THE GREAT 1930s
DEPRESSION
Some Thoughts

TWO BOOKS
1) The World in Depression 1929-1939

Charles P Kindleberger
2) The Great Depression in Europe

Patricia Clavin: St. Martins Press, 2000

CAUTION
“We are in the middle of the greatest

economic catastrophe----due almost entirely
to economic issues, of the modern world”
J M Keynes 1931
THIS IS NOT A BLOW BY BLOW ACCOUNT OF

THE INS AND OUTS OF THE ECONOMIC AND
FINANCIAL SHENANIGANS OF THE INTER-
WAR PERIOD. (Thank Goodness)
IF YOU FEEL UP TO IT READ THE BOOK


INDEX OF INDUSTRIAL
PRODUCTION (1929=100)
120
100
80 France
Germany
60
UK
USA
40
20
0
1929 1930 1931 1932 1933 1934 1935

Post World War One Economic
Instability
Russian Revolution (Trade and Ideology)

Loss of Traditional Export Markets (India 10% of British

Commodity Exports) In 1913 Britain, France and Germany were
the source of 60% of all manufactured goods. Countries such as
USA and Japan took up this trade.
Many more small nationalistic states. Boundaries redrawn with

scant regard for economic viability. These new economical weak
states strove to improve their finances by forcing exports and
putting import tariffs in place. Increased borders also slowed
down population movement.
Europe now could not feed itself. The war had destroyed much

agriculture with a shortage of labour, horsepower and fertiliser.
Also the loss of Russia as the ‘granary’ of Europe. Food was
having to be imported-much of it on credit. Achieved 1913
levels of production by 1925

Continued
The war had altered the entire financial balance of the

world. Huge liquidation of European investments to
pay for the war, consequent loss of repatriated
earnings.
Pre-war USA a great importer of capital; post war a

great creditor nation. American Trade Surplus (Unlike
Britain it did not reciprocate trade with primary
imports)
German Instability and hatred of ‘Versailles” Note:

Reparations France insisted on them to weaken
Germany. France would have changed this stance if
the USA had agreed to stand by France inside the
League of Nations. However the US Senate would not
ratify the treaty.

Position of the United States after World
War I: An Economic Giant but a Political
Pygmy?
Dragged into a European

‘Civil War’ (114,000 dead)
Many immigrants came to

the USA to get away from
European conditions
Almost a self sufficient

country and now a huge
creditor nation.
Refused to take part in the

League of Nations.
Isolationism won the day
Not interested in taking

Britain’s position as ‘lender
of last resort’.

USA
In 1928 the USA produced 42% of the world’s

output putting most producers of raw
materials in danger of a slowdown.
Failure to generate enough demand to sop

up its rising production. Stagnant wages and
agricultural depression led to overproduction
and financial speculation.
Rapidly increasing productivity added to this

problem.
GNP per head grew at 0.8% 1913-1938


World War
(It was all eventually owed to
USA)

The 1920s a Problem Decade for
Britain
Loss of Previous Financial and Industrial

position
Problems of unbalanced industrial scene

Continuation of Pre-war Labour unrest (1926

General Strike)
High Unemployment

Ireland

Start of lack of confidence in Empire (India)

Changing Franchise

Break-up of Liberal party and rise of Labour


1920s Germany: Life is a Cabaret
(For Some)
Still a very young and

unstable country
Loss of war

Loss of Eastern Lands

Civil War

Threat of Communist

uprising
Loss of Ruling elite

‘Versailles

Unemployment


INFLATION
MEMORIES OF THE

GREAT 1920s
INFLATION WOULD
HAUNT GERMAN
POLICY MAKERS.
IT HAD

BANKRUPTED A
CLASS IN GERMAN
SOCIETY

But, 1920s Boom Led To The
‘Grapes of Wrath’ in the USA
Hugely prosperous 1920s

1930s a Deepening

Depression
Agricultural depression

Now can make much more

than can be consumed. Era
of Mass Production
Huge emphasis on raising

demand for goods and
consumption

Some Points
Longest and most

severe depression ever
experienced by the
western world.
New York Stock

Exchange crashed
October 1929
By 1933 11,000 of the

USA’s 25,000 Banks had
failed.
A crisis of Demand


AND
1932 US Manufacturing
output had fallen to
54% of its 1929 level
 By 1932 US
unemployment had risen
to between 12 to 15
millions (20-25% 0f the
workforce)
 Serious Overproduction
in agriculture – falling
prices – rising debt

