Aim: What was “Great” about the Great Depression? Title: Postwar Posterity Crumbles Do Now: 1.Actively read the handout titled, “What was the Great Depression?” 2.What does the word depression mean? Define it. 3.How might a local/regional depression (internally impacting one or a few countries) spread to various countries across the globe?

3. Think of: –Domino Effect –Spread of the common cold/disease. –While this was not the first depression in history, no, there were many before it, this one was entirely different. Why? Throughout this era, in the words of Thomas Friedman, the world was rapidly shrinking, or flattening out as a result of global trade markets, cultural diffusion, new technology as result of new ships, stock markets, telephones, etc.

As a result, global trade had become the “life blood” of various economies/financial markets. So, keeping that thought in mind, when this particular depression “hit,” it was totally different from any others from past history. In other words, unlike a country’s internal/regional depression, due to the changing global economies, for the first time, this depression became a global one = GREAT depression.

CAUSES!

Europe After the War WWI was extremely expensive and left nearly every European country bankrupt. Only Japan and America came out of the war in a better financial state. –Neither country had battles occur on their homelands. –They both were able to expand trade during WWI.

Other Problems In Europe From 1914 – 1918, Europe’s last absolute rulers had been overthrown. The new democracies in Europe were inexperienced and unstable.

Postwar Europe Unstable New Democracies Fall of kingdoms, empires creates new democracies in Europe People have little experience with representative government Some form coalition governments—temporary, multi-party alliances Frequent changes in government create instability

Weimar Republic Germany’s democratic government set up in 1919 and they also signed the Treaty of Versailles. Germany had several major political parties, which left it weak and ineffective. German people blamed the Weimar Republic for their country’s defeat and post-war humiliation.

Inflation To pay the expenses of war, the Germans simply printed more money. After Germany’s defeat, this paper money lost its value. Burdened with heavy reparations payments to the Allies, Germany printed more money. The result was the value of the mark decreased and severe inflation set in.

Germans needed more money to buy basic goods 1918Loaf of breadLess than 1 mark 1922Loaf of bread160 million marks 1923Loaf of bread200 billion marks People took wheelbarrows full of money to buy food. The mark had become worthless.

Woman feeding German marks into her stove

Children using stacks of money as blocks.

American Economy By 1929, American factories were producing nearly half of the world’s goods. The richest 5% received 33% of the income. 60% of American families earned less than $2,000 per year.

A Downward Economic Spiral Most families were too poor to buy the goods being produced. Unable to sell their goods, store owners eventually cut back their orders from factories. Factories reduced production and laid off workers.

Farming Crisis Scientific farming methods and new machinery dramatically increased food supply. A worldwide surplus of agricultural products drove prices and profits down. Unable to sell their crops at profit, many farmers could not pay off bank loans. Their unpaid debts weakened banks and forced some to close.

The Stock Market In 1929, Wall Street in NYC was the financial capital of the world. There was a massive economic boom going on in the U.S. 1920s To get in on the boom, many middle income people began buying stocks on margin. This meant they paid a small percentage of the a stock’s price as a down payment and borrowed the rest from a stockbroker. The system worked well as long as stock prices were rising. If they fell, investors had no money to pay off the loan.

New York Stock Exchange

PANIC In September 1929, some investors began to feel that stock prices were unnaturally high. They started selling their stocks, believing the rates would soon go down. By Thursday, October 24, the gradual lowering of stock prices had become an all out slide downward..

Black Tuesday Everyone wanted to sell stocks, and no one wanted to buy. Prices plunged to a new low on Tuesday, October 29. A record 16 million stocks were sold. Then the market collapsed.

EFFECTS!

People could not pay the money they owed on margin purchases. Stocks they bought at high prices were now worthless. Unemployment skyrocketed, prices, and wages declined.

By 1932, factory production had been cut in half. Thousands of businesses and banks failed 9 million people lost their savings accounts when banks had no money to pay them. Many farmers lost their land when they could not make mortgage payments. 25% of American workers had no jobs.

World trade dropped 65% The collapse of the American economy sent shock waves around the world. American investors withdrew their money from Europe. Congress placed high taxes on imported goods. Other nations also raised taxes on imported goods.

Europe’s economies plunge Because of war debts and dependence on American loans and investments, Germany and Austria were hit hard. In1931, Austria’s largest bank failed. This started a financial panic in central European countries and sent their economies plunging.

Japan’s economy plunges Crop failures of 1931 led to famine. Starving families ate tree bark and the roots of wild plants. City workers suffered as the value of exports fell. 3 million workers lost their jobs and had to return to their rural villages.

Latin America’s economy plunges European demand for Latin American products dried up. (sugar, beef, copper, tin) Prices for these goods collapsed. Cost of imported goods rose, pushed by high taxes. Latin American nations had borrowed heavily and could not repay their debts.

Great Britain Responds They increased taxes and regulated the currency. They also reduced interest rates to encourage industrial growth. By 1937, unemployment was cut in half, and production had risen.

France Responds By 1933, give different governments had come and gone. In 1936, another coalition formed of moderates, socialists, and communists – The Popular Front. They passed reforms for workers: Pay increases, holiday pay, 40 hour work week. Prices increased, and it didn’t really do anything for the unemployment rate.

Scandinavia (Denmark, Sweden, Norway) Responds In Sweden, the government sponsored massive public works projects that kept people employed. All of Scandinavia raised pensions for elderly and increased unemployment insurance, subsidies for housing, and other welfare benefits. The government taxes the citizens to pay for the costs of these programs.

U.S. Responds Franklin Delano Roosevelt began a program he called the New Deal. Large public works projects helped provide jobs New government agencies gave financial help to businesses and farms. Large amounts of money were spent on welfare and relief programs.

FDR

Regulations were imposed to reform the stock market and the banking system. The New Deal did eventually reform the American economic system, although the recovery was slow. It also established FDR as a world leader for democracy.

These countries were able to preserve their democracies during this global crisis, while other countries fell to dictatorships.