The interwar period was defined by the crash of 1929, the great recession that followed and the conflicts regarding the policies to overcome the economic crisis.
Prior to that high expectations were fueled by the technological development and profound, for the time, scientific achievements.
The capitalists, especially in America, believed that the inventions and scientific discoveries would quickly turn into goods and services which would in turn become powerful production and income bases, capable of supporting a perpetual growth over time.
When it became apparent that this process for the new products and services was slow and did not yield what was expected, the expectations collapsed and with them all of the paper investments. That is more or less how the crash of 1929 occurred, which brought on the unprecedented and mass collapse of businesses, investments and the dominant at the time liberal politics.
In the global conflict that followed, John Maynard Keynes fought hard against the conservative school of balanced budgets, Roosevelt came up with the New Deal, the State returned stronger and the liberal discovered the quantity theory of money and attributed the catastrophe to its lacking.
The deeper consequence however of that major financial crisis was the explosion of nationalism which brought the Second World War, which affecting tens of millions across the world.
It is unfortunate that the war economy is what reversed the effects of what caused the economic crisis. In “A Journey Through Economic Time” John Kenneth Galbraith leaves no room for misinterpretation.
Neither the New Deal, nor the other Keynesian policies were able to defeat the major recession. Ultimately it was war and its consequences that managed to create the circumstances for growth and prosperity on the planet.
It was natural for the post-war peace and economic development to be based on the main principles and values of the victors. The spirit of the New Deal dominated in the post-war era, with the State having a more active role and the relations between the capital and labor markets had been reset and greatly contributed towards the emergence of middle classes throughout the West.
Everything, however, changes. Those who lost in the crisis of 1929 never reconciled. The Chicago school of economics emerged straight after the war.
Its leading div Milton Friedman insisted upon the liberal choice. He specified the quantity theory of money, described inflation predominantly as a monetary phenomenon, preached for the freedom of exchange rates and passionately supported restricting the state to a minimum.
In 1962 he wrote the iconic “Capitalism and Freedom” and in 1976 he received the Nobel Prize in Economics by the Royal Swedish Academy of Sciences. In dogmatically defending the neoliberal doctrine, he opposed compulsory military service and was the first to speak about the right to choose a school, along with the infamous “school vouchers”.
Over time his beliefs won over significant sections of American and British conservative politics, including Ronald Reagan and Margaret Thatcher. From the 1980s and onwards the neoliberal ideas informed the global economic system and with the collapse of the Eastern European regimes, the dominated thanks to the liberalization of world trade and resulting globalization, from the unhindered movement of capital, goods and persons.
Over time these beliefs also matured and presented opportunities to the more impoverished people of Asia and Latin America, while also allowing the communist-trained neo-capitalist leaders of Russia and China to put their countries back into the global game.
That is about where the monstares and absurdities of the global liberal construct emerged. The liberal policies swelled the paper economy, allowing multinational giants to make super profits, increasing inequalities, took away negotiating powers from the labor unions, undervalued employment and elevated the value of capital to a superlative degree.
With the rapid development of new technologies the power of transnationals multiplied, the inequalities further increased, the role of the middle classes was limited, growth proved to be unable to cover the major expectations generated by the markets, thus bringing us to the credit crisis of 2008.
The management of this crisis was based on the findings of the quantity theory about the crisis in 1929.
The United States of America responded to the systemic crisis with tons of liquidity, by printing new money and generously offering funding to pretty much everyone.
They managed to extinguish the fire at first, by the did not address the main cause and spread smoke everywhere across the world.
The crisis of the metropolis of the international financial system moved to the Europe periphery in the form a debt crisis, bringing with it waves of recession and anemic growth.
Today most countries are trying to do the same, but have neither the resources nor the same capabilities.
At the same time inequalities are further expanding, the middle classes are being compressed, disappointed, angered and obviously they are moving.
They are gradually abandoning the so-called systemic forces because they believe them to be compromised and responsible along with the economic elite, and they searching for “saviors” left and right.
After the economic monsters of the global financial system, the world seems to be seduced by the monsters of politics.
Nationalist and populist leaders are sprouting like mushrooms all over the world, entertaining but also terrifying with their actions.
There is no doubt that the world is unbalanced and in danger of finding itself in circumstances similar to those that dominated after the major crisis of 1929.
A new agreement, a new relationship between the factors of production may avert a generalized crisis. The sooner, the better…
Antonis Karakousis
Originally published in the Sunday print edition
