Unit 5 Reader Part 2: The Great Depression
The Great Depression (Standard 7-4.3) BENCHMARK
EFFECTS OF WORLD WAR I
33The destruction caused by World War I did not end with the armistice in 1918. It didn’t end with the Treaty of Versailles in 1919 either. The effects of the war would last for decades and would continue causing misery for people in Europe, the United States, and around the world.
34They war had not just damaged the land and the cities of Europe. It also damaged their economies. Rebuilding after World War I was very expensive. Countries like Britain and France were counting on Germany’s reparations to pay the cost of fixing the damage. Soldiers who came back from the war often found themselves unemployed because their jobs had been given away while they were fighting. The war had been good for factories. Making goods for the military let businesses make a lot of money and good jobs were very easy to get. When the war ended that money went away, and many factories had to fire the workers they had hired.
PROBLEMS IN GERMANY
35Of all the nations of Europe, Germany would face the biggest economic challenges. Germany was punished just like Britain and France had wanted. Under the conditions of the Treaty of Versailles it was impossible for them to start another war. It was also impossible for them to fix the economic problems caused by World War I. The high reparations they had to pay caused money to leave Germany as quickly as it came in. The land they had lost had been the home of some of Germany’s biggest industries. Both of these happening at the same time meant Germany’s economy was severely weakened. They were not able to pay the penalties they were supposed to under the Treaty of Versailles
36The problems that started in Germany began to hurt production and trade across Europe. Countries that were counting on Germany’s wealth didn’t get it, and they saw their own economies suffer. France decided the solution to this was problem was to take the Rhur Valley, another of Germany’s major industrial regions. This made Germany’s problems worse and made it even harder to pay their reparations.
37Germany’s response to these problems would cause and economic disaster. The Germany government decided that the best way to pay their debts was to start printing more money. This led to hyperinflation (a very fast and very big increase prices) in Germany. German money, called marks, became almost worthless. This caused many other countries to have similar problems. Europe’s money problems would cause them to stop buying and investing in foreign goods, including the things made in the United States.
PROBLEMS IN THE UNITED STATES
38In the years just after World War I the US economy was in great shape. During the 1920s the US went through an economic boom, or a time period where the economy was growing very rapidly. This boom was caused by the jobs created by World War I.
39Like all economic booms, it was not able to last forever. Many businesses kept doing the same things after the war that they had done during the war. Factories kept producing the same number of goods even though trade was going down. Farmers grew crops to feed armies that no longer existed, so the price of the crops they grew dropped very low. Wages for workers industrial workers were still low. Americans were buying goods on installment plans instead of paying for them up front. They were going further into debt.
40During the 1920s many Americans also started investing in the stock market. They hoped that buying and selling stocks would allow them to get rich quickly. The stocks (part of a business that you can buy) were bought “on margin,” meaning that the person buying the stock would pay for them at a later date when the price of the stock went up. More and more people began investing despite the risks.
41Those risks started to become real when the sale of goods slowed down. Companies found themselves with a surplus of goods. This meant that they had produced too many things. The surpluses made businesses less valuable, so people sold their stocks. The more stocks that were sold, the further the price of that stock dropped. Creditors (people who loan out money) demanded that people pay for their margined stocks immediately, but the investors didn’t have the money to pay them. The only option they had was to sell their stocks. This drove the price of stocks even lower.
THE GREAT DEPRESSION
42The Great Depression was a time of serious hardships for people around the world. People called it the “worst hard time” because of how much they suffered.
43The problems with the stock market signaled the arrival of the Great Depression. The Stock Market Crash of October 29, 1929 was the day that the US experienced its biggest drop in the stock market of all time. It was also called Black Tuesday because it had such an devastating impact on the economies of the United States and the world. Businesses were forced to fire workers. Unemployment increased dramatically. Since people couldn’t buy things the surpluses in the businesses increased, leading to more firings and more surpluses. This cycle of growing unemployment and shrinking demand for goods spiraled the economy into major trouble.
