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The Age of Global Economic
Crises

The frequency and repetition of economic crises over the last hundred years demands
an analysis that allows us to discover the root causes of these situations and the problems
they have generated in the world economy. This book investigates these cycles
throughout the 20th and the early 21st century. Economic crises can be the result of
political or military conflict, but they have also been the consequence of bad practices,
unbridled speculation, excessive greed, or poor management by the rulers and leaders
of nations. The contributors to this volume analyse the causes and consequences of
economic crises from the Great Depression to the present day, incorporating post-
World War II reconstruction, the oil crisis of the 1970s and the “lost” Latin American
decade of the 1980s, among others. This longer-term view allows the book to provide
insights into understanding economic cycles in the long run, not just at a specific
moment in time, and the ways in which they have spread internationally. This historical
analysis also helps to shed new light on the current Covid-impacted situation, as it
provides another reading of the main crises of recent centuries and their causes and
consequences, as well as the measures and policies adopted to overcome the difficulties.
This book will be of significant interest to readers in economic history, business history,
politics, and economics and history more broadly.

Juan Manuel Matés-Barco is Professor of Economic History and Business History

at the University of Jaén. Graduate of the University of Zaragoza. Doctor from the
University of Granada. Research stays in prestigious universities in Italy, France, and
Portugal. Four six-year research periods recognised by the National Commission for
the Evaluation of Research Activity (CNEAI. Ministry of Universities. Spain). Director
of the journal Agua y Territorio/Water and Landscape (AYT/WAL). Researcher at the
Permanent Seminar on Water, Territory, and the Environment: Public Policies and
Citizen Participation. Coordinator of several research projects. Head Researcher of the
Group of Historical Studies on the Company (GEHESE-UJA).

María Vázquez-Fariñas is Lecturer in History and Economic Institutions Area

(Department of Economic Theory and History) at the University of Málaga (Spain). PhD
in Social and Legal Sciences and Degree in Business Administration and Management
from the University of Cádiz. Actively involved as a component of the Research Group
of Historical Studies on the Enterprise (GEHESE-UJA) and part of the Editorial Board
of the journal Agua y Territorio/Water and Landscape (AYT/WAL). General lines of research
focus on the economic and business history of 19th-century Cádiz (Andalusia, Spain)
and the development of public services in contemporary Spain. Author of many works
on these subjects published in national and international journals and publishing houses.
Routledge Explorations in Economic History
Edited by Lars Magnusson
Uppsala University, Sweden

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Bengal Industries 1914–46
Indrajit Ray

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Edited by Marta García Morcillo and Cristina Rosillo-López

An Economic History of the First German Unification

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The Age of Global Economic Crises

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Edited by Juan Manuel Matés-Barco and María Vázquez-Fariñas

For more information about this series, please visit: www.routledge.com/

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The Age of Global Economic
Crises
(1929–2022)

Edited by Juan Manuel Matés-Barco

and María Vázquez-Fariñas
First published 2023
by Routledge
4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
605 Third Avenue, New York, NY 10158
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2023 selection and editorial matter, Juan Manuel Matés-Barco and María
Vázquez-Fariñas; individual chapters, the contributors
The right of Juan Manuel Matés-Barco and María Vázquez-Fariñas to be
identified as the authors of the editorial material, and of the authors for
their individual chapters, has been asserted in accordance with sections 77
and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
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from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
ISBN: 978-1-032-48251-4 (hbk)
ISBN: 978-1-032-48252-1 (pbk)
ISBN: 978-1-003-38812-8 (ebk)
DOI: 10.4324/9781003388128
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by Apex CoVantage, LLC
Contents

List of figuresix
List of tablesxi
List of contributorsxiii
Forewordxvi
Prefacexx
Acknowledgementsxxv

1 The Great Depression of 1929: crisis in the world economy 1

JUAN MANUEL MATÉS-BARCO

1.1 The Western economy in the early 20th century 1

1.2 Peace and economic instability in the 1920s 2
1.3 The 1929 crisis and its effects on the world economy 6
1.3.1 The crisis from the perspective of economic theory 7
1.3.2 The causes of the 1929 crash 8
1.3.3 The impact of the crisis in Europe 13
1.3.4 The impact of the crisis in Spain and Latin America 16
1.4 Depression, spread, and solutions 19
1.5 Economic recovery and military rearmament (1930–1939) 25
1.5.1 The United States and the New Deal 25
1.5.2 Britain: the effects of abandoning the gold standard 28
1.5.3 France: crisis and defeat 29
1.5.4 Germany: Hitler and rearmament policy 30
1.5.5 Stabilisation policies to curb the crisis in Latin America 32
1.6 By way of conclusion: a final assessment 34
1.7 References 35

2 Europe after World War II in 1945–1946 38

LEONARDO CARUANA DE LAS CAGIGAS AND JULIO TASCÓN FERNÁNDEZ

2.1 Introduction 38
2.2 The devastation in Europe 38
vi Contents
2.3 The huge task of United Nations Relief and Rehabilitation
Administration (UNRRA) in Europe 46
2.4 Moving borders in Europe and the difficulties in Yugoslavia
and Greece 48
2.5 Conclusions 53
2.6 References 54

3 Major economic recessions in the last quarter of the

20th century: the oil crisis (1973–1980) 56
MARÍA VÁZQUEZ-FARIÑAS

3.1 Introduction 56
3.2 Historical context and general framework of the
world economy 56
3.3 The first oil shock 58
3.3.1 Background and causes of the crisis 59
3.3.2 Immediate effects of the crisis 60
3.3.3 The main repercussions of the crisis in
developed countries 62
3.3.4 The impact of the crisis on developing economies 65
3.3.5 Measures adopted to overcome the crisis 67
3.4 The second oil crisis 71
3.4.1 The reactivation of the crisis in 1979 71
3.4.2 Challenges and changes in economic policies after
the second oil shock 74
3.5 Final considerations 79
3.6 References 80

4 The external debt crisis and the “lost decade” in Latin

America (1980–1990) 82
MARÍA JOSÉ VARGAS-MACHUCA SALIDO

4.1 Introduction 82
4.2 Types of crises: debt crises 83
4.3 The causes of the 1982 debt crisis 84
4.3.1 External factors: gestation during the 1970s 84
4.3.2 Internal factors: external over-indebtedness 88
4.4 The debt crisis and the lost decade in Latin America 89
4.5 The search for solutions 92
4.5.1 Adjustment programmes in debtor countries
(1982–1985) 93
4.5.2 The Baker Plan (1986–1988) 94
4.5.3 The Brady Plan (1989–1998) 95
 Contents vii
4.5.4 The results of adjustment and restructuring processes 96
4.6 The 1982 crisis in the rest of the world 97
4.7 Conclusions 102
4.8 References 103

5 The 1990s: crisis during the globalisation 105

SIMONE FARI

5.1 Introduction 105

5.2 1990–1993: the early nineties financial crisis 106
5.2.1 The end of a mania: Japan 1990 106
5.2.2 Crisis hits North America: 1990–1992 107
5.2.3 The Northern European crises: 1990–1993 108
5.2.4 Black Wednesday 109
5.3 Mexico 1994: “the tequila effect” 110
5.3.1 Macroeconomic causes 111
5.3.2 Microeconomic causes 112
5.3.3 Final remarks 113
5.4 1997–1998: the Eastern Asia crisis 114
5.4.1 The origins of the crisis 114
5.4.2 The beginnings of the crisis and the
international contagion 115
5.5 1999: crisis in the South American cone 117
5.6 2000–2002: the dot.com crisis 118
5.7 Interpretation of the 1990s crises 120
5.8 References 124

6 Great global financial recession (2008–2013) 127

MARÍA-LUZ DE-PRADO-HERRERA AND LUIS GARRIDO-GONZÁLEZ

6.1 Introduction and background of the crisis 127

6.2 The gestation of the first financial crisis of the 21st century 129
6.3 Development and expansion of the recession from the US 130
6.4 The Great Recession of 2008 in the US 135
6.4.1 Introduction 135
6.4.2 Use of CDS (Credit Default Swaps) and the fall of AIG
(American International Group, Inc.) 136
6.4.3 Role of rating agencies 137
6.5 Contagion of the Great Recession in Europe
(2010–2011) 138
6.5.1 The problem of risk premiums 138
6.5.2 Crisis in the Euro area 142
6.5.3 Sovereign debt and crisis 144
viii Contents
6.5.4 Anti-crisis economic policy 145
6.5.5 New international economic regulation 146
6.6 Mild impact of the Great Recession in Latin America 148
6.6.1 Crisis in Latin America and the Caribbean
(2008–2009) 148
6.6.2 Possible reasons for the lesser impact of the Great Recession
in Latin America 156
6.7 Great Asian recession 159
6.7.1 Lower impact on China 159
6.7.2 Asian model for exiting the recession 160
6.7.3 China’s economic policy in the face of the crisis 161
6.8 Conclusions 167
6.9 References 168

7 Global economy vs. Covid-19 pandemic 172

MARIANO CASTRO-VALDIVIA

7.1 Introduction 172

7.2 The Covid-19 pandemic 172
7.2.1 Origin and spread of Covid-19 173
7.2.2 Pandemic control policies 174
7.3 The global economy before the pandemic 175
7.3.1 Advanced economies 176
7.3.2 Emerging markets and developing economies 177
7.4 The global economy during the pandemic 177
7.4.1 Advanced economies 178
7.4.2 Emerging markets and developing economies 178
7.5 Assessment and effects of the pandemic 179
7.6 References 180

Epilogue. The economic crises of the last century: a

Spanish perspective 182
ANTONIO MARTÍN-MESA

Introduction 182
The crises of 1929 and 1973 183
The 2008 crisis 184
The latest crisis 185
Recession 186

Index188
Figures

1.1 Evolution of production and foreign trade (1929–1937)

(1929 = 100) 14
1.2 Gross private investment in the US (1929–1940)
(billions of dollars) 19
1.3 Indices of agricultural prices, cost of living, cost of production
and agricultural wages in the United States (1919–1933) 20
1.4 Unemployment rate in the United States and in various
European countries (1920–1938) 21
1.5 Index of industrial production and GDP (1932) (1929 = 100) 22
1.6 US national income (1929–1940) 26
1.7 Investment in the United States (1929–1940) 28
3.1 Crude oil prices, 1970–1985 (dollars/barrel) 73
4.1 World economic growth (1971–1982) (average annual rates) 87
6.1 Absolute and per capita GDP in the world (2007–2020) 128
6.2 Unemployment trends in the world, OECD, European
Union, and Spain (% of total active population) 132
6.3 Total unemployment trends in the US, Latin America–
Caribbean, Europe–Central Asia, East Asia–Pacific (% of total
labour force) 132
6.4 Inflation, GDP deflation rate (annual %) in the world, OECD,
European Union, USA 134
6.5 Italian and US loan risk premium (prime rate minus Treasury
bill rate, %) 139
6.6 Risk premium basis points (bp) of Spain versus US and
German risk premiums (referring to December except where
indicated)140
6.7 Risk premium per loan in Brazil and Uruguay (prime rate
minus treasury bond rate, %, logarithmic scale) 149
6.8 Trade in Latin America and the Caribbean (% of GDP) 150
6.9 World food commodity prices (deflated according to food
price index 2014–2016 = 100) 151
x Figures
6.10 Total natural resource revenues in Latin America and the
Caribbean (% of GDP) 152
6.11 Average net terms of trade in Latin America and the Caribbean 155
6.12 China: GDP growth rate (annual %) 162
6.13 China’s exports and imports of goods and services (% of GDP) 164
6.14 FDI in China, net capital inflows and outflows (% of GDP) 165
Tables

1.1 Credits to stockbrokers, by origin, 1927–1929

(in millions of dollars) 9
1.2 New York Stock Exchange (1913–1929): stock price index
(1935–1936 = 100) 10
1.3 Share prices in selected markets from September to
December 1929 (monthly indices calculated on different bases) 11
2.1 GDP of various European countries 39
2.2 Casualties in WWII 44
3.1 Evolution of oil prices between October 1973 and
January 1974 (reference prices in dollars per barrel) 61
3.2 GDP and GDP per capita growth, 1950–1973 and 1973–1992
(in percentages) 63
3.3 Impact of the oil crisis on developed countries (percentages) 64
3.4 Unemployment trends in industrialised countries during the
first oil crisis (as a percentage of the labour force) 65
3.5 Trends in world trade, 1963–1981 (percentage change from
previous year) 66
3.6 Growth of GDP and gross energy consumption between 1973
and 1999 (annual percentage) 70
3.7 Consumer prices during the second oil shock (rates of change) 74
3.8 Average annual growth rate of GDP and GDP per capita,
1993–2002 (in percentages) 78
4.1 External debt of Latin America and the developing countries
as a whole (1973–1982) (billions of dollars and percentages) 86
4.2 GDP growth rates in Latin America (1980–1990) (average
annual rates, percentages) 90
4.3 Inflation in Latin America (1970–1990) (average annual rates,
percentages)91
4.4 World economy: annual GDP growth rate (1970–1990)
(average annual growth rates, percentages) 98
4.5 Europe: total unemployment rate (percentage) 100
6.1 World Economic Growth Indicators (annual %) 128
6.2 Unemployment trend (% of total work force) 131
xii Tables
6.3 Net terms of trade index: Latin American (LA) and Caribbean
Countries (2000 = 100) 153
6.4 FDI, net capital inflows and outflows (% of GDP) 164
6.5 China: FDI flow 166
7.1 Overview of the World Economic Outlook projections
(percent change) 176
Contributors

