12: The Depression


In the early 1930s the depression would spread around the globe.


Listen to “History of the Second World War” on Spreaker.


  • China During the Great Depression: Market, State, and the World Economy, 1929-1937 by Tomoko Shiroyama
  • Germany and the Great Depression by Dieter Petzina
  • The Global Impact of the Great Depression: 1929-1939 by Dietmar Rothermund
  • Japan and World Depression: Then and Now Edited By Ronald Dore and Radha Sinha
  • The Failure of Economic Diplomacy: Britain, Germany, France and the United States 1931-36 by Patricia Clavin
  • The Forgotten Man by Amity Shales
  • The Great Crash of 1929 by John Kenneth Galbraith
  • The Great Depression in Europe, 1929-1939 by Patricia Clavin
  • The Politics of Depression in France 1923-1936 by Julian Jackson
  • The Slump: Britain and the Great Depression by John Stevenson and Chris Cook
  • The World in Depression 1929-1939 by Charles Kindleberger
  • Unemployment and the Great Depression in Weimar Germany Edited By Peter D. Stachura
  • The Gold Standard and the Great Depression by Barry Eichengreen and Peter Temin
  • Life Expectancy during the Great Depression in Eleven European Countries by Tim A. Bruckner, Andrew Noymer, and Ralph A. Catalano
  • The Origins and Nature of the Great Slump Revisited by Barry Eichengreen
  • Socialism and Wages in the Recovery from the Great Depression in the United States and Germany by Peter Temin


The Great Depression would be an important event in many nations around the world during the 1930s. For some it would cause large national economic policy changes to be made, such as the abandonment of the Gold Standard, for others it would cause large changes to the political status quo. Each nation and its people would experience the depression differently based on their national history and national situation. However, there were two important themes that would take place throughout the world. The first was that the depression unleased a wave of poverty and struggle upon the lower classes, those that had least benefitted by the short economic recovery of the 1920s. The second was the questioning of tradition and the best path forward. This was done on both the economic and political level and was also experienced at a personal, regional, and national level. A big reason for this was that the optimism that had exemplified the postwar years had been shattered, and for many nations that optimism would not return before the Second World War, and if it did it would often manifest in a very different mixture of political beliefs and national ideology. Today we will discuss the effects of the depression around the world, starting with the United States, then in other nations around the world in Europe, Asia, and Africa. Then we will discuss the World Economic Conference that would occur in 1933 as many of the worlds largest economic powers convened to try and coordinate actions to correct the economic downturn. I do want to emphasize that this episode will have just the briefest of overviews about the events in the various nations that we will be discussing, we will be discussing Britain, France, and Germany in greater detail next episode, but for the nations discussed in this episode there are certainly many more things to be said about their experiences during the depression, but those experiences are outside the scope of this podcast.

One of the problems that many Western nations would experience at the start of the Great Depression, and also one of the causes for how bad the Depression would become, was income inequality. For example in America a large percentage of all income went to a small number of people, with the top 5% of wage earners receiving 30% of all wage income. Income inequality is an incredibly complicated topic to discuss, and it is one in which the overall consequences of such inequality is still up for debate. However, one of the ways in which this affected the American economy at this point in history was that there were large sections of the economy dedicated to the manufacture and distribution of luxury goods, but when the crash happened a large portion of the wealth that had fueled those industries was taken away. The collapse of those industries then led to issues in other industries, which then cascaded out into others, so on and so forth. Another consequence of the crash was the quick end to the amount of credit that had previously been provided by the largest banks, mostly based on the East Coast. These banks were critical both to the functioning of the American economy and to those of other nations. Domestically they provided loans to the smaller banks around the country, which at the time made up the majority of the banks in the United States. Abroad American credit was an important factor in the global economy, with American banks fueling much of the recovery of Europe after the war. The refusal to extend more credit to nations around the world would cause an American economic problem to become a worldwide problem.

