What were the causes of these crisis years, how did the economic downturn unfold, and what drastic consequences were there? A summary of the greatest economic depression of the twentieth century.
Causes of the economic crisis: belle époque, war, and roaring twenties.
The period up to the First World War is known as the Belle Époque (1889–1914), a golden age in which Europe (specifically France ) and the United States flourished in economic, scientific, and cultural terms. The trees grew economically into the air, and there was an optimistic mood about the future.
The crisis of the 1930s was rooted in the First World War and the 1920s, the roaring twenties. During World War, mobilization had created a shortage of farmers in Europe.
As a result, grain production fell dramatically because the farmers were away from home and in the trenches. In 1914–1917, when the United States was still neutral, American grain production grew strongly due to the increased demand from Europe. As a result, American farmers started to invest in new machines and applied them to scale up, with money borrowed from the banks.
After the First World War, agriculture in Europe got back on track, leaving American farmers with surpluses. In the long run, this also meant problems for the banks. In addition to farmers, private individuals and companies also borrowed a lot of money during the roaring twenties.
Borrowing was encouraged from all sides in a climate of great confidence and optimism for the future. Furthermore, from 1924 onwards, the Americans had loaned a lot of money to Germany under the Dawes Plan and Young Plan to keep the economy running. The repayment of these loans was difficult, which exacerbated the banks’ money problems in the United States.
Stock market crash 1929: start of economic crisis.
The New York Stock Market Crash at the end of October 1929 heralded the world economic crisis. After sharply rising prices (especially in 1928), the stock market suddenly collapsed at the end of October 1929 due to sharply falling share prices. Panic broke out on the stock market — everyone sold their shares — and the shares became worthless in no time.
Billions of dollars in savings and investments went up in smoke, leaving companies and individuals unable to repay their loans to the banks. As a result, one American bank after another fell. Because there was a global economy, the crisis also spread to Europe shortly after.
The Crisis in the United States: Roosevelt’s New Deal.
The New York Stock Market crash caused hundreds of American banks to go bankrupt, and unemployment soared. From 1929 to 1933, the American unemployment rate rose from 4 to 13 million people.
In 1933, the United States’ unemployment rate was 25 percent, industrial production had fallen by half from the pre-stock market crash, and the amount of money and price levels had fallen by more than 30 percent compared to 1929.
The then-president Franklin Delano Roosevelt (1882–1945) started a recovery policy from 1933 to tackle The Great Depression: the New Deal. This politics program was designed to get the US economy and employment back on track.
The government should intervene in the economy and pump money around through budgets became the leading idea. In practice, there was the supervision of banks and the stock exchange, the agricultural sector was reformed, and the government employed unemployed people for work on public buildings and projects.
Roosevelt freed up the necessary money by cutting civil servants’ salaries and cutting military veterans’ pensions. The main effect of Roosevelt’s intervention was that the US economy stabilized in the 1930s. In 1936 there were even tentative signs of recovery. But in 1937, the Depression worsened again, and a lasting decline in unemployment did not materialize.
Inspired by the economist John Maynard Keynes (1883–1946), Roosevelt chose in 1938 to pour five billion dollars into the American economy to give purchasing power a push. This policy had an effect and the economy recovered (slightly). But it was only after the Second World War that a real recovery could be said.
Consequences of the 1930s crisis: the rise of dictatorships and war.
The consequences of the 1930s crisis were major, especially in Europe. In 1935, unemployment in the Netherlands was 600,000 of the total labor force of eight million. Poverty grew enormously.
The crisis fueled numerous dictatorial movements. The best-known examples were communism, national socialism (in Germany the NSDAP, in the Netherlands the NSB ) around Adolf Hitler, and fascism in Italy under Benito Mussolini. This increased tensions in Europe and eventually led to the outbreak of World War II.
In economic terms, the crisis also had positive effects in the longer term. For example, the economic headwind forced companies to modernize and be more resilient to the economic downturn. The crisis also led to additional government intervention, especially after the Second World War, to combat unemployment and poverty.
The Dutch welfare state, with its social security legislation, was a good result. From now on, the government would take care of its citizens ‘from the cradle to the grave.’