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The Impact Of The Great Depression

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Published: Wed, 03 May 2017

The Great depression of 1929 shook the whole of Europe creating shattered economies and unstable political conditions. Some countries were initially able to deal with the global crises such as Britain and France but by the mid 1930s the vast majority of European countries had experienced difficulties in their economy. There were those countries who suffered more than others as the decline was more prominent in countries dependant on the export industries. [1] Germany, despite Hoover’s reduction of reparations, was unable to prevent a third of their workforce from becoming unemployed. [2] Banks were collapsing, major industry had its output severely reduced and agricultural cost of production rose. Between 1929 and 1932, the overall GDP of European countries was lowered by 10%. [3] Europe suffered not only economic but also long term political costs due the decline of the capitalist system. Conflicts between labour and capital had been present before the war and would inevitably rise again when continuing with laissez-faire economics. [4] The unstable economic conditions gave rise to the extreme politics of Communism and National Socialism in certain countries while in others, strikes, riots and civil war were present.

The decline of major industry was attributed to the high protectionist measures set up by many countries all over the world which was prominent in Europe. The intention was to revive internal economies but it only served to increase depression. [5] The trade restrictions hit Eastern Europe particularly hard, with the exception of Czechoslovakia, as these economies had an over reliance on exports of foodstuffs. [6] Isolation from the world powers forced them into an autarky-like economic system. [7] Hungary had the value of its agricultural production fall by fifty percent between 1923 and 1932 Conferences set up to deal with tariff wars and exchange controls made very little progress. [8] The result was higher production costs as imports were now much more expensive. In Germany, Farmers were hit hardest due to higher production costs and lower food prices. In accordance with this, industrial progress seemed to be moving in the opposite direction as, for the first time since 1882, employment in agriculture was higher than in industry. [9] 

Differences in economic policy between the countries of Europe greatly affected the severity of their respective economic problems. Major mistakes in political policy at the time were particularly present in the 1920s and 30s in Europe. Changes in the economic system in Germany after the War made Germany the country the hardest hit by the Depression. The loss of flexibility in the economy due to monopolized production, trade barriers and rigidity of wages made Germany susceptible to variations in the confidence of foreign investors. [10] Alongside this, the decisions made by Chancellor, Heinrich Brüning, to raise taxes, cut benefits and reduce government expenditure resulted in the increase of unemployment. [11] The Germans were unable to pay reparations nor finance the budget deficit due to the inability to attract capital from the USA, France and Britain. Similarly, the fears for the values of currency in Eastern Europe forced governments to introduce deflationary policy resulting in unemployment and reduced foreign demand. [12] 

Although the French economy experienced success while other countries around them suffered, it was not altered or transformed. An economy that had a reliance on imported raw materials and an inefficient agricultural sector [13] was only able to maintain income levels due to large current account surpluses in the late 1920s. [14] The French government were gripped by the memories of inflation in the 1920s which prevented them from pursuing deflationary policies and supporting the theory Keynes was prominently proposing. [15] Nevertheless, the French economy survived well until 1934. The French were able to obtain a quarter of the world’s gold after the liquidation of foreign exchange reserves which helped the Franc become one of the most powerful currencies in the world by 1932. [16] In the immediate aftermath of the Wall Street Crash, France was the only country with industrial output higher in 1930 than in 1929. However, the French economy was far from protected during this period as cloth imports increased by two hundred million francs and they suffered from foreign competition. Following three years of budgetary deficit there was an appearance of debts.

The collapse of the banking systems in some European countries had major implications across Europe. Austria was at the centre of the financial crisis which resulted in the near collapsed of the largest bank in Austria; the Credistalt. The financial crisis was only reduced from the control of the League of Nations representatives. [17] Austrian banks then proceeded to withdraw money across the exchange. There was turmoil in other European countries with Germany’s banks failing and were closed for three days. The Reichsbank imposed harsh foreign policy where foreign owned assets were frozen and currency conversions were restricted. [18] The decline in economic activity in Britain was imported from abroad and caused through repercussion of the strict economic conditions. This is seen through the decline in the balance of payments which was only resurrected after the improvements in the terms of trade. [19] 

The depression impacted on different areas of society and industry in the various countries. The depression was a process which affected different sectors in unequal intensities. In Britain more emphasis of the depression was centred in the North which was the base for coal, iron and shipbuilding industries. Unemployment in the North was double the rate of London and the South East. In France, the silk industry suffered from foreign competition and increased costs of production which led to an 80% decline of silk goods between 1929 and 1937. [20] The agrarian sector was hit worst in Eastern Europe with prices of wheat and sugar falling sharply which reduced purchasing power. Yugoslavia’s production of hop was reduced by a third and much of it was left to rot as it was uneconomic to produce. [21] Although the severity of the Depression’s effects was varied, its affects were felt in all areas.