IN CANADA
Hard by the Depression. Between REAL GROSS NATIONAL PRODUCT

1929 and 1933, the gross national
Can USA Can/USA
product dropped 40% (compared to
37% in the US).
1929 100 100 100
Unemployment reached 27% at the

depth of the Depression in 1933. 1930 91.6 87.7 104
Many businesses closed, as fat
1931 77 79.7 97
corporate profits of $396 million in
1929 turned into losses of $98
1932 66.5 65.9 101
million in 1933.
Families saw most or all of their 1933 59.6 62 96

assets disappear, and their debts
1934 64.5 65.3 97
become heavier as prices fell.
Canadian exports shrank by 50% 1935 67.1 71.5 94
from 1929 to 1933. Worst hit were
areas dependent on primary 1936 67.5 76.4 88
industries such as farming, mining
1937 71.8 80 90
and logging, as prices fell and there
were few alternative jobs.
1938 69.7 73.2 95
1939 72.4 76.1 95

Financial Crises Are Not New:
They are Part of Capitalism
In some shape or form, prior to the

Second World War, they occurred in:
1816, 1825, 1836, 1847, 1857, 1866,

1873, 1890, 1907, 1921, 1929,
1937.1980s and today
So why was this one a disaster?


AND WAS THE DEPRESSION THE
FAULT OF WALL STREET?
A Stock Market Bubble BUT:

Less than 8% of USA population owned

stock
Stock market financed only 6% of

investment

Stock Markets Fall and
Recessions come and go: But!
This one effected the “real” economy

It lasted so long and could not be

beaten
It spread outside of national boundaries

It effected political systems


Charles P Kindleberger
THE WORLD IN DEPRESSION
“The depression was so steep and so

long because the world economic
system was rendered unstable by
British inability and US
unwillingness to assume responsibility
for stabilizing it.”
What was needed was Leadership


Attitude of American Government
Saw depression as a necessary

adjustment
It was the private sector’s job to adjust

– not the government’s
Expansion by government would hinder

re-adjustment.
Enterprises are gambles which

sometimes fail
‘Rottenness should be purged out of the

system

And it was all Going so well.
In the mid 1920s there was

no visible sign of strain on
the US Economy. Wages
were stable, savings ample
and there was excess
capacity in industry. Note:
growing problem of
demand. By March the

economy looked like it was
going into a typical ‘soft
spot’ with vehicle production
declining.
Also: huge productivity

improvements meant that
demand must accelerate to
mop up unemployment.

Money Supply
We will return to this at
the end
From 1928 a reduction in the rate of growth

of the money supply.
Interest rates raised to curb high stock prices

‘bubble’. Note: short recessions in 1924 and
1929 followed money restraint.
Why did the stock market collapse? The sage

Ronald Reagan on a later incident –
“I guess they were just too high”
But: Even the 1929 low was about as high as

1928. It was government inaction that would
drive them down later.

Nature of a Financial Crisis
Unwillingness to lend money

– prefer to hold cash –
withdraw money from banks
Banks have to withdraw

loans to cover shortfall. Note
ratio of loans to deposits
Credit creation collapses

1931 European banks

indebted to American banks.
Kreditanstalt bank in Austria
declared bankrupt.

Banks
1929-1930 over 9,000 US

Banks Failed.
It is all a ‘confidence trick’.

Banks do not have money-

they create credit.
However if there is a ‘run on

the bank’ by depositors
banks cannot cover their
loans.
They certainly will not make

new loans
It is the role of Government

to protect depositors.

In the USA a Vicious Downward
Employment Cycle Set In
Dust Bowl

Under-consumption at this time.

