The Great Depression and Deglobalisation

How did the great depression begin and how did it spread?

• Began with the NYSE crash

• Spread through currency and banking crises as gold broke down

Some key characteristics of the global contraction that occured because of the Great Depression

• 1929-1932

• Decrease in industrial production

• Decrease in prices (deflation)

• Increase in unemployment

• The collapse of international trade

What are some key characteristics of the economic recovery that took place post great depression

• 1932 onwards

• Slow

• Unemployment remained high

• Political radicalisation and growing international tensions

What happened during the wall street crash?

• 1929-1932

• Stock prices doubled from 1926-1929

• After the crash there was a brief rally in 1930, the index was back at the 1929 level by early 1931

• Mid 1932: Stock prices drop by 80%

• Partial recovery from 1933, by 1935 stock prices were still only half of what they were in 1929

What happened to world trade during the Great Depression?

• The value of world trade fell from 1930-1932

• Export volume decreased by 25%

• Export prices decreased by 50%

What happened to industrial output during the great depression

• Industrial output decreased severly by 1932, especially in North America

• Food supply was stable but raw material output decreased

• All prices fell: Raw materials, food, manufactures

• European exports fell by more than 60% in 11/19 countries

• North America and Germany faced the most severe decrease

• Decrease was milder in Japan, Britain, and Scandinavia

What were industrial employment rates like in different countries as a result of the Great Depression?

• Highest unemployment rates were seen in the United States and Germany

• Middle rates seen in Britain

• Lowest rates seen in France, but they were actually still high

What happened to whole sale prices as a result of the Great Depression?

• Prices decreased everywhere from 1929-1931

• UK and US had “off gold” prices: Stopped falling from 1932-1933, increased from 1933-1934

• French “on gold” prices: Fell until 1935, only started increasing in 1936

The deflation cycle

1. Gold standard meant that money supply was tight and so high interest rates were observed

2. Government spending or loose monetary policy cannot stimulate the economu

3. So in a crisis, we see deflation, which leads to cuts in output and exports

4. Industrial companies buy less coal, cotton, etc.

5. Primary producers face falling export earnings and so they cut their manufacturing imports

6. Lower exports than imports, means gold flows out

7. Money supply is tightened further, aggrevating deflation

Explain the four depression patterns observed worldwide

US:

• Recession deeper and longer

• Banking crises and industrial depression

Industrial exporters: Germany, Austria, and Belgium

• Hit by the decreased demand for manufacturing

• Germany and Austria faced a banking and currency crisis in 1931

Other European countries:

• Recession more moderate

• Banking remained stable in countries like Britain and France

• Banking crises seen in Hungary and Romania

Periphery:

• Primarky exporters were hit by the fall in export prices

• Severe balance of payments problems

• Currency crises

What were the causes of the US banking crisis? When did it happen?

• 1930-1933

• Burst of the stock market bubble of 1929 reduced investor confidence

• Real estate market collapsed

• Banks with increased mortgage lending failed: Bank of US (Dec 1930), banks in Chicago and New York (1931-1932)

What were the consequences of the US banking crisis?

• People switched from deposits to cash which meant a decrease in money supply

• Bank failure raised the cost of credit intermediation

What did Bernanke argue in 1983 regarding the US banking crisis?

US bank failure raised the cost of credit intermediation

What were some of the macro economic shocks caused by the US banking crisis?

• Falling money supply led to a demand shock

• The rising cost of credit intermediation meant a supply shock

What is an important realization made by Grossman?

Grossman, 1994: 1930s banking crises only occured in countries that were still on the gold standard

Monetarist theory

• Large changes in money supply has a large effect on prices and output

• Friedman’s rule: Central banks should target a small, constant rate of growth in the money supply

What are some realizations made by Friedman and Schwars in A Monetary History of the United States?

• 1963

• Applied the idea of monetarist theory to the great depression

• The fed broke friedman’s rule: they tightened money supply when they should have provided liquidity

• Evidence: US money supply fell by 30% between 1929 and 1933

What is Temin’s critique of Friedman and Schwartz?

