CHAPTER 31 - DEPRESSION, EUROPEAN DICTATORS, AND THE AMERICAN NEW DEAL

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1 CHAPTER 31 - DEPRESSION, EUROPEAN DICTATORS, AND THE AMERICAN NEW DEAL CHAPTER SUMMARY Experimentation in politics and pursuit of normality in economic life marked the decade of the 1920s, which this chapter covers. Many of the experiments failed and normality proved difficult to attain. Yet the tragic events of the 1930s were not inevitable. Many of the survivors of the Great War hoped and worked for a better world. If not for the great economic depression that began in 1929, they might have succeeded. This chapter also focuses on the effects of the Depression of the 1930s, the most severe downturn ever experienced by the capitalist economies. Unemployment, low production levels, financial instability and a decline in trade brought unprecedented problems, for which voters and statesmen sought radical solutions. One result of their quest was the establishment of Nazism in Germany; another, epitomized by the New Deal in the United States, was the construction of what has become known as the mixed economy, that is, direct government involvement in economic decisions. In both cases, the guidelines of nineteenth century liberalism and the civility of nineteenth century life were increasingly dispensed with. The Depression which arose from such factors as reparations, war debts, inflation and a decline in production and trade, engendered such frustrations and anxieties in Europe's voters that they pressured their governments to interfere with the economy as never before. Politicians began with the orthodox approach of cutting government spending to avoid inflation, but quickly proceeded to more radical steps. In large measure, government response depended on the severity of the Depression in each particular country and on the self-confidence of the nation's political system. The French were well aware of their fragility. The most important French political experiment was the Popular Front Ministry of A coalition of Socialists, Radicals and Communists, it lost its authority by In Britain, the Labour Party came to power in 1924 and again in In Communist Russia, democracy had not even a brief period of success. The Bolsheviks frankly intended to impose their plans on the population. They likewise hoped to dominate the international socialist movement. At the formation of the Third International (Comintern) in 1919, they demanded that all European socialists give up reformism for revolution; in this they were only partially successful and split the socialists, which benefitted the Right. At home, the Communists first followed a policy of economic centralization and confiscation (War Communism). This enabled them to win a civil war, but raised great popular opposition. In 1921, 1

2 Lenin retreated to a policy allowing considerable private enterprise (NEP). After his death in 1924, the party was split at first between two factions. Trotsky's followers called for a rapid industrialization at the expense of the peasantry. The followers of Stalin wanted to continue the NEP, conduct industrialization slowly, and concentrate on "socialism in one country." By 1927, the superb bureaucrat, Stalin, had won and succeeded in evicting Trotsky from the party. Soviet Russia did not undergo a depression of the 1930s, but the most rapid advance in Western history. Emphasis was placed upon iron, steel, coal, electrical power, tractors and other heavy machinery; few consumer goods were produced. A series of Five-Year plans was successful and Russian industries enabled it to survive the German invasion of the 1940s. Moreover, the 1930's witnessed the Great Purges, in which Stalin killed or imprisoned millions of political enemies, real or imagined. Parliamentary democracy was far less successful in Italy than it was in Germany, and an authoritarian regime was established in mid-decade. Fascism, as it was called, was anti-democratic, anti-marxist, anti-parliamentary, and frequently anti-semitic. It spoke in the name of the middle classes and was led by the clever opportunist Benito Mussolini. Democracy's most important test, however, and one that would be crucial to its future in the West, came in Germany. The democratic Weimar Constitution was adopted in The new regime faced several problems, however: the disgrace of having signed the Versailles Treaty, structural flaws in the constitution, lack of loyalty on the part of many Germans, and a rash of extremism. Still, under the leadership of Gustave Stresemann, the Weimar Republic was able to build stability and confidence between 1924 and Abroad, Stresemann wisely pursued conciliation by supporting the Dawes Plan of 1924 which eased reparation demands on Germany and the Locarno treaties of 1925 which recognized Germany's western borders. The allies spoke optimistically about the spirit of Locarno, but Germany was far from reconciled to the Versailles order. In Germany, the Depression not only weakened the republic, but allowed it to be destroyed. Even before Hitler's accession to power in 1933, the chancellor had to govern through emergency presidential decrees as authorized by the Weimar Constitution. Germany's unprecedented unemployment aided the extreme political parties such as the Nazis. Yet, in spite of Hitler's growing power, President Hindenburg and his advisors did not wish to make him chancellor. It was only the prospect of a governing coalition of the left that frightened Hindenburg into turning to the Nazis. Hitler's power depended on his police and terrorist organization, the SS. This instrument was used, above all, against the German Jews, who suffered increasing persecution. But Hitler's actions were not all negative. In economics, he achieved an astonishing degree of success, having banished unemployment and industrial stagnation by

