Central European observers are ever more convinced that the entire post-war period with all its economic twists and turns – including eight years of miraculous prosperity in the United States, sustained business upswings in some other countries and the multifaceted technical, economic, currency and trade policy adventures of this whole dismal historical epoch – constitutes in reality just one single economic crisis, traversing the world in manifold forms, of which the upheaval of the 1929–33 crisis is the most recent and powerful. The economic crisis of the first post-war years was not truly overcome – just displaced in time and space. When a national economy had departed equilibrium, its restoration was only local, achieved by shifting the burden of deficits, deliberately or otherwise, to other economic regions and sectors. When the unavoidable day of reckoning arrived, it not only reignited old smouldering fires – the crisis acquired a depth and inexorability which made all previous imaginings pale by comparison.
To carry this argument beyond audacious generalization inferred from random connecting of events of the past fifteen years, the author is obliged not only to explain his particular approach to the essence of the crisis, and the method capable of yielding proof for the above claims, but also to link this proof to concrete phenomena.
What is the essence of the world economic crisis? Why has it so far been resistant to self-healing? How could some national economies repeatedly reach a deceptive surface equilibrium and temporarily overcome the symptoms of crisis by displacing the enormous burden of persistent and evermore frequent economic deficits in space and time? Above all, how and in what way can such an interpretation shed light on the totality of the general process within which the world economic crisis is embedded?
We may set aside the complexities of economic business-cycle theory. For all its unquestionable kinship with the familiar economic fluctuations that regularly afflict us, the crisis raging since 1929, we are convinced, derives its decisive characteristics directly from its specific present context. In our view, the conjunctural crisis of 1929 to 1933 is only the most dramatic phase in a general crisis which had its origins in the world war and the unique political and sociological configurations associated with it. These origins of the general crisis explain why the self-healing process has encountered insurmountable obstacles. The economic costs of the war were enormous in and of themselves. To express it paradoxically: the view that for economic reasons a modern war could not last for more than three months was entirely correct. That the war could last for more than this number of years was possible only at the price of pervasive social damage of a sort that can emerge in society only under the coercive pressures of overwhelming political-sociological forces. However, only tendencies which are confined within the strictly economic sphere are amenable to self-healing. The convulsive strains on the common life required to bring forth the means necessary to conduct the war, which far exceeded the economy's supply capacity, led to damage of such magnitude that the social fabric could no longer withstand the forced restoration of economic equilibrium.
The conventional view, which sees the problem exclusively in terms of the threat of social revolution, is one-sided – although this danger was unquestionably real. The political-sociological factors which made it impossible to reconstruct a post-war economic equilibrium adequate to the damage done by the war were almost as complex as the national, social, ideological and real forces which drove the war, and terminated it with a peace imposed by the victors on the vanquished.
Statistical research has only recently revealed the true costs of the war. Despite a technological revolution and the American economic miracle, industrial production at the high point of the business cycle in 1929 remained alarmingly far behind the level it would have reached if the trend of development of the last two generations before the war had continued unbroken. In the twenty years since the outbreak of the war, industrial production should approximately have doubled. Instead, it increased by not quite 60 per cent, only to fall in 1933 to levels below those of 1914. According to the dynamics that obtained consistently for many past generations, industrial production in the middle of 1933 thus should have been twice as high as it was. Neither the feverish but unproductive semblance of activity in the war years, nor the steady increase in agricultural production in the face of the agrarian crisis can hide the fact that the war led to ten years of lost growth in agriculture and, even if one disregards the crisis of 1929 to 1993, a full twenty years’ lost growth in industry.
Whether the costs of the war were greater or less than was previously believed, it remains clear that in the political-sociological circumstances created by the war, these costs were easily large enough to prevent the attainment of a new economic equilibrium for many years. The social fabric could be sustained after the war only if political leadership were to avoid the disappointment of three major classes of society:
It makes little difference that bondholders in the defeated states were immediately ruined, or that all efforts to protect bond claims from damage in the victorious countries were futile. After all, in the defeated countries the workers received just as little protection from the consequences of the crisis. One possessed of purely economic rationality, detached from the preconditions of society's existence, would have to say that less inflexible protection of their claims by bondholders, workers and farmers would definitely have brought them more in the end. But for us the important point is that they would never have received this ‘more’ since in the meantime the fabric of society would have ceased to exist.
