The Inter-War Period (1920-1939)
Senior 6 · History
The Inter-War Period (1920-1939)
Lesson 3 of 5
25 min
Begin with the evidence. In 1934 the League of Nations' statisticians published the monthly value of the imports of 75 countries since 1929. The economic historian Charles Kindleberger later made the figures famous. Look at the January value for each year and work out the fall before you read on.
Between January 1929 and January 1933 the value of world imports fell from about 3.0 billion to about 1.0 billion gold dollars a month: by about two-thirds. Part of the fall was in prices, part in the quantity of goods traded, but either way the farmers, miners and factory workers who produced those goods lost their incomes. A slump that began in one country had become a world depression.
Definition
Depression: a long and severe fall in economic activity, with falling production, prices and trade and mass unemployment. The world Depression is usually dated 1929 to the mid-1930s.
Speculation: buying shares or goods in the hope of selling them quickly at a higher price, rather than for their income. In the 1920s many Americans bought shares "on margin", with borrowed money.
Gold standard: a system in which a currency can be exchanged for a fixed weight of gold. To defend that link, a country losing gold had to raise interest rates and cut spending, even in a slump.
Protectionism: protecting home industries from foreign competition with tariffs (taxes on imports) or quotas.
Deflation: a general fall in prices. It raises the real burden of debts and discourages spending and investment.
| Cause | Explanation |
|---|---|
| Weaknesses in the American boom | In the 1920s production outran demand: farmers had been in difficulty since the early 1920s, income was unequally shared, and much buying was on credit. Share prices rose far above company profits, fed by speculation with borrowed money. |
| The Wall Street Crash, October 1929 | Share prices collapsed on 24 and 29 October. Savers, investors and banks lost heavily; confidence and spending fell. |
| Bank failures | Thousands of American banks failed between 1930 and 1933, wiping out savings and credit. The Federal Reserve let the money supply shrink. |
| The circle of loans, reparations and war debts | American loans to Germany (Dawes Plan, 1924) helped Germany pay reparations to Britain and France, which repaid war debts to the USA. When American lending stopped in 1928–29, the circle broke. |
| The gold standard | Countries on gold raised interest rates and cut spending to keep their gold, deepening the slump; recovery came sooner in countries that left gold early (Britain in 1931) than in those that stayed on it (France until 1936). |
| Protectionism | The US Smoot-Hawley Tariff (June 1930) raised duties on imports; other countries retaliated, and trade shrank further. |
| The European financial crisis of 1931 | The collapse of Austria's largest bank, the Creditanstalt, in May 1931 spread panic to Germany, where banks closed in July, and to Britain, which left the gold standard in September. |
| Collapse of commodity prices | Prices of wheat, coffee, cotton, rubber and copper fell steeply, ruining the farmers and miners of Latin America, Asia and Africa who depended on exports. |
Colonial economies had been built to export a few raw materials, so the collapse of prices hit them hard. African farmers received less for their coffee, cotton or cocoa, yet colonial taxes still had to be paid in cash. Many administrations responded by forcing people to grow more export crops, which raised production and pushed prices down further. In Ruanda-Urundi, Belgium made coffee growing compulsory from the early 1930s to raise revenue. In the copper mines of Katanga and of the Northern Rhodesian Copperbelt, thousands of workers were laid off, and many migrants walked home; in 1935 African miners on the Copperbelt went on strike after a sudden rise in tax. The Depression showed Africans how completely their livelihoods depended on decisions taken in New York, London and Brussels.
| Interpretation | Who | Main argument |
|---|---|---|
| Demand collapse | John Maynard Keynes, General Theory (1936) | Spending fell and markets did not correct themselves; governments should spend to restore demand |
| Monetary failure | Milton Friedman and Anna Schwartz (1963) | The US Federal Reserve let banks fail and the money supply shrink by about a third, turning a recession into a depression |
| No stabiliser | Charles Kindleberger, The World in Depression (1973) | Britain could no longer lead the world economy and the United States would not, so no one kept markets open or lent in a crisis |
| "Golden fetters" | Barry Eichengreen (1992) | The gold standard spread the slump between countries and stopped governments from fighting it |
These explanations are not exclusive. A strong answer shows how American weaknesses (Friedman, Keynes) were transmitted worldwide by the gold standard and the loan circle (Eichengreen), and why no state acted to stop it (Kindleberger).
Warning
The Crash was not the Depression. Share prices also fell sharply in 1987 without a world depression. The Wall Street Crash was a trigger; what turned it into a world depression were the bank failures, the shrinking of money and credit, the gold standard, protectionism and the 1931 financial crisis. Don't write as if the Crash alone caused a decade of hardship.
Tip
Link the Depression to the rest of the unit. Examiners reward answers that connect: the Depression ended American loans and reparations, raised unemployment in Germany and fed the Nazi vote (Lesson 5), pushed Japan into Manchuria and weakened the League (Lesson 1), and made Britain and France reluctant to spend on rearmament or sanctions, one root of appeasement.
Important
Discuss. Trace the chain of events that could link a share-price collapse in New York in October 1929 to a coffee farmer in Ruanda-Urundi forced to grow more coffee in the 1930s. Which link in the chain was decided by people in Africa, and which by people elsewhere?
"Conversations with History: Barry Eichengreen" (UC Berkeley Events, 2009). The economic historian discusses the Great Depression and the gold standard, recorded during the 2008–09 crisis. Watch for his explanation of how the gold standard spread the slump, and note how the crisis of his own time shaped the questions he was asked.
Practice
Sources and credits
Written by Ganzaa: the analysis, the chart, the tables, the definitions and the exercises.
This lesson adapts CC BY-SA material and is shared under CC BY-SA 4.0.
