Global Impact 1929-1939

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Global Impact 1929-1939

Issue Summary
Contributing Forces
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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. German payments were to be paid to France (52 percent), Britain (22 percent), Italy (10 percent), and Belgium (8 percent). These countries would in turn use this money to pay war debts owed to the United States.

In 1932, as the one-year suspension of Germany's war reparation payments came to an end, European nations tried to convince the United States to cancel the reparations altogether. They believed the payments were undermining the German economy and threatening the stability of its new government. Social unrest that resulted was leading many to political radicalism, supporting the rising communist and Nazi parties. President Hoover refused to permanently relieve Germany of the debts believing Germany should not be let off the hook for its role in World War I and needing the payments to help fight the declining U.S. economy. This disagreement led to further distancing between the United States and European nations and continued economic hardships in Germany. Six million Germans, almost one-third of the workforce, were unemployed. Germany announced it could no longer make war reparation payments and stopped making them. Germany and central European nations began to adopt additional policies rooted strongly in nationalism that further distanced their economies from the global market.

By January 1933 Adolf Hitler gained the main governing position, known as chancellor, over the struggling German nation. German President Paul von Hindenburg continued serving as the more ceremonial head of state. When a main government building in Berlin, the Reichstag, burned in February 1933, Hitler claimed it was a communist plot and used it as an excuse to assume totalitarian powers. He suspended most civil laws governing Germany.

Throughout the early years of the Depression the National Socialist party led by Hitler's Nazis had steadily gained strength in German elections. By strongly supporting Hitler, the German voters were making a statement against democracy and capitalism in that country. When President von Hindenburg died on August 2, 1934, Hitler replaced him, completing his takeover and gaining full control of the nation.

Ironically Roosevelt's New Deal and Hitler's New Order were launched in the same year. The New Deal was a combination of diverse economic and social programs promoted by Roosevelt's administration beginning in March 1933. They were designed to provide relief to those Americans most affected by the Great Depression. A key aspect was dramatic growth of the federal government and its increased role in the daily lives of Americans.

The New Order was a grand economic and social scheme promoted by Adolf Hitler built on beliefs such as racial superiority, military expansion, government operation of industry, and strict control of German citizens. The New Order was in response to the post-war economic crisis of Germany worsened by affects of the Great Depression. Americans were fearful of the drastic economic and political change occurring in Germany. Some Americans feared the New Deal could lead to similar changes in the United States and threaten U.S. democracy and capitalism.

A key goal of Hitler's during this period of the early 1930s was the desire to acquire more "breathing room" for Germany. Germany had a large population for a relatively small geographic space. His desire for German expansion would require several years of preparation. To this end he applied major public works programs in the early 1930s to not only aid in economic recovery but achieve his expansion goals. Construction of the famed German autobahn system in the mid-1930s would later support military needs for rapidly transporting military forces long distances. The actual militarization industrial program itself began in 1935 with building the necessary armament. The German unemployment rate declined to a point that labor shortages existed by 1938. At the time many, even including some prominent Americans such as Henry Ford, hailed Hitler as a hero for his economic recovery achievements. From 1932 to 1938 industrial production rose 75 percent. This recovery, however, came at a great expense to personal freedoms.

The dramatic nature of Germany's economic condition following World War I led to dramatic events that would pull it out of economic strife. The combination of destruction from war, loss of life, collapse of the existing government, and great expense in conducting the war had wrecked the economy. In addition to these factors, the European nations victorious in the war chose harsh financial and other penalties for the war that would almost ensure that Germany would not be able to economically recover. Unemployment skyrocketed and industrial production plummeted. Unrest in the population made it susceptible to radical politics. Into this setting arrived Adolf Hitler preaching a new path to prosperity and power through militaristic means. Hitler gained public support and secured his control over Germany by 1933. Hitler's primary strategy was to disengage Germany from world financial circles, stop war reparation payments, and use wartime industrialization as the path to full employment. The great desire of European nations and the United States to avoid future military conflict opened the door for Hitler to pursue his plan with minimal outside interference. As a result, national pride, economic prosperity, and employment returned by the mid-1930s.

Great Britain

Through the nineteenth century Great Britain was the world's economic leader. But Britain's prominence was distinctly sliding after World War I and was still declining in October 1929 when the U.S. stock market crashed. However, Britain was not immediately affected by the crash.

Several factors contributed to a delayed reaction. First, Britain's stock market had a much smaller proportion of investors than the U.S. stock market. Therefore stock market declines were less an economic factor in Britain. As investors in U.S. stock markets bailed out, British investors, fearful of a broader international economic impact, did as well. In addition U.S. financiers investing in British stocks pulled their money out to cover losses in the United States causing British investors to pull back as well fearing the companies they had been investing in would decline in financial health.

Secondly, Britain's economic troubles came with the general collapse in world trade in 1930, which was triggered by the U.S. Congress passing the Hawley-Smoot Tariff Act. Following the U.S. lead Britain also adopted taxes on goods purchased from other countries (import tariffs). For a century Britain had no tariffs, therefore for a time this action brought additional government revenue. But as a result of tariffs adopted by many nations, worldwide exports fell from $56 billion in 1928 to $22 billion in 1932. By 1935 they had further declined to $20 billion before modestly rebounding to $23 billion by 1938. Britain's pattern of economic trouble generally followed this global trend in trade.

In addition to the 1929 stock market crash and 1930 decline in world trade, the third factor influencing the timing of Britain's economic decline also came from the United States. President Hoover's one-year suspension of German war reparation payments in 1931 further increased economic strife in Great Britain on top of the trade loss. Britain's weakened economy, caused largely by the decline in world trade, had become increasingly dependent on war payments received from Germany. The British continued to argue that German reparation payments were too stiff and endangered the peace and security of Europe. They wished to see the payments suspended permanently while Germany's new Weimar Republic government tried to gain acceptance and stability. Britain's reliance on the payments in the face of its own war debts to the United States, however, also meant it would need those debts reduced or eliminated as well. Neither was to occur, though Germany would soon default on its payments forcing Britain to take major action in salvaging its monetary system, mostly through abandoning the gold standard.

