US roots of the crisis 

PROBLEMS IN THE AGRARIAN SECTOR → (from cereals to cotton): ↓ foreign D and ↓prices (recovery of Europe) + int. (change patterns of consumption): indebtedness rural areas (had requested mortgages to extend and mechanise crop areas) → banking problem and demand for protection)


• ↑ productivity and production (+50% 1920-29) but neither employment (-6%) nor wages: unequal ↑ income distribution: 10% families 86% savings. But: female labour + ↓ food prices + ↓ reduction working day: feeling of improvement in living standard

• cartelización empresas: no ↓ (maintaining) prices = ↑ benefits

• production grows more than consumption: internal market saturation while ↓X to Europe due to tariffs effect → 2 successive solutions:

• promotion of sales by instalments = ↑ indebtedness families

• paralysis business investments and banking- and stock exchange-orientation of profits (to

promote credit to families

STOCK MARKET SPECULATION: acquisition of securities with expectations of future sale (regardless of expected dividends):

• high income of large firms release liquidity, which is placed in the stock market due to lack of productive investment opportunities

• psychological factors following the consolidation of the consumer society of the 20s and the access of small savers to the stock market (propaganda radio/media and politicians popularise “popular capitalism”)

From the crack of the stock market (recession) to economic depression

1) Speculative bubble: historical maximum stock index on 19 September (381), falling to 198 on 13 November

2) Downfall of the stock market (24 October: black Thursday; 29 October: black Tuesday) = expression of the economic crisis, not its cause

3) Two theses on the transformation of the crack in depression:

• MONETARISTS: monetary policy of the Hoover administration turned the recession into


• KEYNESIANS: although monetary decisions (monetary factors) worsened the crisis, the root causes are real factors

international context (capital inflows in the US) gold pattern performance…

In sum, internal diffusion of the crisis: stock market crisis (collapse) → financial crisis (banking

bankruptcies) → industrial → commercial (LINKAGES)

1) banking system acts as a transmission band of the crisis to the real economy

2) ↓ credit to families =↓consumption =↓prices

3) without solid D and credit = ↓business investment = ↓D raw materials

4) generalisation of layoffs (unemployment from 1.5 mill in 1929 to 12.6 mill in 1933 –> 25%), bankruptcies (110,000 firms), disinvestment (capital formation ↓50%), stocks reduction, industrial prices ↓30%, agricultural prices ↓50%, critical levels of industrial, agricultural and commercial production


common elements to recovery policies:

1) protectionist measures –> abandonment laissez-faire –> economic dirigisme and ↑State intervention in the economy (national recovery precedes international cooperation: economic nationalism)

2) monetary measures –> currency devaluation to ↑X and ↓M; abandonment of gold standard

3) social measures (unemployment contention) –> public works, revision of fiscal policy, social


national contrasts regarding economic policies

US: the “New Deal” (new pact or program), the visible hand of the State replaces the invisible

one of the market, interventionism that includes 5 reformist proposals

• monetary and financial policy: supervision of banking system, suspension convertibility and $ devaluation for reactivating X, despite the availability of 1/3 gold reserves and positive commercial balance

• budgetary policy: public spending from 2% to 50% GDP

• agrarian policy: financing of crops and surplus reduction for recovering agrarian prices;

rural credit promotion (40% exploitations were mortgaged)

• industrial policy

  • social policies: union acknowledgement and collective bargaining

Change in economic policies, result of a triple compromise

1) doctrinal: conventional doctrines do not solve the crisis, new approaches

2) organised social pressures and interests, great social mobilisation in an atmosphere of interwar tension and instability, financial groups and both workers’ and companies’ organisations demand greater participation in income –> to change economic policies as a way to guarantee the survival of the capitalist system within the orbit of parliamentary democracy

3)ideological and cultural conditioning (change of social perception and sensibility towards economy –> from the confidence in enrichment of the 1920s to the pessimism and distrust in the market; critical vision of capitalism and its institutions -market, stock market, monopolies-; broad support to Nazism and fascism as proof of the regression of the faith in capitalist and democratic solutions)