In the victorious states, bondholder interests had priority. Their financial sacrifices had won the war, and the possibility of restarting the economy depended on their unbroken faith in the currency and credit. Society could continue only if the dismantled command economy of the war was immediately and permanently superseded by a functioning free market, avoiding the mortal danger of an intermediate period.
In the defeated states, the worker had priority. Installed in the seat of political power, those who had suffered the spiritual burden of war most bitterly now desired the promised rights and the promised bread.
Even in the victorious states, the democratization of public life assumed landslide proportions. In England, the number of voters increased from eight million before the war to 28 million soon after it. Here also the war machine had been fired up with promises: ‘Homes fit for heroes’, in the flowery language of the Welshman [Prime Minister Lloyd George], whose contributions to the military campaign included not only munitions factories but also slogans. When the war was won, there were no excuses for failure to deliver on promises. In reality, nobody in Britain believed in the necessity to restrict living standards after the war. When the glimmerings of correct understanding arrived, it was too late. The tremendous exertions required from the whole economy to defend – and increase – the value of rentier income blocked any path to policies that would have imposed one-sided sacrifices on the working classes.
The third party of this trilogy was the peasant. After the war, only the peasant – protective of his hereditary piece of land, accustomed to an adversarial market relationship with the town – offered, in a metaphorical sense, a guarantee against bolshevism. Economic interest and his general Weltanschauung allied him with conservatism. But when disillusioned the peasant was capable of very different behaviour, as the Bulgarian example shows. Indeed, peasants even without particular disillusionment could participate in the division of large landed estates, as the fate of any number of other East and South-East European countries appears to corroborate. The fact that revolutions do not come exclusively from the political left is a lesson that Europe has today thoroughly learned. It is enough to note that neither the rentier nor the worker proved as successful in pressing his claim to be socially unassailable.
Any attempt at the restoration of economic equilibrium had to take into consideration the three directions in which claims were staked. The existence of a viable social fabric demanded:
Today there cannot be the slightest doubt that the economic damage caused by the war ruled out the overconsumption that would have resulted from the satisfaction of all three demands. The maintenance of a viable social fabric thus required the economically impossible. But when the viability of society comes into conflict with what is economically possible, economic possibilities are stretched in one way or another. In the long run, this is of course not sustainable. Violation of the laws of economics must sooner or later be paid for by new, terrible economic costs. But, in the meantime, the existence of society has been saved.
Moreover, in the framework of the international state system created by the war, domestic economic threats to the social fabric were accompanied by external ones. Nonetheless, in our view the primary responsibility for interference with the self-healing of the world economy does not lie with reparations, war debts and the delusionary pursuit of autarchy. If instead we emphasize above all efforts to support the incomes of rentiers, workers and peasants, it is because there is no doubt that the issue of general overconsumption in the domestic economy had decisive significance for the problem of equilibrium. However, the two groups of problems nevertheless belong together. Reparations and war debts determined the direction of financial and economic exertions that were just as unrealistic as the attempt to maintain general high living standards in a world that had become poor in productive capital. Nonetheless, these exertions were made, and here too the collapse could be delayed for a while only by economically damaging interventions.
That virtually the whole financial and economic history of the last fifteen years consists of interventions, whose eventual adverse consequences did not fail to manifest themselves, is thus an important insight of great practical value. But these interventions were not the cause of the crisis. It is only correct to say that such interventions – sometimes misconceived and short-sighted in implementation – significantly postponed the solution of the crisis. But postponement was certainly not without rationale: the mother of all interventions was the war itself. All the interventions of the post-war era were no more than costly measures taken to protect society against the lethal consequences of this most brutal of all disruptions to equilibrium. But at the same time they created unnecessary new disruptions which exacerbated the consequences of the original major intervention of the war. It is impossible to comprehend the function of the interventions of the post-war era without understanding how the destruction caused by the war made them inevitable.
It is moreover inconsistent to consider as interventions only those policies which were intended to benefit the workers or the peasants. The convenient assumption here is that economic measures designed to restore the pre-war order require no further justification. Restoration of currency values, no matter how artificial and draconian the means used, is not considered interventionist; no one asks whether the new equilibrium state in a given country permits the restoration of rentier income that is a side effect of such a currency policy. A theory of equilibrium which consists exclusively in the purely formal assertion of the sanctity of contract is of no value as a practical tool of economic and financial policy. It does not speak to the decisive practical question: what levels of incomes correspond to the new equilibrium state, that is, are sustainable in the long run?
