In 1945 the French economy had to be reconstructed not only from the effects of war and occupation but also from a decade of depression. France had been the only industrial economy not to recover from the international depression of 1929. Industrial production in 1938 was only 75 per cent of its peak level of 1929. The percentage of the labour force employed in industry had fallen from 37 per cent in 1929 to 32 per cent in 1938 while the agricultural labour force, although declining, still amounted to nearly one-third of the total by 1938. With food prices falling in the international economy throughout the 1930s the French government was unable to prevent agricultural incomes in France from declining. But due to the relative inefficiency of much of French agriculture, food prices were still considerably higher in France than in the international economy. This served to push up the cost of living and depress domestic demand. As a result French producers cut back investment and production and redirected exports to the limited but protected markets of the French colonies. Most governments abdicated responsibility for this industrial decline in the 1930s. Their reaction to the devaluations of sterling and the dollar and the disintegration of the international economy into protectionist trading blocs was to increase the level of protection for French industry and agriculture, and to reduce public expenditure. The autonomy of the Bank of France and its decision to defend the value of the franc was not challenged until 1936 when the Popular Front government under Leon Blum was elected.
Blum's policies aimed at stimulating recovery in the short term by increasing domestic demand. The longer-term strategy relied on increasing state control over the economy. To this end a new Ministry of National Economy was set up and steps were taken to reduce the autonomy of the Bank of France. However the failure of the short-term policies put paid to the long-term strategy. Blum's initial refusal to devalue the franc or to impose exchange controls in the face of higher domestic costs led to a speculative outflow of funds and a forced devaluation of the franc. The