Introduction
Depression is an economic downturn where there is downward movement in prices, wages, investment, employment, and trade. The capitalist economy had known periods of depression earlier. In fact, the ‘trade cycles’ of boom and depression had been a recurring feature of nineteenth-century Europe. Europe saw a long period of boom from the early 1850s to the early 1870s.
This was followed by a 20-year period of ‘economic bad weather’. But the Great Depression that began with the crash of the New York Stock Exchange on 29 October 1929 proved to be the greatest peacetime downturn of the world economy during the twentieth century. In two weeks from 29 October, over three billion dollars disappeared from the American economy, a sum comparable to the to1al amount the United States had spent to fight the First World War. Rich stock-holders lost everything.
A large number of people lost their life-savings. Newspapers reported 11 Wall Street suicides. This was followed by unprecedented decline in industrial production. Its impact was felt globally and it did not seem to come to an end. Capitalism faced its most serious crisis of the twentieth century. The Gross Domestic Product (GDP) fell, unemployment increased, and banks failed. It has been estimated that during 1929-32, the GDP fell by 28 per cent in the United States and by 26 per cent worldwide. During the same period, the number of unemployed increased by some 22 per cent in Britain, 25 percent in the United States, and 44 percent in Germany. Millions of persons were forced to accept reduced wages. This caused grinding poverty such as the western world had not seen for generations.
The event has been described variously as the “economic holocaust”, “the most traumatic episode in the history of capitalism”, “the greatest catastrophe of the modem world”, “the largest global earthquake ever to be measured on economic historians Richter scale”.
Causes of the Depression :
There is no satisfactory explanation about why the Depression happened. Yet there is a striking degree of consensus on basic issues. There is a general agreement that the origins of this great worldwide Depression are to be sought in the United States.
Sneh Mahajan, a well-known Indian historian argues that the US had become the world’s greatest creditor. It was world’s premier exporting nation as well as the world’s premier importing nation. After the First World War, the US was an internationally dominant economy.
It was the leading exporting nation of the world and only Britain’s imports exceeded the US. The US imported almost 40 percent of all exports of the 15 most commercial nations. Thus, the collapse of the US economy had immediate impact on the world economy. Producers of primary goods such as cotton, silk, wheat, sugar, coffee, rubber, copper, and tin were devastated with the downturn in the US economy.
The US reduced its flow of capital abroad and imposed protective tariffs. This prevented other countries from selling their goods in the US market, causing losses in output, which in turn led to unemployment. The collapse in the US thus had a disastrous impact on the economies of West Europe and countries around the world.
The Depression came ten years after the First Wold War. By 1925 economic downturn following the war and political instability both seemed to have disappeared. But according to economic historians, depression of the 1930 was connected with the long-term effects of the First World War. Economies of all belligerent countries were adversely affected by the means adopted to finance the war. All countries financed the war partly by borrowing. Britain sold many of its overseas assets to buy arms. But even Britain borrowed from the United States and amassed huge debts. After the War all European countries found themselves burdened with large debts. This caused inflation do inflation rates differed greatly. This also led to a decrease in the exports of Britain, economic insecurity, and decrease in employment.
To an extent these economic troubles had a political origin. As part of the Paris Peace Treaty, Germany was placed under an obligation to pay a vast but unspecified amount by way of reparations year by year. After repeated adjustments in 1929, this sum amounted to one and a half times the entire national income of Germany. The victorious countries also owed large foreign debts, mainly to the US.
The post-War economic recovery in Europe was built entirely on the money pumped into Europe by the United States. This was a highly vulnerable arrangement. The circle of payment was broken when the American flow dried up after the crash of Wall Street stock market in October 1929. Its impact on Europe was decisive. Throughout the 1920s two of the largest economies of Europe – Britain and Germany – saw a high level of unemployment. In Britain one million workers, i.e. , ten per cent of the labour force, remained unemployed during this decade. In Britain, the problem of unemployment became very serious. Unemployment adversely affected the purchasing capacity of people and hence the demand for products.
During the War, the supply of cereals and raw material from the east European countries was disrupted. This stimulated agricultural production in areas outside Europe, especially in Canada, Argentina, and New Zealand. Agricultural prices fell by 30 per cent. This had an adverse effect on incomes in the agricultural sector and hence on the purchasing power of the people in rural areas. Agricultural depression began in 1921 and was not overcome by the mid-1920s.
Collapse of the New York Stock Exchange:
The Great Depression was undoubtedly triggered by the collapse of prices at the New York Stock Exchange on 29 October 1929. On that day investors tried to sell millions of their shares. This ended the financial boom at the Wall Street based on a decade of speculation. In two months, stocks in the US lost half their value. Investment in the stock of the Radio Corporation of America was a case in point. The Corporation never paid any dividend. Yet people borrowed money at high rates of interest to purchase its stack because they were sure that its price would continue to soar. In a single year its price had increased. When the crash came, investors could not sell their shares and their paper assets became worthless.
The United States became the immediate and principal victim of the Depression. When banks in the United States called in their loans to European countries, especially Germany and Austria, the Depression spread to Europe. Up to 1932 there were no signs of recovery. By 1932, Depression was everywhere. In this year, worldwide, industrial production stood at two-thirds of the 1929 level. The world trade fell by half. In a way, the Depression became a collective insanity. Overall decline in production and unemployment were worse in the United States than in Europe. But Europe too was badly affected. Between 1929 and 1932 industrial production in Germany, Austria, France, and Britain fell by 40 per cent, 34 per cent, 26 per cent, and 12 per cent respectively.
Conclusion–
In Summation, the Great Depression was one of the most influential events of the 20th century. It left millions of people out of work, hungry, and, for lack of a better word, desperate. When combined with the Dust Bowl, the depression only worsened; farmers lost their crops and livestock and were forced to travel west in search of a better life. The event clearly had consequences for both technology and global connections as international trade declined and mass production was halted when factories shut down due to bankruptcy.
