The Great Depression

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Causes of the Great Depression

The USA was the wealthiest country worldwide throughout most of the 1920s, but all that changed with the 1929 crash of the American stock market. This crash went on to cause the worst global economic downturn in modern history, which is known as the Great Depression.

Overproduction

Overproduction was common amongst American producers.
Japan was competing with America and both countries produced too many products.
There was more supply than demand and this forces prices down.

Wall Street Crash

The crash of the American stock market in 1929 was caused by people selling off shares when they started realising that companies were performing poorly. It was called the Wall Street Crash.
This sell off became more and more frantic to the point where shares were being sold by traders for almost any amount of money by the end of October 1929.

Borrowing to buy shares

When stock markets in the USA were rising, lots of people borrowed money to buy shares.
- E.g I could buy $100 of company shares using only $10 of my own money.
When company share prices fell in the Wall Street Crash, these people lost all their money and the people who lent the money also lost some of their money.
Everyone stopped lending, reduced their spending and demanded that all debts were repaid.

Bank failures

Banks lend people and companies money to invest in new projects. These need money up front (at the start) to create profit in the long-term.
Lots of American banks failed. Lending in America fell because there were fewer banks and the banks that survived stopped lending.

Fall in world trade

Trading products with other countries lets companies produce what they are best at making.
Countries stopped trading with each other to protect jobs at home, but this meant that all countries were worse off.
World trade fell by 30% between 1929 and 1932.

Impacts of The Great Depression

The Great Depression of the 1930s had a profound impact around the world. The 1929 Wall Street Crash caused a depression which ended up with the rise of dictatorships across the world.

Loans

US loans to European countries were halted and recalled. Public spending cuts were required across Europe.
- The problem was particularly severe in Germany due to the loans the country owed to Britain, France and the USA, which were recalled immediately.

Extreme governments

More extreme governments usually become more common in hard economic times.
- Mussolini in Italy in 1922 after WWI.
- The Russian Revolution in 1917 and Stalin in the USSR in 1924 after WWI.
- Hitler in Germany in 1933 after the Great Depression.
- General Franco in Spain in 1939.

The Manchurian crisis

Japanese industries were ruined by The Great Depression.
Japan attempted to expand its territories in 1931 by sending troops into areas of Chinese Manchuria. This was a strong economic area with fertile land (good for farming).
Despite this aggression, the League of Nations didn't get involved.
- Because of the importance of Japan for the trade of many League members, trading sanctions didn't seem favourable.
The League's leniency made its weaknesses clearly obvious for dictators across the world.