Interwar Period Notes

Reasons for the Spread of the Great Depression from the United States to Europe (Early 1930s)

• Trade Dependency: Many European countries were economically dependent on trade with the U.S., and the collapse of American markets significantly reduced demand for European exports.

• Financial Links: The interconnectedness of financial markets meant that the panic in U.S. banks led to a loss of confidence in European banks, resulting in capital flight.

• Deflationary Policies: European governments and central banks adopted policies aimed at maintaining the gold standard, which exacerbated deflation and further deepened the economic crisis in Europe.

Keynesian Views on the Causation of the Depression

• Causation: John Maynard Keynes argued that the Depression was caused by a lack of aggregate demand, leading to unemployment and falling output.

• Counter-Cyclical Policy Recommendations: He suggested government intervention through increased public spending to boost demand and stimulate recovery. This could involve deficit spending to fund public works and stimulate job creation.

• Risks of Deficit Spending: Critics of Keynes worried about long-term effects of deficit spending, such as rising national debt and potential inflation if the economy did not recover as anticipated.

National Responses to the Great Depression

• Sweden: Adopted a proactive approach with government measures for social welfare and public works. Recovery was relatively swift, with a focus on maintaining employment through state intervention.

• Great Britain: Initially faced slow recovery, but later shifted focus from traditional industries to new sectors, such as manufacturing and services, especially in the Midlands. Recovery began with the establishment of National Government, abandoning the gold standard which facilitated economic expansion.

• France: Struggled due to political instability, including frequent changes in government. The leftist Popular Front coalition attempted to implement reforms, but resistance and lack of cohesive strategy hindered effective responses to economic challenges.