A Worldwide Depression
Chapter 15
Section 2
Main Idea
 An economic depression in the United States spread
throughout the world and lasted for a decade.
 Many social and economic programs introduced worldwide
to combat the Great Depression are still operating.
Introduction
 By the 1920s, European nations were building war-torn
economies.
 The U.S. loaned other nations money to rebuild.
 Americans were certain that their economy would continue to
prosper.
 Booming stock market.
 The American economy, however, had serious weaknesses that
were about to be revealed.
Postwar Europe
 World War I was extremely costly.
 Death ~ 8,000,000; Wounded ~ 19. 5 million
 Money ~ 338 billion
 The Great War left every major European country nearly
bankrupt.
 Europe’s domination in world affairs also declined.
Unstable New Democracies
 After the war new democracies were created.
 During the war, the last absolute rulers were overthrown.
 1917 – Russia forms a new government, The Provisional
Government.
 Hoped to establish constitutional and democratic rule.
 However, within months it fell to a Communist dictatorship.
Coalition Government
 Europeans had little experience with a representative
government.
 In the past, the kings and queens ruled the nations.
 Some countries, like France, had parliaments before WWI.
 Problem – too many political parties
 The winning party could not gain enough support to rule effectively.
 If no single party won, then several parties formed an alliance
– coalition government.
 Seldom lasted long.
Coalitions
 Because coalitions rarely lasted long it was difficult for
democratic countries to develop strong leadership and focus
on long-term goals.
 Therefore, many voters were willing to sacrifice democratic
government for authoritarian leadership.
The Weimar Republic
 1919 - Germany’s new government – Weimar Republic.
 Weaknesses
 1. Germany lacked a strong democratic tradition.
 2. Several major political parties and many minor ones.
 3. Millions of Germans blamed the Weimar Republic for their
defeat and humiliation caused by the Versailles Treaty.
Inflation Causes
Crisis in Germany
 Germany had major economic problems.
 During the war, Germany did not
increase its wartime taxes.
 To pay for the war, Germans simply
printed money.
 What’s the problem with that?
 INFLATION
 After Germany’s defeat, the money
steadily lost its value.
Inflation
 Germans needed more and more money to buy the basic
goods.
 1918 – Berlin – a loaf of bread cost less than one mark.
 1922 – Berlin – 160 marks.
 1923 – Berlin – 200 billion marks.
Attempts at Economic Stability
 Charles Dawes, an American banker, developed a plan that
provided for a $200 million loan from American banks.
 This plan also set a more realistic schedule for Germany’s
reparations payments.
 Dawes Plan helped slow inflation.
 By 1929, German factories were producing as much as they
were before the war.
Efforts at a Lasting Peace
 1928 – almost every country in the world signed an
agreement to “renounce war as an instrument of national
policy.”
 Known as the Kellogg-Briand Pact.
 There was no way to back up the treaty.
 The League of Nations did not have any armed forces.
 The U.S. still refused to join.
 However, the peace agreement seemed to be a good start.
Financial Collapse
 There were several weaknesses in the U.S. economy:
 Uneven distribution of wealth
 Overproduction by business and agriculture
 Many Americans were buying less
 By 1929 – American factories were producing about ½ of the
world’s industrial goods.
Uneven Distribution of Wealth
 There were large profits from industry.
 The richest 5% of the population received 33% of all income
in 1929.
 60% of American families earned less than $2,000 a year.
 Most families were too poor to buy goods that were being
produced.
Endless Cycle
 Most families were too poor to buy goods  store owners
cut back orders  factories cut back production  laid
off workers  families bought fewer goods  factories
made more cuts in production  laid off more workers…
Overproduction
 Overproduction affected American farmers, as well.
 New methods and machinery made it possible to grow
more food.
 New competition from other countries.
 Surplus  drove prices down  profits decrease 
farmers can’t pay mortgage  banks close
 People don’t see the signs of a crashing economy and
continue to play the stock market.
The Stock Market Crashes
 1929 – Wall Street is the financial capital
of the world.
 People were excited about the booming
economy.
 Middle class people often bought stocks at
margin.
 They pay a down payment on the stocks and
borrow the rest from a stock broker.
 Worked great as long as stocks were rising.
 If they fell, how would you repay the broker?
The Crash
 September 1929 – investors felt that stocks were
unnaturally high.
 Sold their stocks out of fear of a decline.
 October 24th – by this point the lowering of stock prices
had become a downward spiral.
 A panic resulted.
 Everyone was selling stocks and no one was buying.
 October 29, 1929 – 16 million stocks were sold.
 The market collapsed.
The Great Depression
 People could not pay the money they owed on margin
purchases.
 Stocks bought at high prices are now worthless.
 Unemployment rates began to rise, production, prices and
wages declined.
 This long business slump is known as the Great
Depression.
The Great Depression (cont.)
 The stock market crash quickened the collapse of the
economy.
 1932 – factory production was cut in half.
 Thousands of businesses failed, banks closed.
 Around 9 million people lost all the money in their
savings accounts because the banks had no money to
repay them.
 Farmers lost their land.
 By 1933 – ¼ of American workers had no jobs.
A Global Depression
 The collapse of the American economy sent shock waves
around the world.
 American bankers demanded repayment on overseas loans.
 U.S. Congress placed high tariffs on import goods so that
U.S. dollars would stay in the U.S.
 Backfired
 Conditions worsened.
 Set off a chain reaction.
 World wide trade dropped by 65%.
 Unemployment rates soared.
Effects Throughout the World
 Due to war debts and dependence on American loans,
Austria and Germany were particularly hit hard.
Britain Takes Steps to Improve Its
Economy
 Britain was hit severely by the Depression.
 Elected a National Government.
 Passed high tariffs, increased taxes and regulated currency.
 Lowered interest rates.
 Brought a slow but steady recovery.
 By 1937 – unemployment was cut in half.
 Production increased.
Recovery in the United States
 1932 – the first
presidential election after
the Depression.
 America elected Franklin
D. Roosevelt.
 Sought to restore
Americans’ faith in their
nation.
New Deal
 Roosevelt immediately began a program of government
reform called the New Deal.
 Public works projects provided jobs for the unemployed.
 New government agencies gave financial help to businesses
and farms.
 Welfare and relief programs.
 Roosevelt believed that government spending would create
jobs and start a recovery.
 Regulations were imposed to help the stock market and
the banking system.
New Deal (cont.)
 New Deal did eventually reform the American economic
system.
 It wasn’t until the U.S. entered WWII in 1942 when a full
recovery happened.
 How could another war lead to economic recovery?