Capitalism in Crisis

It was the morning of Thursday, October 24th, 1929. The New York stock market began a crash that would last four days. It started in the United States, but the Great Depression was a worldwide economic fall. As conditions worsened in the early 1930s, it appeared the old European-centered capitalist economic order was falling apart.

This course has shown how the Long Nineteenth Century created a single global economic system. It linked the world through trade and finance. Because of this, when most of Europe went to war in 1914, much of the world was 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 heal from the war, they depended on American banks for loans. That’s how in 1929 when the American economy started its crash, it brought Europe down with it. Europe’s connections quickly made this a global economic disaster. Remember that by the early twentieth century, much of the world lived under some form of European colonialism. European global empires linked economies in Asia, Africa, and the Middle East to Europe and the Americas. It didn’t take long for the dominoes to fall.

Crisis and isolationism in the West

Many things caused the Great Depression. However, 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 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., responded with panic. They took all their money out of the banks. Now banks didn’t have enough cash on hand. The whole disaster 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. It fell 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 globally. As production and trade declined, factories shut down. By 1932, around 30 million people were unemployed worldwide. In 1933, 25 percent of American workers were unemployed.

Making matters worse 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 caused problems. People living in European colonies and Latin America were especially hurt.

Crisis and exploitation in the colonies

Unemployment numbers in the United States and Europe were scary. However, Latin America and European colonies in Africa and Asia were also devastated. Europeans had been using many of their colonies to grow cash crops like rubber, sugar, and coffee. Cash crops aren’t for made for locals to use. They’re not necessities either.

West African rubber trees helped build the auto industries of Europe and North America. But as people lost their jobs, they stopped buying cars. So British and French colonies in West Africa and Southeast Asia suddenly found themselves with rubber that no one wanted to buy.

Cash-strapped consumers in the United States and Europe cut back on non-essentials. Chocolate, coffee, cars, and diamonds were examples. Meanwhile, Latin America and the colonized world paid the price. Of course, colonized people did resist. Moses Ochonu is a historian of colonial Africa. He details how Nigerians found methods to deal with economic decline and fight back against colonizers. They organized labor strikes and tax revolts.

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 was the world’s first state based on communist economics. Joseph Stalin used the opportunity to create a Five Year Plan in 1928. He called for taking land from individual peasants, or poor people. It would be put under the control of group “collectives,” while also quickly building Soviet industry. 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 began to think maybe they should be controlling their economies more as well.

Western governments started taking a more active role in directing their 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. So, he began the New Deal. Through it, he looked to provide government jobs through reforms and massive public works projects. Today, you can still see leftovers of the New Deal. It comes in the minimum wage you’re guaranteed for summer jobs. It sparked the social security your grandparents receive. 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

Some 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.

Ultimately, it was war that ended the Great Depression. Germany, Japan, and Italy took state control to the extreme with forceful authoritarianism and fascism. Germany and Japan increased military production. They used their new military might to seize new land and resources. The U.S. economy only bounced back when it started building and selling huge numbers of expensive tanks, planes, and ships.

The Great Depression also 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 at the global capitalist-imperialist system. It had 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.