Notes on Causes of World-Wide Depression during 1929-32


There is no unanimity amongst scholars regarding the causes of the economic depression which brought untold suffering to millions of people. Generally, the following factors have been assigned for the economic depression of 1929-32 by various scholars.

In the first place, the dislocation of international trade and national economies as a result of World War I, greatly contributed to the economic crisis. During the war there was rush for raw materials and increased production, which resulted in the production of more goods than could be profitably absorbed.

The problem was made further acute by the rise in the unemployment (which was the direct outcome of the policy of ration­alization of industries), and the loss of their purchasing power.


Secondly, the problem of war debts and reparation debts which con­fronted the various countries of Europe also greatly contributed to eco­nomic depression. As a result war debts and reparation debts the economics of most of Europeans countries went out of gear and caused great hardship to people.

Thirdly, rationalization and mechanization of industries which was re­stored to in the post World War I period by the various countries of Europe, no doubt enhanced the efficiency of industries but it also greatly contributed to unemployment.

As a result the purchasing capacity of the people was greatly reduced and produced an adverse effect on the econo­mies of these countries.

Fourthly, the mechanization of agriculture led to unprecedented agri­cultural production. As a result, the prices of wheat came down to the lowest level in about 500 years. Even countries like Australia, New Zea­land, and Argentina began to produce more wheat than they could consume.


Though the under-developed countries needed agricultural commodities they could not import the same on account of their exceedingly low purchasing power. As a result, the agricultural countries had to suffer the most.

Fifthly, motivated by the spirit of economic nationalism, most of the industrially under-developed countries raised high tariff walls to protect their indigenous industries.

This resulted in the piling up of industrial products in the developed countries and contributed to economics depres­sion.

Sixthly, the mal-distribution of gold caused by debtor states [paying their debts to America in gold, led to shortage of gold in most of the countries. As a result the prices of goods in European countries greatly declined. This forced the European states to stop export of gold to PSA to keep the prices under check.


Seventhly, the taste of Communism in Russia and the cog sequent can­cellation of the debts of late Czarist regime, caused economic loss to the European states, which further contributed to economic depression.

Finally, the crisis of Wall Street, the share market of New York greatly contributed to the economic depression.

On 26 October 1929 prices of shares all of a sudden went down. The immediate intervention by the American Government and the capitalists saved the situation for some time, but in November 1929 once again there was a shdrp fall in the prices of shares. This brought untold misery to the American capitalists.

Many speculators were rendered jobless. Under the circumstances, the Ameri­can capitalists decided not to invest their money in any foreign country. Even the American Government refused to advance loans to the Euro­pean countries. This gave a serious setback to the economies of European countries and contributed to the economic depression.


Impact or Consequences of Economic Depression Though the causes of the economic crisis might have been very com­plex and obscure, its results were very clear. Its main consequences were as follows:

Firstly, as a result of mal-distribution of gold in the world, England stopped the export of gold and abandoned the gold standard. England was soon followed by about 40 states. This hit hard the currency system of world.

Secondly, it led to the abandonment of the policy of free trade, and adoption of high tariff all round. England passed the Industrial Protection Act, to protect her own industries against those countries which had artifi­cially increased the volume of export by devaluing their currency.

Thirdly, the economic depression caused social unrest in Germany and paved the way for the emergence of Nazi Party under the leadership of Hitler.


The Nazi Party had been bitter critic of the Peace Settlement and was opposed to payment of reparations imposed on Germany. The eco­nomic crisis testified the apprehensions of the Nazi Party and paved the way for the return of destructive forces of Nazi regime.

Fourthly, the depression gave a rude shock to the belief of capitalism and in its place socialistic ideas gained currency. That is why sometimes the year’s between1930 to 1939 are described as ‘the pink decade’.

In contrast to the depression in the capitalist countries the Soviet Union continued to make progress in the economic field. This promoted the people of the capitalist countries also to appeal to their governments to tide the depression and to stimulate recovery.

The New Deal of Roosevelt in America and the economic nationalism of Great Britain introduced state control even in the greatest democracies of the world.

Fifthly, the economic depression was also responsible for isolating U.SA. From the international politics after 1930 .

Sixthly, in the Far East, the economic crisis reduced the Japanese foreign trade to half and contributed to unrest in domestic politics.

Com­pelled by the need for economic expansion she decided to embark upon a policy of conquest. Her attack of Manchuria in 1931 created a break in the system of collective security. Prof. Toynbee has summed up this change thus:

“Rocked by the remorseless turning of the economic screw in the long drawn-out course of the world depression, the Japanese people at last followed the lead of the Japanese army in reversing from the policy of commercial expansion to the policy of military conquest.”

Seventhly, in France the economic crisis led to instability of the govern­ment and resulted in Ministerial crisis.

The value of the French currency also fell down considerably. Thus in spite of British and U.S.A. assistance, France was not able to escape the economic crisis and its consequent impact.

Eighthly, in Italy the economic crisis created many domestic problems which could not be successfully tackled. This gave rise to the fascist movement and encouraged the government to follow an imperialistic policy to divert the attention of the public from domestic problems.

Ninthly, the economic crisis indirectly paralyzed the League of Nations, by creating problems which could not be solved by it and ultimately sounded its death-knell.

The Far Eastern crisis of 1931, the Italian rape of Ethiopia in 1935, the brutal murder of the Spanish Republic by Germany and Italy were some of the problems which the League failed to solve.

Finally, the policy of appeasement followed by England, France and U.SA. Towards Germany, Italy and Japan during the years 1933 to 1939 was also an indirect outcome of the economic crisis.

During this period these power concentrated more attention on their economic problems and neglected the international sphere.

Thus, the Economic-Crisis of 1929, though economic in nature had far-reaching political implications.

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