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Part 1: Global Depression Part 2: Debate: How should we handle poverty? Theme: The relationship between the economy and society. Lesson 7. Part 1: Global Depression. Lesson 7. World Economy in the 1920s. Beginning to return to normal after World War I

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Part 1: Global DepressionPart 2: Debate: How should we handle poverty?Theme: The relationship between the economy and society

Lesson 7

world economy in the 1920s
World Economy in the 1920s
  • Beginning to return to normal after World War I
  • Beneath the surface however there were some serious flaws
    • Tangled financial system
    • Second order effects of technological advances
    • Weakened agricultural base
tangled financial system

Britain and France

Repayment of war loans

Reparations required by Versailles

US

Germany

Austria

Loans

Tangled Financial System
  • The Treaty of Versailles imposed heavy reparation payments on Germany and Austria to France and Britain
  • Germany and Austria relied on US loans and investment capital to finance these reparations
  • The French and British, in turn, relied on these reparations to repay loans to the US taken out during World War I
  • By the summer of 1928, US lenders and investors started to withdraw capital from Europe which placed an intolerable strain on the system
second order effects of technological advances
Second Order Effects of Technological Advances
  • Improvements in industrial processes reduced demand for some raw resources, causing an increase in supplies and a drop in demand
    • Tires could now be made with reclaimed rubber which crippled the economies of the Dutch East Indies, Ceylon, and Malaysia which relied on exports of rubber
    • Increased use of oil reduced demand for coal
    • Synthetics reduced demand for cotton
    • Artificial nitrogen reduced demand for nitrates from Chile
weakened agricultural base
Weakened Agricultural Base
  • Agricultural production in Europe declined significantly during World War I, so farmers in the US, Canada, Argentina, and Australia increased their production
  • After World War I, European farmers restored their production which created worldwide surpluses
  • The situation was exacerbated by above average global harvests between 1925 and 1929
  • By 1929 the price of a bushel of wheat was its lowest in 400 years
crash of 1929
Crash of 1929
  • The US had enjoyed an economic boom after World War I
  • Many people began buying stock on margin (paying as little as 3% of the stock’s price in cash and borrowing the remainder)
  • By October 1929, indications of a worldwide economic slowdown and overvalued stock prices prompted investors to pull out of the market
black thursday october 24
Black Thursday (October 24)
  • Panic selling on the New York Stock Exchange caused stock prices to plummet
  • Thousands lost their lifesavings
  • By the end of the day, eleven financiers had committed suicide
  • When lenders called in their loans, investors were forced to sell their securities at any price
economic contraction spreads
Economic Contraction Spreads
  • There was no longer consumer demand for all the goods businesses produced
  • Businesses cut back on production and laid off workers
  • A vicious downward spiral of business failures and unemployment followed
  • By 1932, industrial production was half of its 1929 level
    • National income was down approximately 50%
    • 44% of US banks had closed
global effects
Global Effects
  • Much of the world depended on the export of US capital and the strength of US imports, so the US economic contraction had worldwide impact
    • Germany and Japan were especially hard hit

Toronto Stock Market after the day after the New York Stock Market crashes

economic nationalism
Economic Nationalism
  • The Great Depression destroyed international economic cooperation and governments began practicing economic nationalism
    • Trade barriers, import quotas, import prohibitions
    • US passed the Smoot-Hawley Tariff in 1930 raising duties on most manufactured products to prohibitive levels
    • Governments of other nations retaliated with their own tariffs on US products

Congressman Willis Hawley

economic nationalism13
Economic Nationalism
  • The world economy was too interdependent for protectionism to work
    • Between 1929 and 1932, world production went down 38% and trade dropped over 66%
    • By 1933, unemployment in industrialized nations was five times higher than in 1929

Unemployed men vying for jobs at the American Legion Employment Bureau in Los Angeles during the Great Depression.

