Chapter 18 Chapter 3 The Great Economic Panic 2

2 Why did the capitalist economy bog down between the two wars?The answer to this question lies mainly in the situation in the United States.Perhaps part of the blame for Europe's economic ruin can be blamed on World War I and the belligerent states.However, the homeland of the United States was far away from the flames of war. Although it later became the main factor in determining the outcome, the time for participating in the war was extremely short.What's more, not only did the U.S. economy not collapse due to the war, but it also benefited from the war just like it did during World War II. In 1913, the United States had in fact become the most economically powerful country in the world, with industrial production accounting for more than one-third of the world's total—second only to the sum of Britain, France and Germany.By 1929, the United States had accounted for more than 42% of the world's total output; while the sum of the three major industrial countries in Europe, Britain, France and Germany, was only a mere 28% (Hilgerdt, 1945, Table 1.14).The change in this number is astonishing.Specifically, between 1913 and 1920, US steel production jumped by a quarter, while the rest of the world decreased by about a third (Rostow, 1987, p.194 Table III.33).Simply put, after World War I, the United States has become in every respect the preeminent economic power that it once again reigned in after World War II.Only during the Great Depression did America's lead temporarily suffer.

Taking it a step further, the war not only strengthened the position of the United States as a major industrial producer in the world economy, but also turned it into the world's largest creditor nation.During the war, Britain had to sell off many overseas assets in order to cope with war expenses, and it lost a quarter of its global investment, most of which was in the United States.France lost even more, almost half, mostly from revolutions and collapses in Europe.As for the Americans, at the beginning of the war, they were still a debtor country; when the war ended, they turned into a major international lender country.At the same time, because the overseas business of the United States was mostly concentrated in Europe and the Western Hemisphere (Britain was still the largest investor in Asia and Africa at that time), the influence of the United States on Europe was naturally decisive.

All in all, to understand the world economic crisis, we must start from the United States.After all, the United States was the largest exporter in the 1920s and the second largest importer after Britain.As for the imports of raw materials and grains, the United States even takes care of 40% of the total imports of the 15 most commercialized countries.It is no wonder that the depression and gale brought the countries producing necessities such as wheat, cotton, sugar, rubber, silk, copper, tin, and coffee the first to bear the brunt of the disaster (Lary PP. 28-29).As a major importing country, the United States has also become the biggest victim of the recession. Between 1929 and 1932, U.S. imports fell by 70 percent, and exports plummeted by the same amount.From 1929 to 1939, world trade shrank by a third, and U.S. exports almost halved.

This is not to say that Europe is free from the blame for causing the depression. In fact, most of Europe's problems are due to political factors.The Paris Peace Conference (1919) demanded an undetermined amount of huge indemnities from Germany to compensate the victorious countries for their war expenses and war losses.In order to find an excuse for the legitimacy of this compensation, a special item of "war-guilt" was added to the peace treaty to push all the responsibility for the war on Germany.And this kind of "crime in one country" is not only untenable in history, but also accelerated the rise of German national consciousness.As for the exact amount of reparations, because the United States believes that it should be determined by Germany's ability to pay, while other allies - especially France - insist that Germany must bear the full amount; , did not mention the amount of compensation.The main reason for the allies' demanding requirements is that they can continue to put pressure on Germany so that it will never recover; at least this is what France intends.By 1921, the reparations figure was finally settled at 132 billion German marks, equivalent to 33 billion U.S. dollars at the time.With such an astronomical figure, everyone knows that it is impossible.

The issue of "reparations", led by the United States, has triggered numerous debates, crises, and mediation.Although Germany now owes the Allies reparations, the Allies themselves also borrowed a large amount of debt from Washington during the war.The United States hopes that the two will be resolved together, which will naturally make the bosses of allies unhappy.The number claimed by the victorious powers is insanely high, equal to one and a half times the total income of the whole of Germany in 1929.The debts of allied countries to the United States are also frighteningly high.Britain's debt to the United States is equivalent to half of the total income of the United Kingdom; the figure for France and the United States is equal to two-thirds of the total income of France (Hill 1988, pp. 15-16). In 1924, the "Dawes Plan" (Dawes Plan) stipulated the number of Germany's annual repayment; in 1929, the "Young Plan" (Young Plan) readjusted the payment table and set up a Bank of International Settlements (Bank of International Settlements), which is the first of countless international financial institutions that emerged after World War II. (As this book was written, the clearing bank was still in business.) For practical reasons, by 1932 all payments, including those of Germany and the Allies, were suspended.Only Finland has ever paid its wartime debt to the United States.

