Capitalism in Crisis

On Thursday, October 24th, 1929 the New York stock market began a crash. The crash lasted four days, but the effects lasted a decade. It started in the United States, but the Great Depression was an unprecedented worldwide economic collapse. As the Great Depression worsened in the early 1930s, it appeared that, a decade after World War I ended, the old European-centered capitalist economic order was collapsing.

This course has emphasized how the Long Nineteenth Century created a single global economic system that linked the world through trade and finance. Because of this, when most of Europe went to war in 1914, much of the rest of the world had been affected in some way. These connections continued after the war as well. Let’s follow them to see how the crash of the U.S. economy could spread to the rest of the world.

First, European markets were closely connected to American markets. As European countries tried to recover from the war, they depended on American financing. That’s how in 1929 when the American economy started its crash, it brought Europe down with it. Then it was Europe’s connections that quickly made this a global economic crisis. Remember that by the early twentieth century, much of the world lived under some form of European colonialism. European global empires linked far-flung economies in Asia, Africa, and the Middle East to Europe and the Americas, so it didn’t take long for the dominoes to fall.

Crisis and isolationism in the West

What caused the Great Depression? Many things, but inequality was high on the list. In 1929, the top 1 percent of Americans owned more than half of their country’s wealth.¹ Many of the remaining 99 percent went into debt during the 1920s to support their consumer lifestyles and open businesses. To make matters worse, wealthy investors on Wall Street took on risky debts and made risky investments. This recipe for disaster is what cooked up the 1929 stock market crash. People, mainly in the U.S., started to panic. They took all their money out of the banks. Now banks didn’t have enough cash on hand, and the whole crisis got worse.

In the first years of the depression, the global production of goods halted. American manufacturing declined by 36 percent from 1929 to 1930 and by another 36 percent the following year. International trade fell by 30 percent. As a result, the price of even basic necessities, like wheat and rice, tanked. Wheat prices fell by 40 percent and rice by 50 percent, globally. The price of coffee, cotton, rubber, and other cash crops fell 40 percent, crippling the economies that produced them. As production and trade declined, factories shut down, and workers lost their jobs. By 1932, around 30 million people were unemployed worldwide. In 1933, 25 percent of American workers were unemployed.

Another way the dominoes kept falling was a lack of international cooperation. All over the world, governments chose to put tariffs in place. Tariffs are taxes on foreign goods. They’re intended to force citizens to buy domestic goods by making imports more expensive. But during the Great Depression, tariffs made matters much worse, especially for people living in European colonies and Latin America.

Crisis and exploitation in the colonies

Unemployment hurt the United States and Europe greatly, but it also devastated Latin America and European colonies in Africa and Asia. Europeans had been using many of their colonies to grow cash crops like rubber, sugar, and coffee. Cash crops aren’t for locals to use, and they’re not necessities.

West African rubber trees helped build the growing auto industries of Europe and North America. Pop quiz: What do people not buy when they’ve just lost their job and all their money? If you said “cars” you are correct! So British and French colonies in West Africa (and Southeast Asia) suddenly found themselves with a bunch of rubber that no one wanted to buy. They couldn’t use it, sell it, or eat it.

Cash-strapped consumers in the United States and Europe cut back on non-essentials like chocolate, coffee, cars, and diamonds. Meanwhile, Latin America and the colonized world paid the price. Tariffs were particularly harmful, but colonial governments also tried to wring as much resource and tax value out of them as possible to benefit struggling European economies. Of course, colonized people did resist. Moses Ochonu, a historian of colonial Africa, details how Nigerians found methods to cope with economic decline and resist further colonial exploitation. Organized labor strikes and tax revolts directly resisted the increasingly harsh conditions.

As the economy falls, the state rises

The Great Depression changed the way governments saw their relationship to production and distribution. The global collapse specifically involved industrial free-trade capitalism. The Soviet Union (U.S.S.R.)—the world’s first state based on communist economics—did not suffer economic collapse. Joseph Stalin used the opportunity to create a Five Year Plan in 1928, calling for taking land from individual peasants and putting it under the control of group “collectives,” while also rapidly building Soviet industry. Of course, Joseph Stalin broke a few eggs in making this economic omelet —around 20 million of them.² Under Stalin, around 20 million people starved or were killed. Nevertheless, the Soviet economy looked better, and many countries in the West began to consider controlling their economies more.

In Western Europe and the United States, governments started taking a more active role in directing the economy. The state, rather than the family, became the last line of defense against starvation. The U.S. president, Franklin Roosevelt, for example, looked to address wealth inequality and provide government jobs through the reforms and massive public works projects of the New Deal. Today, the minimum wage you’re guaranteed for summer jobs, the social security your grandparents receive, and much of the infrastructure you depend on has its roots in Roosevelt’s “New Deal” from the 1930s. These policies all gave more security to American citizens. But many capitalists and conservative politicians worried that it gave too much power to the government.

War and money

Critics called New Deal policies “dictatorial.” But elsewhere actual dictators rose to power during the depression. Most historians think that economic conditions weren’t directly responsible for dictators like Adolf Hitler in Germany. However, others argue that they did help them to appeal to suffering populations. And these authoritarian dictators—especially Hitler—set the stage for history’s deadliest conflict: the Second World War.

Ultimately, it wasn’t welfare reforms that ended the Great Depression. It was war. Germany, Japan, and Italy took state control to the extreme with aggressive authoritarianism and fascism. Germany and Japan pulled their countries out of economic muck by increasing military production. They used their new military might to seize new land and resources. The U.S. economy, where the depression was most pronounced, only recovered when it started building and selling huge numbers of expensive tanks, planes, and ships.

In addition to setting the stage for WWII, the Great Depression prepared parts of the world for the waves of decolonization that followed the war. Colonized people in Africa and Asia were hit hard by the depression. After the war, they looked around at a global capitalist-imperialist system that produced economic collapse and two world wars. And they asked themselves: “why do we let them rule us?”

1 And in fact, the top one-tenth of one percent controlled almost 25 percent of American wealth.

2 The idiomatic expression, “You have to break a few eggs to make an omelet,” is a way of saying that a constructive goal is often achieved by destructive actions.