1) Turn down in producing industry

2) Mass Lay-offs

3) No social security so a complete loss of

spending power.
4)Furthet loss of demand as the unemployed

now cannot purchase and consume.
5) Further factory closures

6) Further lay-offs etc.


Complete Loss of Financial
Leadership in the USA from an
Administration Fighting Past Battles.
Between August 1929 –

August 1933 the stock
of money in the US
economy fell by one
third.
Recession was turned

into a catastrophe by
the Federal Reserve
Board who failed to
flood the market with
liquidity.
It could and should have

been halted with
leadership.
For Papers: Brunner,


THE SMOOT-HAWLEY TARIFF Act of 1930 raised U.S.
tariffs to historically high levels to increase the
protection afforded farmers against agricultural imports.
Another
Disaster for the World Economy.

NOTE President Wilson vetoed tariff legislation in March 1921, saying in part:

\"If ever there was a time when Americans had anything to fear from
foreign competition, that time has passed. If we wish to have Europe
settle her debts, governmental or commercial, we must be prepared to
buy from her.\"
The history of commerce in America was always one of high tariffs.

BUT THE USA WAS NOW THE WORLD FINANCIAL SUPER-POWER
The tariff provoked a storm of foreign retaliatory measures and stood as a

symbol of the ‘beggar-thy-neighbor’ policies of the 1930s. Such policies
contributed to a drastic decline in international trade. U.S. imports from Europe
declined from a 1929 high of $1,334 million to just $390 million in 1932, U.S.
exports to Europe fell from $2,341 million in 1929 to $784 million in 1932.
Overall, world trade declined by some 66% between 1929 and 1934. Smoot-
Hawley did nothing to foster trust and cooperation among nations in
either the political or economic realm during a perilous era in
international relations.

THE DEPRESSION SPREADS
Capital flows dry up and investment

crashes
As US loans are withdrawn or not

replaced weak European economies
cannot cope.
Exports to the US slump

Primary Producer prices collapse as US

imports slump. They produce more to
keep up income.

Confidence Quickly Leached Out of the
Unstable German Financial System
Large American loans being recalled

Nothing to replace these loans as USA

Govt. delayed action. (Only ones that
could help)
Victory of Nazis in Sept. 1930 alarmed

foreign investors
Run on the banks

Bank failures

Crisis of liquidity and demand


GERMANY REACTS TO PROTECT THE
VALUE OF THE CURRENCY BY USING
‘CLASSIC METHODS”
From 1930 to 1932 the Great Depression reached its low point.

Chancellor Brüning, in line with liberal economic theory that less
public spending would spur economic growth, drastically cut
state expenditures, including in the social sector. He expected
and accepted that the economic crisis would, for a while,
deteriorate before things would improve. Among others, the
Reich completely halted all public grants to the obligatory
unemployment insurance (which had been introduced only in
1927), which resulted in higher contributions by the workers
and fewer benefits for the unemployed. This was
understandably an unpopular move on his part.
The economic downturn lasted until the second half of 1932. By

this time though, the Weimar Republic had lost all credibility
with the majority of Germans. While scholars greatly disagree
about how Brüning's policy should be evaluated, it can safely be
said that it contributed to the decline of the Republic. Whether
there were alternatives at the time remains the subject of much
debate.

UNEMPLOYMENT SOARS
(30% at the Peak)
6000
5000
4000
3000
Thousands
2000
1000
0
1925 1927 1929 1931 1933 1935 1937 1939

Percentage of Industrial Workers
Unemployed in 1933
40
35
30
25
20
15
10
5
0
USA UK Germany France Canada Australia

Did the 1930s Depression
Indirectly Cause World War Two?
Mass unemployment in Germany and

Japan hastened in right wing nationalist
governments. 25 countries became
dictatorships 1929-39.
American loans to Germany called in

causing collapse of German industry.
Problems at home can lead to a more

nationalistic foreign policy.

