disparity in Wage Growth and Production: Workers’ wages and farmers’ profits grew at a slower pace than production, which restricted overall consumption.
- Excessive Stock Speculation: Investment in production decreased from 1925. Profits were not reinvested in productive ventures but rather in financial speculation and risky consumer credits.
The Stock Market Crash of 1929
The aforementioned problems led to a basic imbalance: supply tended to outperform demand. Stock demand increased, resulting in rising prices, not because the companies whose shares were traded improved performance, but due to the effect of the supply-demand dynamic itself. The stock market crash began on October 24, 1929. Simultaneously, in London, the price of money increased, and European capital was withdrawn from New York.
Consequences: The Great Depression (1929-1932)
The stock market crisis had immediate and far-reaching effects:
- Economic Impact: The crisis, originating in the U.S. economy, had a profound global influence. The inability of ruined individuals and businesses to repay loans led to the bankruptcy of numerous banks.
- Paralysis of International Trade: The widespread adoption of protectionist measures led to a severe stagnation of global trade.
- Massive Unemployment: The collapse of industry and widespread financial ruin inevitably led to massive job losses across the globe.