• 1976

• The fall inoutput caused a lower demand for money which is what caused a decrease in the money supply

• Banks failed because they were insolvent (Bad loans) and not because they were illiquid and so providing liquidity would not have helped

• He also said that Friedman and Schwarz missed international perspective: They were US centered but in reality international payments played a key role in the depression

The banking crisis in Austria

• 1931

• From 1929: US lending to Europe dried up, France and the US accumulated reserves and refused to help

• 1929: Bodencreditansat failed, so it merged with the creditanstalt

• Vienna banks operated as though the Hasburg empire still existed and provided heavy loans to infprofitable industries

• Crisis started in May 1931: When Austria’s largest bank collapsed after an auditor’s report

• Bank run spread to currency which meant the central banks reserves were exhausted and people switched their money to gold, it was too late for any foreign exchange control

• The central bank broke and so panic spread to germany

The banking crisis in Germany

• 1931

• Schnabel, 2004: Germany had a twin crisis where failures of large banks led to a bank run and also had a currency crisis along with a loss of gold reserves

• Government response including nationalising banks, exiting from gold in July/august of 1931, and foreign exchange controls on froeign loans to stop gold from flowing out

• The traditional view to contagion says that it was caused by over extended industrial lending by big banks, like the case in Austria

• A recent view, brought up by Ferguson and temin in 2003 suggests that Weimar budget problems brought down currency, and with it banks because Brunings june 1932 statement on reparations dried up foreign loans (Austrian crisis did not cause the German one)

• Further contagion occured because foreign credits were frozen which forced other creditors to restrict withdrawals and the crises spread to Hungary, Romania, and Switzerland

The banking crisis in britain

• Contagion came from the german suspension of gold putting pressure on the pound and insufficient gold causing a run on the bank of england

• Britain faced two deficits

  • A current account deficit: A trade deficit due to an overvalued pound at the pre war parity and the liquidation of overseas assets during WW1

  • Capital account deficit: Long term lending abroad financed by short term borrowing meant that by 1930 reserves and liquid assets were less than short term liabilities and the missing cash caused a panic. As a consequence the United kingdom became extremely dependent on world trade and gorwth in the periphery.

• New macroeconmic policy enforced after gold was abandoned in 1931

  • Expansion of liquidity through a lower interest rate from 1932

  • Introduction of a general tariff

What happened in october of 1931 regarding the banking crisis?

• In september, panic spread in the US as bank failure increased and the fed lost gold

• By octoer, the ded increased the interest rate sharply mid depression which was a standard central bank response for an economy under gold

• The fed chose international stability over domestic prosperity which is the opposite of what the bank of england did

• The result was increased deflation which led to the US decline lasting another year and deepened deflation in europe

What happened mid 1932 regarding gold?

• Gold collapses

• Before Britain: 7 countries were already off gold, including Australia, New Zealand, and Argentina

• After Britain: 24 more countries left gold, including sweden, denmark, norway, finland, ireland, greece, and portugal

• Some countries stayed on gold but exchange controls made gold ineffective: Estonia, germany, austria, hungary, bulgaria, czechoslovakia, romania, and latvia

• By mid 1932, the only countries still on gold were poland, us, france, belgium, netherlands, switzerland, italy, and Lithuania. However, only france, the us, the netherlands, and belgium had no exchange controls at all.

Why was monetary policy similar all over the world during the depression?

• Because gold caused everything

• Deflation was global and so all countries saw monetary contraction

• Policies pushed for austerity instead of expanding aggregate demand

• Recovery only started when Britain and the United States left gold

Why did gold work before? Compare gold before 1914 vs. gold in the 1920s

Before 1914:

• The sterling was just as good as gold, bullion rarely shipped

• Trust in sterling was high and so there was a global trade currency

• Central banks held sterling reserves

• Gold production grew rapidly, suppporting a steady increase in money supply

• Britian had a huge currenta ccount surplus but they exported capital and so other countries did not see a decrease in gold

• Major central banks cooperated to avoid running out of reserves

1920s:

• US had a huge current account suprlus but hoarded it and so other countries had less gold causing deflation

• Gold accumulated in France and the united states which menat a shortage of credit in the world economy

• No cooperation between major central banks

What was the first major problem that caused gold to fail?