We don't need to go into too much detail here, but two things cannot be ignored: First, the young Keynes published a paper strongly criticizing the decision of the Paris Peace Conference; his views did have their own insights.Keynes himself was one of the low-level representatives of the United Kingdom to attend the peace conference. In this article entitled "The Economic Consequences of the Peace", Keynes argued that if the German economy does not recover, Europe will be in danger. It will be impossible to restore a stable and free civilization and economic society.In order to maintain its own "security", France forced Germany not to rise up, which would have a counterproductive effect on economic production.In fact, France was also unable to protect itself, unable to implement its own anti-German policy; although in 1923, France sent troops to occupy the industrial center of Germany on the pretext that Germany refused to pay.In the end, the French side had to accept the facts and tolerate the policy of the German side to pay in installments after 1924; the German economy also gained a great impetus as a result.But secondly, the way Germany pays reparations is also a big problem.All countries that want to suppress Germany and keep it weak will force Germany to pay in cash.Because it is conceivable that if Germany is allowed to discount compensation from existing production or export income, it will definitely increase its productivity, which will be detrimental to competitors.In fact, all countries put pressure together to force Germany to borrow a large amount of debt to pay reparations. Therefore, most of Germany's reparations came from the large loans it borrowed from the United States in the 1920s.From the point of view of the German opponent, this method has another advantage, that is, it will make Germany deeply in debt, unable to expand exports to balance the debt;

soaring.But we have all seen the consequences of forcing the German side to use debt to support debt. In the end, it made Germany and Europe extremely sensitive to American troubles. After the stock market crash on Wall Street in 1929, there was a crisis in US foreign lending resources, but the ability of the US to lend abroad began to decline long before the stock market crashed.During the Great Depression, the reparations payment, the structure of the building on the beach, collapsed all at once.In the end, it doesn't matter to the German or the world economy whether payments are made or not; payments stop and nothing positive happens.Because the economy has completely disintegrated. Arrangements for international payments also failed in 1931-1933.

However, the severe economic collapse between the wars, the disintegration and political chaos in Europe during and after the war can only provide part of the reason.From an economic point of view, it can be divided into two aspects. First, at that time, the international economy was extremely unbalanced, and the rapid growth of the United States was out of proportion to that of other countries in the world.The world economic system is completely useless.Because the United States, unlike the British Empire, which was the global center before 1914, was self-sufficient and had almost no needs from the outside world.For this reason, the United States has another difference from the United Kingdom: it does not care whether the international account payment is stable, let alone maintain it.In the past, the United Kingdom, as a large exporting country, knew that international payments were made in pounds, so it paid great attention to maintaining the stability of its currency value.The reason why the United States needs less is that after World War I, its need for foreign capital, labor, and (relatively speaking) everyday necessities is lower than ever before, with a few exceptions for raw materials.American exports, important as they are to the rest of the world—Hollywood has the equivalent of a global movie market—are far less important to the country's total income than any industrial country.It may be a matter of opinion whether the United States' retreat from the center of the world economic stage will have a significant impact on the world.However, American economists and politicians are obviously deeply moved by this kind of argument, and they believe that the passiveness of the United States has caused the depression.So during World War II, they tried their best to persuade Washington to change course.So after 1945, the United States began to take full responsibility for maintaining the stability of the world economy (Kindleberger, 1973).

There is another explanation for the cause of the great economic panic, that is, the demand generated by the world economy at that time was not enough to sustain long-term expansion.We have seen that the prosperity of the 1920s was actually rather weak, even in the United States, where the agricultural recession had begun.Contrary to popular myths about the great Jazz Age, wages for the average person have not risen dramatically either.Towards the end of the boom, the last few years of booming stock prices, wages even began to stagnate (Historical Statistics of the USA, I, p. 164, Table D722-727).What happened then was that wages lagged behind while profits jumped disproportionately.As a result, the rich got richer, accounting for more than half of the country's assets.This is the case in all liberalized market booms.Industrial productivity continued to increase rapidly, but popular demand could not keep up with the pace of mass production during Henry Ford's heyday.The result was overproduction, speculation, and then a general collapse.Here, however much historians and economists may differ, they are still arguing even today.But the general lack of demand was impressive to anyone interested in government policy at the time, even Keynes.

