decline in output,
and world trade fell to a third of its 1929 level.
By comparison, both world output and world trade had grownduring the previous “Great Depression” of the 1870s and 1880s.
The 1920s boom
The ideological shock of the crisis was increased by the way capi-talism had seemed to have recovered in the preceding years fromthe destruction of the First World War. Industrial output in the UShad doubled from 1914 to 1929, with the emergence of a host of new industries that began to revolutionise patterns of consump-tion—radio, rayon, chemicals, aviation, refrigeration, and thereplacement of horse-borne by motorised transport. The boom inthe US had a beneﬁcial impact in Europe. Germany, racked by civilwar in 1919-20 and then unparalleled inﬂation in 1923, had thenseen industrial output grow 40 percent above its 1914 level. InFrance industrial production had doubled. The press had dis-played an unbounded optimism about capitalism, proclaiming a“new era” of endless prosperity. Mainstream economists had beenjust as conﬁdent. Alvin Hansen wrote that the “childhood dis-eases” of capitalism’s youth were “being mitigated”, whileAmerica’s most eminent neoclassical economist, Irving Fisher, hadstated on the eve of the Wall Street Crash that “stock prices havereached what looks like a permanently high plateau”,
contin-ued to exude optimism for some months after, while in Britain John Maynard Keynes had assured his students, “There will be nofurther crash in our lifetime”.
Social democrat Marxists joined inthe chorus, with Hilferding’s theory of “organised capitalism”, asa system in which the anarchy of the market and the trend towardscrisis had disappeared.
Suddenly they were all proved wrong.The initial reaction of mainstream politicians and their fellowtravellers in the economics profession was to assume that they onlyhad to wait a short time and the slump would begin to correct itself.“Recovery is just around the corner,” as US president HerbertHoover assured people. But recovery did not come in 1930, 1931or 1932. And the economic orthodoxy which had been so conﬁdentin its praise of the wonders of capitalism so recently could not ex-plain why—and it still cannot explain why today.There have been attempts at explanation. The most commonamong the most orthodox at the time was that articulated by the
Capitalism in the 20th Century