Incorrect exchange rates:

• The US returned to gold at a pre war parity despite war time inflation

• Insufficient gold coverafe and so the fed sterilised the current account surplus

• Other countries returned at higher parities (UK) or lower parities (France), which meant large trade imbalances

Sterilisation

Central bank sells securities, to provide gold inflow, absorbing liquidity and so they leave the monetary base unchanged

What did Bernanke and Eichengreen say?

A major second problem that caused gold to fail was the missallocation of gold:

• Fed and banque de france sterilised gold inflows to prevent inflation

• US and France faced no penalty

• Increased US tariffs meant a lower current account in other countries, they now faced deficits and so they had to deflate to keep their gold parity

What is the trillema faced by fixed exchange rate systems during the war?

Macro policy can only include 2/3:

• Full capital mobility

• Fixed exchange rate

• Independent monetary policy

Gold standard and eurozone countries: Chose capital mobility and fixed exchange rates

What were the three possible solutions to the trillema faced by fixed exchange rate countries?

1. Abandon gold: UK, US, sterling bloc

2. Capital controls to prevent gold outflow: Germany and central europe

3. France and the gold bloc: No devaluation meant that they had to increase tariffs

What happened to countries who devalued more during the depression?

They saw larger recovery by 1935:

• More depreciation by 1935 also meant more industrial production

• A 10 point fall under exchange rate meant 7 more points in industrial output

• Early devaluers were above their 1929 level of industrial output by 1935

• France and belgium saw a decrease by 30%

What were the positive effects of devaluation?

• Boosting aggregate demand

• Competitiveness

• Central bank could print money as a last resort

• Increased recovery at home but it hurt other countries balance of payments

What did other countries have to do as a result of bad balance of payments due to the British devaluation?

They needed protection:

• They increased tarrifs, the Hawley smoot tarrif in the US in 1930 and Britain left free trade by the end of 1932

• They also added import quotas and exchange restrictions

• Gold bloc countries increased tariffs more than others

What was the downside that came with countries using protectionism to protect their economies?

The decreasing recover of world trade.

Compare the difference in growth between countries who left gold, the gold bloc, and counrties who stayed on gold but had exchange controls:

• Countries who left gold saw growth of 1.9-3.9% a year

• The gold bloc saw growth of -0.4-1.6% a year

• Germany (Kept gold parity but enforced exchanged controls) showed growth of 2.5% a year

How did spain deal with the depression?

• Only european country with a flexible exchange rate in 1929

• Government could boost aggregate demand

• Banks lended freely as Bagehot advised in 1873

How did portugal and greece fair during the depression?

They both faced mild recessions with no bank crises

How did Japan fair during the Great Depression?

• Restored gold in 1930 after deflating their currency

• Unable to maintain gold and so they left in 1931 and depreciated

• Like spain, they avoided the worst of the depression

How did africa and asia fair during the Great Depression?

• They were primary exporters who were hurt by the decrease in agricultural prices

• Infant industries could not develop without foreign capital markets

• Colonies could not implement independent monetary policy

How did Italy and Poland fair during the Great Depression?

• Remained on gold until the mid 1930s: they saw deflation and a decrease in output

• Poor loands to industrial and agricultural sectors

• Bank crises avoided by direct government intervention

How did argentina fair during the Great Depression?

• First country in the depression

• Exited from gold in december of 1929

• Managed to reover by 1935 and avoided foreign debt default unlike the rest of south america

What were some attempts at international cooperation between 1931-1933?

