Topic 7.4 Economy in the Interwar Period
Thematic Focus - Economics Systems (ECN)
As societies develop, they affect and are affected by the ways that they produce, exchange, and consume goods and services.
Learning Objective
Explain how different governments responded to economic crisis after 1900.
Historical Developments
Following World War I and the onset of the Great Depression, governments began to take a more active role in economic life.
Government intervention in the economy:
- The New Deal
- The fascist corporatist economy
- Governments with strong popular support in Brazil and Mexico
In the Soviet Union, the government controlled the national economy through the Five Year Plans, often implementing repressive policies, with negative repercussions for the population.
Reading Questions
What were the Causes of the Great Depression?
What type of government emerged in the following places as a result of the Great Depression? explain in detailed bullet points
- US
- Mexico
- Brazil
- Germany
- USSR
- US
- Mexico
- Brazil
- Germany
Causes of the Great Depression
What caused the Great Depression, the worst economic depression in US history? It was not just one factor, but instead a combination of domestic and worldwide conditions that led to the Great Depression. As such, there is no agreed upon list of all its causes. Here instead is a list of the top reasons that historians and economists have cited as causing the Great Depression.
1. Stock Market Crash of 1929 - Many believe erroneously that the stock market crash that occurred on Black Tuesday, October 29, 1929 is one and the same with the Great Depression. In fact, it was one of the major causes that led to the Great Depression. Two months after the original crash in October, stockholders had lost more than $40 billion dollars.
2. Bank Failures - Throughout the 1930s over 9,000 banks failed. Bank deposits were uninsured and thus as banks failed people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own survival, stopped being as willing to create new loans.
3. Reduction in Purchasing Across the Board - Many companies had overproduced their product. Then, with the stock market crash and the fears of further economic woes, individuals from all classes stopped purchasing items. Both of those factors then led to a reduction in the number of items produced and thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying for items they had bought through installment plans and their items were repossessed. More and more inventory began to accumulate. The unemployment rate rose above 25% which meant, of course, even less spending to help alleviate the economic situation.
4. American Economic Policy with Europe - As businesses began failing, the government created the Smoot-Hawley Tariff in 1930 to help protect American companies. This charged a high tax for imports thereby leading to less trade between America and foreign countries along with some economic retaliation.
5. Drought Conditions in the US - While not a direct cause of the Great Depression, the drought that occurred in the Mississippi Valley in 1930 was of such proportions that many could not even pay their taxes or other debts and had to sell their farms for no profit to themselves. The area was nicknamed "The Dust Bowl." This was the topic of John Steinbeck's The Grapes of Wrath.
The Great Depression World Wide
The Depression affected virtually every country of the world. However, the dates and magnitude of the downturn varied substantially across countries.
Great Britain struggled with low growth and recession during most of the second half of the 1920s. The country did not slip into severe depression, however, until early 1930, and its peak-to-trough decline in industrial production was roughly one-third that of the United States.
France also experienced a relatively short downturn in the early 1930s. The French recovery in 1932 and 1933, however, was short-lived. French industrial production and prices both fell substantially between 1933 and 1936.
Germany’s economy slipped into a downturn early in 1928 and then stabilized before turning down again in the third quarter of 1929. The decline in German industrial production was roughly equal to that in the United States.
A number of countries in Latin America fell into depression in late 1928 and early 1929, slightly before the U.S. decline in output. While some less-developed countries experienced severe depressions, others, such as Argentina and Brazil, experienced comparatively mild downturns.
Japan also experienced a mild depression, which began relatively late and ended relatively early.
Great Britain struggled with low growth and recession during most of the second half of the 1920s. The country did not slip into severe depression, however, until early 1930, and its peak-to-trough decline in industrial production was roughly one-third that of the United States.
France also experienced a relatively short downturn in the early 1930s. The French recovery in 1932 and 1933, however, was short-lived. French industrial production and prices both fell substantially between 1933 and 1936.
Germany’s economy slipped into a downturn early in 1928 and then stabilized before turning down again in the third quarter of 1929. The decline in German industrial production was roughly equal to that in the United States.
A number of countries in Latin America fell into depression in late 1928 and early 1929, slightly before the U.S. decline in output. While some less-developed countries experienced severe depressions, others, such as Argentina and Brazil, experienced comparatively mild downturns.
Japan also experienced a mild depression, which began relatively late and ended relatively early.
Reactions to the Great Depression
The effects of the Great Depression were huge across the world. In response to the disruptions of the Great Depression, many political leaders saw it as their duty to take an active role in guiding economic life. The Great Depression lead to government intervention in the economy in Brazil, Mexico and most significantly in the US in the form of the New Deal. Not only did it lead to the New Deal in America but more significantly, it was a direct cause of the rise of totalitarianism in Germany and the USSR leading to World War II.