More About… International Gold Standard

A major factor influencing international economic relations during the Great Depression was the controversy over the gold standard. The gold standard is a monetary system in which a standard unit of currency in any given nation, such as the U.S. dollar and British pound, would be equivalent to a fixed weight of gold. Paper currency, called notes, could be exchanged at home or in another country for a certain amount of gold. In 1929 the United States was required to have enough gold to back 40 percent of its currency. Using the gold standard, exchange rates between nations were fixed. The gold, or a currency that can be converted to gold, provided the means for making international payments. The gold standard was attractive for nations because it created some level of predictability in international trade by fixing currency exchange rates. Briefly, if exchange rates between two nations strayed out of a certain set range, then gold flowed from one nation to the other until the rates returned to the desired level. Predictability of exchanges between currencies came because the gold standard limited the freedom of nations to change the value of their currency.

In the United States the price of gold was $20 per ounce of gold. A $10 coin would have a value of one-half ounce of gold. Viewed in another way, a U.S. dollar equaled 23.22 grains of gold. Since the British pound sterling was 113 grains of pure gold, one British pound equaled almost five U.S. dollars. In the United States the price of gold was held constant from 1791 until 1933.

Yet again nations began returning to the gold standard as the world's economy recovered. The United States introduced a concept known as "pegging" in which a minimum dollar price for gold was set for exchange with foreign nations. This formed a new basis for the gold standard after World War II. The scarcity of gold and mounting foreign debts led the United States to abandon the gold standard in 1971. The role of gold in international financial matters had finally ended as many economists concluded the gold standard offered more disadvantages than advantages. It was an expensive system to operate as nations had to maintain large amounts of gold. It also limited the flexibility of nations in their monetary affairs that at times restricted economic growth and expansion. After 1971 the Federal Reserve controlled the value of U.S. money. Despite no longer basing its currency on gold, in the 1990s the United States still held 8,000 tons of gold at various depositories across the country.

With the loss of war payments, Britain saw no other option but to take dramatic economic action. Stunning the world, on September 21, 1931, British Parliament suspended the gold standard believing the move would rescue its economy by raising the price of goods through lowering the value of its money. It could not make this move when rigidly tied to economies of other nations through the gold standard. With the British currency no longer backed with gold, however, it was then clear to many other nations that Britain was no longer in position to provide international economic leadership. The British pound depreciated (fell in value) 30 percent by that December. Following Britain, twenty other countries abandoned the gold standard by spring of 1932. Each nation would now manipulate their own currencies as they saw fit. Britain's suspension of the gold standard proved a landmark event in disrupting the global monetary system. No longer were international transactions tied to a universal standard such as gold.

Like many others, Britain's economy reached its lowest point in 1932 as unemployment rose. Yet possibly owing to the monetary policies it quickly adopted including getting off the gold standard and raising tariffs, Britain rebounded sooner than most other countries. Amazingly for the next several years Britain actually had one of its economically healthiest periods in British history. The economic impact of the Great Depression on Great Britain actually proved less dramatic than the economic declines it suffered immediately following both world wars. Only Japan and Sweden of the industrially developed countries faced less economic hardship during the 1930s.

Britain's recovery did not mean economic tensions no longer existed with the United States. In fact war debt payments owed by Britain to the United States became a bitter issue between the two nations in 1934. The debts had quickly built up during World War I from both loans and purchasing war supplies on credit. Repayment in annual installments was expected by the United States soon after the war ended. The United States had shown some leniency toward Germany regarding its war reparation payment requirements, even temporarily suspending them at times. But Congress was intent that Britain as well as France pay war debts and Germany eventually as well. Neither Britain nor France could afford to pay the full amounts owed. Trying to avoid default, Britain made token (partial) payments in 1932 and 1933, while France chose not to make any payments. In March 1933 during a special session of Congress called by President Roosevelt to pass domestic emergency bills, a bill was introduced to further press war debt payments. It did not pass during the special session. Not supportive of such legislation, Roosevelt declared in late 1933 that Britain's token payments were sufficient to avoid default. By January 1934, however, Congress passed the war debt bill despite Roosevelt's opposition, known as the Johnson Act. The act prohibited further American loans to foreign governments who were in default of their debt payments.

The Johnson Act essentially declared Britain and France defaulters. This action by Congress became a severe obstacle for relations between the United States and the two European nations for several years. Great Britain defaulted by choice following passage of the act. In the end the Johnson Act brought the opposite result Congress intended. Practically all war debt payments stopped with only Finland continuing to pay.

Following collapse of the 1933 World Economic Conference, Britain established a strong protectionist position keeping aloof of economic developments in other nations. Finally, following 16 months of negotiations at the instigation of President Roosevelt, Britain and the United States signed an Anglo-American Trade Agreement on November 17, 1938. This agreement marked the beginning of a period of increased economic cooperation.

Given the social programs of Britain, as well as other European countries, the specter of breadlines and soup kitchens was less apparent. With decisive actions taken by the British government, such as leaving the gold standard in the early 1930s, conditions would improve. For the middle classes in Britain and other nations the 1930s saw a gradual revival of prosperity following the difficult post-war years of the 1920s. Unlike the United States, Europe had not enjoyed a post-war economic boom. Through the 1930s suburbs grew in Britain outside the main cities. The middle class enjoyed radios, record players, less expensive automobiles, refrigerators, and washing machines. The cheap franc in France enticed vacations to that country. For the working class conditions were far different. Their homes still lacked indoor bathrooms, unemployment was widespread, and for those still working the hours were long and conditions unsafe. Fear of Germany and another war would soon push domestic concerns from the forefront.


Based largely on exports, the French economy grew rapidly through the 1920s. About 30 percent of manufacturing was tied to producing goods for selling in other nations (the export business). The French economy was fairly unfazed by the 1929 U.S. stock market crash. The collapse of world trade late in 1930, however, triggered by passage of the Hawley-Smoot Tariff Act brought trouble. Foreign demand for French goods began falling. The value of exports fell from 52 billion francs in 1929 to just 20 billion in 1932. Fortunately for the French economy the domestic demand for French goods rose, somewhat offsetting the effects in declining exports. For this reason unemployment did not peak in France until the mid-1930s. Even at its peak, French unemployment rates were far less than in the United States. It remained, at its height, less than 5 percent of the work force as compared to the 25 percent level the United States had reached in 1933. The fall in production also was gradual, estimated at less than a 20 percent decline, with no recovery by the late 1930s. Whereas employment in Britain began a slow steady improvement trend after 1932, French unemployment stayed up until World War II. In overall production, by 1935 Britain had returned to its 1929 level, but France hit its bottom that year and did not begin recovery until 1938.

