Cover photo: Unemployed men gather outside a Chicago soup kitchen owned by Al Capone. 1931. Source: National Archives and Records Administration; Ryan Stennes

In 1929, a widespread recession struck the global economy, leading to significant diplomatic and political repercussions. The genesis of this major crisis lay in the turbulence within the American economy. The initial signs of trouble emerged in the USA, serving as a harbinger of the challenges faced worldwide.

A surplus in the production of raw materials and agricultural goods triggered a decline in prices and diminished the purchasing power of farmers. Additionally, overly optimistic investments were made in emerging sectors like the automotive industry and electrical appliance manufacturing, sectors that exceeded market demand at the time.

The bubble finally burst in October 1929, revealing an imbalance between production and market capacity. The crash on Wall Street resulted in the loss of $40 billion, marking the onset of a prolonged period of recession. While the global economy had already been grappling with the Great Depression, the collapse of the New York Stock Exchange dealt a devastating blow. German trade plummeted by 25%, and British trade by 50% compared to pre-war levels. American protectionist measures and insistence on reparations payments further compounded the crisis. Austria and Germany, heavily reliant on foreign loans which were suddenly withdrawn, were among the first to feel the impact, swiftly spreading economic panic across Europe. The subsequent collapse of numerous businesses and banks precipitated a global recession, leaving 30 million people unemployed.

Different regional agreements emerged, such as those brokered at the Commonwealth Conference in Ottawa in 1932 and the halt of reparations payments in July 1932 via the Lausanne Convention. However, efforts to orchestrate a broader European or global response to the crisis faltered. Instead, there was a trend toward insular thinking, with nations primarily focusing on their own interests. The prevailing approach favored abandoning the gold standard, opting for currency devaluation, and implementing trade protectionism, ultimately leading to a climate of “every man for himself.”

The prevailing response involved attempts to balance budgets through austerity measures, a strategy that paradoxically exacerbated the problem (ring any bells?). In contrast, President Franklin Roosevelt’s New Deal represented a departure, advocating increased state spending to alleviate unemployment. Italy and Germany faced even greater challenges, as their governments pursued policies of “self-sufficiency” driven by both political ideologies and efforts to combat unemployment, fostering a surge in nationalist sentiments.

One alarming aspect of the recession was the tension it ignited between established imperial powers and those aspiring to expand their territories. Economic prosperity became closely intertwined with colonial ambitions, driven by various factors:

–Prestige: The elite and bourgeois classes were persuaded of the benefits of colonialism, lending their support to the notion of empire.
–Economic gains (a significant motivator): French investments in its colonies surged from 9% of total overseas investments in 1914 to 45% by 1940. Intra-Empire trade escalated from 12% of all transactions in 1929 to one-third in 1936, while exports surged from one-third of the total in 1910 to 50% in 1938.

Nonetheless, there were also aspirations among nations without colonies. Japan, Italy, and Germany viewed the acquisition of colonial territories as essential for their survival and future prosperity. The scarcity of industrial materials, such as iron ore, despite their existence, and the precarious state of their industries, coupled with limited access to foreign markets for Germany and Italy, underscored the challenges they faced. Additionally, Italians and Japanese encountered heightened obstacles in emigrating due to stricter immigration laws imposed by the US and Australia, adding another dimension to the problem.

Sources:

Dexter, B., “The years of opportunity”. publ. Viking, 1967.

Gathorne-Hardy, G.M., “A short history of international affairs”, publ. Oxford, 1950.

Heing, R., “Versailles and After, 1919-1933“, publ. Roytledge, 1984.