The Great Depression and the retreat to nationalism
The Wall Street Crash and Its Global Reach
On 24 October 1929 — a day known as Black Thursday — the New York stock market began a catastrophic collapse. Share prices continued to fall through to late November, wiping out fortunes and triggering bank failures across the United States. Within months, the effects had spread far beyond American borders, producing an economic crisis of a scale and depth the world had not previously experienced.
The international connection was critical. The Dawes Plan of 1924 had created a circular system: US banks lent money to Germany, Germany paid reparations to France and Britain, France and Britain repaid their war debts to the USA. When American banks recalled their loans after October 1929, this cycle broke down instantly. German unemployment rose from approximately 1.3 million in 1929 to roughly 6 million by 1932.
The Retreat to Economic Nationalism
Governments responded to the Depression by trying to protect their domestic economies, but this drove nations further apart. In June 1930, the US Congress passed the Smoot-Hawley Tariff Act, raising import taxes to record levels. Other countries retaliated with their own tariff increases, and international trade contracted sharply throughout the early 1930s. The League of Nations’ World Economic Conference of 1933 failed to produce any coordinated response.
Britain abandoned the gold standard in September 1931, devaluing the pound to make exports cheaper. Other countries followed, leading to a series of competitive devaluations that destabilised currencies globally. These economic decisions made international co-operation harder, as each government prioritised domestic recovery over international obligations.
Political Consequences in Europe
The Depression created the conditions in which extremist political movements could grow. In Germany, the economic catastrophe transformed the political landscape. The Nazi Party, which had received only 2.6 per cent of the vote in the 1928 Reichstag elections, rose to 37.4 per cent in July 1932 as unemployed workers and anxious middle-class voters turned to radical alternatives. On 30 January 1933, President Hindenburg appointed Adolf Hitler as Chancellor of Germany.
In Italy, Mussolini’s Fascist government exploited the Depression to advance autarky — national economic self-sufficiency through state control of production and reduced dependence on foreign trade. In Hungary, Austria, and Romania, authoritarian governments replaced parliamentary democracies. These shifts made collective action through the League of Nations increasingly difficult.
The Depression’s political consequences were not confined to Europe. Japan’s economy was severely damaged by falling demand for its exports. On 18 September 1931, officers of the Japanese Kwantung Army staged the Mukden incident — fabricating a pretext to invade Manchuria. The Japanese government’s civilian leaders were unable to restrain the military, and by 1932 Japan had established the puppet state of Manchukuo across the whole of Manchuria. China appealed to the League of Nations. The League’s Lytton Commission of Inquiry condemned the invasion but recommended only that Japan evacuate Manchuria and accept League supervision. Japan refused, and in March 1933 withdrew from the League entirely. This was the first major test of the collective security system, and it failed.
The German Political Crisis
Germany’s political system came under unbearable strain between 1930 and 1933. Chancellor Heinrich Brüning adopted deflationary policies — cutting government spending and wages — which worsened unemployment in the short term and were politically catastrophic. Article 48 of the Weimar Constitution allowed the President to govern by emergency decree, and it was used with increasing frequency as the Reichstag became ungovernable.
Between January 1932 and January 1933, Germany had three different chancellors. Extreme parties at both ends of the political spectrum — the Nazi Party on the far right and the Communist Party of Germany on the far left — gained seats while centre parties collapsed. Conservative politicians around President von Hindenburg believed they could use Hitler as a tool and later control him. This miscalculation led directly to his appointment as Chancellor on 30 January 1933.
By 1933 the Depression had produced three interconnected threats to the international order: Germany had a fascist government with no commitment to Versailles; Japan had openly defied the League and left it; and the economic nationalism triggered by Smoot-Hawley had dissolved the trade relationships that had underpinned European stability in the 1920s.
Historians debate how far the Depression automatically produced authoritarian outcomes. Some argue the economic crisis created the conditions but not the certainty: democratic governments in France, Britain, and Scandinavia survived the Depression without collapsing into authoritarianism, suggesting that political institutions, civic traditions, and leadership choices also mattered. Others point to structural factors — Germany’s short democratic experience since 1919, its hyperinflation trauma of 1923, the humiliating legacy of Versailles — that made it more vulnerable than its western neighbours. This debate matters for the exam: framing the Nazi rise as the inevitable product of capitalism failing is too simple and does not reflect the range of historical opinion.