The research paper deals with the Great Depression and its effects on European economies as well as the ways it was handled by the respective countries. The project is based on the opinions of world’s finest economic experts, historians and scientists. The problem raised is supported by statistical proofs retrieved from researches conducted by the abovementioned subject-field scientists.
Key words: the Great Depression, economic, Europe, crisis, war.
The Great Depression is a harsh world economic crisis that spanned over the timeframe of 15 years wedged between two world wars. 1930s are considered the starting point of the economic calamity while its culmination juxtaposed with the end of the Second World War. Not a single world country arguably stood aloof from the decline, experiencing the depth of economic devastation. A whole series of fiscal miscalculations spilt into a most detrimental stagnation, with European countries feeling the effects of the crisis as much as the USA did, which the Great Depression stems from. Serious as it was, the crisis was battled by all the European countries with their unique tools and approaches.
According to professor of economics, Kenneth Matziorinis (2007), economic collapse of 1930s was of unprecedented sweep since the recovery never ensued a few years following its beginning, as it does during an average economic instability. Never has the whole world been inflicted so great damage when economies saw a drop of 25-35% in total production while unemployment rates soared to 25% in the USA and Britain as well as 40% in Germany. Taylor (2013) opined that the crisis halted industrial production and construction, producing a 89 decrease in stocks. That being said, governments proved inefficient and unable to cope with the crisis that unfolded over the period of 1929 to 1939, causing world population to despair of future, getting it completely depauperated. According to Gene Smiley, an emeritus professor of economics, (2008), Germany, Brazil, and South Asia economies were in economic depression already in 1928. The early 1929 saw the economic systems of Poland, Canada and Argentina “contracting” the epidemic (Smiley, 2008). Exported from the USA, the Great Depression, a crisis with capital C, is credited with laying foundations for the Second World War in many ways (Matziorinis, 2007). Needless to say, the Great Depression did a lot to create a perfect hotbed for the ascension of political dictators, most notably the leader of the Nazi Party, Adolf Hitler.
In accordance with Howarth and Becker (2009), it was Smoot-Hawley Tariff Act that played a significant, if not the dominant role in aggravating the stagnation. Signed into law back in 1930, it raised the bar of tariffs imposed on more than 20,000 goods imported to the USA to unprecedented levels. Generating high production rates, increasing payrolls and securing construction contracts at first, it did backfire when European countries countered with adverse tariffs, which had the rates of imports and exports plummet down by half. The Tariff was coupled with huge debts that European powers owed the USA, making it impossible for them to buy American goods. The US recurring loans did not remedy the situation for Europe that started rebuilding its own industrial and agricultural potential, not being able to trade with America, with farmers defaulting on their loans (Howarth & Becker, 2009).
War bled European countries dry; so the victors imposed reparations on the already drained Germany and what remained from the Austro-Hungarian Empire following the Treaty of Versailles in order that they might garner enough money to pay their debts. In doing so, the World War victors forced Germany into receiving loans from both Britain and the USA. The year of 1929 saw the stock market collapse rapidly and critically after the Federal Reserve Funds rate had been raised in the spring of 1928, crippling the whole world economy (Howarth & Becker, 2009). Taylor (2013) claimed that the turning point in the Great Depression timeframe was tabbed as “Black Tuesday”, when Dow Jones Industrial Average hit its lowest or 23%, costing 8 billion dollars. Simply put, what the US Federal Reserve did was fight speculators as well as trying to preserve dollar true value by increasing interest rates, causing hundreds of banks to declare bankruptcy as a result of investors’ and depositor’s withdrawing money from banks in terrible rush, which came to be known as “Bank Runs”, so say nothing of the loss of billions of dollars in assets (Howarth & Becker, 2009).
Apart from legal mishaps, there were actual military and economic reasons to galvanize the Great Depression into action. The First World War, which beginning fell on the August of 1914 lasted 4 years and engaged more countries than originally expected from France and Belgium to Russia and the Turkish Empire. While the war was ravaging the countries involved, nonparticipants, such as the USA, Canada, Brazil, Argentina, and Australia, were capitalizing on the conflict. To make matters significantly worse, warring countries would press all the buttons by going as far as to deplete their own gold reserves to gain a much needed military momentum. With reserves running out and money no longer borrowed by creditor countries, the belligerent states had no other alternative but to print money to somehow pay the bills. Matziorinis (2007) admitted that France used to take advantage of Britain’s financial hospitality, as did Belgium to have sustained the onslaught of the hostile nations, while the three of them had nothing to do but borrow from the USA at later stages of this war of attrition.