The rise of politically extreme parties was a major affect of the Depression but this was not the case in all European countries. The most notorious political rise was in the form of the national socialists in Germany. Led by Hitler, the Nazis began their rise in the 1930 elections where they were able to gain 18% of the vote. Bruning’s unpopular economic measures which strengthened the aristocracy and were designed to remove political responsibility. The German middle class became radicalized and other sections of German society such as the protestants, tradesmen and white collar workers turned their allegiance to extreme parties. [22] Hitler’s appointment as Chancellor in 1933 led to years of removing political opponents and constitutional constraints before dictatorship was secured in 1934 following the death of Hindenburg and the ‘Night of the Long Knives’. [23] A similar situation developed in Austria in which Engelbert Dolfuss took a firm control on the socialist government. His actions led to a short civil war against the socialist government in Red Vienna. [24] Further gains for right wing parties were made in Romania where the Iron Guard movement gained 25% of the vote in 1933 from previous political obscurity. [25] The fascist, Gyula Gömbös, was able to make become Prime Minister in 1932 in Hungary and attempted to create an axis between Hungary, Austria and Italy. [26] 

It was at this time, people were rejecting the capitalist system, but none more so was this view taken in the Soviet Union. Under the ideology of Karl Marx, the already in power Communist regime was strengthened and provided the ‘most striking challenge to liberal capitalism and internationalism.’ [27] The trend supported by the party was for the destruction of capitalism and the increase in industrialisation brought about through the collectivisation of Soviet peasant households. [28] This brutal policy led by Joseph Stalin resulted in the increase in output from industry including a trebling of coal production. [29] The collectivisation process resulted in savagery from government forces and human suffering and was criticised by workers across Russia. An example of this defiance is shown in the letter from the workers of the Putilovets factory. [30] 

One of the most striking conflicts to arise from the Depression was the Spanish Civil war which resulted in a conflict between the right and left. The 1931 constitution created attacks on the church which were fiercely defended by the right wing organisation C.E.D.A. Following the defeats in the 1936 elections, General Franco set up an offensive in a military revolt which resulted in the forming of fascist Spain in 1937. [31] 

However, not all European countries embraced extreme politics with some nations sticking to relatively conservative governments. Countries such as Finland, Netherlands and Britain experienced little support for the extreme parties. The anti-system vote in Finland actually declines in 1930 compared to figures in 1928. In Britain, the success of the devaluation policies and the banks removal from the Gold link helped Britain remain in Labour’s control. There was definitely political instability before and after the Wall Street Crash with the general strike in 1926 and the Invergordon Mutiny in 1931. [32] However, the government was able to react to this unrest and altered economic policy due to social changes and was not imposed as a response to the slump. [33] The fragility of British politics was shown when it was on the verge of introducing a fascist establishment under Edward. This crisis was only prevented following Stanley Baldwin’s defence of conservative principles. The nature of the two party political system prevented the public from being directed to radical parties. [34] Political instability was strongly represented in France where there were 11 ministries between 1932 and 1936. Parliament was consistent in rejecting and overthrowing three separate governments. The 1932 elections showed clear dominance for the Radical and after Stavisky’s suicide in 1934, a variety of fascist leagues set up demonstrations and attempted to orchestrate a revolution. The subsequent elections in 1936 presented the Popular Front with an emphatic victory for the socialists. The communists however, were unable to gain so much support even though they were the first party to recognise that France was in a depression. The party was accused of underestimating the opportunity these circumstances gave them. [35] 

In the aftermath of the Wall Street Crash, Europe had experienced political and economic difficulties which resulted in civil wars and the mass rejection of capitalism. The depression had shattered the banks, industry and agriculture in many countries and presented the conditions of turmoil that many radical politicians seized upon. The sharp rise in support for nationalist or communist dictatorship was visible in the middle and working classes who felt dejected by the capitalist governments in place. Those countries that were successful in reducing the effects of the depression and provide support to these classes were able to suppress mass engagement with extreme parties.

16. The Great Depression (NS) 20 Nov

B. Wasserstein, Barbarism and civilization (2007), pp. 165-204

H. James, Europe Reborn (2003), pp. 104-46

J. Jackson, The Politics of Depression in France, 1932-6 (1985)

P. Stachura (ed.), Unemployment and the Great Depression in Weimar Germany (1986)

A. Sauvy, ‘The economic crisis of the 1930s in France’, Journal of Contemporary History, Vol. 4, No. 4 (1969), pp. 21-36

D. Petzina, ‘Germany and the Great Depression’, Journal of Contemporary History, Vol. 4, No. 4 (1969), pp. 59-74

H. Raupach, ‘The impact of the Great Depression on Eastern Europe’, Journal of Contemporary History, Vol. 4, No. 4 (1969), pp. 75-86

Letter to Stalin and Kalinin (ostensibly) from workers at Red Putilovets factory, Leningrad, March 1930 http://www.yale.edu/annals/siegelbaum/English_docs/Siegelbaum_doc_9.htm


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