The Great Depression: Causes, Global Impact, and Responses

Posted on Jul 16, 2025 in History

The Economic Crisis of 1929: The Great Depression

Causes of the Great Depression

  1. Economic Crisis in European Countries

    • The destruction caused by World War I.
    • Debts owed to the United States.
    • The U.S. banking system withdrew sums of money granted to European countries, especially Germany, to pay their debts.
    • European countries lost their ability to sell industrial products to those countries which had hitherto supplied them raw materials, as these countries industrialized during World War I.

  2. Crisis in Agriculture

    Mainly due to two causes:

    • The development of good crops, which drove down prices in the U.S.
    • Europe, with its reconstruction, ceased to buy U.S. agricultural products.

  3. Crisis of Underconsumption and Overproduction

    • In Europe, after the war, money was saved.
    • In the United States, there was an agricultural crisis, which meant less purchasing power and lower income for farmers. Additionally, Fordism began, leading to greater production. In turn, the wages of industrial workers did not increase at the same pace as prices.

  4. Speculative Enterprises

    Created to go public and generate benefits, especially in real estate.

  5. Credit Expansion

    • The American Federal Reserve allowed banks to lend money without sufficient guarantee. These loans were intended to offset expenses, losses, and especially to invest in the stock market.

The Trigger: The Wall Street Crash of 1929

  • On Tuesday, October 22, 1929, the decline in the stock market began, which culminated in the famous ‘Black Thursday’, losing 30% in the value of securities.
  • Days later, banks began failing, up to 5,000 banks, then industry (15,000 companies), and subsequently international trade.

Expansion of the Crisis

  • Emerged in the United States and spread worldwide, primarily to European countries like Germany and France.
  • Approximately 40 million people were unemployed worldwide.

Actions Taken to Combat the Crisis

United States: The “New Deal” of Roosevelt (1933-1938)

  • Greater control in banking.
  • Industrial restructuring (NIRA, i.e., National Industrial Recovery Act):
    • New rules for industry.
    • Agreements with trade unions.
  • Reduction of unemployment through the development of public works financed by the state.
  • Financial aid forcing farmers to reduce acreage.
  • Devaluation of the dollar to help exporters.

United Kingdom

  • Ottawa Agreements with its colonies.
  • Devaluation of the pound to help exporters.
  • Protectionist policy.
  • Aid to disadvantaged sectors (rail, mining).
  • Development of public works and defense industry.

France

  • In 1936, the Popular Front government took power.
  • Institutionalized agreements with workers.
  • Price and wage controls were implemented.
  • Foreign workers were expelled.
  • Taxes were increased.

Germany

  • Rise to power of the Nazi Party (Hitler) in 1933.
  • A strong economic dictatorship was developed:
    • Control over prices, wages, capital movements, loans, and prohibition of imports (autarky).
    • Trade unions disappeared, replaced by corporatist organizations (unions of employers and employees).
    • Important development of public works and a strong development of the war industry.

Characteristics of the Crisis

  • Increased unemployment:
    • United States: 12,000,000
    • Germany: 6,000,000
    • United Kingdom: 3,000,000
    • France: 300,000
  • Reduction of production (up to 40%).
  • Reduced wages.
  • Reduced prices (up to 30%).
  • Contraction of the international market by up to 80%.
  • Bankruptcy of many banks and companies.
  • Reduced investment and lower security prices.

Implications of the Crisis

Economic Implications

The severe economic crisis led to strong critiques of the capitalist system, notably from economists like Keynes, who advocated for greater state intervention in economic affairs (neo-capitalism).

Political Implications

  • Increased international political tensions and rivalries emerged among countries (preceding World War II), alongside a revival of nationalism.
  • Democratic systems suffered, leading to the emergence of totalitarian political regimes (dictatorships, communism, etc.).

Social Implications

  • Falling birth rates and increased mortality.
  • The middle class shrank, and the gap between rich and poor widened.