Juan Manuel Matés-Barco

Professor of Economic History and Business History at the University of Jaén.
Graduate of the University of Zaragoza. Doctor from the University of Gra-
nada. Research stays in prestigious universities in Italy, France, and Portu-
gal. Four six-year research periods recognised by the National Commission
for the Evaluation of Research Activity (CNEAI. Ministry of Universities.
Spain). Director of the journal Agua y Territorio/Water and Landscape (AYT/
WAL). Researcher at the Permanent Seminar on Water, Territory, and the
Environment: Public Policies and Citizen Participation. Coordinator of sev-
eral research projects. Head Researcher of the Group of Historical Studies
on the Company (GEHESE-UJA).
María Vázquez-Fariñas
Lecturer in History and Economic Institutions Area (Department of Economic
Theory and History) at the University of Málaga (Spain). PhD in Social
and Legal Sciences and Degree in Business Administration and Manage-
ment from the University of Cádiz. Actively involved as a component of the
Research Group of Historical Studies on the Enterprise (GEHESE-UJA)
and part of the Editorial Board of the journal Agua y Territorio/Water and
Landscape (AYT/WAL). General lines of research focus on the economic and
business history of 19th-century Cádiz (Andalusia, Spain) and the develop-
ment of public services in contemporary Spain. Author of many works on
these subjects published in national and international journals and publish-
ing houses.
Leonardo Caruana de las Cagigas
Tenured Professor at the University of Granada. Has published From Mutual to
Multinational, Mapfre, 1933–2008, with Gabriel Tortella Casares and José
Luis García Ruiz; Corporate Forms, edited by Robin Pearson and Takau
Yoneyama; with André Straus (eds.), Highlights on Reinsurance History, Brux-
elles, 2017; Role of Reinsurance in the World: Case Studies of Eight Countries,
Palgrave Studies in Economic History, 2021; and, finally, The International
xiv Contributors
Expansion of the Spanish Insurance Company MAPFRE, in Entrepreneurship in
Spain: a History, Routledge, edited by Juan Manuel Matés-Barco and Leon-
ardo Caruana de las Cagigas.
Mariano Castro-Valdivia
Lecturer of Economic History at the University of Jaén. Graduate in Econom-
ics from the University of Valencia. Doctor from the University of Jaén.
Research stays at the Università degli Studi di Roma La Sapienza (Italy) and
the Université Michel de Montaigne Bordeaux 3 (France). One six-year
research period recognised by the National Commission for the Evaluation
of Research Activity (CNEAI, Ministry of Universities, Spain). Research
experience in the field of public services and the evolution of foreign invest-
ment in contemporary Spain. Researcher in several R+D+i projects of the
Ministry. Secretary of the journal Agua y Territorio/Water and Landscape
IAYT/WAL). Member of the Research Group of Historical Studies on the
Enterprise (GEHESE-UJA).
María-Luz De-Prado-Herrera
From 1998 to 2018, she was Lecturer of Contemporary History at the Pon-
tifical University of Salamanca. Since 2020, she has been at the University
of Málaga. Her research includes the Spanish Civil War (1936–1939) and
women’s history. She has about 30 national and international publications,
including: The Popular Contribution to the Financing of the Civil War: ­Salamanca,
1936–1939, 2012; Robledo, R. (ed.), This Wild Nightmare: Salamanca in the
Spanish Civil War, Barcelona: Crítica, 2007; Cuesta, J., and others (eds.),
Wise Women? University Women in Spain and Latin America, Limoges: Presses
Universitaires de Limoges, 2015.
Simone Fari
Associate Professor of Economic History at the University of Granada (Spain),
where he has been since 2010. He previously covered posts as Lecturer in
Economic History at the University of Turin, studied as a post-doctoral
student at University of Lugano, and was a Fellow researcher at London Sci-
ence Museum. He was awarded a PhD in Economic History at the Univer-
sity of Bari, Italy, in 2005. Currently, he is researching along two main lines:
the fourth industrial revolution and the history of mobilities. His research
and teaching activity are characterised by a high level of interdisciplinarity,
moving between history, economics, history of technology, and social sci-
ence history.
Luis Garrido-González
Professor of Economic History and Institutions at the University of Jaén.
Was the editor of the book New Contemporary History of the Province of Jaén
(1808–1950), Jaén: IEG, 1995. Publications as co-author include Economics
and Economists Spaniards in the Civil War, 2008, edited by Enrique Fuentes
 Contributors xv
Quintana. He has also published articles in leading journals in his field of
study, such as: Industrial History; Investigation of Economic History; Journal of
Agricultural History; and Ayer: Journal of Contemporary History. Currently, he
is Chief Editor of the Bulletin of the Institute of Jaén Studies, CSIC-Spanish
National Research Council.
Antonio Martín-Mesa
Professor of Applied Economics at the University of Jaén (1992/2021).
­Director of the Cátedra de Planificación Estratégica Territorial of the University
of Jaén (2009/2021). Director of the Real Sociedad Económica de Amigos del
País in Jaén (since 2015). Director of the Observatorio Económico de la Provincia
de Jaén (since 1996). Head Researcher of the Group “Applied Econom-
ics Jaén” (1989–2016). Director of the Plan Estratégico de la Provincia de
Jaén (1998–2008). Chairman of the Mercado de Futuros del Aceite de Oliva
(2004–2009). Director of the Economics Department of the University
of Jaén (1996–2004). Full member of the Instituto de Estudios Giennenses
(since 1992).
Julio Tascón Fernández
Tenured Professor at the University of Oviedo, Department of Economics, Dean
(Nov. 2014 – Dec. 2018); Vice-Dean of International Relations and ECTS
coordinator, School of Economics and Business (2010–2011). Selected pub-
lications: Historia Económica Mundial: Una perspectiva eurocéntrica de la actividad
económica, del Neolítico al siglo XXI, Biblioteca Nueva, Grupo Editorial Siglo
Veintiuno, Madrid, 2012; “La inversión directa estadounidense en el sur de
Europa: El papel de las variables institucionales (1966–2014)”, Revista de
Economía Mundial, no. 44, 2016, 173–193; European Capital Movements (FDI)
1958–2018 Dataset, EUI Research Data, 2020, Robert Schuman Centre
for Advanced Studies. European University Institute (https://hdl.handle.
net/1814/68416).
María José Vargas-Machuca Salido
Graduate in Economic and Business Sciences from the University of Nav-
arra and PhD from the University of Jaén. Lecturer in the Department of
Economics at the University of Jaén, where she teaches the subject of the
Spanish financial system in various degrees. She belongs to various research
groups and teams related to her area of knowledge. Her research has focused
on the history of the financial system, especially at the local level, a sub-
ject on which she has published several articles in specialised journals and
chapters in collective works published by renowned national and interna-
tional publishers.
Foreword

I am grateful to the authors of this book for the opportunity to write this
brief foreword. Indeed, when the international economy suffers a serious cri-
sis, such as the current 2008/2022 crisis, capable economic historians provide
interpretative analyses of the origin, development, vicissitudes, and foreseeable
effects of this phenomenon, which disrupts the domestic economic activities
of countries, as well as those related to foreign countries, thus slowing down
the world economy.
This book, therefore, is the brilliant response of Professors Juan Manuel
Matés-Barco and María Vázquez-Fariñas, with a select team of researchers, to
the aforementioned crisis of the present, which is fully active. With good crite-
ria and from a cyclical and dynamic conception, these professors relate the cur-
rent situation with previous economic fluctuations, which had their origin in
the crisis of the capitalist industrial system, known as the crisis of 1929, which
arose between the two world wars.
Faced with such a crisis, and before the end of the conflict, in 1943, a response
to it emerged, inspired by John Maynard Keynes, through the Bretton Woods
agreements, which guaranteed international monetary and exchange rate sta-
bility, accompanied by the Marshall Plan, the origin of Europe’s Golden Age
(1950–1973) and the economic growth of the Western world in this period.
The devaluation of the dollar in 1971 put an end to the Bretton Woods system,
and a floating exchange rate system was installed, which has survived to the pre-
sent day. Structurally, the oil crisis was driven by the change in relative prices,
which favoured oil and the primary sector in general, against industrial prices.
Counter-cyclical policies, then, were inspired by neoliberal principles,
accompanied by crises in Keynesian conceptions, which were disqualified
under the impulse of growing financial globalism. This led to the next crisis
of 1991–1993, ostensibly with the speculation and successive devaluations of
the pound sterling, and also the crisis of the monetary system of the European
Union, which responded, at the turn of the 20th century, with the unified
monetary order of the Euro. Stemming from neoclassical monetary principles,
this supported an apparent international economic recovery, based on a fragile,
non-explicit banking structure, with the core of businesses increasingly distant
from Keynesian criteria of industrialising impulse.
 Foreword xvii
That fragility exploded in 2008, with multiple banking crises and com-
panies suffocated by effective stagflation. In the European Union, the politi-
cal reaction persisted in the neoliberal canons of indiscriminate reduction of
public spending, even in non-discretionary investments, inducing, in the busi-
ness sphere, nominal decreases in current wages, nothing more disqualified by
Keynes’ theory, and consequent stagnation of productive activities.
This depressive dynamism, also fuelled by the Covid epidemic, has rightly
forced the European Union to turn its economic and financial policy around,
with mutualised bonds and expansionary spending content feeding the next
EU generation; all in all, the war in Ukraine adds to the uncertainty.
Personally, in the wake of the oil crisis, I was a pioneer in showing, econo-
metrically, the effective impact of the 1929 crisis in Spain, although its intensity
was lower than in the United States and other more industrialised countries. In
Spain, it manifested itself, in very quantified terms, in a fall in industrial GDP,
a drop in foreign trade, and also employment, especially from 1932 onwards,
when the United Kingdom diverted imports of agricultural products to Com-
monwealth countries, previously purchased from Spain, such as Valencian rice,
which would then be bought from Ceylon.
In those years, valuable monographs on the Great Depression had prolifer-
ated in American universities, under the influence of John Maynard Keynes’
General Theory, which invited the study of economic cycles, with dynamic
approaches, related in their origin to monetary changes and to other aspects,
such as structural factors. The pioneering monetary explanation of the 1929
crisis was published by Milton Friedman and Anna J. Schwartz (Princeton,
1965). In 1978, Peter Temin published Did Monetary Forces Cause the Great
Depression?
In 1945, Folke Hilgerdt had pointed out that the slowdown in Latin Ameri-
can industrialisation in the 19th century was due to the negative trend in the
terms of trade for countries exporting primary products compared to industrial
countries. This approach was followed by the Nobel Prize winner Arthur Lewis
(1949) to explain the 1929 crisis, adopting a sectoral rather than a geographical
approach (Economic Survey, 1919–1939). In 1973, Charles Kindleberger pub-
lished The World in Depression 1929–1939, taking intersectoral relative prices as
an independent variable, expressed for numerous countries.
Ben Bernanke, Nobel Laureate in Economics 2022, published “Nonmone-
tary Effects of the Financial Crisis in the Propagation of the Great Depression”,
The American Economic Review, 1983. In that article, he stressed the importance
of studying economic institutions, in particular financial institutions, which,
rather than being a “veil”, can affect transaction costs and thus market and
distributional opportunities. He also postulated that we were living in a new
era called the “Great Moderation” where, according to him, modern macro-
economic policy had reduced the volatility of the business cycle, to the point
where it should no longer be a central theme in economics. Later, Bernanke
would see that his assertion had indeed been fulfilled during the Bretton Woods
system; but with the floating exchange rate system, which emerged with the
xviii Foreword
devaluation of the dollar (1971, New Economic Policy, Nixon Administra-
tion), crises would be cyclically intense, in particular the 2008 crisis, which
emerged during his tenure at the US Federal Reserve. According to The New
York Times, Bernanke was attacked for failing to foresee the financial crisis, for
bailing out Wall Street, and, more recently, for injecting an additional $600 bil-
lion into the banking system to jump-start the sluggish recovery. Evidently, this
criticism came from neoliberal positions; today, however, Bernanke has been
awarded the Nobel Prize.
Together with my colleague Pedro Fraile, at an international congress (Berne,
1986) we presented an essay, The Twentieth Century’s Two Big Crises: Origins and
Similarities, in which we emphasised structural factors as opposed to monetary
factors to explain both the 1929 and 1973 crises, highlighting Bernanke’s posi-
tion, who had pointed out (1983) that the key to the 1973 crisis had been the
deficient structure of the US banking system. Crises affect different territories
with different intensities or in different ways, according to their specific eco-
nomic structures.
Keynesian theory shows that the resources allocated to investment, the start-
ing point for promoting GDP and employment growth, do not necessarily
generate inflation; it will depend on the sectors in which they are invested and
their elasticity to gain productivity and stimulate demand, in addition to the
elasticities of other variables, which do not necessarily generate an inflationary
process.
It is another matter that Keynes reasoned that a certain amount of inflation
could be an incentive for investors, since a dynamism of rising sales prices
ahead of production costs is stimulating for entrepreneurs and for the moderate
capitalism projected by Keynesian economics.
Today, the situation is completely different. Modern Monetary Policy (MMP),
essentially Keynesian, though perhaps for some excessively schematic, in its
approach and in its defence of budget deficits, does not complain about popu-
list public spending policies, which do not make explicit the limits that inform
a country’s public deficit and debt. The large volume of available resources is
exalted; but the elements of their application and effects must be analysed in
concrete terms and with the utmost rigour.
In recent times, the idea that a restrictive public spending policy to over-
come the current viral-economic crisis would be a very serious mistake, given
the negative effects of the policies implemented in the face of the 2008 crisis,
has been gaining momentum. Stephanie Kelton, a distinguished representa-
tive of the MMT and head of the Economics Department at the University of
Wisconsin–Kansas City, a leader in Health Economics, points out in her recent
book (The Deficit Myth, 2020) that maintaining a fiscal deficit and the expan-
sion of public spending by increasing the money supply to prevent economic
stagnation that generates social inequality is good and helps to spread wealth,
warning that the current crisis is a continuation of the financial crisis of 2008.
However, he also points out that the limit to the speed of an economy is not in
the deficit but in inflation.
 Foreword xix
That theory of MMT, considered in the final analysis – Professor Kelton’s
work contains a sophisticated and well-argued scientific development, backed
up by experience – has the appearance of effective viability in countries that
have monetary sovereignty, such as the United States, Japan, the United King-
dom, or Canada; but it would be more difficult for it to be successfully applied
in the Eurozone, given that here there is still no fiscal unity and monetary
policy is conditioned by the tax and budgetary diversity of the member coun-
tries, such as Spain.
I conclude by predicting an effective dissemination of this book, and I hope
that its contents will project effective interpretations of the current economic
reality, in order to promote counter-cyclical policies that restore prosperity and
economic well-being to societies in all latitudes, while respecting national con-
ditions, disaggregating indicators according to sectors and localities.
Juan Hernández Andreu
Professor Emeritus at Complutense University of Madrid

References
Bernanke, Ben S. “Nonmonetary Effects of the Financial Crisis in the Propagation of the
Great Depression”. The American Economic Review, vol. 73, no. 3 (1983): 257–276.
Fraile, Pedro, and Juan Hernández Andreu. “The Twentieth century’s two big crises. Ori-
gins and Similarities, The impact of the depression of the 1930’s and its relevance for the
contemporary world”. In The Impact of the Depression of the 1930’s and its Relevance for the
Contemperary World. A/5 session, 9th International Economic History Congress (Berne), ed.
Tibor Iván Berend and Knut Borchardt, 355–365. Budapest: Karl Marx University of
Economics, Academy Research Center, East-Central Europe, 1986.
Friedman, Milton, and Anna J. Schwartz. The Great Contraction 1929–1933. Princeton,
New Jersey: Princeton University Press, 1965.
Kelton, Stephanie. The Deficit Myth: Modern monetary and the Birth of the People’s
Economy. Ashland: Public Affairs, 2020.
Kindleberger, Charles P. The World in Depression, 1929–1939. Berkeley and Los Angeles:
University of California Press, 1973.
Lewis, Arthur. Economic Survey, 1919–1939. London: Unwin University Books, 1949, 1966.
Preface

