the twenties and the Depression
Figure 1. After World War I Britain suffered from the decline of her basic industries and the rise of competition, while Germany needed several years to recover from the war and reparations. The USA enjoyed a boom period in the twenties, which was brought to a halt by the Great Crash of 1929 and the decline in financial confidence and world trade. It brought a dynamic rise in unemployment in the industrial West, as shown here.
Figure 2. The American economy boomed in the twenties with a rapid growth of heavy industries. The industrial production index here shown is based on an average index of 100 from 1935-1939. Rising consumption and easy credit fuelled the boom until 1929.
Figure 3. Thousands rushed to sell their shares on Wall Street in the panic selling of 1929. In two months share values had declined by a third and a paper loss of $26 million was registered. For growth in the American economy had been accompanied by a major speculative boom in share prices, involving small investors and large trusts. By 1929 industrial production began to peak and share prices slumped, causing the panic.
Figure 4. In Britain, the Depression led to "hunger marches" such as that of 1936 when 200 hundred men from Jarrow marched to London seeking work. In America, unemployed ex-servicemen marched to Washington in 1932. The action of police in dispersing them and leaving some dead caused much resentment.
Figure 5. Under Roosevelt's "New Deal" a number of ambitious projects were started to bring work to the unemployed and to stimulate the economy. The Tennessee Valley Authority sought to revitalize the economy and living conditions of a whole region by prestige projects such as the Hoover Dam, shown here.
Figure 6. Recovery began in America and Europe from 1933. There was a decline in unemployment and the return of business confidence. In Germany, Hitler's rise to power coincided with the beginning of a revival in the economy. The Nazis created jobs in the Party, the armed forces and the armaments factories, and significantly reduced unemployment as shown here.
Figure 7. Franklin D Roosevelt brought a new period of prosperity to the United States after the worst years of the Depression when he became president in 1933. He won a landslide victory over Herbert Hoover on a program for a "New Deal" for America, consisting of welfare legislation, public works, agricultural aid and planning, and an end to Prohibition. Roosevelt's confident style was almost as important as his legislation, bringing a measure of optimism and stability to the business and commercial world. His "fireside chats" on the radio helped to reassure the public that the government was acting to help the ordinary people. He went on to be elected for a second and third term. He died in office in 1945.
Figure 8. Drought and low prices for farm produce forced many farmers and their families to migrate from the American Midwest to California. Their hardships, immortalized in John Steinbeck's The Grapes of Wrath, symbolized the Depression.
The years from 1919–1938 were dominated by an economic depression that troubled Europe for most of the time and affected the rest of the world most heavily in the 1930s. The aftermath of World War I was notable for an attempt to return to "normalcy", a term coined by the American President Warren Harding (1865–1923), and in Britain the immediate postwar years witnessed a boom in industrial production and living standards. After 1922, however, trade and industrial activity fell off, creating unemployment in the major heavy industries of the British economy (Fig 1). Germany, the other great industrial economy of Europe, was unable to recover from the effects of the war and the impositions of the peace settlement. The result was to depress the economy of Europe, which needed the prosperity of German industry. With the problems of inflation, political instability and the heavy reparations to contend with, the German economy did not begin to make a major recovery until the mid-1920s.
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| The German economy was thrown into severe difficulties by the effects of the war and the peace settlement. The loss of major industrial areas and reparations depressed the economy and created preconditions for inflation. with French occupation of the Ruhr because of Germany's default of reparation payments, massive inflation was triggered off, wiping out all savings, until a loaf of bread cost millions of marks. |
The war had left the United States as the major creditor nation, supplanting the position Britain had once held. A large proportion of the world's gold reserves had accumulated in Fort Knox, providing the basis for a large-scale expansion in American output. The growth in credit and consumption which these gold reserves allowed enabled a boom in manufacturing output to take place (Figure 2).
The twenties saw a wave of prosperity in the United States. It combined with a sense of release after war years to create the hectic atmosphere of the "roaring twenties". To a lesser extent this was felt in Europe towards the end of the decade, when an economic revival helped to popularize American music, dances, and films.
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| The motor car industry grew to major importance in the interwar period. Although invented and produced before 1914, cars remained expensive luxuries. By 1932, the assembly lines and conveyor belts, which had created the cheap, popular cars for a wider market, had come to a halt, leaving thousands jobless. |
Aspects of social life
Socially, the twenties had a paradoxical air. On the one hand, the end of the war heralded new freedoms, particularly for women. They had worked in many new occupations during the war and began to reap the benefits in terms of political and social emancipation. Fashions became more practical, there was a greater knowledge about birth control and there was a wider range of job opportunities. The twenties in America also saw Prohibition, which restricted the sale of alcohol, and created a boom in illicit alcohol.
Crisis and deflation
The more optimistic economic climate of the late twenties was, however, brought to an end by the Wall Street Crash of October 1929. The American boom had already begun to falter by the summer of 1929 with a downturn in the economic indices. The slide in share prices that followed became a panic (Figure 3). In America, unemployment soared as credit dried up, consumption declined, and bankruptcies and redundancies multiplied. Compounding the Depression, agricultural prices fell disastrously for farmers in many other countries. World unemployment doubled within a year; in the United States it reached six million by the end of 1930.
For two years the Depression deepened throughout the industrialized world. By 1932, more than 12 million people were out of work in the United States and whole communities were at a standstill. The impact of the Great Crash was equally disastrous on European economies, many of which depended on United States credit.
Current economic thinking decreed that a crisis of this kind could be cured only by a harsh dose of deflation, to balance budgets, reduce surplus capacity, and ride out the storm. In Germany the government of Franz von Papen (1879–1969) applied ever tougher doses of deflation and this pattern was followed in Britain, under the National Government of Ramsay MacDonald (1866–1937), and in the United States under President Herbert Hoover (1874–1964). Although the British economist J. M. Keynes (1883–1946) was in the process of formulating alternative policies, in which emphasis would be placed upon increased government spending and rising consumption to revive economic activity, his radical views were not generally available.
Political repercussions
The Depression had important political repercussions. In the United States dissatisfaction with the performance of President Hoover and his management of the economic crisis was reflected in the victory of Franklin D. Roosevelt (1882–1945) with his promise of a "New Deal" (Figure 5). In Britain, the effects of the deepening depression in 1930 brought about a financial and political crisis for the Labour Government of Ramsay MacDonald. A National Government was formed after the 1931 general election, with a massive Conservative majority, but under the leadership of MacDonald and a small group of Labour followers. In Germany, the mounting unemployment and fear of social breakdown engendered support for the Nazi Party and undermined the basis of the Weimar Republic (Fig 6). France was affected later than the rest of Europe because her large agricultural sector disguised unemployment and her industrial base was smaller than that of other countries.
Although the Depression dominated the thirties in Europe and the United States, recovery began in 1933, so that by the outbreak of World War II some considerable advances had been made in living standards in the period as a whole for those in work.