• Coordinated reflation was needed

• Hoover moratorium on reparations (July 1931)

• BIS special advisory committee (Dec 1931: To adjust intergovernmental debts)

• Lausanne conference on reparations (June 1932)

• World economic conference in London (June-July 1933)

While attempting international cooperation to combat the great depression, what were some old and new political obstacles?

Old:

• Reparations

• War debt

New:

• Roosevelt

• Hitler

What happened at the Lausanne conference?

• 1932

• January: German chancellor demands the cancellation of reparations

  • Britain and Italy support Germany, France isolates

  • The United states is indifferent but wants its war debts back

  • France and germany’s elections delay the conference

• The conference had a face saving deal for france but war debts were unsolved

• France’s face saving deal: Germany deposited bonds issued only if they were able to pay, bonds were actually never issues and were burned in 1948

• War debts: Hoover refused to postpone the december 1932 payment and so France and others defaulted, US only ended this in 1934

What happened in the world economic conference in London?

• 1933

• June: Britain, US, and France’s central banks agree to keep currencies within +- 3%, stabilisting the currencies

  • News leajs and so the dollar becomes stronger and US prices drop

  • Roosevelt rejects this to protect reflation

• 3 July 1933: Roosevelt wrecks the conference

  • Negotiotians about the re-introduction of gold, decreasing trade barriers, and war debts

  • Roosevelt argues that the sound internal economic situation of a nation is a greater factor in its well being than the price of currency

  • Keynes says that Roosevelt was right

What is Feinstein’s verdict on the London conference?

• conference failure is often blamed on roosevelt

• But the real conditions for cooperation were absent: Countries had domestic interests in mind, wanted to build their own currencies and trading blocs

• Countries that were left out like most of Latin America retreated into protectionism

How did the lack of cooperation post the London conference lead to an increase in protectionism?

• Devaluation raised aggregate demand, improved competitivenes, and made the central bank available as a leder of last resort

• But countries that remained on gold had to keep a balance of pauments which they did through a restriction on imports, higher tariffs, import quotas and exchange restrictions

How did the sterling area deal with the effects of the depression?

• They rebuilt competitiveness by devaluation in september of 1931, and creating an import duties act in 1932 featuring 10% on imports except for food, raw materials, and goods that were already dutable and manufacturing imports faced a tariff of 20%

• The introduction of preferential trade within the sterling bloc

• Since they were now freed from gold: The bank of england could decrease the interest rate, and access to cheap borrowing actually created a housing boom from 1932-1935

• Unemployment was only eliminated after the rearmament of 1937

• No systemstic anti cyclical policy

The british building boom

• Because of cheap money

• Building rose steadily after 1932

How did Keynes believe the situation should be managed?

• Believed that output and employment depended on aggregate demand

Demand management should happen through:

• Moderating the boom and bust cucle

• Fiscal and montary policy should be anti-cyclical

• Government spending has a multiplier effect

Why was Keyne’s solution difficult to implement?

• Hard to forecast when an economy turns

• Policy lags can make spending pro cyclical

• Hard to make governments save in a boom because there is a risk of overheating

What was Keyne’s general theory?

• 1936

• Gave a theoritical case for the policies made possible by leaving gold and he backed roosevelt

How did british devaluation help the sterling area take shape?

Devaluation put pressure on countries exporting to Britain and countries that have sterling reserves

• Scandinavian countries left gold with the pound and pegged to the sterling later

• By January 1932: Japan, Bolivia, and Venezuela also pegged

When did the sterling area take shape?

1931-1933

How did birtish imperial policy help the sterling are take shape?

• Colonies were pegged to teh sterling

• All the dominions, except canada held reserves in sterling

• Bank of england provided credits to countries pegging to the sterling

Why did countries peg to the sterling?

• India and the colonies were compelled to do so

• Australia, new zaeland, and south africa wanted to stay competitive in britain

• Smaller european countries and latin america: Britain was their main market

How was the peg maintained?