This book aims to study the economic crises of the last hundred years. The
frequency and repetition of these cycles demand an analysis that allows us to
discover the causes of these situations and the problems they have generated in
the world economy. On several occasions, economic crises have been the result
of political or military conflicts; but they have also been the consequence of
bad practices, unbridled speculation, excessive greed for wealth, or poor man-
agement by the leaders of nations. For this reason, the interest of this work is to
investigate these problems and describe the causes that have given rise to each
of the crises that occurred throughout the 20th century and the beginning of
the 21st century, analysing their consequences and the ways in which they have
spread internationally.
In recent decades, the growing interest in economic crises, their causes, and
consequences, as well as the ways to deal with them in the best possible way, has
motivated the development of this type of studies. However, most publications in
recent years have focused mainly on the Great Depression of 1929, ignoring the
fact that there are other important recessions in the global economy. For this rea-
son, this book provides a study of great interest for understanding economic cycles
and how they work throughout history and not just at a specific moment in time.
On the other hand, in the 21st century we are immersed in a new cycle of
economic recession, and the studies presented here help to better understand
the present situation. This research aims to provide another reading of the
main crises, their causes, and consequences, as well as the measures and poli-
cies adopted to overcome these critical situations. These studies are carried out
with the aim of establishing relationships between the different crises of the last
century and finding possible similarities and differences. In essence, the overall
objective is to learn from the past, which is essential for understanding eco-
nomic events and making sound decisions in a globalised world.
In economics, the word “crisis” is the term most commonly used to express
a difficult and complex situation for a country, a company, or the citizens
themselves. This is an expression that has been used since the 20th century,
especially after the crisis of 1907. Before that date, it was more common to
use the word “panic”. To a large extent, the change came about because of the
scenario it presented: fear of investment and fear of any economic process that
 Preface xxi
entailed some risk. The move in language was intended to soften the terms of
the scenario. The crash of the New York Stock Exchange in 1929 endorsed
the trend and in an attempt to alleviate such a bleak outlook, the term “depres-
sion” began to be used, which had a softer tone and implied that it would be a
temporary situation.
In any case, “panic”, “crisis”, “depression”, “recession”, etc., are words that
have become established among ordinary citizens since the beginning of the
20th century and, above all, in the first decades of the 21st century. Generally
speaking, successive economic crises have been caused by a breakdown in the
balance between production and consumption, characterised by a collapse in
demand, the consequent business failures, and the resulting unemployment.
During the Ancien Régime, the so-called subsistence crises were generated.
Adverse weather conditions could provoke a period of bad harvests that led
to famine, epidemics, and a weakening of the population. Trade and handi-
craft industry contracted systematically in the face of the delicate situation. For
example, the crisis of 1348 was the result of several years of poor agricultural
production, food shortages, and an epidemic such as the Black Death, which
resulted in a very high mortality rate.
The changes brought about by the industrial revolution from the 19th
century onwards generated the so-called crises of overproduction or market
saturation, often closely linked to financial crises. Throughout this century,
subsistence crises and industrial crises sometimes coexisted. The combination
of both crises – subsistence and overproduction – had a very negative effect on
a large part of the population. The 1929 crisis was a clear example of so-called
overproduction or market saturation crises.
The 20th century, with its two world wars and the oil crisis of 1973, to name
but a few of the most relevant moments, has been the testing ground for many
critical situations. Moreover, the last decades of this century have seen signifi-
cant financial crises with great intensity. In the international literature on the
subject, it is common to distinguish between banking crises, currency crises,
and “twin” crises. On the one hand, systemic banking crises are characterised
by episodes in which an increase in non-performing loans leads to serious
liquidity stress. Faced with this situation, the respective governments intervene
in an extraordinary way by guaranteeing deposits, promoting bank takeovers or
mergers, and injecting liquidity and capital into the banking system.
On the other hand, currency crises correspond to episodes of massive asset
sales, leading to a sharp fall in international reserves and a substantial devalua-
tion of the exchange rate. “Twin” crises are characterised by mutual feedback
between different typologies, usually coinciding with a mixture of banking and
currency crises. In some cases, they are related to the level of a state’s external
indebtedness and can lead to a “triple crisis” (banking, currency, and debt). The
latter is often accompanied by the suspension of interest payments to investors
by the government or the private sector.
On other occasions, there have also been financial crises represented by real stock
market crashes, characterised by a sharp fall in the price of movable assets – usually
xxii Preface
after a phase of increase known as the “real estate bubble” – typical of many situa-
tions such as those experienced in 2008 and leading to real “financial panics”.
The economic and financial crises of the first decades of the 21st century,
like many of those of previous eras, have been characterised by not only major
market failures, but also the ineffectiveness of many governments and serious
errors in state policies. The problems arising from asymmetric information
have been very large and have led to high-risk situations, agency corruptness,
imitation of wrong behaviour, and contagion processes. Moreover, govern-
ments have not been able to deal effectively with market failures and have even
contributed to and multiplied the negative effects of incipient crises through
their misguided policies.
We therefore consider it necessary to analyse in detail the main crises that
have occurred throughout recent history and, more specifically, from the first
third of the 20th century to the present day. To this end, this volume includes
eight chapters that cover the main economic crises, analysing in detail their
causes or origins, their development, their main consequences, and the policies
developed to overcome the situation in each case, among other aspects.
In the first chapter, Juan Manuel Matés-Barco – Professor of Economic His-
tory and Business History at the University of Jaén – presents a study on the
1929 crisis and its effects on the world economy, especially in the West. To this
end, a brief overview is given to the instability and uncertainty in the economy
prior to the outbreak of the crisis. Likewise, the causes of the New York stock
market crash, its repercussions, and the spread of the crisis to the main Euro-
pean countries are analysed. On the other hand, the recovery policies that some
states implemented to mitigate the effects of the crisis are described. Finally, it
takes stock of the crisis and its effects on subsequent developments in the North
American and European economies.
In the second chapter, Leonardo Caruana (University of Granada) and Julio
Tascón (University of Oviedo) consider Europe after World War II in 1945–
1946. This war was by far the worst conflict that had occurred in Europe, and
the destruction was massive. In the east of Europe, Leningrad was completely
destroyed, as was Stalingrad, many places in Italy, and the cities of Saint-Nazaire
or Roan in France. However, Warsaw probably suffered the greatest amount of
destruction, while the image usually put forward is that of cities in Germany:
Berlin or Hamburg, both of which were ghost cities. More than five years
of war had terrible consequences for Europe. The population suffered enor-
mously, and it is difficult to explain the horror, the inhumanity, and the crimes
that occurred extensively throughout Europe, especially in the east. Hunger
and deprivation of basic goods were unfortunately normal. As this chapter
explains, the United Nations played an essential role in providing first aid to
Europe and its population.
In the third chapter, “Major economic recessions in the last quarter of the
20th century: the oil crisis (1973–1980)”, María Vázquez-Fariñas (University
of Málaga) analyses the crisis of 1973 and all its main features. Oil has been
considered one of the main sources of energy since the advent of the second
 Preface xxiii
industrial revolution. Its consumption increased enormously throughout the
20th century, generating a strong dependence on this resource on the part of
the most industrialised countries. In this context, the arrival of the oil crisis in
1973 and its reactivation in 1979 led to a paradigm shift in Western economies.
The interventionist economic growth model that had prevailed in industrial-
ised economies after the Second World War ended up collapsing and gave rise
to new economic policies that completely changed the development model.
Therefore, this chapter analyses the background and causes of this crisis, its
effects, the main consequences, and the measures adopted to overcome the
recession, as well as the characteristics of the new global economic environment
that emerged, mainly due to high inflation and low growth in Western Europe.
In Chapter 4, María José Vargas-Machuca (University of Jaén) studies “The
external debt crisis and the ‘lost decade’ in Latin America (1980–1990)”. In
August 1982, the Mexican government announced the impossibility of servic-
ing its external debt as a result of the increase in interest rates, the evolution
of the dollar price, and its own internal economic conditions. And it was not
the only case. A year earlier, Costa Rica had also declared a moratorium on its
foreign debt. In a short time, the difficulties reached other countries in a similar
situation, which also suspended the payment of their external commitments.
Thus began one of the most severe crises that Latin America had suffered in the
last century, threatening the solvency of major international banks, especially
the United States. The process of economic adjustment was long and costly,
leading to what is known as the “lost decade” of growth in the region. So, the
objective of this chapter is to delve deeper into this period of crisis, which was
particularly intense in Latin America, but had serious consequences for the
world economy.
Chapter 5, by Simone Fari (University of Granada), describes “The 1990s:
crisis during globalisation”. The last decade of the 20th century is usually con-
sidered a period of economic growth. Nevertheless, financial and banking cri-
ses shook some national economies around the world. At the beginning of the
1990s, crises took place in Japan, the United States, Canada, Finland, Sweden,
and Norway. In 1994, Mexico faced a strong devaluation crisis that switched
to a national economic crisis. At the end of the decade, financial crises arose in
two different (but related) regions: Asia and South America. Finally, at the start
of the new millennium, the dot.com bubble exploded because of the amazing
development of the “new economy” during the 1990s. Were these crises mere
fluctuations of the global free market, as liberal economists suggested? Follow-
ing the neo-Schumpeterian interpretation, the chapter suggests these crises
represented the typical transition from a technological paradigm to the next.
In the sixth chapter, María-Luz De-Prado-Herrera (University of Málaga)
and Luis Garrido-González (University of Jaén) conduct extensive research on
the “Great global financial recession (2008–2013)”. The economic growth that
occurred between 1994 and 2006 created an optimistic euphoria that led most
people to believe that crises were a thing of the past. Between 2007 and 2008,
this optimism faded. Humanity is now faced with the inexorable evidence
xxiv Preface
that, from time to time, economic cycles of recession or growth emerge that,
together with globalisation, bring about significant changes in the world econ-
omy. Following this introduction, this chapter analyses the origin and causes
of the first great global financial recession of the 21st century. The work ini-
tially focuses on the case of the United States, which is examined in detail to
explain the importance of the use of a series of complex, high-risk financial
products and the role played by rating agencies. The study is then extended
to Europe, Latin America, and Asia. The corresponding sections are devoted
to these regions, in that order, in an attempt to clarify the peculiarities of the
recession that took place in each of them.
In Chapter 7, “Global economy vs. Covid-19 pandemic”, Mariano Castro-
Valdivia (University of Jaén) analyses the effects of the Covid-19 pandemic on
the global economy, differentiating between advanced and developing econo-
mies. The analysis is preceded by a brief history of the origin and dissemina-
tion of the infection and the policies to control the pandemic. In addition,
the author analyses the state of the world economy prior to the onset of the
pandemic by examining its main macroeconomic indicators. The study con-
tinues with the evolution of these macroeconomic indicators, and it also takes
a balance sheet of the pandemic and its impact on the global economy, includ-
ing the prospects for recovery in the face of the uncertainty generated by new
variants of Covid-19 and the war between Russia and Ukraine.
Finally, Antonio Martín-Mesa (University of Jaén) presents a final reflection
that brings together the main aspects dealt with in a conference given at the
Cátedra de Internacionalización of the University of Jaén on 24 October 2022.
This chapter analyses the main characteristics that the economic crises of the
last century have brought to Spain, focusing mainly on the 1929 crisis, the
1973 oil crisis, the 2008 crisis, and the latest crises caused by the Covid-19 pan-
demic and the Russian invasion of Ukraine. This general analysis is intended to
make the reader reflect on the current state of the economy and the measures
that could be taken to overcome the situation.
These studies, and this book as a whole, are intended to be a reference work
for the courses on economic history and the history of the company, but also a
study and consultation text for academics, researchers, professionals, and read-
ers in general. The works are the result of rigorous and detailed studies and
capture the crises around the world and throughout history. In essence, these
have been the main motivating factors behind the preparation of this work.
Juan Manuel Matés-Barco
University of Jaén
María Vázquez-Fariñas
University of Málaga
Acknowledgements

It is essential to thank all those who have made this work possible. Firstly, sin-
cere thanks to the anonymous and external evaluators for the suggestions and
guidance they provided to improve the contents of this book.
Secondly, the warm response offered by the Taylor & Francis group for the
publication of this project through the Routledge publishing house must be
acknowledged. Nor can we forget the help provided by Andy Humphries as
the publisher for Economics, Business, and Law at Routledge, and Holly Mar-
tin as the Editorial Assistant for Economics. Their attention and assistance have
been invaluable.
Thanks also to Professor Juan Hernández Andreu for his willingness to write
the foreword, which introduces and greatly enhances this book.
We would also like to thank Professor Antonio Martín Mesa for his reflec-
tions on the economic crises of the last century in Spain, which are the perfect
culmination of this book.
Finally, this research is part of the results of the Plan Propio de Investigación
2022 of the University of Jaén (Spain), so this work has been possible thanks to
the support of this institution.
1 The Great Depression
of 1929
Crisis in the world economy
Juan Manuel Matés-Barco

1.1 The Western economy in the early 20th century

The 20th century was marked by dramatic upheavals: two world wars – of great
severity and destruction – and several economic crises. The “interwar period”
(1918–1939) ran from the end of the First World War to the beginning of the
Second World War. During these years, two events stand out: the birth of the
Soviet Union and the economic crisis of 1929. In this chapter, we will deal
with the second of these events.
The outbreak of the First World War upset the international equilibrium of
the early years of the 20th century. Until 1914, the political rivalry of the great
powers had not generated tensions of such scope and gravity. From that year
onwards, events far outstripped the attitudes of politicians and rulers (Casanova
2011). After an acute post-war crisis followed by a short depression in 1920,
the industrialised countries of the West benefited from a period of expansion
that lasted until 1929 (Aldcroft 1989). Political, social, and economic life had
weakened in Europe, and some countries were on the verge of bankruptcy in
the early post-war period. Growth during these years was very uneven. Brit-
ain suffered through a precarious situation after the deflationary experience
of 1925, which led to a return to the gold standard; France endured tremen-
dous instability; and Germany was plagued by terrible hyperinflation. In Spain,
economic growth was similar to that experienced in the rest of Europe and
coincided with the favourable international environment after the war. How-
ever, by 1930, the difference in Spanish GDP per capita compared to the most
advanced countries was still considerable (Carreras and Tafunell 2010; Sánchez
and Catalán 2013). The fragile foundations of the “Roaring Twenties” were
largely overlooked out of ignorance.
The crisis erupted in October 1929 with the collapse of the New York Stock
Exchange. The depression spread rapidly around the world. Widespread unem-
ployment affected almost every country and the national economy and trade
declined sharply. Traditional liberalism was called into question and there was
talk of a “deep crisis of capitalism”. The shock was very serious for the capital-
ist system because in those same years the whole world witnessed the first steps
of a collectivist economy taking hold in the Soviet Union (Comín 2011b).

DOI: 10.4324/9781003388128-1
2 Juan Manuel Matés-Barco
Between 1929 and 1932, the world experienced one of the worst depres-
sions in history. The existing state of economic science was powerless to solve
the problem, and the decisions taken by governments were, on the whole,
misguided. Policies tended to be protectionist in nature, designed to insu-
late national economies from external “contagion”. Attempts at international
cooperation failed at the London Conference of 1933. Each country avoided
“external contamination” and sought to “export its unemployment” through
protectionist policies (Parker and Whaples 2013). A case in point is the United
States, which imposed very high tariffs. At this juncture, the depression spread
very quickly, mainly because of the sheer scale of the US economy compared
to the rest of the world. In 1929, 40% of world manufacturing production was
located in the United States; its imports represented 12% of the world total,
while its exports accounted for 15.8% globally (Matés-Barco 2017a).
The improvement in 1933 had little to do with government recovery pro-
grammes, although some instigated ambitious plans to boost their economies.
The recovery was very slow and uneven, especially in terms of job creation, to
the extent that on the eve of the Second World War there were still a number
of countries with very impoverished economies. This precarious situation led
to rearmament policies that reactivated the arms industry, a major consumer of
industrial raw materials. These actions were not only a danger to world peace,
but also a fertile breeding ground for fascism.

