The global economic crisis of 1929 and its general dimensions

 The crisis of 1929 originated in the United States of America, spread to the rest of the capitalist countries and their colonies, and the crisis touched various fields, and had profound repercussions on the development of internal events in the affected countries and on the existing international relations.

The general situation of capitalist countries between the wars and the deep roots of the crisis

Capitalist enterprises became more concentrated and their production inflated at a time when domestic purchasing power shrank and protectionism was generalized.

The capitalist system relied on the search for increasing profits as its primary driver. It granted individuals and enterprises absolute freedom of control in production and marketing, thus opening the way for intense competition between producers, and exposing society to periodic economic crises whenever the balance between production (supply) and consumption (demand) was disturbed. These crises were preceded by periods of relative economic expansion that bore signs of dysfunction. Capitalists continued to believe that these crises posed no threat to the economy, that they were transient and short-term.

The last cyclical crisis experienced by capitalist countries before 1929, which lasted from 1920 to 1921, was associated with problems of transforming the economy from war production to ordinary production.

After this crisis, most capitalist countries witnessed, with some disparity, a relative expansion, during which economic facilities underwent transformations aimed at improving production conditions and raising productivity and corporate profits.

Within the framework of this expansion, the phenomenon of economic concentration has been strengthened, which has produced large concentrations of companies that have monopolized production and marketing.

The industry benefited from the development of technologies, the introduction of sequential work and TAYLOR's methods of running enterprises. As a result, industrial production in capitalist countries has increased significantly.

In agriculture, landowners mechanized, used fertilizers and worked on production more to increase productivity, which made the supply of agricultural products at the world level in 1925 far exceed the demand of internal and external markets.

Perhaps one of the most serious problems that characterized this period was that the consumption of goods (demand) did not keep pace with the rise in production (supply). With the purchasing power of the majority of the population, capitalist countries turned to the foreign market to dispose of their goods. At the same time, however, it has taken various measures aimed at protecting its internal markets, which has hindered the movement of international trade and began to disrupt the economies of a number of countries.

The economic expansion in the United States of America has produced an imbalance between supply and demand and a wide wave of financial speculation.

During the first quarter of the twentieth century, the United States witnessed more than others a wave of economic concentration, despite the specific laws for large corporations that President Wilson tried to apply to protect medium and small enterprises from bankruptcy.

During this period, many companies merged into major horizontal and vertical concentrations, and their investments and interests expanded at the expense of many weak companies.

THE PHENOMENON OF CONCENTRATION BECAME MORE EXTENSIVE DURING THE RULE OF THE REPUBLICANS (HARDING, COOLIDGE, AND HOOVER) BETWEEN 1920 AND 1932, AND THE STATE PROVIDED IT WITH THE MEANS OF ITS DEVELOPMENT.

These industrial concentrations were followed by radical shifts in the means and methods of work that led to a wide rise in production.

The economic concentration after 1920 took a new leap forward. In 1929, 200 companies monopolized about half of the commercial boom and one-fifth of the United States' wealth. Major commercial establishments controlled 25% of the total installment trade ...

In 1903, the number of companies specialized in the manufacture of cars reached 10 companies, while in 1926 only 181 companies remained, including three pioneering companies: Ford, General Motors and Chrysler. In this field, competition is no longer just about price, but about technical innovations, about prosperity and beautiful shapes."

A. Casby: A History of the United States – Colan Publications, 1965

During this period of relative expansion, industrial production increased by 57%, while agricultural production experienced significant inflation, which caused the agricultural sector to be hit early by a deep crisis represented by a successive collapse of prices and a massive migration from the valleys to the cities.

On the other hand, workers' wages have increased by only a weak rate of only 13%, which has reduced purchasing power and prompted companies to use advertising to publicize their products and create purchasing desire among consumers. Loans were provided to them in order to encourage purchase with advances. But this was not enough incentive to raise overall consumption, at a time when the number of unemployed has grown to more than one million.

At the same time, the European foreign market has shrunk in particular due to the restoration of its production capacity and the enactment of a protectionist policy against foreign products.

