998 Ch. 25 • Economic Depression and Dictatorship
depended, above all, on local markets. France also had considerable gold
reserves, which helped maintain business and consumer confidence and
keep consumer spending at a relatively high level. The run on the British
pound and the German mark, too, at first aided France, as gold exchanged
by investors ended up in Paris. The franc initially remained stable, and
undervalued, encouraging the purchase of French goods. But gradually
French prices also fell and unemployment rose, again revealing the interde
pendence of the global economy. The Depression hit France only in 1932.
French exports declined with the contraction of the world market, particu
larly because the franc, which had not plunged like the pound, was now
overvalued, making French goods expensive abroad. But most French lead
ers considered devaluation to be anathema. “Who touches the franc/’ cau
tioned one newspaper, “touches France!” The French government, like that
of Britain, stuck to classical economic remedies, ignoring demands for
active state intervention to stimulate the economy both from right-wing
corporatists who sought support for cartels and from left-wing socialists
who called for the nationalization of crucial industries and more unemploy
ment benefits.
Gradual European Economic RevivalIn the rest of Europe, government leaders debated strategies that they
hoped would pull their countries out of the Depression. The major powers
acted in their own interests—establishing high tariffs and devaluing their
currencies—without prior consultation with other governments. The U.S.
government, like that of Britain, followed contemporary economic ortho
doxy. Both sharply reduced government spending, cutting unemployment
benefits and restricting credit. However, John Maynard Keynes (1883
1946), the English economist, insisted that recovery would depend upon
just the opposite strategy: an increase in government expenditures, includ
ing deficit spending—for example, on public works—to stimulate consumer
spending by reducing unemployment. Keynes argued that deflationary mea
sures, such as cutting government spending, reducing unemployment ben
efits, or encouraging companies to limit production and thus keep prices
artificially high, were counterproductive. They could prolong the Depres
sion by reducing the demand for goods. With one-quarter of the labor force
out of work early in 1933 and wages falling, there was insufficient demand
to generate a manufacturing upswing in Great Britain, the United States,
or anywhere else. But Keynes stood virtually alone, and most of what he
had written was then still largely unknown.
Only very gradually did the Depression begin to recede in the industrial
ized countries. A modest recovery began in Britain in 1932. But it was not
due to the dramatic improvement of British international trade upon
which the Conservatives had counted. Rather, it followed a slow increase
in consumer spending. Keynes had been right. Increases in 1934 and 1935