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Causes of the 1930s Global Depression

Page history last edited by Robert W. Maloy 10 months, 2 weeks ago

 

 

Unemployed workers, Scotland, 1930

Unemployed workers, Scotland, 1930

 

Topics on the Page

 

World History topics

 

Overview of the Great Depression

 
Restrictive Monetary Policies

 
Unemployment and Inflation

 
Political Instability

 
The influence of the ideas of John Maynard Keynes, Ludwig von Mises, Friedrich von Hayek, and Milton Friedman

 

 

 United States History topics

 

The Great Depression in the United States

 
Race and Gender During the Great Depression

 

  • How the New Deal Left Out African Americans

 

 

  • Lorena Alice Hickok

 

 

Focus Question: What were the various causes and consequences of the global depression of the 1930's and how did governments and economists respond?

 

Overview of the Great Depression


The Great Depression in Global Perspective from Digital History

For an excellent overview of the economics of the time, see the book Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed (Penguin Books, 2009).

 

Stories for the Great Depression with pictures in a video format from the National Archives

 

  • Link here for another timeline made with TimeToast

 

To view photographs of what life was like during The Great Depression, click here

 

 

 

Firemen work on the burning Reichstag Building, February, 1933

Firemen work on the burning Reichstag Building, February, 1933

 

 

 

Restrictive Monetary Policies

 

The Economic Consequences of the Peace (1920) by John Maynard Keynes where the economist argued that heavy reparations against Germany would cripple not only the German, but all European economies.

Modern central banking dates back to the aftermath of great depression of the 1930s.

 

  • Governments, led by the economic thinking of John Maynard Keynes, realized that collapsing money supply and credit availability greatly contributed to the savagery of this depression.

 

  • This realization that money supply affected economic activity led to active government attempts to influence money supply through "monetary policy." 

 

  • Nations created central banks to establish "monetary authority." This meant that rather than accepting whatever happened to the money supply, they would actively try to influence the amount of money available. This would influence credit creation and the overall level of economic activity.

 

  • Modern monetary policy does not involve gold to a great extent. In 1968, the United States rescinded its promise to pay in gold and effectively removed itself from the "gold standard."

 

  • Since then, it has been the job of the Federal Reserve to control the amount of money and credit in the U.S. economy. 

 

  • In doing this, it wants to maintain the purchasing power of the U.S. dollar and its comparative worth to other currencies. This might sound easy, but it is a complex task in an information age where huge amounts of money travels in electronic signals in microseconds around the world.

 

 

    • This conference led to the creation of an international standard for monetary policy, known as the Bretton Woods System, which lasted until the collapse of the U.S. gold standard, but still was hugely influential in creating the modern system of international political economy.

 

  • The conference led to the creation of the International Monetary Fund, designed to enforce a system in which exchange rates would be fixed to the U.S. dollar, as the international gold standard had collapsed in 1944, and to the creation of the International Bank for Reconstruction and Development, which helped finance Europe's recover from the war, and the General Agreement on Tariffs and Trade, which sought to foster international openness and an end to the rampant protectionism that contributed to the Great Depression.

 

    • The delegates at the conference initially attempted to create a body for regulating trade called the International Trade Organization, but the U.S. rejected this, before eventually joining the GATT, which went into effect in 1948.

 

  • The IMF remains influential today, although its prerogatives have shifted in the wake of the collapse of the U.S. gold standard, as does the International Bank for Reconstruction and Development, which is part of the World Bank, which offers finance for the developing world as well as Europe.

 

    • The GATT was replaced by the World Trade Organization, which fulfills a similar purpose, except with an even more complex agenda.


Japanese Expansionism

Restrictive monetary policies that resulted from the global economic depression during the interwar years of 1919-1939 led countries to use military force to capture resources that would aid in economic growth in a time of hardship.

 

  • In Japan during the pre-1850's they had been largely isolated from the rest of the World. Commodore Matthew Perry led a voyage of the "Black Ships" in 1854 to induce the Opening of Japan to trade with the United States. 

 

  • The Japanese thus was transformed from an isolationist economy to an economy more reliant on the world market. The Japanese economy industrialized and with this they needed access to raw materials like coal, iron ore, tin, copper, rubber and petroleum. They acquired a large portion of these materials from the United States and Europe. 

 

  • The problem that emerged was once the United States and Europe became more isolationist to try and fix their economic problems Japan lacked access to much needed resources. 

 

  • Their response was the invasion of many territories that possessed these resources. So the rise of a militarized and expansionist Japan was out of the need to acquire resources for an economic system that the United States forced on them in 1854.

 

Unemployment and Inflation


The stock market crash was just the first dramatic phase of a prolonged economic collapse.

 

  • Conditions continued to worsen for the next three years, as the confident, optimistic attitudes of the 1920s gave way to a sense of defeat and despair.

