Depression and Dictators
 

PART A: THE ORIGINS AND CAUSES OF THE GREAT DEPRESSION

I. Demands for Revision and Enforcement of the Provisions of the Treaty of Versailles

Many of the new countries created out of the disintegration of the Austro-Hungarian Empire felt that the borders created by the Treaty of Versailles were unjust and wanted them to be revised. The French, on the other hand, believed that the provisions of the Treaty (especially the provisions calling for German reparations) were not being adequately enforced. Most of the countries of Europe allowed these disputes to become central elements of domestic politics and that inflamed public opinion against the settlement.

II. Toward the Great Depression in Europe

There were three factors that extended and intensified the normal recession that occurred at the end of the 1920’s and turned it into a great depression. The first was the financial tailspin directly caused by the reparations forced from Germany in the 1920’s. The second was the crises in production and distribution of goods in the 1920’s. These problems combined in 1929 to cause the general and large-scale downturn in business activity at the end of 1929 that lasted almost all of the 1930’s. The third factor was the failure of the United States, the United Kingdom and France to provide leadership to turn the situation around. This failure made the results much more durable and severe.

A. Financial Tailspin

 The financial entanglements at the end of World War I were extensive. Germany owed war reparations to various European governments since the victors had decided that Germany bore the major responsibility for the war. Various European governments owed the United States money that the Americans had lent them during the last two years of the war. So, Germany paid various European governments who, in turn, paid the United States. The drain on a war devastated Europe was steady and of large magnitude. In 1923, the Allies declared Germany to be in default of its financial obligations under the Treaty of Versailles. French troops occupied the Ruhr Valley that held most of German industry. The Weimar Republic ordered passive resistance to the French occupation. This amounted to a general strike. The French government sent French civilians to run German mines and railroads and in effect seized ownership of much of the German economy. The Germans, faced with the fact of colonization, gave in and paid the past due reparations. The English thought that the French had gone too far and took no part in the occupation. The costs of the French occupation of the industrial heartland of Germany cost both nations a lot and damaged both economies. The Americans took the same view as the British and devised two plans (in 1924 and 1929) that were designed to reduce the level of reparations (the reparations ruined the German economy and caused a great deal of hardship to the German people). During the 1920’s, Americans invested a great deal of money in Europe. This dried up in 1928 when the booming stock market in the US caused overseas investment to dwindle. So, Europe was faced with a credit crunch. This led President Herbert Hoover in 1931 following the collapse of one of the largest banks in German to declare a moratorium on reparations. Finally, reparations were abolished in 1932 but it was too late as all of Europe had slipped into the Great Depression.

B.  Problems in Agricultural Commodities

Improvements in agricultural production technology resulted in overproduction of basic agricultural commodities in Western countries (especially in the US). World wheat prices, for example, fell to historic lows. At the same time, the cost of agricultural machinery and other inputs continued to increase. So, farmers fell into an ever deepening debt. Outside of Europe, the same process occurred for sugar, coffee, rubber, wool and lard. So, in a world in which most people still depended on agriculture for a living, the standard of living went down. This ultimately choked off the increase in effective demand for industrial goods and their prices began to fall as well. Ultimately, the rural depression spread to the urban-industrial sector and this resulted in the recession in 1929. As already stated, the governments of the West did not deal with this very well and the recession turned into a depression.

C. Depression and Government Policy.

The advent of the Great Depression caught western governments unprepared to deal with the economic and social problems. Given that unemployment peaked in Western Europe at about 25%, the social upheaval was considerable and governments search desperately for some form of policy that would reduce social unrest. The United Kingdom formed a Labor government in 1924 and 1929. When that failed, King George V urged a coalition government of the Labor, Conservative and Liberal parties. This occurred and lasted until 1935 when it was succeeded by a conservative government under the leadership of Stanley Baldwin.

The French experimented with a coalition government of Radicals, Socialists and Communists in 1936 but it only lasted until 1938. Generally speaking, the French governments of the 1930’s were ineffective and characterized by weakness, shifting coalitions and political infighting.

The big political events, however, happened in the Soviet Union, Germany and Italy where dictatorships were established that ultimately dragged Europe into World War II.

Part B.  The Soviet Union, Germany, Italy and the US during the Great Depression

I. The Soviet Experiment

The Communist Part of the Soviet Union differed from the German Nazi Party and the Italian fascist party in at least two ways. First, it achieved power by a violent revolution in 1917 whereas both the Nazi’s and the Fascists were at least nominally elected to office (the first time because they then abolished democratic elections). Second, the Communists regarded their government and their revolution not as part of a national history but as the first event in a worldwide revolution that would bring communism to the entire world. Thus, the Soviet Revolution played a central role in international politics first in Europe and then in the entire world between 1917 and 1991 (when Communism was abolished in the Soviet Union and the Union itself dissolved into fifteen separate republics). The Fascists were nationalists and the Nazis were racist. Neither attracted very much ideological support outside a few neighboring countries in Europe. The Soviets, however, posed an internal threat to the wealthy people of every other European country before World War II and many third world countries after the war. Eventually, the Americans became obsessed with the Communist threat following the defeat of the Nazis and the Fascists in World War II and this led directly to the Cold War that lasted from 1946 to 1991 or 45 years.
 
