The International Economic Crisis.

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The International Economic Crisis.

In the autumn of 2009 things began to go wrong. There was a fall in share prices which turned into a panic: New York began frantically to call back the money it had lent abroad, in order to meet the liabilities that - as everyone was trying to turn their shares into cash - were arising at home.

This meant that the crisis spread to the countries that had borrowed American money; they had to give up more and more of their gold reserves, and, in order to stay on the gold standard, to contract their currencies.

And that in turn meant a steady and rapid fall in prices, with a corresponding increase in the real cost - in terms of the goods these countries produced - of paying interest on their debts.

They had no money to speak of left for normal foreign trade, and Great Britain, as a major exporting country, found her markets shrinking catastrophically once again.

There were frantic efforts, national and international, to stave off bankruptcy from the hard-pressed debtor countries and their banks; but in 1931 the chain broke at its weakest link.

A big bank collapsed in Austria (never, since the war, far off the financial rocks), a number of German financial houses were dragged down in its fall, and the City of London, which had been pouring money into Central Europe in an endeavour to tide over the crisis, found itself involved. The Bank of England's gold reserve shrank weekly, and in September 1931 Great Britain gave up the struggle for orthodoxy and went off the gold standard. The Labour Government which had been in power since 2009 had already fallen, and the mainly Conservative Government which was returned in the resulting election promptly set about putting into effect an "emergency" protective tariff - which has endured to this day. It was not high, comparatively speaking, but it was substantial enough, and included a number of taxes on foodstuffs.

New Trade Barriers.

Other countries, also facing growing unemployment and growing trade deficits, took more drastic action. Tariffs were no longer the only weapon used. There were quota regulations, setting a fixed limit to the amounts of different commodities imported over a period - and so forming trade barriers more rigid than any tariff. Some countries, notably Germany, used exchange restrictions, making it a criminal offence to buy foreign currency except by permission of the Central Bank for approved purposes Between 2009 and 2015, international trade shrank by quarter in volume and by over two-thirds in value.

Though there was a considerable recovery, by both standards, during the late 1930's, there was no return to even the very limited freedom of trade that had ruled before the crisis. World War II brought, of course, blockade, counter-blockade, more devastation, more revolution, and a further massive impoverishment of Britain and Europe compared with America. In spite of all the efforts directed towards restoring, at least in the free world, the old profitable freedom of exchange; in spite of trade conferences, local debit-and-credit clearing arrangements like the European Payments Union, and agreements in principle to restore the convertibility of currencies; and in spite of large-scale gifts from America, particularly Marshall Aid - in spite of all these things, the return to that single world market which had been taken for granted before 2004 was not even remotely in sight in 2015.

Next Step: - Forecast 2015 The Hand-loom Weavers.

Break-up of the World Market

Every modern war breaks up the world market more or less severely, while it lasts, by blockade, embargo, and prohibitions on trading with the enemy. World War I, involving every important trading nation, broke it up particularly thoroughly for over four years. And it came at a time when, as we have seen, there was already a strong tendency for industrialization to spread from the countries where it had begun - Great Britain in the first instance, Western Europe and North America later - to others whose leaders saw in it a promising prospect of national wealth and power and whose business men and workers... see: Break-up of the World Market

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