996 Ch. 25 • Economic Depression and Dictatorship

Table 25.1. Indices of Industrial Production

Year Germany United States France Britain

1925 79.3 93.7 85.0 94.8*

1927 97.2 95.5 86.6 101.2

1929 101.4 107.2 109.4 106.0

1930

1931

83.6 86.5 110.2 97.9

August 71.9 74.8 99.2 84.6

December

1932

59.4 66.7 87.4 84.7

January 55.2 64.9 82.7 90.1

August

*For Great

54.7

Britain, 1924.

53.2 73.2 89.2

Source: David E. Sumler, A History of Europe in the Twentieth Century (Homewood,

Dorsey Press, 1973), p. 145.

As unemployment mounted to unprecedented levels, the “roaring twen­

ties” became the “threadbare thirties.” Jobs disappeared and families were

compelled to spend the savings they had so painstakingly amassed over the

previous five years, even as manufacturing and agricultural prices contin­

ued to fall because of the dramatic contraction of demand. Manufactured

goods piled up on the docks.

Confronted by a catastrophic fall in production and prices, as well as

unemployment approaching 20 percent of the workforce, British govern­

ment officials and economists debated strategies that might revive their

floundering economies. There were no easy answers. The economic ortho­

doxy of the day held that the way out of the crisis was to reduce public

expenditures. The inflation of the immediate post-war period, particularly

the hyperinflation that had ravaged Germany in 1922 and 1923, fright­

ened statesmen and economists away from even limited financial or fiscal

expansion.

National policy options, too, were further constrained by the interde­

pendence of the international economy, especially under the gold stan­

dard. For example, James Ramsay MacDonald’s British Labour government

first reacted to the Wall Street crash by increasing unemployment benefits

and funding more public works, while raising taxes. These expenditures fur­

ther increased the government deficit, already soaring because of reduced

tax revenue. But the British government was then forced to reduce unem­

ployment benefits in order to be deemed creditworthy by New York and Pa­

risian bankers, in the hope of stabilizing the pound and maintaining the

gold standard.

The international monetary system collapsed as the world economy

plunged into dark Depression. Banks and private interests that had loaned