Name Directions: Read and annotate for answers to the questions below. Remember, you must underline where you find the answers AND write a note in the margins for full credit. - What were the causes of the Great Depression? - How did the Great Depression affect the countries of Europe socially, politically and economically? - How did the Great Depression affect Germany specifically? - How did Hitler gain power in Germany? Global Impact 1929-1939 Introduction The crash of the U.S. stock market in October 1929 and the ensuing Great Depression did not immediately sweep the world in a universal wave of economic decline. Rather, the degree, type, and timing of economic events varied greatly among nations. Many believed the Depression was largely exported by the United States to Europe and other countries in the 1930s through the various economic policies it adopted. The U.S. economy was flourishing perhaps more than any other nation in the 1920s. With the onset of the Great Depression, it suffered sharp declines in manufacturing output and general employment. Other industrial countries experienced difficulties. For example, one outcome of the Great Depression was a collapse of world trade. The sharp decline was brought on by a round of tax increases on imported goods (tariffs) instituted by any nations turning inward trying to bolster their own sagging economies. In 1931 German industrial production decreased more than 40 percent; 29 percent in France; and 14 percent in Britain from 1929 levels. It was abundantly clear that the world was heading into a global crisis. As a result, international tensions and labor strife began rising. Events of 1931 began cascading, with one crisis leading to another. Austria s largest bank collapsed in May 1931 and concerns over the possible weak financial condition of other European banks immediately led to European residents rushing to banks where they had their money deposited. The rush of crowds of depositors all at once further weakened banks and even affected banks not 5 0
previously in financial trouble. This run on banks led to failure of German banks by mid-june. As a result, Germany announced it could no longer keep paying its debts resulting from World War I (1914 1918). This led to economic problems in other European nations and the United States, reliant in part on those payments to fund their own government operations. The new and struggling German government, called the Weimar Republic, itself raised international concern. The young government was heavily burdened by war debts imposed by other European nations. With its economy struggling, its citizens had little faith in the government. Economic crisis continued to spread to other European nations. Great Britain responded with major budget cuts and finally a change in government. By September 1931 Britain had exhausted its options to stabilize its economy and decided to free its currency from the longstanding gold standard, allowing it to pursue other monetary options and strategies. This meant Britain s money was no longer tied formally to exchange rates of other nations based on a standard value of gold. This change gave it much greater flexibility to alter the value of its money in trying to recover from the Great Depression. Other nations began following the same path. By 1933 unemployment rates in Europe were soaring. Of the available workforce in each country, unemployment rates were 26.3 percent in Germany, 23.7 percent in Sweden, 14.1 percent in Britain, 20.4 percent in Belgium, and 28.8 percent in Denmark. In France social unrest was escalating with the effects of unemployment in addition to the rise of the Nazi Party in neighboring Germany. Political leaders of the various nations were coming under increased pressure to adopt forceful policies to end the Depression. Seeking solutions to the world crisis, more than 60 nations met at the 1933 World Economic Conference in London. When cooperative international solutions proved futile and the conference collapsed, the world seemed sentenced to a prolonged economic depression. Each nation was largely left to recover on its own. Of even greater consequence to the world, the economic hardships of the Great Depression led to destabilization of European politics. The nations one by one, led first by the United States and then Britain, turned inward to try to solve their problems apart from other nations. The lack of economic and political cooperation fueled the growth of nationalism. Nationalism is when a nation places its needs significantly over the interests of other nations. This trend had major effects for the world economy and politics. Most notably the National Socialist party grew rapidly in Germany bringing with it a new ruler, Adolf Hitler. Chronology: October 1929: The U.S. stock market crash damages Latin America economies, but immediate economic effects in Europe are more limited. June 17, 1930: President Herbert Hoover signs the Hawley-Smoot Tariff Act dramatically raising import taxes on foreign goods leading to a major disruption of world trade and substantial economic hardships in Europe. May 1931: Austria s largest commercial bank, the Kreditanstalt, collapses triggering a financial panic throughout Europe. September 21, 1931: British Parliament drops the gold standard meaning British banks are no longer required to back British currency with gold. January 1933: Adolf Hitler becomes chancellor, assuming governing leadership of Germany. April 19, 1933: President Franklin Roosevelt takes the U.S. economy off the gold standard. June 1933: The World Economic Conference unsuccessfully seeks cooperation among nations to resolve the global economic crisis. September 25, 1936: France, Britain, and the United States agree on monetary stabilization measures marking the beginning of international economic cooperation. September 1939: Germany invades Poland leading to the outbreak of World War II and eventual end of the Great Depression. The global economic crisis and the world s poorly organized response to it in part led to the outbreak of World War II in Europe in 1939. Many nations believed the Great Depression was exported by the United States. Though the European nations were economically struggling from war debts and recovery, the U.S. economy boomed through the 1920s until the October 1929 stock market crash. Hit with huge financial losses from the crash, U.S. investors pulled out of European investments. In an effort to promote more sales of goods produced in the United States, Congress raised tariffs on foreign H i s t o r i c E v e n t s f o r S t u d e n t s : T h e G r e a t D e p r e s s i o n 5 1
