An Era of Despair
The temptation of our day is to accept the intolerable, for fear of still
worse to come.
HERMANN RAUSCHNING, 1939
The decade that ran from the stock market crash in October of
1929 to the outbreak of war in September of 1939 was the most
dismal recorded in the peacetime of modern European history.
Unemployment and political disintegration in the democratic West,
political persecution and the establishment of concentration camps in
Nazi Germany and the Soviet Union, and mounting international
tension across the Continent are the major features of these years.
Thus the words of Rauschning, quoted above, hardly exaggerated the
sentiments of millions of individuals who endured hardship and
lived in fear. The sense of despair that had dampened the minds of
the "front generation" some fifteen years before was now
universalized: to vast numbers of the population, the older purposes
of European civilization appeared to be hopelessly lost.
In this time of social disintegration, new institutional forms
were hastily contrived. At the center of the European continent, both
geographically and politically, rose a new order, that of Nazi
Germany. The stark reality of Hitler and Nazism were confirmation
that European notions of progress and humanism had been debased,
made part of the debris still scattered by the previous war. Hitler's
regime grew out of economic confusion and governmental helplessness. It thus can be considered one of the results of the malfunctioning, liberal, capitalist system. The last widespread belief in self-generating progress toward greater material well-being collapsed in 1929.
"Black Thursday," October 24, 1929, was the dramatic moment
when the decade of the 1930s opened. On that day and the next, the
sale of stocks on the New York stock exchange reached enormous and
unimagined proportions, as investors clamored to get their money.
The great banking house of J. Pierpont Morgan used its incomparable
financial resources to balance the market, but sales only temporarily
wavered before they again plunged precipitously downward. Even
"Jupiter" Morgan did not have the gravitational pull to change the
What occurred in that dark moment in American financial
history would soon be repeated less dramatically but equally
disastrously throughout the Western world. Because the world
economy was now American-based, what happened on Wall Street
was international news.
As early as the middle of the nineteenth century, European
critics anticipated the day when the growing economy of the
American nation would be the dominant force in international
commerce. By the beginning of the twentieth century the United
States had shifted, as noticed in the amount of exports, from an
agrarian to an industrial nation. During the "War of Endurance," this
trend intensified, as did European dependency on American
products. Moreover, the accelerating costs of the war caused
European nations to borrow from the United States. Finally, the
increase of American wheat-growing to accommodate the wartime
needs of Europe brought more wealth to this land and would
unbalance the European grain market after the war.
By the end of the war the United States stood as the center of a
new world economic order, with New York City as its capital. For a
few giddy years New York was universally admired for its high
finance and its high-rise buildings, both suggestive of economic
exuberance. The construction of the Chrysler Building in 1929 served
as an appropriate symbol. The first skyscraper to reach above 1,000
feet (it is actually 1,046 feet tall), it was built on American industry:
Walter Chrysler became a millionaire as an automobile manufacturer.
Like the Chrysler Building, the growth of the American
economy, after a brief agricultural depression in the immediate
postwar era, was spectacular. But the Chrysler Building went up in
the same year the economy came down. Overspeculation on the stock
market and overexpansion of production were the major causes of
Although New York was the focal point of "The Crash," the
Western world was its setting. The Depression was an unexpected
outcome of the unsettling conditions brought on by the world war.
After 1918, an unusual and ultimately disastrous flow of
currency characterized the international monetary market. Germany
was the tidal basin out of which and into which the money went.
German bullion was quickly drained because of the need for the
nation to pay the heavy reparations required by the Allied Powers.
In order to maintain a semblance of financial stability, the German
Republic borrowed heavily on the international money market with
American bankers and investors purchasing bonds and buying into
German industry. (Henry Ford was one such prominent investor.)
Even though British and Swiss financiers also participated in this
activity, the American effort was by far the greatest in sums lent and
invested. In turn, the money Germany borrowed provided one means
by which the reparations payments could be partially met. In a
sense, therefore, American capital flowed into Germany, only to have
much of it flow out again to France and England in the form of war
payments. Yet, ironically, Germany borrowed more money in the
1920s than it paid out in reparations.
As for France and England, they had incurred a considerable
debt to the United States for "offshore" wartime production provided
by American industry, and for the capital loaned to help with the
war effort. "They borrowed it, didn't they?" replied President
Coolidge to the question of whether the European states could afford
to repay the debt.
