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Chapter 23 Revolution, Depression, and the Rise of Totalitarianism |
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Section 3 |
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While the Great War had shaken the
confidence of Western civilization, during the 1920s many Westerners
believed they could still recover and start upward once more on the path
of progress. The fragile state of Western culture after World War I, however,
was reflected in the global economy that was dominated by the Western
industrial nations. Although on the surface the 1920s seemed to be a
boom time with growing economic prosperity, the boom was built on
foundations of sand. In 1929 peoples’ hopes were shattered once
more as the global economy crashed into depression. As people struggled
to find security in the face of economic collapse, many began to look
for new forms of economic and political organization. Many governments
responded to the crisis by turning in on themselves, hoping to
re-establish the prosperity of their own citizens. The new round of
economic nationalism, or protectionism, however, only added fuel to the
depression. Under these strains, both capitalism and liberal democracy
began to bend into new shapes – or were discarded altogether. The World Economy By 1924, the nations of the industrial world had finally begun to recover
from the economic effects of World War I. Although the question of
reparations and war debts remained a sensitive issue, the Dawes Plan
seemed to have solved the worst problems for the moment. As investment
from the United States flowed into Europe, the European industrial
economies once again began to prosper. In agriculture, however, the
story was different.
During the war, large areas of European farmland had been
neglected or turned into battlefields, and food production slowed down.
Other areas of the world like North America, Australia, New Zealand,
Africa, and India increased their own production to supply the warring
nations. Both during and especially after the war, improved industrial
methods of farming, such as the introduction of motorized tractors and
harvesters, as well as the introduction of new disease-resistant seeds,
dramatically increased crop productions around the world. As European
farmers also got back on their feet after the war, they began producing
again. However, the demand for certain crops, such as wheat, coffee,
sugar, and other commodities, did not grow at the same rate as
production. As more and more products were available, prices dropped and
remained low throughout the 1920s, squeezing once prosperous farmers.
The situation was worst in the United States and Canada. North
American farmers had increased their production of wheat to compensate
for the loss of crops in Europe during the war. After the war, as
Western Europeans began once again to grow their own wheat, and Eastern
Europeans entered the world wheat market for the first time, world
prices fell dramatically. By 1930 wheat was cheaper than it had ever
been since the 1500s. Farmers who had borrowed money in order to bring
more land under the plow could no longer repay their loans. Many
responded by simply trying to grow more wheat for sale, but this led to
an even greater surplus and even lower prices.
Throughout the world similar problems occurred with other
commodities. Cotton prices collapsed, ruining small-time planters in
Sudan, Egypt, and India, as well as the southern United States. Coffee
planters in east Africa and Brazil, and cocoa producers in West Africa,
all suffered similar fates. Although some were able to switch to other
products still in demand, most lived in unsuitable climates that made
such adjustments impossible. Increasingly, the production of export
commodities had become specialized by region, a situation that made
flexible responses to changing market conditions disastrously difficult.
Unable to make a profit on their own farm products, farmers could
not afford to buy manufactured items from the industrial countries. Any
slowdown in the demands for industrial goods in cities would have
potentially disastrous results for the economy as a whole. Since farmers
could not take up the slack by purchasing manufactured goods, industrial
manufacturers would have to reduce their costs of production in order to
reduce the cost of their products. Ultimately, this meant they would
have to lay off workers. And since unemployed workers had no income with
which to buy any consumer goods, demand for all products would continue
to fall. It was precisely this situation that the global economy faced
in 1929. The
Great Bull Market.
Despite the slump in agriculture, the introduction of new consumer goods
in the 1920s at first gave Americans a new sense of prosperity. Anxious
to encourage this prosperity, the U.S. government and financial leaders
deliberately kept the cost of borrowing money low. This allowed
Americans to buy more goods on credit, further fueling the economy.
