The Great Depression

Through the “Roaring Twenties”, the urban and industrial US economy had a crazy bull run. Europe was ravaged by the First World War (1914-19). As the Great War was coming to a close, a spate of revolutions marked the end of the 19th century bourgeois liberalism. But unscathed by these troubles, the USA continued its dizzying rise to the summit of the industrialized world. This was best epitomized by the emergence of New York as the world business capital, where stock prices on Wall Street rallied more than four times between 1921 and 1929.

Flapper - the new woman in short (knee-length) skirt and bobbed hair defined a new modernity

People started buying cars and installing radios and telephones at home. This decade saw the first colour movie as well as the first ‘talkie’ (Jazz Singer 1927). Both commercial aviation and commercial sports (in newly built stadiums) took off. Fashionable young women, wearing short (knee-length) skirt, bobbed hair and smoking in public defined a new modernity. Rise of Jazz music, described as the classical music of the USA, culturally marked the decade. The Great Gatsby of F Scott Fitzgerald, who also coined the term ‘the Jazz Age’, best captured the spirit of the “Roaring Twenties”.

Stock prices crashed for the first time on the Black Thursday (24^th October, 1929).  But at that moment, it was difficult to imagine that this sounded the death knell of capitalism itself. As the crisis spread from the financial market to the real economy, demand collapsed completely, triggering a melt-down in the US housing market. In two years, industrial production fell by a third and automobile production halved. As plants closed down and small businesses followed suit, millions lost their jobs.

As stocks continued to collapse through late October, crowd gathered everyday on Wall Street

As all the major currencies were tied to the gold standard, the US price deflation spread through it fast. The USA was also the largest exporter and second largest importer in the world and the leading global lender. Between 1929 and 1932, as both the US import and export fell by 70%, global commodity prices slumped. Cotton farmers were ruined in Gujarat as prices crashed to less than half in Bombay, cocoa prices fell by as much as 90% in Ghana, forcing the growers to stop import of basic food items like rice. And in Brazil, fearing a complete price collapse, coffee growers forced the railways to buy coffee beans. And in 1932, people looked, rather smelt, in astonishment as steam engines ran on coffee instead of coal!

Another bank run!

This was a truly unprecedented scenario but the policymakers tried to stick to their traditional solutions. Even as national economies collapsed around them and world trade fell by 60%, governments instead of spending more, actually tried to balance their budgets by cutting costs (came to be known as penny pinching). The US Federal Reserve did nothing to address the liquidity shortage, leading to multiple waves of bank failures. Soon the dominant images in urban US were long queues in front of soup kitchens, shuttered factories and shanty towns (derisively named Hooverville, after President Hoover, who failed miserably to address the situation). 

Great Depression directly led to the rise of Hitler and Mussolini

Meanwhile in Europe, the issues related to the German reparation payment, hyper-inflation and mass unemployment further precipitated the breakdown of the 19^th century laissez faire capitalism. Savings were wiped out and unemployment skyrocketed everywhere. Such dire economic situation paved the way for the rise of Hitler and Mussolini in Germany and Italy. By 1935 or so, Nazi Germany could create enough jobs and re-ignite the economic engine. And on the left, the Soviet Union powered ahead with planned economic development. It led a generation of politicians/students to believe in state-led industrialization as an alternative.

President Hoover in the US and the Labour governments in Britain and Australia sank without a trace. Army Generals threw out the incumbents in many Latin American countries. In the colonial world, this crash in commodity prices either fuelled another round of anti-colonial struggle (like India) or led to the emergence of it. As situation deteriorated everywhere, policymakers were not only forced to innovate but even had to give up their fundamental beliefs. In 1931, in a moment of great symbolic importance, Great Britain gave up free trade and gold standard.

In 1933, Franklin D Roosevelt became the 32^nd President of the United States and initiated his famous “New Deal’. He launched massive public works programmes to provide employment. Securities and Exchange Commission was set up (1933) to regulate stock markets and the Glass-Steagall Act was passed (1934) to regulate the banks after one fifth of them failed in just two years. New Deal envisioned Welfare Capitalism – the land of unbridled capitalism, passed the Social Securities Act (1935) and hiked tax on riches (New Deal and the Second World War took the top marginal tax rate from 24% to 84%).

One of the most famous photographs of the Great Depression - Migrant Mother - destitute pea-picker Florence Owens Thompson, age 32, mother of 7 children at Nipomo, California March 1936

Even as the economy was slowly coming back on track, the worst drought in modern times struck the Great Plains in 1934. This vast flat region around Oklahoma turned into a ‘Dust Bowl” and more than 2.5 million people were forced to flee. Most of them went to California in search of a better life but the reality turned out to be quite different. John Steinbeck’s classic novel, The Grapes of Wrath presents perhaps the most vivid picture of this tragedy.

At times it seemed that the American society was on the verge of a total breakdown – children grew up quickly, teens drifted away, people postponed marriages and babies, families just fell apart even without formal divorce (it had a very different impact on American women but it would require another post). The most popular tune of the time was “Brother, Can You Spare a Dime?”

Jobless Americans turned to radio (first radio soap operas and comic shows took off in the 30s) and then to television (Roosevelt, who used to do a popular half an hour fireside chat in radio, became the first head of state to be live telecast in 1935), inexpensive board games (Monopoly was invented in 1935) and above all to Hollywood. As a famous historian noted - giant movie theatres rose like dream palaces in the grey cities of mass unemployment. These movies, made by Metro-Goldwyn-Mayer or Twentieth Century-Fox, including the iconic ones like Frankenstein, It Happened One Night, Gone with the Wind transported the viewers to a dreamland and hardly ever portrayed the grim reality outside.

Vivian Leigh and Rhett Butler in Gone With the Wind - movies transported jobless Americans to a dreamland and hardly ever showed the grim reality outside

The USA till then had never witnessed recession, poverty and deprivation at this scale. The onset of the Second Word War (1939) and the subsequent US involvement in it, plunged the economy into another crisis but at least, resolved the unemployment problem. It was only in 1950, five years after the end of the War that the economy was again fully back on track.