 

  • Stock prices continued to decline, and by late 1932 they were only about 20 percent of what they had been before the crash. With little consumer demand for products, hundreds of factories and mills closed and the output of American manufacturing plants was cut almost in half from 1929 to 1932.

 

  • Unemployment in those three years soared from 3.2 percent to 24.9 percent, leaving more than 15 million Americans out of work. Some remained unemployed for years; those who had jobs faced major wage cuts, and many people could find only part-time work. Jobless men sold apples and shined shoes to earn a little money.

 

  • A simple commonly used definition of the word inflation is simply "an increase in the price you pay or a decline in the purchasing power of money." In other words, price inflation is when prices get higher or it takes more money to buy the same items as before. Inflation is measured by the Bureau of Labor Statistics in the United States using the Consumer Price Index.

 

  • Falls in prices--deflation--during the Depression set in motion contractions in production which triggered additional falls in prices. With prices falling at ten percent per year, investors could calculate that they would earn less profit investing at the time than delaying investment until the next year when their dollars would stretch ten percent further. Banking panics and the collapse of the world monetary system cast doubt on everyone's credit and reinforced the belief that now was a time to watch and wait. The slide into the Depression, with increasing unemployment, falling production, and falling prices, continued throughout Herbert Hoover's Presidential term.

 

  • There is no fully satisfactory explanation of why the Depression happened when it did. If such depressions were always a possibility in an unregulated capitalist economy, why weren't there two, three, many Great Depressions in the years before World War II.

 

  • Economists Milton Friedman and Anna Schwartz argued that the Depression was the consequence of an incredible sequence of blunders in monetary policy. But those controlling policy during the early 1930s thought they were following the same gold-standard rules of conduct as their predecessors.


To see more see The Return of Depression Economics and the Crisis of 2008 by Paul Krugman (W. W. Norton, 2009). 

Click here to view both global maps and maps of the United States; portraying the changes in government spending,changes in unemployment, the effect of the depression on Europe, the effect on exports, and more during the 1920's and '30's.



Political Instability

 

The economic troubles of the 1930s were worldwide in scope and effect. Economic instability led to political instability in many parts of the world. Political chaos, in turn, gave rise to dictatorial regimes such as Adolf Hitler's in Germany and Emperor Hirohito's military in Japan. (Totalitarian regimes in the Soviet Union and Italy predated the depression.) These regimes pushed the world ever-closer to war in the 1930s.

When WWII finally broke out in both Europe and Asia, the U.S. tried to avoid being drawn into the conflict. When Japan attacked the U.S. Naval base at Pearl Harbor, Hawaii, on December 7, 1941, the U.S. found itself in the war it had sought to avoid for more than two years. Mobilizing the economy for world war finally cured the depression. Millions of men and women joined the armed forces, and even larger numbers went to work in well-paying defense jobs. World War II affected the world and the United States profoundly; it continues to influence us even today.

Germany during the Great Depression.

War Guilt Clause included in the Treaty of Versailles put the entirety of the blame of World War I upon Germany and its allies. 

  • Thus Germany was forced to pay tremendously high reparations for damages inflicted upon their enemies. Germany could not afford to pay these extraordinarily high reparations and began to print more money in order to finance the debts they were forced to pay after World War I.
    • Economists like John Maynard Keyes recognized the detrimental effects this would have on the global economy. 
  • With the global economy struggling because the currency of Germany was depreciating so rapidly the Dawes Plan sought to reform the reparations on Germany. This likely helped aid in the fixing of German hyperinflation but ripples would be felt throughout the world do to the reparations already enforced. 
    • This created a context where totalitarian leader Adolf Hitler to gain control of Germany and keep control dispute his extreme policies. With most Germans opposed to the Weimar Republic allowing this injustice being forced onto the people of Germany by agreeing to the Treaty of Versailles a new leader who opposed the Weimar leadership gained vast support.


For an overview of the Rise of Fascism and how economic and political instability explains why citizens followed them.

FDR "Declares War on the Great Depression"

  • Interact with FDR's actual Inaugural Address from 1933.
  • Discusses the "psychology of the Great Depression"
  • Explains his plan to expand the Federal Government to end the Great Depression


For a Lesson Plan for Worldwide Depression and the Rise of Totalitarian Governments

Lesson Plan for student game: Stimulating the Economy

The influence of the ideas of John Maynard Keynes, Ludwig von Mises, Friedrich von Hayek, and Milton Friedman


external image john_maynard_keynes3.jpg external image Ludwig_von_Mises.jpg external image hayek.jpg external image friedman.jpg

FROM LEFT TO RIGHT: KEYNES, VON MISES, VON HAYEK AND FRIEDMAN

 

The Great Depression in the United States

 

A Depression-Era Anthem For Our Times


Click here to view a simple unemployment map of the United States during the Great Depression.

The new consumer-oriented lifestyle of the 1920s led Americans of all income brackets to spend heavily. Consequently, this increased consumption spurred business growth, resulting in great profits for corporations and corporate leaders. The growth in company profits did not greatly effect workers' wages, however.