FOR THE NAZI PARTY AN
ECONOMIC BONANZA
In 1928 the Nazis were an

unimportant part of the political
fringe
Project the economic growth of

Germany from 1920 or 1924 to
1928 out through the 1930s, and it
would have been a different world
But after 1928, German

unemployment began to rise.
And as unemployment rose, the

Nazi Party vote rose as well. The
party that had won 2.9 percent of
the national vote in 1924 and 2.6
percent in 1928 won 19.2 percent in
the election of 1930, and 38.4
percent in the election of 1932

To Germans the Nazi Party and its Policies
Cured the Economy and Staved off
Disaster

To Many in Industrial Countries
Fascism did Appear to Work
Deficit Financing

But did the

unemployed vote
Nazi?
And we now know

that Hitler intended
others to “pay the
piper”.

Secure Trade and Markets by
Empire Building?
Japan (Manchuria)

Italy (Africa)

Germany (Eastern Europe)

Self interest prevents other countries

preventing these actions

BRITAIN IN THE 1920s/1930s
(The Mirror Image)
“The Rule of the Pygmies”

(Mowat)
OR

“—it is difficult to see a feasible policy which

could have achieved appreciably better
results” (Andrew
Thorpe)

J B Priestley (1934)
“ An England of arterial and by-pass

roads, filling stations and factories that
look like exhibition buildings, giant
cinemas and dance halls, -----
bungalows with tiny garages,
Woolworth’s, motor coaches, wireless,
factory girls looking like actresses,
greyhound racing and dirt tracks,
swimming pools”

TRADITIONAL VIEW OF 1930s
DEPRESSION

Chances of Long-Term
Unemployment in Britain
High in old Staple Export

Industries
High in old industrial

regions
High if unskilled or with

non transferable skill
Higher the older the

worker

Regional Disaster
Out of 1,717,000 unemployed in July

1936 – two thirds were to be found in
Scotland, Wales, Northern Ireland and
Northern England.
Long Term unemployed situated mainly

in these areas
Juvenile unemployment situated mainly

in depressed areas

BECOMING A DIVIDED COUNTRY
AS FASCISM STALKS EUROPE
Even a fear of

revolution.
First Industrial

revolution unwinding
Health and Infant

Mortality
Parts of the South in

boom conditions
Rise of Middle Class

and suburban
England

Reflecting Selected Regional
Unemployment Rates
Place % Place %
Cumberland 28.7 Buckingham 6.2
Bishop 53.5 Surrey 6.7
Auckland
Airdrie 42 Bletchley 3.1
Durham 34 Norfolk 15
Glamorgan 37 Halifax*

But Also: The Rise of the New Consumer
Society and The Modern World
The 1930s House with

‘mod cons’
The Automobile (USA v

GB)
Rayon (artificial silk)

The Electric Iron of all

things
Electric Lighting

Aviation

Ready to Wear (The

man’s suit)
Cinema and mass

entertainment

BUT THE MOST IMPORTANT
‘NEW INDUSTRY’

Two Views of Interwar Britain

The ‘Feminisation’ of Employment
(Nothing to do with Mrs. Pankhurst)
Move from old ‘muscle

100
industries’ and Domestic
90
Service
80
Cotton was the Industrial
PERCENTAGE

70
Revolution !! 60
Move to new lighter industry

50
That Typing Pool
 40
Move to Service and Retail 30

work 20
10
Move to London and the

south 0
21
01
11
31
51
19
19
19
19
19
Brainwork rather than

Brawn-work

For the unmarried young woman
the world was changing fast.
Courtaulds Rayon

Spinning 1929
Bobbed hair

Short Skirt

Silk Stockings

Eye brows trimmed

A new woman with

some money

A SOCIAL REVOLUTION
Changing Attitudes of these working girls
In Britain between 1861 – 1911

numbers of female clerks increased X 4.
Huge rise of working women in ‘white

collar’ trades.
In the 1930s looking at age group 18-

34, the numbers of single women in the
1930s were double that of the 1950s.
Huge rise in disposable income


Fall of Staple Trades of the First
Industrial Revolution
COTTON The Industry of the Industrial Revolution.