1.2 Peace and economic instability in the 1920s

Throughout the 19th century, the European continent experienced significant
economic development. Sidney Pollard (1991) has noted that this process can
be seen as a general phenomenon that transcends national borders, although it
was most prominent in Europe and North America. Economic growth rates
were modest and very uneven across countries, but were particularly strong in
Britain, France, Germany, Belgium, and the Netherlands. However, the war of
1914–1918 was the dramatic precedent for the Second World War and led to
significant stagnation. For all those who witnessed the high number of casual-
ties, or the levels of destruction caused by this event, it was such a shock that it
was referred to as the “Great War”.
Once peace was achieved, far from alleviating economic problems, it argu-
ably increased them for two main reasons. Firstly, because it led to increasing
financial and monetary instability and, secondly, because it stimulated a certain
economic nationalism. The best known of the treaties was that of Versailles,
which established peace with Germany. Apart from territorial compensation
for regions such as Alsace and Lorraine, the treaty allowed France to occupy the
Saar Valley coal basin for 15 years and ceded parts of Prussia and part of Upper
Silesia – rich in mineral deposits – to Poland. But the most significant aspects,
apart from border adjustments, centred on dispossessing Germany of much of
its mineral resources (iron, zinc, coal), depriving it of 13% of its arable land, as
well as its colonies in Africa and the Pacific. In addition, it had to give up its
 The Great Depression of 1929 3
navy, most of its merchant fleet, locomotives, wagons, trucks, etc. In short, it
was a humiliating and rather onerous surrender, reflected in the famous War
Guilt Clause in Article 231, which stated that Germany was responsible for
having started the war. Basically, the Allies were attempting to justify the repa-
rations that Germany had to make in compensation for the destruction caused
by the war. But the Allies did not take a uniform position, and a Reparations
Commission was appointed, which was to report by 1 May 1921. John May-
nard Keynes, economic adviser to the British delegation to the peace treaty,
warned of disastrous consequences for the whole of Europe if the demands for
reparations were maintained. After resigning from the delegation because he
did not agree with the measures adopted, he set out his reasoning, ideas, and
approaches in a well-known book entitled The Economic Consequences of the
Peace (Keynes 1919/1991). These ideas were much debated, but the passage of
time confirmed his dramatic predictions.
In Western Europe, some countries adopted very restrictive measures,
such as protectionist tariffs and import bans on certain products. Others pro-
moted their own exports through subsidies. Britain, an advocate of free trade,
neglected this practice by maintaining and increasing the tariffs it had already
put in place during the war in order to achieve its funding. Even the United
States imposed very restrictive protectionist legislation, enacting laws such as
the Emergency Tariff Act (1921), which banned imports of German dyes;
the Fordney–McCumber Tariff Act (1922), with one of the highest tariff lev-
els in American tariff history; and the Smoot–Hawley Tariff (1930), which
even exceeded the rates of the 1922 law and provoked a chain reaction from
other countries, which responded by increasing their tariffs against American
products. Ultimately, the practice of such exaggerated economic nationalism,
embodied in countless protectionist provisions, led to a slowdown in produc-
tion and the establishment of lower than desired income levels (Hynes, Jacks,
and O’Rourke 2012).
But it was not only economic nationalism that caused the collapse of the
international economy; financial and monetary disturbances also played a major
role, with the problem of war reparations as a backdrop. At the end of the war,
the debts of the Allied bloc countries amounted to more than $20 billion,
which had been lent mainly by the United States and Great Britain. American
leaders viewed the loans as simple commercial transactions, but they encoun-
tered European reluctance to repay these obligations. As this controversy mani-
fested itself in all its crudeness, the issue of reparations emerged, as Britain and
France demanded that Germany pay them not only for civilian damages, but
also as compensation to cover the full cost of the war. The Reparations Com-
mission estimated that Germany would have to pay 132 billion gold marks
(about $3 billion), more than twice its national income. The precarious state of
the international economy, coupled with the pressure on Germany to make the
payments, resulted in uncontrolled inflation, leading to a disastrous situation in
November 1923, when one US dollar was worth 4.2 trillion German marks
(Holtfrerich 1986). A mark was worth less than the paper it was printed on.
4 Juan Manuel Matés-Barco
Hyperinflation not only occurred in Germany but also spread to other nations
such as Bulgaria, Austria, and France itself. This led the League of Nations to
adopt stabilisation measures that achieved their objectives by 1926. Although
disputed, Keynes’ predictions about the crisis in the international economy
seemed to be coming true. To turn the situation around, an international loan
of some 800 million marks was granted to Germany, in addition to lower
annual reparation payments. This loan, mostly from the United States, enabled
Germany to resume paying reparations and to obtain the foreign exchange it
needed to modernise its industry.
Periods of war have a strong influence on economic activity. The post-war
depression was quite severe, but very brief. It was followed by a longer period
of expansion lasting until 1929, at least in the United States, which can be con-
sidered the peak of American and world prosperity. The American economy
benefited from the thrust that the exigencies of war imposed on industrial
production, both between 1914 and 1919 and between 1939 and 1945. The
United States emerged stronger from the First World War. In the years that
followed, it became the leading exporter of goods and services, as well as the
leading investor of capital in other countries.
In the meantime, Europe had to rebuild itself from its ruins. To help in this
task, in 1919, the American government created the American Relief Admin-
istration (ARA) to provide economic aid to certain central European countries
threatened by crisis and famine. In 1929, aid from the ARA totalled 1.415 bil-
lion dollars in foreign currency (29%), loans (63%), and grants (8%). The loans
were never to be repaid because of the 1929 crisis. The situation in Europe,
although challenging because of reconstruction needs, was not critical. The
main problem lay in the difficulty of transforming a wartime economy into a
peacetime one. The mass demobilisation of soldiers from the army could lead
to a sharp rise in unemployment, but the forced savings accumulated during
the war made it possible to finance the purchase of consumer goods to rebuild
the household economy. The strong demand for consumer goods, especially
in Great Britain, made it possible to hire this huge mass of demilitarised young
men. The demand for capital and intermediate goods also increased as a result
of the inflationary expansion process.
In 1920 and 1921, the data show the severity of the crisis: the manufacturing
industry shrank by 30% in Britain and 24% in the United States, and prices fell
by about 37%. The depression was deep but short lived and is evidenced by the
decline in demand for consumer durables. Several factors played a role in the fall
in economic activity. On the one hand, the normalisation of international trade
and the supply of raw materials and, on the other, restrictive monetary policies
played an important role in this trend. The instability of 1920 is the prototype
of a crisis of reconversion from a wartime to a peacetime economy. France
also suffered serious imbalances, although they were not as deep as in Britain
and the United States. Reconstruction boosted demand for capital goods and
stemmed the depression. Budgetary and financial policy contributed to the
maintenance of aggregate demand, as equilibrium was assured by advances from
 The Great Depression of 1929 5
the Bank of France. Between 1922 and 1929, there was a period of expan-
sion, although there were differences among countries. Two minor recessions
in 1924 and 1927 softened this economic upswing. The 1920s saw international
monetary reconstruction within the framework of the famous gold exchange
standard, the failure of which in 1930 played a major role in the world crisis.
Inflation inflicted deep wounds on European society, especially in Ger-
many and Britain. The dire situation of the Germans, especially the middle
class, wage earners, and workers, led to the inclination of these groups towards
extremist politicians. It is symptomatic that the national socialists (Nazis) and
the communists increased their parliamentary representation in the Reichstag
in the 1924 elections. German hyperinflation followed the upswing in foreign
exchange rates, which was faster than the rise in prices. In a second stage, ris-
ing prices took the lead, but foreign currencies (dollar, pound, franc) gradu-
ally replaced the mark as a means of domestic payment. German production
increased until the beginning of 1923, so the government launched a stabilisa-
tion policy and created the Rentenbank and the Rentenmark. The Rentenmark
was a currency guaranteed by the national wealth, endowed with legal tender
status and with the same value as the pre-war gold mark. One Rentenmark was
exchanged for 1 trillion paper marks. The operation generated confidence in
the German currency and made it possible to obtain credit in 1924, which
facilitated the inflow of foreign capital. In the Treaty of Versailles, the Repa-
rations Commission had set at £6 billion the compensation Germany was to
pay for the damage caused during the war. France was counting on these pay-
ments to rebuild its devastated regions and balance the budget. Germany, with
its soaring hyperinflation, could not meet these debts, so France occupied the
Ruhr region in January 1923. The Commission, chaired by the American
Dawes, established that Germany would have to pay between £50 million and
£150 million, with the first disbursement to be made thanks to an interna-
tional loan of £40 million.
Great Britain suffered a similar situation, as economic problems became
particularly acute in the post-war period. The British had to deal with the
readjustment of their economy, which was overly dependent on international
trade, while unemployment rose to over 25% in the years following the Great
Depression of 1929. The economic policy adopted by its rulers was not the
most appropriate, and the initiative to return to the gold standard, taken in
1925 by the then Chancellor of the Exchequer, Winston Churchill, was very
harmful. The repercussions of this measure were especially serious in the world
of labour. Wages fell considerably, especially in the coal mines, prompting min-
ers to call a general strike, which they tried to enforce in May 1926. It was sup-
ported by about 40% of unionised workers, and although it was a short-lived
conflict, it left a trail of social confrontation that made it difficult to resolve the
serious national and international problems afflicting the British economy.
The British textile industry experienced a decline that resulted in the aban-
donment of exports to traditional markets. In 1907, Britain exported almost
90% of its total production, but by 1929 it had fallen to 73.7%, and by 1935 it
6 Juan Manuel Matés-Barco
accounted for only 57.6%. Between 1913 and 1937, the Far Eastern markets
(Hong Kong, China, India, Japan) saw a 90% drop in the arrival of British tex-
tile products. This decline was due to the development of synthetic fibres and
competition from Japanese products. The same was true of coal and iron and
steel. Between 1900 and 1937, coal exports fell from 19.5% to 16.5%, and steel
exports fell from 13.2% in 1913 to 8.3% in 1937.
Inflation in France was not as high as in Germany but lasted until 1926. The
price swings and the tremendous ups and downs are indicative of its economic
instability. Between 1914 and 1926, one pound sterling went from 25.22 francs
to 240 francs, and one dollar went from 5.18 to 49.22 francs. The Poincaré
government achieved a significant decline in inflation and the French economy
improved from 1926 onwards, thanks to international expansionary conditions
and the devaluation of the currency, which boosted exports. Although the rate
of industrial production declined in these years, the increase in manufactured
goods was evident (Parejo and Sudrià 2012).
The United States experienced strong economic expansion until 1929.
From 1922 onwards, there was spectacular development in construction, elec-
tricity, and the automobile industry. The latter increased its production (33%)
and led to an expansion of oil exploration, steel, rubber, and infrastructure
construction, such as roads. The manufacture of electrical appliances boosted
the production of electricity. Unemployment fell to just 2% of the labour force
and the total output of manufactured goods increased by nearly 50%.
The trend of international investment at this stage shows a lack of rationality.
Britain, France, and the United States were at the forefront of foreign invest-
ment. New York emerged as the new financial centre and investment behaviour
was extremely risky. American lenders flooded Europe and much of the world
with unsafe and speculative investments. In essence, the United States lent capi-
tal to Europe so that Europeans would “buy” American products. It was a way
of financing exports using a practice the British had employed extensively in the
19th century. The difference was that American companies and bankers forced
this lending activity. These operations, by increasing the income and consump-
tion of foreign countries – increasingly dependent on a continuous source of
foreign exchange – made the outbreak of an unsustainable situation inevitable.
Nevertheless, most of Europe experienced relative progress and, from 1924
onwards, the “Roaring Twenties” wore the face of optimism and economic
prosperity. Much of the reparations for war damage had been paid, and this
made it easier to solve the more immediate problems. However, the foundation
of that prosperity was so fragile that 1929 showed most starkly how the progress
of recent years had been but a mirage.

1.3 The 1929 crisis and its effects on the world economy

Until 1929, none of the economic crises in previous history had been as far-
reaching as the one that occurred in that year. Above all, the “crash of 1929” is
significant for its broad global impact, which was facilitated by the importance
 The Great Depression of 1929 7
of the United States in the international economy. The exceptions were nations
that, because of their precariousness or economic situation, were cut off from
the capitalist system. In any case, the crisis did not begin at the same time in all
countries, nor did it have the same magnitude, nor was its duration identical.
As Morilla Critz (1991) points out, there are two basic truths that allow us to
understand the shocks suffered by the international economy: 1) “the seeds of
the crisis were scattered in many places”; and 2) “that from a certain moment
(which we place in 1929), a chain reaction was set in motion, which ampli-
fied and spread the crisis from one sector to another, and from one part of the
world to another”.

1.3.1 The crisis from the perspective of economic theory

The unfolding of the 1929 crisis has been well described by many scholars, but
the analysis of the causes remains a matter of discussion and debate (Kindle-
berger 1991; Galbraith 1993; Marichal 2010). The complexity lies in explain-
ing the severity, depth, and extent of the subsequent economic depression.
History has shown how the capitalist system exhibits cyclical behaviour, which
has been described differently according to the respective schools of economic
thought (Barber 1974; Barnett 2017).
First, there is the instability school, which characterises capitalism as an
essentially unstable system. Malthus, Marx, and Keynes have been its leading
exponents. Thomas Malthus (1766–1834) developed his theories on crises,
underconsumption, and defended protectionism (Fernández-Delgado 2003).
For his part, Karl Marx (1818–1883) pointed out the internal contradictions of
capitalism, due to the difficulty of controlling the market and chronic under-
consumption, which would lead to its destruction. At the same time, Marx
harshly criticised the Malthusian theory of population as a superficial plagiarism
of authors such as Daniel Defoe (1660–1731) and Benjamin Franklin (1706–
1790). On the other hand, in Capital – in contrast to Malthus – he defended
the scientific and technological advances that would allow for exponential
population growth (Martín-Muñoz 2003; Perdices de Blas 2003; Rodríguez-
Braun 2006). In the 20th century, John Maynard Keynes (1883–1946) outlined
a theory of stabilising intervention by the state, in order to avoid falls in effec-
tive demand (Galindo-Martín 2003; Wapshott 2016).
Second, the stability school assumes that the market is able to cope with
the different crises that the system undergoes and is capable of returning to
equilibrium. Neoclassical economists are part of this group and have not been
very interested in the analysis of cycles. Galbraith (1993), in his well-known
book on the 1929 crisis, notes the reassuring statements of the economists of
the time, who stubbornly ignored the serious situation that arose, even months
after the crisis had affected most of the world’s population (Landreth and Col-
ander 2006; Roncaglia 2017).
The third school places the cycle at the centre of its theory. The econo-
mist Joseph Alois Schumpeter (1883–1950) was its most prominent figure. Of
8 Juan Manuel Matés-Barco
Austrian origin but based in the United States, where he was a professor from
1932 at Harvard University, he described the theory of the long development
cycle inspired by the economist Kondratieff. Another economist, Kuznets, dis-
seminated his theory of the infrastructure cycle (15–20 years), which accompa-
nied the long cycle related to technological systems requiring major investments
(locomotives with railways, automobiles with roads, electricity with dams,
etc.). There are also financial cycles in which investment “euphoria” alternates
with “panic” with the sale of shares (Galbraith 2011; Rothbard 2006/2012;
Vegara 2019).