Despite these problems that affected the productive sectors, financial transactions did not worsen, but commercial and stock speculation continued, and the owners of capital exaggerated the exploitation of the potential of advances and exchange, until the American capitalist system in 1929 was based on the confidence of shareholders and their optimism for a better tomorrow. The total value of shares of companies priced on Wall Street in New York City went from $27 billion in 1925 to $87 billion in 1920. The value of shares tripled in four years. This did not reflect the real increase in corporate profits.

To make matters more serious, a large part of the stock purchases for speculation were made through short-term loans with high interest rates. Speculators can now contribute only 10% of the share capital, while covering the rest through loans.

It is no longer only banks that provide loans, but also commercial and industrial companies that lend to speculators in the hope of obtaining large and fast interest rates.

Thus, the entire economic system is based on speculators' excessive confidence in the apparent economic expansion and in the inevitability of increasing corporate profits and the continued rise in the value of their shares.

The outbreak and spread of the economic crisis

The crisis started from the United States of America

The crisis erupted in the United States and paralyzed all productive facilities.

The continued inflation of production in agriculture and industry, as domestic and external demand contracted, has led shareholders to question the value of the shares they hold and lose confidence in the health of American economic institutions. So, on Thursday, October 24 (aka Black Thursday), more than 12 million shares were offered for sale on the New York Stock Exchange, showing the crisis to everyone and terrifying capitalist financial circles. On Tuesday, October 29, 16 million shares were offered and their value collapsed dramatically.

This stock market crash led to the bankruptcy of shareholders and speculators, weakened the potential of advances and exchange, and led to the closure of banks. During 1931 and 1932, more than 5000,<> banking institutions were closed, while some major banks tried to mitigate the crisis by recovering their capital deposited in European banks, which also took the crisis abroad.

In production facilities, surplus production persisted and prices fell to varying degrees. In industry, prices have fallen by more than 20% and many industrial enterprises have closed their doors pending the return of stability. In agriculture, prices collapsed by more than 50%, and many peasants went bankrupt and unable to repay their loans, and were forced to migrate to cities after ceding their land to lenders.

The Republican government did not pay due attention to the 1929 crisis at first, considering it only a transient and short-term crisis. This attitude is due to Republican rule's attachment to absolute liberalism. Republicans believed that cyclical crises did not oppose continued economic expansion, but rather an encouraging stimulus and engine for the economy. Therefore, the state intervened only by taking limited measures such as raising customs duties to protect national industry, providing some assistance to industrial enterprises in crisis, and purchasing limited quantities of agricultural products to mitigate the collapse of prices. It also made the decision to limit immigration.

During this period, Republican President Hothour was waiting for markets to run out of goods and stability to return. And he was declaring

"The crisis will be over in 60 days... We are on the road to prosperity... Buy stocks now the boom at the juncture of the road... ».

The U.S. government was so optimistic that it could not cope with the crisis. This official optimism continued as the American public became convinced that the crisis meant the bankruptcy of free capitalism.

Various social groups have been affected by the crisis

The crisis affected the majority of social groups of factory owners, businessmen, small shareholders, workers and farmers. Everyone was harmed and the optimism that prevailed disappeared. Consumers' overall purchasing power has declined, and the absorption capacity of U.S. production has shrunk. This affected other utilities, and unemployment spread to 14 million in 1932.

The anger of the most affected groups increased, and they expressed their indignation by organizing marches for the hungry in the West or by migrating to major cities where loitering was widespread and bloody clashes abounded.

The intellectual field has not been isolated from what has befallen other fields as a result of the crisis. THE BOOK WAS CONCERNED WITH SOCIAL REALISM, SUCH AS DOS PASSOS, WILLIAM FAULKNER, AND STEINBECK, WHO MADE THEIR STRONG ACCUSATIONS AGAINST CONTEMPORARY CIVILIZATION.

During 1932, about 17000,<> families were evicted from their homes every month for not fulfilling rental duties. It grew up on the banks of the Hudson River and in the Bronx and Brooklyn d'Or neighborhoods built in cardboard and tin. These tin neighborhoods were nicknamed "Hoverscities" (Hoover cities) dedicated to the President of the United States of America.

