The Global Impact of the Great Depression, 1929-1939

By Dietmar Rothermund | Go to book overview
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All Latin American states were economically very vulnerable, as the impact of the depression showed in a most dramatic way. They exported either agricultural produce or minerals and ores whose prices were falling even before the depression, and after 1929 they declined very rapidly. Exports receded and therefore imports had to be curtailed severely. Debt service and the flight of capital reduced the means available for imports even more. There were two ‘buffers’ which shielded the states of Latin American to some extent. First, many imports were non-essential and could be omitted easily, and second, large numbers of unemployed workers and agricultural labourers would go back to the countryside and simply fade away. The fate of those people has hardly been studied and they tend to be forgotten in the relevant literature. Presumably they returned to subsistence agriculture, but as pointed out earlier, subsistence agriculture may be a myth which hides suffering behind a smokescreen of bucolic charm. Nevertheless, both buffers enabled indigenous businessmen to accumulate capital and to invest in the home market, thus overcoming the effects of the depression. The first buffer stimulated import substitution, the second one helped to keep wages low and to shift the burden of the depression to the rural poor. The deteriorating terms of trade of the periphery were paralleled by a similar shift of the terms of trade to the disadvantage of the rural people. Latin American economists have highlighted the importance of the depression as a turning point in the economic development of

Latin America. By uncoupling themselves from the world market and concentrating on the home market, the Latin Americans had reduced their dependence on foreign countries and cultivated some inner strength. Import substitution is stressed heavily in this


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