Analysis of the Impact of Major Economic Crises on Political Stability: Taking the World Economic Crisis in 1930 as an Example

Abstract

Since the first general economic crisis in Britain in 1825, the world has repeatedly faced economic shocks. The growing interconnectedness of the global economy has amplified both the intensity and scope of these crises. Following World War II, the rapid expansion of the financial sector stimulated global economic growth. However, its complexity also introduced significant uncertainties and instabilities. Asset securitization implies that capital value is not solely determined by productive forces it supports, but is also subject to unpredictable behavior of market participants. Insufficient information can trigger stock market crashes and asset devaluation, causing widespread panic that ultimately affects the real economy. Despite efforts by major economies to stabilize markets through fiscal and monetary policies, policymakers are human beings who possess inherent uncertainties and often adopt short-term approaches with unintended consequences. Efforts aimed at addressing current challenges may inadvertently lay the foundations for future problems due to their butterfly effect nature. Moreover, economic globalization can exacerbate these issues, highlighting a fundamental aspect of modern economic challenges. Using the Great Depression of 1930 as an example, this paper focuses on exploring political and economic factors contributing to outbreaks of economic crises and government measures taken to address them. Studying the Great Depression provides important historical lessons for today's policymakers, enabling them to better assess potential risks and formulate appropriate policies when facing economic crises. It also analyzes banking system fragility and financial markets susceptibility to failure without government regulation, aiding prevention of similar crises.