1.3.2 The causes of the 1929 crash

The United States emerged from the First World War in a favoured position,
or at least in a stronger position than in 1914. In economic terms, it had shifted
from being a debtor to a creditor and had expanded its sphere of influence in
international markets, while Europe was very slowly trying to recover. The
balance of trade was extremely favourable, the population was growing mark-
edly, technological advances were very substantial, and the many markets were
yielding to the momentum of American exports.
However, serious economic problems, some of them of a structural nature,
inherited from the 19th century, had been identified for years before the out-
break of the crisis. For example, there was a lack of interest in reinvesting in
industrial activities, which led to an imbalance in this sector and an unfavour-
able trend in agricultural prices. Between 1920 and 1921, the country suffered
an acute and brief economic crisis, which was reflected in the harsh living
conditions of a large part of the population. Despite the difficulties, recovery
was noticeable in the following years. The gap left by industrial investment was
filled by channelling substantial amounts into speculation on the New York
Stock Exchange. This speculative fever was evident throughout the 1920s. In
these years, it experienced a spectacular rise that, at times, provoked an atmos-
phere of unbridled speculation and closed one of the most extraordinary specu-
lative periods. The share price index rose from 100 in 1926 to 216 in 1929.
Until March 1928, the rise in share prices was not excessive and remained
in line with profits. From then on, a speculative boom phase ensued. Gal-
braith (1993) has pointed to the influence of certain large companies on this
trend. Some businessmen painted a glowing picture and heralded a period of
economic upswing and enormous profits. On 12 June 1928, there was a first
warning with the sale of more than 5 million shares and an overall loss of 23
points in the value of the shares. From July onwards, the stock market experi-
enced further rises and the election campaign for the US presidency focused
on announcements of prosperity and welfare. During the summer of that
year, American banks and investors began to restrict purchases of German and
other bonds. The aim was to invest their funds through the New York Stock
Exchange, which began to soar. After the election of Republican candidate
Herbert Hoover, the stock market experienced a further rise. In his Memoirs
 The Great Depression of 1929 9
(Hoover 1952/2016), recalling these fateful years, he called speculation a crime
worse than murder and one for which men should be “reviled and punished”.
The rise in the stock market did not correspond to increased productivity
but was rather the result of an excessive process of speculation, by not only
large corporations but also small and medium-sized investors. The investment
fever stemmed from an exaggerated eagerness to achieve capital growth and
was not based on the attraction that good dividends from a profitable company
could offer. Thus, a spiral of acquisitions was unleashed, leading to a permanent
upward spiral.
In these months of speculative rises, many people of modest means rushed to
buy stocks by borrowing money. New York banks were lending short term at
12% interest, when they were borrowing from the Federal Reserve at 5%. Even
currency dealers were lending to their clients against the securities they were
buying. Purchases of shares were often made for only 10% of the value being
purchased, i.e., brokers advanced buyers 90% of the value of the shares and
were obliged to borrow money to do so. More specifically, the loans obtained
by the brokers rose from around 3.2 billion in 1925 to nearly 7 billion dollars in
1929 (Table 1.1). This is sufficiently illustrative of the effervescence in business
(Eichengreen and Mitchener 2003).
But speculation was doomed to failure if stock prices did not correlate with
production and profits. And it was indeed the United States that was begin-
ning to experience a certain degree of stagnation and regression. The US gross
national product began to decline gradually and steadily in the early months of
1929. A sector as dynamic and expanding as automobile manufacturing began
to falter. In March, production reached 622,000 vehicles, while six months
later it was down to 416,000. In other words, production in this key industry
fell by almost 40%.
For its part, Europe – at the end of the summer of 1929 – was beginning
to feel the decline in American investment abroad. Even Germany, the second
epicentre of the conflict, was already in serious difficulties by the end of 1928.
The economies of many countries deteriorated alarmingly until 1933, with
a particular contraction of international trade and the industrial sector. The
bomb had been primed; all that remained was for it to detonate.

Table 1.1 Credits to stockbrokers, by origin, 1927–1929 (in millions of dollars)

Date New York Foreign banks of Other TOTAL

banks New York

31 December 1927 1,550 1,050 1,830 4,430

30 June 1928 1,080 960 2,860 4,900
31 December 1928 1,640 915 3,885 6,440
30 June 1929 1,360 665 5,045 7,070
4 October 1929 1,095 790 6,640 8,525
31 December 1929 1,200 460 2,450 4,110
Source: Prepared by author with data from Kindleberger (1985, 131).
10 Juan Manuel Matés-Barco
This scenario was unsustainable in the short term, but the monetary authori-
ties neither understood nor wished to remedy this situation. Galbraith (1993)
has shown how the great leaders and economists of the time were unaware of
the seriousness of the economic situation. From the chairman of the Federal
Reserve to prestigious economists at Harvard University, they spoke of the
excellent health of American industry and the irrelevance of broker’s loans.
At the same time, they argued that nothing could “stop stock prices from ris-
ing” and showed that the position “of the markets is satisfactory” and that the
value of stocks “has a healthy base given the prosperity” of the United States.
For these “learned economists”, stock prices “had reached a permanent value”
(Table 1.2).
The crisis manifested itself essentially in the United States. Its severity and
duration have been among the most spectacular in the capitalist system. When
analysing the causes of the crisis, it is relatively easy to list them, although it
is more difficult to try to elucidate the importance of each one of them. The
bibliography on the subject is immense and the explanations of its origin are
endless, but they can be summarised into five key points.
First, the existing imbalance in the international monetary system. The gold
standard had been reintroduced in the 1920s, but under conditions that were
not in keeping with the economic needs of the time (Bernanke 1983). The
United States had changed its role from debtor to net creditor, without observ-
ing the “rules of the game” for the proper functioning of the gold standard, as
well as not allowing net transfers from Europe. This set of actions caused the
system to be unsound and its functioning to run into serious difficulties.
The second issue refers to the structural changes that occurred in the 1920s,
especially the decrease in the flexibility of the product market. The rise of
monopolies became increasingly evident, and the labour factor began to decline
markedly. The return to equilibrium became increasingly difficult.
Third, the role of the New York Stock Exchange must be recalled. Its role
has sometimes been exaggerated as both the trigger and the main cause of the
crisis. In the United States, in the preceding months, a decline in investment,

Table 1.2 New York Stock Exchange (1913–1929): stock price index (1935–1936 = 100)

Years General index Industrial values Railways Public services

1913 71 240 90
1921 58 164
1924 63 204 92
1925 95 80 238 111
1926 106 90 265
1927 ( June) 103 316 135
1927 (December) 336
1928 ( June) 134 336 173
1929 (September) 238 195 446 375
Source: Prepared by author with data from Morilla Critz (1991, 119).
 The Great Depression of 1929 11
production, and income had begun to be detected. At the same time, prices
were falling. In Germany, this trend had been discernible a year earlier. Stock
market crises had been frequent before and after 1929 and of even greater pro-
portions, but none caused such a severe economic crisis.
The fourth issue that determined the significance of the crisis was the
restrictive monetary policy of both the United States and Germany. This led
to financial panic, chain bankruptcies and deflation, all due to the absence of
international lenders.
Finally, the crisis was transmitted to the rest of the world through the lack of
coordination, falling prices, and the mechanisms of the gold standard (Eichen-
green 1992; Wolf 2010). At the same time, misinterpreted fiscal orthodoxy and
protectionism aggravated the situation. Declining revenues inclined govern-
ments to reduce expenditures and increase taxes, right in the middle of the cri-
sis, in order to achieve a balanced budget. Moreover, from 1931, all countries
increased their levels of protection, making trade more difficult. The economic
policies that had been pursued in previous years with positive results had com-
pletely opposite effects. The protectionism introduced in most countries led to
a decline in exports and a fall in income.
The brake on the situation occurred in October 1929, but despite its bru-
tality it came in stages. The crisis manifested itself on 24 October – “Black
Thursday” – when nearly 13 million securities were offered with almost no
demand. The banks intervened in order to halt the fall and briefly managed to
restore confidence. By the end of Black Thursday, share prices had fallen by
between 12 and 25 points. On Monday, 28 October, the collapse began with-
out any possibility of rescue. On that day, a total of 9,250,000 shares went on
sale. Industrial assets were down 49 points and bankers were unwilling to buy
any more securities. On 29 October – “Black Tuesday” – the panic triggered a
new spate of stock market sell-offs (33 million shares), causing a terrible fall in
the value of shares (Table 1.3).
The Dow-Jones index of the New York Stock Exchange between Septem-
ber 1929 and January 1933 shows that the values of 30 companies fell from
an average of $364.90 to $62.70 per share; the 20 government debt securities
dropped from $141.90 to $28; and the stock prices of 20 railway companies
declined from $180 to $28.10. Between October 1929 and July 1933 – the

Table 1.3 Share prices in selected markets from September to December 1929 (monthly
indices calculated on different bases)

1929 Belgium Canada France Germany Netherlands Sweden Switzerland UK USA

September 316 526 125 239 216

October 98 255 496 113 162 135 194
November 92 209 465 98 212 145
December 79 210 469 107 100 215
Source: Data taken from Kindleberger (1985, 141).
12 Juan Manuel Matés-Barco
bottom of the depression – the total value of traded capital fell by $74 bil-
lion. In the latter year, the national income of the United States did not reach
$40 billion.
Despite the catastrophe, a few days after these events, voices were still being
heard, claiming that “the present stock market and business recession is not
a precursor sign of a depression”. Or that it was unlikely that there would
be a repetition of a situation as serious as that of 1920–1921. And even that
the “recovery will take place in the spring [of 1930] and consolidate in the
autumn”. The absence of perspective suggested that the industry was on the
road to recovery. These statements show the lack of awareness of the serious-
ness of the problem, among both political leaders and the “brainy economists”
of the time, as well as the inability to find appropriate solutions to emerge from
the crisis (Roncaglia 2015).
The stock market crash was not the cause of the Great Depression, but it was
the starting pistol that signalled the race towards declining output and rising
unemployment. The fragmentation of the banking structure was one of the
weaknesses of the US economy. Not only was easy access to credit a problem,
but also the mistakes made by the authorities in monetary policy, especially the
actions of the Federal Reserve, which Galbraith (1993) describes as “a body of
starling incompetence”.
After many decades and numerous studies on the subject, there is no una-
nimity as to the most determinant causes of the depression. For some, they
were mainly monetarist; for others, they lay in the fall in consumption and
investment and how this spread throughout the economy. In recent years, new
arguments have been put forward: the instability of agriculture, the First World
War and the implementation of peace treaties, the breakdown of the gold
standard, or the disruption of trade and the nationalist policies of the entire
decade (Crafts and Fearon 2013).
In any case, it is of great interest to reflect on the causes of the 1929 crisis
and the subsequent depression. In this way, the economic policies applied
by the different governments in order to achieve recovery can be appreci-
ated with greater precision. The main difficulty lies in assessing the relative
importance of each of them and differentiating between the stock market
crash of 1929 and the depression that followed. Distinguishing between the
causes of one and the other is not easy. It is clear that in the preceding months
the importance of the problem was not grasped, and even the severity of the
depression that followed was not even minimally perceived. As early as 1934,
the complexity of the phenomenon and the impossibility of explaining it with
a single reason were already being pondered. The influences were manifold
and varied: ­political unrest, structural weaknesses, and nationalist mentality
(Wandscheneider 2013).
One of the reasons most often used to explain the collapse of the New York
Stock Exchange is the exorbitant rise in stock prices. It has already been said
that the boom in securities could not last indefinitely. Speculation decoupled
from economic activity, that is, from production and profits, brings its own
 The Great Depression of 1929 13
ruin. The lessons of speculation are recurrent – it had already occurred in 18th-
century England and 19th-century France – and provide clear evidence of its
harmful aspects. One might then ask about the reasons that led to the long and
enormous speculation of the years 1927–1929. It was the result of monetary
inflation caused by the policy of cheap money and easy credit granted by the
Federal Reserve. This conduct was one of the most serious mistakes made by
any banking organisation in the last century (Almunia et al. 2010). US authori-
ties were overwhelmed by the pace and momentum of events. The speed of the
circulation of money and the expectations of speculators swept away everything
in their path.
It is clear that some causes did have a greater impact. For example, the
excessive fragmentation of the banking structure, which was one of the weak-
nesses of the US economy (Galbraith 1993). Furthermore, the organisational
structure of US firms was conducive to unbalanced and abusive practices. The
development of holding companies and trusts encouraged intense speculation.
Such companies owned bundles of shares and bonds and had a vested inter-
est in skyrocketing share prices. Meanwhile, dishonest business practices were
rampant, involving shady deals, swindles, and fraudulent schemes. High-profile
personalities from politics, finance, industry, and even the cinema, through
their popular influence, played a key role in these regrettable actions. In this
course of events, the small and medium-sized investor was swept along by an
excessive desire for profit and failed to see the deceitful deals that were right
before their eyes. Maurice Niveau (1989) has emphasised how financial and
banking structures, large capitalist interests, and mass psychology were cumula-
tive causes of excessive speculation and high inflation. Moreover, as we have
seen, the monetary authorities proved incapable of acting to prevent the crisis.

