The Great Depression
The economic depression that began in the aftermath
of the US stock market crash was international in character and devastated the
world economy. During the First World War, while the states of Europe were
fighting on the battlefield, Americans were capturing their markets and
extending their fields of investment and thereby expanding their own industry
and agriculture. By the end of the war America had emerged as the richest
nation in the word.
The war placed a heavy burden of debt on every
European country. America had lent enormously to war-ravaged European
countries. The capital outflow from America had found its outlet in new
investments. But these investments would yield desired results only after a
period. In the meantime, because of the slump, the US was forced to withdraw
its capital exported. The withdrawal of American capital caused decline in the
volume and value of exports all over. The effects of this development were
accentuated by the US market crash.
The first huge stock market crash occurred on 24
October 1929. This resulted in more and more people selling their shares and
disposing of their stocks. But there were no buyers. This was followed by the
failure of American banks. American financiers were forced to recall their own
funds invested abroad. The stoppage of loans to Germany by America led to the
failure of two large German banks. Having lent liberally to banks abroad, the
Bank of England too found itself in bankruptcy.
Despite emergency measures such as cutbacks in
expenditure and increased taxation, the situation did not improve in England.
In order to counteract this and to protect domestic markets, each nation
adopted a policy of protectionism and devaluation of currency. Devaluation
forced creditors to stop lending. This led to a world-wide credit contraction.
Thus the defensive measures adopted by various nations led to an unprecedented
decline in world economic activity. As its effect was deep and prolonged
economists and historians call it the Great Depression.
The Depression changed the political conditions in
several countries. In England, the Labour Party was defeated in the general
elections of 1931. In the USA, the Republican Party, which had taken credit for
the boom preceding the Depression, was rejected by the people in successive elections
for about twenty years after the Depression. As we will see below, the Fascist
Parties seized government in Italy and Germany. In South America, Argentina,
Brazil and Chile saw a change of government.