The Great Depression
The First World War led to the expansion of certain industries in the hope that the war-time boom would continue. However, when the War came to an end, the industries that grew to meet war-time requirements had to be abandoned or modified. The situation was made worse by the political complications caused by the Treaty of Versailles. A new wave of economic nationalism which expressed itself in protectionism or in tariff barriers affected world trade. The war also placed a heavy burden of debt on every European country.
The first huge crash occurred on 24 October 1929. This discouraged investors and consumers to such an extent that more and more people began to sell their shares and dispose of their stocks. But there were no buyers. This was followed by the failure of American banks. The American financiers were forced to recall their own funds invested abroad.
Despite emergency measures such as cutbacks in expenditure and increased taxation, the situation did not improve in England. So England decided to leave the Gold Standard. Immediately a great number of countries left the gold standard. 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 to safeguard their economic interests led to an unprecedented decline in world economic activity. As its effect was deep and prolonged economists and historians call it the Great Depression.
Gold Standard is a monetary system where a country’s currency or paper money carried a value directly linked to gold.
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 was rejected by the people in successive elections for about twenty years after the Depression.