The Great Depression and Its Causes
Concept Map
The Great Depression was a global economic crisis triggered by the 1929 stock market crash. It led to a banking crisis, international trade collapse due to the Smoot-Hawley Tariff, and the gold standard's role in worsening the situation. Recovery efforts varied, with the New Deal in the U.S. and the abandonment of the gold standard in some countries playing key roles.
Summary
Outline
The Onset of the Great Depression and the 1929 Stock Market Crash
The Great Depression, a severe worldwide economic crisis, began in the United States after a decade of prosperity known as the Roaring Twenties. In 1929, the stock market, which had reached unprecedented heights, began to show signs of instability. The situation deteriorated rapidly in October, leading to a catastrophic sell-off. On Black Thursday, October 24, the market fell dramatically, and despite efforts to stabilize it, the decline continued with significant losses on Black Monday and Black Tuesday. The stock market eventually bottomed out in July 1932, having lost 89% of its peak value, devastating the fortunes of many investors and shaking public confidence in the economy.The Banking Crisis and International Economic Collapse
The stock market crash precipitated a banking crisis in the United States, which had a ripple effect on the global economy. The collapse of the Bank of United States in December 1930, a large New York bank, was a pivotal moment in this crisis. It led to a loss of confidence in the banking system, resulting in widespread bank runs and failures. As banks closed, the supply of credit dried up, leading to a contraction in spending and investment. This banking crisis contributed to a sharp decline in economic activity both in the United States and abroad, as international trade and investment flows were disrupted.The Smoot-Hawley Tariff Act and Its Impact on Global Trade
In an attempt to protect domestic industries during the economic downturn, the United States Congress passed the Smoot-Hawley Tariff Act on June 17, 1930. This legislation significantly increased tariffs on a wide range of imported goods. The act had the unintended consequence of reducing international trade as other nations retaliated with tariffs of their own. The resulting trade war exacerbated the global economic downturn. U.S. exports and imports both fell dramatically, which had a particularly adverse effect on industries that were dependent on international markets, such as agriculture and manufacturing.The Role of the Gold Standard in Exacerbating the Depression
The gold standard, which pegged currencies to fixed quantities of gold, played a significant role in the spread and severity of the Great Depression. Countries on the gold standard were compelled to maintain high interest rates to protect their gold reserves, leading to deflationary pressures. Those that abandoned the gold standard, such as the United Kingdom and the Scandinavian countries, were able to devalue their currencies, which helped them to recover more quickly. In contrast, countries that clung to the gold standard, like France and Belgium, experienced deeper and more prolonged economic downturns.International Responses to the Economic Crisis
In response to the economic crisis, many countries adopted protectionist measures such as tariffs, import quotas, and exchange controls. These policies were aimed at preserving gold reserves and protecting domestic industries but often led to a reduction in international trade and worsened the global depression. The countries that abandoned the gold standard earlier were able to implement more expansionary monetary policies, which facilitated their economic recovery. The duration and severity of the depression in each country were closely linked to its monetary and trade policies during this period.Recovery from the Great Depression
The path to recovery from the Great Depression varied across countries and began in earnest in 1933. In the United States, the New Deal policies of President Franklin D. Roosevelt aimed to reform the financial system, provide relief to the unemployed, and stimulate economic recovery. However, it was not until the mobilization for World War II that the U.S. economy fully recovered, with unemployment rates dropping significantly as the demand for war-related production soared. Other countries' recoveries were influenced by a combination of factors, including their monetary policies, the timing of their departure from the gold standard, and their level of industrialization.
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The Onset of the Great Depression and the 1929 Stock Market Crash
The Roaring Twenties
The decade of prosperity before the Great Depression, characterized by economic growth and cultural changes
Stock Market Instability
Black Thursday, Black Monday, and Black Tuesday
The catastrophic sell-off in the stock market in October 1929, leading to significant losses and a decline in public confidence
Devastating Effects on Investors and the Economy
The stock market crash resulted in a banking crisis, loss of confidence in the economy, and a sharp decline in economic activity
The Banking Crisis and International Economic Collapse
Ripple Effect of the Stock Market Crash
The collapse of the stock market led to a banking crisis, causing widespread bank runs and failures, and a contraction in spending and investment
Disruption of International Trade and Investment
The banking crisis had a global impact, disrupting international trade and investment flows and contributing to a decline in economic activity
The Smoot-Hawley Tariff Act and Its Impact on Global Trade
Protectionist Measures During the Great Depression
In an attempt to protect domestic industries, the United States passed the Smoot-Hawley Tariff Act, which increased tariffs and led to a reduction in international trade
Unintended Consequences of the Tariff Act
The act resulted in a trade war and exacerbated the global economic downturn, particularly affecting industries dependent on international markets
The Role of the Gold Standard in Exacerbating the Depression
Deflationary Pressures and Economic Downturn
Countries on the gold standard were forced to maintain high interest rates, leading to deflation and contributing to the severity of the Great Depression
Recovery for Countries That Abandoned the Gold Standard
Countries that left the gold standard were able to devalue their currencies and implement expansionary monetary policies, aiding in their economic recovery
The Great Depression and Its Causes
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Roaring Twenties economic condition
Decade of prosperity and economic growth in the US before the Great Depression.
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Black Thursday significance
Start of stock market crash in 1929, leading to the Great Depression.
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Impact of stock market crash on investors
Many investors lost fortunes, public confidence in the economy was shaken.