Just like in other nations the American government and business community did not have a playbook on how to respond to all of the problems that were occurring. There had been slumps before, but nothing on this scale. This uncertainty in how to respond would result in there being two different phases for how the American government tried to respond to the crisis, which were separated by the election of President Roosevelt in 1933. During the first phase the American government, led by President Hoover, would try an rely on private businesses and private industrial leaders and banks to kickstart the economy. This had worked in previous economic slumps, and it involved a lot of working with the largest industrial leaders to try and find a way, with minimal government oversight and control, to fix the economy. The second phase would begin after President Roosevelt came into office in 1933. Roosevelt and his advisors had a very different view on how the government should be acting, and what the best methods would be to try and fix the problems that the United States was experiencing. These ideas would be turned into the New Deal, a large package of regulatory changes, economic policy changes, and the creation of new government programs to try and boost the American economy. Roosevelt would also take the United States off of the gold standard, a step that many other nations, like the British Empire, had already done. This made imports more expensive, but made exports cheaper, and also made American made products more appealing for domestic consumption due to them being relatively cheaper. There would also be moved to restrict the amount of imports coming into the country in the hopes that it would help to further boost domestic output.

During the depression unemployment in the United States would greatly increase, and coupled with other environmental factors it would be a very rough period for many Americans. It was a period when middle and lower class Americans would experience prolonged poverty, which would alter their mindset and outlook for generations to come. However, the overall efficacy of the government’s actions along the way are still a hotly debated topic. I am not even close to quality enough to interpret all of the economic data, trends, and decisions that are involved in these changes, but considering the fact that some of the things I have read about it seem to be from people who think they knew quite a bit and don’t, here is my evaluation. There are a lot of challenges when trying to determine how effective the efforts of Hoover, Roosevelt, and their respective governments were in response to the Depression. Pat of the problem is that the Depression was an unprecedented point in history, so it is essentially impossible to properly compare it to any other event where a different governmental response was present. The second major problem is that when making national economic changes, the economy does not just instantly change. A change can be made that is not felt for months, years, decades, and so trying to ascribe specific improvements or regressions to specific policies is challenging. On top of these issue, which would make it difficult to begin with, discussion about the depression has become, lets call it politically charged. All discussions about history contain some level of bias, that is just how this all works, but the analysis of the depression by Americans can be tinged with more bias than normal. Not to fall too deep into modern politics, but the role of government in the economy is still, in the year 2020, a hotly debated topic in America, and the New Deal is one of the largest government interventions in history. This has caused historians, economists, and non-academic political writers to dive into analysis with gusto, sometimes in the hopes of justifying their on modern day views. I don’t feel like I can tell you if the actions of the American government during the depression, at any point, were the right choices, all I know is that the American economy, for most of the 1930s was going through a catastrophic depression, and it was a depression that was not just contained within their borders, and it would instead spread throughout the world.

One of the most important ways in which the American depression was communicated to other nations around the world was through the reduction in the amount of credit being offered for foreign investments. There was, overall, a huge reduction in the spending level in many American companies, which resulted in less production and more unemployment. As everybody tried to extract themselves from non-liquid investment vehicles there was then suddenly a cash shortage which made it relatively expensive to lend money. This was felt most acutely by commodity markets both in the United States and around the world. In less developed nations, which had been dependent on American credit to finance both short term loans and long term investments suddenly had nowhere to go. Then they too experienced a liquidity crisis as they quickly depleted their reserves of foreign currency and gold that they had previously used to purchase foreign goods. Nations were forced, through this lack of available foreign currency to cut their imports, which they had already been forced to do as the producer countries had already started cutting production which meant that their exports were more expensive. These trends then began to greatly reduce international trade, with international trade among the top 75 countries dropping by two thirds between 1929 and 1933. Many nations, especially those that were still on the gold standard found that they were simply running out of money. The gold standard was supposed to prevent these types of problems from occurring, but the erection of trade barriers by many nations meant that the free movement of trade was impossible, and so the whole system began to fall apart under the strain of the depression.