A key factor hindering French economic recovery was increased political instability. France experienced a greater decline in social cohesion in the 1930s than most countries. As political instability grew investments in its industry declined. Capital was leaving the country to safer investment opportunities elsewhere. By mid-1936 there was a major drain of gold from the country. French leaders became convinced the only avenue left toward economic recovery was devaluation of the currency, which was accomplished by leaving the gold standard despite substantial French public opposition.

Most likely France's increased economic, as well as, political isolation from world markets kept its economy from falling very far. But it also kept France from rebounding with the other nations as well. Foreign investments in industry declined and stayed down through the remainder of the 1930s. Both the industry's aging equipment and political instability hampered any improvement in production.


In contrast to most other European nations, Russia was substantially detached from global interaction during the Great Depression. As a fully communist state, Russia removed itself from world markets. Controlling a vast area of the Asian continent and considerable resources enabled it to do so. In 1928 Russian leader Joseph Stalin began a five-year plan for economic development. The plan eliminated private business and focused on production of industrial machinery and farm equipment by state-owned factories. Stalin brought all of Russia's private farms under government control. This policy led to the starvation of millions of people in 1932 and 1933, particularly in the agricultural region of the Ukraine. USSR heavy industry, in contrast to agriculture, expanded rapidly through the 1930s in Russia, Ukraine, Caucasus, and Central Asian regions. The nation was well down the road toward becoming a leading industrial power, but much to the detriment of other domestic economic developments and personal freedoms. Heavy censorship, limitations on individual liberties, and murder of opponents were key elements of Stalin's rule. Due to its extreme detachment from the world's marketplace, Russia was largely immune to the Great Depression and instead dealt with its own internal political and economic issues.

Latin America

In the Western Hemisphere effects of the Great Depression were felt immediately in Latin America. The flow of U.S. capital fueling industrial development stopped abruptly. In addition Latin American nations saw prices for the region's raw materials drop sharply as the U.S. and European markets greatly declined eliminating their need for the materials. This trade decline led to a substantial decrease in government revenue. To stop the decline in revenues Latin American countries raised their tariffs on imported goods. They also focused more on manufacturing consumer goods for domestic use to replace the more expensive imported goods. Heavy industrial production remained largely centered on Mexico's iron and steel industry.

Naturally some variation among Latin American countries existed as their individual economies responded differently to the economic troubles in the United States and Europe. For example Argentina heavily relied on beef and wheat exports to Great Britain. Being the wealthiest of the Latin American countries, Argentina weathered the Depression relatively well as Britain's recovery came quickly. Other nations felt greater effects. Chile and Peru, which mostly exported ore and oil, were hit harder than Columbia and Brazil who relied more on coffee exports. Chile's exports plummeted by 76 percent. Peru, also experiencing a major political crisis with civil war from 1930 to 1933, saw its cotton exports increase by 1934 making up for the declines in mineral exports. The Columbian textile industry also grew significantly during the 1930s though the coffee industry remained its primary focus.

The Great Depression proved to be a major turning point in Latin American economic development. A strong push toward economic nationalism resulted. Latin American governments, quietly deferring to foreign influence, particularly the United States', became much more involved in economic issues. To protect jobs during the Depression, many Latin American countries adopted measures requiring companies to employ a certain percentage of local citizens rather than workers brought from other countries. Overall, Latin America was able to economically recover relatively quickly from the Great Depression by increasing production of consumer goods rather than relying on imports and by increasing job opportunities for their citizens.

Political impacts of the Great Depression in Latin America were also less severe than in Europe. European political movements during the 1930s of fascism and totalitarian governments developed less in Latin America. Socialist parties in power were largely moderate and not radical. Communist parties did become more active, influenced by developments in Russia, but the ruling elite in Latin American governments largely suppressed them. Exceptions included the rise in Chile of the socialist Popular Front party in 1938 and the briefly successful fascist Integralistas party in Brazil in the mid-1930s.

As Latin American countries increased economic independence, Franklin D. Roosevelt with his Good Neighbor Policy continued decreasing U.S. intervention in Latin American affairs. Instead the United States offered economic, technical, and military aid programs that were warmly received throughout most of Latin America. In 1933 the United States signed a Reciprocal Tariff Agreement with Latin American countries to promote international economic stability in the Western Hemisphere. Otherwise the United States sought to maintain a cordial role in the region. President Roosevelt even quietly accepted Mexico's take over of U.S.-and British-owned petroleum facilities in 1938.

Far East

Just as differences clearly existed among European and Latin American nations regarding their experiences during the Great Depression, China and Japan followed different paths as well.

By the late 1920s Britain, through its colonial policies, still controlled key Chinese ports and the nation's monetary policies. China was largely an agrarian nation primarily producing for its own domestic consumption. Involvement in world trade was limited, therefore China suffered a major recession following World War I. Its currency system, based on a silver rather than gold standard, was in chaos. Some economic gains were made, however, in the 1920s with growth of the textile industry. World demand for Chinese goods remained low essentially until the late 1920s. Impacts on China's economy during the Great Depression largely came when the U.S. Congress passed the Silver Purchase Act in June 1934, which spurred a period of intense silver purchase. China found its silver supply rapidly depleting, which weakened its currency. Finally China was forced off the silver standard and began a currency reform. Prices and the economy in general began recovering but another disruption came when Japan invaded China in 1937.

Japan's economic experiences through the 1930s greatly differed from China's. A major 1923 earthquake upset an already fragile economy. Costs of reconstruction and monetary policies adopted through the 1920s led to ongoing economic problems. Economic growth developed as Japan increased rice exports to U.S. markets by the late 1920s. With the economy growing healthier by 1929 Japan decided to return to the gold standard in January 1930 just before the Great Depression arrived. Consequently the 1930 collapse of world trade greatly affected Japan as the price of rice dropped sharply on international markets. Japan again left the gold standard in December 1931 and charted a dramatic new course.

