The Interwar Period: Prosperity, Depression, and Recovery

The Interwar Period: Prosperity and Depression

The Roaring Twenties

After World War I, a period of economic prosperity emerged. The USA became one of the most prosperous countries and the first world superpower. This economic growth was based on:

• The development of industry: Due to the success of mass production and chain production.
• An increase in consumption: Promoted by advertising, credit, and hire purchase.
• Investments in stocks and shares: Banks, companies, and private individuals invested their capital in stocks, which increased their value.

The Crash of 1929

On October 24, 1929, “Black Thursday,” the stock exchange market collapsed. Investors panicked and tried to sell their stocks, which started the economic crisis of the 1930s.

Reason:

The high price of stocks did not correspond to their real value. American industry had provided Europe with all sorts of products during the war. When the war ended, European demand fell. American producers continued to produce goods that were not being sold, but their value on the stock market continued to rise.

The Great Depression

Many banks went bankrupt with the Wall Street Crash. They had invested in buying stocks and had given credit to people who wanted to invest. Industries had to close due to a lack of credit and demand. Farmers lost money because they could not sell their products. Consequently, foreign trade stopped.

The crisis extended from the USA to Europe, Asia, and Latin America. It affected different aspects of life:

• Unemployment increased.
• Social inequality grew.
• Optimism changed into deep pessimism and a lack of confidence in the idea of progress.
• Population growth declined.
• Transoceanic migration was limited due to unemployment.

In politics, the population started to reject the capitalist democratic system. They looked for alternative forms of government: this made communism popular among the working classes, and authoritarian regimes became popular among the middle and upper classes.

Solutions to the Crisis

Most countries adopted the ideas of John Maynard Keynes, an economist who proposed state intervention in the economy to help stimulate investment, employment, and consumption. In the USA, Roosevelt implemented a program of economic recovery, the “New Deal.”

New measures were put into place:

1. Banks were forced to offer low interest rates.
2. There were subsidies for agriculture and industry to reduce production and get rid of surplus products.
3. Working hours were reduced.
4. Minimum wage and unemployment benefit were created.
5. There was public investment in infrastructure to reduce unemployment.

Other countries adopted similar policies, and although unemployment persisted, the economy began to recover.