• If the local currency was too strong:

  • Print your own currency and use it to buy british pound

• If the local currency was too weak:

  • Local central bank would use sterling reserves to buy back their own currency from the market, raising its value

  • Currency boards in colonies held the same amount of home currency in sterling reserves

  • The rigid peg was backed by large sterling reserves in countries like india, australia, new zealand, south africa, and portugal

  • Targetting the parity without large reserves happened in scandinavia

The british common wealth declaration

• 27 july 1933

• Commitment to increasing prices

• Keeping money cheap

• Keeping sterling exchange rates stable

• Sterling area was formalised

What happened at the Ottawa conference?

• 1932

• Common wealth goods were given preferential treatment in Britain and vice versa

How was the Ottawa conference asymmetric?

• The dominions refused to expose their young manufacturing industries so they raised tariffs on non common wealth manufacturing

• Britain gave preferential access to common wealth food and raw materials

• Colonies has to accept the deal, they were not represented at the conference

What were the benefits of being in the sterling area?

• Exchange stability: Stable currency and supporting recovery with cheap money, from late 1933-1938 a stable sterling to dollar rate meant no exchange rate volatility

• London provided sterling reserves for members: gold from south africa and india kept the system convertible, to settle trade deficits with countries outside the sterling bloc

• Recovered faster and less unemployment than gold standard countries

What were some of the results of the Ottawa conference?

• Uk trade shifted towards the empires and the sterling area

• Dominions share of uk imports doubled

• Every major economy outside the bloc lost its share

How was India’s recovery blocked?

• India was the exception within the sterling area: it was a major primary exporter and so it was hit by the decrease in raw material prices, peg was mandatory, and devaluation was needed

• The ruppee was overvalued and london rejected floating it in 1931

• Tight money and austerity prevented revovery: High interest rate, cuts to public health, education, and irrigation

• Outcome: GDP decreased between 1929-1939, Discontent that some historians allocate as the start of the decolonisation movement

How was latin america affected by the great depression?

• Falling prices for primary exports meant devaluation

• They had no foreign exchange but had to pay for imports in foreign exchange and so their reserves were exhausted

• Devaluation raised the burden of external debts leading to defaults

• No US capital exports

What were some of the consequences of the effects of the Great depression on latin america?

• Devaluation provided the central bank with increased liquidity

• Defaults meant that the government could spend more and promote the domestic industry

• Defaults were taken lightly

How did latin america recover from the Great Depression?

Import substiuting industries (ISI):

• Primary exports and maunfacturing imports was unsustainable

• Increased tariffs to protect domestic industry but preferential tariffs on imported capital goods

Active governments:

• Import quotas and tariffs in Brazil and Chile

• Expansionary fiscal policy in colombia

Rapid recovery:

• Brazil and colombia regained 1929 GDP by 1932 before exports recovered

• Manufacturing grew faster than GDP

What were the two different ways countries stayed on gold?

Nazi Germany and its trading partners: Controls to limit capital movements meant that the mark kept its formal value but monetary and fiscal policy were freed

France and the gold bloc: Full capital mobility at pre depression levels were maintained through continued deflation and austerity

What were the origins of the gold bloc?

• Built on the 19th century Latin monetary union which included holland, poland, lithuania, and czechoslovakia

• Declared adeherence to gold after the world economic conference that took place in july of 1933

• Symbolic: No futher cooperation between central banks or the government

Why did countries on the gold bloc face a long depression?

Gold had to be defended by conservative fiscal policy and increased tariffs

What was a common view of countries in the gold bloc?

They saw exchange controls as against the spirit of the gold standard and so deflation was their only option

How did france recover from the Great Depression?

• Sluggish recovery

• Tariffs could not preventa trade deficit after 1933

• Falling prices and demand reduced government revenue

• Fear of inflation from rising deficits alarmed voters

Why did political turmoil make French recovery sluggish?

• 4 governments in 1932, 3 in 1933, 4 in 1934

• Cutting payments to pensions, veterans, and civil servants who in fact had a higher real income because of deflation was deeply unpopular

What was France’s new deal in 1936?