New internal political developments, primarily involving the Japanese military becoming the nation's principal political force, propelled economic recovery. Growth of heavy industry aimed at a buildup of arms led to a quick Japanese economic recovery. Military expansionism through foreign conquest, begun with an invasion of Manchuria in 1931, grew when Japan invaded China in 1937. Like Germany, Japan's increasing nationalistic direction was made possible by the rest of the world struggling with their own financial crises brought on by the Great Depression. The military took advantage of this economic crisis to seek greater detachment from the international economic relations and pursue military expansion, which would eventually lead to world war.


Leading up to the Great Depression Australia was heavily in debt to British banks and relied greatly on wheat exports to drive their economy. The collapse of world trade in 1930 led to a major drop in government revenue as well as Australians' income. To address the drop in revenue, the Australian government instructed its wheat farmers to boost production more so as to increase sales abroad. The measure was widely known as the "Grow More Wheat" program. The world was oversupplied in wheat, however, and farmers found themselves selling their bumper crops at prices below what it cost to grow them. To provide financial support to the farmers the Australian government passed the Wheat Advances Act to make loans available to wheat farmers. This proved ineffective because Australia's banks lacked the funds to effectively carry out the program. Australia then turned to other monetary policies to stimulate economic recovery. Devaluation of Australian currency in 1931 finally worked and farm exports increased once again because Australian produce cost less in foreign countries.

World Economic Conference of 1933

In 1933 a key opportunity came for the world's nations, including the United States, Great Britain, and France, to work cooperatively in solving the world economic problems. During the first years of the Great Depression a series of international conferences were held each year focusing on specific issues, such as farm produce prices. By 1931 as the crisis deepened it became evident this piecemeal approach was insufficient. National leaders began pushing for a World Economic Conference to address a range of basic issues. The issues were complicated and varied but generally centered on war debt problems, German war reparation payments, easing international trade restrictions, and stabilizing currencies. Currency stabilization means that each nation's currency would be based on a common standard, such as the gold standard, which in time would greatly benefit world trade by assuring the prices of goods.

Preparation for the conference was itself complicated, as each nation's leaders wanted to address economic situations specific to their country. Britain primarily wanted to solve its war debt problems, while Germany sought to decrease war reparation payments. France wanted to get all countries back on the gold standard and the United States was most interested in reducing trade restrictions. The United States insisted that war debts owed by European nations should not even be discussed. Nor was Roosevelt interested in discussing means for stabilizing currencies. In fact to the shock of many nations, less than two months before the meeting Roosevelt took the United States off the gold standard on April 19, 1933.

Amid this contentious atmosphere the World Economic Conference opened on June 12, 1933, at London's new Geological Museum. Over one thousand delegates from 65 nations crowded into the facility. The opening address by Britain's King George V was broadcast by radio around the world. No conference of this scale had ever been held before. Secretary of State Cordell Hull headed the U.S. delegation.

Despite President Roosevelt's clear disinterest in discussing the topic, the conference immediately focused on the tricky issues involved in stabilizing currencies of the various nations. As a result a complex draft agreement involving the U.S. delegation was completed by June 15. The U.S. delegation promptly journeyed back to the United States to present the draft to President Roosevelt for U.S. approval. The plan called for once again stabilizing the economies in terms of gold. By mid-June, however, prices of goods were rising in the United States and economic recovery seemed to be gaining strength. Roosevelt's advisors warned the new agreement could stall economic progress on the domestic front. President Roosevelt therefore had to weigh domestic recovery based on rising U.S. prices while maintaining international relations and stabilizing international prices of goods. The president deliberated for three weeks during which the delegates at the Conference signed a further declaration on June 28 reaffirming their commitment to the draft agreement. They further stressed the importance of the gold standard for international trade. Expecting word of U.S. approval, nations such as Britain that recently dropped the gold standard planned to once again adopt it.

Finally, on July 3, 1933, Roosevelt announced his momentous decision. He issued a response from his holiday yacht, the Indianapolis anchored in Buzzard's Bay along the coast of Massachusetts. He chose to not accept the agreement. The Conference was not only stung by the decision, but also shocked by the harshness of Roosevelt's words in his response. Roosevelt strongly denounced the agreement calling it a distracting "experiment" by international bankers. He did not wish to hold the value of the U.S. dollar to some predetermined level. When the president's harsh note first arrived in London, the U.S. delegates spent several hours debating how to soften its tone. This ultimately proved futile because reaction to Roosevelt's note by other nations was swift. Britain angrily pulled out of the draft agreement to stabilize world currencies.

Some issues were resolved at the World Economic Conference between various participating nations apart from the more general sessions. For instance, Germany was successful in having it's commercial debts to Great Britain lessened. France and the other remaining gold standard countries of Italy, Poland, Holland, Belgium, and Switzerland decided to remain on the standard. They pledged to cooperate closely as a bloc among their central banks to improve trade between them. Ultimately this course charted by France and the other gold bloc countries proved difficult to maintain. It also led to their isolation from the worldwide economic recovery that began later in the 1930s. In contrast Japan had kept a low profile throughout the conference strongly embracing their economic nationalism.

Overall President Roosevelt's stern message left the conference in disarray. The U.S. delegation tried to pursue discussions on tariff reductions to help world trade but these efforts proved unproductive. The conference ended in mid-July ahead of the expected time. Roosevelt's message profoundly affected U.S. economic foreign policy through the remainder of the 1930s.

In the end, the great industrial nations of the western world chose not to seize the opportunity presented at the conference to work together. Protectionism outweighed cooperation as nations sought to protect their economies from influences of other countries. The conference marked a key stepping stone in the transition from internationalism of the 1920s to nationalism of the 1930s. Each nation had its own specific goal. For instance France wanted the gold standard, Britain and the United States did not. The United States wanted European nations to continue payments of war debts and reparation payments whereas most European nations did not. Hitler took advantage of the failure in international cooperation to further isolate German currency. He grew comfortable with the division growing between other nations over currency, trade, and debt issues.

Rise of Global Political Instability

With the collapse of the World Economic Conference in July 1933, it was abundantly clear that each nation was on its own to solve its economic problems. As various nations floundered economically, social unrest escalated. Such were the events in France, Spain, Germany, Italy, and Japan. The left-wing Popular Front rose in prominence in France in 1936 and acted to take France off the gold standard. The Front was then free to independently manipulate France's currency to achieve its economic goals. In May 1936 the Popular Front leader in Spain was elected president. General Francisco Franco led a revolt only two months later leading to the Spanish Civil War that lasted until 1939. In 1933 Hitler had strengthened his hold on the German government, as did Benito Mussolini in Italy. In Japan the military had gained control of the government in the early 1930s.

