Welcome back.
We’re going to discuss Europe and the Great Depression in this session.
We’ll probably take a couple of short lectures to do this.
I suppose the best context for this is simply capitalism or the market economy.
It runs into the ditch here in the 1930s.
It will have a worldwide impact.
We’ll try to focus on Western Europe here.
A number of significances – the worst economic disaster in the modern era, second significance
– this Great Depression is going to provoke governments to become more involved in their
national economies - depending on which side you’re on, interference or participation.
Significance – It demonstrates the interconnectedness of the world economy, the linkage between
the great powers and those colonized areas of the world.
Another significance – The Great Depression is going to transform people’s outlooks.
It makes visible the suffering, the unemployment, the despair that, you know, much of this has
already been there it was just much less visible.
Now as we move into the ‘30s we have the rise of national media, increasing governmental
participation.
So the misery at the bottom of the capitalist system becomes more visible.
Causes of the Great Depression – Well, it begins in the United States and then moves
to Western Europe, then into the rest of the world.
There are a number of economic weaknesses in the 1920s, after the Great War.
There’s a surplus of agriculture, for instance, and of course, a surplus causes values to
drop, so farm prices drop.
This makes it harder to pay the mortgage.
There’s a surplus of industrial goods.
Again, when you have too much of something, what happens to the price?
It falls.
If I make refrigerators and I’ve got a sales staff over here and the people who actually
build the refrigerators over here, but I’ve got a warehouse full of refrigerators that
I can’t sell – then I’m going to have to lay off some of these salesmen and some
of these workers.
So unemployment increases and of course, these people have less money to purchase stuff so
there’s even less demand as we get more and more unemployment you get less and less
demand, and a further backlog of food or manufactured items.
People, especially in the United States, begin to play the stock market with the attempt
to get rich quick.
People are what they call ‘buying on margin’ that is you borrow money from the bank to
buy stock.
You assume that stock value is going to increase and when it reaches the desired increase you
can sell it, pay back your loan, and then pocket the rest as profit.
What happens as you watch your stock values daily and you see them ticking up, up, up
and then they plateau, and then they begin to drop.
What do you do then?
You sell your stock.
Well, what if millions of people are doing the same thing.
Suddenly you have stock shares being dumped onto the market in a great abundance.
This causes their value to drop even further and quicker, sort of a vicious spiral here
of people going bankrupt.
Now there’s another factor here that I should mention.
The United States had been financing the German debt.
When we talked about Versailles a couple of sessions ago, we talked about those various
consequences, breaking up of the empires and creating new states.
We talked about Germany being explicitly blamed for the Great War.
We called it the War Guilt Clause.
I don’t think I mentioned that we also required Germany to pay reparations to repair Western
Europe that she had broken during the War.
The United States finances this.
Germany is broken and in revolution at the end of the Great War; she has no money to
pay anybody anything.
So the U.S. finances these reparation payments.
After the crash, the United States banks will begin to withdraw from Germany and will begin
to stop financing the German debt.
Let’s talk about Germany in particular for a moment.
U.S. capital flees the country after the crash.
German banks collapse.
There’s runaway inflation; that is, the money in your pocket is not worth what it
was yesterday.
I remember seeing a famous photograph of a German gentleman, he’s walking down the
street, he has a wheelbarrow that he’s pushing and it’s full of deutsche marks, German
currency.
I don’t know if he can buy a beer or a loaf of bread with that wheelbarrow load of deutsche
marks, but it indicates the worthlessness of the money, it simply has lost its value
in this runaway inflation.
So Germany defaults on its reparation payments, and then of course, the United Kingdom and
France, they default on the debts they owe the United States, as a result of the War
- so again, a vicious destructive spiral.
In Great Britain, the shipping, and of course, the British navy and merchant marines are
the finest in the world; the shipping never really recovers from the German unlimited
submarine warfare during the Great War.
Foreign investment declines as global capital begins to move to New York instead of London.
U.S. banks replace English banks as the main lenders to other nations.
British coal production declines as European coal production increases.
This increases competition obviously.
Manufacturing suffers as colonial markets close and European markets become more difficult
to penetrate.
Unemployment remains high.
Major industries in England are protected by tariffs, and of course, all the big great
powers they begin to impose tariffs on imported goods.
In the United States we call it the Hawley-Smoot Act or Tariff.
These tariffs are designed to create a, to impose an artificial tax upon imports.
Hopefully, this will generate domestic manufacturing.
What it does quite often is simply inhabit trade since everyone imposes tariffs on imports.
Let’s cross the channel again, and go back to France.
In France the economic situation was generally good in the 1920s because the French government
is busily rebuilding their country which had been badly damaged as a result of the War.
France is forced to industrialize, or rather to modernize its industrial plan because of
this.
France, of course, keeps receiving and demanding reparation payments from Germany to help finance
the rebuilding and we will see, obviously, German banks are going to go bankrupt.
France received or took German territories in the West.
At the end of the Great War, the Versailles Treaty awarded France the Saar and other parts
of Western Germany.
These are industrial, productive areas.
Now France, after the crash, well international tourism is going to decline, that accounts
for a lot of money spent in France.
There are less demand for French consumer goods.
Think about what people buy from France, generally luxury items – French fashion; French furs;
French perfume; French cognac; French champagne.
When you think of France, you think of luxury items and the demand for these things are
going down.
In France you have a series of short-lived, ineffective governments unable to deal with
this spiraling economic disaster.
Less demand creates more unemployment, more unemployment means that there are more people
who can’t buy stuff which contributes to even fewer, or less demand just compounded
over and over.
The more people you lay off the more people you have that aren’t purchasing, and if
we aren’t purchasing there’s no need to make more stuff to sell if we can’t sell
what we already have.
Let’s cross the channel again, go back to England.
Here we see pressure from the workers.
You see strikes and public demonstrations.
Now you see demonstrations in the streets and the police and the urban crowd are fighting
with each other.
Social unease, potential revolution – it seems like society is on the brink.
There’s a general strike in 1926 that shuts the country down.
The British people protest over what the government calls its means tax, I’m sorry, the means
test.
What they’re doing here is trying to establish some criteria by which the government can
determine how much unemployment relief you deserve, and of course, the common people
regard this as sort of an intrusion on their private lives and dignity, so this creates
problems.
Let’s go back across the channel to Germany.
The Weimar Republic, that government that governed during the 1920s, is increasingly
viewed as ineffective and perhaps even as illegitimate.
We have political parties rising in Germany on the left and the right.
The communists on the left, this new Nazi party on the right – both of these although
they are in the opposite extremes on the political spectrum, both the left and the right want
to destroy Versailles and replace it.
Welfare, social services, are further reduced to cut costs.
These reductions lead to more unrest – again, this vicious spiral.
The Germans begin to increasingly attack the Versailles Treaty.
They view Versailles as shackling Germany and landing her in this terrible economic
situation.
The German debt reparations are attacked by the German people – how can we afford to
pay these reparations when we have problems here at home?
More strikes, more protests, increasingly the governments are having trouble maintaining
order.
Let’s go back to France for a moment.
The government here unable to effectively deal with the economic crisis, the parties
of the left and the right both demand action, everybody wants a solution but nobody really
has a solution.
Again – demonstration, protest, riots, street actions.
In France, Prime Minister Daladier will resign as a result of these, of this social unrest.
So I’m going to stop there and give you a little break and then we’ll come back
and finish this discussion on the Great Depression in Europe.