3 The United States emerged from World War I as a major power, although the senate retreated from that role by refusing to ratify the Treaty of Versailles and by failing to join the League of Nations. The first eight years of the 1920s witnessed a remarkable period of American prosperity. The chapter then details the stock market collapse and the severe social and economic dislocation of the Depression. The election of Franklin Roosevelt in 1932 proved to be a major turning point in American history. The text then surveys the various New Deal recovery programs (N.R.A., T.V.A., C.C.C., A.A.A., W.P.A., etc.). Through such legislation, the federal government assumed a far more activist role in the economy than it had ever done before. The New Deal changed much of the face of American life. Yet despite all of its programs and initiatives, it did not solve the unemployment problem. Full employment was attained only upon the U.S. entry into World War II. KEY POINTS AND VITAL CONCEPTS 1. European Problems After the War: Both among vanquished and victors, there was much discontent with the Versailles Treaty; calls for revision were heard everywhere. In economic terms, the tremendous casualties of the Great War meant the loss of producers and consumers. European market and trade conditions were damaged by the withdrawal of Bolshevik Russia, the mosaic of successor states, and American competition. Within individual nations, the war had increased the economic power both of government and of labor unions. Finally, the widespread extension of the franchise meant that more people than ever before could articulate their economic desires in politics. Eventually, economic and social anxieties would overcome political scruples. 2. Causes of the Depression of the 1930s: Three factors combined to make the Depression severe and long. First, the Great War burdened most European nations with inflation; reparations and war debts added further problems. A second factor was a decline in production and trade. This arose from world wide agricultural over-production, which reduced incomes of farmers and their ability to buy industrial goods. A third factor was the absence of strong economic leadership in Europe or America. 3. The Fascist Rise to Power in Italy: Many Italians were dissatisfied with Italy's territorial gains at Versailles. Moreover, the period saw considerable social turmoil over which a 3

4 deadlocked parliament could not prevail. The fascists formed local terrorist squads, whose intimidation of socialists pleased many conservatives. In 1922, the king asked Mussolini to form a new government. In the following years, he completed a legal revolution that left Italy a oneparty state. Continued fascist terror, the promise of security, effective propaganda, and a pact with the Catholic Church kept the regime in power. In the 1920s, Mussolini undertook a program of public works, subsidized the shipping industry, introduced protective tariffs and promoted the Corporate State, where private industry was subordinated to state guidance. 4. The Nazi Rise to Power: The Weimar regime was hard hit by the Crisis of 1923 which produced cataclysmic inflation. The middle class, whose savings were wiped out, suffered more than any other group. This trauma goes far in explaining their later desire for order and security at almost any cost. Nazi support came mainly from the lower middle class, the farmers and the young. Big business did not play an important role. Hitler promised his followers security against the left, effective government and a nationalist revival. Although he took power by legal means, his plans called for a dictatorship. He quickly moved to gain full legal authority to govern by decree, crushed all opposing parties, and purged his enemies in the Nazi party itself. The key to Hitler's policies was force. The government instituted a massive program of public works and spending, mostly related to rearmament. The state guided the decisions of private industry and crushed trade unions. Despite its destruction of personal liberty, the regime's attainment of economic security won it prestige at home and abroad. 5. The Democrat and the Dictator: Two of the dominant personalities of the twentieth century are Franklin Roosevelt and Adolf Hitler. Both came to political power legally in a time of domestic crisis within one year of the other. Both set about implementing radical reforms in order to rectify the social and economic situation, with a full measure of self-confidence and without the shackles of tradition. Both effectively pulled their countries from the brink of economic disaster and social dislocation. Roosevelt, however, preserved democracy and capitalism by fostering a mixed economy, while Hitler fashioned an efficient but repressive fascist state. There is a paradox in their similar methods and divergent goals. 4

5 6. The Economic and Political Crisis in World Perspective: The interwar period saw a rejection of the nineteenth century ideal of laissez-faire economies. The democratic electorate demanded solutions to the economic crises of the 1930s and, in that respect, some paradoxically turned themselves over to authoritarian regimes that promised social and economic stability. The interwar years also witnessed extreme forms of nationalism in both Europe and Japan that fueled the aggression of the decade. During these years, the United States and the Soviet Union remained relatively withdrawn from the world scene. The former pursued the bold democratic experiment of the New Deal, while the latter pursued a new course of central government planning and repression. Other powers drew the U.S. and the U.S.S.R. into the world conflict, but they would emerge the two strongest post-war powers as the European dominance ended. The U.S. had attained that economic role through democracy, the Soviet Union through repression. The relative virtues of these two modes of political and social life would form the issues of the coming decades. SUGGESTED FILMS Europe the Mighty Continent: Results of War - Are We Making a Good Peace? Time-Life. 52 min. The Jazz Age. McGraw-Hill. 50 min. Two Decades of History. Teaching Film Custodians. 22 min. Causes and Immediate Effects of the First World War. International Geographic Pictures. 22 min. The Day the Guns Stopped Firing. Films, Inc. 16 min. From Kaiser to Fuhrer. McGraw-Hill. 26 min. League of Nations: The Hope of Mankind. Time-Life. 52 min. 5

6 Lenin's Revolution. Time-Life. 20 min. Stalin vs. Trotsky. Films, Inc. 25 min. Benito Mussolini. McGraw-Hill. 26 min. Mussolini. CBS. 27 min. Fascist Revolution. NET. 30 min. The Rise of Hitler. Time-Life. 20 min. The Rise of Adolph Hitler. McGraw-Hill. 27 min. Hitler: Anatomy of a Dictatorship. Lutheran Church in America. 22 min. Stalin's Revolution. Time-Life. 20 min. Nightmare in Red. McGraw-Hill. 55 min. The Twisted Cross. McGraw-Hill. 55 min. Nazi Germany: Years of Triumph. Films, Inc Rise of Hitler. Films, Inc Turn of the Century. McGraw-Hill. 26 min. Triumph of the Will. Images. 55 min. 6