31.2 - A Worldwide Depression

Coalition Government

• In countries that had new democracies and multiple political parties

• When no single party won a majority, this type of government, a temporary alliance of several parties, was needed to create a parliamentary majority

• Didn’t last very long because of disagreements between parties (weak)

Weimar Republic & Germany’s Economic Problems

• Germany’s new democratic government, set up in 1919

• Weak because Germany lacked a strong democratic tradition, and also had many political parties

• Germans blamed this government for Germany’s defeat and postwar humiliation with the Versailles Treaty

Economic Problems

• To pay for the war effort, the Germans had simply printed money, which then lost its value

• Had to pay reparations to the Allies, and so printed more money (the mark)

• Severe Inflation: Germans needed a lot of money to buy even the most basic goods

• The Dawes Plan: provided loans from American banks to stabilize the German economy and currency, and also changed the schedule for reparation payments

Flawed US Economy & Stock Market Collapse

• In the late 1920, American economic prosperity largely sustained the world economy

Cycle of Downsizing

• Uneven distribution of wealth, overproduction by business and agriculture, and the fact that many Americans were buying less

  • American factories were very productive and the new wealth created was not evenly distributed

  • Most Americans were too poor to buy the goods produced

  • Store owners cut back on their orders from factories (unable to sell goods), factories reduced production and laid off workers, people lost their jobs, and Americans bought even fewer goods

• There was a surplus of agricultural products that drove prices and profits down, so many farmers were unable to pay back bank loans and some banks were forced to close

The Stock Market Crash

• At the New York Stock Exchange, optimism about the booming US economy led to soaring prices for stocks

• Many middle-income people began buying stocks on margin, meaning they paid a small percentage of a stock’s price as a down payment and borrowed the rest from a stockbroker — investors had no money to pay off the loan if their stock didn’t rise

• Stock prices were unnaturally high

• Soon, everyone was selling their stocks and no one wanted to buy

The Great Depression

• After the stock market crash, unemployment increased while industrial production, prices, and wages decreased

• American bankers and investors demanded repayment of their overseas loans and withdrew their money from Europe

• The government placed high tariffs on imported goods, hoping to keep American money within the US, but conditions worsened and many countries that depended on exporting goods to the US also suffered

  • In response, other nations imposed higher tariffs

• Because of war debts and dependence on American loans and investments, Germany and Austria in particular were hit hard

Reactions to the Great Depression

Britain

• British voters elected a multiparty coalition called the National Government

• Passed high protective tariffs, increased taxes, regulated the currency

• Lowered interest rates to encourage industrial growth

• Led Britain to a slow and steady recovery, preserving democracy

France

• Had a more self-sufficient economy (productive agriculture and less dependent on foreign trade)

• Political instability

• Moderates, Socialists, and Communists formed a coalition, the Popular Front, and passed reforms to help workers

• Price increased unfortunately offset wage gains and unemployment remained high

• France preserved democracy