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America in the World
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The Global Depression

The Great Depression began in the United States. But it did not end there. The American economy was the largest in the world, and its collapse sent shock waves around the globe. By 1931, the American depression had become a world depression, with important implications for the course of global history.

The origins of the worldwide depression lay in the pattern of debts that had emerged during and after World War I, when the United States loaned billions of dollars to European nations. In 1931, with American banks staggering and in many cases collapsing, large banks in New York began desperately calling in their loans from Germany and Austria. That precipitated the failure of one of Austria's largest banks, which in turn created panic through much of central Europe. The economic collapse in Germany and Austria meant that those nations could not continue paying reparations to Britain and France (required by the Treaty of Versailles of 1919), which meant in turn that Britain and France could not continue paying off their loans to the United States.

This spreading financial crisis was accompanied by a dramatic contraction of international trade, precipitated in part by the Smoot-Hawley Tariff in the United States, which established the highest import duties in history and stifled much global commerce. Depressed agricultural prices—a result of worldwide overproduction—also contributed to the downturn. By 1932, worldwide industrial production had declined by more than a third, and world trade had plummeted by nearly two-thirds. By 1933, thirty million people in industrial nations were unemployed, five times the number four years before.

But the Depression was not confined to industrial nations. Imperialism and industrialization had drawn almost all regions of the world into the international industrial economy. Colonies and nations in Africa, Asia, and South America—critically dependent on exporting raw materials and agricultural goods to industrial countries— experienced a decline in demand for their products, which led to rising levels of poverty and unemployment. Some nations—among them the Soviet Union and China—remained relatively unconnected to the global economy and suffered relatively little from the Great Depression. But in most parts of the world, the Depression caused tremendous social and economic hardship.

It also created political turmoil. Among the countries hardest hit by the Depression was Germany, where industrial production declined by 50 percent and unemployment reached 35 percent in the early 1930s. The desperate economic conditions there contributed greatly to the rise of the Nazi Party and its leader Adolf Hitler, who became chancellor in 1932. Japan suffered greatly as well, dependent as it was on world trade to sustain its growing industrial economy and purchase essential commodities for its needs at home. And in Japan, as in Germany, economic troubles produced political turmoil and aided the rise of a new militaristic regime. In Italy, the fascist government of Benito Mussolini, which had first taken power in the 1920s, also saw militarization and territorial expansion as a way out of economic difficulties.

In other nations, governments sought solutions to the Depression through reform of their domestic economies. The most prominent example of that was the New Deal in the United States. But there were important experiments in other nations as well. Among the most common responses to the Depression around the world was substantial government investment in public works. In the United States, Britain, France, Germany, Italy, the Soviet Union, and other countries, there was substantial investment in roads, bridges, dams, public buildings, and other large projects. Another response was the expansion of government-funded relief for the unemployed. All the industrial countries of the world experimented with some form of relief, often borrowing ideas from one another in the process.

In addition, the Depression helped create new approaches to economics, in the face of the apparent failure of classical models of economic behavior to explain, or provide solutions to, the crisis. The great British economist John Maynard Keynes revolutionized economic thought in much of the world. His 1936 book The General Theory of Employment, Interest, and Money, despite its bland title, created a sensation by arguing that the Depression was a result not of declining production, but of inadequate consumer demand. Governments, he said, could stimulate their economies by increasing the money supply and creating investment—through a combination of lowering interest rates and public spending. Keynesianism, as Keynes's theories became known, began to have an impact in the United States in 1938, and in much of the rest of the world in subsequent years.

The Great Depression was an important turning point not only in American history, but in the history of the twentieth-century world as well.

It transformed ideas of public policy and economics in many nations. It toppled old regimes and created new ones. And perhaps above all, it was a major factor—maybe the single most important factor—in the coming of World War II.

http://www.historylearningsite.co.uk/weimar_depression_1929.htm - Weimar Republic and the Great Depression

1
Using the resource above, evaluate the effect of the global economic depression on Germany. What role did the economic downturn play in the rise of Adolf Hitler and the onset of World War I? Would World War II have happened if not for the Depression? Why or why not?

http://www.fordham.edu/halsall/mod/1920keynes.html - "The Economic Consequences of the Peace," John Maynard Keynes

2
John Maynard Keynes was, arguably, the most influential economist of the twentieth century. In the 1920 essay above, what argument does Keynes make about the economic role of the Treaty of Versailles? What does he see as the economic consequences of this treaty? Has he been proven right?







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