The Great Depression: Causes and Consequences

After the First World War, most of the belligerent countries had suffered serious economic losses. The United States was the only exception, consolidating its position as a great world power.

The return to the pre-war economy presented many difficulties. These included:

• Dependence of European governments on the U.S. economy
• Increasing protectionism
• Rising inflation caused by an increased money supply during the war
• Rising unemployment
• A tendency towards overproduction in the economic system

The Roaring Twenties and the 1929 Crash

In the 1920s, America best reflected confidence in the future because it was the only country experiencing significant economic expansion. For this reason, much of the population took out loans and speculated on the New York Stock Exchange. This ended on October 24, 1929, when investors began selling their shares *en masse*, causing widespread panic. Everyone wanted to sell to minimize their losses. The feeling of fear precipitated the stock market crash.

The Great Depression and its Global Impact

The stock market crash, coupled with an economy already accumulating problems and a lack of adequate response by the monetary authorities in the U.S., caused an economic crisis known as the Great Depression. The crisis continued throughout the 1930s and subsequently spread widespread economic pessimism. Many businesses failed, unemployment increased, prices fell, and there was record deflation due to non-state intervention. The crisis was exported worldwide.

The arrival of the crisis in Europe led to a decline in U.S. purchases, worsening the situation. It also led to the adoption of protectionist measures in most European nations, causing a fall in prices in the U.S. and worldwide, respectively.

The Rise of State Intervention

In the 1930s, many governments, aware of the inadequacy of economic liberalism, began to experiment with new economic policies. These were based on:

• Increased domestic demand
• Greater production planning
• Social security systems to alleviate the effects of unemployment

In short, this involved increased public spending and encouraged state intervention.

However, among the countries that broke away from liberalism, there were notable differences. There were extreme cases, such as fascism and communism, in which the state controlled the economy in an authoritarian manner.

Roosevelt's New Deal

In the U.S., President Roosevelt proposed the New Deal, which led to major projects that increased demand and revived industry and agriculture.