Morris Roa's book (1979 – 1929) « From one crisis to another » Stephen Publications 1978

The crisis has spread unevenly to all countries directly or indirectly linked to the United States.

The crisis spread to all capitalist countries and had serious consequences.

European countries have been particularly affected by the sudden withdrawal of US capital deposited in Europe and by the spread of protectionism. Some, notably Germany and Austria, have also suffered from the cessation of U.S. subsidies.

In Austria, the crisis spread early in May 1931 after the mass withdrawal of capital and the cessation of U.S. aid, which led to the bankruptcy of banks and the obstruction of the construction of economic facilities.

The crisis also seeped into Germany in June 1931 after the bankruptcy of large banks that had to use gold reserves to pay off debts.

The British economy has been hit by the collapse of international trade and the freezing of British financial reserves deposited in Austria and Germany. England defaulted on American loans. In France, the crisis appeared only mildly and late in 1932, due to its lack of association with American capital, the abundance of its agricultural and primary materials, and its heavy dependence on its colonies.

In Japan, after taking great advantage of the conditions of World War I, which allowed Japan to compensate European countries in Southeast Asian markets, the country experienced many difficulties due to the imbalance between its needs and capabilities. In addition to scarcity of underground wealth, shrinking arable land, and continued demographic growth, Japan has suffered from a crisis in international trade. With the crisis of 1929, most countries adopted a policy of protectionism, imposing high customs taxes on Japanese exports to the countries of the world. Japan has devalued its currency and pursued a policy of flooding markets with cheap goods. However, it has become difficult for Japan to market its products, and it has become impossible for it to obtain the raw materials it needs.

"We demand recognition of our right to ensure the possibility of living for our people. If the countries of the Old World wished to close their borders and prevent international trade even within their overseas colonies, this measure would not help advance the common good but would contribute to the preparation of an international conflict."

From a statement by the Ambassador of Japan in Paris from the History Book: Munier Publications, p. 145

After goods piled up and protectionism was generalized, industrial production, for example, between 1920 and 1982 fell by 40% in Germany, 34% in Italy and 26% in France, during the same period international trade deteriorated by 40%, and exports fell by 70% in Britain, 60% in Germany, 55% in Italy and 20% in France.

Entrepreneurs tried to cope with the crisis and rebalance supply and demand by reducing production. This affected the labor force, and in 1932 the number of unemployed reached 6 million in Germany, 2.7 million in Britain, 1.3 million in Italy and 350,000 in France.

With widespread unemployment and widespread inflation, the purchasing power of the middle classes declined, workers were affected, famine and crime abounded, and cities contained thousands of homeless people.

In the midst of these problems in the capitalist world, discontent grew with the political regimes that caused the First World War and which could not cope with the problems of the crisis. Trade unions, parties and currents opposed to the existing regimes were strengthened. European governments were shaken and underwent transformations, such as the formation of a coalition government in Britain and the rise to power of the left-wing Popular Front in France in 1936. The fascist regime was strengthened in Italy, the Nazi regime emerged in Germany, and an expansionist military regime was established in Japan. But the establishment of these dictatorships did not touch the essence of capitalism but aimed at saving and strengthening it.

The colonial powers tried to alleviate the crisis by tightening the exploitation of the colonies

The crisis seeped into colonies that were directly linked to European countries, and indirectly to the United States. It also touched poor countries that were connected to the world market.

When capitalist countries developed, industrial production overflowed, sales declined, and they were unable to import foodstuffs, they turned to their colonies and intensified their exploitation. This is particularly done by Britain in the Indian world, Japan in China and Southeast Asia, Italy in Libya, France in North Africa, Indochina and West Africa.

With the collapse of world industrial production, the prices of raw materials and agricultural products, which were the main resource for colonies and poor countries, fell. Capitalist firms in these countries have often had to destroy part of their products to mitigate overproduction and low prices.

In Brazil, for example, hundreds of thousands of tons of coffee have been burned and used as an energy source instead of coal. In Cuba, huge quantities of sugar were destroyed due to low prices on the world market, and its income from sugar went from $375 million in 1924 to $90 million in 1930.

