The Great Depression
The collapse of the US financial system was the beginning of the global economic crisis that led to the Great Depression. 1930 was marred by recession, mass unemployment and poverty, which had fatal consequences.
After leaving with almost no loss of World War I, which dealt a terrible blow to competitors, the US made a huge leap towards creating a consumer society. The economy was booming – growing production, exports, incomes – and it seemed that there will be no bounders for the growth. The optimism of Americans is reflected in rise of share prices on the New York Stock Exchange. As growth in the value of shares did not stop, thousands of people believed that the purchase of shares is an easy way to make money. The rules of the stock market allowed both legal entities and individuals who did not have significant capital to buy stocks “on margin” (paying only a down payment) per their growth, so new companies have grown by leaps and bounds.
During the years 1928-29 spiral twisted faster and faster, until prices have not reached dizzying heights. And then, in September 1929 the exchange rate began to fall. Shareholders were worried at first, and then panicked. October 24 (“Black Thursday”) investors in unison “dropped” 12 million shares, and it was only the beginning. Now everything has gone backwards: a sharp sell shares took down the prices, which led to new sales.
Shoppers at the margin could not continue to make payments and lost the rest of the shares. Not supported with the money capital group of companies were unable to meet the costs and become bankrupt. By year-end market collapse led to the ruin of many individuals and businesses, and dealt a crushing blow to the nation’s confidence in the future. But that was not all: while panic and dump shares ceased, the rate continued to fall nearly three more years.
The collapse of the market directly or indirectly affected mines, factories, shops, many of them went bankrupt, and banks demanded repayment of loans. The crisis of public confidence particularly hit banks whose depositors immediately rushed to withdraw their savings, resulting in about 5,000 US banks were forced to close.
The trouble never comes alone: each company, which was forced to leave the race, increased the number of unemployed. The decline in purchasing power, on the other hand, led to new bankruptcies. As a result, the number of Americans, from whom the Great Depression took the job, has reached around 13 million people and homeless, desperate people have become commonplace. It was the Great Depression that lasted months and years.
The Great Depression soon spread to the European economy, but really the force of impact on Europe became visible only in 1931. In May, the collapse of the powerful Austrian bank “Creditanstalt” was the beginning of the collapse of the economy of Central Europe. It was especially difficult for Germany, which depended on US loans and investments. Unemployment in the country jumped to a mark of 6 million people. Within weeks, the crisis began in Britain, which affected even less industrialized nations such as France and Italy. With the sharp decline in demand for many products – such as coffee, sugar, cotton and silk – most of their exporters from Brazil to Japan impoverished.
The Great Depression led to major political changes in the early 1930s. In Britain, Labor government resigned and the Labor Party split. The leaders of the Labor Party joined the coalition of conservatives and liberals, forming a coalition government, which cut unemployment benefits and cut the salaries of civil servants. These strict measures have led to a rebellion in the Navy Inverhordoni (Scotland) and “hungry marches” of unemployed in London. Government failed to save the pound and Britain had to abandon the gold standard – financial stability. The principle of free trade was also sacrificed: to protect domestic producers, Britain imposed duties on many imported goods. This policy, known as protectionism, was applied by many countries, leading to a reduction in global trade and reducing the overall economic recovery.
In Germany, the Great Depression caused such frustration and angers that Adolf Hitler and his Nazi party came to power. It is possible that it was a coincidence, but Hitler has chosen economic course, which was unsuccessfully promoted in Britain by the economist John Maynard Keynes, who argued that the government should not save but spend, begin big public projects to create working places and give new impetus to the economy. The Nazis were spending money on weapons and road, because that what the aggressive plans of Hitler demanded, but as a result the unemployment disappeared, and Hitler was the miracle worker in the eyes of millions.
Militarism has played a similar role in Japan. In the US, voters tired of the promises of President Hoover that paradise is not far off already, voted for Franklin D. Roosevelt and his “New Deal”. By the end of 1930 the situation has stabilized, although the unemployment rate remained high. The world economy has recovered only after 1939, when the war gave the job to all.