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Introduction
| The free market The Great DepressionWorld War I destroyed the free trade/imperial economic system. Britain sold much of its foreign investment to finance the war, which had wiped out manufacturing plant and laid waste to large areas of France and Belgium. Trade was disrupted, and as a consequence, manufacturing grew in India and Latin America. The United States, which did not enter the war until 1917, was the clear winner. By 1920, it was the world's largest industrial power, biggest trader and wealthiest banker. New York replaced London as the financial centre of the world. In Britain, industrial relations between bosses and workers were bad,
as shown by the General Strike of 1926.
After the Communist revolution of 1917, the
Soviet Union remained isolated from the world economy.
The Wall Street crash The Wall Street crash, which began on 24 October 1929, was a major setback
for the whole capitalist system. Caused by excessive speculation, which
drove up the prices of shares to ridiculous heights, the crash was fuelled
by panic selling and created an economic catastrophe for the US, the richest
nation on earth.
President Herbert Hoover blamed the crash on Europe, claiming that 'the European disease had contaminated the US' – in other words, Europe still had not recovered from World War I. However, an even more significant factor was low wages in the United States. This meant that the mass of Americans were too poorly paid to buy the new goods that were becoming available. As a result, manufacturing remained understimulated. The Depression In the Great Depression that followed the stock market crash, US banks called in their assets from overseas, causing financial crisis everywhere. This was especially true in Germany, which experienced hyperinflation in the early 1930s: workers were paid with barrow-loads of worthless banknotes and prices would rise three times a day. The resulting discontent helped Hitler's rise to power. In the United States itself, lack of money to invest meant that many companies sacked their workers, leading to mass unemployment. By 1932, the unemployment rate was 24% – and manufacturing was at only 40% capacity. Dole queues became a potent symbol of the human cost of the crash. The slump led to a crisis in the liberal economic system, with nations
erecting barriers to protect their home markets from foreign goods and
thus cutting world trade dramatically. Internally, the idea of letting
work and wages be regulated by market forces collapsed as governments
saw the effects of mass unemployment: hunger marches such as the Jarrow
Crusade in Britain (October 1936) or the suffering of dustbowl farmers
in the US (documented in John Steinbeck's novel The Grapes of Wrath
of 1939).
Public spending According to British economist John Maynard Keynes in his General Theory of Employment, Interest and Money (1936), public spending was the answer. In the US, President Roosevelt's New Deal policy marked a historic shift in thinking as the government began to invest in public works to create more employment and raise wages so that people had money to buy goods, thus stimulating manufacturing and creating more employment. Hitler's Germany successfully pursued similar policies, creating jobs by expanding the arms industry. In Britain, however, state planning of the economy was not adopted until the emergency of World War II. In the Soviet Union, state intervention was led by Stalin's dictatorial control. There, the 1930s were characterised by both mass starvation, as agriculture was forcibly collectivised, and terror, as workers were conscripted into huge industrial projects. The ever-present threat So work for men in the Western world of the 1930s was as likely to involve labouring on huge public projects – German motorways, US dams – as getting jobs in factories, only a few of which were producing consumer items such as cars and fridges. Office work was increasingly attracting women workers, who received less pay than men and thus appealed to employers. The threat of unemployment and the humiliation of means testing and receiving a dole was, however, ever-present. In Germany and Japan, men might find work in the manufacture of synthetic oil, rubber and textiles, while in Latin America, new factories making cloth began to attract workers, despite low wages. In the Soviet Union, both men and women might find work on huge industrial complexes, which were set up in remote locations and where labour discipline was strict. |
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