A great disparity grew between upper and lower classes of society. The top .1% of the U.S. population represented the total income equivalent to the bottom 42%. Nevertheless, people continued to spend money. A new age had arrived, and people wanted to keep up with the new styles of the time. This led people to take out huge sums of credit from banks, a new phenomenon.

Ultimately, massive debts incurred which contributed to a collapse of the Stock Market.

To look at the social consequences of the Great Depression in the United States, check out Hard Times: An Oral History of the Great Depression, by Studs Terkel. As indicated by the title, this is an oral history that focuses on the perceptions of individuals who lived through the events, from all different backgrounds.

Causes of the Great Depression

Agricultural debt following WWI

Read the coverage from The New York Times at Looking Back at the Crash of '29.

Not only were Americans falling in debt, but other nations owed the U.S. money as well. WWI left European countries ravaged and burdened by poor economies. They began getting huge loans from the U.S. that many nations were unable to pay back completely. Similar to domestic consumer debt, this also helped precipitate the economic crash. In sum, the U.S. was loaning out a vast amount of money that people and countries were unable to pay back. U.S citizens had false hope in the flourishing times of the "roaring 1920s." The stock market had been climbing rapidly, so people continued to invest in it. Even people of modest to low incomes put a good percentage of their wealth into the market. This greatly contributed to the downturn of the economy when the market crashed in 19291).

Click here to read a lecture outlining the economic environment of the 1920s in the U.S. from Professor DeLong at University of California Berkeley

Franklin D. Roosevelt's First Fireside Chat

Here is a website called the New Deal Network containing various different aspects as a result of FDR's New Deal. For example there are links for "The Great Depression and the Arts" or a "New Deal Document Library"

New Deal Crash Course.

This link from the Federal Registry for Educational Excellence provides different teaching lessons on the Great Depression. You can also type in other history topics too.

The Federal Reserve Bank of St. Louis offers excellent lesson plans for teaching the causes and effects of the Great Depression in the United States.

Race and the Great Depression


Great Depression in other countries


Race and Gender during the Great Depression

 

Learn about race relations during the Great Depression here.

 

 

Mexican-American Women in California, 1933

Mexican women in California, 1933.

 

 

 

 

 

 

 

 

 

 

 

 

Women and the Depression                                                                                                                                                                                             

 

How the Great Depression Affected Working Women from History Channel. 

                                                                                                                                                                                                                                                                                                                                                                                                                   Mary McLeod Bethune


Mary McLeod BethuneWomen's Place in the Workforce During the Great Depression


Questions to Consider:

  • How did consumer culture influence the need for more than one income for families?
  • Can you spot similarities and differences between men's and women's experiences during the Great Depression?
  • What about similarities and differences between women of different racial/cultural backgrounds?


Social and Cultural Effects of the Great Depression

  • Mass migration--fleeing the Midwest because of the Dust Bowl
  • Increasing crime rate
  • Demographic changes: "poor man's divorce" (abandonment)
  • Trends in Pop Culture: Frankenstein, Gone With the Wind


Mary McLeod Bethune

  • Head of negro affairs in the National Youth Administration under FDR
  • named one of the 50 most influential women in America
  • created unofficial black cabinet
  • her work as an educator lead her to become an influential political activist


Lorena Alice Hickok

  • influential journalist during the Great Depression and New Deal
  • close friend to Eleanor Roosevelt
  • gained unprecedented power as a woman in the field of journalism
  • became executive secretary of the Women's Division of the Democratic National Committee (DNC) in 1940




Sources:
http://encarta.msn.com/encyclopedia_761584403/great_depression_in_the_united_states.html
http://www.j-bradford-delong.net/TCEH/Slouch_Crash14.html
http://mutualfunds.about.com/library/graphics/1929crash.jpg
http://memory.loc.gov/learn/features/timeline/depwwii/depwar.html
http://www.williecolon.com/health/hitler2.jpg
http://www.worldwartwobooks.com/shopimages/products/thumbnails/japanese%20army%20300407.jpg
http://www.econlib.org/library/Enc/bios/Mises.html
http://www.jobsletter.org.nz/jbl04611.htm
http://encarta.msn.com/encyclopedia_761576962/Hayek_Friedrich_August_von.html
http://encarta.msn.com/encyclopedia_761558008/Friedman_Milton.html
http://www.adeptis.ru/vinci/john_maynard_keynes3.jpg
http://nobelprize.org/nobel_prizes/economics/laureates/1974/hayek.jpg http://news-service.stanford.edu/news/2006/november29/gifs/friedman.jpg
http://newdeal.feri.org/index.htm
http://www.loc.gov/teachers/classroommaterials/presentationsandactivities/presentations/timeline/depwwii/race/
http://www.pbs.org/wnet/jimcrow/stories_events_depression.html
https://www.gilderlehrman.org/history-by-era/great-depression/essays/women-and-great-depression

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