Picture the world economy in the 1920s as a huge fairground. Clever inventors had built lightning-fast assembly lines and modern farms, so stalls were packed with shiny new cars, radios and mountains of wheat. Thinkers like Karl Polányi, John Kenneth Galbraith, Eugen Varga, Nikolai Kondratyev, Paul Samuelson and Milton Friedman later tried to explain what happened next—but first came the noise and glitter. Sellers expected customers forever; nobody noticed the fairground was running out of eager buyers.
Then, one chilly Thursday—Black Thursday, 24 October 1929—panic raced through Wall Street. Shares were the fairground tickets; people had borrowed money to hoard them, driving prices far above the real strength of shops and factories. When a few investors suddenly shouted, “These tickets aren’t worth that much!”, others copied them. Prices dived, crowds stampeded, and the once-booming stock-exchange bubble popped.
The banks had lent out piles of cash for that ticket-buying craze and kept tiny safety cushions. Worse, the United States had no deposit insurance, so frightened customers rushed to pull their savings out. As cash vanished, more banks toppled. Confidence cracked like thin ice.
While city folk stared at collapsing banks, farmers were already hurting. All through the 1920s tractors had ploughed wide fields, producing bumper harvests nobody could fully eat. Prices for wheat and corn slid, a gap called the agrarian scissors—industrial goods stayed pricey while farm goods grew cheap. Debt-burdened farmers cut spending, shrinking demand even further.
Assembly lines still spat out automobiles and toasters, but households, scared of losing jobs, stopped shopping. Warehouses overflowed; owners hit the brakes, shutting plants and laying off workers. A classic over-production crisis had arrived: too many goods, not enough buyers.
By 1929 the United States supplied loans and orders to half the planet. When America sneezed, places like Germany—heavily reliant on U.S. capital—caught pneumonia. Metalworks in Ruhr, mills in Manchester, and docks in Marseille fell silent. Because many countries clung to the gold standard, their currencies couldn’t stretch to stimulate trade; instead they sank deeper into deflation.
Rather than cooperating, governments hoisted tariff walls to shield home industries. Economic nationalism ruled. Between 1928 and 1935 world trade crashed from 58 billion USD to 20.8 billion USD. Britain’s exports slid by 65 %, the United States by 70 %, Germany by 74 % and France by 77 %. The League of Nations, which in 1927 had pleaded for lower tariffs and freer markets, saw its dream crumble.
With foreign cash scarce, states imposed foreign-exchange controls, inventing clearing accounts that swapped goods without moving money. They pushed import-substitution—“Make it at home so we don’t spend precious currency abroad!” Still, economists agreed that only new domestic investment could open a real escape door.
Factories dark, crops cheap, and credit frozen, millions lost jobs and homes. Soup kitchens lengthened, and uncertainty bred anger. Radical ideas—fascism in some lands, communism in others—found eager listeners who felt traditional politics had failed.
The carnival had shown that when production races far ahead of demand, when banks gamble without safety nets, and when nations refuse to cooperate, even a loud, bright fair can shut overnight. Remember the names—Polányi, Galbraith, Varga, Kondratyev, Samuelson, Friedman—because each one later offered a piece of the puzzle. But the teenagers of 1930 didn’t need theories; they could see the empty stalls for themselves. Our own task is to keep their story alive so that future fairs stay fun—and safe—for everyone.
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