The Great Depression

IR 1205: History of IR since 1648

Md. Sohel Rana
Lecturer
Department of International Relations
Bangladesh University of Professionals
 Lesson Objective

“To understand the then global

political context influenced by the
economic crisis of one country”
 Lecture Outline
 What is Great Depression?
 What Caused the Great Depression?

 What Ended the Great

Depression?
 What was the impact of the Great
Depression?
 What is Great Depression?
 Definition: A worldwide economic crisis
and low business activity that started with
the US Stock Market crash in October, 1929.

 Origin: United States of America.

 Timeline: 1929 - 1933.
 Victims: USA, Europe, Japan, Latin
America and others.
 What is Great Depression?
 Cyclical Automobile sales
declined
Effect:

Caused further Less demand for

decline in textile, oil, steel,
automobile sates rubber etc.

Industry
Low wage and slowed
unemployment down
What Caused the Great
Depression?
 What Caused the Great
Depression?
 US Stock Market Crash:
 The wholesale goods prices remained nearly constant
in 1920s.
 One obvious area of access was stock market where
stock prices moved up due to huge demand.
 Seeing an unreasonable rise in stock prices, investors
lost confidence, bubble burst and stock prices
declined.
 Panic selling began on ‘Black Thursday’ on October
24, 1929.
 On October 29, 1929, known as ‘Black Tuesday’, the
NYSE lost all gains of the entire year.
 What Caused the Great
Depression?
 US Stock Market Crash:
 What Caused the Great
Depression?
 Banks Failure and Monetary Contraction:
 Depositors lost confidence in banks’ solvency and
demanded to be paid them in cash.
 Banks needed to liquidate loans in order to raise the
required cash which (hasty liquidation) caused even many
solvent banks to fail.
 The Fed raised interest rates and deliberately contracted
money supply to avoid inflation.
 March 6, 1933 declared ‘Bank Holiday’, meant to close all
banks and permit them to reopen only after being solvent.
 This panic caused 9000 banks to fail throughout the 1930s.
 What Caused the Great
Depression?
 Banks Failure and Monetary Contraction:
 What Caused the Great
Depression?
 The Gold Standard:
 Under gold standard, each country set a value of its
currency in terms of gold.
 In the mid-1920s, intense international demand for
American assets brought large inflows of gold to
the United States.
 The US monetary contraction intensified the
tendency for gold to flow out of other countries and
towards USA.
 To counteract this tendency, central banks
throughout the world raised interest rates
massively, resulted in decline in output and prices.
 What Caused the Great
Depression?
 The Tariff Act of 1930:
Known as ‘Smoot-Hawley Tariff’, raised US
tariffs on over 20,000 imported goods to
protect US farmers against imported goods.
Other sectors caught the wind of these
changes and followed the outcry to increase
tariffs.
Other countries followed the suit to correct
trade imbalances which resulted in extreme
decline in world price of raw materials
causing severe balance of payment problems.
 What Ended the Great
Depression
 New Deal, 1933-1939:
Emergency Bank Act – reopened 5,000 banks
in next three days.
Government Economy Act – saved $1 billion
to finance the New Deal programs and raise
federal revenue.
Abandonment of Gold Standard – increased
price of gold and ordered to exchange gold
for dollars by prohibiting private gold
ownership.
 What Ended the Great
Depression
 New Deal, 1933-1939:
Securities Exchange Act – created ‘Securities
and Exchange Commission’ to regulate
stocks and stock market.
Agricultural Adjustment Act – paid farmers
to limit crops, doubled crop prices in 1937
and remedied in 1938.
National Industrial Recovery Act – set up
‘Public Works Administration’ to create jobs.
 Impact of the Great
Depression
 Economic Impact:
International trade fell 30% as nations tried
to protect their industries by increasing
tariffs on imported goods.
An estimated 30 million people were
unemployed around the world [USA 13m,
Germany 6m and Britain 3m].
The price of coffee, cotton, rubber, tin and
other commodities dropped 40% led to the
decline of crops market in Africa, Asia and
Latin America.
Impact of the Great
Depression
 Impact of the Great
Depression
 Economic Impact:
The Federal presence in American life
strengthened and became ultimate protector.
Colonial governments tried to adjust
Europe’s loss from Africa, caused cuts to
wages, benefits, education, health etc.
French and British colonies pushed to
purchase only from mother country.
 Impact of the Great
Depression
 Political Impact:
Military dictatorship came to place in
Argentina, Brazil and many countries in
Central America.
Fascism did rise in Italy, Germany and Japan
which led to the road of WWII.
Totalitarian communism did rise in Soviet
Union caused the death of 20 million Soviets
(known as The Great Purge).
Impact of the Great
Depression
 Impact of the Great
Depression
 Political Impact:
Sudden removal of Gold Standard led to the
fall of the value of many currencies.
Latin American countries failed to pay on
debt payments to USA.
Welfare capitalism came to exist in Canada,
Britain and France to provide workers with
social security.
‘Conclusion’