 
 

A. War Communism
When the Communists won the local fight in Moscow in 1917 and concluded the Treaty of Brest-Litovsk with the German Empire a few months later, the opposition who termed themselves the ‘whites’ (as opposed to the Communists who were called the ‘reds’) raised a couple of armies further east of Moscow in the heartland of the old Russian Empire and conducted a civil war. By 1920, the Bolsheviks (the ruling faction of the Communist Movement led by Vladimer Lenin) defeated all of the white armies and drove the remaining remnants of the leadership into exile in China or North America.
During this vicious, three year war (a few mopping up operations continued into 1921), the Communist Party under Lenin’s leadership and the Red Army under Leon Trotsky established a socialist state in the territory of the Russian Empire. All decisions were made top down and Lenin repeated emphasized that he was establishing a ‘dictatorship of the proletariat’ that, in practical terms, meant that the party leadership had autocratic control over all government decisions. The revolutionary government confiscated and operated the banks, the transport facilities and all heavy industries. They also requisitioned grain by force and shipped it out of the countryside to feed the army and the workers in the cities. Any opposition to these acts was put down by military force. They established the Cheka or a new secret police that succeeded the secret police apparatus of the Tsar. By 1921, workers conducted strikes and farmers refused to supply grain even under threat. While the Red Army crushed these uprisings, it gradually became clear to the Politburo (the central standing committee of the party) that they had to step back a bit before they were faced with a general uprising against them.

B. The New Economic Policy

Lenin outlined the “New Economic Policy” in March, 1921. This policy essentially restricted the government’s role to the ‘commanding heights’ of the economy. It allowed for considerable private property and enterprise. Most important in view of the overwhelming rural nature of the country in 1921, peasants were allowed to own their own land. The economy flourished and the economy reached the 1913 level by 1927 thus regaining all of the ground lost during the revolutionary period.

C. Stalin versus Trotsky

The New Economic Policy infuriated many traditional Marxists in the Communist Party who saw the NEP as a retreat to capitalism from a pure socialism and therefore a betrayal of principles. In 1922, Lenin suffered a major stroke and thereafter did not play a really active role in party affair until his death in 1924. Two factions emerged. One, under Trotsky, was backed by the Red Army. The other, under Stalin, more closely represented the bureaucrats at the lower levels of the party whom Stalin had appointed and promoted. Gradually, Stalin gained the upper hand and forced Trotsky out of one power base after another. By 1927, Trotsky had been removed from all of his offices and exiled to Siberia. Stalin expelled him from the country in 1929 and had Trotsky assassinated in 1940 in Mexico where Trotsky had found refuge.

Stalin’s (and Bukharin’s) position was that Russia ought to go slowly toward Communism and a continuation of the NEP. Stalin also favored a policy of socialism in one country (Russia) and an avoidance of international conflict. In all of this, Bukharin was the originator of the ideas and Stalin was the implementer. However, Stalin held the allegiance of the party operatives (‘apparatchiks’) and therefore the real power.

Trotsky argued for rapid industrialization and urged the voluntary collectivization of the private farms. He also argued that the internationalization of the communist movement was essential. Later, as he gradually lost power, Trotsky advocated open debate within the party even though he earlier had a heavy hand in suppressing free speech in Russia.

After Trotsky was thoroughly defeated and exiled from Russia, Stalin reversed all of his positions and adopted Trotskyism without Trotsky.  He had his rival and erstwhile ally, Bukharin, assassinated and defamed. Stalin held on to an iron grip on power under he died in the early 1950’s.

D. Decision for Rapid Industrialization

For a while, the Bukharin solution of guided capitalism with some socialized sectors (the ‘commanding heights’ of the economy such as the railroads, mines and banks) worked reasonably well for the Soviet Union. Since agriculture was privatized, there arose a small class of relatively well to do farmers called ‘kulaks’ in Russian. In 1928 and 1929, the kulaks withheld grain from the market because the price set by the government was too low in their view. Food shortages occurred in the cities and there was urban unrest. The industrial goals of the NEP were no longer being met.
Stalin came to the decision to collectivize agriculture and to push for very rapid industrialization in order to match the West. The emphasis for the remainder of the Stalinist period was to rest on heavy industry. Heavy industry at the time consisted of the cement, steel and oil refining industry along with electric power plants and coal mines.  However, Stalin kept the ‘socialism in one country’ for the 1930’s policy. This meant in practice that the Soviets had to raise all of the capital themselves while importing only that technology that could not be produced within the country.

