The 1929 Wall Street Crash and global depression shattered economic stability, undermined debt diplomacy, exposed the League’s weakness, and encouraged aggressive expansion by revisionist powers.
The 1929 Wall Street Crash and Global Depression
Economic Collapse and Initial Shockwaves
The sudden collapse of the New York Stock Exchange in October 1929 devastated the global financial system. Investors lost billions overnight, banks failed in waves, and consumer confidence plummeted.
Withdrawal of US loans: During the 1920s, Germany and other European nations depended heavily on short-term loans from American banks to pay reparations and rebuild industry. When American lenders demanded repayment to cover domestic losses, these nations were left financially paralysed.
Industrial shutdowns: Without American capital, German factories closed, and unemployment soared to over 6 million by 1932. Britain faced mass layoffs in coal, steel, and shipbuilding, while France experienced slower but persistent economic decline.
Global trade collapse: World trade contracted by roughly two-thirds between 1929 and 1933. Nations imposed high tariffs to protect domestic industries, deepening the depression. The USA’s Smoot-Hawley Tariff (1930) raised import duties on over 20,000 goods, prompting retaliatory measures worldwide.
Erosion of International Cooperation
Before the depression, economic cooperation had supported fragile peace settlements. After 1929, the situation deteriorated quickly:
Economic nationalism became the dominant policy. Countries prioritised national survival over shared recovery, abandoning currency stabilisation and free trade principles.
Unemployment and poverty radicalised the electorate, leading to greater support for extremist parties promising decisive solutions and national resurgence.
The depression destroyed faith in democratic governments seen as incompetent, paving the way for aggressive leaders who rejected multilateral compromise.
Collapse of Debt Diplomacy and International Conferences
Lausanne Conference (1932)
With the global economy in freefall, the reparation system designed by the Treaty of Versailles proved unsustainable. The Lausanne Conference convened to find a realistic solution:
Germany argued it could no longer pay reparations without collapsing entirely. Britain and France, themselves struggling with debt and economic stagnation, reluctantly agreed reparations should be suspended.
The Lausanne agreement proposed ending Germany’s payments in exchange for a final lump sum, but this arrangement depended on American consent, as European powers needed to stop paying war debts to the USA in turn.
The USA refused to formally cancel allied war debts, rendering the Lausanne settlement half-effective at best. Germany ceased reparations regardless, but the underlying debt tensions persisted.
London Economic Conference (1933)
In June 1933, 66 countries gathered in London to coordinate a response to the depression:
A primary aim was currency stabilisation to stop competitive devaluations that had sparked economic rivalry.
President Roosevelt, newly elected and launching the New Deal, refused to bind US domestic recovery to any global agreement. He famously abandoned the conference by telegram, insisting America must recover on its own terms.
With the world’s largest economy withdrawing, the conference collapsed, deepening mistrust and proving that no country would sacrifice national interests for collective economic welfare.
Failures of the League of Nations
The economic crisis exposed not just the weakness of economies, but also the frailty of the League as an instrument for resolving disputes and upholding peace.
Manchurian Crisis (1931–33)
Causes
Japan, lacking domestic raw materials and desperate to revive its stagnating economy, turned expansionist.
Japanese officers in the Kwantung Army staged the Mukden Incident, blowing up part of a railway and blaming Chinese forces, creating a pretext to invade Manchuria.
Ineffective Response
China appealed to the League under Article 11, expecting swift action. However, the League moved slowly, partly because key Western states were reluctant to commit resources to a distant Asian conflict.
The Lytton Commission, sent to investigate, took almost a year to produce a report confirming that Japan’s seizure was illegal.
By then, Japan had consolidated control and established the puppet state of Manchukuo.
Consequences
Japan rejected the report outright and left the League in 1933, demonstrating that powerful nations could defy the League without facing real consequences.
No economic sanctions or military measures were enforced against Japan; Western powers prioritised their economic struggles and feared conflict in the Far East.
The failure seriously damaged the League’s credibility, especially among smaller nations who saw that only major powers could break the rules with impunity.
Abyssinian Crisis (1935–36)
Causes
Mussolini, facing domestic discontent due to the depression’s effects on Italy’s weak economy, sought to rally public support through imperial conquest.
In October 1935, Italy invaded Abyssinia, one of the last remaining independent African states and a member of the League.