The final big collapse finally came, and the blow to the United States was naturally the most violent.And because of the lack of growth in demand earlier, merchants greatly expanded consumer credit to stimulate demand.In this way, a total collapse hits harder. (Readers, if you remember the phenomenon in the late 1980s, you should feel that this history is quite familiar.) Self-deceiving optimists became popular, and deceptive financial experts sprung up like mushrooms to fan the flames. The real estate industry was once extremely prosperous. It peaked years before the big crash.The bank has suffered a lot and has bad debts. Now it rejects all new applications for housing loans and re-mortgages.But it was too late, too late, (in 1939) nearly half of the housing loans failed to meet their repayment obligations, and an average of 1,000 houses were seized a day.Under the drag, thousands of banks in the United States failed one after another (Miles et al, 1991, p. 108).At that time, all kinds of short-term and medium-term private loans in the United States totaled as high as 6.5 billion U.S. dollars, of which auto loans alone accounted for 1.4 billion (Ziebura, p. 49).Another factor is that the economy is increasingly affected by the credit explosion.It turns out that the purpose of American consumers' borrowing is not to spend on food and clothing, which is traditionally used to strengthen the body and mind.The consumption of food and clothing has little flexibility.No matter how poor and miserable a person is, there is still a certain basic amount for daily needs, which cannot be reduced much.In the same way, even if the income triples, the daily needs will not increase in the same proportion.However, what the American people bought with loans was not basic food and clothing, but durable consumer goods in the modern consumer society that the United States had begun to vigorously advocate at that time.However, cars and houses are not urgent needs and can be postponed at any time. The elasticity of demand is greatly affected by income.

Therefore, unless everyone feels that the downturn is just a temporary phenomenon and has a lot of confidence in the future, the impact of such a big crisis will naturally be extremely serious. Between 1929 and 1931, U.S. automobile production plummeted in half.The decline was even greater in phonograph publications for low incomes (so-called Negro and jazz recordings); for a while they almost disappeared altogether.In sum, "this class of new goods and ways of life differs from railroads, new ships, steel, and production machine tools--which help to reduce costs--which depend on rapid and general increases in income, and on the A high level of confidence in the future." (Rostow, 1987, p. 219) Unfortunately, it is the income and confidence of the masses that are at the very moment of complete collapse. The worst cyclical depression ever recorded is finally over. After 1932, it was clear from all directions that the worst was over, and the economies of some regions even began to roar forward.By the late 1930s, production in Japan and Sweden—albeit to a lesser degree—had nearly doubled pre-recession levels, and by 1938 the German economy had more than a quarter of what it had in 1929 (although Italy no such luck).Even Britain, the deadliest of economies, has seen a recovery, but the upsurge everyone hoped for never came.The world remains in a depression, most notably the United States, the most economically powerful country, where President Roosevelt's series of "New Deals" to stimulate the economy - many of them contradictory - failed to fully meet expectations. Effect. In 1937-1938, the economy did recover strongly for a time, but then collapsed again. Fortunately, the scale of the slump this time was slightly better than that after 1929.The automobile manufacturing industry has always been the benchmark of American industry, and it has never recovered from the peak in 1929; by 1938, the total automobile production had only stayed at the level of 1920 (Historical Statistics, II, P. 716).Those who lived in the 1990s, looking back at that year, first felt the pessimistic atmosphere of the commentators at that time.Good economists believe that if capitalism is left to fend for itself, the only way to go is depression.As early as the Paris Peace Conference, Keynes put forward this view.Now that the Great Panic is over, this pessimistic tone is even more pervasive in the United States.Does any economic system have to embark on this long-term stagnation and depression once it matures?The Austrian economist Joseph A. Schumpeter is another school of thought that makes pessimistic predictions about the future of capitalism.He once said: "In any long-term economic recession, even economists will be infected by the atmosphere of the times, sinking with everyone, and put forward pessimistic theories that the depression will never go away." (Schumpeter, 1954, p. .1172) Looking back at the past, perhaps in the future when historians look back on the history of 1973-1991, they will also be surprised by the stubborn optimism of the 1970s and 1980s. At that time, everyone blindly denied that the capitalist world would fall into depression again. View. Despite the depression, the 1930s was actually a decade of great achievements in industrial technology inventions, and the development and application of plastics is an example.In fact, one other industry—the entertainment industry known today as “media”—had a breakthrough in the interwar years, at least in the Anglo-Saxon world.Mass broadcasting became popular, the Hollywood movie industry flourished, and the invention of gravure printing allowed newspapers to start publishing pictures, an even more astonishing feat (see Chapter 6).In the downturn of mass unemployment, movie theaters like dream palaces were built in gray towns one after another. , now the most is time, and they all pass the time by watching movies.Sociologists have also found that in the downturn, the proportion of couples engaging in leisure activities together is also much higher than before (Stouffer, Lazarsfeld, pp. 55, 92).