a little lesson on history...

The Great Depression

The Great Depression was the world-wide economic slump which began in the US following the wall street crash of October 1929, and put hundreds of millions out of work across the capitalist world throughout the 1930s.
After a decade of unprecedented boom in the U.S., known as the “Roaring Twenties”, the US economy had run out of steam. Despite an exceptional level of productivity, US workers could no longer support the enormous mass of fictitious capital created by speculation on the share market and unsecured bank loans. At that time, there was very little government regulation and no practice of government intervention in finance. Share prices began to slip as profitability declined and on 29 October 1929 share prices on Wall Street collapsed catastrophically, setting off a chain of bankruptcies and defaults which spread across the world. Factories and businesses closed, workers plunged into poverty in millions, houses and farms were repossessed, crops which could not be sold were dumped into the sea. By late 1932, share prices had fallen to 20 percent of their 1929 value and 11,000 of the United States’ 25,000 banks had collapsed, manufacturing output had fallen to half its 1929 level, and 25 to 30% of workers throughout the world were unemployed and with no means of support, roamed the country in search of work. In the US, the uncontrolled development of the early 1920s had reduced vast tracts of land to a dust bowl, and farmers unable to sell their produce, unable to repay their bank loans were evicted and with their families joined the human flood of misery.
The Great Depression spread rapidly from the US to Europe and the rest of the world as a result of the close interconnection between the United States and European economies after World War I. The United States had emerged from the war as the major creditor of postwar Europe, whose national economies had been greatly weakened by the war itself, by war debts, and, in the case of Germany by the need to pay war reparations. So when the US economy slumped, credits and loans were called in and whole national economies were thrown immediately into bankruptcy. Germany and Great Britain, which were the most deeply in debt to the US were hardest hit: nearly 40 percent of the German workforce was unemployed by 1932. Britain was less severely affected due to the continuing benefits of its Empire, but its industrial and export sectors remained seriously depressed until the beginning of the War.
There had been plenty of economic slumps before the 1930s, in fact economies rose and fell on a roughly ten year “business cycle”, but the Great Depression was so much worse than anything that had come before precisely because it was world-wide; previously one or another country had been affected by slump but in other parts of the world the economy would be OK, so countries could always pull themselves up again once the “business cycle” was completed –speculative value had been wiped out and stocks had been exhausted, and demand picked up again. By the 1920s, particularly as a result of American loans to Europe after World War One, the world had begun to develop towards a single market, and the “ when America sneezed, the world caught a cold”.
With domestic markets obliterated, countries wanted to dump their produce onto markets in other countries, to make a profit however small or at least recover some of their costs. To defend their own markets against saturation by this practice of dumping, every country in the world put up tariff barriers and quotas to block foreign imports. With widespread bank failures and bankruptcies, international trade was possible exclusively on the basis of gold. The US dollar was fixed at US$35/oz., but other countries such as Germany suffered hyper-inflation and their currency was worthless. By 1932, the total value of world trade had halved. With no possibility for export, no chance of credit, there was no way out.
The suffering and senseless wastage of human life –dumping of food in the sea, closure of factories while millions were left rotting in idleness -turned large numbers of workers to communism; in Europe huge street battles were being fought between million-strong fascist and communist parties. Unemployment was unknown in the USSR, a fact which was made widely known to the workers of the West. With unemployment so high and workers terrified for their jobs, Communists oriented their work to the unemployed, but the unemployed were a very fluid and mobile population, and while some very large movements were built, it was difficult to build an organised party. This was the period which Stalin had characterised as the “Third Period”, a period of intense class struggle, and Communist Parties appealed to the unemployed with slogans for uncompromising revolutionary struggle.
In late 1932, Franklin D. Roosevelt was elected US President with widespread popular support for the New Deal – to introduce universal welfare, protect workers’ rights, and for the government to take a leading role in the economy and clamp down on destructive business practices.
To millions of workers queuing at soup kitchens or labouring for near-starvation wages, the USSR was looking very much like a workers’ paradise. By the late 1930s, as the job market began to pick up with the beginning of recovery in the U.S., mainly as a result of the New Deal measures, partly through the normal processes of the business cycle, and especially the escalating war-spending in Europe, the organised workers’ movement began to show real signs of readiness to overthrow the institutions which had overseen all this misery. Unemployment was still at 15% at the beginning of World War Two and only the urgent need to crush Fascism in Germany and Japan postponed a worldwide revolutionary upsurge.
The war brought an immediate end to unemployment as factories fired up for the weapons trade and business flourished again as the remaining unemployed were sent off to war. Never again however could the laissez faire doctrine of leaving everything to the market be taken seriously. The name of John Maynard Keynes would be associated with the new economic doctrine which emphasised the role of government in regulating demand and containing unemployment with public works programs.
Keynes proved that market forces would continue to throw the world into deeper and deeper crises unless the government used its power to stabilise demand by controlled public spending. Keynes famously said that there was no wage low enough that a starving person would not be prepared to work for it. Consequently, unless the government provided a “safety net” and regulated employer practices, there would always be extreme poverty and misery. Further, Keynes showed that the market was by itself unable to provide the expensive infrastructure needed for economic growth and the government had to play a role in infrastructure development.
By the end of the war, in most of the industrialised countries of the Allied powers, workers were organised into unions and these unions were mainly led by Communists.