Extractive companies have also reduced their activity, as was the case in Morocco with regard to phosphates and other minerals.

As a result of these problems, many peasants were forced to leave their lands and leave them at the lowest price to centenarians and speculators. This contributed to the deepening of the conflict between the local population and the colonial authorities, to the emergence of a beneficiary and ambitious local group, and to the revitalization of national movements.

At a time when the capitalist world was in a violent structural crisis, the Soviet Union was realizing its first five-year plan. The crisis did not seep into it as a result of its disconnection from dependence on capitalist countries, its isolation from the international monetary system and from foreign trade relations, and its dependence on the planning policy that enabled it to reconcile supply and demand.

Forms of Crisis Response in Capitalist Countries

Capitalist democracies resorted to direct intervention in the economy

Classical capitalist economic theory continued to hold that the causes of cyclical crises lay in overinvestment. As a solution to the crisis, she proposed reducing bank interest rates to provide capital to factory owners, "temporary" and widespread layoffs of workers, and reducing wages to reduce production costs and contracting expenses. They believed that with these measures, the economy would automatically return to normal.

In 1930, the capitalist world witnessed a decline in the prices of raw materials and machinery, bank interest rates, workers' wages, and a rise in the number of unemployed. But the crisis has dragged on and the promised prosperity is long overdue. Liberal economists continued to demand austerity from capitalist governments and to refrain from supporting the unemployed and bankrupt firms. They insisted that the state should intervene to impose deeper wage cuts and protect free-market laws.

"No one disputes that we will provide work for many people by reducing workers' wages to the extent necessary. The problem is clear and the solution is simple. The result is that everyone will find it useful. The number of unemployed and the number of companies employing few workers will decrease. The wage of one worker will shrink, but the number of wage workers will rise. This increases the total value of wages paid to workers at the end of the week, and therefore purchasing power will increase."

SIEGRRIED: The British Crisis in the XX Century A. Colan Publications 1975

The advice of this capitalist economic trend was followed in a number of capitalist countries, such as Germany, where it was decided in 1932 not to build new public enterprises, reduce the wages of employees by 20%, and reduce the benefits of the unemployed. Such measures caused great public discontent without reviving the economy.

In the face of the worsening of the crisis, the idea that the State should intervene in a more comprehensive and effective manner to confront the phenomenon of unemployment, which has become a source of widespread social tension and has begun to be an escalating political threat, has crystallized and strengthened.

WITH THE FIRST IMPROVISED PRACTICES OF CAPITALIST GOVERNMENTS EMERGED KEYNES THEORY, WHICH SINCE 1925 HAS CALLED ON KEYNES TO CONFRONT THE DEADLY DISEASE OF CAPITALISM: UNEMPLOYMENT.

To this end, Keynes opposed classical liberal theory, arguing that the crisis was not circumstantial and ordinary, and that prosperity could not return in a normal and spontaneous way. He also linked prosperity to investment, and called for higher wages to encourage consumption.

It is vital that government institutions be given the powers that are today entirely vested in free initiative ... But it is not in the interest of the state to take ownership of the means of production ... The expansion of government institutions necessary to ensure employment for all will, of course, lead to an expansion of state functions, allowing them to influence consumption and investment – and to the American financier this may seem like the most heinous violation of individual principles. But in fact, it is the only solution that can protect the current economic institutions from ruin."

John Maynard Keynes. From the book "The General Theory of Work, Interest and Currency"

The state intervened in the United States with the new plan «Newyle»

U.S. President Roosevelt's policy since 1932 represented the first attempt at capitalism, identical to Keynes's theory, to give the state a greater role in directing and controlling economic activity, in order to save the dysfunctional capitalist system. TO THIS END, ROOSEVELT, WITH THE HELP OF A GROUP OF ADVISORS, DEVISED SEVERAL MEASURES KNOWN AS THE NEW DEAL.

Roosevelt was born in 1882 into a wealthy family of Dutch descent. He first worked as a lawyer, then became a senator. He then moved on to take on new political duties, serving as Secretary of State in the Navy, until he was elected President of the United States in 1932 representing the Democratic Party. He has since worked on state intervention in the economy as a solution to the crisis.

