Consequences of the Collapse of International Capital Markets During the Great Depression (1930–39)

Abstract

International capital movements and commerce are distinguishable, though interrelated activities. The Great Depression asserted itself in the East European countries essentially in two ways. First, the declining trend in world agricultural prices meant a severe reduction in the total value of exports, while the demand for imports and import prices did not decline pari passu; hence, the trade balance tended to deteriorate. Second, the flow of foreign capital mercilessly dwindled. Clearly, the collapse of international commodity markets in the early 1930’s (especially the crisis in the agricultural markets) was a phenomenon distinct from the collapse of international capital markets. This second blow, that originated externally and affected the internal balances through automatic channels and hasty policies, had no historical precedent. It is not difficult to imagine a similar crisis in the future.