The Great Depression And Its Impacts PDF

**The Great Depression and its impacts** 1929-1939. drastic declines in output, acute deflation unemployment :1932: 25% employment decline in the industrial production 47% US 44%, Germany 37% world (not Soviet union) **possible key issue**: How far do you agree that economic nationalism was the...

**The Great Depression and its impacts** 1929-1939. drastic declines in output, acute deflation unemployment :1932: 25% employment decline in the industrial production 47% US 44%, Germany 37% world (not Soviet union) **possible key issue**: How far do you agree that economic nationalism was the key factor in the slide towards war in 1939? **possible key terms:** World-wide Economic Depression (1930s) Appeasement **beginnings** **A) Agricultural depression 1920s** increase introduction in the US during the war since it was not possible with war in Europe. after the war → agriculture revived. more production, prices went down. [but] farmers in the US that since they bought lands →couldn't couldn't pay their debts prices of overproduction, crisis of debt **B) Overproduction in the USA** After World War I people weren't buying consumer goods\`; in Europe markets restrained ---\> in the US: limits to what could be produced. domestic POV: segregated US, people couldn't afford it. people that could afford didn't buy much →produced way too much. **C) Decline of traditional industry** - Shift to oil based economy with ww1 decline in prices and profit for coal - =\>cotton industry in trouble **D) Wall Street crash** Lack of regulations for loans, as well as trading Stock market speculation leads to a bubble and then a crash, with stocks losing almost half of their value in two months **WALL STREET CRASH: SIGNIFICANCE** Major losses for shareholders, which included regular people, many of whom had bought stocks 'on margin' **IMPACT ON BANKING SYSTEM** Many Americans declared bankruptcy, could not pay debts -\> bank closures -\> individuals & companies lose savings -\> difficult for businesses to take out new loans Following bank closures, series of 'bank runs' 1930-1933, until FDR forced to declare a 'bank holiday' and give federal funding to some banks **IMPACT ON CONSUMER DEMAND** Lower consumer demand because many people lost money in stock market crash and/or bank closures -\> companies reduced production -\> laid off workers -\> vicious cycle **LOSS OF INVESTOR CONFIDENCE** With declining demand and instability in the banking system, few investors or businesses could or wanted to undertake new projects **Why did the Great Depression become a global phenomenon?** **GLOBAL TRADING SYSTEM** - If demand decreases in one country, other countries cannot sell as much to them -\> vicious cycle spreads **INTERNATIONAL FINANCE** Dependence of European countries on U.S. financing Withdrawal of U.S. capital after Wall Street Crash: U.S. investors sold foreign bonds or closed their foreign bank accounts U.S. banks restricted foreign loans In first 7 months of 1931, 2 billion marks pulled out of Germany by American and British creditors Bankruptcy of Austria's largest deposit bank, CreditAnstalt in May 1931, also linked to increased trade barriers in Eastern Europe -\> leads to bank runs across Europe **CURRENCY RUNS** The economic uncertainty of the Great Depression led to a series of 'currency runs' where foreigners sold currencies en masse for gold **GOLD STANDARD** Gold standard: Set of fixed exchange rates where currencies tied to gold. This was the system in the 1920s. **CURRENCY INSTABILITY** Governments either sought to maintain confidence in their currencies by keeping a balanced budget (e.g. in Germany) or they went off the gold standard and devalued the currency (e.g. in Britain **What were the possible policy solutions to the Great Depression?** 1/ **GOVERNMENT SPENDING** Maintain balanced budget to bolster the currency and foreign lending, by cutting government wages and benefits or by raising taxes -\> Liberals, German President Hindenburg - Possible solutions to shortage of government funds for unemployment benefits Acquire funds for unemployment benefits from other government sources, e.g. by reducing agricultural aid Raise taxes International (U.S.) financing, which would require a balanced budget and therefore a reduction in unemployment benefits \*Socialist Chancellor Hermann Mueller opted for reduction in unemployment benefits, causing controversy on the Left and his resignation President Hindenburg and new Chancellor Bruening will lack a parliamentary majority but use presidential decrees to pursue deflationary policies 12-16% cut in civil servants' salaries, two reductions in unemployment benefits, ordered a lowering of wages to level of January 1927 **DEFICIT SPENDING** **Deficit spending** for social welfare & new employment to increase consumer demand -\> U.S. President Roosevelt, John Maynard Keynes, Nazi government **FDR'S NEW DEAL** Agricultural Adjustment Agency: money for farmers to keep part of their land out of cultivation Public Works Administration: jobs in major infrastructure construction projects Federal Emergency Relief Administration: relief for the poor Social Security Act: old-age pensions and unemployment benefits \*Deficit spending also used in Nazi Germany on public works (e.g. highway system) Contributed to reduction of unemployment from 6 million in 1932 to 164,000 in 1936 State control of prices and wages to prevent inflation Nazi economic policies won the regime public support in the 1930s After WWII, liberal democracies would seek government intervention without the violence and coercion of the Nazi example **2/ INTERNATIONAL TRADE** Free trade: keep tariffs low, use international trade as way to stimulate economies Protectionism: raise tariffs to protect domestic industries (most countries did this in the 1930s, e.g. U.S., U.K.) Autarky: economic self-sufficiency to avoid dependency on the global economy (e.g. Nazi Germany) **PROTECTIONISM** Import Duties Act of 1932 in UK: 10% tariff on all goods (with the exception of those produced in British empire: 'imperial preference') Smoot-Hawley Act of 1930 in US: 20% increase in tariffs **AUTARKY** By 1938, German exports at 50% and imports at 33% of 1928 level Hermann Goering, head of Four-Year Plan in 1936, ordered production of synthetic rubber and oil and national production of steel Increased arguments for territorial expansion to gain agricultural and energy resources **What impact did the Great Depression have on international relations in the 1930s?** **CONSEQUENCES FOR INTERNATIONAL RELATIONS** Countries did not have resources or will to punish expansionist powers through economic or military sanctions -\> Militarist powers like Japan, Nazi Germany, and Fascist Italy could pursue imperialist agendas with impunity Deepened historic U.S. policy of isolationism: "National policy of avoiding political or economic entanglements with other countries" **U.S. ISOLATIONISM** Long history of isolationism, e.g. with Monroe Doctrine Backlash against WWI With Great Depression, strong desire in U.S. to focus on domestic economic recovery rather than international affairs (-\> money for New Deal rather than foreign wars) **Politically:** Non-entanglement in European (but not Latin American) affairs in the 1930s Continued non-participation in the League of Nations **Economically**: Protectionism -\> high tariffs with the SmootHawley Act of 1930 (up to 60%) **Militarily:** avoidance of involvement in European conflicts, with Neutrality Acts of 1935-37 banning loans and weapons exports to belligerents **CONCLUSION** Great Depression entailed a massive decline in consumer spending, widespread unemployment and poverty The Depression spread worldwide due to the global nature of trade, banking, and currency exchange The Depression made it more difficult to address foreign policy crises in the decade that followed