The return of the pound sterling to pre-war gold parity symbolizes the mindlessness of the attempt, launched little more than ten years ago, to continue building the world economy based on pre-war blueprints when its foundations had been undermined in the war years. But here also it was possible to postpone the consequences of this error for years.
Only three sources could sustain consumption by the favoured classes – rentiers, workers or peasants – in excess of what equilibrium determined:
This happened on an undreamt-of scale. National economies financed their deficits by perpetual external borrowing. Weaker national economies sought assistance from stronger ones. Years of apparent stability, a run of strong growth and a deceptive appearance of complete equilibrium were punctuated by new economic and financial difficulties, until suddenly, at the height of the American boom, the elastic band snapped. The interdependent deficit economies went into an irreversible slide, and the whole stabilization structure collapsed.
What were the mechanisms of the world economic crisis which determined this course of events and facilitated it?
The geographical displacement and the consequent postponement of the crisis were facilitated by credit mechanisms of unique capacity and flexibility, which developed after the war.
The nature of these credit mechanisms is still far from sufficiently grasped. While the world economy was destroyed by the war, then gradually resurrected after the war, only to slide into uninterrupted decline at the end of 1928, the system of credits had already reached new heights during the war. This paradoxical phenomenon has continued almost throughout the entire post-war period. The amazing mobility and magnitude of international credit was accompanied by an often alarming constriction and paralysis of international economic integration.
Wars give birth to new modalities of credit. The victorious states financed virtually all their purchases of materiel, to the extent these took place abroad, via a credit apparatus created ad hoc. This enabled the most gigantic financial transactions of modern times: the sale of overseas bonds and equity in the United States, backing for the pound's exchange rate by the United States, and the elimination of all payments in foreign exchange between the allied powers through the extension of credit. This apparatus acquired its almost limitless capacity because the major powers, united in a war of life and death, mobilized weapons of credit to the ultimate degree. In sum, never in the history of modern capitalism has credit been so politicized. One consequence has been the building of a closer relationship than ever before between the commercial banks and the central banks in London, New York and Paris. The new and seemingly inexhaustible source feeding this ultra-modern pipeline for the distribution of credit to the whole of Europe, which brought gold to irrigate the parched plains of Central Europe's economy, was the unfathomable wealth of America. The unimaginably enormous profits which America made in the war were searching for investment. The reconstruction of Europe appeared as an excellent business which could not only rescue American claims on Europe but would also show a far-sighted love of humanity. Unequalled in wealth – and inexperienced – the investors who now appeared on the scene asked only that this credit mechanism should be fuelled by their resources.
If we now find it incredible that the world could have been so mistaken as to the true state of the financial balance sheet of the war, we merely need to recall for a moment the financial claims which were considered ‘good’. The sum total of war debts between the allies was estimated at 25,000 million dollars. Anyone investigating the mood prevailing at the Genoa conference should recall that it broke up in a quarrel over the distribution of quotas between Russian petroleum interests, and they were not alone in still taking their claims on Russia seriously. After all, Lloyd George's famous proposal for floating a 25 million pound sterling public company for the reconstruction of Russia could be made in earnest only because hope lived that Russian war and pre-war loans were secure. At an estimated value of 35,000 million gold francs, they were not small change! Little wonder that the creditors owed these sums thought they were rich – until they were all written off. As late as 1925 [sic; actually 1926], after Britain and Germany had already returned to the gold standard, there was talk in Thoiry of paying reparations via a 16,000 million gold mark bond issue as if it were a straightforward business proposition! This credit mechanism, which contemporaries endowed with virtually mythical powers, was the principal actor in the ten-year postponement of the crisis.1
The outcome of the war determined the geographical course of the crisis – from East to West.
There were the defeated states like Russia, Austria, Hungary, Bulgaria and (in economic terms) the succession states carved from the eastern war regions like Rumania, Yugoslavia, Czechoslovakia, Poland and Greece. Last but not least, there was Germany.
There were the European victorious states: England, France, Belgium and Italy. And in a class by itself, there was the supreme victor, America.
