1) After WWI, absolute monarchies in Europe are
replaced by weak democratic republics. What
made them weak?
• Little experience
• Too many political parties made governance
difficult (why?)
• Frequent disagreement on public policies
among too many competing parties
• Too much turnover (change) of parties in
power
• A lack of strong, consistent leadership, and the
inability to put stable, long-term policies in
place.
2) COALITION GOVERNMENT:
Temporary alliance of several minority political
parties combined to form a legislative majority.
3) Kaiser Wilhelm II monarchy replaced by:
the WEIMAR REPUBLIC.
Problems:
1. Germans inexperienced w/ democracy.
2. too many political parties
(weak coalition government)
3. BLAMED for signing the Treaty of Versailles
4. ineffective at dealing with postwar
economic troubles (inflation, debt)
4) Germany’s plan to pay for WWI:
Print more currency.
WHY a poor policy?
Resulted in hyper-inflation,
made worse by the
reparation payments of
the Treaty of Versailles
(the Weimar Republic
continued the policy of
printing more money).
5) Germany’s economy slowly begins to rebound
in the late 1920’s:
The ‘Dawes Plan’ (from U.S. banker Charles
Dawes) provided a [$200 m] loan to Germany
[$2.7 b in 2013], which allowed Germany to:
- stabilize their currency against inflation
- refinance their war reparation payments
more reasonably
- provide a basis for investments to
strengthen the German economy
U.S. investors are rewarded with positive
returns on a recovering German economy,
attracting additional capital.
6) Locarno Pact (1925)
• France & Germany pledged peaceful relations
toward one another.
• Germany also agreed to respect their new
borders from the Treaty of Versailles.
• In return, Germany joined the League Of
Nations.
7) Kellogg-Briand Pact (1929)
Most nations agreed to “renounce war as an
instrument of national policy” (global peace
pact) BUT…
… there was no ability to enforce it (weak
League of Nations).
8) European postwar economic recovery most
depended on U.S. investments… but the U.S.
economy was flawed:
• Uneven distribution of wealth: too few people had
too much wealth
• Overproduction by businesses AND farms
• Underconsumption by U.S. consumers, who didn’t
earn enough money to keep up with the production
of goods.
9) Problem of overproduction + underconsumption:
• Inadequate income leads to less consumption.
• When consumption decreases, production
decreases, leading to job layoffs & unemployment.
• Unemployment leads to less consumption…
reducing production even more, and causing more
layoffs… a vicious cycle.
10) Agriculture production faces similar problems:
Industrial farming (using new scientific methods
and machinery) increased production
… while global farming output & competition
simultaneously increased
… creating a surplus of crops, driving down
farming profits (oversupply of crops)
… farmers were then unable to pay off their
loans, destabilizing the banks that had issued
the debt.
11) The U.S. stock market in the 1920’s:
11) The U.S. stock market in the 1920’s:
• Throughout the 1920’s, stock values were going up.
• Many investors of more modest means (i.e. the middle
class) began buying stocks “on margin” (borrowing
money to buy more stocks than they could afford,
anticipating continual growth in stock values to pay for
it) = SPECULATIVE BUYING
• HOWEVER, inflated stock values began dropping
(b/c of overproduction + underconsumption!).
• Investors became more panicked, trying to sell their
stock shares, but in a market with few buyers.
• With more sellers than buyers, the stock market
crashed, and most investors lost everything they had
put into stocks.
• This moment marked the beginning of the Great
Depression.
Factors contributing to the Global Depression:
→ overproduction + underconsumption = too much supply
(in industry AND agriculture) + too little demand
drives down prices (deflation), lowers production & profits
(and, subsequently, stock values)
→ large INCOME GAPS between rich and everyone else
(investments of wealthy also lead to overproduction,
while limited earnings of middle and working class
cannot support enough consumption for GDP growth)
→ OVERSPECULATION in the stock market = too much
borrowing to gamble on the stock market... followed by the
stock market CRASH (panicked sell-off of investments with
not enough buyers = stock values plummet)
→ Laissez-faire economic policies, few regulations (i.e.
banks overextend credit & loans, with low cash reserves)
→ unpaid loans + lost investments + a run on bank deposits =
BANK FAILURES = less $$$ and credit in circulation!
12) EFFECTS of the Depression:
• Business failures & bankruptcies.
• Bank failures & lost savings.
• Lost farms, repossessed by banks.
• 25% unemployment (and underemployment!)
• An end to foreign loans & investments (i.e. in Europe)
• High trade tariffs (by all nations)
• Dramatically reduced international trade
13) BRITISH reaction to the Depression:
• Increased tariffs
• Increased taxes
• Regulated their currency better
• Lowered interest rates (encourage borrowing &
spending)
EFFECTIVENESS:
Slow & steady recovery, preserving stable democracy.
14) SCANDINAVIAN (Northern European) reaction to
the Depression:
- “Cooperative community action”
- Government public works
projects to employ citizens
- Government-funded retirement
pensions & unemployment
insurance to stimulate
consumption
- Policies funded through
tax policies (on all citizens)
EFFECTIVENESS:
Slow & steady recovery, preserving stable democracy.
15) U.S. reaction to the Depression:
U.S. President Herbert Hoover replaced by
Franklin Roosevelt, who introduces the “New Deal”:
• Government public works projects employ citizens
• New government agencies provide financial
assistance to businesses & farms
• Government spending on relief programs and welfare
(i.e. Social Security)
• Increased government regulations to prevent
problems in the stock market & the banking system
(i.e. deposit requirements, limiting amount of stocks
bought on margin, the FDIC, Glass-Steagall)
EFFECTIVENESS:
Slow & steady recovery, preserving stable democracy.
16) Italy & Germany (and Japan!) react to the
Global Depression:
• In the absence of strong democratic experience,
citizens turned to fascism to solve their problems.
• Fascist leaders intended to MILITARIZE and
IMPERIALIZE to recover from the global
Depression, conquering neighboring nations and
stealing their assets.
WWII is on the horizon!