The Great Depression: Global Impact and Recovery Paths

Global Crisis Expansion

The U.S. crisis reverberated across Europe and the world. Capitalist prices plummeted, unemployment soared, and industry and international trade plunged.

The mechanisms for this crisis expansion were:

• Declining U.S. prices due to intense competition.
• Falling demand, reduced imports, and exports.
• Decreased investment and loans due to the stock market crash. U.S. capital repatriation spread the crisis.
• The collapse of world trade due to protectionist policies in the U.S. and other countries. International trade plummeted, affecting food-exporting countries in Latin America and Asia. Reduced income prevented loan repayments, further decreasing demand from industrialized nations. Japan and Latin America were also significantly impacted.

In Europe, the crisis began in 1933, most severely affecting:

• Germany: Inflation rose, industrial output fell, unemployment increased, and the Reichsbank lost its gold reserves.
• Great Britain: The crisis was less severe, but the international monetary system broke down. The pound, no longer the benchmark currency, was devalued by 30%.
• France: The crisis arrived later, worsening after 1936. The currency was maintained, but trade stalled, and production dropped.

Economic Recovery Paths

For some, the crisis signaled the end of capitalism. Governments implemented various recovery strategies. John Maynard Keynes proposed new solutions within the capitalist framework (General Theory of Employment, Interest, and Money, 1936).

Keynesian Proposal

Keynes argued that government intervention was crucial because the crisis was prolonged and wage reductions were insufficient. The primary problem was insufficient demand, hindering production and employment growth.

He proposed that in the absence of private investment, the state should increase public works spending to create jobs. This would cause a deficit, but increased spending would stimulate demand across various sectors—the Keynesian multiplier. The state could then raise revenue and reduce the deficit through increased output and taxation.

• Keynes advocated for improved labor conditions to boost worker purchasing power.
• He emphasized that prosperity depended on investment and consumption.
• He highlighted the role of capitalists in production and worker consumption.

Roosevelt's New Deal

The New Deal, a policy based on Keynesian theory, aimed to address the crisis and its social consequences. Implemented by Franklin D. Roosevelt, elected president in 1932, it was a contradictory policy: it increased state intervention while aiming to reduce the deficit through spending cuts.

Policy Objectives:

Economic:

• Combating falling agricultural prices (Agricultural Adjustment Act).
• Stimulating industry (National Industrial Recovery Act).
• Infrastructure projects to reduce unemployment and increase labor demand (large hydroelectric dams in depressed U.S. areas).
• Banking reforms: bank control, federal insurance for small investments, and a commission to oversee share issuance.
• Monetary policy: the dollar was devalued by 40% to boost exports.

Labor:

1933 legislation improved working conditions, ensured freedom of association, and established collective bargaining rights, minimum wages, and maximum working hours.

Social:

Social Security, unemployment benefits, and aid for the elderly were created to guarantee minimum income and increase consumption.