Economic Turmoil Between World Wars: The Interwar Period

The Interwar Period: Economic Turmoil (1918-1939)

Global Economic Context

Following World War I, European countries faced devastating human losses, rampant inflation, and low production. They were burdened by significant war debts and desperately needed credit to finance their reconstruction efforts. The crisis was especially severe in Germany, which was unable to pay war reparations, facing hyperinflation, and struggling with immense debts.

In contrast, the United States emerged as the world's leading economy, becoming a hegemonic power in international trade and finance. The dollar became the main currency for international transactions. European countries were obligated to repay their war loans to the USA, and US agricultural and industrial products flooded global markets, including Europe.

The United States Economy

Initially, growth in exports stimulated agricultural and industrial production in the USA. Mass consumption was also stimulated, but this rise in demand eventually led to overproduction. From 1922, there was a significant reduction in the exports and sales of agricultural products. The market could not absorb the surplus stocks, causing prices to fall sharply and ruining many farmers.

The period of economic growth and high business profits led to a surge in demand for shares. Large companies and small investors alike bought shares whose value increased dramatically, but often not in relation to real production or company earnings. This widespread practice was driven by speculation.

The Crash of 1929

A sudden drop in the value of shares in the stock market triggered a massive selling wave and widespread panic.

• Black Thursday (October 24): Millions of shares were offered for sale but found no buyers.
• Black Tuesday (October 29): Another huge selling wave occurred, leading to further collapse.

Shares lost their value dramatically, ruining countless investors. This catastrophic event is famously known as the Wall Street Crash.

The Great Depression Unfolds

As investors frantically tried to withdraw their money, many banks failed, and countless citizens were ruined. Loans were cancelled, and investments sharply decreased. Agricultural and industrial prices plummeted, leading to widespread company closures and mass unemployment. Widespread debts and poverty ensued as the entire economic system collapsed, marking the beginning of the Great Depression.

Roosevelt's New Deal: A Solution

President Franklin D. Roosevelt introduced the "New Deal," a series of programs and reforms aimed at combating the Great Depression. Its policies were largely based on Keynesian economics, advocating for increased state intervention in the economy.

Key aspects of the New Deal included:

• Economic Policies:
  • Increased state intervention in the economy.
  • Regulation of production and prices.
  • Control over banks and the stock market.
  • Creation of public companies and significant investments in public works.
• Social Policies:
  • Introduction of unemployment insurance.
  • Establishment of social security.
• Labor Policies:
  • Implementation of a minimum wage.
  • Reduction of the working week.
  • Support for trade unions.