Business leaders also encouraged people to join in the prosperity by
buying stock in their companies. Financial
firms allowed people to buy stocks on margin, which meant purchasers
only had to put up about 10 percent of the value of the stock they were
purchasing, while the brokers lent them the rest. As long as a stock's
value increased, the investor made a profit. If values fell, however,
investors would have to come tip with the difference between their down
payment and the amount they had borrowed. According to one estimate, 29
to 30 million American families out of a population of about 120 million
were eventually involved somehow in the stock market and competition for
stocks sent prices booming upward in what became known as the Great Bull
Market. By the summer of 1929, however, the American economy had reached
the limits of its expansion. The
crash. In
September 1929 the New York stock market began to fall. By October 21
prices were falling so quickly that stockbrokers began to send out
margin calls, demanding that their customers put up the rest of the
value of the stocks they had purchased on margin. Desperately, people
began selling shares to raise the needed cash. On October 24 the market
plunged straight down with no one buying and everyone trying to sell.
Large crowds gathered in shock outside the Stock Exchange. After a brief
respite over the weekend, on Monday the 28th the market
dropped again. The next day, October 29th, known forever after as Black
Tuesday, investors still desperate for cash to pay their margin calls
began selling off even the soundest blue-chip stocks. The entire market
collapsed. Frantically,
people began to withdraw their savings to pay their debts. Heavy
withdrawals and the need to cover their own unwise investments forced
many banks to call in other loans, including those on people's houses
and farms. The panic spread, causing a "run" on the banks.
Unable to cover all the withdrawals, many banks closed their doors,
never to reopen. With them they took the life savings of both the
prosperous and the frugal, many of whom had never even dabbled in the
stock market. The Great Depression had begun. Gordon Parks, a young
African American then working his way through high school, later
expressed the bewilderment felt by many:
“By
the first week of November…along with millions of others across the
nation, I was without a job…. I went to school and cleaned out my
locker, knowing it was impossible to stay on. A piercing chill was in
the air as I walked back to the rooming house. The hawk had come. I
could…feel his wings shadowing me.” Reactions in the Western
Democracies As the depression deepened, unemployment spread like a plague around the
world. In the industrial countries alone, 32 million people were
reported without jobs in 1932. Untold millions more in the
non-industrial countries of Asia, Africa, and Latin America, went
unreported. With so many out of work, social and political tensions soon
began to rise. On top of everything else, in North America 1930 saw the
beginning of record droughts that soon turned the Midwest, the Great
Plains, and the southern United States into a "Dust Bowl."[3][3]
As the full devastation of the depression unfolded, however,
economists disagreed about the best methods for tackling the problem.
Classical economists insisted that this was simply another
"bust" in the boom and bust business cycle and that it must be
allowed to run its course. Others, led by the British economist, John
Meynard Keynes, believed that government intervention could halt the
cycle by pumping large amounts of money into the economy to
"re-inflate" it. The United States was the first major
industrial nation to adopt Keynes's method.
As tensions grew and violence began to break out among farmers
and union workers in American cities, President Hoover and his
successor, Franklin Roosevelt, accepted the need for major government
intervention in the economy to preserve the free-market system from
radical revolution. "No president before has ever believed there
was a government responsibility in such cases," Hoover later wrote,
"there we had to pioneer a new field."[4][4] Fearing that
direct relief payments for the destitute that might undermine peoples’
sense of independence, Hoover instead cut taxes and greatly expanded
public works projects such as dams, highways, and bridges, to create
jobs for the unemployed.