1.3.3 The impact of the crisis in Europe

The complexity of the crisis, the extent of its repercussions, and the diversity of
situations make it difficult to analyse in detail the multiple causes of the depres-
sion. Recent research has shown the error of liberal orthodoxy. Economic sci-
ence provided few solutions and excessive conservatism prevented the adoption
of economic policies in line with the situation.
Conjunctural factors played an important role. Bank failures resulted in cor-
porate insolvency and compromised the creditworthiness and confidence of
depositors. This, in turn, led to the hoarding of gold and banknotes, which
paralysed investment. In addition, falling prices, especially agricultural prices,
reduced the buying potential of producers and sellers. In this climate, unease,
misgivings, and pessimism took hold of the population, which curbed its appe-
tite for consumerism. Faced with low consumption and rising unemployment,
producers and sellers did not renew their inventories, did not modernise their
technology, and put the brakes on any kind of investment. This progressive
reduction generated a multiplier mechanism that paralysed investment and
increased the inflationary trend.
14 Juan Manuel Matés-Barco
In terms of structural factors, what stands out is the growing importance of
the US economy in the rest of the world, which facilitated the rapid expansion
of the depression. The stoppage of capital exports affected a number of coun-
tries, especially Germany, as well as the nations of Central and South Amer-
ica, which, seeing their financing channels interrupted, stopped buying US
products (Campa 1990; Bulmer-Thomas 2002; Marichal 2012; Matés-Barco
2017b). The process was completed when the United States reduced its pur-
chases of raw materials from these countries, causing prices to fall dramatically.
This paralysis of international trade was compounded by the changes taking
place in industry as a result of the second phase of industrialisation: traditional
sectors (textiles and coal) gave way to new ones (chemicals and capital goods)
(Figure 1.1).
Protectionist measures (tariffs and quantitative restrictions) accelerated the
decline in foreign trade. States sought to achieve a larger share of exports, but
to import as little as possible, which led to trade paralysis. These “beggar-thy-
neighbour” policies – typical of the mercantilism of the 17th century – were
once again adopted and caused serious problems for the world economy. Brit-
ain and the Commonwealth countries alleviated the harsh grip of the depres-
sion by practising the system of “imperial preference”.
Another factor that facilitated the dampening of international relations was
the collapse of the international monetary system. The abandonment of the gold

Figure 1.1 Evolution of production and foreign trade (1929–1937) (1929 = 100)

Source: Prepared by author with data from Niveau (1989, 199).
 The Great Depression of 1929 15
exchange standard affected international means of payment and monetary insti-
tutions. The weakness of monetary liquidity made it difficult to finance trade.
The crisis in the international monetary system during the First World War
caused London to lose its leading role. Between 1918 and 1930, London’s strug-
gle with New York for international financial leadership created many problems
for economic stability. To a large extent, the failure of the gold exchange stand-
ard was a result of this struggle and one of the consequences of the 1929 crisis,
but the collapse of the international monetary system became a new cause that
aggravated the depression of the following years (Bernanke and James 1991).
The interwar period was a transitional stage between the end of 19th-
century capitalism – which some extend to 1914 – and modern capitalism after
the Second World War. The demise of old structures and the establishment of
new ones took time, which was needed to smooth out the rigidities of market
mechanisms. The United States and Britain quickly resorted to devaluation and
the search for measures to jump-start their economies. France and Germany, on
the other hand, remained on the gold standard and pursued a policy of defla-
tion. In both countries, the consequences were very divergent: while in France
the failure of Laval led to the victory of the Popular Front, in Germany social
conflicts facilitated Hitler’s rise to power (Comín 2002; Wandschneider 2008).
The financial aspects of the crisis reached dramatic proportions and high-
lighted the need to create international bodies to regulate relations between
countries. Conditions for banks began to worsen in the spring of 1931. In
Austria, in May of that year, the Creditanstalt, one of the largest mixed banks
in the country, went bankrupt. The difficult business environment had forced
the bank to acquire 60% of the shares of many Austrian companies, in many
cases compelled by the government itself. The bank’s non-performing loans
amounted to 70% of total losses at the time of the bankruptcy. Moreover, 50%
of its shares were in foreign hands and 40% of its business was outside Austria.
Faced with abandonment, the government intervened very belatedly: exchange
controls were introduced in October 1931 and the state became the bank’s
preferred shareholder. The inability to stop the collapse of the Viennese bank
dragged down the Hungarian and German banks. Between May and June, the
Reichsbank lost half of its gold reserves. The United States had to provide aid
to Germany by granting a moratorium on the payment of war reparations and
debts still outstanding from 1918. Nevertheless, in July 1931 the banking crisis
exploded with the collapse of Danatbank, one of Germany’s four largest banks.
The government closed the banks and the stock exchange for a few days. The
aim was to prepare a package of measures to halt the free fall, including raising
the interest rate to 10% and injecting liquidity into the mixed banks. Danatbank
was merged with Dresdner Bank and its capital, like that of Commerz, was
largely taken over by the state. The state’s share in Deutsche Bank was one-
third. At the end of the 1930s, the banks reverted to private ownership.
The German banking shocks spread to the rest of Europe. The Bank of Eng-
land, which held modest gold reserves, was beset by demands from other insti-
tutions and provoked a government crisis that resulted in the appointment of
16 Juan Manuel Matés-Barco
new ministers. The new administration ordered spending cuts and tax increases
in order to balance the budget. Britain, prompted by various conflicts at the
time, was forced to leave the gold standard, with a series of very negative reper-
cussions for those countries that did not leave it, which were the vast majority.
The adjustment of monetary policy by the United States led to the almost
immediate bankruptcy of more than five thousand banks, 5,096 between 1929
and 1932, and was so far-reaching that it paralysed investment. Between 1929
and 1933, of the 26,000 existing American banks, some 11,000 closed their
doors. This led to a strong deflationary process. The fragmented structure of
the US banking system was one of the first causes of the chain of bank failures.
Most banks were small, operating in very limited areas. The economic condi-
tions of the region where they were located determined the success or failure
of their management.
France was the only European country to escape the financial crisis. Its large
gold reserves (about 25% of the world’s stock) allowed it to withstand the crisis
without too much stress. Its main problem was not to lose too much value as
it disposed of its sterling reserves, which were heavily devalued. However, eco-
nomic recovery took many years.
A relative exception to the crisis was the Soviet Union. The triumph of the
communist revolution of 1917 had moved its economy away from capitalist
liberalism. With an economic structure based on planning and state control,
the USSR was largely untouched by the Great Depression of 1929. At the time
of the New York stock market crash, the Soviet leadership was focused on five-
year plans that initiated a process of rapid industrialisation and collectivisation
in agriculture. Stalin’s programme focused on encouraging the concentration
of agricultural holdings in order to achieve an increase in production, which
would lead to industrial expansion and increased taxation. Force and violence,
such as purges and mass deportations, were common practice in implementing
this policy, and the difficulties of Soviet agriculture in the decades that fol-
lowed can be explained by the trauma of those years. The Stalinist dictatorship
exploited agriculture. The agricultural surplus was supposed to finance indus-
trial development, but the state’s appropriation of the harvests, in exchange
for very low pay, discouraged initiative and reduced agricultural productivity.
Implementation was uneven and incomplete. Some estimates for the first five-
year plans (1928–1932 and 1933–1937) indicate that 70% of the objectives
were achieved. Despite the mistakes and shortcomings of centralised planning,
by the eve of the Second World War, the Soviet Union had become a major
economic power (Matés-Barco 2017a).

1.3.4 The impact of the crisis in Spain and Latin America

The economic crisis affected Spain with a certain delay and relative modera-
tion, but with a greater intensity and extent than traditional historiography has
maintained (Comín 2011a, 75). The 1930s were characterised by declining
production, rising unemployment, and falling prices. Agriculture was affected
 The Great Depression of 1929 17
not only by falling prices, but essentially by falling exports. There was also a
significant contraction in foreign investment and the return of a large number
of emigrants. The protectionism prevailing at the time did not insulate the
Spanish economy from the negative repercussions of the crisis on an interna-
tional scale. Spain, even without joining the gold standard, acted in practice as
if it belonged to it, as the peseta had adopted the French franc as a reference and
appreciated against those currencies that left the gold standard (Comín 2010).
The Spanish crisis at that stage was based on economic backwardness, which
was manifested in the primacy of agriculture and the lack of integration of
the sectors. The change of regime brought about by the proclamation of the
Republic was not the trigger for the problems, but it is true that internal politi-
cal factors had a “clear relevance and aggravated the economic crisis” (Comín
2011a, 76).
Labour policies resulted in the growth in wages during the socialist repub-
lican biennium, but in the following years they remained stable, especially in
agriculture. On the other hand, political instability, already detectable since
1928 with the weakening of the Primo de Rivera dictatorship, undermined
business expectations and reduced private investment.
In short, it is clear that the Spanish crisis was more superficial and shorter
than the international crisis due to the rudimentary nature of the companies,
their low level of financing, the predominance of the agricultural sector, and
the relative isolation of the Spanish economy (Martín-Aceña 2004, 360–361).
On the other hand, traditional historiography has pointed to 1929 as the
turning point in Latin America’s economy. That year marked the shift from
export-led economic growth to inward-looking development based on import
substitution industrialisation. Structuralist economics has viewed this change in
a positive light, while more traditional economics has considered it a lost dec-
ade. In any case, the transformation is evident. These years saw the emergence
of novel economic, social, and political forces that brought about significant
changes in the Latin American economy. Although export-led growth became
more complicated in these years, the trend towards producing commodities
was maintained and foreign trade continued to play a significant role. The total
rejection of this export model took place after 1940, although it continued to
survive in some small countries.
The onset of the 1929 depression is linked to the crash of the New York
Stock Exchange in October of that year, but some signs arrived somewhat ear-
lier in Latin America. One such sign was the rise in prices despite low demand.
For example, the price of Argentine wheat peaked in May 1927, Cuban sugar
in March 1928, and Brazilian coffee in March 1929. The boom in stock mar-
kets led to an excess demand for credit and a rise in global interest rates. This
led to a rise in the cost of holding inventories and reduced the demand for pri-
mary goods exported from Latin America. In turn, there was a flight of capital
seeking higher interest rates outside the region, coinciding with a decline in
foreign investors, who also sought more attractive rates of return in New York,
London, or Paris.
18 Juan Manuel Matés-Barco
The collapse of the New York Stock Exchange triggered a chain of dis-
ruptions in the main markets supplied by Latin America. First, there was a
decline in consumer demand due to the fall in the value of financial assets.
The second problem was the credit crunch due to the non-payment of over-
due debts and the resulting monetary contraction. Finally, importers were
not replenishing stocks of raw materials due to falling demand and the lack
of credit.
Prices of export commodities fell by more than 50%. An analogous situ-
ation occurred with imports, although the price level did not fall as rapidly.
The decline in export volumes and the prices of exported products resulted
in a rather dire situation for Latin American economies. However, there were
some exceptions, such as Venezuela, which was protected by oil; and Hondu-
ras, which held out because of the banana companies that chose this country
to establish their low-cost plantations. In other countries, the consequences
of the depression were extremely hard because of the effects it had on mining
producers in Mexico, food industries in Argentina, and tropical products in the
central zone.
External debt – public and private – remained at a nominal interest rate and
its repayment created serious problems for many governments. This scenario
was compounded by a sharp decline in export revenues, which led to a drastic
restriction on imports. Tax revenues from import tariffs fell sharply and gener-
ated a measure of collapse. The figures for Brazil are significant, as in 1928 it
collected 42.3% of total tax revenue from import duties. Two years later, the
same revenue had fallen by a third and tax revenue by a quarter. Chile suffered
a similar situation because of its heavy dependence on export taxes.
Debt repayment also affected the balance of payments. Public spending was
severely affected, to the extent that Honduran civil servants were paid in post-
age stamps. Most Latin American republics experienced changes of govern-
ment during the depression years and, to a large extent, political parties or
leaders who had been out of power during the Wall Street crisis were favoured.
There were exceptions, however, such as Venezuela, where the autocratic gov-
ernment of Juan Vicente Gómez remained in power until 1935, or Mexico,
exhausted by civil war and revolutionary turmoil, which was abandoned to
the Nationalist Revolutionary Party. In the absence of credit, governments
could not resist and even Argentina, with a degree of solvency on the interna-
tional markets, was unable to obtain new loans. The impact of the depression,
although very uneven, particularly affected Chile and Cuba. In the Chilean
republic, between 1929 and 1932, GDP fell by 35.7%, while in Cuba per capita
national income fell by a third in the same years.
Some countries withstood the onslaught of the crisis and mitigated its
effects. Venezuela benefited from oil production with the lowest unit costs
in the Americas. Peru, with exports dominated by foreign companies, man-
aged to slightly mitigate the harsh adjustments. And the Dominican Republic,
dependent on sugar exports, took advantage of not having signed the restrictive
post-1929 sugar agreements.
Another random document with
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 “For forms of government let fools contest;
Whate’er is best administer’d, is best.”[369]
Pope’s Essay on Man.

Dr. Rittenhouse was, undoubtedly, among those who entertained

the most sanguine expectations, that the political institutions in the
United States, formed as they are according to the republican model,
would tend to meliorate the condition of the people, and “promote the
general welfare.” He may at some time have even “believed political,
as well as moral evil, to be intruders into the society of men.”[370] But
some passages in his Oration plainly shew, that, as has been
already observed, he had no faith in the perfectibility of human
reason,[371] in this life. He was also too sound a philosopher not to
know, that if, by the best rules of philosophical ratiocination, many
well known phænomena in the natural world could not be reached,
with respect to their nature and causes, in such manner as to render
these susceptible of demonstrative proof,—nothing like certainty in
the result, much less perfection, could be calculated on, in putting
the theories of a science, such as government, to the test of
experiment.

If it be asked: ‘Where are the Works of Rittenhouse?’ a ready and

satisfactory answer to the question is at hand. Although he published
no ponderous volumes, he has left behind him great and honourable
memorials of his genius, his science and his skill; such as will long
remain, as Monuments of the extraordinary extent of his practical
usefulness in his day, and of his well-earned fame. “He has not
indeed made a world,” as Mr. Jefferson, in speaking of his Orrery,
emphatically expresses himself; “but he has, by imitation,
approached nearer its Maker, than any man who has lived from the
creation to this day.”[372] As long, too, as the geographical boundaries
of Pennsylvania, connected in part with those of the neighbouring
states, shall continue to define the respective jurisdictions of their
local sovereignties and rights, considered as members of a great
confederated nation; so long will they serve to distinguish the name
of Rittenhouse.[373] Nay, some of the rivers and canals, even some
principal roads, in the country of his nativity, bear testimony to his
talents, his public spirit and his industry. His inventions and
improvements, in various specimens of mechanism, conceived and
executed by himself, fully manifest, that, “as an artist, he has
exhibited as great a proof of mechanical genius as the world has
ever produced.”[374] And, as a man of extensive and profound
science, his various philosophical papers, but more especially those
relating to his astronomical observations, justify Mr. Jefferson’s
remark, that he was “second to no Astronomer living,”—that he was,
“in genius the first, because self-taught.”[375]

Such, then, were the “Works” of this truly great man. And it
appears that they were, in general, not only arduous in their
execution, and highly beneficial in their uses and effects; but that
they were likewise the productions of a lofty, penetrating and active
genius, great knowledge and skill, and the most indefatigable
perseverance.[376]

But though Dr. Rittenhouse published no great systematic literary

work, he communicated to others by his conversation, and by such
of his writings as have been given to the world, much valuable
philosophical information. He instructed, liberally, such persons as
were desirous of acquiring knowledge from a social intercourse with
him. The elevated station his character maintained, both for wisdom
and integrity, exhibited him to his cotemporaries as an example
worthy of being imitated:[377] and thus, in reality, his high reputation
operated as a powerful incitement upon many of his countrymen, to
pursue similar objects of science, inspiring them with a taste to
cultivate the true philosophy.

The reputation of this distinguished man, as a mathematician and

astronomer, was pre-eminently great, in every civilized part of the
western world. Perhaps no man’s philosophical talents were ever
held in higher estimation, nor more deservedly so, by those qualified
to form a proper judgment of them, wherever his name was known;
not excepting those of Newton himself. His celebrity was far from
being confined within the limits of his native country: his Orrery, with
the proceedings and results of the Observation of that phænomenon
which so greatly interested the principal astronomers of both
hemispheres, the Transit of Venus in 1769, had rendered him justly
celebrated in Europe as well as America, as a philosopher of the
highest grade, at the age of thirty-seven years.