1918–1924: The process starts in the East with the reconstruction of most of the defeated states – with assistance from the victors and America. The Austrian (1923) and the Hungarian (1924) currencies were stabilized with the help of the League of Nations. At the same time, Greece, Bulgaria, Finland and Estonia were ‘structurally adjusted’ (saniert). Romania, Poland, Czechoslovakia and Yugoslavia received French credits; support plans were drawn up even for Russia. The high point was the restoration of the gold standard in Germany, rooted in the Dawes Plan and the financing of Dawes loans, almost half of American provenance. The reinstatement of the gold standard stripped the defeated states of the secret reserves of inflationary finance. Their stagnant deficits were increasingly covered by foreign loans and thus shifted to the victorious states. In this first period the victorious states, while extending support, themselves had currencies that were far from stable.
1925–1928: Apart from the deficits of the defeated states, the victorious states had their own disequilibria. The introduction of the gold standard led to a constant struggle over currency stability in the victor states, highlighting the deficits of their economies. By so-called central bank cooperation, England shifted the economic burden of maintaining the external value of the pound sterling to the United States. The return of the pound to gold at pre-war parity in April 1925 was secured by American lines of credit. Notwithstanding ever increasing US loans extended to Germany, from this time on the secret purpose of American credit policy was not so much assistance to Europe as assistance to England. The high point was the negotiations between [Bank of England governor] Montague Norman and [Federal Reserve governor] Strong in New York in May 1927. In August of that year, the United States adopted an intensified ‘Cheap Credit Policy’ which lasted until February 1928 and prepared the way for the Wall Street crash of October 1929. The American crypto-inflation meant constant support, via supply of cheap credit, to the European victor states which had returned to the gold standard.
1929–1933: A crisis revealed the overall deficit of the European victors and the defeated states, which had been shifted to America; the bridging role of US credits over the previous ten years was an essential component in the development of this crisis. Ever since the Dawes Plan and the debt agreement with Britain and France, America had financed both reparation payments and the servicing of its own claims, taking on the burden of the futile English stabilization, bad German investments and the accumulation of East European private sector deficits in financial institutions in Vienna. Principal event: the crash of the Vienna Creditanstalt Bank on 12 May 1931. The Reichsmark failed; the English pound retreated from parity. On 19 April 1933, the dollar was floated. The constriction of the world economy and the chaotic instability of currencies are comparable only to conditions prevailing in the immediate aftermath of the war.
Seen in this light, policies that on partial consideration seem erroneous or blameworthy appear as inevitable. Charges of mistaken policies are revealed as inconsistent, and supposedly missed opportunities as merely alternative paths to the same undesirable outcome. The return of the pound to pre-war parity now appears as a textbook example of an economic policy mistake. But the excuse repeated everywhere in England, that in 1925 no one could predict France and Belgium would stabilize their currencies at devalued levels and thus put pressure on English exports, points to alternative policies whose non-implementation was actually fortunate. The principal issue concerning the French and Belgian stabilization levels, we must insist, was not their relation to the price situation, but their relation to the original gold parities of these currencies. The essence of the matter was that France expected its bourgeoisie to tolerate the expropriation of 80 per cent of its rent income. In so far as England had to struggle with export difficulties after 1926, it was because its production costs were too high, due to the increase [via the revalued pound] in the burden of interest payments and also due to the high wages politically linked to this increase.
Another case: for many years, Central Europe refused to acknowledge England's acute economic difficulties because on the basis of its own experience it had recognized clearly that the English bank rate was still too low to sustain the value of the pound in the long run. In reality, from 1925 to 1931 only for barely two months did the bank rate fall below 4.5 per cent, an unusually high level for England. The problems caused by the revaluation of the pound might have been offset by a legislative reduction of the rate of interest on government bonds, or a tax on wealth – if undertaken in 1925. Implemented later, these same measures would have undermined England's credit no less than a currency devaluation. A substantial, sustained increase in the bank rate would not only have aggravated the acute economic crisis in England, but would have paralysed the export of capital considered essential to the maintenance of the level of British goods exports.2 For England continued to export capital after the pound's stabilization [in 1925]; this capital flow benefited among others the just recently ‘structurally adjusted’ economies of East Europe. Since 1924, foreign bonds floated on the London market have yielded 782 million dollars of long-term investments in continental Europe.
In fact, from 1927 ever increasing difficulties in maintaining capital exports made it impossible to raise the English bank rate. London markets were under strong but invisible pressures. Short-term lending spread, and the City itself depended more and more on short-term foreign deposits. The dangers of this situation were clearly spelled out in the Macmillan Report shortly before the collapse of the currency in 1931.3 Foreign loans floated in London in 1927 amounted to 651 million dollars; in 1928 they were reduced to 525 million and in 1929 to a mere 228 million dollars – and without question even this sum was facilitated most by the cheap money policy approved by New York!
