Underlying Causes of the Depression

What was the cause of this great depression, this world crisis, which in its own
way was almost as terrible as the World War itself?

To Quote Nehru it is called the “Crisis of Capitalism”. Why did capitalism behave
in this way? And was it a temporary crisis which capitalism will survive, or was it
rather the beginnings of the final death agony of this great system which has
dominated the world for so long? Was it the people or the governments at fault?
Many such questions arise, and they fascinate us, for their answer depends on
the future of humanity, and incidentally ourselves.

The only people who are quite clear in their minds about what happened seem
to be the communists and socialists, who found a justification for their views and
theories in the breakdown of capitalism. Capitalists were one of the main groups
of people who perpetuated this crisis and it was themselves who were frankly
puzzled and perplexed. They had no idea of what was happening. To quote two
famous people, who were honest and plain spoken

Sir Auckland Geddes

“ Thinking people believe that the disintegration of society has begun. In Europe
we know that
an age is dying. ”

Montagu Norman - One of the greatest and ablest of British financiers

“The economic problem is too great for me. The difficulties are so vast, so novel,
precedents so lacking, that I approach the whole subject in ignorance and
humility. It is too great for me.
When it comes to the future, I hope that we may see the light at the end of the
tunnel. ”

The reason for not quoting America was people and economists were making all
sorts of baseless presumptions without any factual basis. This was done to justify
the capitalist's actions. People had a lot of debates about it but no one was
frankly able to accept the fact that they do not know what's happening.

Due to this confusion everyone had no idea as to what led to the depression. As
a matter of fact it is still contested and debated today as to what happend.

However after years of debate and dialogue, one reason has approached a
common ground. That is

War Debt!

Britain started facing effects of War Debt first,

In December 1932 the British Government sent a note to the American

Government pleading to be let off the payment of their war debt. In this note they
pointed out how the remedies that had been tried had aggravated the disease. “
Everywhere,” they said, “ taxation has been ruthlessly increased and expenditure
drastically curtailed, and yet the control restrictions intended to remedy the
trouble have merely aggravated it.” Their country's unemployment was rising,
people were going hungry. Suicide rates were at an all time high.

To quote nehru again

“ The fault did not lie in Nature, but in man and in the system he had created “

The Germans used to hold that the real cause of the crisis was Reparations ;
many others held that the depression came because of the war debts, between
nations as well as within nations, which have become too great a burden to be
borne and are crushing all industry. Thus the war is made primarily responsible
for the world’s depredations. Look at these new articles of how desperate
countries were for money that they converted war loans to bonds. At some tiny
percentage of interest. This was a bit before depression. But people heavily
invested and lost their money. The countries went all in with their funds,
resources and capital.

Thus the British national debt after the war amounted to a whooping figure of 6
billion pounds. Even to pay interest on such debts was a great burden and meant
very heavy taxation.Germany and France became 1/5th of what they were and
were also victims of growing inflation.

The payment of these inter-governmental debts by one country to another meant

that the paying country lost so much money and became poorer.

If you remember, I spoke last class about the wealth being managed by the top
5%. Now this was because when European debtor countries paid up some of
their debts to America, all this money went to the big bankers and financiers
there. Thus the war debts resulted in aggravating an already bad situation. And
these people further lent money to Americans for various purposes. So America
was giving away a way a lot towards funding countries and what they got back
went to the top 5. So you can expect how nasty it was
Overproduction is another concrete reason, as I had explained last class,
1921-1929 was the so-called American Golden age. Economy went up, stocks
were at an all time high. Seeing all this the American Economy Grew. Due to the
American Economy growing and people perceiving that America is in its
so-called golden age they started producing, producing like there's no end.
Wasting resources. And all this overproduction done on credit, borrowed money
again. Now suddenly the bubble bursts in 1929 during the wall street crash. And
the economy collapses. An interesting fact is that it's not that there aren't people
who use these overproduced goods, it's just that they don't have the money to
buy it.