Concerns over the deteriorating political picture in Europe and Asia stimulated a call for international economic cooperation among some Western industrial nations. On September 25, 1936, France, Britain, and the United States announced agreement on an economic plan. Unlike earlier when Roosevelt dropped the gold standard and avoided international cooperation, by now he was more actively seeking the growth of international cooperation as Hitler and Mussolini had gained firm control of their governments. He had to move cautiously, however, given the strong mood of the nation against forming formal alliances (isolationism). The plan was designed to ensure that monetary exchange rates between nations became more stable. Though not a very sweeping agreement in itself, it represented a start at international cooperation.

Meanwhile Hitler, after forming an alliance with Italy's Mussolini in 1936, began his conquest of Europe. Germany absorbed Austria in 1938 and occupied Czechoslovakia in 1939. In September 1939 German forces invaded Poland and World War II had begun.

Contributing Forces

A Fragmented Europe

Compared to other continents in the world, Europe is small but highly varied economically and culturally. Temperate climate, fertile soils, and abundant natural resources support high economic potential. Rivers, mountains, and inlets carve up the densely populated region. The diversity of cultural backgrounds has led to centuries of rivalries, conflict, and nationalism. As a result Europe was separated into numerous small nations. These small nations remained continuously at odds with one another over political, social, and economic issues.

World War I took a great toll on European nations leaving them considerably weakened. They were in economic and political disarray. Political efforts were started to guard against such a war ever happening again. The traditional problem of territorial fragmentation posed a major hurdle to overcome. Many believed peace and economic prosperity in Europe was not possible until some formal political structure was created that somehow united these nations.

Several proposals for a political solution were offered. U.S. President Woodrow Wilson (served 1913–1921) promoted a worldwide League of Nations, which gained support and was established in 1920. The organization, however, a loose assembly of nations, lacked much authority to resolve disputes that arose. Ironically, the U.S. Congress with its growing sense of international isolationism voted not to join the League. By refusing to join the League of Nations, the United States stayed distant from European economic issues leaving the European nations to work their own way through post-war recovery.

Other proposals more specifically focused on European unity. French foreign minister Aristide Briand proposed in 1925 the creation of a "United States of Europe" to be called the European Federal Union. A key function of the Union would be to simplify European economics and create a common market. The concept however received hostile reaction from many of the European countries seeking to maintain their nationalistic independence. Little agreement could be reached on how the Union should be structured, or even if there should be one. The crash of Wall Street in October 1929 quickly raised economic concerns above political interests and interrupted such consideration. A still fragmented Europe was ill-equipped to handle the massive economic problems of the 1930s.

Latin American Nationalism

Growing economic wealth in Europe and the United States in the 1920s led to large investments of foreign capital in Latin America. This foreign economic influence coupled with centuries of European colonialism contributed to a growing resentment and nationalistic spirit among Latin Americans. Confrontation became inevitable between nationalists and foreign interests. The Boston-based United Fruit Company, in the banana region of Columbia, was the target of a violent strike in 1928. Conflict over foreign petroleum exploration in Mexico also erupted. In response the United States adopted a policy of less direct intervention in Latin American affairs. the United States, however, remained influential in the region's politics through economic aid and certain ongoing business interests. The nationalistic impulses of Latin America helped buffer to some degree the various economies of the individual nations from the Great Depression and fuel their own efforts to build their economies with local industries.

The Rise of the Gold Standard

Silver served as the world's principal monetary metal until Great Britain, which dominated international finance through the nineteenth century, introduced the gold standard system in 1821. The Bank of England, a private bank, provided world leadership in maintaining the system. The pound sterling was the premier currency. A "bimetallic" world system based on both gold and silver existed for the next half century with some countries using silver, some gold, and others both metals as standards. In the 1870s most nations joined Britain on a strictly gold standard. The Far East remained on silver. During the peak era of the international gold standard of the 1870s until 1914 there was essentially one world money that directly translated into different national currencies.

The outbreak of World War I in 1914 led to many nations abandoning the gold standard, making the export of gold restricted. Gradually through the 1920s the gold standard had become reestablished. Nations were seeking a return to what they considered an economic golden age prior to World War I. The Great Depression again brought an abandonment of the gold standard. Since the gold standard internationally linked currencies, if an economic depression hit one country it directly affected another. This made it difficult for countries to protect their economies during economically unstable times. By 1937 no nation was on the gold standard.

U.S. Influence on the Global Economy

Through the nineteenth century international economic policies were generally based on the gold standard under Britain's leadership. The economic drain of World War I, however, left Britain and other European nations greatly weakened. The United States became the world's top economic power and they did not actually enter World War I until near the end of the war in 1917. Rather the U.S. role in the war was primarily in financing European war efforts against Germany. By war's end the European nations owed the United States $12 billion.

War debts owed the United States by Britain, France, and other European nations greatly influenced international economics through the 1920s. Congress remained adamant that the allies pay the debts despite persistent requests by the various countries to renegotiate. Great Britain had a 62-year payment schedule at three percent interest amounting to $300 million a year. Debt payments became a key part of the U.S. annual budget.

World Economic Growth

The debt payments posed a major burden on European nations as they struggled toward economic recovery from the war. Britain, having dropped the gold standard at the outbreak of World War I, returned to the standard in 1925, which led directly to monetary problems. Britain set the value of its currency at the same rate compared to the weight of gold as it was prior to World War I. This rate proved too high as they began immediately spending more on imports than it was making on its exports. Money was flowing out of the country and a business recession set in leading to increased unemployment. Declining employment led to labor strikes. Coal miners were locked out for seven months and a national general strike hit the nation for nine days. The war debts could not be met in full leading to tensions with the United States.

As the 1920s progressed Europe began achieving economic growth although much less than the United States. Industrial production still lagged but agricultural production significantly increased. Income in Britain, France, and even Germany was on the rise. By the late 1920s economic production had returned to levels enjoyed prior to World War I. Debt repayment schedules were being met and European currencies seemed to be stabilizing bringing a new optimism in foreign relations

Meanwhile, the United States was, by the late 1920s, the world's largest producer, investor, and lender. The United States accounted for 46 percent of the world's industrial output even though it only had three percent of the world's population. Surplus U.S. money flowed to Europe as the United States invested heavily abroad. As a result European nations were highly reliant on a continuing supply of U.S. money. With the U.S. stock market crash in October 1929 U.S. investment in Europe dwindled, souring European optimism.

