IB History Paper 3 | Topic 12: The Great Depression and the Americas (mid 1920s–1939)

The Great Depression:

Political Causes in the Americas:

• International Trade Disruptions:

  • The Smoot-Hawley Tariff Act (1930) imposed high tariffs on imported goods, leading to a sharp decline in international trade flows. Trade volumes plummeted as countries restricted imports and exports in an attempt to protect domestic industries and preserve jobs.

  • The decline in international trade worsened the economic downturn, as reduced trade volumes meant lower demand for goods and services, further depressing economic activity and exacerbating unemployment.

Economic Causes in the Americas:

• Stock Market Crash (1929):

  • The US experienced a period of rapid economic growth + speculation in the stock market. Everyone poured money into the market, often buying stocks on borrowed funds. Prices rose far beyond the value of the underlying companies. The market experienced its most dramatic decline. Billions of dollars in stock market value were wiped out in a single day, leading to widespread financial ruin for investors.

• Overproduction and Underconsumption:

  • During the 1920s, there was a surge in industrial production in the United States, driven by advancements in technology, increased efficiency, and the widespread adoption of assembly-line manufacturing techniques. Agriculture, manufacturing, and construction experienced rapid expansion, leading to a glut of goods and commodities in the market.

  • Despite the increase in production, wages for many workers remained stagnant or even declined, leading to a growing disparity between production and purchasing power. While the economy was producing more goods, consumers lacked the means to purchase these goods at the levels needed to sustain economic growth. The unequal distribution of wealth meant that a significant portion of the population did not have sufficient disposable income to support robust consumer spending. This led to a situation where there were more goods on the market than people could afford to buy.

  • As demand for goods declined relative to supply, businesses faced declining revenues and profitability. Businesses cut production, laid off workers, and reduced wages, further exacerbating the problem of underconsumption as workers had less income to spend.

• Bank Failures:

  • Banks engaged in risky lending practices, including extending loans for stock market speculation and real estate investment. Many banks were also undercapitalized and lacked sufficient reserves to cover potential losses in the event of a downturn.

  • Widespread fear and uncertainty prompted depositors to withdraw their savings from banks, fearing that their deposits might be lost if the bank failed. These depositor runs further strained the liquidity of banks, making it difficult for them to meet withdrawal demands.

  • Disrupted credit markets and capital flows, making it difficult for businesses to obtain financing for operations and investment.

Nature and Efficacy of Solutions in the United States:

Herbert Hoover

• Voluntarism

  Individuals should contribute to the economy rather than rely on the government

• Private Sectors

  Private businesses own and operate part of the economy

Franklin D. Roosevelt

• The New Deal

  Introduced a series of relief, recovery, and reform measures to combat the Depression. Works Progress Administration (WPA)

  Civilian Conservation Corps (CCC) + Agricultural Advancement Administration (AAA)

  Social Security Administration (SSA)

  provided jobs, relief, and social safety nets for Americans.

• The Emergency Banking Act (1933) authorized the federal government to regulate and oversee the banking industry and provided for the reopening of solvent banks under federal supervision.

• The Glass-Steagall Act

  • Addressed the weaknesses in the banking system and restored public confidence by implementing a series of reforms aimed at separating commercial banking activities from investment banking activities.

  • Prohibited commercial banks from engaging in underwriting and dealing in stocks and bonds. Also prohibited investment banks from accepting deposits from the public.

• The Federal Deposit Insurance Corporation (FDIC)

  Created as part of the Banking Act (1933) as a response to the widespread bank failures and depositor losses experienced during the early years of the Great Depression. The primary purpose of the FDIC was to insure deposits in banks and thrift institutions, providing depositors with confidence that their funds would be safe even if their bank failed.

Nature and Efficacy of Solutions in Canada

• William Lyon Mackenzie King (1921-1930 + 1935-1948):

  • Initially pursued a conservative approach to addressing the economic crisis. His government was slow to recognize the severity of the depression and hesitant to intervene in the economy.

  • As the economic downturn deepened, Mackenzie King's government began to implement relief measures to alleviate the suffering of Canadians affected by unemployment and poverty. The government expanded public works projects, provided financial assistance to provinces for relief efforts, and introduced unemployment insurance legislation to provide income support to unemployed workers.

    • The National Employment Commission (1935):

      Address unemployment and established

    • The National Housing Act (1940):

      Address housing shortages.

  • The government also introduced social security measures, including old-age pensions and family allowances, to provide financial support to vulnerable populations.

• RB Bennett (1930-1935):

  • Canada was reeling from the effects of the global economic downturn, with unemployment soaring and businesses failing. The collapse of global trade, coupled with domestic factors such as overproduction and declining commodity prices, contributed to the severity of the crisis.

  • Initially pursued orthodox fiscal policies, believing in the virtues of balanced budgets and limited government intervention in the economy, and introduced a series of relief measures and public works projects aimed at assisting the unemployed and stimulating economic activity. These included the establishment of relief camps for unemployed single men, unemployment relief payments, and infrastructure projects.

  • The Employment and Social Insurance Act (1935)

    • Provided unemployment insurance for certain categories of workers.

  • The Royal Canadian Mounted Police (RCMP)

    Suppress strikes and protests fueled tensions between the government and organized labor.

Impact of the Great Depression on Latin America:

Economic Consequences:

• Latin American economies were heavily reliant on exports of primary commodities such as coffee, copper, rubber, and sugar. The collapse of global demand led to a sharp decline in commodity prices, devastating export earnings and causing widespread economic hardship.

  • Brazil

    Coffee prices plummeted leading to the Coffee Dictatorship and political upheaval.

    Getúlio Vargas rose to power through a coup (1930) establishing the authoritarian Estado Novo regime.

• Many Latin American countries adopted Import Substitution Industrialization (ISI) strategies aimed at developing domestic industries to produce goods previously imported, thereby reducing dependence on foreign markets and fostering economic self-sufficiency.