Breaking with orthodoxy: the politics of economic policy responses to the Depression of the 1930s

Abstract

Under the same systemic shock, the collapse of the international economy in 1929, different countries formulated different policy responses. Britain, Germany, the United States, France, and Sweden all began by attempting the orthodoxy of deflation. Soon after, they abandoned deflation, devalued their currencies, erected tariff barriers, and set up corporatistic production and marketing arrangements. A few countries went further, and began experimenting with demand-stimulus fiscal policy. The most successful was Nazi Germany; the Swedish and U.S. efforts were much more limited and less effective, the French attempt crumbled in less than a year, and Britain never tried demand stimulus. Why this divergence in policy? The politics of policy response, the societal basis of different policy coalitions and the way in which they were expressed through different political formulations, suggests an answer. In all countries, labor, agriculture, and certain elements of business became available for revolts against policy orthodoxy. What differed across countries was the specific balance of forces among these interest groups, and the political factors that shaped their combinations. The effect of political leadership, institutions, and other variables on outcomes depended critically on the way specific social forces in each society used and worked through them.