Historic Events for Students: The Great Depression

Global Impact 1929-1939

Global Impact 1929-1939

Issue Summary
Contributing Forces
Notable People
Primary Sources
Suggested Research Topics
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The crash of the U.S. stock market in October 1929 and the ensuing Great Depression did not immediately sweep the world in a universal wave of economic decline. Rather, the degree, type, and timing of economic events varied greatly among nations. Many believed the Depression was largely "exported" by the United States to Europe and other countries in the 1930s through the various economic policies it adopted.

The U.S. economy was flourishing perhaps more than any other nation in the 1920s. With the onset of the Great Depression, it suffered sharp declines in manufacturing output and general employment. Other industrial countries experienced difficulties. For example, one outcome of the Great Depression was a collapse of world trade. The sharp decline was brought on by a round of tax increases on imported goods (tariffs) instituted by any nations turning inward trying to bolster their own sagging economies. In 1931 German industrial production decreased more than 40 percent; 29 percent in France; and 14 percent in Britain from 1929 levels. It was abundantly clear that the world was heading into a global crisis. As a result, international tensions and labor strife began rising. Events of 1931 began cascading, with one crisis leading to another. Austria's largest bank collapsed in May 1931 and concerns over the possible weak financial condition of other European banks immediately led to European residents rushing to banks where they had their money deposited. The rush of crowds of depositors all at once further weakened banks and even affected banks not previously in financial trouble. This run on banks led to failure of German banks by mid-June. As a result, Germany announced it could no longer keep paying its debts resulting from World War I (1914–1918). This led to economic problems in other European nations and the United States, reliant in part on those payments to fund their own government operations. The new and struggling German government, called the Weimar Republic, itself raised international concern. The young government was heavily burdened by war debts imposed by other European nations. With its economy struggling, its citizens had little faith in the government. Economic crisis continued to spread to other European nations. Great Britain responded with major budget cuts and finally a change in government. By September 1931 Britain had exhausted its options to stabilize its economy and decided to free its currency from the longstanding gold standard, allowing it to pursue other monetary options and strategies. This meant Britain's money was no longer tied formally to exchange rates of other nations based on a standard value of gold. This change gave it much greater flexibility to alter the value of its money in trying to recover from the Great Depression. Other nations began following the same path.

By 1933 unemployment rates in Europe were soaring. Of the available workforce in each country, unemployment rates were 26.3 percent in Germany, 23.7 percent in Sweden, 14.1 percent in Britain, 20.4 percent in Belgium, and 28.8 percent in Denmark. In France social unrest was escalating with the effects of unemployment in addition to the rise of the Nazi Party in neighboring Germany. Political leaders of the various nations were coming under increased pressure to adopt forceful policies to end the Depression. Seeking solutions to the world crisis, more than 60 nations met at the 1933 World Economic Conference in London. When cooperative international solutions proved futile and the conference collapsed, the world seemed sentenced to a prolonged economic depression. Each nation was largely left to recover on its own.

Of even greater consequence to the world, the economic hardships of the Great Depression led to destabilization of European politics. The nations one by one, led first by the United States and then Britain, turned inward to try to solve their problems apart from other nations. The lack of economic and political cooperation fueled the growth of nationalism. Nationalism is when a nation places its needs significantly over the interests of other nations. This trend had major effects for the world economy and politics. Most notably the National Socialist party grew rapidly in Germany bringing with it a new ruler, Adolf Hitler. The global economic crisis and the world's poorly organized response to it in part led to the outbreak of World War II in Europe in 1939.


October 1929:
The U.S. stock market crash damages Latin America economies, but immediate economic effects in Europe are more limited.
June 17, 1930:
President Herbert Hoover signs the Hawley-Smoot Tariff Act dramatically raising import taxes on foreign goods leading to a major disruption of world trade and substantial economic hardships in Europe.
May 1931:
Austria's largest commercial bank, the Kreditanstalt, collapses triggering a financial panic throughout Europe.
September 21, 1931:
British Parliament drops the gold standard meaning British banks are no longer required to back British currency with gold.
January 1933:
Adolf Hitler becomes chancellor, assuming governing leadership of Germany.
April 19, 1933:
President Franklin Roosevelt takes the U.S. economy off the gold standard.
June 1933:
The World Economic Conference unsuccessfully seeks cooperation among nations to resolve the global economic crisis.
September 25, 1936:
France, Britain, and the United States agree on monetary stabilization measures marking the beginning of international economic cooperation.
September 1939:
Germany invades Poland leading to the outbreak of World War II and eventual end of the Great Depression.

