The Great Depression: Causes, Phases, and Global Impact
Demonstrations of the Crisis: The Depression
The period following the crisis was marked by a long depression, covering the 1930s. The capitalist world only managed to recover from this global crisis with the advent of World War II. It was a vicious cycle, with phases including:
- Business bankruptcy
- Weak overall increase in unemployment and declining wages
- Diminished consumption capacity
- Drop in prices of industrial and agricultural products
- Decrease in corporate profits
- Investment decreases
- Difficulty paying debts to banks
- Bankruptcy of weak banks
- Further bankruptcies
- Withdrawal of investments from abroad
The depression profoundly affected various sectors:
Impact on Industry
Industry was the most severely hit, suffering a great contraction. The existence of large "stocks" caused prices to fall significantly. In the USA and Germany, prices plummeted during the peak of the depression.
Impact on Agriculture
While agricultural production volume varied little, prices fell sharply as a consequence of the reduction in the urban population's purchasing power. This drop was felt particularly in luxury farm products such as fruits and coffee. Consequently, countries whose economies depended on the export of these products suffered a hard blow. This created the paradox where agricultural products could not be sold, leading to further price declines, while large segments of the population suffered from unmet needs. The usual exodus from the countryside to the city was interrupted, causing an excess labor force in agriculture, which led to reduced wages and increased unemployment. Small farmers often fell into debt with banks and frequently ended up selling their properties.
Impact on Wages and Employment
Unemployment caused by the depression was abundant in all countries, but especially in the industrial and mining sectors due to business closures in the industrialized world. Unemployment figures rose dramatically: from 10 million in 1929 to 40 million in 1933. Regarding the salaries of those lucky enough to work, although some governments attempted to keep them elevated to increase purchasing power and reactivate the economy, this was rarely achieved. Wages tended to fall, exacerbated by a large number of unemployed job seekers, which further affected the consumption of agricultural products, increasing stocks and contributing to the decline in their prices.
Impact on Finance
The crisis disrupted the international payment system and short-term liquid investments. Debtor countries could not afford their payments and requested moratoria, devalued their currencies, and so on. Faced with this situation, lenders, losing money, tended to hoard and sterilize their capital.
Impact on International Trade
The global trading system collapsed. It became increasingly difficult to find markets, as all countries wanted to sell their products and not buy. Free trade disappeared, replaced by protectionism and bilateral agreements between two countries to exchange goods of equivalent value. The global economy fragmented into economic blocs, such as the Sterling Area.