German War Penalties

Germany suffered greatly from its role in World War I (1914–1918). Almost 1.8 million German soldiers died from battles and disease comprising 2.6 percent of the population. Approximately 763,000 civilians died of starvation and disease including 150,000 who died from flu alone. Industrial production fell 62 percent and agricultural output fell over 55 percent. With the agreement ending the war, the Treaty of Versailles, Germany lost almost 15 percent of its land including the economically valuable Rhineland region. A new government, the Weimar Republic, was established to govern Germany and replace the previous rule under Emperor Wilhelm II.

Unemployment in Select European Nations, 1900-1940
by percent of workforce population

In April 1921 the Allied Reparations Committee set Germany's war reparations (financial penalties) bill at 132 billion gold marks ($33 billion). It was to be paid in two billion gold marks a year. The new German government and its citizens were greatly angered by this stiff economic penalty. Deeply in debt, Germany became highly dependent on U.S. investments and short-term loans for incoming cash.

When a period of rapid inflation struck Germany in 1923 economic problems mounted. As a result Germany announced it would cease reparation payments. In reaction France and Belgium seized the Ruhr industrial region of Germany as compensation for lack of payments. Angered, German workers went on strike and the German government printed large amounts of paper money. The German currency essentially became worthless and the national economy sank even lower. A committee of financial experts, headed by American Charles G. Dawes, worked out a plan. The resulting solution was a moratorium (temporary halt) in payments, return of Ruhr to German control, an open door to U.S. loans, and a new schedule of reparation payments extending over 59 years. Different countries had different attitudes toward German reparation payments. Britain wanted to drop them altogether but could not afford to unless the United States would drop the war debt payments owed to the United States. Overall Germany was enraged by international treatment toward them. These events increased their nationalistic feelings leading to the rise of the National Socialist party and its leader, Adolf Hitler.


International Perspectives

The U.S. international monetary and political policies through the 1920s and 1930s disappointed many Europeans. During the 1920s the United States maintained a strong policy of political isolationism. This outlook meant the U.S. government was far more focused on domestic issues and unwilling to participate in international cooperation. The door was still open for American private businesses to invest capital in foreign countries, especially Germany. Requests by other nations for greater political cooperation in solving world problems were consistently turned down. For example the U.S. Congress voted to not join the newly formed League of Nations in 1920. When the Great Depression arrived, the United States added economic isolationism to political isolationism. The new world economic leader, the United States, seemed not ready to assume an active leadership role. Its citizens wanted to turn more inward and avoid commitments to international developments.

Collapse of the 1933 World Economic Conference led to distrust and suspicion between European nations and the United States. Taking the United States off the gold standard just before the conference further decreased economic hope in Europe. Roosevelt had begun to demonstrate that his focus would be on domestic economic reform to the exclusion of cooperation with Europe. On top of the conference failure, the Johnson Act of 1934, labeling Britain and France as defaulters on their war debt, payments marked a low point in international relations. A more hostile environment was created. European nations, viewing President Roosevelt with some disdain, characterized him as a politician who spoke in grand terms but provided little actual world leadership. Not until much later would improved economic cooperation gain momentum—in the late 1930s.

The lack of international cooperation opened the door to radical nationalism in several countries. Germans believed the World Economic Conference collapse affirmed their course toward withdrawing from international monetary systems. Japan was encouraged to further their military expansionism in Asia. Russia was further resolved to continue their anti-capitalist economic course of communism aimed at dismantling the capitalist economy and industrializing the nation.


World War II

The economic difficulties brought by the Great Depression substantially disrupted international diplomatic relations. The shaken economies of European nations opened the door to German National Socialism, Italian Fascism, and Japanese Imperialism as well as social unrest in other countries. Many believe the devastating effect of the Great Depression on Germany was the key factor breaking up the short-lived German Weimar Republic and bringing Hitler and the Nazis to power. The most destructive war in world history began with the German invasion of Poland in 1939. From 50 to 64 million people were killed including almost 20 million Europeans. Six million died in German extermination camps while sixty million were driven from their homes, including 27 million ousted from their countries. Europe's infrastructure was devastated. Thousands of roads, railways, buildings, bridges, and harbors were destroyed or heavily damaged. No longer was war fought solely at a nation's boundaries. War and its destruction spread throughout the entire nation. The 30-year sequence of war-depression-war had plummeted Europe from world prominence to devastation and disarray. The United States and USSR emerged as the world's two super-powers and Europe became the central stage for Cold War confrontation. European nations were passed economically by the United States and Japan.

Following World War II much closer economic relations between the United States and Western Europe developed and isolationism was no longer a U.S. policy. Some 40,000 American businessmen employed by 3,000 U.S. companies settled in Western Europe. In reaction to the growing American influence, some Europeans decried the Americanization of the region. Nonetheless as a result of economic recovery programs largely funded by the United States, Europe was saved from economic ruin. A foundation for economic growth was created and recovery was well underway by 1950.

Seeking European Unity

Not wanting to repeat past mistakes, eagerness grew around the world for economic and political stability rather than returning to earlier pre-war conditions. New global institutions were created within five years of the end of World War II. These included the United Nations (UN) and the International Monetary Fund (IMF). The UN is an international organization with headquarters in New York City that works for world peace and improvement of living conditions around the world. By the early 1990s 159 nations were members. Representatives of each nation attend meetings at the UN to discuss and solve world problems. The IMF, a specialized agency of the UN, focuses on international trade and economics. Composed of 145 nations by 1990 the organization helps its members achieve economic growth, high employment levels, and high standards of living. A key function of the IMF is to oversee a system of international payments to assist in promoting trade between countries.

Nations also looked for internal change. The British Labor Party defeated Winston Churchill's Conservative party in the late 1940s by promoting national economic planning and an expanded social security system. Such desires were shared elsewhere in Western Europe with an emphasis on central control of the economy. Italy created the Institute of Industrial Reconstruction and France proposed a sweeping system of national planning.

