The world economy in disarray

One would never know if the collapse of the American economy and, as a consequence, of the world economic order in the years following 1929 was more or less preordained by the very structure of economic affairs during the 1920s, or whether the prosperity and peace of the postwar decade could somehow have been maintained if the United States and other nations had taken more forceful measures to cope with the economic crisis at its inception. One thing is certain, however. The world economy of the 1920s had been so intertwined with American economic resources and performance that whether the relative stability and prosperity of the postwar decade could have been perpetuated hinged to a considerable extent on action taken by American officials, bankers, and others. Their inaction or passivity, by the same token, would have profound implications for world affairs of the 1930s.

As of 1929, the United States still accounted for 40 percent of the world’s industrial production, 50 percent of the world gold reserve, and 16 percent of international trade. Should something happen to the American economy, therefore, it would have a severe impact on other countries. And, indeed, something drastic did take place; after the stock market crash of October 1929, production was cut by 50 percent by 1932, export trade fell by 60 percent, and unemployment rose from 1.5 million to 12 million in the same period. Industrial and agricultural prices fell, wages for those still employed declined, personal and business bankruptcies were legion, and the cult of productivity and efficiency as the prevailing ethos of the first postwar decade was replaced by severe attacks on capitalism.