Part of the problem was the nature of American national
economics. The American system of protective tariffs meant that the
European nations found the repayment of American loans difficult
because the importation of European goods into the United States
was hindered by these very tariffs.
Moreover, the gold that did come from Europe was stored
underground at Fort Knox, Kentucky, by which action it was removed
from the money market and thereby inhibited European capital
Clearly, then, this circular flow of capital neither generated
much new European wealth in the form of capitalization--new
industrial development and, hence, employment opportunities--nor
did it auger well for international stability. The precariousness of the
world financial situation was recognized by the European nations
which did, through a series of international conferences, attempt to
adjust the enormous debt payments to the United States and to seek
some arrangement for Germany that did not involve astronomical
figures for reparations. No sum could originally be agreed upon for
Germany, but in 1921 the figure was rounded out at some 540
billion--still beyond the bounds of financial reason.) Only in 1931
with a moratorium proposed by President Herbert Hoover did the
problem cease. The Hoover moratorium called for a cancellation of all
intergovernmental debts for one year. In effect, the decision became
a permanent one; few state debts were paid after this date.
That Europe had become so clearly an economic dependency of
the United States explains why the October 24, 1929 "crash" would have
such quick repercussions abroad. Short-term loans were quickly
recalled to cover the falling stock value and the rush on bank
deposits at home. In a matter of months the international golden web
was broken, and the economy it supported fell through. The
capitalism of the "free market" was finished; henceforth
governmental intervention of some sort in the economic workings of
private enterprise would be a characteristic of the economy of the
Western world. But this economic interventionist role of the state
was haphazard and ill-defined at the beginning. Indeed, no European
democratic state moved as effectively as did the American
government. And as for the dictatorships, state control was such that
the labor market was manipulated—with rearmament employing
many workers and the army taking many more away from the
Within most European states the governmental response was
that of confusion and desperation. National budgets were cut and
balanced; governmental salaries were reduced; and variants of the
British "dole," state payment of modest sums to unemployed and
underemployed workers, was made. There were some efforts at
governmental subsidy of industry -- as in England, where the
construction of the two superliners, Queen Mary and Queen Elizabeth,
was done as much to help the badly depressed ship-building
industry as to provide luxurious travel for the few who could still
afford it Yet the most strenuous measure was also the most
unfortunate. Countries, in an effort to protect home industries,
introduced high protective tariffs which blocked the flow of foreign
goods. The international economy was thus segmented, chopped up
into national parcels that were not self-sufficient.
In Europe, as in the United States, the most glaring effect of the
Depression was unemployment. In Germany, one-half of the labor
force was ultimately without sufficient employment; in Great Britain,
the figure approximated one-quarter. Only France among the major
Western European nations had a low figure, this because the French
economy was more domestically than internationally oriented and
because a high percentage of the population was still engaged in
Social despair grew out of economic depression. The world of
the self-adjusting marketplace, which had been the center of
European domestic existence for a good century, no longer made any
sense. One observer in Vienna in the 1930s recounted the curious
argument used by a Nazi street orator trying to win over a small
group of poorly dressed listeners. "We don't want high bread prices,"
the orator remarked. "We don't want low bread prices. We want
National Socialist bread prices!" He was cheered, a small indication of
the deep economic confusion of the day.
Both economic security and the belief in material progress
were shattered by the Depression. And the liberal principles of
politics, based on individualism as was the economic system, were
also badly affected. As hope in the old order declined, opportunities
for the political parties on the "Right," those usually grouped
generically under the name "fascism," rose. These parties were characterized by their activism and antiparliamentary stance. Their membership was outfitted and used as if soldiers: they took to the streets to march and often to attack their opposition in
gang fights; they looked to a strong leader who usually promised a
new order as a substitute for democracy, which was denounced as
the government of the weak.
For many individuals who turned to these new authoritarian
parties, personal freedom seemed a burden; democratic processes
seemed inept and ineffective. A new desire for relief from personal
anxiety led to a search for social order.
To many people a strong government with powerful leadership
was now necessary. The British "Journal of the National Union of
Manufacturers" struck this tone in an editorial of 1934:
We cannot help wondering, rather wistfully, whether a British
Mussolini would not play the excellent cards we hold in our
hands a great deal better than our popular form of government
does . . .whether a democratic form of government is really
capable of directing the destinies of the Empire in these difficult
Here was a call for a new order in the most democratic of European
nations. On the Continent itself, fascism and Nazism were responses
to the confusion of the day.
NEXT: Fascism and Nazism