CHAPTER 28

Section 1: The Postwar Era

Section 2: Postwar Prosperity Crumbles

Section 3: Political Tensions After World War I

Section 4: Fascist Dictatorships in Italy and Germany

Section 5: Dictatorship in the Soviet Union

The Great Depression and the Rise of Totalitarianism

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Bell Ringer 19.2:What economic weaknesses led to the Great Depression?

Postwar Prosperity Crumbles

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Postwar Prosperity Crumbles

Economic Troubles

• Many nations never recovered from the economic effects of WWI.

• As the Roaring Twenties continued, the global economy became increasingly vulnerable.

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Postwar Prosperity CrumblesFarmers

• In 1920, there were only 225 tractors in all of the U.S.

• European farmland had been destroyed in the War.• The use of machinery increased productivity, while

decreasing the demand for manual laborers. • While productivity increased, the nation's demand

for food remained relatively steady. As a result, food prices — and profits — dropped.

• Machinery was costly. The small farmer was no longer able to cope because he lacked the capital to buy the equipment. At the same time, the decade's industrial boom lured numerous workers off the farm to the cities.

• Small farms lost their viability, and many farmers were compelled to merge in order to compete. The lasting effect would be larger, but fewer farms.

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Postwar Prosperity Crumbles

Protectionism• Beginnings of a global economy• Economic nationalism (protectionism)

– Protect your own country’s industries by limiting trade with others– Tariffs on imported goods so consumers would buy domestic

(American)

• But if Europeans couldn’t sell goods in the U.S. then they couldn’t pay off their debts . . .

• American bankers and businesses loaned money to Europeans to buy goods.

• This just put the Europeans FURTHER into debt.

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Postwar Prosperity CrumblesSpeculation and Panic

• Market speculations (risky investments)• Stock prices soar . . . Investors believed

stock prices would continue to rise.• Many bought stocks on margin –

borrowing the money to buy stocks.• If prices went up … great. But if prices

went down? Or the broker called in your margin? And you didn’t have the money?

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Postwar Prosperity Crumbles

Black Tuesday• 29 October 1929• Investors panicked –

fearing a drop in artificially high prices, investors rushed to sell their stocks.

• Sudden sell-off drove prices tumbling down.

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Postwar Prosperity Crumbles

Black Tuesday• Investor confidence fell …

people rushed to banks demanding their money … banks demanded borrowers repay their loans …

• MAJOR FINANCIAL CRUNCH

• How is this similar to what happened in 2009?

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Postwar Prosperity Crumbles* Broader speculative bubbles. In the years prior to the Crash of 1929, the bubbles were limited primarily to stock speculation and restricted to a minority of the population. This time, the speculation has engulfed not only stocks but also millions of homes, commercial properties, local governments, corporations, and entire nations. * More household debt. U.S. households are in far greater debt today with much less savings. In the 1930s, mortgages were rarer and less onerous. For all practical purposes, second mortgages, home equity loans, creative financing, and credit cards didn't even exist. Today, they are everywhere in our society. * U.S. is now a debtor nation. In the 1930s, the U.S. had large surpluses of foreign reserves and was a creditor to the rest of the world. Now, it has minimal reserves and huge foreign debts.

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Postwar Prosperity CrumblesHow did the Great Depression affect Europe?

• GB tried to create jobs by granting low-interest loans to its industries; raised tariffs against foreign goods; formed a system of economic cooperation within its empire– By the end of 1930 unemployment had more than doubled from 1 million to

2.5 million (20% of the insured workforce), and exports had fallen in value by 50%.

• France was less industrialized – eventually its trade would decline; unemployment rose – industry production drops sharply; caused political instability (three changes in gov’t in 1933!)

• In Germany, it will help destroy the Weimar Republic government …

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Postwar Prosperity Crumbles

Asia suffered from the Depression as well, especially the Japanese. In Japan, 1931, the crops failed and people starved to death. Families had to eat bark and roots from trees to survive. Exports fell by 50% due to high tariffs. City workers suffered and had no choice but to return to the rural areas.

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Postwar Prosperity Crumbles

American Response• Americans did not have

the social programs that Europeans had to fall back on.

• Franklin D. Roosevelt created a program of relief and reform called the New Deal.– Granted money to each

state for clothing, food & shelter

– To created jobs, gov’t began a program of public works

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Postwar Prosperity Crumbles

American Response (cont.)• Reformed the economic system – placed

banks and stock exchanges under stricter regulations.

• Social Security Act of 1935 – provided unemployment and old-age benefits

• Established a 40-hour work week and minimum wages

• Guaranteed workers the right to form unions

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Postwar Prosperity Crumbles

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Postwar Prosperity Crumbles

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Postwar Prosperity Crumbles

panic selling of stocks

high stock pricesbuying stocks

run on the banks

stock market crash

bank closures

financial ruin for many

worldwide bank failures

defensive international trading practices

global depression

easy credit