From the start, American credits served as the elastic band which held together the evermore fragile equilibria of the deficit economies. But the transmission belt which carried the deficits of even the strongest European economies into America's credit ledgers was the re-established gold standard. Stripped of the secret reserves of inflation, with any displacement in space and time blocked by the rigid rules of the gold standard, the national economies had to admit their shortcomings. This was done without public pronouncements, but no less effectively – via new borrowing. But whereas the currency stabilizations in Central Europe induced only England to initiate a policy of low interest rates (the effects of which became noticeable only much later), the restoration of the gold standard in England itself prompted nothing less than the American silent inflation of 1926 to 1929, thereby contributing to the eventual collapse of the whole structure of world credit.
Perhaps the most deceptive aspect of post-war economic experience was the fabulously high standard of living of the United States in this period. This was only partly due to the real wealth of the United States. It was due also to two interventions which to a certain extent isolated the United States from the effects of the crisis in the rest of the world: high external tariffs and closing the door to immigration. Without these measures, the poverty of Europe would have spread to the United States, and the resulting new equilibrium would have settled somewhere between the misery of the defeated continental states and the high American standard. The United States could free itself from European pressures on its standard of living only by shutting out cheap labour and cheap imports. This is the fundamental reason for the one-way flow of gold into the United States. It was the only means of payment which did not reduce American living standards.
Countless charges have been made that the United States’ short-sighted policies of protectionism not only aggravated, but were actually to blame for the crisis. A creditor state should set itself up economically as a receiver of rents, through a trade deficit facilitating its debtors’ exports, and thus their repayments. But as examples one can point only to countries like England, which built up its foreign investments over generations, and, when the moment arrived that repayments [from abroad] predominated [over new foreign investments], was able gradually to adapt its economic structure to new circumstances. While today Britain imports raw materials and semi-manufactured goods for further processing on a large scale, it made the necessary adaptation of its economic structure over decades of trade with its debtors scattered all over the world. But how can one demand a rapid, voluntary transition to a trade deficit from a state which moved overnight from being a debtor to the world's leading creditor, and whose overseas loans are principally political in origin? American exports from 1914 to 1919, which created the allied war debts, required unilateral adaptation of America's economic structure to the requirements of the war in Europe. The acceptance of debt repayment in the form of imported goods, immediately after peace was concluded, would thus have brought a severe economic crisis to the United States. Here again, we believe that the responsibility ascribed to US interventionist policies in the post-war years should more properly be ascribed to interventions in the war era itself. Such is the curse of politically shaped economic facts: the terrible consequences of the original intervention often can only be warded off by costly new interventions.
Arguably, the United States would have done best to have written down the face value of the 11 billion dollars of claims on Europe stemming from the war. Certainly, the United States would have had to take on Europe's war costs after the fact, and to suffer for a long time under the heavy tax pressure that would have been required to make interest payments on domestically issued Liberty Bonds. But American living standards would still likely have been higher than those prevailing before the war. The question, however, is thoroughly academic because America not only held tight to its claims but sought to ensure their payment by extending enormous new credits to Europe. Nevertheless, this observation gives rise to two important reflections.
First, American living standards were in any event higher than was justified, and a write down of war debts would have reduced them. This would also have inevitably happened if America had accepted repayment of war debts in goods and labour. Second, the politically and sociologically determined overconsumption of rentiers, workers and peasants in Europe played an important role in making possible an inflated standard of living in America; but this overconsumption in Europe, in turn, was only possible due to the help of American credits. The credit mechanism thus served a double purpose: to maintain living standards in both Europe and America above equilibrium levels.
For years the Federal Reserve was accused of the sterilization of the vast sum of gold flowing into the United States.4 While Europe felt the lack of this gold, without which no expansion of the volume of credit was possible, the United States, it was said, deliberately did not use this gold to expand credit. Europe had to choke the economy by withdrawal of credits, while America purportedly refused to extend new credits to Europe. At present, the opposite criticism – that American policies of unrestrained inflation and mindless capital exports were directly responsible for the crisis – is raised much more emphatically. Clearly, these two accusations are mutually exclusive. But we now know that the [claim of] sterilization of gold reserves was based on a simple misunderstanding. The increase in gold reserves from 1921 to 1929 was accompanied by an increase in the average daily excess reserves of the commercial banks of 706 million dollars (September 1921 to September 1929). The increase in the effective volume of credit available to the economy was nine or ten times this amount.
