The 1929 Financial Crisis: Global Impact and Aftermath
The 1929 Crisis and Its Causes
Post-War Prosperity and the Seeds of Crisis
Unlike Europe, the United States emerged from World War I significantly stronger. Its economic status shifted from debtor to creditor, it gained new markets domestically and internationally, and established a favorable trade balance. With expanding markets, a growing population, and rapid technological advancements, the U.S. seemed poised for perpetual prosperity.
In the summer of 1928, American banks and investors began diverting funds from foreign bonds to the New York Stock Exchange, fueling a dramatic market surge. This speculative “bull market” tempted many to buy shares on credit. By late summer 1929, Europe felt the strain of reduced U.S. investment, and even the American economy showed signs of stagnation. U.S. GDP peaked in the first quarter of 1929 and began a gradual decline, mirrored by a drop in car production from 622,000 vehicles in March to 416,000 in September. While Britain, Germany, and Italy grappled with economic anxieties, rising share prices in the U.S. masked these warning signs.
The Crash and Its Immediate Repercussions
On October 24, 1929 (Black Thursday), panic selling gripped the stock market, causing prices to plummet and wiping out millions in fictitious value. The downturn intensified on Black Tuesday, October 29. The stock price index, which had reached 381 on September 3 (1926 = 100), fell to 198 by November 13, and continued its descent. Banks demanded loan repayments, forcing further share sales, exacerbating the decline. American investors withdrew from European markets, repatriating funds and placing immense pressure on the global financial system. While financial markets eventually stabilized, falling commodity prices impacted producers like Argentina and Australia.
The stock market crash, while not the sole cause of the economic downturn already underway in the U.S. and Europe, served as a stark harbinger of the coming depression. U.S. car production plummeted to 92,500 units in December, and unemployment in Germany reached 2 million. By early 1931, global trade had fallen to less than two-thirds of its 1929 value.
The Global Spread of Crisis
In May 1931, the Austrian Creditanstalt, a major central European bank, suspended payments. Despite government intervention, panic spread to Hungary, Czechoslovakia, Romania, Poland, and Germany, leading to bank failures. Germany, obligated to make reparation payments under the Young Plan, faced increasing financial strain. President Hoover’s proposed moratorium on intergovernmental debt payments in June 1931 proved too late to stem the panic. France hesitated, and the crisis reached Britain, forcing the Bank of England to suspend gold payments in September.
Numerous countries reliant on primary product exports, including Argentina, Australia, and Chile, abandoned the gold standard. Between September 1931 and April 1932, twenty-four countries officially left the gold standard, while others effectively suspended gold payments. The absence of a common international standard led to currency fluctuations, fueled by capital flight and economic nationalism, including punitive tariffs. International trade plummeted between 1929 and 1932, triggering declines in manufacturing output, employment, and per capita income.
Unilateral Actions and Failed Cooperation
The political decisions of 1930-31 were largely unilateral, with national governments making decisions on the gold standard, tariffs, and quotas without international consultation. This contributed to the ensuing economic anarchy. In June 1932, major European powers met in Lausanne to discuss the end of the Hoover Moratorium and the future of German reparations and war debts. While an agreement was reached to effectively end reparations and war debts, it was never ratified due to U.S. insistence on treating them as separate issues. In 1933, Hitler declared an end to “interest slavery.” Only Finland repaid its debt to the U.S.
The final major attempt at international cooperation was the World Monetary Conference of 1933. Proposed by the League of Nations and intended to restore the gold standard, reduce trade barriers, and foster cooperation, the conference was delayed by the U.S. presidential election. The U.S. role was crucial, but the delay and the reluctance of both Hoover and Roosevelt to make premature commitments ultimately hampered its effectiveness.