The economic hardships of the Great Depression, compounded by the devastation of World War II, led to a renewed search for European unity in the late twentieth century. This time there was full realization that Europe no longer dominated world trade and politics. The new goals were not only to prevent further war but to avoid economic errors made in the 1930s when the European nations acted independently, looking out only for their own self-interests. Such a fragmented response to a worldwide economic crisis only worsened the economic situation and created an environment for dictatorships. Having been economically weakened by 30 years of war and depression, Europe desired to become more economically competitive with the world's new superpowers that emerged after World War II, the United States and USSR. Promotion of shared interests became the focus.

A conference of European nations met in The Hague, Netherlands, in 1948. The 750 attending statesmen from Western Europe called for an economic and political union of European nations. Such a union among the nations would prove a very difficult challenge.

In 1952 a plan was adopted to coordinate coal and steel production in Western Europe. Within a few years this effort more broadly expanded into the European Economic Community (EEC) and in 1958 composed of six nations. The EEC became the European Communities (EC) in 1967 and finally the Economic Community in the 1980s. The EC included a Council of Ministers, a European Parliament, and a European Court of Justice. The EC's authority was limited to economic and social issues with the primary aim to promote European economic unity. More nations joined through the years with the fifteenth member joining in 1995. More possible additions were possible in the future as European politics continued to change in the early twenty-first century.

More About… European Union

One of the more important legacies of the Great Depression in Europe at the beginning of the twenty-first century is the European Union (EU). The EU is the only international organization of its kind in which member nations give up some of their political and economic independence to an institution.

The Maastricht Treaty, an international agreement created in 1991 among the 12 participating nations of the European Community (EC) organization, created the EU. The agreement became official in late 1993 and the EU became a reality. The original 12 nations were Great Britain, France, Germany, Italy, Ireland, Belgium, Denmark, The Netherlands, Spain, Portugal, Greece, and Luxembourg. By 1998 the number of members grew to 15 and 12 other nations had applied for membership.

The purpose of the EU is to coordinate the member nations' economies and represent those nations with non-member countries in forging trade relations. The EU has power to pass and enforce laws that are binding on member nations. Various governmental institutions compose the EU. The European Parliament is composed of members elected democratically every five years to represent the 374 million citizens of the participating nations. Parliament has power to pass legislation and has budgetary responsibilities. The EU Council is the main decision-making body. It also has legislative power and coordinates the economic policies and other major activities of the various member nations. The European Commission is the EU's executive body, responsible for implementing EU's laws. Importantly, the Commission represents the EU in international relations with non-member countries, particularly in economic trade matters. The EU also has a Court of Justice that resolves disputes involving the member nations, other EU institutions, businesses, or individuals. The European Central Bank guides EU's monetary policies and the European Investment Bank (EIB) finances investment projects among the member nations.

The EC combined economic resources of Europe into a common market and guarded against the prospects of any economic protectionist measures gaining support as they had in the 1930s. A common agricultural policy was adopted in 1962. Then in 1987 EC members passed the Single European Act, which laid the groundwork for creating a unified, free trademarket in Western Europe. The act eliminated barriers to Europe-wide banking, stock market investments, and other financial matters.

These successes in improving trade by the EC led to greater integration. The EC became the principal organization within the newly formed European Union (EU) in 1993. The EU established a common banking system and currency, the euro through the economic and monetary union (EMU). The long difficult road to European economic unity is still being traveled into the twenty-first century.

Notable People

Adolf Hitler (1889–1945). Born in Austria, Hitler began his rise to political power in Germany following World War I. With Germany in economic ruin following its defeat, Hitler vowed to rebuild Germany to its past glory. He gained political control of Germany in 1933 as America's New Deal economic programs were just beginning. Through the 1920s he led development of the National Socialist party that gradually gained political strength. The economic hardships brought by the Great Depression and lack of international cooperation gave Hitler the opportunity to chart a bold economic and political course for Germany. Hitler introduced the New Order representing a reordering of German society. The New Order included tight control of all aspects of the national economy including wage and price controls.

More About… The Euro

A major problem in Europe during the Depression was the fragmented economic situation among nations. Various barriers to trade had been created through various taxes on imports by the different nations. No longer on a common monetary standard, such as the gold standard, exchange rates between nations were unpredictable and unstable. The twenty-first century answer to this dilemma is creation of the euro monetary unit. The same international agreement among European nations that created the European Union (EU), the Maastricht Treaty, also called for establishment of an economic and monetary union (EMU) through a common unit of monetary exchange, the euro.

Strict standards were established for individual nations to be able to participate in the EMU and use the euro. The nations must have low annual budget deficits, government debt below a certain level, stability of the present currency, and relatively low inflation rates compared to other nations. Significant benefits are offered by having a common currency within the relatively small continent of Europe. any nations, however, expressed reluctance about losing their individual currencies viewed proudly as a source of identity as well as losing some degree of economic independence. Nevertheless, 11 nations chose to join the EMU in 1998—Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal, and Spain. Greece joined in January 2001. Britain, Denmark, and Sweden remained outside the union. Also in 1998 the European Central Bank (ECB), based in Frankfurt, Germany, was created to manage the new currency.

The euro was officially launched on January 1, 1999. Euro paper bills and coins were not to be issued until January 1, 2002, but financial markets and certain businesses were making non-cash transactions in euros from 1999 through 2001. Though its value started strong, its value fell by more than 25 percent through 1999 and 2000. Plans remained for all member nations to withdraw their individual currencies from further use by February 28, 2002.

Hitler also sought to unite all European territories where German language was spoken. First he regained control of the Rhineland Valley of Western Germany in 1936, a key region lost to France following World War I. The German troops met no resistance from France or any other country. Given the lack of resistance Hitler launched a series of other expansion moves through the next two years that triggered World War II. Until the Allied Forces of the United States, Britain, and others could turn the tide of war, Germany had conquered much of Europe and pushed into Russia. At great expense in life and resources to all nations involved, Germany suffered yet another major military defeat in the twentieth century, leaving its economy once more in shambles. With enemy forces quickly closing in, Hitler committed suicide in 1945.

