THE GREAT CRISIS OF THE 1930s
Although it may sound simple, it is a very difficult
subject to explain. The U.S. Federal Reserve system, resulting from a
fully developing capitalism, was established in 1913. Salvador
Allende, a man we remember as someone of our times, was already 15
The First World War broke out in 1914, when the prince
heir to the Austrian-Hungarian Empire in the very heart of the center
and south of Europe was murdered in Sarajevo. Canada was still a
British colony. The British pound sterling enjoyed the privilege of
being the currency used in international transactions, with gold as
its metal backup. This had been the case over one thousand years
before in the capital of the Roman Empire in the East, that is,
The bloody wars against the Muslims in the Near East, with
religious pretexts, had been initiated by the feudal lords of the
European Christian kingdoms. Their true purpose was to be in command
of the commercial routes and other more obscene and mundane objectives
which could be discussed some other time.
At the end of the First World War, the United States
joined the war, that is, in 1917, two years after the sinking of the
Lusitania, a ship carrying American passengers that had left from New
York. It had been sunk by torpedoes shot from a German submarine
following the absurd instructions of attacking a vessel carrying the
flag of a distant, rich and potentially powerful country whose
government, from supposedly neutral positions, was looking for a
pretext to join the United Kingdom, France and other allies in the
war. The attack took place on May 7, 1915, as the vessel was crossing
the Strait between Ireland and England. Actually, very few passengers
could abandon ship in the 20 minutes before it sank, thus, the 1,198
people still on board lost their lives.
The U.S. economy grew steadily after that war, except for
recurrent crises which were resolved by the Federal Reserve without a
Then, on October 24, 1929, a date that would go down in
the history of the United States as the "black Thursday", the economic
crisis started. According to the right wing theoretician and famous
American economist Milton Friedman, an economics Nobel Laureate
(1976), the Bank of the New York Reserve in Wall Street, the same as
other major banks and corporations, reacted "instinctively" by
adopting the measure it considered most appropriate: "injecting money
into circulation." The Washington Reserve Bank, which was used to the
dominance of its criteria, finally forces the opposing view. President
Hoover's Treasury Secretary supports the Washington Reserve Bank, and
that of New York eventually gives in. "But the worst was yet to come,"
says Friedman, who explains clearer that any other outstanding
economist --some of them with an opposing view-- the sequence of
events as he writes: "It was not until the autumn of 1930, that the
recession of the economic activity, although serious, was affected by
financial difficulties or by the petitions of the depositors trying to
withdraw their money. The nature of the recession experienced a
dramatic change when a chain of bankruptcies in the Midwest and South
of the United States undermined confidence in the banks leading to
numerous attempts at turning the bank deposits into cash."
"The American Bank was closed on December 11, 1930. This
was the critical date. It was until then the most important commercial
bank in the American history that had collapsed."
Just in the month of December 1930, 352 banks were closed.
"The FED could have tried a better solution buying on a large scale
public debt bonds in the open market."
"On September 1931, when the United Kingdom abandoned the
gold standard, the other pursued an even more negative policy."
"After two years of strong repression the system reacted
by raising the interest rates at a level never known before in its
Be mindful that Friedman is exposing a view that is still
prevalent in the U.S. official circles, almost 80 years later.
"In 1932, under Congress pressure, the FED concluded its
sessions and immediately cancelled its buying program."
"The final episode was the banking panic of 1933."
"The fear was intensified during the interregnum between
Herbert Hoover and Franklin D.Roosevelt, who was elected on November
8, 1932 but was only inaugurated on March 4, 1933. The former did not
wish to take drastic measures without the cooperation of the new
president, while Roosevelt did not want to take on any responsibility
until his inauguration."
The episode is a reminder of what is happening today with
the president elected on November 4, less than a month ago, Barack
Obama, who will be inaugurated on January 20, 2009. Only the
interregnum has changed; in the 1930s it was of no more than 117 days
and at present it is of no more than 77.
As Friedman indicates, at the moment of the greatest
economic boom there were up to 25 thousand banks in the United States.
Early in 1933 that figure had decreased to 18 thousand.
"When President Roosevelt decided to put an end to the
closing of banks, 10 days after it had started," said Friedman, "a few
banks short of 12 thousand were allowed to open the doors, followed
later by only 3 thousand others. Therefore, all together, some 10
thousand of the 25 thousand banks in 1929 disappeared during those
four years, due to bankruptcy, merging or liquidation."
"The closing of businesses, production cut down and
growing unemployment all fed the agitation and fear."
"Once the depression had started, it expanded to other
countries and then, of course, there was this reflected influence:
another example of the always present feedback in a complex economy,"
The world of 1933 described in his book is quite different
from today's. This is an absolutely global world made up by more than
190 nations represented at the United Nations. Its population is
threatened by risks that scientists, even the most optimistic, cannot
ignore and that a growing number of people know and share, even
prominent American politicians.
The echo of the impact of the current crisis can be felt
in the desperate efforts of important world leaders.
The Xinhua press agency has reported that Hu Jintao,
President of the People's Republic of China, a country with a
sustained growth exceeding two digits in the past few years, warned
yesterday that "China is under increasing pressure from its enormous
population, its limited resources and environmental problems." This is
the only country that we know has foreign currency reserves amounting
to almost two trillion dollars. The Chinese leader lists "a series of
indispensable steps to secure the primary interests of the people and
preserve the environment in the framework of the Chinese strategy of
industrialization and modernization." Lastly, he indicated that "with
the expansion of the financial crisis the world demand for products
has been markedly reduced."
These words from the leader of the most extensively
populated country on Earth make it unnecessary to add any more
arguments on the depth of the present crisis.
Fidel Castro Ruz
November 30, 2008