Ineffective Sanctions
The League, under pressure to uphold its principles, labelled Italy an aggressor and imposed sanctions.
However, sanctions deliberately excluded vital materials like oil, coal, iron, and steel. Major powers like Britain and France feared alienating Italy completely and pushing it into Hitler’s orbit.
While the League debated, Mussolini pressed on with the campaign, using overwhelming force and even chemical weapons to subdue Abyssinian resistance.
The Hoare-Laval Pact
In secret, Britain’s Foreign Secretary Samuel Hoare and France’s Prime Minister Pierre Laval devised a plan to appease Mussolini by offering him large parts of Abyssinia while leaving a rump state.
When this pact leaked to the press, it caused a scandal and was abandoned, but the damage to public trust was immense.
In May 1936, Italian forces captured Addis Ababa. Emperor Haile Selassie fled and addressed the League in vain, warning that his country’s fate foreshadowed what awaited other small nations.
Consequences
Italy completed its annexation, ignoring the League entirely.
Sanctions were lifted, further humiliating the organisation.
The crisis confirmed that the League could neither deter nor punish aggression when major European interests were at stake.
Rise of Revisionist Powers
Japan: From Defiance to Expansion
Japan’s success in Manchuria emboldened its military leadership to pursue further conquests in China, eventually escalating into the Second Sino-Japanese War in 1937.
The League’s impotence taught Japan that Western democracies lacked the unity and resolve to enforce the post-war order in Asia.
Italy: Alienation and Alliance with Germany
Mussolini’s defiance and successful conquest demonstrated that aggression worked when collective security failed.
Britain and France’s weak response convinced Mussolini they could not restrain Germany either.
In 1936, Italy and Germany formalised closer ties through the Rome-Berlin Axis, aligning two major revisionist states outside the League’s authority.
Germany: Economic Collapse Fuels Extremism
The depression struck Germany harder than most. By 1932, industrial production had halved and unemployment reached a third of the workforce.
This misery created fertile ground for Adolf Hitler, whose Nazi Party rose rapidly by blaming the Treaty of Versailles, reparations, and democratic government for Germany’s plight.
Upon becoming Chancellor in 1933, Hitler immediately withdrew Germany from the League, echoing Japan’s move.
He used economic recovery programmes and rearmament to rebuild national strength, all while knowing the League was too weak to enforce disarmament clauses.
Weakening of Collective Security and the Drift to War
By the late 1930s, the principle of collective security—the idea that peace could be maintained through mutual guarantees—had been fatally discredited:
Major powers routinely defied the League without fear of punishment.
Britain and France, weakened economically and politically divided, increasingly pursued appeasement, hoping to buy time rather than confront aggression directly.
The failures in Manchuria and Abyssinia emboldened Hitler, Mussolini, and Japan to take ever bolder steps, convinced that no credible coalition would resist them effectively.
Ultimately, the Great Depression did not just break economies; it broke the fragile trust in international systems built after 1919. By undermining debt diplomacy, encouraging economic nationalism, and exposing the League’s impotence, the depression laid the foundations for the collapse of peace in Europe and Asia, setting the stage for a new and devastating world conflict.
FAQ
The depression significantly constrained Britain and France’s ability to respond forcefully to threats to international peace. Both nations faced high unemployment, industrial decline, and intense domestic political pressure to prioritise economic recovery over costly foreign interventions. Public opinion in both countries generally opposed military entanglements, having endured the heavy casualties and economic devastation of the First World War. Financially, the depression forced severe budget cuts, limiting military spending and reducing the readiness of their armed forces. This economic and political climate made leaders risk-averse and more inclined to appease aggressor states like Germany, Italy, and Japan rather than enforce sanctions or commit troops. The cost of enforcing sanctions—particularly oil embargoes against Italy—risked economic retaliation and further harm to fragile domestic economies. As a result, Britain and France often chose diplomatic compromise over decisive action, hoping to maintain peace cheaply. This reluctance emboldened revisionist powers, who interpreted economic weakness as proof that the Western democracies would not uphold collective security in practice.