Cordell Hull (1871–1955). Earning a law degree from Cumberland University Law School, Hull served as a Tennessee state legislator in the 1890s. He was elected to the U.S. House of Representatives in 1907 where he served until 1931 except for two years in the early 1920s. While in Congress, Hull was active in sponsoring domestic monetary legislation. In 1933 President Roosevelt appointed him secretary of state. Hull was a strong advocate of international trade. He drew up the Reciprocal Trade Agreements Act, which was central to New Deal economic foreign policy. Congress passed the act in 1934 Hull pursued agreements with Great Britain and France in 1934 and 1935 to reduce tariffs. Hull also negotiated trade agreements with Latin American countries leading to less friction in the region. Hull became one of the most popular Democrats in America during the 1930s. During World War II Hull was a leading proponent of the formation of the United Nations (UN) for which he received the Nobel Peace Prize in 1945. Hull retired from the state department in 1944.

Benito Mussolini (1883–1945). Mussolini founded fascism and ruled Italy for almost 21 years beginning in 1922. A fascist government is a strong, centralized nationalistic government led by a powerful dictator. Previously a socialist newspaper editor, after serving in World War I he founded the Fascist Party. Promoting a strong nationalistic philosophy the party gained power when Mussolini was named head of government in 1922. He created a dictatorship and seized control of the nation's industries. In 1935 Mussolini led an invasion of Ethiopia in Northern Africa and next invaded France in 1940 following Hitler's successes at expansion of German control in Europe. The Italian army had little success during the early years of World War II in its continued efforts for expansion. Mussolini finally lost favor of Italy's other leaders and was overthrown and imprisoned in 1943.

Joseph Stalin (1879–1953). Stalin was dictator of the Union of Soviet Socialist Republics (USSR) from 1929 to 1953. He ruled through a reign of terror, even executing his own supporters for fear they might challenge him in the future. Promoting a radical economic policy of communism, Stalin placed an emphasis on heavy industry, communications, and transportation. He was responsible also for the deaths of millions of Soviet peasants who opposed his economic measures of government-controlled farms. Though hated and feared by those inside Russia as well as elsewhere, he transformed the USSR from an undeveloped agricultural society to a world leading industrial and military power.

Primary Sources

The Depression Grows Worldwide

Noted British economist John Maynard Keynes spoke the following words in a 1931 lecture in the United States. These comments came during the bleakest of economic times between 1930 and 1933 (from Golby, et al. Between Two Wars, pp. 50–51).

We are today in the middle of the greatest economic catastrophe—the greatest catastrophe due almost entirely to economic causes—of the modern world … the view is held in Moscow that this is the last, the culminating crisis of capitalism and that our existing order of society will not survive it.

Anticipation of the 1933 World Economic Conference

An insightful editorial, "Yea or Nay?," appeared in The Economist (vol. CXVI, June 10, 1933, p. 1229) on the eve of the World Economic Conference. Hopeful anticipation preceded the conference as the impact of the Great Depression had spread throughout the world. Many saw the conference as perhaps the last opportunity for nations to develop international solutions to what had become a worldwide problem. The article proved prophetic as New Deal-era nationalism increased when the conference failed to achieve its primary goals.

There is one broad question that will underlie every argument put forward, every decision taken by the great Conference of the Nations which will open its session in London on Monday next. It sounds extremely simple and can be shortly put; but its implications are very far-reaching for the future life of nations. It is this. Will the Conference have the necessary courage and imagination to direct the economic life of the world towards revived prosperity by way of co-operation, or will the nations continue to drift towards economic isolation?

France is sceptical; the American delegation, perplexed by an extremely complex situation at home, is new to the international game; while Germany is deeply absorbed in her ideas of national survival at home. England, in her turn, shows signs of a dangerous complacency due perhaps to the happy chance that she has escaped the worst crises of the past year.

But the central issue is not merely a matter of coordinating action. The acid test of next week's meeting is whether the policy adopted is a genuine reversal of recent tendencies and the beginning of a process of reconstructing a world economy. To take one outstanding example: the Peace Treaties split Europe into economic fragments and gave the impulses of nationalism full play. This has proved a profound economic blunder. For years statesmen have talked of rebuilding a sounder and more tolerable economic life in Europe. But almost nothing has been done. Are they now prepared actually to start the process? A similar question faces every one of the delegations that are assembling here as this issue of the Economist goes to press.

Suggested Research Topics

  • Which European countries were most and least affected by the Great Depression and why?
  • How could the United States have been more helpful on an international basis to help the global economy?
  • Why did the breakdown in democratic processes occur in Germany but not in neighboring European countries? If the United States and other European nations had been more helpful in economically aiding Germany, would Hitler have had a more difficult challenge gathering public support for his initiatives? Explain.
  • What key issues are affecting the progress of the European Union? What are the barriers to a unified Europe? What are the latest initiatives to breakdown the barriers?



Clavin, Patricia. The Failure of Economic Diplomacy: Britain, Germany, France and the United States, 1931–1936. New York: St. Martin's Press, Inc., 1996.

Golby, John, Bernard Waites, Geoffrey Warner, Tony Applegate, and Antony Lentin. Between Two Wars. Bristol, PA: Open University Press, 1990.

Gregory, R.G., and N.G. Butlin, eds. Recovery From the Depression: Australia and the World Economy in the 1930s. New York: Cambridge University Press, 1988.

Hall, Thomas E., and J. David Ferguson. The Great Depression: An International Disaster of Perverse Economic Policies. Ann Arbor: The University of Michigan Press, 1998.

Keylor, William R. The Twentieth-Century World: An International History. 3rd ed. New York: Oxford University Press, 1996.

Kindleberger, Charles P. The World in Depression, 1929–1939. Berkeley: University of California Press, 1986.

"Yea or Nay?" The Economist, June 10, 1933.

Further Reading

"Europa—The European Union On-Line," [cited October 31, 2001] available from the World Wide Web at

Hobsbawm, Eric. The Age of Extremes: A History of the World, 1914–1991. New York: Pantheon Books, 1994.

Johnson, Paul. Modern Times: A History of the World from the 1920s to the Year 2000. London: Orion Books, Ltd., 1999.

Overy, R. J. The Inter-War Crisis, 1919–1939. New York: Longman, 1994.

Rothrmund, Dietmar. The Global Impact of the Great Depression, 1929–1939. New York: Routledge, 1996.

See Also

New Deal (First, and Its Critics) ; World War II Mobilization

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Global Impact 1929-1939