The Great Depression and the Post-war Era

The Great Depression (1929)

The Great Depression began around 1929 and lasted till the mid-1930s, bringing catastrophic declines in production, employment, incomes and trade. Agricultural regions were the worst affected, as farm prices fell more and for longer than industrial prices.

Its causes lay in the fragile post-war economy. First, agricultural overproduction: as prices fell, farmers produced even more to maintain their income, worsening the glut and pushing prices lower. Second, many countries had financed investment through US loans; when US overseas lenders panicked and withdrew loans, countries dependent on them faced crisis. In the US, banks slashed lending and called back loans; by 1933 over 4,000 banks had closed and about 110,000 companies had collapsed between 1929 and 1932.

India and the Great Depression

The Depression showed how integrated the global economy had become. In colonial India — an exporter of agricultural goods and importer of manufactures — India's exports and imports nearly halved between 1928 and 1934, and wheat prices fell by 50 per cent.

Peasants suffered more than urban dwellers. Though agricultural prices fell, the colonial government refused to reduce revenue demands, so peasants producing for the world market were worst hit — the jute price crashed over 60 per cent, deepening the debt of Bengal's jute growers. Across India, peasants used up savings, mortgaged land and sold jewellery and gold, so India became an exporter of gold (which, the economist John Maynard Keynes thought, helped Britain's recovery but did little for the Indian peasant). This seething rural unrest was the backdrop when Gandhi launched the Civil Disobedience Movement in 1931. Urban India, with fixed incomes, was less badly affected.

Rebuilding the Post-war Economy: Bretton Woods

After the devastation of the Second World War (Axis — Nazi Germany, Japan, Italy — versus the Allies; at least 60 million killed), post-war reconstruction was shaped by the dominance of the US and the Soviet Union. Economists drew two lessons: that mass production needs mass consumption, which requires stable incomes and full employment, and that governments must control flows of goods, capital and labour.

The framework was agreed at the Bretton Woods conference (July 1944) in New Hampshire, USA. It established the International Monetary Fund (IMF) to deal with external surpluses and deficits, and the World Bank (International Bank for Reconstruction and Development) to finance reconstruction. These Bretton Woods twins began operations in 1947, based on fixed exchange rates (the rupee pegged to the dollar, the dollar to gold at $35 an ounce), with decisions controlled by the Western powers.

Decolonisation, the G-77 and Globalisation

The Bretton Woods system brought unprecedented growth — world trade grew over 8 per cent a year (1950–70). But most newly independent developing countries (emerging through decolonisation) did not benefit and remained burdened by poverty, while former colonial powers still controlled vital resources. So they organised as the Group of 77 (G-77) to demand a New International Economic Order (NIEO) — real control over their resources, fairer prices and better market access.

From the 1960s, rising US overseas costs weakened the dollar, leading to the collapse of fixed exchange rates and a shift to floating exchange rates. From the late 1970s, MNCs shifted production to low-wage Asian countries like China (which re-entered the world economy after new policies and the collapse of the Soviet bloc). In recent decades, the relocation of industry to low-wage countries has transformed the world's economic geography, with India, China and Brazil undergoing rapid transformation — the process we now call globalisation.

Questions and Answers

Q1. What were the main causes of the Great Depression? Ans. (1) Agricultural overproduction and falling prices, worsened as farmers produced more to maintain income; and (2) the withdrawal of US loans — countries that had financed investment with US loans faced crisis when US lenders panicked and pulled back. Bank failures and collapsing trade deepened the slump.

Q2. How did the Great Depression affect India? Ans. India's exports and imports nearly halved (1928–34) and wheat prices fell 50 per cent. Peasants suffered most, as the government would not reduce revenue; the jute price crashed over 60 per cent, and peasants sold gold and jewellery, so India became an exporter of gold.

Questions and Answers (continued)

Q3. What was the Bretton Woods Agreement? Ans. Agreed at a UN conference at Bretton Woods in July 1944, it set up the International Monetary Fund (IMF) to handle external surpluses and deficits and the World Bank to finance post-war reconstruction. The system was based on fixed exchange rates, with national currencies pegged to the dollar, and the dollar to gold.

Q4. What is the G-77 and why was it formed? Ans. The Group of 77 (G-77) was a group of developing countries that did not benefit from post-war Western growth. They organised to demand a New International Economic Order (NIEO) — real control over their natural resources, more development aid, fairer prices for raw materials, and better market access.

Questions and Answers (continued)

Q5. Why can the G-77 be seen as a reaction to the Bretton Woods twins? Ans. The IMF and World Bank were designed to serve the industrial countries and were controlled by the Western powers, doing little for the former colonies' poverty. So developing nations formed the G-77 to demand a fairer economic order — making the G-77 a reaction to the Bretton Woods institutions.