War became too heavy a burden to shoulder, especially for both domestic and international trade, dealing world economies a palpable blow, knocking the firm bottom out of their feet, so to speak. Watching helplessly their debts accruing with every passing day, the European powers had their golden standards rendered irrelevant that were prerequisite to prices stability as well as monetary discipline when paper currency corresponds to a certain amount of gold without divergences; yet gold used to perform trade functions prior to being replaced by paper counterpart years ago. Money being printed excessively and gold reserves shrinking resulted in exponential inflation and ceiling reaching prices, which, in turn, had its toll on purchasing power. In order for governments to return to similar antebellum currency parities and improve a shaken monetary system deflation measures were being put in practice those days (Matziorinis, 2007). Lewis (2012) claimed that the concept of the gold standard was coined as early as in 1960s. The expert is not inclined to bash the Federal System founded in 1913 alone as libertarians did. It performed it functions properly and the word is that actual gold value the prices were pegged to might have changed around 1930s (Lewis, 2012).
Matziorinis (2007) believed that obvious reasons of collapse root in the post-war Europe economic situation. To put a few examples, Russian tsar’s dethroning and social upheaval in 1917 made the Eastern Europe economy decline, with debts to the western countries being repudiated; the collapse of the Ottoman Empire, spanning over the Balkans and the Middle East, the Austro-Hungarian Empire, splitting into Austria, Czechoslovakia and Hungary, created a plethora of political issues as well as economical void to be filled by the newly emerged countries. Free trade zone agreements in place, these lands used to have economy flourishing for centuries, when part of former empires.
Besides introducing trade barriers, the new economies were in sharp need of moneyed assistance to rise from ruins, which could not but put additional strain on the monetary system. There was no easy bouncing back from ruins, since there was no free trade to provide the abundance of jobs and food for the impoverished populace. Resuming the once suspended gold standard was a hard move to make since the post-war picture suggested there were a lot of war-riven, battled and newly emerged countries in Europe, having to acquire the spent gold, export more than was imported and have budget cuts regardless of people’s vital needs (Matziorinis 2007). However, to fully realize how serious the impact was it is sensible to analyze the figures.
Kavonius (n.d.) admitted that Austria, Germany, France and the USA suffered by far the biggest stagnation blow, bearing the major brunt, with GDP per capita plummeting by 20%. Belgium, Czechoslovakia, Spain, Sweden, Finland, Italy, Greece, the Netherlands and the United Kingdom are shown to bear lesser damage and GDP drop of 10%. Belgium and Netherlands had crisis lasting longer than in the aforementioned countries, exceeding the average expectancy of 3 to 4 years. Denmark, Bulgaria, Portugal and Norway are the countries that felt mediocre crisis, if at all (Kavonius, n.d.). Graham (2009) suggested that the Soviet Union enjoyed practically a complete stability, since distancing itself from capitalism from the early goings. For the record, the communistic country used to partially cover the Eastern Europe where now Belorussia and Ukraine, its formerly seized countries, are now situated.
Graham (2009) claimed that French underdeveloped economy is accountable for country development taking a downward tendency. Its economy yielded to that of Britain, especially in farming. Tourism was a lion’s share of the national revenue; so, with tourists no longer visiting the country due to financial strain, the impact on the economy was apparent. Unlike Britain, France placed serious expectations on German reparations, which ceased at some point, no longer replenishing the economy. Not until the late 1930s did France partially regain its former economic shape. Since discontent caused a socialist group, the Popular Front, to take power and bring Leon Blum to power in 1934, French mixed approaches made it the last country to rid of the crisis.
There is a solid opinion that, of countries struck by the crisis, Britain was the country to suffer most from the Great Depression and a heavy recession that it implied (Graham, 2009; Matziorinis, 2007). Graham (2009) argued that it might be in 1918 that Britain experienced what was later tagged as a “Great Slump”. The whole reason was that Britain relied heavily on exporting its goods overseas; thus when the importers started nose-diving, the Empire found its trade figures wanting. This is why the country was the first to experience economic slowdown, with unemployment rate skyrocketing from 1 to over 2,5 million in the days of the Great Depression. The unemployment rate would reach 70% in separate cities; however, the country commenced showing a reversal tendency in 1935 when the rate was already on the wane. Amazing is the fact that country came close to almost completely erasing the signs of the crisis with methods somewhat unorthodox by peacetime standards. The outbreak of WW 2 called for large number of population to fight on the battlefield or get employed in agricultural as well as industrial and military sectors.
According to Audu (2006), interest rates on the stock of the government were reduced to 3 1/2 % in order to decrease governmental interest payments and lure British trade partners. The government also stretched out a helping hand to entrepreneurs by exempting them from import duties of 20%. Industries were being granted subsidies while those being unable to withstand the crisis were nationalized, including coal mining and heavy industries. The unemployed were required to disclose family earnings for the government to know exactly if there is an actual need of dole (Audu, 2006).
