Capitalism in Crisis

It was the morning of Thursday, October 24th, 1929. The New York stock market began a crash. It started in the United States, but the Great Depression was a worldwide economic fall. The trouble got worse in the early 1930s. It appeared the old European-centered capitalist economic order was collapsing.

This course has taught you about the Long Nineteenth Century. This period created a single global economic system. It linked the world through trade and finance. These connections continued after World War I. Let’s follow them to see how the crash of the U.S. economy spread worldwide.

First, European markets were closely connected to American markets. European countries tried to heal from the war. In doing so, they depended on American banks for loans. That’s how the 1929 American crash brought Europe down with it. Now, remember that by the early 1900s, much of the world lived under some form of European colonialism. European global empires linked businesses in Asia, Africa, and the Middle East to Europe and the Americas. Soon, their economies collapsed, too.

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 make matters worse, wealthy investors took on risky debts and investments. This recipe for disaster is what cooked up the 1929 stock market crash. People, mainly in the U.S., panicked. They took all their money out of the banks. Now banks didn’t have enough cash on hand. The whole mess got worse.

In the first years of the depression, the world production of goods nearly halted. American manufacturing declined by 36 percent from 1929 to 1930. It fell by another 36 percent the following year. International trade fell by 30 percent. Soon, the price of even basic necessities, like wheat and rice, tanked globally. As production and trade declined, factories shut down. By 1932, around 30 million people were unemployed worldwide.

A lack of international cooperation made matters worse. All over the world, governments introduced tariffs. Tariffs are taxes on foreign goods. They make imports more expensive. They’re intended to force citizens to buy domestic goods. But during the Great Depression, tariffs caused problems. People living in European colonies and Latin America were especially hurt.

Crisis and exploitation in the colonies

Latin America and European colonies in Africa and Asia were crushed by the Depression too. Europeans used their colonies to grow cash crops like rubber, sugar, and coffee. Cash crops aren’t made for locals to use. They’re not necessities. They are grown for trade.

Rubber trees were grown in West Africa. They helped build the auto industries of Europe and North America. But when people lose their jobs and money, they stop buying cars. So, British and French colonies in West Africa and Southeast Asia were in trouble. Suddenly, they had a lot of rubber that no one wanted to buy.

People in the United States and Europe were low on cash. They cut back on non-essential items. Meanwhile, Latin America and the colonized world paid the price. Of course, colonized people would fight back. Moses Ochonu is a historian of colonial Africa. He details how Nigerians found ways to deal with economic decline. They organized labor strikes and tax revolts.

As the economy falls, the state rises

The global collapse specifically involved industrial free-trade capitalism. The Soviet Union (U.S.S.R.) was the world’s first state based on communist economics. It did not fall apart with the Depression. Joseph Stalin used the opportunity to create a Five Year Plan in 1928. He called for taking land from poor people. Their land would be put under the control of a group “collective.” Meanwhile, Soviet industries would quickly build up. Of course, Joseph Stalin broke a few eggs in making this economic omelet.² Still, the Soviet economy looked better. Soon, many countries in the West considered following Stalin’s lead.

For Western governments, the state gained the power to control production and distribution. The U.S. president, Franklin Roosevelt, for example, looked to address wealth inequality. He also began the New Deal. Through it, he looked to provide government jobs through reforms and huge public works projects. Parts of the New Deal remain today. Some examples include minimum wage and social security. These policies all gave more security to American citizens. But many conservative politicians worried that it gave too much power to the government.

War and money

Some critics called New Deal policies “dictatorial.” But elsewhere actual dictators rose to power during the Depression. Most historians think that economic conditions didn’t directly lead to dictators like Adolf Hitler in Germany. However, others argue that they did help them to appeal to people who were hurting.

Ultimately, war ended the Great Depression. Germany, Japan, and Italy took state control to the extreme. They began forceful authoritarianism and fascism. Germany and Japan increased military production. Their new military power led them to seize new land and resources. The U.S. economy only bounced back when it started building and selling many tanks, planes, and ships.

Waves of decolonization followed the war. The Great Depression also prepared parts of the world for these events. Colonized people in Africa and Asia were hit hard by the depression. After the war, they looked at the global capitalist-imperialist system. It produced economic collapse and two world wars. 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.