Volume 43, Number 168,
January-March 2012

The 1930s Crisis and its Impact on Latin America, Rodolfo Iván González Molina, Mexico, Faculty of Economics, National Autonomous University of Mexico (unam), 2011, Mexico, 3rd Edition.

Economics, National Autonomous University of Mexico (unam), 2011, Mexico, 3rd Edition. The author of this study discusses how the economic system known as "capitalism" is characterized by economic crises as a result of its cyclical nature. These crises are the product of various factors, among them the fall in profitability of companies with high capital costs. He states that productive centralization creates monopolies, which distorts free competition. This is the key mechanism for pricing in the economy, i.e. the crossroad between the variables supply and demand. He rightly observes that new economic world orders originate in various social conflicts, particularly war, which distorts the system of free competition. The author focuses on how the negative economic position currently facing the u.s.a. impacts negatively on the economies of Latin America. At the end of the 1920s, the United States exported capital and innovative products (cars and electro domestic goods) to Latin American countries, whose economies focused on the export of primary commodities (in the agricultural and oil sectors).

In brief, what was the crash of 1929? It was the major fall of stock market values in leading public companies on the New York stock exchange. According to classic research on the subject by the authors J.K. Galbraith and Ch. Kindleberger, the collapse originated in speculative financial management. However, Dr. González Molina maintains that the true cause of financial collapse was the deterioration of utilities in the U.S. industrial sector (coal, steel, telegraph services, railways and ports.) The author suggests a cause-effect relationship in this financial collapse, which limited the export of capital to Latin America with the emerging establishment of industry in the Latin American subcontinent. It is worth noting that the 1929 crash was a milestone in capitalist development because it demonstrated what is now described as "the superior phase of capitalism" (imperialism). It merits attention that the author associates capitalism directly with imperialism, given that there have been many powerful, hegemonic empires in world history that have not been linked to capitalism, such as the Roman Empire, to cite one example. Furthermore, while the United States rapidly took center stage worldwide, England quickly lost her international financial monopoly and ceased to be an exporting power.

It is important to highlight how the United States resolved the serious unemployment problems generated by the Crash of 1929 by stimulating "effective demand" and promoting growth, through a heterodox economic approach. This exercise resulted in the New Deal Welfare State, which proposed a significant increase in public spending: economic support to the unemployed and social assistance, tackling the fall in public investment decisively. This was in fact a powerful response to the worker's movement of the time, and an influential alternative to capitalism. It is also ironic that the reconstruction of Germany's economy was based on international loans that originated in the United States, accumulating long term debt of 7.5 billion dollars at the end of the 1920s. This reconstruction was not only economic, it also permitted the rise of the Fascist State in Germany in the 1930s which ended up renouncing most of this debt.

There were various impacts on Latin America: the price of imports increased and the international price of primary commodities dropped; at the same time, the region had to pay off debt 660 million dollars-worth of debt, or three times its capital inflow. This meant that in 1935, 85% of bond dollar payments in Latin America were in moratorium. For Argentina, whose income per capita was similar to European countries, the impact of the crisis was a lot less than for the rest of the region, whose income per capita was five times less. It is interesting to note that the pro-European policies of president Porfirio Díaz were not looked upon favorably in Washington. For this reason the Americans were not impartial during the Mexican Revolution and allowed Francisco I. Madero to reside in the United States and prepare his armed rebellion.

The Latin American subcontinent had to change its view on economic development after the 1930s crisis and rather than viewing Europe as the economic world center, was forced to be more influenced by and dependent upon the economic decisions of the United States.

Ana Laura Rodriguez
Institute of Economic Research - unam
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Published in Mexico, 2012-2018 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 194 July-September 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Moritz Cruz. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: August 29th, 2018.
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