SKIP Keep skipping... produced goods making them less attractive to U.S. consumers. The withdrawal of investments, raising of tariffs, insistence that war debts owed European nations be paid to the Untied States, and retreat from the gold standard all served to further weaken foreign economies. This influence eventually pushed them into the Depression as well due to the loss of foreign capital and markets for their goods. Issue Summary International Relations During the Great Depression Increasing economic prosperity in Europe through the 1920s was largely fueled by the industrial and financial strength of the United States. Following World War I (1914 1918) the United States was the largest producer, lender, and investor in the world. As a result when the U.S. stock market crashed, marking the start of heavy economic decline, other nations looked to the United States to help reinforce the shaky economic prosperity in Western Europe and other parts of the world. The most immediate foreign effect of the economic crisis occurred in Latin America. The Latin American economy was highly dependent on selling raw materials to U.S. industries. Europe was not as quickly affected as American loans and investments kept coming, though at an even slower pace. By 1931, however, the flow of investment capital from the United States had halted. In fact, the flow of money reversed as Americans began withdrawing investment money out of Europe to pay their own debts. Perhaps the most significant factor leading to a global economic crisis was not the crash of Wall Street but a dramatic decline in world trade. This decline was largely triggered by protectionist legislation passed by the major trading nations. Nations were trying to protect prices of their domestically produced goods from foreign competition. This global trend began when President Herbert Hoover (served 1929 1933), attempting to raise America s farm produce prices, signed the Hawley-Smoot Tariff Act on June 17, 1930. The act raised import taxes (duties) on selected goods from 26 percent to 50 percent. This new level was so high that other nations were no longer able to sell their goods in the United States. In reaction they raised their own import tariffs. These increases made it difficult for U.S. companies to sell their products abroad. As a result world trade declined 40 percent. A dramatic decline of income and widespread unemployment in Europe followed. A few European nations such as Sweden were able to close their doors to the spreading depression due to what proved to be fortunate economic policy decisions. The dramatic decline in international trade led to sharp drops in European production, increased unemployment, and finally collapse of some banking systems. With the U.S. economy showing some short-lived signs of recovery, Hoover attempted to blame inadequate European policies for the prolonged Depression. He believed the stock market crash would not have led to a full-blown global depression without Europe s panics as evidenced by a number of bank runs in 1931. SKIP Frustrated with Hoover s perspective and lack of interest in substantially helping Europe, many foreign nations looked forward to the newly elected President Franklin D. Roosevelt (served 1933 1945) taking office in March 1933. But much to their dismay, Roosevelt continued the long trend of his predecessors. He turned his New Deal programs inward to solve U.S. domestic problems. As a result hopes of stabilizing the global economic situation at a World Economic Conference held in London in June 1933 met with resounding failure. With each nation left to individually recover, the effects of the Great Depression on economic and political events in Germany, Austria, France, Russia, Latin America, the Far East, and Australia differed. Because of their diverse experiences, the European nations and other global regions are listed below in the order of most affected to lesser affected nations and regions. Germany and Austria START AGAIN HERE!! The European countries hardest hit by the Great Depression were Germany and Austria. Collapse of world trade in 1930 had major affects. German production fell over 40 percent. Hard times brought growing labor unrest, and with labor unrest political changes began brewing. In 1930, 107 Nazi and 77 Communist party members were elected to German parliament. Austria s economy, intertwined with Germany s, was also severely impacted. Austria s largest commercial bank, Vienna s Kreditanstalt, collapsed in May 1931, which financed two-thirds of Austrian industrial production and held 70 percent of the country s bank assets. Its collapse triggered a financial panic throughout Europe leading to a stampede on European banks by depositors. In June and July 1931 the German central bank, the Reichsbank, lost $2 billion in gold and foreign currency to withdrawals. To provide some economic relief to a struggling Germany in 1931, U.S. President Herbert Hoover temporarily suspended for one year requirements for war debt (reparation) pay- 5 2 H i s t o r i c E v e n t s f o r S t u d e n t s : T h e G r e a t D e p r e s s i o n