WW1 allowed new countries into export markets with
lower costs. Also allowed import substitution. (1938
world trade only 66% of Lancashire exports in 1913)
Huge impact on Empire.
COAL 1.1 million miners in 1919. Industry under

invested and dispersed geographically
A huge social problem

SHIPBUILDING Clyde-side build one third of world’s

ships in 1913 Inevitable decline in face of cheaper
competitors
Socially disruptive locations (Jarrow!)


RISE OF NEW INDUSTRIES?
Automobiles (1931 Ford Dagenham)

Civil Aviation (Heathrow Mid 1930s)

Electrical (Grid, Domestic, Industrial)

Chemicals (ICI, Plastics, Artificial Fibres)

Pharmaceutical (Boots 1931,)

Leisure (Cinema, Mass Sports, Hiking)

Retailing (Woolworth, Restaurants etc)


NEW HOUSING
Same 3 Bedroom House

1928 1936 1990

Cost £600 £450

£100m
Interest 6% 4.5%

11%
Percentage of a male teacher’s

salary needed to pay the
mortgage
1928 = 10%

1936 = 8%

1990 = 43%


Why was the depression mild in
Britain?
Imported food prices fell – people in work actually

better off which helped purchasing power.
Consumption held up. (Terms of Trade)
No financial or bank collapse.

Britain came off the Gold Standard

Cheap Money

Re-armament from 1938

AND MAINLY Increase benefits to allow old staple

areas to survive.


SOME PARTS OF THE WORLD UNDER A DIFFERENT
SYSTEM LOOKED VERY ATTRACTIVE
INDEX OF INDUSTRIAL PRODUCTION – USSR
(1929 = 100)
300
250
200
USSR
150
UK
100
50
0
1929 1930 1931 1932 1933 1934 1935

No Flight to Extremes in
Britain
Communist Party

Average % Vote = 5.1%

Party Membership approx:

15,000
Labour Party anti Communist

Fascists

NOTE Mosley in favour of

‘Keynesian policies’
Party Membership at peak

40,000
Govt. always in control


THE ARCHITECT OF THE NEW
BRITAIN
NEVILLE CHAMBERLAIN

Later to be PM and involved

in the Munich agreement
with Hitler.
Chamberlain decided

‘appeasement’ was better
than another World War and
ruination of his economic
recovery of the 1930s.
(Britain had just completed

repaying her WW2 Debts)

Some Results of the Slump
Huge demand for state action by a newly enfranchised

citizenship.
Welfare in World War compared badly with the 1930s

A re-writing of history (Political and Economic)

A re-assessment of how governments should treat economic

down-turns.
Election of ‘New Deal’ Governments

Strength and Mythology of the Labour Party

Realisation of Importance of Free Trade

Did WW2 spoil all the good work?


MONEY SUPPLY REVISITED
Monetarists, including Milton Friedman and Benjamin Bernanke, stress the

passive role taken by the American Federal Reserve System in failing to reverse
the cascading bank failures. They do not argue the Federal Reserve caused the
recession, but rather that different policies might have stopped the downward
slide into recession. By not acting, the Federal Reserve allowed the money
supply to shrink by one-third from 1930 to 1931. In A Monetary History of the
United States, Friedman argued that the downward turn in the economy starting
with the stock market crash would have been just another recession. The
problem was that some large, public bank failures, particularly the
Bank of the United States, produced panic and widespread runs on local banks,
and that the Federal Reserve sat idly by while banks fell. He claimed that if it
had provided emergency lending to these key banks or simply bought
government bonds on the open market to provide liquidity and increase the
quantity of money after the key banks fell, all the rest of the banks would not
have fallen after the large ones did, the money supply would not have fallen to
the extent and at the speed that it did. With significantly less money to go
around, businessmen could not get new loans and could not even get their old
loans renewed, forcing many to stop investing. This interpretation blames the
Federal Reserve, especially the New York branch, which was owned and
controlled by Wall Street bankers for inaction. The Federal Reserve, by design,
was not controlled by the President or the Congress

MIGRANT MOTHER
REVISITED

THE GREAT 1930s
DEPRESSION
Some Thoughts