The inter-war depression has remained the most traumatic economic event of this century. The story of the subsequent fifty years is that of the attempt of policy-makers and economists to avoid a repetition of the catastrophes of the international slump.
An immediate reaction was to blame the international economy for the problems of each country. The British economist, John Maynard Keynes, wrote a widely quoted article in 1933, whose title indicates the import of the message: ‘National SelfSufficiency’. Tariffs might stop the spread of deflation. Above all, countries should undo the link with the international monetary standard, gold. After Britain left the gold standard, in the midst of a financial panic in September 1931, the British authorities were free to determine their own monetary policy. Low interest rates in the 1930s then helped to contribute to a recovery based on a rise in consumer spending and consumer credit. It became easier to finance house purchases, and house construction, and the innovation of hire-purchase led to a boom in the sale of consumer durables: automobiles, refrigerators, radios.
On the other hand, those countries which remained longest on the gold standard, Belgium (until 1935), France, The Netherlands, and Switzerland (until 1936) suffered from continual low confidence and financial panics. The depression lasted longest in the so-called ‘gold bloc’.
Germany, meanwhile, also went on a separate route to recovery. She did not formally abandon the old parity of the mark against gold, but imposed such tight exchange controls that in practice she too could pursue an independent monetary policy. Lower interest rates were supplemented by large-scale public orders from the National Socialist government after 1933: first, for construction projects, the most famous of which was the creation of a network of divided highways (autobahns). But there were also party and government buildings; and increasingly important in the German recovery process was military spending. Not all the credit for the German recovery, however, should be attributed to Adolf Hitler: some of the policies that made possible a recovery, such as the adoption of a more relaxed monetary policy, and also the reduction of the German wage level, had been undertaken already before Hitler became Chancellor.
The Soviet answer to the problems that elsewhere produced the world depression was the most complete expression of the principle of autarky, or disengagement from the world economy. Stalin referred to this as building ‘socialism in one country’. He reacted to falling agricultural prices and to rural unrest with the collectivization of peasant agriculture, brutally imposed after 1928, and by the forcible extraction of any farm surplus. Low levels of investment in the 1920s affected Russia as well as western Europe. The Soviet response lay in an industrialization drive, planned on the basis of Five Year Plans. The investment could be paid for by depressing industrial and other incomes. One of the effects of collectivization was to mobilize large numbers of displaced peasants from the countryside as new recruits to the labour force. During the 1930s, some 20 million additional workers were created in this way. The new industrial workers were badly paid (real wages fell by half). They were held in order by a mixture of terror and brutality and the application of crude psychological methods, such as the campaign based on the model worker Stakhanov. Nevertheless the USSR derived a substantial propaganda advantage from the successes of large-scale industrialization; and many countries later saw the Soviet model as an attractive way of achieving an initial industrial start. Even the German Four Year Plan of 1936 was an indirect tribute to the virtues of planning and to Stalin’s Five Year Plans. The price paid by Russia in the present was heavy, however, and the legacy for the future quite disastrous.
World History