The costs of the program to the Soviet people were enormous as it required them to seriously reduce an already low standard of living in order to raise the savings rate to the needed level. In addition, Stalin apparatchiks were forced to emphasize quantity over quality and the wastage of resources was enormous.  In summary, the Russian people (most of those effected directly were ethnically Russian) suffered privation and a huge increase in hard work. They were promised a much better future and were convinced that doing this for the ‘rodina’ was a patriotic act.

Agricultural Policy

In the Fall of 1929, Stalin ordered Communist party agents into the countryside to confiscate hoarded grain. He blamed the ‘kulaks’ for the economic crime of hoarding food. However, the term kulak soon came to mean almost any peasant. The agents collected the grain with enormous brutality even by Russian standards. Millions of peasants were left without enough food for the winter. Knowing that their animals would be confiscated, they slaughtered huge numbers of them for food. About 100 million cattle and horses were slaughtered between 1929 and 1933 in an economy that still depended upon horse drawn plows. About 10 million peasants were killed outright and most of the survivors were forced into collective farms on the pain of death.

The result of this chaos was stark famine in 1932 and 1933. In 1928, about 98 percent of Russian farmland was owned by small farmers. Ten years later, 90 percent of all of the land was collectivized. Farmers and peasants could no longer determine whether there would be unrest in the cities. So, Stalin and his apparatchiks managed to gain nearly totalitarian power but at the cost of very low and poor production of food. That problem became so deep seated that it persists 70 years later.
Five-Year Plans

The organizational vehicle for industrialization was the five-year plans. These started in 1928 and continued for most of the life of the Soviet Union (until about 1988 when they were abandoned). The achievements of the first two plans (i.e. until 1938) were remarkable albeit at a very heavy human cost. Industrial production rose about four times in the decade. The emphasis was on heavy industry such as steel, coal, electrical power, tractors, combines, etc. Much of the capital was raised by the export of grain even though there often famine conditions in the countryside. The program was sold by vast amounts of propaganda put out by the Communist Party to a public that had never been asked to support a government program that touched every individual. The response on the whole was enthusiastic and the Russian people worked very hard, consumed very little and hoped for better days.

The industrialization effort did pay dividends when Hitler’s armies invaded the Soviet Union and the industries built during the previous decade were used to support the war effort. Many Americans going through the Great Depression accept the propaganda from the Soviet Union and admired their achievements without looking critically at the costs. By and large, the Soviets paid a higher price for their industrialization than did similar efforts in the Nineteenth Century in western Europe (and roundly criticized by Marx and Engels).

E. The Purges

A man by the name of Bukharin had supported Stalin in his successful struggle against Trostsky to succeed to ultimate power in the Soviet Union. In 1929, Bukharin, who was a fervent supporter of the NEP program started by Lenin, was forced out of office and ultimately assassinated. There were people in the Party who opposed the policy of forced industrialization at the pace set by Stalin. By 1933, Stalin feared that these people would find an effective leader who could challenge him. In 1934, Stalin had another natural leader, Kirov who was the party chief for Leningrad, assassinated in secret and blamed opponents of the party in the Soviet Union. Thousands of party members were arrested and many them either killed or exiled to Siberia. Most either received a show trial or none at all. Hundreds of thousands were expelled and an atmosphere of terror settled in throughout the Soviet Union.

To outsiders, most this was seen through a fog of lack of information (many of the arrests were conducted without a public record) and, besides, the Soviets were seen to be fierce opponents of Nazi Germany and Fascist Italy. The Soviets also trained many of the anti-colonial leadership in Africa and Asia. The Communists, the Nazis and the Fascists all agreed that Democracy was corrupt, decadent and inefficient. They proclaimed themselves the political inheritors of a new age. All of these dictatorial governments were totalitarian because they sought to control the daily lives of all of their citizens.

II. The Italian Fascists and Mussolini

Scholars still debate the exact nature of fascism as a theory of government. What can be said for sure is that the fascists were antidemocratic, anti-Marxist, antiparliamentary and frequently anti-Semitic. They rejects the inheritance of the French revolution. They rejected Nineteenth Century liberalism. They emphasized the role of the nation and the groups within it and de-emphasized the role and rights of the individual. Finally, the Fascists believed that the state (its government) ought to be all-embracing and regulate and control many aspects of daily life. The Fascists of Italy were a mass political party with million of adherents.

A. The Rise of Benito Mussolini