Depression, the Great

Depression, the Great (1929–32) The worst recession in world history which was triggered off in the USA, then by far the most important economy in the world. In part, US prosperity in the 1920s had been very fragile, as 5 per cent of the population received a third of all income, whereas over 70 per cent of the population received an annual wage which was less than was considered necessary to live in decent comfort. Hence, the large rises in consumption were effected by only a very small section of the population, and this became problematic as soon as its demands for consumer goods (such as cars, radios, etc.) were satisfied. In addition, the banking system was structurally weak and very badly regulated, with a large number of small banks (over 30,000) in the 1920s. Finally, high US tariffs on imports led to a huge imbalance between exports and imports, so that foreign countries could only afford to buy US exports with the help of US loans. The combination of these factors led to the Wall Street Crash, but they also explain the severe depression that followed. Banks collapsed, domestic consumption collapsed, and because US investors needed to recall their foreign assets quickly US exports also collapsed.

In Europe, the withdrawal of US funds, on which especially the continental European economies had come to depend, caused a fully fledged financial panic in 1931. The liquidation of foreign assets brought the largest Austrian commercial bank, the Creditanstalt, to the brink of insolvency, forcing the Austrian government to freeze all its remaining assets. This created a panic across central Europe, as investors rushed to the banks to retrieve their own investments before these were frozen too. For Germany, the economic and financial crisis led US President Hoover to announce on 21 June 1931 a one-year moratorium for reparation payments. In Britain, the fact that its banks had given substantial loans to the now collapsing economies of central Europe, together with the lack of German reparation payments at the time of a large budget deficit, led to pressure on the value of the pound which forced the final abandonment of the Gold Standard. This was tantamount to an admission by the formerly dominant economic power that it was no longer able to lead the world economy. In total, the depression led to a sharp increase in tariffs and hence to a substantial reduction in international trade, so that during the 1930s the trade in manufactured products between Germany, France, and the UK declined to half of the level of 1913. Unemployment reached record levels of around 20 per cent worldwide, but declined thereafter to around 10 per cent in 1937, a figure still considerably higher than in 1928. In the US, the depression led to greater economic involvement of the state, with Roosevelt's New Deal. Most importantly, in the countries worst hit by the recession (in central Europe and in South America) the ensuing hardship and misery provided a receptive and fertile ground for the aggressive, chauvinistic, romantic-authoritarian rhetoric of far-right movements.

Fascism