The easiest way for a government to fix the problem of simply not having enough liquid assets would be to devalue their currency. By devaluing the currency a nation could print more money, and it could make its exports much cheaper on the international market, and make imports more expensive. The hope was that such a move would be more effective than the actions that were already being taken to try and achieve the same goal, which were import tariffs and export subsidies. However, there were two problems involved with devaluation. The first was that just because a nation’s exports were cheaper, did not meant that there was more demand for those goods. In a worldwide economic crisis like the Great Depression there often was simply no other nation that could absorb large amounts of fresh imports and this made most exports inelastic, which meant that even if they got cheaper they would not necessarily be in greater demand. On the flip side the demand for some imports might not lessen even if the prices were made to be greatly more expensive, with oil being a good example of an inelastic good in many countries. The second possible problem with devaluation was that when a nation devalued, it almost always meant that they would experience some amount of inflation. For many governments inflation was a dirty word, as it had been so damaging to the economies of Europe during the 1920s. However, there were benefits to inflation which some nations would take advantage of. For example, the United States would purposely induce some inflation when the nation devalued in 1933 in the hopes that it would help restart the economy. Even if there were risks involved with devaluation, it was still hugely beneficial for many nations. It was most beneficial for nations that were economically and politically strong, for example when Britain went off the gold standard in 1931 and devalued the pound it would lose one third of its value within a year. However, the British Empire was large enough that it could influence other nations, and bring those nations with it off the gold standard, and nations around Europe and the world, including the empire, would peg their currency to the British pound instead of to gold. When America devalued in 1933 most nations in Latin and South America would follow. This created currency blocks around the world within which trade flowed more freely, but as a whole they still had the ability to move the value of that currency in relation to others. Some nations would not move toward devaluation as quickly, and some would stay on gold for several more years. These nations were led by France and other European continental powers like Germany and Poland, but they still would work around some of the constraints of the gold standard, erecting more and more trade barriers both around themselves and the world to try and counteract some forces harmful to their own national economies.

While nations would all react to the depression differently, there were some similarities around the world. Perhaps the strongest similarity shared by all nations was that the poor would bear the greatest hardship due to the depression. In many nations with large rural poor populations of agricultural workers they were often stuck in a position with crops that they could no longer sell, some of which had been grown solely as cash crops for export markets that were no longer available. This was the situation in Africa for example, where there had been strong pressure during the 1920s for African farmers to grow crops for export, which then became worthless. A similar situation happened in Japan where the price of rise and other crops fell by as much as 40% and luxury goods like silk had their markets collapse seemingly overnight. There were similar stories in many nations around Europe, Asia, and Africa. In all cases the poor, both urban and rural, simply did not have the economic resources to pivot in any meaningful way, they were stuck where they were, and those that had jobs often lost them. Many nations would try to help with changes to how unemployment benefits were provided by the government, or created such programs in the first place, but there were many nations that simply did not have the resources to properly assist their citizens. Even the nations that did have that ability often found that the scale of the problem was simply staggering.

One nation we are going to dive a bit deeper into here is China. I find the experience of China during this period to be really interesting, and that interest starts with the fact that while China was part of the gold standard, they would use silver as their currency. But China did not actually mine any significant amount of silver domestically, and so they were almost wholly dependent on importing silver from international markets. One other unrelated fact that I have to mention. At this point in history there were many silver coins in circulation in China that were not actually minted in China, but instead in Mexico. This is because during the 19th century the Mexican silver dollar, which was known for its high quality silver and its uniformity was used in many nations as far afield as China and Japan and as close to Mexico as central and south America. Eventually many of these nations would move off of silver as a method of exchange, but China would not, and so by the time of the depression there were still many Mexican silver dollars being used in China. A fun fact, might win you a pub quiz. During the decades before the depression the same types of economic growth that was occurring in other nations also occurred in China, there was in general some level of inflation but a massive increase in the profits within the country and the overall productivity of the economy. This meant that these trends were, just like in other nations, taken for granted and large portions of some industries, like the textile industry, were fueled strictly by credit financing.

When the depression hit the country a really good case study for some of the problems that the high reliance on credit could cause in the rural areas. Basically, when the prices for agricultural products like wheat cratered, losing 40% of their value between 1931 and 1933 the rural farmers found that they could not continue to take out more credit. However, the price of necessities did not decrease at the same rate as the commodities did. This meant that at a macro level a huge amount of silver was extracted from these rural areas in China and funneled into the urban areas especially those responsible for manufacturing and import of foreign goods. The lack of currency in rural areas, and in rural banks, made credit even harder to obtain, making the entire rural economy very brittle because of its reliance on credit as a way of financing their way through years of poor harvests. When floods and droughts were experienced, like there were in many areas of China during the early 1930s, the rural population had nowhere to turn to. Layered on top of these economic problems, and partially a cause for the inability of rural banks to stay solvent, was the ever present military confrontation between the Nationalists and Communists. This had the effect of making investments in rural areas seem very risky, which reduced the desire of businesses and even the government to make large investments in those areas, even when they could see that it was necessary. Urban business leaders and the government were not blind to the problems being experienced in the rural areas, but they also did not necessarily jump into ways of assisting them, and soon those problems would spread to every facet of the Chinese economy.

