Chapter 31 Section 2
“A Worldwide Depression”
A. Setting the Stage a. By the late 1920’s, European nations rebuilding economies i. Aided by loans from US ii. Stock market booming
B. Postwar Europe a. Every major country bankrupt b. Unstable New Democracies i. End of war saw sudden rise of new democracies
1. Little experience with representative govts
2. Large number of political parties made govt difficult a. Coalition govt
– temporary alliance of several parties, needed to form a majority ii. Frequent changes in govt led to lack of strong leadership
1. During times of crisis, weak govts led citizens to choose strong, authoritarian leadership over democratic govt
C. The Weimar Republic a. Was Germany’s new democratic govt, set up in 1919 i. Serious weaknesses
1. Germany had no democratic experience
2. Germans blamed Weimar govt, rather than wartime leaders, for country’s defeat and Versailles Treaty b. Inflation Causes Crisis in Germany i. Enormous economic problems
1. Hadn’t increased wartime taxes
2. Money lost value after war, so printed more money to pay reparations
3. Value of German Mark fell sharply
4. Severe inflation a. Loaf of bread went from 1 mark in 1918 to 200 billion marks in 1923
5. People began to question democratic govt ii. Attempts at Economic Stability
1. To recover from 1923 inflation, US (Dawes Plan) loaned $200 million to stabilize German currency and strengthen their economy

2. Inflation slowed and German economy began to recover a. Attracted more loans and investments from US iii. Efforts at Lasting Peace
1. France and Germany try to improve relations
2. Germany admitted to League of Nations
3. All countries sign the Kellogg-Briand Pact, pledging to renounce was as an instrument of foreign policy
D. Financial Collapse a. Late 1920’s, American prosperity sustained world economy b. A Flawed US Economy i. Weaknesses in US economy cause problems
1. Uneven distribution of wealth a. Rising productivity of factories leads to huge wealth for top 5% of population
2. Overproduction by business and agriculture a. Most families too poor to buy goods being produced i. Factories reduced production and laid off workers ii. More workers lost jobs, so even less goods bought, so more layoffs b. Increased farm output led to worldwide surplus of agricultural products i. Prices and profits fell ii. Farmers can’t pay off loans iii. Banks weakened, some forced to close c. The Stock Market Crashes i. Optimism led to soaring stock prices
1. more people buying stock
2. Sept 1929, some think stock prices too high and start selling stock, believing prices would go down a. Prices start going down fast, panic results i. Everyone wants to sell, no one wants to buy b. Market collapses – Oct 1929
E. The Great Depression a. Stocks worthless; industrial production, wages, prices decline; unemployment rises b. Great Depression
– a long business slump, follows

i. Factory production cut in half ii. Business fails, banks close iii. Banks have no money to pay people’s savings accounts iv. Farmers lost land v. By 1933, ¼ of Americans lost jobs c. A Global Depression i. US bankers demanded repayment of overseas loans ii. US investors withdrew money from Europe iii. High tariffs on imported goods into US to keep money home
1. Chain reaction – other countries put high tariffs
2. World trade dropped by 65%
3. Unemployment soared iv. Effects Throughout the World
1. Germany and Austria hard hit
2. Asian farmers and workers suffered as exports fell by half
3. Demand for Latin American goods dropped and prices collapsed
F. The World Confronts the Crisis a. Britain Takes Steps to Improve Its Economy i. Slow but steady recovery with high tariffs, increased tax and regulated currency ii. Preserved democracy b. France Responds to Economic Crisis i. Preserved democratic govt c. Socialist Govts Find Solutions i. Scandinavian countries
1. Built recovery on cooperative community action a. Taxed citizens to pay for unemployment insurance, housing subsidies, and welfare benefits
2. Democracy remained intact d. Recovery in the US i. FDR begins reforms called New Deal
1. Large public works projects for jobs
2. Govt agencies gave financial help to businesses and farms
3. Public money on welfare and relief
4. Believed govt spending would create jobs and start recovery ii. Preserved faith in democracy and established him as a leader in world