On ‘Black Thursday’, 24 October 1929, the Wall Street Stock Exchange fell by almost a third. Thousands of finance-capitalists were wiped out. Millions of ordinary people lost their savings.
Once started, the crash, like the bubble that preceded it, was self-sustaining. Just as rising prices had sucked speculative capital into the vortex, now collapsing prices generated a stampede to sell, to ‘liquidate’ capital, to withdraw from the market before prices fell further.
When investors found themselves overexposed, moreover, debts were called in to pay other debts, fuelling the reverse frenzy of panic selling and falling prices. The whole complex weave of financial obligations was suddenly unravelling.
The value of shares in the Shenandoah Corporation had peaked at $36. They eventually went down to 50 cents. Goldman Sachs Trading Corporation stocks had hit $222.50. Two years later, you could buy them for a dollar or two.
The crash did not come from nowhere. Agriculture had been depressed since 1927, and industry was afflicted by a classic cyclical downturn due to over-expansion and under-consumption during the spring and summer of 1929.
The agricultural and industrial crisis triggered the financial crash. But the crash then fed back into the real economy, collapsing credit, drying up loans, choking off investment, shrinking demand.
The centralisation and concentration of capital magnified the scale of the crisis. When a small or medium-sized firm is bankrupted, the overall impact is limited, and many others remain. When a major bank or industrial corporation is bankrupted, it pulls many others down with it, sending a deflationary wave across the wider economy.
So it was now. By 1933, 9,000 US banks had failed, industrial production had almost halved, and one in three workers was unemployed. Nor was there the slightest sign of any recovery. US capitalism was dead in the water.
A world system meant a world crisis. The Wall Street Crash triggered a global slump. The value of world trade collapsed to a third of the 1929 figure. Unemployment leapt from 10 million worldwide to 40 million by 1932. In that year, one in three workers was unemployed in Germany, one in five in Britain.
What made the Great Depression so disastrous were the policies pursued by world leaders. Drastic cuts were not the immediate response to the Crash. But when the global economy nosedived in 1931, politicians panicked.
US President Herbert Hoover was obsessed with ‘sound money’ and ‘a balanced budget’. He denounced programmes for large-scale spending, and was soon lecturing his successor-elect, Franklin D Roosevelt, on the virtues of what would today be called ‘deficit cutting’. His Treasury Secretary Andrew Mellon’s remedy was to ‘liquidate labour, liquidate stocks, liquidate the farmers …’
Democracy, moreover, was soon under attack as hard-right regimes drove through cuts in the face of mass resistance.
German Chancellor Brüning’s response to the crash was to cut wages, cut salaries, cut prices, and raise taxes. He did this at a time when one in four German workers was unemployed. The effect was to push it up to one in three.
Brüning did not survive. The depth of the economic crisis and the polarisation of German society paralysed the political system. After Brüning, President Hindenburg appointed a rapid succession of chancellors: von Papen, Schleicher, then Hitler.
None commanded a parliamentary majority. German chancellors ruled by emergency decree. Democracy ceased to operate in Germany from 1930 onwards. After January 1933, its very possibility was destroyed by the Nazi dictatorship, installed in power by Hindenburg acting on behalf of Germany’s traditional rulers.
In Britain, a minority Labour Government elected in 1929 found itself under siege by finance-capital. As unemployment soared, dole payments were to be cut to satisfy ‘the vital need for securing budget equilibrium’.
One cabinet minister later recalled: ‘One of the memories that abides with me … is that of 20 men and one woman, representing the government of the country, standing one black Sunday evening in the Downing Street garden awaiting a cable from New York as to whether the pound was to be saved or not, and whether the condition would be insisted upon that the unemployed [rate] would be cut [by] 10%.’
The condition was insisted upon. The bankers wanted the impoverishment of the unemployed as a token of the Labour Government’s total submission. They also wanted unanimity: the whole cabinet was to vote it through. Otherwise the Government was to resign.
‘So it is the financiers, British and American, who will settle the personnel and the policy of the British Government,’ wrote leading Fabian socialist Beatrice Webb in her diary. ‘The dictatorship of the capitalist class with a vengeance!’
The cabinet split. The government resigned. Former Labour Prime Minister Ramsay MacDonald then headed up a reactionary, deficit-cutting ‘National Government’.
Governments also devalued their currencies to make their own exports cheaper, while imposing tariffs on imports to make them more expensive. But protectionism is a competitive process. When rival states followed suit, the world economy was locked into a race to the bottom, with falling prices and shrinking markets leading to a catastrophic collapse in international trade.
Deflation and protectionism, on top of the economic downturn and the financial crash, destroyed any possibility of recovery. They locked the world into a decade of economic slump and mass impoverishment. They guaranteed what the great liberal economist and critic of state policy John Maynard Keynes called ‘an underemployment equilibrium’ – permanent mass unemployment.
The economics of the Great Depression were the economics of the madhouse. The purpose of any economic system should be to produce the goods and services people need to live full and happy lives. But that is not the purpose of capitalism.
Capitalism is a system of competitive capital accumulation driven by profit and the enrichment of the few. The drive for profit – as much as possible, as quick as possible, any old way – had created the speculative bubble of the late 1920s. Now, in the crash, shoring up profits meant cutting wages, slashing services, and choking trade – thereby plunging the world into permanent slump.
Hundreds of millions of lives were torn apart. Farmers were ruined as markets disappeared and commodity prices collapsed. Workers lost their jobs, rotted on the dole, and lived on hand-outs from soup-kitchens. Those with jobs lived in fear of the sack, and bosses went onto the offensive over wages, conditions, and workloads.
Across Europe, support for mainstream parties associated with austerity collapsed, and politics became polarised between radical movements of the working class and fascist movements of the middle class.
On the streets of Berlin, Vienna, Paris, Barcelona, and London, the forces of hope and despair, of revolution and counter-revolution, of socialism and barbarism clashed repeatedly during the 1930s in a struggle for the heart and soul of Europe.
The stakes were higher than anyone at the time could have imagined. The defeat of the working class movement across most of the continent started the countdown to the Second World War. The cost would be 60 million dead.
In the parks, halls and public spaces around Kings Cross
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