THE 1929 crisis, also known as “The Great Depression”, was the biggest crisis of financial capitalism.
The economic collapse began in mid-1929 in the United States and spread throughout the capitalist world.
Its effects lasted for a decade, with social and political ramifications.
Causes of the Crisis of 29
The main causes of the 1929 Crisis are linked to the lack of economic regulation and the offer of cheap credit.
Likewise, industrial production followed an accelerated pace, but the consumption capacity of the population did not absorb this growth, generating large stocks of products in order to wait best prices.
Europe, which had recovered from the destruction of World War I, no longer needed American credits and products.
With low interest rates, investors began to place their money on the Stock Exchange and not on the productive sectors.
Upon realizing the decrease in consumption, the productive sector started to invest and produce less, making up for its deficits with the dismissal of employees.
A movie that takes place at this time is Modern Times, by Charles Chaplin.
New York Stock Exchange Crash
With so much speculation, the shares begin to devalue, which generates the "crash" or "crack" of the New York Stock Exchange, on October 24, 1929. This day would be known as "Black Thursday".
The obvious result was unemployment (generalized) or wage reduction. The vicious cycle was completed when, due to lack of income, consumption dropped even further, forcing prices to fall.
Many banks that lent money failed because they were not paid, thus reducing the supply of credit. As a result, many entrepreneurs closed their doors, further aggravating unemployment.
The countries most affected by the New York Stock Exchange Crash were the most developed capitalist economies, among them the United States, Canada, Germany, France, Italy and the United Kingdom. In some of these countries, the effects of the economic crisis fostered the rise of totalitarian regimes.
In the Soviet Union, where the current economy was socialist, little was affected.
1929 crisis in Latin America
The crack on the New York Stock Exchange reverberated around the world.
In countries undergoing an industrialization process, such as those in Latin America, the agro-export economy was the most affected by the reduction in raw material exports.
Throughout the 1930s, however, these nations were able to witness an increase in their industries, due to the diversification of investments in this sector.
1929 crisis in Brazil
The economic crisis in the United States hit Brazil hard.
At that time, the country exported practically only one product, coffee, and the good harvests had already caused the price of the product to drop.
Furthermore, as it was not a first-need product, several importers significantly reduced purchases.
To get an idea of the scale of the economic problem, the bag of coffee was priced at 200 thousand réis in January 1929. A year later, its price was 21 thousand réis.
The 1929 Crisis in Brazil weakened the rural oligarchies that dominated the political scene and paved the way for Getúlio Vargas' arrival to power in 1930.
Historical Context of the 1929 Crisis
After World War I, the world experienced a moment of euphoria known as the "Crazy Twenty Years" (also called the Jazz age).
In the United States, especially, optimism is palpable and the call is consolidated American way of life, where consumption is the main factor of happiness.
At the end of World War I in 1918, industrial parks and agriculture in Europe were destroyed, allowing the US to export on a large scale to the European market.
The United States has also become the main creditor of European countries. This relationship generated commercial interdependence, which changed as the European economy recovered and started to import less.
Added to this, the American Central Bank authorizes banks to lend money at low interest rates. The goal was to further encourage consumption, but this money ended up on the Stock Exchange.
In this way, in the mid-1920s, investments in stocks on the stock exchange also increased, as these stocks were artificially valued to appear advantageous. However, as this was speculation, the shares had no financial coverage.
As an aggravating factor, the US government initiates a monetary policy to reduce the inflation (price increase), when it should fight an economic crisis caused by economic deflation (price drop).
First, the US economy, the main international creditor, starts to demand the repatriation of its assets, lent to European economies during the war and reconstruction.
This factor, added to the retraction in US imports (mainly of European products), makes it difficult to pay off debts, thus taking the crisis to other continents.
This crisis was already noticeable in 1928 when there was a sudden and generalized drop in the prices of agricultural products on the international market.
New York Stock Exchange Crash
On October 24, 1929, a Thursday, there were more shares than buyers and the price plummeted. As a result, millions of US investors who put their money on the New York Stock Exchange went bankrupt when the “credit bubble” burst.
This had a ripple effect, bringing down the Tokyo, London and Berlin stock exchanges in the aftermath. The damage was millionaire and unprecedented in history.
As a result, the financial crisis erupts, as people, in panic, withdraw all their amounts deposited in banks, which provoked their immediate collapse. So, from 1929 until 1933, the crisis only got worse.
However, in 1932, the Democrat Franklin Delano Roosevelt he was elected president of the USA. Immediately, Roosevelt initiates an economic plan called (on purpose) "New Deal", that is, the "New Deal", characterized by the intervention of the State in the economy.
As a legacy, the Crisis of 1929 left us the lesson of the need for interventionism and state planning of the economy. Likewise, the State's obligation to provide social and economic assistance to those most affected by the degrowth of capitalism.
Aftermath of the 1929 Crisis: New Deal
The economic plan of New Deal was primarily responsible for the US economic recovery, being adopted as a model by other economies in crisis.
In practice, this government program provided for State intervention in the economy, controlling industrial and agricultural production.
At the same time, federal public works projects were carried out with a focus on the construction of roads, railways, squares, schools, airports, ports, hydroelectric plants, popular houses. Thus, millions of jobs were created, boosting the economy through consumption.
Even so, in 1940, the US unemployment rate was 15%. This situation was finally resolved with World War II, when the world capitalist economy recovered.
By the end of the war, only 1% of productive Americans were unemployed and the economy was in full swing.
