Today in history: the Great Crash of ’29 ends and the Great Depression begins

Since Saturday we’ve been in the midst of the 86th anniversary of the stock market crash that kicked off the Great Depression. The whole thing started on October 24, 1929, AKA “Black Thursday,” when the Dow lost about 11 percent of its overall value shortly after trading began, and only some concerted action by a group of Wall Street heavyweights put on the brakes and reversed the run (things actually rallied a bit on October 25). It wasn’t until the following week — “Black Monday” on October 28 and “Black Tuesday” on October 29 — when the market lost about a fifth of its value and the real long-term problems started to set in. More or less consistent losses over the next 2 years took the Dow from a high of over 380 in September 1929 to a low of 41.22 on July 8, 1932.

Crowd outside the New York Stock Exchange during the 1929 crash (Wikimedia)

In the Middle East, where World War I and the collapse of the Ottoman Empire had wrought tremendous political change in a relatively short period of time, the ensuing Great Depression had different effects depending on where you were and what the economy was like there. I have often noted that I am no economist, but two economic historians, Roger Owen and Şevket Pamuk, wrote a book in 1999 called A History of Middle East Economies in the Twentieth Century, and while it’s obviously a little dated now I think its material on the Depression still holds up.

Anyone relying on exports to make a living felt the effects of the crash quite drastically, especially in the French and British mandatory colonies (Mesopotamia, Transjordan, Syria, Palestine) and on the Arabian Peninsula (which wasn’t colonized per se but did depend heavily on Britain for just about everything). These places derived a great deal of their already low economic productivity from sending raw materials (silk being one, and pearls around the Persian Gulf) to Europe for industrial production, and as Europe’s economies started to falter so did the export markets. The mandates also relied, post-Ottoman Empire, on either the pound or the franc as their currency, and when those currencies lost value it hurt quite a bit.

Map - Mandates 2
The post-World War I mandate system

The oil industry, which you’d think could have saved some of these areas from the worst effects of the Depression, wouldn’t really become an economic driver until after World War II, though Iraq did see a bit of a boost to its economy in the 1930s. Mandatory Palestine also got an economic boost in the 1930s, in that case thanks to the immigration of European Jews fleeing the Nazis. The overall silver lining is that the Depression helped to spur the development of local manufacturing throughout the mandates, something that actually paid dividends later on.

In countries with a more established history and more internal economic cohesion, the Depression still sucked, but not quite as badly as in the mandates. In particular, Egypt and Turkey were able to reorient their economies toward local manufacturing and agriculture, raising tariffs on imports in order to try to insulate themselves from the turmoil rocking Europe. This was partially successful, though the tariffs themselves had negative impacts on the economy and the reorganization itself was pretty painful.

Turkey’s founder and president, Kemal Mustafa Atatürk, had already built Turkey’s economy around a type of statism, known as etatism, in the early 1920s. Etatism didn’t go as far as socialism, but it was definitely a form of state capitalism, where the government nationalized certain sectors (like tobacco) and invested heavily in banks, companies, infrastructure, industries, etc. Truth be told, etatism worked out pretty well for the Turks in terms of enabling it to respond to the loss of foreign investment during the Depression, and Atatürk’s decision to create the Central Bank of Turkey in 1931 also helped by allowing Turkey to control its own exchange rate. In the mid to late 1930s, as Turkey’s economy rebounded and the global economy showed some signs of life, etatism was phased into a hybrid public-private system.

Iran felt the impact of the Depression pretty quickly due to the global decline in the price of silver (Iran’s currency was silver-based), but it too was able to cushion the blow by introducing more state control over the economy and trade, and the weaker currency helped domestic industry. Part of the reason that this shift to protectionism and internal markets was able to work so well is that the Middle East wasn’t exactly coming out ahead in its trade with Europe in the first place. While erecting barriers to that trade and devoting more effort to the agrarian economy caused some upheaval by creating different economic winners and losers, overall it wasn’t a huge shock to the system. Also too, Iran, like Iraq, began to see some significant oil revenue in the 1930s.

As Owen and Pamuk point out, there are parallels between what happened in the Middle East and what happened in Eastern Europe, which was also on the periphery of the places that were hit hardest by the Depression and had also come out of World War I having lost its dominant empire (in that case Austria-Hungary). Countries that were able to focus on agriculture and reduce their dependence on trade fared better than countries that failed to do so.

Mostly, we should understand that the impact of the Great Depression in the Middle East wasn’t nearly as dramatic as it was in Western Europe and the US, and that’s largely because there wasn’t much room for the economies of the Middle East to get any weaker or less productive than they already were. In fact, by encouraging the development of local industry, the Depression may actually have benefited the region in the long term as much as it hurt in the short term.

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Author: DWD

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