1929 Crisis: in the United States of America and in the World - Review

Introduction

Relevance of the Theme

Studying the 1929 Crisis is essential to understand the dynamics of global capitalism and the economic instabilities that can occur. It was a crisis that affected the USA (considered the world's largest economy at that time) and had worldwide repercussions. Its consequences were devastating, leading to a significant increase in unemployment, bank and company bankruptcies, deflation, poverty, and political instability. The 1929 Crisis is also essential to understand the formation of the Welfare State and the role of economic policies in times of crisis.

Contextualization

Inserted in the transformations that marked the 20th century, the 1929 Crisis was a milestone in global economic history. The economic euphoria of the 1920s, known as the 'Roaring Twenties,' was abruptly interrupted by this crisis. The discipline of History, when analyzing the 1929 Crisis, offers students the ability to understand broader historical processes, such as the advent of the Second World War and the emergence of new economic and political models. Similarly, it provides a critical view of current economic systems, allowing for consideration of the possibilities and limitations of capitalism as a society organizer.

Theoretical Development

Components

• Economy of the 'Roaring Twenties': The US economy in the 1920s was characterized by unrestrained consumption, financial speculation, and mass production. The country emerged from the First World War as an economic and financial power, with heavy investments in infrastructure and industry.
• Overproduction and Income Concentration: In the pre-crisis period, the US capitalist system was overloaded with production goods and could not find demand for all of them. Income concentration in the hands of a few worsened this situation, as the majority of the population did not have enough purchasing power to absorb the overproduction.
• Facilitated Credit and Speculation: To overcome the lack of purchasing power, banks started lending money for people to buy stocks. This generated a speculative bubble, where stock prices were inflated. When this bubble burst, the crisis ensued.
• New York Stock Exchange Crash: On October 24, 1929, known as 'Black Thursday,' and in the subsequent days, stocks depreciated sharply, and thousands of shares were sold at any price. This led to the bankruptcy of thousands of investors and the beginning of the Great Depression.

Key Terms

• Great Depression: Name given to the period of global economic recession that followed the 1929 Crisis. It was characterized by a decline in industrial production, trade, and employment, as well as deflation or price stagnation.
• Black Thursday: October 24, 1929, the date that marked the beginning of the 1929 Crisis. On this day, the New York Stock Exchange crashed, with massive selling of shares at low prices, ruining thousands of investors.
• Welfare State: State organization model that emerged after the 1929 Crisis, aiming to mitigate the socio-economic consequences of capitalist crises. It is characterized by state intervention in social and economic areas, with the implementation of social protection policies.

Examples and Cases

• Banking Crisis: With the stock market crash, investors who had bought shares through loans lost all their money. As a consequence, many banks that had lent these amounts also went bankrupt, further affecting the economy.
• Agricultural Crisis: The agricultural sector, which already had problems before the crisis, was further affected. With decreased demand and falling prices, many farmers had their lands mortgaged or had to abandon production.
• Mass Unemployment: The crisis led to a drastic reduction in production, resulting in mass layoffs. Unemployment reached alarming levels, affecting about a quarter of the workforce in the USA.

Detailed Summary

Relevant Points

• Exuberance of the 'Roaring Twenties': The USA emerged from the First World War as an economic and financial power. The 'Roaring Twenties' witnessed high levels of production, consumption, and financial speculation, creating an illusion of infinite prosperity.
• Fragility of the Economic System: Contrasting the exuberance is an unbalanced economy marked by overproduction, income concentration, speculative credit, and socio-economic inequalities.
• Stock Exchange Breakdown: The 1929 Crisis began with the New York Stock Exchange crash on October 24, known as 'Black Thursday.' The massive sale of shares at any price resulted in financial collapse, leading to the Great Depression.
• Global Effects: The impact of the crisis spread worldwide, affecting other industrialized countries. The world economy collapsed, triggering a decade of recession and poverty.
• Social and Political Consequences: The depression generated high levels of unemployment, poverty, and political instability. These conditions created fertile ground for the emergence of authoritarian and totalitarian movements.

Conclusions

• The 1929 Crisis demonstrates the fragility of the capitalist system when not properly regulated and controlled.
• The economic policies adopted to deal with the crisis shaped the future of the world, giving rise to the Welfare State and redefining the role of the State in the economy.
• The USA only managed to recover from the crisis after massive state intervention in the economy, with the implementation of the New Deal.

Exercises

1. Describe the economy of the 'Roaring Twenties' in the USA and mention three factors that contributed to the 1929 Crisis.
2. Explain the concept of 'Black Thursday' and what its impact was on the economy.
3. Give examples of how the crisis affected other sectors besides finance, such as agriculture and employment.