World War I Aftermath and the 1929 Economic Crisis
War Debts and Economic Problems After World War I
War debts were debts incurred by countries involved in the conflict during the First World War. Reparations were payments for the destruction caused by the war. Germany was the country most affected by the policy of compensation.
- Consumer goods: These are goods that have a shelf life longer than one year and are demanded by economic agents.
- Inflation: This is the increase in property prices and services.
- Speculative bubble: This is a market situation in which increased demand for shares causes an increase in their prices. Investors believe that the earlier the purchase, the greater their profits.
- Overproduction: This is an economic process that produces larger amounts than those that can be absorbed by the market demand.
- Trade war: A country or several countries impose trade barriers to increase domestic liquidity.
- Trade crisis: This is the lack of monetary resources to address the payment of debts.
- Deflation: This is the falling prices of goods and services.
- Keynesian multiplier: This is Keynes’ economic approach whereby the increase in public spending, transforming real wages, generates new demand in various economic sectors.
- Autarky: This is economic self-sufficiency so that there are no imports, and everything needed is produced internally.
Economic Problems
European countries were weakened because the war had adversely affected the population and production. It also caused the breakdown of international cooperation between allies. Almost 10% of European production equipment had been disabled by the destruction. Prices tripled in many countries, and European currencies underwent a deflationary process. In addition, there was a great debt to the United States because of borrowings during the war.
American Prosperity
American prosperity was a result of increased demand during the First World War and in the post-war years. This recovery was made possible by changes in production, technical innovation, and changes in the organization of labor.
Causes of the Stock Market Collapse
There was overproduction, inflation, credit, financial speculation, and a gap between industrial and stock prices. This crisis affected the whole world. The United States, which exported many products, exported less, and the crisis affected the rest of the world.
Countries Affected by the Global Crisis
European countries were affected because of the crisis caused by the war. Because of a fall in the prices of American products, companies around the world were put in a difficult position, as they could not compete.
Black Thursday and Black Tuesday
Black Thursday: Panic gripped investors, and 13 million shares were put up for sale without finding a buyer. It was the New York stock market crash.
Black Tuesday: The requirement for banks to cancel loans for the purchase of shares caused another wave of sales. By October 29, the depression had begun.
Causes of the Great Depression
Industrial overproduction, whose first signs were already evident before the collapse of the stock market, and the liquidity crisis following the stock market crash favored the expansion of the crisis. Falling consumption had several causes, including the decline in purchasing power of those who had invested in the stock market, the fear of dismissal, falling agricultural prices, and debt.
Keynes
Keynes was a British economist considered one of the founders of modern economics. His economic proposals became the paradigm of Western governments after the Second World War and can be regarded as the foundation of the modern welfare state.
New Deal
The New Deal was an economic plan to overcome the crisis and mitigate its social effects, as practiced by U.S. President Franklin Delano Roosevelt after his election victory in 1932.
NRA
The National Recovery Administration (NRA) promoted price agreements between companies and avoided retrenchments.
PWA
The Public Works Administration (PWA) promoted major infrastructure projects that would reduce unemployment and increase demand. This policy stimulated the growth of heavy industry.