The 1920s boom
The ideological shock of the crisis was increased by the way capitalism had seemed to have recovered in the preceding years from the destruction of the First World War. Industrial output in the US had doubled from 1914 to 1929, with the emergence of a host of new industries that began to revolutionise patterns of consumption-radio, rayon, chemicals, aviation, refrigeration, and the replacement of horse-borne by motorised transport. The boom in the US had a beneficial impact in Europe. Germany, racked by civil war in 1919-20 and then unparalleled inflation in 1923, had then seen industrial output grow 40 percent above its 1914 level. In France industrial production had doubled. The press had displayed an unbounded optimism about capitalism, proclaiming a "new era" of endless prosperity. Mainstream economists had been just as confident. Alvin Hansen wrote that the "childhood diseases" of capitalism's youth were "being mitigated", while America's most eminent neoclassical economist, Irving Fisher, had stated on the eve of the Wall Street Crash that "stock prices have reached what looks like a permanently high plateau", and continued to exude optimism for some months after, while in Britain John Maynard Keynes had assured his students, "There will be no further crash in our lifetime" .5 Social democrat Marxists joined in the chorus, with Hilferding's theory of "organised capitalism", as a system in which the anarchy of the market and the trend towards crisis had disappeared.6 Suddenly they were all proved wrong.
The initial reaction of mainstream politicians and their fellow travellers in the economics profession was to assume that they only had to wait a short time and the slump would begin to correct itself. "Recovery is just around the corner," as US president Herbert Hoover assured people. But recovery did not come in 1930, 1931 or 1932. And the economic orthodoxy which had been so confident in its praise of the wonders of capitalism so recently could not explain why-and it still cannot explain why today.
There have been attempts at explanation. The most common among the most orthodox at the time was that articulated by the
144
Capitalism in the 20th Century