1. The Great Depression: The Collapse of the World Economy

2. The Prosperity of the 1920s:
After World War 1, the automobile became a product of mass production, and while this phenomenon was most pronounced in the United States, it was also a factor in Europe.
With increased demand for cars, steel, rubber, and oil all experienced rapidly expanding demand.
The new popularity of radios and movie theaters had implications in all directions.
“Prosperity” became a magical term, and some in Europe and America believed that the secret to prosperity and plenty had been discovered, and it would continue forever.

4. The 1920s prosperity was at least in part a mirage:
A significant portion of the 1920s prosperity was financed through increasingly easy credit.
Citizens of many nations were able to buy on credit far beyond their ability to repay the debt.
World War 1 had put as much as 25% of Europe’s agricultural fields out of production. Farmers in Europe and the United States and Canada struggled to put more acreage into production, taking on larger and larger mortgages to increase the land they had available to produce crops.

6. The 1920s prosperity was at least in part a mirage:
Increased acreage, new machinery and scientific seeding methods, suddenly flooded the world markets with way, way too much wheat. The price of a bushel of wheat collapsed. Cotton, corn, coffee, and cocoa all collapsed too.
Farmers from the USSR to Canada and the United States were faced with financial ruin. This agricultural depression served as the backdrop for the coming collapse of the world’s financial system.

7. Causes of the Crash of ‘29:
Post-war problems in domestic economies were everywhere—it was difficult to re-adjust from command, wartime economic structures.
Prices of agricultural goods declined steeply due to overproduction, sending agricultural prices to 400-year lows.
The rapid increase in use of oil and hydroelectricity led to a slump in coal industry.
European prosperity had been built upon American bank loans. By , investors were beginning to pull money out of Germany in order to invest in the booming stock market in New York.
Eventually, speculative behavior financed by credit caused a complete collapse of stock prices on the New York Stock Exchange.

8. The Effects on European Markets and Financial Institutions:
The international financial crisis was caused by crash of the American stock market, October 1929.
As American investors withdrew more and more funds from Europe to pay for their losses in the US, the banks in Germany and other recovering countries in Europe were severely weakened.
Trade slowed down, production declined, unemployment increased dramatically.

9. European Unemployment after the Crash:
By 1932, 1 in 4 in Britain were unemployed (25%)
40% of the German workforce was unemployed
Industrial production across Europe plummeted 50%
Women were increasingly being employed at very low wages, while out- of-work men remained unemployed, making them more open to the radical elements within their countries.

10. Governments around the world struggle to cope:
The classical liberalist (Malthus, Ricardo) answer to an economic depression was to balance the budget: this meant cutting costs, wages, raising tariffs to limit access to markets from outside manufacturers.
Since this just makes things even worse, there was renewed interest in Marxist doctrines across Europe and the United States.
And, the fear and suffering of everyday people caused an increase in the attractiveness of simple dictatorial solutions- fascism becomes a potential alternative to democracy.

11. The Democratic States Respond: Great Britain
Great Britain prior to WWI was more dependent upon overseas empires than others- but they were losing their lead in international trade: increased competition, tariffs, development of industry in colonies meant that the world was no longer dependent upon British industrial goods. Britain became an old, traditional industrial country that was outdated.
Britain was in depression in the 1920s, somewhat ahead of the US. welfare state was beginning
In the 1922 election the Labour party displaced the Liberal party as the second of the two major parties in Britain.
The Labour Party became a champion of labor legislation and bolder measures. Liberal party was more traditional and had called for classical, laissez faire policies.
The British Labour Party was made up of trade unions and socialists- and instituted a program of gradualist democratic socialism through Parliament and won support of and blessing of workers and the British middle class.

12. The Democratic States Respond: France
France sought to rebuild the many areas of its country devastated by war.
Raised taxes to pay for Ruhr Valley occupation.
Eventually they were able to stabilize the French economy from
The Popular Front, a coalition of leftists, was elected in June 1936, led by socialist Leon Blum. Blum and the Popular Front were elected after French fascists (right wing extremists) rioted just a year before.
Blum’s government Initiated a public works program, gave right of collective bargaining to most French industrial workers, established permanently the forty-hour workweek, paid vacation, and a minimum wage.
His program helped, but failed to solve the problems of Depression.

13. A little-known economist catches the attention of European leaders; (And an American named Franklin Delano Roosevelt too.  )
John Maynard Keynes ( )
Keynes wrote his General Theory of Employment, Interest, and Money in 1936
In it he argued against classical views of a balanced budget, and the approach of most western governments to the depression, which was:
Just chill, leave everything alone, cut spending, and wait till the depression works itself out.
Keynes believed that governments should create jobs through public works projects financed through deficit spending, thus stimulating production and economic activity.

14. Keynesian Economics diagram:
John Maynard Keynes

16. The Scandinavian Response:
The Scandinavian countries in Europe were the only successful example of governments dealing with the Great Depression.
Socialist Parties had grown steadily after World War 1, and Social Democratic governments had established cooperatives in rural and industrial areas
After the stock market crash, Scandinavian countries used large scale deficits to finance public works. (Keynesian economics)
These programs expanded social services, provided old age pensions and unemployment insurance, subsidized housing, provided maternity allowances, and established paid vacations in law.
To pay for these programs and the expanded bureaucracy required, Scandinavian governments raised taxes.
Between 1900 and 1939, Sweden experienced a greater rise in real wages than any other country in Europe or North America.
Some saw welfare democratic socialism as an appealing “middle way” between sick capitalism and cruel communism.

18. The Response in the United States:
In 1929, President Herbert Hoover’s response to the Great Depression was to remind the American people of their “Rugged Individualism”. He was willing to ‘wait it out’
This means, of course, that he loses the election in 1932 to Franklin Roosevelt who had promised to ‘keep trying new things until we discover something that works.’ FDR promises a “New Deal” to the American people, and it is a winning strategy.
The ‘New Deal’ depends on active government intervention in a stalled economy, providing jobs and economic stimulation with public works and the infusion of wages.

19. The Response in the United States:
Some examples of those programs include the Civilian Conservation Corps (CCC), the FDIC, the Works Progress Administration (WPA), the Social Security Act, and many others.
These programs, financed through deficit spending, brought relief and recovery--but not an end to the Great Depression. (FDR read Keynes)
World War II ends the Great Depression, as deficit spending will now be needed to finance the war effort.