44People became afraid of keeping their money in the banks. Under the laws written at that time, if a bank went out of business then you could lose the money you had inside it. Bank runs, times when many people tried to take their money out of the bank at the same time, became common. Even people who had not invested in the stock market saw their savings wiped out. This was because the banks had invested their customers’ money and there was no way people could pay the banks back.
45If the bank had given you a loan the years of the Great Depression were especially hard. Many banks demanded immediate payment for the loans they had given out. This was called “calling the loan,” and it meant that you had to pay whatever amount you had left. People began losing the property they had bought, including their homes. Unemployment and homelessness skyrocketed, banks and businesses closed, and the economic depression began to spread around the world.
46The Depression spread because of World War I. After the war, the US had become the creditor to European nations. This tied the economy of the United States and the economy of European nations together. Germany especially relied on US loans because of the Treaty of Versailles. American businesses began calling their loans to European nations. At the same time they stopped offering new loans to Europeans.
47Without these loans European economies began to crash too. As the money dried up so did trade. People weren’t buying enough stuff for businesses to ship their goods to them. Investment in foreign countries slowed or stopped. Countries and colonies in Africa, Asia, and South America were all hurt by the slowdown in investment. The Great Depression had spread around the entire world.
RESPONSES TO THE GREAT DEPRESSION
48Governments responded to the Depression in different ways. Some nations saw totalitarian governments (absolute governments with total power over their people) grow. Others returned to isolationism, hoping to solve their own nation’s problems before worrying about the rest of the world. Democratic nations passed laws to try and solve their problems. Totalitarian nations (countries where the government had total power over its people) used imperialism to get raw materials and new markets. This imperialism would later cause one of the greatest conflicts in human history.
49One of America’s responses to the Great Depression was the election of Franklin D. Roosevelt. President Herbert Hoover had been in power at the time the Great Depression started. The people blamed him for the problems they suffered, and in 1932 they decided it was time for a change. The election was landslide, meaning that Herbert Hoover lost very badly. Franklin D. Roosevelt, who is sometimes called FDR, was elected.
50Roosevelt’s plan to solve the depression was called the New Deal. The New Deal had two goals. The first goal was to provide some relief for people hurt by the Great Depression. The second goal was to reform and fix the problems that had caused the Great Depression.
51The government created jobs through public works projects, like improving national parks and building roads. New laws and regulations were passed to better control the stock market, banks, businesses, and agriculture. The New Deal gave the US government a bigger role in the economy. It was also more involved in the daily life of American citizens. This was the first time in American history that people received help directly from the government.
52Though the New Deal did not end the Great Depression it was able to make it bearable. Roosevelt would be re-elected in 1936, 1940, and 1944. He is the only US president to be elected more than twice.
53Britain decided the best way to solve the problems of the Great Depression was to protect its homeland and its own businesses. Britain passed several protectionist laws, meaning laws that were designed to keep British businesses more successful than foreign ones. Britain dropped the gold standard (a system where the value of a country’s money is connected to the price of gold). The British government took control of key industries to make sure they stayed open. British taxes were increased, and the money that was raised was loaned out to people who wanted to start new businesses. These new businesses would give people jobs. This lowered unemployment and increased the amount of money people were spending.
54Like the United States, Germany’s responses to the Great Depression started with political changes. All democratic governments saw radical groups gain power during the Depression, including the United States. In Germany one of those groups would be very successful.
55The Nazi Party used Germans’ anger and fear to gain power. There had been several attempts to take over the government, but all of them had failed. The Great Depression would give the Nazis and their leader Adolf Hitler an opening to take power.
56Germany had a similar problem to the United States during the Depression. Their government and its leaders were very unpopular because people believed they were responsible for the Great Depression. Adolf Hitler ran for office with the slogan of “work and bread,” meaning he would solve the two issues that many Germans felt angry about. He promised to end the problems they faced during the Great Depression and make Germany wealthy and powerful again. By promising this relief and reform he was elected German Chancellor in 1933.
57After being elected he used the Depression and other problems to increase his own power. He started attacking his political opponents and building his own personal power. He announced that Germany would no longer follow the Treaty of Versailles, which increased his popularity in Germany. By the time he took total control of Germany it was too late to stop him. By 1936 Germany had an absolute government with Adolf Hitler as its head.