After the start of the Depression in other nations the price of silver in those nations dropped precipitously, by as much as 50%. This caused the importation of silver to become very cheap for China, and large amounts of it were brought in as the amount of silver circulating reached new heights, even as it reached new lows in rural areas. Nowhere was the presence of this silver more impactful than in Shanghai where the abundance of currency fueled a boom in real estate speculation, a drop in loan interest rates, and greatly expanded bank credit lending capabilities. But then the British and United States went off the gold standard, and their currencies devalued in the process. This began to reverse the trend and silver became more expensive in those nations and silver began to flow out of China. This movement was greatly accelerated when the United States began to mint new silver coins after the Silver Act was enacted, soon silver currency which was once everywhere began to be in short supply. In late 1935 this caused the Chinese government to begin to plan and prepare for coming off of the gold standard and begin to de-emphasize silver as a currency. This was tricky business, because it as very likely that if silver was removed from the economy too quickly there would be a financial panic as people frantically tried to withdraw their silver from banks. Instead a more measured approach was enacted, slowly printing more money and draining silver from the economy over time. Initially there were some benefits to this approach, and as foreign exchange rates stabilized, and with other nations beginning to recover in the second half of the 1930s foreign investment began to return to China. Unfortunately, even if the plans were well laid, they could not take into account both local and global events. The Chinese government would always find that it was short on cash, and then violence would continue throughout the country, then the Second Sino-Japanese war would begin in earnest in 1937, derailing any nascent recovery.

While many of the actions taken by nations around the world were done so purely for national reasons, and at times for selfish national reasons knowingly at the cost of the ability of other nations to respond, there were attempts at international cooperation. One of these was the World Economic Conference, or the London Economic Conference which took place during June and July 1933. This period was, for many nations, the depths of the depression, but of course they did not at the time know that. It also caught many nations at an inopportune moment. For the United States it was just a few months after Roosevelt had taken office and started the nation down a very different path in terms of response to the crisis. Britain had exited the gold standard in 1931, and was by 1933 experiencing the beginnings of economy recovery, something that they were zealously trying to nurture. In Germany Hitler had come to power a few months earlier, with all of the ramifications and reform that his elevation to Chancellor would entail. France was still clinging to the gold standard, and hoped that the conference would result in some nations come back into the standard. Suffice to say, this was perhaps not the perfect time for an international conference involving these nations, but it would still occur.

Eventually, the Americans would then exit the conference in July, for many reasons. The first could be categorized as nationalistic in nature, as the American leaders were unwilling to discuss taking actions that might inhibit the recovery of the domestic economy in the United States, even if it was good for the international economy. The second was more idealistic. Most of the people inside the Roosevelt administration truly believed that the programs that they were putting place with the New Deal were the best way to fix the American economy in both the short and long terms. Roosevelt felt that the conference was instead spending too much time and focus trying to do a bunch of what he saw as, at best, short term fixes, something that he was not interested in pursuing, especially if it resulted in the domestic policies of the United States being derailed. The official exit of the American representatives from the conference was aa blow to the entire enterprise, or as Austen Chamberlain of the British government would say ‘There has never been, a case of a conference being so completely smashed by one of its participants.’ The exit of the Americans would come right as the final reports from the various commissions were finally being completed, however there was still uncertainty about what could and should be done, especially if the United States was not willing to take part in negotiations and the resulting agreements.

Even without the Americans involved there were still plenty of important differences of opinion among the remaining participants. The British were never going to go back onto the gold standard, and much like Roosevelt the British leadership were very focused on protecting their domestic recovery. There was little stomach for large scale trade negotiations, let along massive international economic agreements. This meant that the most important outcome of the conference was, in some ways, a break in relations between the nations involved. The animosity felt towards Roosevelt and the Americans would sour relations across the Atlantic for years into the future. The complete rejection of the French desires for a return to the gold standard hindered relations in Western Europe as well. The Conference would also be used as an example during the 6 very turbulent years that followed for why international agreements could no longer work, and were in fact not worth spending any time on.