Global Impacts of the Great Depression GERMANY CANADA BRITAIN POLAND RUSSIA UNITED STATES FRANCE AUSTRIA COLOMBIA PERU BRAZIL CHILE AUSTRALIA Nations affected strongly by the Great Depression Map of the countries affected strongly by the Great Depression. (The Gale Group.) ments Germany was making to the United States and other Western European countries. These payments imposed by the victorious nations of Europe and the United States followed Germany s surrender. They were very steep amounting to $500 million a year. German payments were to be paid to France (52 percent), Britain (22 percent), Italy (10 percent), and Belgium (8 percent). These countries would in turn use this money to pay war debts owed to the United States. In 1932, as the one-year suspension of Germany s war reparation payments came to an end, European nations tried to convince the United States to cancel the reparations altogether. They believed the payments were undermining the German economy and threatening the stability of its new government. Social unrest that resulted was leading many to political radicalism, supporting the rising communist and Nazi parties. President Hoover refused to permanently relieve Germany of the debts believing Germany should not be let off the hook for its role in World War I and needing the payments to help fight the declining U.S. economy. This disagreement led to further distancing between the United States and European nations and continued economic hardships in Germany. Six million Germans, almost one-third of the workforce, were unemployed. Germany announced it could no longer make war reparation payments and stopped making them. Germany and central European nations began to adopt additional policies rooted strongly in nationalism that further distanced their economies from the global market. By January 1933 Adolf Hitler gained the main governing position, known as chancellor, over the struggling German nation. German President Paul von Hindenburg continued serving as the more ceremonial head of state. When a main government building in Berlin, the Reichstag, burned in February 1933, Hitler claimed it was a communist plot and used it as an excuse to assume totalitarian powers. He suspended most civil laws governing Germany. Throughout the early years of the Depression the National Socialist party led by Hitler s Nazis had steadily gained strength in German elections. By strongly supporting Hitler, the German voters were making a statement against democracy and capitalism in that country. When President von Hindenburg died on August 2, 1934, Hitler replaced him, completing his takeover and gaining full control of the nation. Ironically Roosevelt s New Deal and Hitler s New Order were launched in the same year. The New Deal was a combination of diverse economic and social programs promoted by Roosevelt s administration beginning in March 1933. They were designed to provide relief to those Americans most affected by the H i s t o r i c E v e n t s f o r S t u d e n t s : T h e G r e a t D e p r e s s i o n 5 3
Adolph Hitler breaks ground on the Autobahn as part of his New Order plan to stimulate the German economy in 1933. ( Bettmann/Corbis. Reproduced by permission.) Great Depression. A key aspect was dramatic growth of the federal government and its increased role in the daily lives of Americans. The New Order was a grand economic and social scheme promoted by Adolf Hitler built on beliefs such as racial superiority, military expansion, government operation of industry, and strict control of German citizens. The New Order was in response to the post-war economic crisis of Germany worsened by affects of the Great Depression. Americans were fearful of the drastic economic and political change occurring in Germany. Some Americans feared the New Deal could lead to similar changes in the United States and threaten U.S. democracy and capitalism. A key goal of Hitler s during this period of the early 1930s was the desire to acquire more breathing room for Germany. Germany had a large population for a relatively small geographic space. His desire for German expansion would require several years of preparation. To this end he applied major public works programs in the early 1930s to not only aid in economic recovery but achieve his expansion goals. Construction of the famed German autobahn system in the mid-1930s would later support military needs for rapidly transporting military forces long distances. The actual militarization industrial program itself began in 1935 with building the necessary armament. The German unemployment rate declined to a point that labor shortages existed by 1938. At the time many, even including some prominent Americans such as Henry Ford, hailed Hitler as a hero for his economic recovery achievements. From 1932 to 1938 industrial production rose 75 percent. This recovery, however, came at a great expense to personal freedoms. The dramatic nature of Germany s economic condition following World War I led to dramatic events that would pull it out of economic strife. The combination of destruction from war, loss of life, collapse of the existing government, and great expense in conducting the war had wrecked the economy. In addition to these factors, the European nations victorious in the war chose harsh financial and other penalties for the war that would almost ensure that Germany would not be able to economically recover. Unemployment skyrocketed and industrial production plummeted. Unrest in the population made it susceptible to radical politics. Into this setting arrived Adolf Hitler preaching a new path to prosperity and power through militaristic means. Hitler gained public support and secured his control over Germany by 1933. Hitler s primary strategy was to disengage Germany from world financial circles, stop war reparation payments, and use wartime industrialization as the path to full employment. The great desire of European nations and the United States to avoid future military conflict opened the door for Hitler to pursue his plan with minimal outside interference. As a result, national pride, economic prosperity, and employment returned by the mid-1930s. -- STOP HERE -- Great Britain Through the nineteenth century Great Britain was the world s economic leader. But Britain s prominence was distinctly sliding after World War I and was still declining in October 1929 when the U.S. stock market crashed. However, Britain was not immediately affected by the crash. Several factors contributed to a delayed reaction. First, Britain s stock market had a much smaller proportion of investors than the U.S. stock market. Therefore stock market declines were less an economic factor in Britain. As investors in U.S. stock markets bailed out, British investors, fearful of a broader international economic impact, did as well. In addition U.S. financiers investing in British stocks pulled their money out to cover losses in the United States causing British investors to pull back as well fearing the companies they had been investing in would decline in financial health. 5 4 H i s t o r i c E v e n t s f o r S t u d e n t s : T h e G r e a t D e p r e s s i o n