The League of Nations was founded on the ideal of collective security and moral persuasion rather than military might. Its covenant assumed that economic sanctions and the collective will of member states would deter aggression. However, no standing League army existed because member countries, particularly Britain and France, wanted to retain national control over their military forces and were unwilling to finance or staff an international force. This meant that when crises occurred—such as Japan’s invasion of Manchuria or Italy’s conquest of Abyssinia—the League had no means to enforce its decisions or back threats with credible force. Instead, it depended on the willingness of individual nations to contribute troops or enforce sanctions, which rarely happened due to the economic and political constraints of the depression. This structural weakness meant aggressor states could violate international norms knowing that League condemnations were unlikely to be backed by force, rendering the organisation ineffective as a peacekeeping body during the critical interwar years.
Smaller European countries, many of which had only recently gained independence following the First World War, were particularly vulnerable to the global economic downturn. Lacking diversified economies and heavily reliant on exporting primary products or raw materials, they suffered devastating collapses in export revenues when global demand and prices plummeted. Countries in Eastern Europe and the Balkans, such as Hungary, Romania, and the Baltic states, faced widespread rural poverty and political instability as agricultural prices fell. Weak governments struggled to maintain social order, which led to increased political radicalism, coups, and the rise of authoritarian regimes promising national recovery and stability. Many of these smaller states also relied on foreign loans that dried up after the Wall Street Crash, leaving them burdened by debt and unable to fund recovery measures. This economic fragility reduced their ability to resist larger aggressive neighbours, making them easy targets for more powerful revisionist states like Germany and the USSR in the lead-up to the Second World War.
Economic nationalism emerged as European governments sought to shield domestic industries and employment from the deepening depression. Many states abandoned free trade principles and instead introduced high tariffs, import quotas, and subsidies for national industries. For example, Britain abandoned the Gold Standard in 1931 and implemented the Import Duties Act in 1932, imposing tariffs on a wide range of goods to protect British producers. Similarly, France enacted protectionist measures to shelter its farmers and manufacturers from foreign competition. Countries also engaged in competitive currency devaluations to make exports cheaper and gain a trade advantage, leading to economic rivalries rather than cooperation. These actions often provoked retaliation, further shrinking international trade and worsening the depression globally. Such economic nationalism undermined efforts at international economic coordination, such as the London Economic Conference, and demonstrated how desperate states prioritised short-term national interests over collective solutions, weakening the foundations of multilateral diplomacy that had underpinned the fragile post-war peace settlement.
The depression dealt a severe blow to confidence in democratic governments and liberal capitalism. As unemployment soared and poverty deepened, millions across Europe and beyond lost faith in the ability of elected leaders and free-market economics to deliver stability and prosperity. In countries like Germany, the democratic Weimar Republic was blamed for economic failure and humiliation caused by the Treaty of Versailles, paving the way for Hitler’s rise. In Italy, although fascism predated the depression, the crisis strengthened Mussolini’s claims that a strong, centralised state could protect citizens better than parliamentary squabbling. In Britain and France, where democracy survived, the depression strained traditional parties and led to increased support for radical or populist movements advocating extreme solutions, both on the left and right. This erosion of trust made democratic governments more cautious and hesitant on the world stage, as leaders feared unpopular wars or costly confrontations could worsen domestic instability. Ultimately, the depression’s assault on confidence in democracy helped embolden authoritarian and revisionist regimes, which promised rapid recovery and national glory.
Practice Questions
Explain how the Wall Street Crash and global depression undermined collective security in the 1930s.
The Wall Street Crash and ensuing depression shattered economic stability, causing states to focus inward and abandon international cooperation. Germany’s economy collapsed, fuelling extremist support for the Nazis, while Japan and Italy pursued aggressive expansion to resolve domestic crises. The depression exposed the League of Nations’ weakness as states prioritised national recovery over enforcing peace. Failed conferences like Lausanne and London highlighted countries’ reluctance to sacrifice economic interests for collective good. This environment emboldened revisionist powers to defy the post-war settlement, knowing Britain and France lacked the will or means to uphold collective security effectively.
Analyse the failures of the League of Nations during the Manchurian and Abyssinian crises.
The League failed in both crises due to its inability to act decisively against major powers. In Manchuria, Japan’s occupation was met with slow investigation and no real sanctions, encouraging further aggression. Similarly, when Italy invaded Abyssinia, sanctions were partial and ineffectual, while the Hoare-Laval Pact exposed Britain and France’s self-interest. The League lacked an army and depended on the cooperation of reluctant great powers. These failures revealed that collective security was an illusion, emboldening revisionist states to challenge the international order without fear of united opposition, hastening the collapse of interwar peace.