One of the most urgent measures taken is the organization of a programme of major public works to provide employment to the unemployed, to help the incapacitated to create purchasing power and to promote demand and consumption.

To finance and protect its policy, the state reorganized and monitored financial institutions under the Banking Rescue Act of 1933. In the same year, the government also passed the Agricultural Balance Law, which aimed to raise agricultural prices by reducing production and granting subsidies to farmers who limit their production or livestock, helping them pay their debts and recover their mortgaged land.

The Industrial Reform Act of 1933 was concerned with reducing competition among single-sector enterprises, setting minimum prices and wages, and reducing weekly working hours. The country also tried to increase U.S. exports by reducing tariffs by 50 percent on goods from countries that treated U.S. goods similarly, and the Roosevelt government devalued the dollar by 41 percent in 1924 to encourage foreign demand for U.S. products.

During the same period, labor movements multiplied and the number of unionists increased, and the government recognized the trade union right of workers under the Vacner Act of 1935. It had also set weekly working hours at 36 hours, raised wages, and introduced old-age and unemployment insurance.

Between 31 and 64, the new plan achieved many results, the most important of which were the increase in prices by 70%, production by 30%, national income by 1933%, and exports by 1937%. The number of unemployed went from 14 million in 1932 to 7.5 million in 1937.

With the measures of the new plan, American capitalism shifted from absolute liberalism to directed capitalism.

But Roosevelt's policy faced several difficulties because not everyone was convinced of the measures taken.

The farmer did not actually limit his production, so the surplus continued and agricultural prices continued to fall. Industrial enterprises also refused to implement government measures. The factory owners sued Roosevelt in the Supreme Court, and the Supreme Court upheld the factory owners, deeming Roosevelt's interference in the economy as an act contrary to the principles of the Constitution, and repealing agricultural and industrial measures. His policy almost failed without the support of many economic powers convinced of his actions.

He was able to win elections again in 1939, which allowed him to pursue his new policy.

If the plan did not achieve all its goals, it rebalanced the U.S. economy and saved capitalism from collapsing. World War II reopened European markets and boosted the U.S. economy.

Authoritarian regimes were characterized by mass economic intervention and the resort to non-peaceful means.

The measures taken in the capitalist fascist countries did not differ radically from those in other capitalist countries. THEY WERE ALSO CHARACTERIZED BY EMPIRISME, IMPROVISATION, AND THEN BY COMPREHENSIVE STATE INTERVENTION FOR GUIDANCE AND CONTROL. But the actions taken by the fascist regimes took more extreme and powerful forms.

This difference is due to the fragile nature of the economic structures of Germany, Italy and Japan and the disintegration of their societies.

The three countries found themselves in a situation of crisis that made their governments think about ways to bring in raw materials from abroad at the lowest price, and how to employ millions of unemployed without creating a surplus. These countries have also suffered from insufficient funds to finance rescue projects.

To solve the problem of unemployment, the authoritarian governments initially organized a program of major public works, such as the construction of roads and dams, and the draining of swamps.

To provide jobs for the largest number of unemployed, the fascist states made significant wage cuts, curbing unions, supervising workers, stirring up nationalist sentiment and urging them to make more sacrifices to save the homeland.

To finance their projects and avoid inflation, fascist states froze prices, raised taxes and enacted compulsory loans. Thus, the state has intervened strongly in the various production facilities and obtained tangible results.

In order to satisfy their growing domestic needs and satisfy their expansionist capitalist ambitions, the authoritarian regimes took care of developing the arms industry and converting part of the economic activity to war products. It was necessary for these States to find a solution to obtain the raw materials necessary for the manufacture of weapons, at a time when they did not have sufficient stocks of gold or hard currency or access to foreign loans, and they tended towards armed expansion.

Thus the crisis triangle of 1929 marked a major turning point in the history of capitalist and dependent countries. It brought changes to the capitalist economic system, worsened social and political conditions, and contributed to the creation of a new international condition that paved the way for World War II.