Study Notes on Guns and Butter, 1929-1939 - The Great Depression and Political Responses in Europe
Chapter 8: Guns and Butter, 1929-1939
The Great Depression's Impact on Europe
The Great Depression was a worldwide economic slump that followed the Wall Street Crash of 1929.
The effects of this depression were profound and lasted into the 1930s until the start of World War II.
By 1937, the economy of Europe began to decline again, leading to increased military expenditure on rearmament.
Such military orders created jobs, but also indicated a looming European conflict worse than previous wars.
Political consequences in various countries arose as moderate politicians failed to effectively address mass unemployment from 1929 to 1933:
Britain: The Labour government elected in 1929 collapsed, resulting in the formation of a National Government led by James Ramsey MacDonald.
France: Experienced a political crisis with 11 different cabinets between 1932 and 1936 and multiple national budget crises.
The depression also disrupted diplomacy, leading nations to prioritize national interests over international cooperation, resulting in the protectionist measures that characterized the era:
Countries focused on tariffs and import quotas, creating protective and warring trading blocs.
This atmosphere of economic competition facilitated the rise of totalitarian regimes such as German National Socialism, Italian Fascism, and Japanese Imperialism.
For these countries, national pride and economic nationalism were steps toward empire-building, intertwined with notions of racial superiority.
Causes of the Great Depression
The causes of the depression were complex, affecting Europe differently than the United States:
Europe initially referred to the crisis as the 'Slump', recognizing its differences from America’s 'Great Depression'.
The initial downturn was exacerbated by the Wall Street Crash, which adversely impacted Europe.
Need for structural adjustment in the European economy following changes brought about by World War I, which resulted in a significant unemployment problem throughout the 1920s due to increasing competition from the United States and Japan.
1925-1930: Germany saw real wages increase by 4.6% annually, while productivity stagnated.
Britain's older industries faced declining competitiveness, as described in the official History of Munitions (1922) stating that British manufacturers fell behind in research and methodology.
By early 1929, policymakers in major European countries recognized the upswing from the previous economic boom had ended:
Key economic indicators (demand for machinery, wines, housing) were declining.
Noted economists such as Josef Schumpeter viewed the depression as both cyclical and structural, while Nikolai Kondratieff identified it as the conclusion of a long economic cycle.
Four significant factors contributed to the downturn:
Loss of American investment in Europe.
Collapse of world primary prices leading to trade protectionism.
Dependency on the gold standard which, once abandoned by Britain in 1931, caused economic instability.
Political failure to promote international recovery initiatives.
The resulting 'beggar-thy-neighbour' policies led to an increase in tariffs and protectionist measures, often at the expense of economic interdependence with neighbors.
American loans and investment were crucial for European prosperity prior to 1929; when these loans decreased drastically, European economies fell into instability.
The European Slump (1929-1936)
The severity of the depression unfolded differently across European nations:
In the United States, misguided initial responses led to rash monetary restrictions that exacerbated the crisis. The Federal Reserve increased lending rates, stifling consumer demand.
John Maynard Keynes highlighted investment decline as the primary issue during this economic state, stressing the need for interventionist approaches to stimulate the economy.
The banking system in Europe became unstable after the loss of American investment, which necessitated a shift in where nations sought loans and investment:
By May 1931, Austria's largest bank, Creditanstalt, collapsed, triggering a banking crisis in Germany.
Agricultural Collapse and Protectionism
At the heart of Europe's economic difficulties lay a global collapse in primary prices encompassing wheat, meat, coal, and steel, severely impacting agricultural income:
Between 1920s and 1929, prices fell 20-50%, leading to widespread agricultural distress.
With 67% of the global workforce engaged in agriculture, lowering prices provoked farmers to agitate for government assistance.
Governments started implementing aggressive protectionist measures:
An increase in tariffs and import quotas to shield farmers.
The Nazi publication Der Deutsche Volkswirt criticized the interference of tariffs in international trade.
Countries like Germany increased import duties by over 50% and France expanded quotas substantially by 1932.
The British government transitioned from a policy of free trade to a series of tariff acts post-1931, reflecting the global shift toward a protective economy.
The Rise of Totalitarian Regimes
As economic conditions deteriorated, populations became increasingly susceptible to radical political ideologies:
Germany, Italy, and Japan leveraged their aspirations of racial superiority and economic nationalism to extend their political influence.
Britain, despite political turmoil, managed to maintain a parliamentary tradition due to its strong institutions and societal reliance on democratic values.
In Germany, the Weimar republic faced its greatest challenges from radical parties:
The rise of the National Socialist Party (NSDAP) and its appeal to disaffected groups led to substantial political fragmentation and radical action against leftist movements.
Throughout Europe, the dynamics of class conflict, economic instability, and the ineffectiveness of traditional governance helped pave the way for totalitarian regimes, leaving a lasting legacy into the Second World War.