According to Matziorinis (2007), Britain’s efforts of returning to the gold standard in 1930s required stabilizing prices in cutting budget spending, axing salaries, curtailing subsides, as well as arranging for prices on staple commodities and goods to be significantly lowered. To cushion the effects of the Great Depression Britain started subsisting on a “starvation diet” causing a galloping rate of unemployment and labor competition in coalmines in particular. Gold standard restoration and market demand improvement in Britain were a must-implement policy forasmuch as the fiscal system of the then British Empire held the sole responsibility for securing the welfare of all the subjects in all the domains of the empire. In 1931, Britain, however, opted for going with no linkage to the gold standard, which had the pound sterling gradually losing its original value by a third. Whatever the decline, the decision of dumping the gold standard did provide a much needed monetary discipline as well as a good example for other countries to follow. Though somewhat re-aggravating the depression, letting countries pursue their narrow interest, without thinking about the commonwealth, ushering in economical anarchy, it seemed to be one of the most logical ways out.
According to Matziorinis (2007), the feeling was that Britain huge support if provided could have brought depression to naught. Save that the USA had remained indifferent and unwilling to embrace its share of responsibility, the effects of the Great Depression are thought to have possibly been far lesser that they were. Kavonius (n.d.) asserted that the USA transitioned from being a foreign debtor to becoming a foreign creditor. This opinion speaks volumes for the fact that a non-intrusion stance was a well-calculated decision on the part of the government. Matziorinis (2007) presumed that European allies or the Entente members are critiqued for having been vindictive and creating an unproductive climate, when treating Germany and demanding that its government pay a heavy military tribute. Germany was per se marginalized, humiliated and stripped naked of all the financial resources available. What better way for a twisted dictator to come to power than to emerge on the political proscenium of a country plagued by unemployment and humiliation and promise a much coveted way out? The Führer created an economic miracle, turning Germany into a huge force to be reckoned with (Matziorinis, 2007).
According to Graham (2009), Germany is one of the countries that were struck most by the Great Depression owing to reparations, which rendered the national currency or Reichsmarks nearly worthless. People’s savings went to rack and ruin, so did the economy. In order to remedy the situation the Lausanne Conference cancelled reparations; still, the unemployment rate never fell lower that mark. In 1933, Adolf Hitler came to power and managed to turn matters around in such a way that in 1936 the former crisis was more of afterthought than an actual threat. Germany was manufacturing ammunition and weaponry, gearing itself for world domination (Graham, 2009). McCulloch (2009) admitted that it was to the Great Depression that Hitler partially owed his successful ascension. Let us face it, if it had not been for recession Hitler might have never made it to the top, skillfully manipulating people’s piqued pride and the state of impoverishment. Alsace-Lorraine, West Prussia, and overseas colonies being handed over to the victors as well as demilitarization of the Rhineland did its work (McCulloch, 2009).
According to Weber (2012), it took the Third Reich’s economy 3 years to fully eliminate unemployment and get it to prosper. Hitler had to cope with the production rate that had fallen to half of what it used to be before his political arrival. The German leader practiced borrowing for public expenditure, such as canals, railroads, and most importantly the first ever “Autobahnen” or the network of highways. Hitler’s administration also did survey and control salaries as well as prices. Other European countries voiced plenty of skepticism with regard to German reforms, predicting eventual failure, though it never happened. Hitler appointed a prominent banker and financier, Hjalmar Schacht, President of Germany Reichsbank and then the Minister of Economics, which had an overall positive effect on the economy, to say the least. Prices for consumer goods were falling, working conditions were improving, and rents were within a stable level during the tenure of Adolf Hitler and his party (Weber, 2012). Such were the general consequences of the Great Depression and the remedies applied for battling the crisis in Germany.
As a matter of fact, there are umpteen reasons for the Great Depression to have taken place in both the USA and Europe. Speaking of spread rate, rapidly and massively did it hit Europe in the late 1920s, causing most European countries to spend years restoring their respective economies. The First World War, which was the war of attrition took its fatal toll on the warring countries that bartered gold reserves of their own in exchange for foreign loans to get the best of hostile states and get the upper hand in the conflict. Germany, Austro-Hungarian Empire political descendants were most affected by the crisis while Britain and France were less damaged. The Paris Peace Conference caused Germany to pay heavy reparations to the victors, which had national anger surge to great heights. Adolf Hitler was the one to take full advantage of such sentiments as well as rebuild the crisis-torn Germany, which revival was one of the most miraculous among all the nations affected.
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