Many nations believed the Great Depression was exported by the United States. Though the European nations were economically struggling from war debts and recovery, the U.S. economy boomed through the 1920s until the October 1929 stock market crash. Hit with huge financial losses from the crash, U.S. investors pulled out of European investments. In an effort to promote more sales of goods produced in the United States, Congress raised tariffs on foreign produced goods making them less attractive to U.S. consumers. The withdrawal of investments, raising of tariffs, insistence that war debts owed European nations be paid to the Untied States, and retreat from the gold standard all served to further weaken foreign economies. This influence eventually pushed them into the Depression as well due to the loss of foreign capital and markets for their goods.

Issue Summary

International Relations During the Great Depression

Increasing economic prosperity in Europe through the 1920s was largely fueled by the industrial and financial strength of the United States. Following World War I (1914–1918) the United States was the largest producer, lender, and investor in the world. As a result when the U.S. stock market crashed, marking the start of heavy economic decline, other nations looked to the United States to help reinforce the shaky economic prosperity in Western Europe and other parts of the world.

The most immediate foreign effect of the economic crisis occurred in Latin America. The Latin American economy was highly dependent on selling raw materials to U.S. industries. Europe was not as quickly affected as American loans and investments kept coming, though at an even slower pace. By 1931, however, the flow of investment capital from the United States had halted. In fact, the flow of money reversed as Americans began withdrawing investment money out of Europe to pay their own debts.

Perhaps the most significant factor leading to a global economic crisis was not the crash of Wall Street but a dramatic decline in world trade. This decline was largely triggered by "protectionist" legislation passed by the major trading nations. Nations were trying to protect prices of their domestically produced goods from foreign competition. This global trend began when President Herbert Hoover (served 1929–1933), attempting to raise America's farm produce prices, signed the Hawley-Smoot Tariff Act on June 17, 1930. The act raised import taxes (duties) on selected goods from 26 percent to 50 percent. This new level was so high that other nations were no longer able to sell their goods in the United States. In reaction they raised their own import tariffs. These increases made it difficult for U.S. companies to sell their products abroad. As a result world trade declined 40 percent. A dramatic decline of income and widespread unemployment in Europe followed. A few European nations such as Sweden were able to close their doors to the spreading depression due to what proved to be fortunate economic policy decisions.

The dramatic decline in international trade led to sharp drops in European production, increased unemployment, and finally collapse of some banking systems. With the U.S. economy showing some short-lived signs of recovery, Hoover attempted to blame inadequate European policies for the prolonged Depression. He believed the stock market crash would not have led to a full-blown global depression without Europe's panics as evidenced by a number of bank runs in 1931.

Frustrated with Hoover's perspective and lack of interest in substantially helping Europe, many foreign nations looked forward to the newly elected President Franklin D. Roosevelt (served 1933–1945) taking office in March 1933. But much to their dismay, Roosevelt continued the long trend of his predecessors. He turned his New Deal programs inward to solve U.S. domestic problems. As a result hopes of stabilizing the global economic situation at a World Economic Conference held in London in June 1933 met with resounding failure.

With each nation left to individually recover, the effects of the Great Depression on economic and political events in Germany, Austria, France, Russia, Latin America, the Far East, and Australia differed. Because of their diverse experiences, the European nations and other global regions are listed below in the order of most affected to lesser affected nations and regions.

Germany and Austria

The European countries hardest hit by the Great Depression were Germany and Austria. Collapse of world trade in 1930 had major affects. German production fell over 40 percent. Hard times brought growing labor unrest, and with labor unrest political changes began brewing. In 1930, 107 Nazi and 77 Communist party members were elected to German parliament. Austria's economy, intertwined with Germany's, was also severely impacted. Austria's largest commercial bank, Vienna's Kreditanstalt, collapsed in May 1931, which financed two-thirds of Austrian industrial production and held 70 percent of the country's bank assets. Its collapse triggered a financial panic throughout Europe leading to a stampede on European banks by depositors. In June and July 1931 the German central bank, the Reichsbank, lost $2 billion in gold and foreign currency to withdrawals. To provide some economic relief to a struggling Germany in 1931, U.S. President Herbert Hoover temporarily suspended for one year requirements for war debt (reparation) payments Germany was making to the United States and other Western European countries. These payments imposed by the victorious nations of Europe and the United States followed Germany's surrender. They were very steep—amounting to $500 million a year. …