The introduction of the discussion will focus on the origins of the Great Depression and the escalating events that led to it. This will provide adequate foundations to bring up questions and attempt to answer them in an objective fashion as to why and how the Depression affected different industrialized countries in different ways. The core of the debate will consist of detailed comparable analyses of the consequences of the Depression with an emphasis on the economic aspects. The conclusion will provide a brief overview of the ways used by the different governments to get out of that dark episode of world economic history. When studying the Great Depression and it’s effects, it is not unusual for historians to choose World War I as a starting point for their investigation.
The reason for that is the importance of the repercussions the conflict had on the economies of all the countries that were involved in it. First of all, the War made it impossible for Europe to maintain previous levels of production. For example, before the War, France, the U.K. and Germany accounted for about 60 percent1 of the world’s exports of manufactured goods, a share of the market which they could not sustain during the conflict. Consequently, Europe took many of its markets to the U.S.
and Japan. The stunted growth of the European economies meant a lower demand for raw materials, which in turn lowered the demand for European exports. In agriculture, things didn’t look any better, as it was the sector which employed the most people. At the end of World War I, Europe was forced to import food from the U.S. Moreover, these transactions were conducted on a credit basis since Europe could not afford to pay for its purchase at that time. Clearly, the U.S. was going from being a traditional debtor of Europe before World War I to becoming its creditor: America had financed the war and it was issuing loans for its reconstruction. However, the attitudes in the U.S. were evolving in an unusual direction: an increasing number of American financiers were starting to literally seek ut potential borrowers which led to competition among U.S. banks and the spreading of unsound lending.2 The main object was to “do the most business”, even at the expense of essential caution. What seemed like a beginning of recovery from the Great War, was in fact an immense accumulation of debts, which made the international economic order vulnerable to depression. Analyzing these events with the insight we have today, they seem even more unbelievably audacious given the high instability of the borrowing nation.
(i.e., Europe) The triggering event was the crash of the Wall Street stock market in October of 1929. The stock market collapsed after steady declines in production, prices and incomes over three previous months which forced the speculators to revise their expectations. Anxiety soon gave place to panic which led to the crash. However, the depression affected the different industrialized countries in various ways and degrees of intensity. The depression was of especially great magnitude in the U.S. because there were not any welfare benefits for laid off workers. In the period between 1929 and 1933, money income fell by 53 percent (real income fell by 36 percent.)3 As a consequence, demand fell significantly, which in turn led to lower production and more layoffs– up to a high of 25 percent rate of unemployment in 1933.
Despite the severity of the situation, the Federal Reserve did not pursue a monetary expansion on policy which would have stimulated the economy through lower interest rates and increased the stock of money in circulation. This inaction is often attributed to the fact that market interest rates in 1930-1931 fell to very low levels, much lower than in the earlier recessions (of 1924 and 1927), and therefore, the Federal Reserve Board wrongfully saw no need to pursue an expansionary monetary policy.4 An indicator of that inaction is that open market operations did not provide sufficient money reserves for a banking system faced with depositors anxious for liquidity (monetary expansion would have filled that need). If the Federal Reserve had provided additional funds to the banking sector after 1930, bank failure would not have been so numerous and the decrease in the attack of would have been (at least) slowed down. This chapter can become an introduction for dissertation. Apply for our dissertation introduction chapter writing service and get better grades
Still, it would not be accurate to make the Federal Reserve responsible for all these problems. Other factors contributed to the precipitation of what began as a cyclical recession into what we now know as the Great Depression. One of those is the Hawley Smoot tariff of 1930 which in essence made America more protectionist than ever, sending import duties to record highs. Evidently, retaliation from other countries was quick to come. The new tariff act accelerated the downfall of American trade volume, which was probably the last thing the U.S. needed at that stage. President Hoover had always been in favor of protective tariffs which he considered a strictly domestic issue and he supported the Howley Smoot Act. Therefore, he clearly failed to see the implications of such a move. Soon, the Depression was spreading to the rest of the world, especially to Europe. There, the single country that was most affected was Germany whose very weak economy could not cope with the slow disappearance of American capital.
Let us mention that Germany was still paying reparations (for World War I), which made its situation even more delicate. Germany was forced to borrow from Great Britain and France which could not compensate for the decline in U.S. lending.5 The trap in which Germany found itself was quite disconcerting: she had to pursue deficienary policies to gain the confidence of investors in order to attract foreign funds. At the same time, devaluaton posed a major problem. It increased the burden of the external debt (through the exchange rate mechanism) which was payable in foreign currencies. The United Kingdom represented another major force on the global economic scene.
The British economy was not hit immediately as violently as Germany’s.