If the charges [that the United States was restricting credit] proved anything, it was that at the time no amount of American credit could appear large enough to Europe! The stabilization of a series of Central and East European currencies, the draconian credit restriction required to prop up the gold value of the German mark, the increasing economic pressure on England resulting from the return of sterling to parity, the need for political stimulus lending and bridge financing in the period between the Dawes and Young loans, in addition to the reconstruction credits for Germany and other countries, created a near-insatiable demand for American financial assistance.
This invites a critical look at the contrary claim, accurate in a purely objective sense, of American crypto-inflation. Without question, it is correct as far as it goes. But the now prevalent conclusion that America is therefore at fault for the collapse of world currencies is not convincing. The actual sequence of events indicates the opposite: currencies were stable only as long as they were supported by American credits, which were necessarily accompanied by inflation [in the sense of currency issue]. When this could no longer be continued, the stability of European currencies also vanished. Only those who have forgotten the European cry for American help in the long years of repeated financial, economic and, last but not least, political crises, can fail to recognize the bitter alternative that a refusal on the part of the Americans to extend credit would have brought to us. However, the Americans offered no serious resistance to European encouragement of credit expansion. And certainly American credits to Europe were to some extent just as excessive and lavishly wasteful as Wall Street's South American loans have proved to be. We also see the evidence of the dire economic consequences connected to the postponement of the crisis in the way that artificially facilitated overconsumption led to still larger overconsumption by both debtors and creditors.
Nevertheless, the decisive connection for causal understanding is the following: the flow of gold to the United States had already begun in the economic crisis of 1921/2, but the outflow of gold did not unleash perceptible pressures on the supply of credit in Europe as long as the leading European currencies were still floating.5 Paper currencies are insensitive to the loss of gold reserves. Serious complaints about the maldistribution of gold reserves arose only after England (1925) and France (1926) returned to gold. Repeated American attempts at credit restrictions thenceforth led regularly to the drain of gold from debtors and thus to an exacerbation of their situation.6 Twice America, faced with business slumps, initiated policies of ‘cheap money’. In each case, the following year (1925 and 1928) ended with a loss of gold from America.7 When the de facto stabilization of the French franc in the spring of 1927 resulted in a huge transfer of gold from the Bank of England to the Bank of France, Montague Norman and Federal Reserve Governor Strong met in New York and agreed on a new period of ‘cheap money’ to save the heavily embattled British economy from a rise in the bank rate.
From August 1927 to February 1928, the discount rate of the New York Federal Reserve Bank was a mere 3.5 per cent. In the United States and Europe, the peak of business cycle began. An influx of American gold supported the new gold-backed European currencies; capital inflows to Germany in 1927/8 topped 2 billion dollars. In July 1928, the New York bank rate was raised to 5 per cent, and the futile effort to check the speculative boom began. The supply of long-term capital to Europe dried up. In the first half of 1929, the value of European bonds floated in New York was a mere 101 million dollars, compared with 499 million in the first half of 1928.
Up until 1925, American protectionist and credit policies sustained living standards in both the United States and in Europe, in so far as America in part accepted gold for payment and in part provided new credits. After the restoration of the gold standard in Europe, especially in England, the debtor states could withstand the pressure of gold outflows on their currencies only because the United States surrendered to inflationism, holding interest rates artificially low and increasing its capital export to Europe many times over. When the inflation mechanism failed, the financial pressure of overindebtedness inevitably triggered the world crisis. In mid-1929, the United States and France together accounted for 58 per cent of the world's monetary gold. But America ceased foreign lending. Neither gold nor credits were available any longer. Debtor states now had no alternative but to make their payments in goods. From 1928/9, they began forcibly to expand exports.8 Both Europe and overseas raw materials producers flooded world markets with goods seeking buyers at any price. The trend of universally falling world prices manifested in 1929 was the prelude to the world economic crisis. Then came the credit crisis of 1931, the constriction in world trade in 1932 and the general collapse of currencies in 1933. The spatial and temporal displacement of economic deficits had run its course. Inflation perhaps succeeded in saving the social fabric, but it could not spare humanity the torments of the healing process, which it only prolonged.9