• Left came to power

• Higher public salaries and enforcing increased wages in private sectors to boost consumption and end labor unrest

• led to the end of deflation but there was no devaluation and so France faced a loss of gold reserves

How did the end of the gold bloc come to be?

• Tripartite agreement

• France agreed with the US and UK to stabilise currences at realligned exchange rate

• It was informal and provisional: “No agreement, no understanding, only day to day cooperation” and so cooperation was flexible between treasuries and central banks

• As for exchange rates there was full gold convertibility restored between signatories and a commitment to refrain from competitive devaluations

• End of the gold bloc: France devalued against the dollar and sterling, the remaining members joined

Recoveries in different areas of the world post depression

• Japan barely contracted

• Britain’s fall was mild

• Germany and the United States fell the hardest

• France fell later and kept falling (No recovery)

What happened to the nazi trade area during the great depression?

July 1931: Banking and currency crises, banks only reopened after foreign debt was frozen and foreign exchange was restricted to the Reichsbank

After the sterling was devalued, policy became stricter in september of 1931: Owners of gold and foreign currency had to sell to the Reichsbank, the central bank rationed foreign exchange of importers, and exporters had to surrender foreign currency to the central bank

The mark was not devalued and gold was keot but the central bank decreased the interest rate, work creation programs by the government, and there was improvement by January 1933

Nazi recovery from the Great Depression

• Hitler came to power in January of 1933

• Inherited Weimar policies: Fx controls, work creation, state interventions in banks and agriculture, added terror

• Moratorium on all reparations (before hitler)

• Fight against unemployment: Public work in the motorway, jews and women removed from employment

• Capital and controls and clearing trade with the Reichsmark bloc

• 4 year plan of 1936

  • Rearmament

  • Investment in heavy industry

  • Both financed through deficit spending (Keynesian approach)

• Result: GDP increasing by 6.6% per year between 1932-1938

Germany’s broader plan after the depression

Schacht: Became the president of the central bank and minister in 1934

Autarky:

• Import restriction and export subsidies to offset the overvalued mark

• An extended economic space meant securing raw materials and food just in case war arose

Bilateral trade agreement:

• Private compensation: German imports and exports were matches deal by deal, paid in mark, no foreign currency

• Bilateral exchange clearing (By 1936, most of central and south eastern europe followed this)

What was the mechanism behind bilateral exchange clearing?

• Importers paid their own central bank in domestic currency, central bank used this to pay domestic exporters

• Only net balance needed settling

• If a clearance account ran short, exporters waited till importers increased and vice verss

• This system let germany keep the overvalued mark and still trade at the cost of multilateral trade

Example of exchange clearing using italy and germany

• Germany exports merch worth 100 m to italy

• Italian importers pay the Italian central bank

• Italian central bank pays Italian exporters who export merch worth 120 m to Germany

• German importers pay the german central bank, who pays german exporters

• Italian central bank and german central bank settle any financial differences annually

How did the exchange clearing system affect germany?

By 1938, ½ of Germany’s trade was bilateral

• A geographic shift towards southern and eastern europe and away from britain and the gold bloc

• The reichs bloc: Exports to germany were beneficial for the european periphery because prices were higher because the german strategy was to have a reliable source of imports

Why did Germany build a reichsbloc?

• Lack of foreign currency, high tariffs in the US and France

• Germany did not have a large empire while other powers relied on internal trade and so they built a currency bloc

How did the reichsbloc change german trade?

