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.

The Depression
"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 tide.

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 the Depression.

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 reconstruction.

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 manipulatedÑwith rearmament employing many workers and the army taking many more away from the market.

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 small-scale agriculture.

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 times.