great depression images
Great Depression Images
  • Dorothea Lange, Resettlement Administration photographer, in California.
great depression images15
Great Depression Images
  • Dorothea Lange’s famous photograph, "Migrant Mother" taken during the Great Depression, 1936
great depression images16
Great Depression Images
  • A shanty built of refuse near the Sunnyside slack pile, Herrin, Illinois. Many residences in southern Illinois coal towns were built with money borrowed from building and loan associations. During the depression building and loan associations almost all went into receivership. Their mortgages were sold for whatever they would bring, and the purchasers demolished houses by the hundreds in order to salvage the scrap lumber. The result is a serious overcrowding and high rents in all the coal towns. A number of people can find no houses to rent, and are living in tents and shanties on the fringes of the town.
great depression images17
Great Depression Images
  • Mississippi Delta plantation store
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Great Depression Images
  • Part of an impoverished family of nine on a New Mexico highway. Depression refugees from Iowa. Left Iowa in 1932 because of father's ill health. Father an auto mechanic laborer, painter by trade, tubercular. Family has been on relief in Arizona but refused entry on relief roles in Iowa to which state they wish to return. Nine children including a sick four-month-old baby. No money at all. About to sell their belongings and trailer for money to buy food. “We don't want to go where we’ll be a nuisance to anybody.”
great depression images19
Great Depression Images
  • Dwellers in Circleville’s “Hooverville,” central Ohio
great depression images20
Great Depression Images
  • Oklahoma “Dust Bowl” refugees arrive in California
great depression images21
Great Depression Images
  • Virtually abandoned town in Caddo, Oklahoma
great depression images22
Great Depression Images
  • Mexican woman and children looking over side of truck which is taking them to their homes in the Rio Grande Valley from Mississippi where they have been picking cotton. Filling station, Neches, Texas.
great depression images23
Great Depression Images
  • During the Great Depression, the destitute stood in breadlines like this one in San Francisco, set up by a wealthy woman known as the “White Angel.”
great depression images24
Great Depression Images
  • Cotton hoers are taken from the Delta cotton towns to the cotton fields. Most of them are displaced sharecroppers swept off the plantations by tractor farming, depression, crop reduction program, etc. Greenville, Mississippi.
impact on economic theory
Impact on Economic Theory
  • Classical economic thought held that capitalism was self-correcting and worked best when left to its own devices (Remember Lessons 4 and 6 and Adam Smith)
  • John Maynard Keynes argued in The General Theory of Employment, Interest, and Money (1936) that the fundamental cause of the Depression was not excessive supply but inadequate demand
john maynard keynes 1883 1946
John Maynard Keynes (1883-1946)
  • Urged governments to play an active role and stimulate the economy by increasing the money supply, thereby lowering interest rates and encouraging investments
  • Advised governments to undertake public works projects to provide jobs and redistribute incomes through tax policy even if that caused governments to run deficits and maintain unbalanced budgets
new deal
New Deal
  • Even before Keynes wrote his book, President Franklin Delano Roosevelt began following such an aggressive policy
  • The fundamental premise of Roosevelt’s New Deal was that the federal government was justified in intervening to protect the social and economic welfare of the people
    • Represented a major shift in US government policy and started a trend toward social reform legislation that continued long after the Depression
  • Eventually, increased military spending during World War II would be the most significant factor in ending the Depression
new deal initiatives
New Deal Initiatives
  • Works Progress Administration (WPA)
    • Coordinated all public works endeavors. Spent over $10.5 billion of Federal money and employed 3.8 million men from 1935 to 1941. Built 77,000 bridges, 24,000 miles of sewers, 664,000 miles of road, 285 airports, 122,000 public buildings and 11,000 schools.
  • Tennessee Valley Authority (TVA)
    • Designed to redevelop the Tennessee Valley which encompassed 7 states and 40,000 square miles.
  • Civilian Conservation Corps (CCC)
    • Employed jobless single men between the ages of 18 and 25. They worked for 6 months in mountains and forests where they were taught forestry, flood control and fire prevention. Nearly 3 million men took part from 1933 to 1941.
new deal in mississippi
New Deal in Mississippi
  • WPA mural in Ocean Springs, MS by Walter Inglis Anderson
new deal in mississippi30
New Deal in Mississippi
  • The CCC began digging the lake at Paul B. Johnson State Park (German POWs completed it)
new deal in mississippi31
New Deal in Mississippi
  • TVA provides power to the East Mississippi Electric Power Association and 27 other local utilities and electric power associations
    • Serves more than 305,000 homes and nearly 70,000 business and industrial customers in 36 counties in Mississippi.
  • About 10 % of TVA power sales are in Mississippi.
poverty
Poverty
  • “My major problem with the world is a problem of scarcity in the midst of plenty ... of people starving while there are unused resources ... people having skills which are not being used.”
    • Milton Friedman
poverty34
Poverty
  • “The United States is spending about $450 billion for the military to defend it against global threats but only about $13 billion to fight the underlying conditions of poverty, disease and despair that provide the breeding grounds for these threats.”
    • Jeffrey D. Sachs and Pedro A. Sanchez
poverty35
Poverty
  • “The United Nations Development Program estimates that the basic health and nutrition needs of the world's poorest people could be met for an additional $13 billion a year. Animal lovers in the United States and Europe spend more than that on pet food each year.”
    • Bread for the World Institute
poverty36
Poverty
  • “The end of poverty will require a global network of cooperation among people who have never met and who do not necessarily trust one another.”
    • Jeffrey Sachs
poverty37
Poverty
  • Sachs’ Nine Step Plan
    • Commit to the task
    • Adopt a plan of action
    • Raise the voice of the poor
    • Redeem the U.S. role in the world
    • Rescue the IMF and World Bank
    • Strengthen the U.N.
    • Harness global science
    • Promote sustainable development
    • Make a personal commitment
poverty38
Poverty
  • “Most of the poverty and misery in the world is due to bad government, lack of democracy, weak states, internal strife, and so on.”
    • George Soros
poverty39
Poverty
  • “For even when we were with you, we gave you this rule: ‘If a man will not work, he shall not eat.’"
    • Paul (2 Thessalonians 3:10)
poverty40
Poverty
  • “Truly, I say to you, as you did it to one of the least of these my brethren, you did it to me.”
    • Jesus (Matthew 25:45)
poverty41
Poverty
  • “Think globally, act locally.”
    • Anonymous
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