• Trade doubled with southern and eastern europe

• Latin america and scandinavia gained

• Glod bloc and czechoslovakia lost

• Us lost

Italy’s recovery from the depression:

• 1931: Sterling floated and so lira was overvalued

• Mussolini tried to deflate the currency by cutting wages, but it was not successful

• Capital controls from 1932 to stop gold outflow but gold exports were prohibited in July of 1935 because of Mussolini’s Ethiopia campaign

• Clearing agreements with germany due to sanctions they faced because of ethiopia and also with Argentina and Britain

• The lira was only on gold formally since italy saw the inroduction of exchange controls, tariffs, and quotas/ clearing

• From 1935; Recovery was driven by war spending, sanctions italy faced led to autarky

Autarky

A country trying to produce what it needs itself instead of relying on imports, an aim of economic self sufficiency

Japan’s recovery from the depression

• Rejoined gold in 1930, left 1932

• Expansionary impulses: yen depreciated by 60% in 1932, and so a cheap yen meant an increase in exports and protected imports

• Militarist industrialisation: manucharia occuptaion from 1931-1932, new china campaign in 1937, the empire meant a yen tarde area with an industrial core and primary producing periphery, industry was driven by military demand

• Dual economy: Fast growing heavy industry and mining (the zaibatsu) and low wage consumer industry with paesant agriculture

Japan’s empire growth post depression

• before 1931: Empire already large

• 1931-1936: Manucharia and Jehol conquered: The core of the yen bloc

• 1937-1939: War with China brought new areas under Japanese control

• 1940-1941: the move into French indochina

• territorial expansion and trade grew together

The united states recovery from the great depression and their new deals

• March 1933: Bank runs, roosevelt took us off gold, national bank hoiday to reshape macro policy

• Monetary and fiscal policy: Gold abandones, fed allowed money supply to increase alongside gold inflow, Glass Steagall act, federal depreciation insurance against bank runs

• AAA: Production restricted to raise farm prices, the goal was to go back to 1914 farm purchasing power

• NIRA: Firms encouraged to increase wages and spread work by shortening the work week, in exchange, prices grew

• Recovery was still incomplete up until world war two

US unemployment policies

• Wisconsin unemployment insurance (1932)

• Roosevelt sworn in (March 1933)

• Works progress administration and social security act (1935)

• Unemployment still around 10% in 1941 when the US entered world war two

Soviet Union Recovery from the great depression

• Fastest growing economy (1929-1938)

• Forced industrialisation: Labor and resources went from argiculture to manufacturing, investment concentrated in modern industries

• In the long run, it was unremarkable (1913-1950), only the 1930s stand out

Socialism’s rise in the Soviet union

Feb 1917: Bourgeois revolution

• Constitutional monarchy

• Provisional government during the war

• Radical parties gain more power

October 1917: Boulshevik Coup d’etat

1918-1921: Russian civil war

1922: USSR Established: Formally, multiple independent republics, in reality a single party state: The dictatorship of Bloshevik party

1924-1928: After Lenin’s death, stalin came to power

The stalanist growth strategy

• Near isolation from the world economy, relying on russias farm and natural resource wealth

• The five year plan (1929) aim for double the industrial output

  • Collectivisation: Industries were financed from farm surplus, paesants forced into collectivist farms so the state could control surplus

  • Investment planning: Consumption was cut to increase the investmnet rate, priority towards heavy industry

  • Output maximisation: Modest plan targets in agricultural and ligh industry, heavy targets in heavy industry

What was the aim of collectivist farms in the Soviet Union?

• 1928-1933

• Aim was to create an optimal farm size for mechanical production and release labour for urban industry

• Collectivise because prior peasants would not sell grain as there was little to buy with their earnings

• Poor results: Too little investment in agriculture for mechanisation, wealthier paesants resisted by slaughtering livestock and horses

• CHAIN: Agricultural capacity per worker decreased, productivity collapses after 1930, famine in ukraine and soutehrn russia, more farm animals

What were some characteristics of stalin’s “1st developmental dictatorship”?

Police state:

• State monitored all economic agents

• Sabotage of production was a criminal offence

• Anyone opposed to super industrialisation was liquidated

Forced labor:

• Collectivist farms

• People resettled in industrial cities

• Those who refused were deported to labor camps

Human cost:

• 10m deaths

• Economic growth was the only idol, everything else was sacrificed

Stalin’s militarisation of the economy

• Increased defense spending

• War industries had an increased share of total investmnet

• USSR became the world’s largest munitions producer

• Part of 1930s growth was military output