The peculiar circumstances of his Life, which have been amply

detailed in these Memoirs, were of such a nature as to preclude him,
in a great measure, from opportunities of carrying on a
correspondence with men of science and letters, abroad: the
extremely delicate, and oftentimes infirm state of his general health,
in addition to his numerous avocations, his long continued, various,
and important employments in the public service, left him little leisure
for literary pursuits of any kind. Indeed, nothing less than the
wonderful energy of his mind, and his extraordinary industry, could
have enabled him to write as much as he has done.[378]

Dr. Rittenhouse never attempted to amuse the world with any

hypothetical system of philosophy, or with opinions, merely
speculative, on any subject. The great objects of his pursuits,
through life, were Certainty and Truth: hence, he never advanced an
opinion, concerning any thing whatever, which he did not consider as
being either susceptible of verification by experiment and the
evidence of our senses, or, where the nature of the subject did not
admit of such proof, capable of being tested by the soundest
principles of human reason. Yet, though this profound investigator of
nature viewed “sober certainty” as the great desideratum in
philosophy, he was by no means a dogmatist; even with respect to
that portion of natural science which is capable of demonstration.
Notwithstanding the opinion he entertained of the vast extent to
which the faculties of the mind may be enlarged by a proper
improvement of them, he was fully aware that its powers are limited.
Like his great predecessor, Maclaurin, “the farther he advanced in
the knowledge of geometry and of nature, the greater his aversion
grew to perfect systems, hypotheses, and dogmatizing: without
peevishly despising the attainments we can arrive at, or the uses to
which they serve, he saw there lay infinitely more beyond our reach.”
Like him, also, he considered “our highest discoveries as being but a
dawn of knowledge, suited to our circumstances and wants in this
life; which, however, we ought thankfully to acquiesce in, for the
present, in hopes that it will be improved in a happier and more
perfect state.”[379] Rittenhouse never supposed, that, (to use the
words of Maclaurin’s biographer[380]), “because demonstrative
evidence is the most perfect, it should be—as, by some, it has been
—taken for granted, there is no other.” On the contrary, our
philosopher believed that there are many truths, natural as well as
moral, which are beyond the reach of demonstration; consequently,
not to be rejected, solely by reason of their insusceptibility of this
kind of proof. Hence, in his Oration he says, “Our Religion teaches
us what Philosophy could not have taught; and we ought to admire,
with reverence, the great things it has pleased Divine Providence to
perform, beyond the ordinary course of nature, for man, who is
undoubtedly the most noble inhabitant of this globe. But,” continues
this truly good man, “neither Religion nor Philosophy forbid us to
believe, that infinite Wisdom and Power, prompted by infinite
Goodness, may, throughout the vast extent of creation and duration,
have frequently interposed in a manner quite incomprehensible to
us, when it became necessary to the happiness of created beings of
some other rank or degree.”

Such were the pious reflections of a Christian Philosopher; the

sublime sentiments of an eminently distinguished Astronomer.

Should it be enquired: What was the system of Philosophy, to

which Dr. Rittenhouse adhered? though such a question can
scarcely be anticipated, after what has been already said; the
answer may be furnished in a few words: He was a thorough and
zealous disciple of the Newtonian school. He early embraced, and
perseveringly cultivated, “the Philosophy of Newton;” which “disdains
to make use of subterfuges,” which “is not reduced to the necessity
of using them, because it pretends not to be of nature’s privy
council;” while “other systems of philosophy have ever found it
necessary to conceal their weakness and inconsistency, under the
veil of unintelligible terms and phrases, to which no two mortals
perhaps ever affixed the same meaning.”[381]
 With Newton, too, our Philosopher entertained the most exalted
conceptions of the Deity. He did not imagine, as his illustrious
predecessor was unjustly charged with having done, that infinite
space is an attribute of the Deity; that He is present in all parts of
space, by diffusion;[382] but, like that great man, he did believe, that
the Deity endures from eternity to eternity, and is present from infinity
to infinity; yet that He is not eternity or infinity, space or duration. For,
says Dr. Rittenhouse, “Nothing can better demonstrate the
immediate presence of the Deity in every part of space, whether
vacant or occupied by matter, than Astronomy does. It was from an
Astronomer St. Paul quoted that exalted expression, so often since
repeated, ‘In God we live, and move, and have our being.’”[383]

The terms of profound veneration, in which our Philosopher spoke,

on all occasions, of the character of Newton, demonstrate most
clearly his complete and undeviating attachment to the Principles of
that astonishing man.[384] Indeed, he appears to have taken him as
his model; and, certainly, he resembled him much, in many points of
character. Parallels have often been drawn between distinguished
men; and in comparatively a few instances, a strong resemblance
has been discovered, in some prominent features of character,
between two or more persons. Yet the infinite variety of talent, that
appears throughout the human race; the almost incredible difference
in the grades of intellectual endowment, distinguishing the sons of
men from each other; and the adventitious circumstances peculiar to
each individual, which either direct or controul his conduct, and seem
to mark his destiny in life; all these, taken together, produce such an
endless diversity of character in the species, as to render it
impracticable, if not absolutely impossible, to find any two men who
greatly resemble each other in many particulars.

There are, nevertheless, so many circumstances founded on

natural causes, that indicate an extraordinary similitude in the
genius, disposition and principles of Rittenhouse, and his great
Prototype; so many, moreover, of a singular nature, connected with
events purely adventitious, wherein the condition, occupations and
pursuits of these philosophers, with other eventual relations
depending wholly on accident, resembled each other; that an
interesting parallel, between them, might be attempted with no
inconsiderable share of success.

In the course of these Memoirs, the Biographer of Rittenhouse

has endeavoured to furnish a faithful representation of the
Philosopher and of the Man. He was desirous of delineating his true
character, in both points of view; that the world may be enabled to
make a just estimate of the genius, the principles, and the conduct of
a person, so celebrated in name. But, in order that the more correct
judgment might be formed of his virtues and talents, and of the
services he has rendered to society, it became necessary to
describe the sphere in which he moved; so far, at least, as to present
to view occasional sketches of the complexion of the Times in which
he lived, and of some of the more prominent Characters who were
his compatriots. The Memorialist has therefore conveyed to the mind
of his reader some idea of the moral, political, and literary state of
society, more particularly in the country of our Philosopher’s
residence, within the same period. This rendered it proper to notice
the rise, nature, and progress of certain Institutions, upon which
science and the arts, with many of the benefits of civil polity, greatly
depend; such as tend to diffuse useful knowledge throughout the
community, to promote the general weal, and to meliorate the
condition of the great family of mankind.

It has been already observed, that every individual in society is

more or less closely connected with it, in various ways: and it is
obvious, that an eminent citizen, one, especially, standing in
relations of a public nature in the community of which he is a
member, usually has his history and character so interwoven with
those of his own times, that it is difficult to understand the former
thoroughly, without possessing a competent knowledge of the latter.
The Life of such a man as Rittenhouse could not, therefore, in
many respects, be either well comprehended or duly estimated,
unless there had been connected with it some account of men and
things, to which his private pursuits and public employments were,
directly or indirectly, related.
 In whatever light, then, a retrospective view of Dr. Rittenhouse’s
character may be taken, it will be found to present a model worthy of
imitation. The mild and amiable virtues of domestic life, and similar
dispositions in the intercourses of private society, decorated his
whole deportment, as a man and as a citizen; the more stern
qualities of the patriot equally distinguished him as the friend of his
native country, in all his public relations; while the principles of
genuine philanthrophy impressed his heart with feelings of the most
extended benevolence. In all these respects, nevertheless, some
have equalled, though few, if any, have surpassed him. But when,
united to virtues and dispositions, such as these, the powerful
genius, the extensive philosophical talents and attainments, the self-
acquired and extraordinary mechanical skill of Dr. Rittenhouse,
shall also have been considered; it will be acknowledged, that the
Memoirs of his Life, commemorate a Man truly great. They recal to
his surviving countrymen, and to their posterity, a remembrance of
his excellence and usefulness; presenting to them such a specimen
of worth and abilities, as is highly deserving of being emulated. At
the same time, they exhibit to the world a faithful portrait of a Man,
whose character had early acquired the well-earned respect of the
wise and good in other nations. During his life, the name of
Rittenhouse received due homage from some of the most
illustrious Philosophers of Europe. In his own country, that name
cannot cease to be venerated, so long as genius, science, and
virtue, shall be held in the high estimation to which they are entitled.

It has been observed by a noble author[385] of the present day, “that

the decline of public spirit in matters of Taste, is a certain indication
of political decay.” To whatever degree the justness of this
observation may extend, it will apply still more forcibly to any country,
wherein a disregard, consequently a declension of learning, science
and moral virtue, is perceived. Rittenhouse lived in an eventful age.
During a long period of his life, he witnessed a comparative simplicity
of manners and much integrity of character, among his countrymen.
He beheld a progressive course of useful knowledge, and an
advance in those arts and refinements of polished society, which
minister as well to the rational enjoyments as to the conveniences of
human life; and these he saw accompanied by almost every species
of public improvements, promoted by the liberal spirit of the people
and fostered by the benign genius of the government. Our
Philosopher himself, one-and-twenty years before his death, in
speaking of the rapid progress his countrymen had then made in
almost every species of social refinements, made this remark: “We
have made most surprising, I had almost said unnatural, advances
towards the meridian of glory.”[386] But this good man dreaded even
at that time, what he always most earnestly deprecated, that Luxury
would, ere long, follow in the train of an highly cultivated state of
manners and too sumptuous a style of living: for, he considered an
excess of such refinements as leading to that depravity of morals
which often accompanies “Luxury,” and, as he has expressed it, “her
constant follower, Tyranny.”

The gloomy anticipations, which he sometimes entertained, of a

future depression of the interests of learning in his native country,
from such causes, he lived not to see realized. There is, indeed,
ground on which a reasonable hope may be founded, that,
notwithstanding the operation of some inauspicious circumstances,
in these times, occasioned by the present distracted state of the
political world, literature, science and the arts, will yet be
successfully cultivated in the United States of America. Dr.
Rittenhouse had the good fortune to live in an age when virtue and
talents were honoured; when abilities to serve the country, and an
honest attachment to its best interests, were the surest passports to
the public confidence and esteem. In the latter years of his life, it was
a source of great gratification to him to know that his country was
prosperous; it being then in the full enjoyment of all the arts of
peace, and other blessings of a well-ordered society. He was greatly
respected and esteemed by his illustrious compatriot, Washington;
whose magnanimity taught him to spurn with disdain all petty
considerations, arising from such mere difference of opinion in the
speculations of politics, as could neither undermine the principles of
a Patriot, nor affect the fidelity of an honest Man. Very many
distinguished men, besides, were his contemporaries; and by
persons of this description, almost universally, as well as by all his
countrymen of every class, to whom his person or character was
known, he was held in the highest estimation: indeed, few men ever
enjoyed a larger share of the public regard.

Some years after the decease of Dr. Rittenhouse, it was judged

expedient to transfer his perishable remains from their first place of
sepulture, to another: they were accordingly removed; and interred in
the cemetery adjoining the Presbyterian church in Pine-street,
Philadelphia, near the body of his son-in-law, Mr. Sergeant. The
grave of the celebrated American Astronomer is enclosed, under a
plain slab of marble, thus inscribed:

IN MEMORY OF

DAVID RITTENHOUSE,
BORN APRIL 8th, 1732,

DIED JUNE 26th; 1796;

AND

HANNAH RITTENHOUSE,

HIS WIFE,

Who died October 15th,

1799,

Aged 64 years.

But, although no costly tomb contains the ashes of this eminently-

distinguished Man; although no sculptured cenotaph, in any part of
his country, blazons his genius or records his fame; and
notwithstanding the chisel of the statuary has never been employed
in obedience to the public voice, to produce a permanent
resemblance of his countenance and figure; yet a monument of more
durable nature than any of these, consecrates his virtues, his talents,
and his usefulness. A grateful remembrance of his modest worth is
enshrined in the hearts of the wise and the good of his own age and
country; and the name of David Rittenhouse will be every where
perpetuated with veneration and renown, among the sons of science
and the benefactors of mankind.

302. Rush’s Eulog. on Ritt.

303. “Astronomy, like the Christian religion, if you will allow me the
comparison,” said our philosopher, “has a much greater influence on
our knowledge in general, and perhaps on our manners too, than is
commonly imagined. Though but few men are its particular votaries,
yet the Light it affords is universally diffused among us; and it is
difficult for us to divest ourselves of its influence so far, as to frame
any competent idea of what would be our situation without it.” See
Ritt. Orat.

In another part of his Oration is this passage—“Our Religion

teaches us what Philosophy could not have taught: and we ought to
admire, with reverence, the great things it has pleased Divine
Providence to perform, beyond the ordinary course of nature, for
man, who is, undoubtedly, the most noble inhabitant of this globe,”
&c.

And in addition to these sentiments, uttered and published by our

philosopher himself, let the testimony of Dr. Rush, who had long and
intimately known him, be quoted, from the learned professor’s
Eulogium: “He believed in the Christian Revelation,” says the Doctor;
and then subjoins—“Of this he gave many proofs; not only in the
conformity of his life to the precepts of the Gospel, but in his letters
and conversation.”

304. Equivalent to 36,066⅔ American or Spanish dollars.

305. The elder of these ladies became, in the year 1788, the
second wife of Jonathan Dickinson Sergeant, Esq. late an eminent
lawyer in Philadelphia, and sometime attorney-general of
Pennsylvania. This gentleman was one of the five persons
delegated, on the 20th of February, 1776, by the convention of New-
Jersey (where he then resided,) to represent that colony in congress:
his colleagues were, the late governor Livingston, and John de Hart,
Richard Smith, and John Cooper, Esquires. Mr. Sergeant died of the
yellow fever in Philadelphia, on the 8th of October, 1793; after having
been many weeks actively and benevolently employed, with a few
other gentlemen of humanity, in the prosecution of such measures,
as the sufferings of those of the citizens who had not fled, and the
general welfare of the city required, at that calamitous period. He left
issue a son and two daughters, by this marriage, besides several
children by his first wife.

The other daughter of Dr. Rittenhouse was married in the year

1790, to Nicholas Baker Waters, M. D. of Philadelphia, a young
physician of respectable talents and amiable disposition. Dr. Waters
died of a pulmonary disease, in August, 1794, at a very early age,
leaving one son, an only child.

Dr. Rittenhouse named his second daughter, Esther, in

compliment to his sister Barton. In a letter to the Rev. Mr. Barton,
written on the occasion of the birth of this younger child, he says
—“To me, it is a matter of indifference, but to my Eleanor it was a
great disappointment, to have a girl, having promised herself a boy;
and it had long since been resolved that this child, if a son, should be
called Thomas, after yourself.” The eldest daughter was named
Elizabeth, after his own mother.

306. Dr. Rush has very beautifully expressed the same sentiment,
in a passage of his Eulogium on our philosopher. After remarking,
that his bodily infirmities “contributed much to the perfection of his
virtue, by producing habitual patience and resignation to the will of
heaven, and a constant eye to the hour of his dissolution,” he says:
“It was a window through which he often looked with pleasure
towards a place of existence, where, from the increase and
perfection of his intuitive faculties, he would probably acquire more
knowledge in an hour, than he had acquired in his whole life, by the
slow operations of reason; and where, from the greater magnitude
and extent of the objects of his contemplation, his native globe would
appear like his cradle, and all the events of time, like the
amusements of his infant years.” Such, too, must have been the
ideas, impressed on the mind of Rittenhouse himself, when, in the
morning of his life, he imagined the angel Gabriel looking down from
the seat of perfect knowledge, and viewing, benignly, far from
beholding with a smile of contempt, the efforts of Newton, to
demonstrate the actual motion of our earth. W. B.

