The Great Depression

During the period 1922-29, the world made remarkable progress on way to recovery from the
chaotic situation created by the Great War. However, the economic crisis which began
towards the end of 1929 took the world completely by surprise. It descended upon gradually
and its gravity was not fully realized until the autumn of 1930 and it was regarded as a
Depression due to Wall Street Crash which would soon pass away. But soon it threatened to
culminate in a panic, popular as well as expert opinion realized the arrival of the grave
economic crisis. Various interpretations have been put forward regarding the causes leading
to the great depression which had a wide ranging impact on the economy on Europe. The
economic crisis was the outcome of operation of slowly working tendencies. There was a
tendency to speak of Wall Street Crash of 1929 as the starting point of the crisis. Agriculture
was the most affected sector by the crisis. The crisis was precipitated by the over-production
of in Europe in 1929 which can be regarded as the first cause of trouble. The sudden decline
of the European demand caused serious embarrassment to agriculture.
The crisis soon began to manifest itself in the domain of the industrial production also. The
Industrial Depression resulted in a decline of raw materials which further accentuated the
trouble of agriculture. The decline in the purchasing power of the agriculture population in
turn accentuated industrial depression and thereby completing the viscous circle. Depression
in agriculture and industry, falling prices and the difficulty of selling market resulted in the
failure of the large number of commercial and industrial firms. The Stock Exchange all over
the world affected by the Wall Street slump displayed a persistent declining trend. The Banks
suffered heavy losses and had to carry the burden of financing the frozen stock of
commodities and their earning capacity also declined considerably.
The Great Depression had catastrophic effects in most of the countries. As discussed above,
prices dropped and even the personal income, tax revenues decreased considerably. The
international trade dived down by more than 50%. The unemployment in most of the
developed countries rose up to 25% and while in developing countries it rose up to 33%.
Many theories were given by the Economists for the great depression of 1930. Among the
Marxist, the most popular explanation of the crisis have been the under consumption. This
theory was propounded by Paul Sweezy and Gillman. This starts from the fact that in the US
economy of the 1920s there was a sharp divergence between a high growth of output and a
limited growth of wages and consumption. Gross industrial production grew by a third
between 1922-29 but real wages by nearly 6.1 per cent and the total consumption only by 18
per cent. Between 1927-29, the total manufactured output rose nearly 14 per cent but
consumption only five and a half per cent. It has been argued that this was the mainly because
of the disequilibrium between production of capital goods and consumption goods. A large
proportion of the world economic resources were devoted to the manufacture of capital
goods, as a result the production capacity increased while the demand for consumption goods
decreased. Lewis Corey argues that the equilibrium of capitalist production came to depend
more on artificially stimulating wants of the small groups of people with excessive
purchasing power- the bourgeoisie.
In many countries, recovery from the great depression began in 1933. Many historians
believe that the great depression ended with the beginning of World War II. The Government
spending on the war caused the recovery from the great depression and it also increased
employment. President Roosevelt started a series of domestic programmes between 1933 and
1936 popularly called New Deal and this New Deal accelerated the recovery. President
Roosevelt also started the construction of Hoover Dam in 1931 to raise employment for the
unemployed people.
The Great Depression originated in US but ultimately affected the economies of the countries
of Europe. At the same time Russia was the only country to remain unaffected by the
economic crisis of 1927-33. On the contrary its industrial development went on as before
while many of the people of the West were facing economic problems.