As violence continued, however, and many began to call for the
same kind of socialist policies being implemented in the Soviet Union,
after his inauguration in 1933 President Roosevelt pursued an even
greater interventionist policy. Calling his program the New Deal, he and
his advisors, known as the "Brain Trust," instituted immediate
relief for the destitute as well as massive government spending programs
to pump money into the economy. Finally, he also enacted major economic
reforms, giving the government extensive and permanent powers to oversee
and regulate the economy, in order to prevent such a calamity from ever
happening again. Together with a gradual recovery of the economy as
surplus products were slowly absorbed by consumers, the peaceful
revolution of the New Deal headed off any more serious violent
revolution. Yet despite its massive involvement of government in the
economy and the lives of ordinary people, prosperity remained illusive
throughout the 1930s. Meanwhile, other leading industrial nations
implemented similar interventionist measures. Britain. Despite the apparent
return to normalcy, Britain's economy had never fully recovered from the
post-war depression that had hit the country immediately after World War
I. Consequently, when the great depression hit in 1929, Britain felt the
pain less than more prosperous countries like the United States. Once
again, the faltering economic crisis brought the Labour Party to power
under Ramsay MacDonald's leadership. Initially, however, the Labour
Government pursued traditional conservative economic policies to battle
the depression. Instead of increasing government spending, they
curtailed it. The Labour Chancellor of the Exchequer also refused to go
off the gold standard or to abandon free trade. By 1931, however,
nothing could stop the flow of gold out of the country and the
government had no choice but to give it up.
Meanwhile, MacDonald himself became convinced that only a
protectionist policy would help fight the depression. In 1931 he broke
with his own Labour Party and with Conservative support formed instead a
National Coalition Government. Under his leadership, in 1932 parliament
passed the Import Duties Bill, establishing a high tariff barrier to all
non-British goods, but lower tariffs to goods from other countries in
the British Empire. Several months later, at the Ottawa Imperial
Economic Conference, the Dominions reluctantly agreed to go along with
this policy and to maintain lower tariffs inside the Empire, a policy
known as imperial preference.
Although many economists believe that the growing restrictions on
world trade actually worsened and prolonged the Depression, in Britain
they seem to have helped recovery. As the British began to restructure
their economy away from exports and to focus more heavily on domestic
goods and services, after 1932 the economy began to recover steadily.
Low interest rates led to a growth in the housing industry, for example,
and sales of both cars and home appliances increased considerably. In
the last half of the 1930s, many in Britain were actually better off
than they had been before the depression. In 1937, Britain was producing
nearly 20 per cent more than it had been in 1929, before the depression
began. On the other hand, traditional industries such as steel, coal,
and cloth manufacturing had declined. Social and political unrest in
France. In France, too,
the Depression brought significant upheaval and fears of revolution that
led to growing government intervention in the economy. Although the
French suffered less than other more heavily industrialized nations, by
1931 trade and manufacturing had declined and unemployment had begun to
rise. As financial crisis gripped the government, the divisions in
French society that had developed over the Dreyfuss affair a generation
earlier resurfaced. Monarchists and other anti-republicans began
publicly to complain about the weaknesses of the Republic itself. After
1931 many small fascist groups openly patterned themselves after both
Italian fascism and German National Socialism. Finally, in February
1934, riots broke out in Paris as a huge crowd poured into the Place de
la Concorde, where once the guillotine had stood, and openly called for
the violent overthrow of the Assembly. As police charged the crowds,
hundreds were injured and several people were killed. This open threat
to the Republic finally brought all center parties and the socialist and
communist left into an anti-fascist coalition.
In 1936 the anti-fascist coalition, known as the Popular
Front, led by the Socialist Party, won a large majority in the
elections. The Socialist Prime Minister, Leon Blum, took office
promising to protect the Republic against all threats, and to take
measures to alleviate the depression and to improve the conditions of
workers. Calling his plan the French New Deal, after president
Roosevelt's programs in the United States, over the next year Blum
passed major reforms that permitted unions to bargain collectively for
their contracts of employment, reduced the work week to 40 hours,
required employers to provide paid vacations, and helped farmers by
providing government subsidies for grain production. He also
nationalized the arms industry.
Although workers were reasonably happy with all these measures,
conservatives became fearful that Blum was aiming at a socialist
"revolution." In 1937, under heavy pressure from both moderate
and extreme conservatives, the government fell. The Popular Front
quickly fell apart, and a new, more conservative government took power
under Edouard Daladier. As storm clouds gathered on the horizon of
foreign affairs at the end of the 30s, France remained a sharply divided
country, both politically and socially. Many conservatives had even been
heard publicly to say, "Better Hitler than Leon Blum." Such
sentiments proved prophetic. |