307. See Eulog. on Ritt.

308. About twenty-six years and an half.—Dr. Franklin was

President from the institution of the society, in Jan. 1769, until his
death, on the 17th of April, 1790; and Dr. Rittenhouse, who
succeeded him in Jan. 1791, continued in the office until he died, the
26th of June, 1796. W. B.

309. See Mr. Malone’s Account of the Life and Writings of Sir
Joshua Reynolds, prefixed to the works of Sir Joshua.

310. See Rush’s Eulog. on Ritt.

311. “His manners were civil and engaging, to such a degree, that
he seldom passed an hour, even in a public house in travelling
through our country, without being followed by the good wishes of all
who attended upon him.” Rush’s Eulogium on Ritt.

312. Dr. Rittenhouse’s brother Benjamin, in a written

communication made to the writer of these memoirs in the year
1796, observes, that the Doctor, “when in health, was cheerful; and
his passions, unless they were excited by the abuses and knavery of
men, either in public or private life, were moderate: but where he
conceived that the interest or liberties of his country were
endangered, he would, on those occasions, express himself with
great warmth and asperity.”
 313. See his Oration.

314. It was publicly declared by the same acrimonious writer who

charged Dr. Rittenhouse with being an atheist, (namely, Mr. William
Cobbett,) and with an equal disregard of truth, as has been already
shewn, that the Doctor signed “the inflammatory Resolutions” of the
Democratic Society against the Excise-law, which, as he alleged,
produced the Western Insurrection in Pennsylvania, in the year
1794. Dr. Rittenhouse, it is well known, did not even attend the
meetings of that society. This is admitted by Mr. Cobbett himself, in
the following invidious paragraph, extracted from a pamphlet written
and published by the late William L. Smith, Esq. of South-Carolina,
and republished by Cobbett in his own works: it is in these words
—“Rittenhouse was a great philosopher; but the only proof we have
had of his political talents, was, his suffering himself to be wheedled
into the presidency of the democratic society of Philadelphia; a
society with which he was even ashamed to associate, though
cajoled and flattered into the loan of his name.”

315. The memorialist cannot deprive himself of the gratification of

introducing, on the present occasion, a little anecdote communicated
to him by his friend, Francis Johnston, Esq. characteristic of our
philosopher’s amiable simplicity and benevolent disposition.
Circumstances as unimportant in themselves, as the one here
related, sometimes make us acquainted with the true character of
individuals.

Colonel Johnston, who was bred a scholar, and held with

reputation the rank of a colonel in the American service in the war of
the revolution, was, at an early period of his life, a zealous admirer of
the character of Rittenhouse. But long afterwards, and while the
Doctor officiated as state-treasurer, that gentleman held the next
great office in the financial department of the state. The connexion of
those offices occasioned almost daily visits from the colonel to the
state-treasury, and intercourse with the treasurer himself; and this
produced a reciprocal friendship between the two gentlemen. “For a
time,” says Col. Johnston, “Dr. Rittenhouse managed the business of
his office with the utmost attention and assiduity: but his all-
capacious mind could no longer be restrained from its native
pursuits; his money and his counter, therefore, he resigned into the
hands of his beloved wife, who, although possessed of all the
feminine virtues, performed the arduous duties of the office with a
masculine understanding, with accuracy and unwearied attention.”

“My intimacy with Dr. Rittenhouse,” continues the colonel,

“introduced between us a concern in some property, in the western
part of the city, which often induced us to walk out together, to visit it.
That part of the property which laid on the main street, belonged to
me; and being more exposed to the depredations of the disorderly
people who then inhabited that neighbourhood, was consequently
often injured in the fences or board-inclosures. More than once, I
have seen this philosopher, who never thought it any degradation of
philosophy, to bow at the shrine of friendship, marching along my
line of fence, and most industriously, and in a most masterly manner,
with his own hammer and nails, mending or repairing the same.”

“This anecdote I mention thus particularly,” adds the worthy

colonel, “with a view of shewing, that in addition to Dr. Rittenhouse’s
other virtues, humanity and friendship were leading traits in his
excellent character.”

316. In expressing his admiration of “that dispositions of lands and

seas, which affords a communication between distant regions, and a
mutual exchange of benefits,” Dr. Rittenhouse unquestionably had in
view a commercial, as well as social, intercourse between the
inhabitants of different climes: he was too enlightened a man, not to
have been aware of its “benefits.” “A civilized nation, without
commerce,” (as the writer of these memoirs had occasion to observe
in a former publication,[316a]) “is a solecism in politics. It is in the
rudest state of mankind, only, that a people can exist, without any
communication with other societies or commercial intercourse
among themselves, every one supporting himself by his own labour.
Indeed, so absolute a state of nature can only be conceived; but has
scarcely existed in reality. The wants, the fears, the weakness, nay
the very nature of man, constitute him a social animal: and, in the
very origin of society, their mutual necessities, with the various
talents, means, and opportunities of individuals for supporting them,
must have produced a reciprocity of services, and an occasional
interchange with one another of that property, which each had
acquired by his own exertions.”
316a. The true interest of the United States, and particularly of Pennsylvania,
considered: published in 1786.

317. See his Oration.

318. In the year 1756, he made an eight-day clock, for his brother-
in-law, Mr. Barton; over the dial-plate of which, was engraven this
mementory motto—Tempus fugit; and underneath, this blunt but too
often necessary precept—Go about your business.

On one description of the continental bills of credit, issued by

congress during the American war, were represented a sundial and a
meridian sun over it: above, the word “Fugio;” and beneath, these
words—“Mind your Business.” And on the reverse of a copper one
cent piece, struck in the year 1787, in pursuance of a resolve of
congress of the 6th of July in that year, are impressed the same
device and mottoes as those last mentioned; corresponding with
those adopted by our Philosopher, when only twenty-four years of
age: a circumstance that shews, how early in life he had formed a
just estimate of the value of time.

It may not be improper here to observe, that the various devices

affixed to the continental money, as it was called, were much
admired for their appropriate significancy; and that they were
generally supposed to be the production of the late ingenious Judge
Hopkinson, an intimate friend of Mr. Rittenhouse.

319. See Eulog. on Ritt.

320. An eulogy of this great astronomer, celebrated for his

discovery of the aberration and nutation, will be found in the History
of the French Academy, for the year 1762. He was born in 1692; and
died at Greenwich, in 1762, at the age of seventy years.

321. See the Memorial of the Society to the General Assembly,

dated the 6th of March, 1775; introduced in the foregoing pages.

322. Observatories are indispensably necessary to the cultivation

of astronomical science. There are many celebrated institutions of
this kind, in various parts of Europe; and of these, the British isles
may justly boast of possessing a large proportion in number,
admirably fitted up with all the necessary apparatus. Some account
of these will be found in other parts of this work.

Besides the liberal and honourable provision made for eminent

astronomers in Great-Britain, many of the most distinguished men of
the same class, on the continent of Europe, have experienced the
bounty of their respective princes and states. Such, among others,
were the celebrated C. Mayer, Astronomer to the Elector Palatine
and duke of Bavaria, at Manheim; Zach, Astronomer to the Duke of
Saxe-Gotha, at Gotha; and Lalande, Professor of Astronomy and
Inspector of the College of France, at Paris. These great
philosophers have had splendid astronomical establishments
provided for them, by their sovereigns; as is more particularly noticed
in other parts of these memoirs. And the extensive work of Mr. de
Zach, entitled, Tabulæ Motuum Solis novæ et correctæ, &c. (a large
quarto volume in the Latin language,) was printed under the
patronage and at the expense of the Duke of Saxe-Gotha, in the
year 1792, and distributed gratis among many of the learned of the
old and new world; an example of munificence worthy of imitation by
all sovereign princes and states, who know how to estimate, as they
deserve, such importantly useful productions of men eminent in
science.

The time, in which the transcendent talents of such philosophers

as have been here named, was employed, together with the
products of their labours, were rightfully, under such patronage, the
property of the public; while the time of our astronomer was with
equal justice his own, and consequently the fruits of his time, genius,
and labour, were, at least primarily, due to himself and his family.

323. The famous English Observatory near Greenwich Hospital,

and in the immediate vicinity of the town of Greenwich in Kent,
(erected, on a commanding eminence one hundred and sixty feet
above the level of the river Thames, in the year 1676, by order of
King Charles II.) is still called Flamstead-House; Mr. Flamstead
having been the first person appointed Regius Professor there.

324. It is said of the celebrated Roger Cotes, by his friend and

patron, the learned Dr. Richard Bentley, in his inscription upon the
tomb of that great philosopher, at Cambridge, that—

“Pauca quidem Ingenii sui pignora reliquit,

Sed egregia, sed admiranda:”

In like manner, though the writings of Dr. Rittenhouse are neither

numerous nor extensive, some of his works are, nevertheless, so
excellent and admirable in their nature, they exhibit such proofs of
transcendent genius, that they will immortalize his name. And, as
Cotes was prematurely taken away by death, or, as expressed in his
epitaph,

“Immaturâ Morte præreptus;”—

so, the actual term of Rittenhouse’s life may be considered as having

been much shortened by sickness. Franklin, who lived twenty years
longer than our astronomer, published little in philosophy; yet this
circumstance does not derogate from his claims to the character of a
philosopher.

325. A second edition of the first volume was published in the year
1789, in consequence of the extraordinary demand for that book, by
reason of the very important papers respecting the Transit of Venus,
contained in it.
 326. Some further remarks respecting this comet, than those
contained in Dr. Rittenhouse’s communication, here referred to, will
be found in an extract which has already been given, of his letter to
the Rev. Mr. Barton, under the date of July 30, 1770.

327. Mr. Francis de Zach (Astronomer to the duke of Saxe-Gotha,)

in the explanation and use of his table, No. 38, entitled, “Correctio
horæ meridianæ prodeuntis ex altitudinibus correspondentibus
Solis,” says—“Tradit Clarissimus Dav. Rittenhouse, in
Transactionibus Americanis (vol. 1. p. 155. edit. 2.), Methodum
novum correctionis horæ meridianæ, absque tabulis, ex solâ
observatione deducendæ; sed requiruntur, ad hoc, duorum dierum
subsequentium altitudines quatuor æquales: id est, sub eadem
altitudine manè et vesperi factæ, ad assequendam ex his,
correctiones meridiei, Regulæ Clariss. Authoris sunt sequentes:” Mr.
de Zach then lays down Dr. Rittenhouse’s Rules, which will be found
in the Transactions of the American Philosophical Society, already
referred to; and adds—“Exempla hoc perspicuum reddent:” he next
states two examples, from which he deduces proofs of the accuracy
of Dr. Rittenhouse’s method. See “Tabulæ Motuum Solis, novæ et
correctæ, ex Theoriâ Gravitatis et Observationibus recentissimis
erutæ, &c. auctore Francisco de Zach:” printed at Gotha, in 1792.

328. This Comet was observed by John Lukens, Esq. of

Philadelphia, on the 20th of January, 1784. This respectable
practical astronomer communicated his discovery of it to Dr.
Rittenhouse the next day, on the evening of which, (“assisted by Mr.
Lukens and Mr. Prior,”) he ascertained the then apparent place of
this comet. Dr. Rittenhouse’s communication to the society, on this
subject, gives also the apparent place of the comet on the 17th of
February, being the last time the weather permitted him to see it: the
result of his intermediate observations is also stated.

329. These observations were made in Philadelphia, by Dr.

Rittenhouse, at sundry times in the years 1784, 1785, and 1786, on
the new planet, or Georgium Sidus; and on the Transit of Mercury
over the Sun’s disk, on the 12th of November, 1782. The same
communication also states the geocentric places of the Georgium
Sidus, at several different dates between the 1st of April, 1762, and
the 14th of March, 1784, both included; as observed by Mr. James
Six, at the city of Canterbury in England.

330. This eclipse was observed by Andrew Ellicott, Esq. at the city
of Washington, as follows; viz.

6.h 39′. 1″,25 Annulus

completed
April 6. 43. 15,25 Do. broken M.
3d. Time.
7. 55. 37,75 End of Eclipse.

A letter from the celebrated French Astronomer, Lalande, to Dr.

Rittenhouse, on the same subject, has been already given.

331. In this letter, Dr. Rittenhouse merely informs Mr. Patterson, in

general terms, of the time when he first observed this comet, its then
place, and its course through several of the constellations, until the
8th of February; on the evening of which day, he saw it for the last
time. It is presumed that Dr. Rittenhouse’s state of health, at that
period, would not admit of his making more definite observations on
this comet.

332. This desideratum in astronomical science had long engaged

Dr. Rittenhouse’s attention; and it is confidently said by one of his
intimate friends, that, in the latter part of his life, he had actually
written much on the subject of Pendulums; intended, probably, for
publication. But, unfortunately, the manuscript-book, which contained
what he had thus written, can not now be found.

In the paper mentioned in the text, he remarks, that “the invention

and construction of time-keepers may be reckoned among the most
successful exertions of human genius. Pendulum-clocks especially,”
says he, “have been made to measure time with astonishing
accuracy; and, if there are still some causes of inequality in their
motions, the united efforts of mechanism, philosophy and
mathematics, will probably, in time, remove them.”

Indeed no man has done more, none perhaps so much, towards

removing the imperfections in chronometers, to which he alludes, as
this great mechanician himself. His admirable time-piece, now in the
possession of the Philosophical Society at Philadelphia, constructed
by him, on an improved plan of his own, affords ample proof of the
“astonishing accuracy” (as he expresses it) to which the pendulum-
chronometer may be brought. A description of the mechanism of this
extremely accurate time-piece, as well as of the principles on which
its superior correctness depends, is inserted in the Appendix.

333. The appropriate location of “The American Philosophical

Society” is the city of “Philadelphia,” where their meetings must be
held in conformity to their charter. Monticello, Mr. Jefferson’s
residence in Virginia, is situated at the distance of about two hundred
and seventy miles from the capital of Pennsylvania.

334. It is difficult for a sound and contemplative mind to form any

conception of the character of a philosopher, according to the true
meaning of the term, more especially of an astronomer, of a man
observant of the works of nature and acquainted with her laws; and
yet wanting in a due sense of religion. And hence Dr. Young has
declared, that—

“An undevout Philosopher is mad.”

Instances, however, of this kind of mania, are known to have existed;

produced by that presumptuous pride, which is too often engendered
by a sophistication of true philosophy with the wild fantasies of some
modern metaphysical sects, affecting extraordinary illumination. By
thus engrafting a bad scion upon a good stock, pernicious fruit is
propagated: or, to drop metaphorical allusions, by attempting to
blend into one system, principles so discordant in their nature, as
those of the experimental philosopher and the visionary theorist who
deals in abstract speculations and reasonings â priori, the